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<SEC-DOCUMENT>0000950124-05-001425.txt : 20050310
<SEC-HEADER>0000950124-05-001425.hdr.sgml : 20050310
<ACCEPTANCE-DATETIME>20050310160804
ACCESSION NUMBER:		0000950124-05-001425
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		31
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050310
DATE AS OF CHANGE:		20050310

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05611
		FILM NUMBER:		05672554

	BUSINESS ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201
		BUSINESS PHONE:		5177881031

	MAIL ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		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-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09513
		FILM NUMBER:		05672555

	BUSINESS ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201
		BUSINESS PHONE:		5177881031

	MAIL ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>k91832e10vk.txt
<DESCRIPTION>ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 2004
<TEXT>
<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549
                            ------------------------

                                   FORM 10-K

[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
                                       OR
[ ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
              FOR THE TRANSITION PERIOD FROM          TO

<Table>
<Caption>
COMMISSION      REGISTRANT; STATE OF INCORPORATION;        IRS EMPLOYER
FILE NUMBER        ADDRESS; AND TELEPHONE NUMBER        IDENTIFICATION NO.
- -----------     -----------------------------------     ------------------
<S>          <C>                                        <C>
1-9513       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
</Table>

Securities registered pursuant to Section 12(b) of the Act:

<Table>
<Caption>
                                                                                       NAME OF EACH EXCHANGE
REGISTRANT                                     TITLE OF CLASS                           ON WHICH REGISTERED
- ----------                                     --------------                          ---------------------
<S>                     <C>                                                           <C>
CMS ENERGY CORPORATION  Common Stock, $.01 par value                                  New York Stock Exchange
CMS ENERGY TRUST I      7.75% Quarterly Income Preferred Securities                   New York Stock Exchange
CONSUMERS ENERGY
  COMPANY               Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series  New York Stock Exchange
CONSUMERS ENERGY
  COMPANY FINANCING IV  9.00% Trust Originated Preferred Securities                   New York Stock Exchange
</Table>

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes X  No [ ]

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12 b-2).
CMS ENERGY CORPORATION:  Yes X  No [ ]
CONSUMERS ENERGY COMPANY:  Yes [ ]  No X

The aggregate market value of CMS Energy voting and non-voting common equity
held by non-affiliates was $1.472 billion for the 161,261,572 CMS Energy Common
Stock shares outstanding on June 30, 2004 based on the closing sale price of
$9.13 for CMS Energy Common Stock, as reported by the New York Stock Exchange on
such date.

There were 195,466,087 shares of CMS Energy Common Stock outstanding on March 7,
2005. On March 7, 2005, CMS Energy held all voting and non-voting common equity
of Consumers.

Documents incorporated by reference:  CMS Energy's proxy statement and
Consumers' information statement relating to the 2005 annual meeting of
shareholders to be held May 20, 2005, is incorporated by reference in Parts II
and III, except for the compensation and human resources committee report and
audit committee report contained therein.
<PAGE>

                             CMS Energy Corporation
                                      and
                            Consumers Energy Company

 Annual Reports on Form 10-K to the Securities and Exchange Commission for the
                                   Year Ended
                               December 31, 2004

     This combined Form 10-K is separately filed by CMS Energy Corporation and
Consumers Energy Company. Information in this combined Form 10-K relating to
each individual registrant is filed by such registrant on its own behalf.
Consumers Energy Company makes no representation regarding information relating
to any other companies affiliated with CMS Energy Corporation other than its own
subsidiaries.

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                 PAGE
                                                                                 ----
<S>               <C>                                                            <C>
Glossary......................................................................       3
PART I:
Item 1.           Business....................................................       9
Item 2.           Properties..................................................      26
Item 3.           Legal Proceedings...........................................      26
Item 4.           Submission of Matters to a Vote of Security Holders.........      30

PART II:
Item 5.           Market for Common Equity and Related Stockholder Matters....      31
Item 6.           Selected Financial Data.....................................      31
Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results  of Operations..................................      31
Item 7A.          Quantitative and Qualitative Disclosures About Market
                  Risk........................................................      32
Item 8.           Financial Statements and Supplementary Data.................      33
Item 9.           Changes in and Disagreements With Accountants on Accounting
                  and  Financial Disclosure...................................    CO-1
Item 9A.          Controls and Procedures.....................................    CO-1
Item 9B.          Other Information...........................................    CO-1

PART III:
Item 10.          Directors and Executive Officers............................    CO-2
Item 11.          Executive Compensation......................................    CO-2
Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management Related  Stockholder Matters.....................    CO-2
Item 13.          Certain Relationships and Related Transactions..............    CO-2
Item 14.          Principal Accountant Fees and Services......................    CO-3

PART IV:
Item 15.          Exhibits, Financial Statement Schedules.....................    CO-3
</Table>

                                        2
<PAGE>

                                    GLOSSARY

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

<Table>
<S>                                           <C>
ABATE.....................................    Association of Businesses Advocating Tariff Equity
Accumulated Benefit Obligation............    The liabilities of a pension plan based on service and
                                              pay to date. This differs from the Projected Benefit
                                              Obligation that is typically disclosed in that it does
                                              not reflect expected future salary increases.
AEP.......................................    American Electric Power, a non-affiliated company
AFUDC.....................................    Allowance for Funds Used During Construction
ALJ.......................................    Administrative Law Judge
Alliance RTO..............................    Alliance Regional Transmission Organization
Alstom....................................    Alstom Power Company
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. 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
Articles..................................    Articles of Incorporation
Attorney General..........................    Michigan Attorney General
bcf.......................................    Billion cubic feet
Big Rock..................................    Big Rock Point nuclear power plant, owned by Consumers
Bluewater Pipeline........................    Bluewater Pipeline, a 24.9-mile pipeline that extends
                                              from Marysville, Michigan to Armada, Michigan
Board of Directors........................    Board of Directors of CMS Energy
Brownfield site...........................    Provides for a tax incentive for the redevelopment or
                                              improvement of a facility (contaminated property), or
                                              functionally obsolete or blighted property, provided
                                              that certain conditions are met.
Btu.......................................    British thermal unit
CEO.......................................    Chief Executive Officer
CFO.......................................    Chief Financial Officer
CFTC......................................    Commodity Futures Trading Commission
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 or common stock...    Common stock of CMS Energy, par value $.01 per share
CMS ERM...................................    CMS Energy Resource Management Company, formerly CMS
                                              MST, a subsidiary of Enterprises
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 wholly owned subsidiary
                                              of Enterprises
CMS Generation............................    CMS Generation Co., a wholly owned subsidiary of
                                              Enterprises
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
</Table>

                                        3
<PAGE>
<Table>
<S>                                           <C>
CMS MST...................................    CMS Marketing, Services and Trading Company, a wholly
                                              owned subsidiary of Enterprises, whose name was changed
                                              to CMS ERM effective January 2004
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 Corporation, formerly a wholly owned
                                              subsidiary of CMS MST. The sale of this subsidiary
                                              closed in June 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
Court of Appeals..........................    Michigan Court of Appeals
CPEE......................................    Companhia Paulista de Energia Eletrica, a subsidiary of
                                              Enterprises
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 Energy
DOE.......................................    U.S. Department of Energy
DOJ.......................................    U.S. Department of Justice
Dow.......................................    The Dow Chemical Company, a non-affiliated company
DSM.......................................    Demand-side management
EBITDA....................................    Earnings before income taxes, depreciation, and
                                              amortization
EISP......................................    Executive Incentive Separation Plan
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
EITF Issue No. 97-04......................    Deregulation of the Pricing of Electricity -- Issues
                                              Related to the Application of FASB Statements No. 71 and
                                              101
El Chocon.................................    The 1,200 MW hydro power plant located in Argentina, in
                                              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
FASB Staff Position, No. 106-2............    Accounting and Disclosure Requirements Related to the
                                              Medicare Prescription Drug, Improvement and
                                              Modernization Act of 2003 (May 19, 2004)
FERC......................................    Federal Energy Regulatory Commission
First Mortgage Bond Indenture.............    The indenture dated as of September 1, 1945 between
                                              Consumers and JPMorgan Chase Bank, N.A. (ultimate
                                              successor to City Bank Farmers Trust Company), as
                                              Trustee, and as amended and supplemented
FMB.......................................    First Mortgage Bonds
</Table>

                                        4
<PAGE>
<Table>
<S>                                           <C>
FMLP......................................    First Midland Limited Partnership, a partnership that
                                              holds a lessor interest in the MCV facility
Ford......................................    Ford Motor Company
FSP.......................................    FASB Staff Position
GAAP......................................    Generally Accepted Accounting Principles
GasAtacama................................    An integrated natural gas pipeline and electric
                                              generation project located in Argentina and Chile, which
                                              includes 702 miles of natural gas pipeline and a 720 MW
                                              gross capacity power plant
GCR.......................................    Gas cost recovery
Goldfields................................    A pipeline business located in Australia, in which CMS
                                              Energy formerly held a 39.7 percent ownership interest
Guardian..................................    Guardian Pipeline, L.L.C., in which CMS Gas Transmission
                                              owned a one-third interest
GVK.......................................    GVK Facility, a 250 MW gas fired power plant located in
                                              South Central India, in which CMS Generation holds a 33
                                              percent interest
Health Care Plan..........................    The medical, dental, and prescription drug programs
                                              offered to eligible employees of Consumers and CMS
                                              Energy
IPP.......................................    Independent Power Production
ITC.......................................    Investment tax credit
Jorf Lasfar...............................    The 1,356 MW coal-fueled power plant in Morocco, jointly
                                              owned by CMS Generation and ABB Energy Ventures, Inc.
Karn......................................    D.E Karn/J.C. Weadock Generating Complex, which is owned
                                              by Consumers
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 formerly held a 50 percent
                                              ownership interest
LNG.......................................    Liquefied natural gas
Ludington.................................    Ludington pumped storage plant, jointly owned by
                                              Consumers and Detroit Edison
Marysville................................    CMS Marysville Gas Liquids Company, a Michigan
                                              corporation and a former subsidiary of CMS Gas
                                              Transmission that held 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 and in which
                                              Consumers' holds a 35 percent lessor interest
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
MDEQ......................................    Michigan Department of Environmental Quality
METC, LLC.................................    Michigan Electric Transmission Company, formerly a
                                              subsidiary of Consumers Energy and now an indirect
                                              subsidiary of Trans-Elect
Michigan Power............................    CMS Generation Michigan Power L.L.C., owner of the
                                              Kalamazoo River Generating Station and the Livingston
                                              Generating Station
</Table>

                                        5
<PAGE>
<Table>
<S>                                           <C>
Midwest Energy Market.....................    An energy market developed by the MISO to provide
                                              day-ahead and real-time market information and
                                              centralized dispatch for market participants, scheduled
                                              to begin April l, 2005
MISO......................................    Midwest Independent System Operator
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
NERC......................................    North American Electric Reliability Council
NRC.......................................    Nuclear Regulatory Commission
NYMEX.....................................    New York Mercantile Exchange
OPEB......................................    Postretirement benefit plans other than pensions for
                                              retired employees
Palisades.................................    Palisades nuclear power plant, which is owned by
                                              Consumers
Panhandle Eastern Pipe Line or
  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.
Parmelia..................................    A business located in Australia comprised of a pipeline,
                                              processing facilities, and a gas storage facility, a
                                              former subsidiary of CMS Gas Transmission
PCB.......................................    Polychlorinated biphenyl
Pension Plan..............................    The trusteed, non-contributory, defined benefit pension
                                              plan of Panhandle, Consumers and CMS Energy
PJM RTO...................................    Pennsylvania-Jersey-Maryland Regional Transmission
                                              Organization
Powder River..............................    CMS Oil and 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
PUHCA.....................................    Public Utility Holding Company Act of 1935
PURPA.....................................    Public Utility Regulatory Policies Act of 1978
RCP.......................................    Resource Conservation Plan
ROA.......................................    Retail Open Access
RTO.......................................    Regional Transmission Organization
SCP.......................................    Southern Cross Pipeline in Australia, in which CMS Gas
                                              Transmission formerly held a 45 percent ownership
                                              interest
SEC.......................................    U.S. Securities and Exchange Commission
</Table>

                                        6
<PAGE>
<Table>
<S>                                           <C>
Section 10d(4) Regulatory Asset...........    Regulatory asset as described in Section 10d(4) of the
                                              Customer Choice Act, as amended
Securitization............................    A financing method authorized by statute and approved by
                                              the MPSC which allows a utility to sell its right to
                                              receive a portion of the rate payments received from its
                                              customers for the repayment of Securitization bonds
                                              issued by a special purpose entity affiliated with such
                                              utility
SENECA....................................    Sistema Electrico del Estado Nueva Esparta C.A., a
                                              subsidiary of Enterprises
SERP......................................    Supplemental Executive Retirement Plan
SFAS......................................    Statement of Financial Accounting Standards
SFAS No. 5................................    SFAS No. 5, "Accounting for Contingencies"
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"
SFAS No. 98...............................    SFAS No. 98, "Accounting for Leases"
SFAS No. 106..............................    SFAS No. 106, "Employers' Accounting for Postretirement
                                              Benefits Other Than Pensions"
SFAS No. 109..............................    SFAS No. 109, "Accounting for Income Taxes"
SFAS No. 115..............................    SFAS No. 115, "Accounting for Certain Investments in
                                              Debt and Equity Securities"
SFAS No. 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. 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. 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"
Shuweihat.................................    A power and desalination plant of Emirates CMS Power
                                              Company, in which CMS Generation holds a 20 percent
                                              interest
SLAP......................................    Scudder Latin American Power Fund
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
</Table>

                                        7
<PAGE>
<Table>
<S>                                           <C>
Taweelah..................................    Al Taweelah A2, a power and desalination plant of
                                              Emirates CMS Power Company, in which CMS Generation
                                              holds a forty percent interest
Toledo Power..............................    Toledo Power Company, the 135 MW coal and fuel oil power
                                              plant located on Cebu Island, Philippines, in which CMS
                                              Generation held a 47.5 percent interest.
Trunkline.................................    CMS Trunkline Gas Company, LLC, formerly a subsidiary of
                                              CMS Panhandle Holdings, LLC
Trunkline LNG.............................    CMS 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 employees' beneficiary association trusts accounts
                                              established to specifically set aside employer
                                              contributed assets to pay for future expenses of the
                                              OPEB plan
X-TRAS....................................    Extendible tenor rate adjusted securities
</Table>

                                        8
<PAGE>

                                     PART I
                               ITEM 1. BUSINESS.

GENERAL

CMS ENERGY

     CMS Energy was formed in Michigan in 1987 and is an energy holding company
operating through subsidiaries in the United States and in selected markets
around the world. Its two principal subsidiaries are Consumers and Enterprises.
Consumers is a public utility that provides natural gas and/or electricity to
almost 6.5 million of Michigan's 10 million residents and serves customers in
all 68 of the state's Lower Peninsula counties. Enterprises, through various
subsidiaries and affiliates, is engaged in diversified energy businesses in the
United States and in selected international markets.

     CMS Energy's consolidated operating revenue was approximately $5.472
billion in 2004, $5.513 billion in 2003, and $8.673 billion in 2002. CMS Energy
operates in three business segments -- electric utility, gas utility, and
Enterprises. See BUSINESS SEGMENTS later in this Item 1 for further discussion
of each segment.

CONSUMERS

     Consumers was formed in Michigan in 1968 and is the successor to a
corporation organized in Maine in 1910 that conducted business in Michigan from
1915 to 1968. Consumers' service areas include companies operating in the
automotive, metal, chemical and food products industries as well as a
diversified group of other industries. In 2004, Consumers served 1.77 million
electric customers and 1.69 million gas customers.

     Consumers' consolidated operations account for a majority of CMS Energy's
total assets and income, as well as a substantial portion of its operating
revenue. Consumers' consolidated operating revenue was $4.711 billion in 2004,
$4.435 billion in 2003, and $4.169 billion in 2002.

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

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

BUSINESS SEGMENTS

CMS ENERGY FINANCIAL INFORMATION

     For further information with respect to operating revenue, net operating
income, identifiable assets and liabilities attributable to all of CMS Energy's
business segments and international and domestic operations, see ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- SELECTED FINANCIAL INFORMATION
AND CMS ENERGY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

CONSUMERS FINANCIAL INFORMATION

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

                                        9
<PAGE>

CONSUMERS ELECTRIC UTILITY OPERATIONS

  ELECTRIC UTILITY OPERATIONS

     Consumers' electric utility operating revenue was $2.586 billion in 2004,
$2.590 billion in 2003, and $2.648 billion in 2002. Consumers' electric utility
operations include the generation, purchase, distribution and sale of
electricity. At year-end 2004, it was authorized to provide service in 60 of the
68 counties of Michigan's Lower Peninsula. Principal cities served include
Battle Creek, Flint, Grand Rapids, Jackson, Kalamazoo, Midland, Muskegon and
Saginaw. Consumers' electric utility customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry. Consumers' electric utility
operations are not dependent upon a single customer, or even a few customers,
and the loss of any one or even a few of such customers is not reasonably likely
to have a material adverse effect on its financial condition.

     Consumers' electric utility operations are seasonal. The summer months
usually increase demand for electric energy, principally due to the use of air
conditioners and other cooling equipment, thereby affecting revenues. In 2004,
Consumers' electric sales were 36 billion kWh and retail open access deliveries
were 4 billion kWh, for total electric deliveries of 40 billion kWh. In 2003,
Consumers' electric sales were 36 billion kWh and retail open access deliveries
were 3 billion kWh, for total electric deliveries of 39 billion kWh.

     Consumers' 2004 summer peak demand was 6,958 MW excluding retail open
access loads and 7,643 MW including retail open access loads. For the 2003-04
winter period, Consumers' peak demand was 5,636 MW excluding retail open access
loads and 6,076 MW including retail open access loads. In December 2004,
Consumers experienced peak demand of 5,750 MW excluding retail open access loads
and 6,385 MW including retail open access loads. Based on its summer 2004
forecast, Consumers carried an 11 percent reserve margin target. However, as a
result of lower than forecasted peak loads and additional purchases in response
to the uncertainty surrounding the Karn 4 exciter failure and eventual
replacement, Consumers' ultimate reserve margin was 29.6 percent compared to
14.7 percent in 2003. Currently, Consumers has a reserve margin of approximately
5.4 percent, or supply resources equal to 105.4 percent of projected summer peak
load for summer 2005 and is in the process of securing the additional capacity
needed to meet its summer 2005 reserve margin target of 11 percent (111 percent
of projected summer peak load). 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.

  ELECTRIC UTILITY PROPERTIES

       GENERATION: At December 31, 2004, Consumers' electric generating system
consisted of the following:

<Table>
<Caption>
                                                                                                2004 NET
                                                                           2004 SUMMER NET     GENERATION
                                                      SIZE AND YEAR          DEMONSTRATED      (MILLIONS
NAME AND LOCATION (MICHIGAN)                        ENTERING SERVICE       CAPABILITY (MWS)     OF KWHS)
- ----------------------------                        ----------------       ----------------    ----------
<S>                                               <C>                      <C>                 <C>
COAL GENERATION
  J H Campbell 1 & 2 -- West Olive............    2 Units, 1962-1967              615             4,052
  J H Campbell 3 -- West Olive................    1 Unit, 1980                    765(a)          4,895
  D E Karn -- Essexville......................    2 Units, 1959-1961              515             3,373
  B C Cobb -- Muskegon........................    2 Units, 1956-1957              312             2,092
  J R Whiting -- Erie.........................    3 Units, 1952-1953              328             2,458
  J C Weadock -- Essexville...................    2 Units, 1955-1958              302             1,940
                                                                                -----            ------
Total coal generation.........................                                  2,837            18,810
                                                                                -----            ------
</Table>

                                        10
<PAGE>

<Table>
<Caption>
                                                                                                2004 NET
                                                                           2004 SUMMER NET     GENERATION
                                                      SIZE AND YEAR          DEMONSTRATED      (MILLIONS
NAME AND LOCATION (MICHIGAN)                        ENTERING SERVICE       CAPABILITY (MWS)     OF KWHS)
- ----------------------------                        ----------------       ----------------    ----------
<S>                                               <C>                      <C>                 <C>
OIL/GAS GENERATION
  B C Cobb -- Muskegon........................    3 Units, 1999-2000(b)           183                 0
  D E Karn -- Essexville......................    2 Units, 1975-1977            1,276               223
                                                                                -----            ------
Total oil/gas generation......................                                  1,459               223
                                                                                -----            ------
HYDROELECTRIC
  Conventional Hydro Generation...............    13 Plants, 1906-1949             74               445
  Ludington Pumped Storage....................    6 Units, 1973                   955(c)           (538)(d)
                                                                                -----            ------
Total Hydroelectric...........................                                  1,029               (93)
                                                                                -----            ------
NUCLEAR GENERATION
  Palisades -- South Haven....................    1 Unit, 1971                    767             5,336
                                                                                -----            ------
GAS/OIL COMBUSTION TURBINE
  Generation..................................    7 Plants, 1966-1971             345                 8
                                                                                -----            ------
Total owned generation........................                                  6,437            24,284
PURCHASED AND INTERCHANGE POWER
  Capacity....................................                                  2,478(e)
                                                                                -----
Total.........................................                                  8,915
                                                                                =====
</Table>

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

(b)  Cobb 1-3 are retired coal-fired units that were converted to gas-fired.
     Units were placed back into service in the years indicated.

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

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

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

     In 2004, through long-term purchase contracts, options, spot market and
other seasonal purchases, Consumers purchased up to 2,542 MW of net capacity
from other power producers (the largest of which was the MCV Partnership), which
amounted to 36.6 percent of Consumers' total system requirements.

     DISTRIBUTION: Consumers' distribution system includes:

     - 356 miles of high-voltage distribution radial lines operating at 120
       kilovolts and above;

     - 4,178 miles of high-voltage distribution overhead lines operating at 23
       kilovolts and 46 kilovolts;

     - 17 subsurface miles of high-voltage distribution underground lines
       operating at 23 kilovolts and 46 kilovolts;

     - 55,157 miles of electric distribution overhead lines;

     - 8,896 subsurface miles of underground distribution lines; and

     - substations having an aggregate transformer capacity of 20,787,500
       kilovoltamperes.

     Consumers is interconnected to METC, LLC, a member of MISO. METC, LLC is
interconnected with neighboring utilities as well as out-state transmission
systems.

     FUEL SUPPLY: Consumers has four generating plant sites that burn coal.
These plants constitute 77.5 percent of Consumers' baseload supply, the capacity
used to serve a constant level of customer demand. In 2004, these

                                        11
<PAGE>

plants produced a combined total of 18,810 million kWhs of electricity and
burned 9.7 million tons of coal. On December 31, 2004, Consumers had on hand a
31-day supply of coal.

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

     Consumers has entered into coal supply contracts with various suppliers and
associated rail transportation contracts for its coal-fired generating stations.
Under the terms of these agreements, Consumers is obligated to take physical
delivery of the coal and make payment based upon the contract terms. Consumers'
coal supply contracts expire through 2010, and total an estimated $376 million.
Its coal transportation contracts expire through 2009, and total an estimated
$205 million. Long-term coal supply contracts have accounted for approximately
60 to 90 percent of Consumers' annual coal requirements over the last 10 years.
Although future contract coverage is not finalized at this time, Consumers
believes that it will be within the historic 60 to 90 percent range.

     As of December 31, 2004, Consumers had future unrecognized commitments to
purchase power transmission services under fixed price forward contracts for
2005 totaling $4 million. Consumers also had commitments to purchase capacity
and energy under long-term power purchase agreements with various generating
plants. These contracts require monthly capacity payments based on the plants'
availability or deliverability. These payments for 2005 through 2030 total an
estimated $4.503 billion, undiscounted. This amount may vary depending upon
plant availability and fuel costs. If a plant were not available to deliver
electricity to Consumers, then Consumers would not be obligated to make the
capacity payment until the plant could deliver.

     Consumers owns Palisades, an operating nuclear power plant located near
South Haven, Michigan. In May 2001, with the approval of the NRC, Consumers
transferred its authority to operate Palisades to NMC. During 2004, Palisades'
net generation was 5,336 million kWhs, constituting 22 percent of Consumers'
baseload supply. Palisades' nuclear fuel supply responsibilities are under NMC's
control as agent for Consumers. New fuel contracts are being written as NMC
agreements. Consumers/NMC currently have sufficient contracts in place to supply
93 percent of the uranium concentrates and conversion services and 100 percent
of the enrichment services requirements for the 2006 reload. A contract for
conversion services is in place to supply approximately 26 percent of the 2007
reload requirements and a contract for enrichment services is in place to supply
approximately 100 percent of the 2007 reload requirements. A mix of spot, medium
and long-term contracts are being negotiated with producers and service
suppliers who participate in the world nuclear fuel marketplace to provide for
the remaining open requirements for the 2007 reload.

     Consumers has a contract for nuclear fuel fabrication services in place for
the 2006 reload. Contract negotiations are currently ongoing with the current
nuclear fuel fabrication vendor to enter into a new contract to cover reloads in
2006 through 2013.

                                        12
<PAGE>

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

<Table>
<Caption>
                                                                      MILLIONS OF KWHS
                                                      ------------------------------------------------
POWER GENERATED                                        2004      2003      2002        2001      2000
- ---------------                                        ----      ----      ----        ----      ----
<S>                                                   <C>       <C>       <C>         <C>       <C>
Coal..............................................    18,810    20,091    19,361      19,203    17,926
Nuclear...........................................     5,336     6,151     6,358       2,326(a)  5,724
Oil...............................................       193       242       347         331       645
Gas...............................................        38       129       354         670       400
Hydro.............................................       445       335       387         423       351
Net pumped storage................................      (538)     (517)     (486)       (553)     (541)
                                                      ------    ------    ------      ------    ------
Total net generation..............................    24,284    26,431    26,321      22,400    24,505
                                                      ======    ======    ======      ======    ======
</Table>

- -------------------------
(a)  On June 20, 2001, the Palisades reactor was shut down so technicians could
     inspect a small steam leak on a control rod drive assembly. The defective
     components were replaced and the plant returned to service on January 21,
     2002.

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

<Table>
<Caption>
                                                                       COST PER MILLION BTU
                                                             -----------------------------------------
FUEL CONSUMED                                                2004     2003     2002     2001     2000
- -------------                                                ----     ----     ----     ----     ----
<S>                                                          <C>      <C>      <C>      <C>      <C>
Coal.....................................................    $1.43    $1.33    $1.34    $1.38    $1.34
Oil......................................................     4.68     3.92     3.49     4.02     3.30
Gas......................................................    10.07     7.62     3.98     4.05     4.80
Nuclear..................................................     0.33     0.34     0.35     0.39     0.45
All Fuels(a).............................................     1.26     1.16     1.19     1.44     1.27
</Table>

- -------------------------
(a)  Weighted average fuel costs.

     The Nuclear Waste Policy Act of 1982 made the federal government
responsible for the permanent disposal of spent nuclear fuel and high-level
radioactive waste by 1998. The DOE has not arranged for storage facilities and
it does not expect to receive spent nuclear fuel for storage in 2005. Palisades
currently has spent nuclear fuel that exceeds its temporary on-site storage pool
capacity. Therefore, Consumers is storing spent nuclear fuel in NRC-approved
steel and concrete vaults known as "dry casks." For additional information on
disposal of nuclear fuel and Consumers' use of dry casks, see ITEM 7. CMS
ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- OTHER ELECTRIC
UTILITY BUSINESS UNCERTAINTIES -- NUCLEAR MATTERS AND ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 3 OF CMS ENERGY'S NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINGENCIES) -- OTHER CONSUMERS' ELECTRIC
UTILITY CONTINGENCIES -- NUCLEAR MATTERS and ITEM 7. CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS -- OUTLOOK -- OTHER ELECTRIC BUSINESS
UNCERTAINTIES -- NUCLEAR MATTERS AND ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINGENCIES) -- OTHER ELECTRIC CONTINGENCIES -- NUCLEAR MATTERS.

CONSUMERS GAS UTILITY

  GAS UTILITY OPERATIONS

     Consumers' gas utility operating revenue was $2.081 billion in 2004, $1.845
billion in 2003, and $1.519 billion in 2002. Consumers' gas utility operations
purchase, transport, store, distribute and sell natural gas. As of December 31,
2004, it was authorized to provide service in 47 of the 68 counties in
Michigan's Lower Peninsula. Principal cities served include Bay City, Flint,
Jackson, Kalamazoo, Lansing, Pontiac and Saginaw, as well as the suburban
Detroit area, where nearly 900,000 of Consumers' gas customers are located.
Consumers' gas utility operations are not dependent upon a single customer, or
even a few customers, and the loss of any one or even a few of such customers is
not reasonably likely to have a material adverse effect on its financial
condition.

                                        13
<PAGE>

     Consumers' gas utility operations are seasonal. Consumers injects natural
gas into storage during the summer months for use during the winter months when
the demand for natural gas is higher. Peak demand usually occurs in the winter
due to colder temperatures and the resulting increased demand for heating fuels.
In 2004, total deliveries of natural gas sold by Consumers and by other sellers
who deliver natural gas to customers (including the MCV Partnership) through
Consumers' pipeline and distribution network totaled 389.47 bcf.

     GAS UTILITY PROPERTIES: Consumers' gas distribution and transmission system
consists of:

     - 25,756 miles of distribution mains throughout Michigan's Lower Peninsula;

     - 1,642 miles of transmission lines throughout Michigan's Lower Peninsula;

     - 7 compressor stations with a total of 162,000 installed horsepower; and

     - 15 gas storage fields located across Michigan with an aggregate storage
       capacity of 308 bcf and a working storage capacity of 142.8 bcf.

     GAS SUPPLY: In 2004, Consumers purchased 1 percent of the gas it delivered
from Michigan producers, 70 percent from United States producers outside
Michigan and 22 percent from Canadian producers. Authorized suppliers in the gas
customer choice program supplied the remaining 7 percent of gas that Consumers
delivered.

     Consumers' firm gas transportation agreements are with ANR Pipeline
Company, Great Lakes Gas Transmission, L.P., Trunkline Gas Co., Panhandle
Eastern Pipe Line Company, and Vector Pipeline. Consumers uses these agreements
to deliver gas to Michigan for ultimate deliveries to market. Consumers' firm
transportation and city gate arrangements are capable of delivering over 90
percent of Consumers' total gas supply requirements. As of December 31, 2004,
Consumers' portfolio of firm transportation from pipelines to Michigan is as
follows:

<Table>
<Caption>
                                                                     VOLUME
                                                                (DEKATHERMS/DAY)      EXPIRATION
                                                                ----------------      ----------
<S>                                                             <C>                 <C>        <C>
ANR Pipeline Company........................................          50,000        March      2006
Great Lakes Gas Transmission, L.P. .........................          50,000        March      2007
Great Lakes Gas Transmission, L.P. .........................         100,000        March      2007
Trunkline Gas Co. ..........................................         336,375        October    2005
Trunkline Gas Co. (starting 11/01/05).......................         290,000        October    2008
Panhandle Eastern Pipe Line Company (starting 04/01/05).....          50,000        October    2005
Panhandle Eastern Pipe Line Company (starting 04/01/06).....          50,000        October    2006
Panhandle Eastern Pipe Line Company (starting 04/01/07).....          50,000        October    2007
Panhandle Eastern Pipe Line Company (starting 04/01/08).....          50,000        October    2008
Panhandle Eastern Pipe Line Company (starting 11/01/05).....          50,000        October    2008
Vector Pipeline.............................................          50,000        March      2007
</Table>

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

ENTERPRISES

     Enterprises, through various subsidiaries, affiliates, and equity
investments, is engaged in domestic and international diversified energy
businesses including independent power production, natural gas transmission,
storage and processing, and energy services. Enterprises' operating revenue was
$808 million in 2004, $1.085 billion in 2003, and $4.508 billion in 2002.

                                        14
<PAGE>

NATURAL GAS TRANSMISSION

     CMS Gas Transmission was formed in 1988 and owns, develops and manages
domestic and international natural gas facilities. In 2004, CMS Gas
Transmission's operating revenue was $22 million.

     In June 2003, CMS Gas Transmission sold Panhandle to Southern Union
Panhandle Corp., a newly formed entity owned by Southern Union. Southern Union
Panhandle Corp. purchased all of Panhandle's outstanding capital stock for
approximately $582 million in cash and 3.15 million shares of Southern Union
common stock. Southern Union Panhandle Corp. also assumed approximately $1.166
billion in debt.

     In July 2003, CMS Gas Transmission completed the sale of CMS Field Services
to Cantera Natural Gas, Inc. for gross cash proceeds of approximately $113
million, subject to post closing adjustments, and a $50 million face value note
of Cantera Natural Gas, 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.

     In August 2004, CMS Gas Transmission sold its interest in Goldfields and
its Parmelia business, a discontinued operation, to APT for A$204 million
(approximately $147 million in U.S. dollars). A $45 million ($29 million
after-tax) gain on the sale of Goldfields includes a $9 million ($6 million
after-tax) foreign currency translation gain. A $10 million ($6 million
after-tax) gain on the sale of Parmelia includes a $3 million ($2 million
after-tax) foreign currency translation loss.

     NATURAL GAS TRANSMISSION PROPERTIES: CMS Gas Transmission has a total of
265 miles of gathering and transmission pipelines located in the state of
Michigan, with a daily capacity of 0.75 bcf. At December 31, 2004, CMS Gas
Transmission had nominal processing capabilities of approximately 0.33 bcf per
day of natural gas in Michigan.

     At December 31, 2004, CMS Gas Transmission had ownership interests in the
following international pipelines:

<Table>
<Caption>
LOCATION                                                      OWNERSHIP INTEREST (%)    MILES OF PIPELINES
- --------                                                      ----------------------    ------------------
<S>                                                           <C>                       <C>
Argentina.................................................             29.42                  3,362
Argentina to Brazil.......................................                20                    262
Argentina to Chile........................................                50                    707
</Table>

INDEPENDENT POWER PRODUCTION

     CMS Generation was formed in 1986. It invests in, acquires, develops,
constructs and operates non-utility power generation plants in the United States
and abroad. In 2004, the independent power production business segment's
operating revenue was $258 million, which includes revenues from CMS Generation,
CMS Operating, S.R.L., the MCV Facility and the MCV Partnership.

     INDEPENDENT POWER PRODUCTION PROPERTIES: As of December 31, 2004, CMS
Generation had ownership interests in operating power plants totaling 8,219
gross MW (3,455 net MW). At December 31, 2004, additional plants totaling
approximately 322 gross MW (69 net MW) were under construction or in advanced
stages of development. These plants include the Saudi Petrochemical Company
power plant, which is under construction in the Kingdom of Saudi Arabia. In
2005, CMS Generation plans to complete the restructuring of its operations by
narrowing the scope of its existing operations and commitments to three regions:
the U.S., South America, and the Middle East/North Africa. In addition, it plans
to sell designated assets and investments that are under-performing, non-region
focused and non-synergistic with other CMS Energy business units.

                                        15
<PAGE>

     The following table details CMS Generation's interest in independent power
plants as of year-end 2004 (excluding the plants owned by CMS Operating S.R.L.
and CMS Electric and Gas and the MCV facility, discussed further below):

<Table>
<Caption>
                                                                                          PERCENTAGE OF
                                                                                         GROSS CAPACITY
                                                                                         UNDER LONG-TERM
                                                   OWNERSHIP INTEREST   GROSS CAPACITY      CONTRACT
LOCATION                              FUEL TYPE           (%)                (MW)              (%)
- --------                              ---------    ------------------   --------------   ---------------
<S>                                  <C>           <C>                  <C>              <C>
California.........................  Wood                  37.8                36              100
Connecticut........................  Scrap tire             100                31              100
Michigan...........................  Coal                    50                70              100
Michigan...........................  Natural gas            100               710               80
Michigan...........................  Natural gas            100               224                0
Michigan...........................  Wood                    50                40              100
Michigan...........................  Wood                    50                38              100
New York...........................  Hydro                  0.3                14              100
North Carolina.....................  Wood                    50                50              100
Oklahoma...........................  Natural gas           6.25               124              100
                                                                            -----
DOMESTIC TOTAL.....................                                         1,337
Argentina..........................  Hydro                 17.2             1,320               20(a)
Chile..............................  Natural gas             50               720              100
Ghana..............................  Crude oil               90               224              100
India..............................  Coal                    50               250              100
India..............................  Natural gas           33.2               235              100(b)
Jamaica............................  Diesel                42.3                63              100
Latin America......................  Various            Various               437               66
Morocco............................  Coal                    50             1,356              100(c)
United Arab Emirates...............  Natural gas             40               777              100
United Arab Emirates...............  Natural gas             20             1,500              100
                                                                            -----
INTERNATIONAL TOTAL................                                         6,882
TOTAL DOMESTIC AND INTERNATIONAL...                                         8,219
                                                                            =====
PROJECTS UNDER CONSTRUCTION/
  ADVANCED DEVELOPMENT.............                                           322
</Table>

- -------------------------

(a)  El Chocon is primarily on a spot market basis, however, it has a high
     dispatch rate due to low cost. The El Chocon facility is held pursuant to a
     30-year possession agreement.

(b)  CMS Generation sold its interest in GVK in the first quarter of 2005.

(c)  The Jorf Lasfar facility is held pursuant to a right of possession
     agreement with the Moroccan state-owned Office National de l'Electricite.

     Through a CMS International Ventures subsidiary called CMS Operating,
S.R.L., CMS Enterprises, CMS Gas Transmission and CMS Generation have a 100
percent ownership interest in a 128 MW natural gas power plant and a 92.6
percent ownership interest in a 597 MW natural gas power plant, each in
Argentina.

     Through CMS Electric and Gas, CMS Enterprises has an 87 percent ownership
interest in 287 MW of gas turbine and diesel generating capacity in Venezuela.

     CMS Midland owns a 49 percent general partnership interest in the MCV
Partnership, which was formed to construct and operate the MCV Facility. The MCV
Facility was sold to five owner trusts and leased back to the MCV Partnership.
CMS Holdings is a limited partner in the FMLP, which is a beneficiary of one of
these trusts. Through FMLP, CMS Holdings has a 35 percent Lessor interest in the
MCV Facility. The MCV Facility has a net electrical generating capacity of
approximately 1,500 MW. The MCV Partnership contracted to sell electricity to
Consumers for a 35-year period beginning in 1990, and to supply electricity and
steam to Dow.

                                        16
<PAGE>

     For information on capital expenditures, see ITEM 7. CMS ENERGY'S
MANAGEMENT'S DISCUSSION AND ANALYSIS -- CAPITAL RESOURCES AND LIQUIDITY AND ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 4 OF CMS ENERGY'S NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (FINANCINGS AND CAPITALIZATION).

OIL AND GAS EXPLORATION AND PRODUCTION

     CMS Energy used to own an oil and gas exploration and production company.
In October 2002, CMS Energy completed its exit from the oil and gas exploration
and production business.

ENERGY RESOURCE MANAGEMENT

     In 2003, CMS ERM closed its Houston, Texas office and in 2004, CMS ERM
changed its name from CMS Marketing, Services and Trading Company to CMS Energy
Resource Management Company. CMS ERM concentrates on the purchase and sale of
energy commodities in support of CMS Energy's generating facilities. In March
2004, CMS ERM discontinued its natural gas retail program as customer contracts
expired. In 2004, CMS ERM marketed approximately 53.1 bcf of natural gas and
1,243.5 GWh of electricity. Its operating revenue was $381 million in 2004, $711
million in 2003, and $4.137 billion in 2002.

INTERNATIONAL ENERGY DISTRIBUTION

     In October 2001, CMS Energy discontinued the operations of its
international energy distribution business. In 2002, CMS Energy discontinued new
development outside North America, which included closing all non-U.S.
development offices. In 2003, due to the uncertainty of executing an asset sale
on acceptable terms and conditions, CMS Energy reclassified to continuing
operations SENECA, which is its energy distribution business in Venezuela, and
CPEE, which is its energy distribution business in Brazil, and restated the
prior year's earnings for these businesses.

CMS ENERGY AND CONSUMERS REGULATION

     CMS Energy is a public utility holding company that is exempt from
registration under PUHCA. CMS Energy, Consumers and their subsidiaries are
subject to regulation by various federal, state, local and foreign governmental
agencies, including those described below.

MICHIGAN PUBLIC SERVICE COMMISSION

     Consumers is subject to the MPSC's jurisdiction, which regulates public
utilities in Michigan with respect to retail utility rates, accounting, utility
services, certain facilities and various other matters. The MPSC also has rate
jurisdiction over several limited liability companies in which CMS Gas
Transmission has ownership interests. These companies own, or will own, and
operate intrastate gas transmission pipelines.

     The Attorney General, ABATE, and the MPSC staff typically intervene in MPSC
electric- and gas-related proceedings concerning Consumers. For many years, most
significant MPSC orders affecting Consumers have been appealed. Certain appeals
from the MPSC orders are pending in the Court of Appeals.

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

     MPSC REGULATORY AND MICHIGAN LEGISLATIVE CHANGES: State regulation of the
retail electric and gas utility businesses has undergone significant changes. In
2000, the Michigan Legislature enacted the Customer Choice Act. The Customer
Choice Act provides that as of January 2002, all electric customers have the
choice to buy generation service from an alternative electric supplier. The
Customer Choice Act also imposes rate reductions, rate freezes and rate caps.
For additional information regarding the Customer Choice Act, see

                                        17
<PAGE>

ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- ELECTRIC
UTILITY BUSINESS UNCERTAINTIES -- COMPETITION AND REGULATORY RESTRUCTURING and
ITEM 7. CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- ELECTRIC
BUSINESS UNCERTAINTIES -- COMPETITION AND REGULATORY RESTRUCTURING.

     As a result of regulatory changes in the natural gas industry, Consumers
transports the natural gas commodity that is sold to some customers by
competitors like gas producers, marketers and others. Pursuant to a gas customer
choice program that Consumers implemented, as of April 2003 all of Consumers'
gas customers were eligible to select an alternative gas commodity supplier.
Consumers' current GCR mechanism allows it to recover from its customers all
prudently incurred costs to purchase natural gas commodity and transport it to
Consumers' facilities. For additional information, see ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 3 OF CMS ENERGY'S NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINGENCIES) -- CONSUMERS' GAS UTILITY RATE
MATTERS and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 2 OF
CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINGENCIES) -- GAS
RATE MATTERS.

FEDERAL ENERGY REGULATORY COMMISSION

     FERC has exercised limited jurisdiction over several independent power
plants in which CMS Generation has ownership interests, as well as over CMS ERM.
Among other things, FERC jurisdiction relates to the acquisition, operation and
disposal of assets and facilities and to the service provided and rates charged.
Some of Consumers' gas business is also subject to regulation by FERC, including
a blanket transportation tariff pursuant to which Consumers can transport gas in
interstate commerce.

     FERC also regulates certain aspects of Consumers' electric operations
including compliance with FERC accounting rules, wholesale rates, operation of
licensed hydro-electric generating plants, transfers of certain facilities, and
corporate mergers and issuance of securities. FERC is currently soliciting
comments on whether it should exercise jurisdiction over power marketers like
CMS ERM, requiring them to follow FERC's uniform system of accounts and seek
authorization for issuance of securities and assumption of liabilities. These
issues are pending before the agency.

NUCLEAR REGULATORY COMMISSION

     Under the Atomic Energy Act of 1954, as amended, and the Energy
Reorganization Act of 1974, Consumers is subject to the jurisdiction of the NRC
with respect to the design, construction, operation and decommissioning of its
nuclear power plants. Consumers is also subject to NRC jurisdiction with respect
to certain other uses of nuclear material. These and other matters concerning
Consumers' nuclear plants are more fully discussed in ITEM 7. CMS ENERGY'S
MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- OTHER ELECTRIC UTILITY
BUSINESS UNCERTAINTIES -- NUCLEAR MATTERS AND ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 3 (CONTINGENCIES) OF CMS ENERGY'S CONSOLIDATED
FINANCIAL STATEMENTS -- NUCLEAR PLANT DECOMMISSIONING and ITEM 7. CONSUMERS'
MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- OTHER ELECTRIC BUSINESS
UNCERTAINTIES -- NUCLEAR MATTERS AND ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 2 (CONTINGENCIES) OF CONSUMERS' CONSOLIDATED
FINANCIAL STATEMENTS -- NUCLEAR PLANT DECOMMISSIONING.

OTHER REGULATION

     The Secretary of Energy regulates the importation and exportation of
natural gas and has delegated various aspects of this jurisdiction to FERC and
the DOE's Office of Fossil Fuels.

     Pipelines owned by system companies are subject to the Natural Gas Pipeline
Safety Act of 1968 and the Pipeline Safety Improvement Act of 2002, which
regulates the safety of gas pipelines. Consumers is also subject to the
Hazardous Liquid Pipeline Safety Act of 1979, which regulates oil and petroleum
pipelines.

                                        18
<PAGE>

CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE

     CMS Energy, Consumers and their subsidiaries are subject to various
federal, state and local regulations for environmental quality, including air
and water quality, waste management, zoning and other matters.

     Consumers has installed and is currently installing modern emission
controls at its electric generating plants and has converted and is converting
electric generating units to burn cleaner fuels. Consumers expects that the cost
of future environmental compliance, especially compliance with clean air laws,
will be significant because of EPA regulations regarding nitrogen oxide and
particulate-related emissions. These regulations will require Consumers to make
significant capital expenditures.

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

     Consumers' electric generating plants must comply with rules that
significantly reduce the number of fish killed by plant cooling water intake
systems. Consumers is studying options to determine the most cost-effective
solutions for compliance.

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

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

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

     For additional information concerning environmental matters, including
estimated capital expenditures to reduce nitrogen oxide related emissions, see
ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- ELECTRIC
UTILITY BUSINESS UNCERTAINTIES -- ELECTRIC ENVIRONMENTAL ESTIMATES and ITEM 7.
CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- ELECTRIC BUSINESS
UNCERTAINTIES -- ELECTRIC ENVIRONMENTAL ESTIMATES.

CMS ENERGY AND CONSUMERS COMPETITION

ELECTRIC COMPETITION

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

     In the wholesale electricity markets, Consumers competes with other
wholesale suppliers, marketers and brokers. Electric competition in the
wholesale markets increased significantly since 1996 due to FERC Order 888.
While Consumers is still active in wholesale electricity markets, wholesale for
resale transactions by Consumers

                                        19
<PAGE>

generated an immaterial amount of Consumers' 2004 revenues from electric utility
operations. Consumers believes future loss of wholesale for resale transactions
will be insignificant.

     A significant increase in retail electric competition has occurred because
of the Customer Choice Act and the availability of retail open access. Price is
the principal method of competition for generation services. The Customer Choice
Act gives all electric customers the right to buy generation service from an
alternative electric supplier. As of March 2005, alternative electric suppliers
are providing 900 MW of generation supply to retail open access customers. This
represents approximately 12 percent of Consumers' total distribution load and an
increase of approximately 23 percent in generation supply being purchased from
alternative electric suppliers by retail open access customers over March 2004.
In June 2004, the MPSC granted Consumers recovery of implementation costs
incurred for the Electric Customer Choice program. In November 2004, the MPSC
adopted a mechanism pursuant to the Customer Choice Act to provide for recovery
of stranded costs that occur when customers leave Consumers' system to purchase
electricity from alternative electric suppliers. Consumers cannot predict the
total amount of electric supply load that may be lost to competitor suppliers.

     In addition to retail electric customer choice, Consumers also has
competition or potential competition from:

     - customers relocating for economic reasons outside Consumers' service
       territory;

     - municipalities owning or operating competing electric delivery systems;

     - customer self-generation; and

     - adjacent utilities that extend lines to customers in contiguous service
       territories.

     Consumers addresses this competition by monitoring activity in adjacent
areas and enforcing compliance with MPSC and FERC rules, providing non-energy
services, and providing tariff-based incentives that support economic
development.

     Consumers offers non-energy revenue services to electric customers,
municipalities and other utilities in an effort to offset costs. These services
include engineering and consulting, construction of customer-owned distribution
facilities, equipment sales (such as transformers), power quality analysis,
fiber optic line construction, meter reading and joint construction for phone
and cable. Consumers faces competition from many sources, including energy
management services companies, other utilities, contractors, and retail
merchandisers.

     CMS ERM, a non-utility electric subsidiary, continues to focus on
optimizing CMS Energy's independent power production portfolio. CMS Energy's
independent power production business segment, another non-utility electric
subsidiary, faces competition from generators, marketers and brokers, as well as
other utilities marketing power at lower power prices on the wholesale market.

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

GAS COMPETITION

     Competition has existed for the past decade in various aspects of
Consumers' gas utility business, and is likely to increase. Competition
traditionally comes from other gas suppliers taking advantage of direct access
to Consumers' customers and alternate fuels and energy sources, such as propane,
oil and electricity.

INSURANCE

     CMS Energy and its subsidiaries, including Consumers, maintain insurance
coverage similar to comparable companies in the same lines of business. The
insurance policies are subject to terms, conditions, limitations and exclusions
that might not fully compensate CMS Energy for all losses. As CMS Energy renews
its policies it is possible that some of the insurance coverage may not be
renewed or obtainable on commercially reasonable terms due to restrictive
insurance markets.

                                        20
<PAGE>

EMPLOYEES

CMS ENERGY

     As of December 31, 2004, CMS Energy and its wholly owned subsidiaries,
including Consumers, had 8,660 full-time equivalent employees, of whom 8,603 are
full-time employees and 57 are full-time equivalent employees associated with
the part-time work force. Included in the total are 3,734 employees who are
covered by union contracts.

CONSUMERS

     As of December 31, 2004, Consumers and its subsidiaries had 8,050 full-time
equivalent employees, of whom 7,995 are full-time employees and 55 are full-time
equivalent employees associated with the part-time work force. Included in the
total are 3,407 full-time operating, maintenance and construction employees and
308 full-time and part-time call center employees who are represented by the
Utility Workers Union of America. Consumers and the Union negotiated a
collective bargaining agreement for the operating, maintenance and construction
employees that became effective as of June 1, 2000 and will continue in full
force and effect until June 1, 2005. Negotiations to reach a new contract are
underway currently. Consumers and the Union negotiated a collective bargaining
agreement for the call center employees that became effective as of April 1,
2003 and will continue in full force and effect until August 1, 2005.

CMS ENERGY EXECUTIVE OFFICERS

     (as of March 1, 2005)

<Table>
<Caption>
NAME                                     AGE                     POSITION                         PERIOD
- ----                                     ---                     --------                         ------
<S>                                      <C>    <C>                                            <C>
David W. Joos........................    51     President and Chief Executive Officer of
                                                CMS Energy                                     2004-Present
                                                Chairman of the Board, Chief Executive
                                                  Officer of CMS Enterprises                   2003-Present
                                                President, Chief Operating Officer of CMS
                                                  Energy                                       2001-2004
                                                Chief Executive Officer of Consumers           2004-Present
                                                President, Chief Operating Officer of
                                                  Consumers                                    2001-2004
                                                President, Chief Operating Officer of CMS
                                                  Enterprises                                  2001-2003
                                                Director of CMS Energy                         2001-Present
                                                Director of Consumers                          2001-Present
                                                Director of CMS Enterprises                    2000-Present
                                                Executive Vice President, Chief Operating
                                                  Officer -- Electric of CMS Energy            2000-2001
                                                Executive Vice President, Chief Operating
                                                  Officer -- Electric of CMS Enterprises
                                                Executive Vice President, President and
                                                  Chief Executive Officer -- Electric of
                                                  Consumers                                    2000-2001
                                                                                               1997-2001
</Table>

                                        21
<PAGE>

<Table>
<Caption>
NAME                                     AGE                     POSITION                         PERIOD
- ----                                     ---                     --------                         ------
<S>                                      <C>    <C>                                            <C>
S. Kinnie Smith, Jr. ................    74     Vice Chairman of the Board of CMS
                                                Enterprises                                    2003-Present
                                                Vice Chairman of the Board, General Counsel
                                                  of CMS Energy                                2002-Present
                                                Vice Chairman of the Board of Consumers        2002-Present
                                                Executive Vice President of CMS Enterprises    2002-2003
                                                Director of CMS Energy                         2002-Present
                                                Director of Consumers                          2002-Present
                                                Director of CMS Enterprises                    2003-Present
                                                Vice Chairman of Trans-Elect, Inc.             2002
                                                Senior Counsel at Skadden, Arps, Slate,
                                                  Meagher, & Flom LLP                          1996-2002
Thomas J. Webb.......................    52     Executive Vice President, Chief Financial
                                                Officer of CMS Energy                          2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of Consumers                         2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of CMS Enterprises                   2002-Present
                                                Director of CMS Enterprises                    2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of Panhandle Eastern Pipe Line
                                                  Company                                      2002-2003
                                                Executive Vice President, Chief Financial
                                                  Officer of Kellogg Company                   1999-2002
                                                Vice President, Chief Financial Officer of
                                                  Visteon, a division of Ford Motor Company    1996-1999
Thomas W. Elward.....................    56     President, Chief Operating Officer of CMS
                                                  Enterprises                                  2003-Present
                                                President, Chief Executive Officer of CMS
                                                  Generation Co.                               2002-Present
                                                Director of CMS Enterprises                    2003-Present
                                                Director of CMS Generation Co.                 2002-Present
                                                Senior Vice President of CMS Enterprises       2002-2003
                                                Senior Vice President of CMS Generation Co.    1998-2001
John G. Russell*.....................    47     President and Chief Operating Officer of
                                                  Consumers                                    2004-Present
                                                Executive Vice President, President and
                                                  Chief Executive Officer -- Electric of
                                                  Consumers                                    2001-2004
                                                Senior Vice President of Consumers             2000-2001
                                                Vice President of Consumers                    1999-2000
David G. Mengebier**.................    47     Senior Vice President of CMS Enterprises       2003-Present
                                                Senior Vice President of CMS Energy            2001-Present
                                                Senior Vice President of Consumers             2001-Present
                                                Vice President of CMS Energy                   1999-2001
                                                Vice President of Consumers                    1999-2001
John F. Drake........................    56     Senior Vice President of CMS Enterprises       2003-Present
                                                Senior Vice President of CMS Energy            2002-Present
                                                Senior Vice President of Consumers             2002-Present
                                                Vice President of CMS Energy                   1997-2002
                                                Vice President of Consumers                    1998-2002
</Table>

                                        22
<PAGE>

<Table>
<Caption>
NAME                                     AGE                     POSITION                         PERIOD
- ----                                     ---                     --------                         ------
<S>                                      <C>    <C>                                            <C>
Glenn P. Barba.......................    39     Vice President, Chief Accounting Officer of
                                                CMS Enterprises                                2003-Present
                                                Vice President, Controller and Chief
                                                  Accounting Officer of CMS Energy             2003-Present
                                                Vice President, Controller and Chief
                                                  Accounting Officer of Consumers              2003-Present
                                                Vice President and Controller of Consumers     2001-2003
                                                Controller of CMS Generation                   1997-2001
</Table>

- -------------------------

 * From July 1997 until October 1999, Mr. Russell served as Manager -- Electric
   Customer Operations of Consumers.

** From 1997 to 1999, Mr. Mengebier served as Executive Director of Federal
   Governmental Affairs for CMS Enterprises.

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

     The present term of office of each of the executive officers extends to the
first meeting of the Board of Directors after the next annual election of
Directors of CMS Energy (scheduled to be held on May 20, 2005).

                                        23
<PAGE>

CONSUMERS EXECUTIVE OFFICERS

     (as of March 1, 2005)

<Table>
<Caption>
NAME                                     AGE                     POSITION                         PERIOD
- ----                                     ---                     --------                         ------
<S>                                      <C>    <C>                                            <C>
David W. Joos........................    51     President and Chief Executive Officer of
                                                CMS Energy                                     2004-Present
                                                Chairman of the Board, Chief Executive
                                                  Officer of CMS Enterprises                   2003-Present
                                                President, Chief Operating Officer of CMS
                                                  Energy                                       2001-2004
                                                Chief Executive Officer of Consumers           2004-Present
                                                President, Chief Operating Officer of
                                                  Consumers                                    2001-2004
                                                President, Chief Operating Officer of CMS
                                                  Enterprises                                  2001-2003
                                                Director of CMS Energy                         2001-Present
                                                Director of Consumers                          2001-Present
                                                Director of CMS Enterprises                    2000-Present
                                                Executive Vice President, Chief Operating
                                                  Officer -- Electric of CMS Energy            2000-2001
                                                Executive Vice President, Chief Operating
                                                  Officer -- Electric of CMS Enterprises       2000-2001
                                                Executive Vice President, President and
                                                  Chief Executive Officer -- Electric of
                                                  Consumers                                    1997-2001
S. Kinnie Smith, Jr. ................    74     Vice Chairman of the Board of CMS
                                                Enterprises                                    2003-Present
                                                Vice Chairman of the Board, General Counsel
                                                  of CMS Energy                                2002-Present
                                                Vice Chairman of the Board of Consumers        2002-Present
                                                Executive Vice President of CMS Enterprises    2002-2003
                                                Director of CMS Energy                         2002-Present
                                                Director of Consumers                          2002-Present
                                                Director of CMS Enterprises                    2003-Present
                                                Vice Chairman of Trans-Elect, Inc.             2002
                                                Senior Counsel at Skadden, Arps, Slate,
                                                  Meagher, & Flom LLP                          1996-2002
Thomas J. Webb.......................    52     Executive Vice President, Chief Financial
                                                Officer of CMS Energy                          2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of Consumers                         2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of CMS Enterprises                   2002-Present
                                                Director of CMS Enterprises                    2002-Present
                                                Executive Vice President, Chief Financial
                                                  Officer of Panhandle Eastern Pipe Line
                                                  Company                                      2002-2003
                                                Executive Vice President, Chief Financial
                                                  Officer of Kellogg Company                   1999-2002
                                                Vice President, Chief Financial Officer of
                                                  Visteon, a division of Ford Motor Company    1996-1999
</Table>

                                        24
<PAGE>

<Table>
<Caption>
NAME                                     AGE                     POSITION                         PERIOD
- ----                                     ---                     --------                         ------
<S>                                      <C>    <C>                                            <C>
John G. Russell*.....................    47     President and Chief Operating Officer of
                                                  Consumers                                    2004-Present
                                                Executive Vice President, President and
                                                  Chief Executive Officer -- Electric of
                                                  Consumers                                    2001-2004
                                                Senior Vice President of Consumers             2000-2001
                                                Vice President of Consumers                    1999-2000
John F. Drake........................    56     Senior Vice President of CMS Enterprises       2003-Present
                                                Senior Vice President of CMS Energy            2002-Present
                                                Senior Vice President of Consumers             2002-Present
                                                Vice President of CMS Energy                   1997-2002
                                                Vice President of Consumers                    1998-2002
Robert A. Fenech.....................    57     Senior Vice President of Consumers             1997-Present
                                                Vice President of Consumers                    1994-1997
Frank Johnson........................    57     Senior Vice President of Consumers             2001-Present
                                                President, Chief Executive Officer of CMS
                                                  Electric and Gas                             2000-2002
                                                Vice President, Chief Operating Officer of
                                                  CMS Electric and Gas                         2000
                                                Vice President of CMS Electric and Gas         1996-2000
David G. Mengebier**.................    47     Senior Vice President of CMS Enterprises       2003-Present
                                                Senior Vice President of CMS Energy            2001-Present
                                                Senior Vice President of Consumers             2001-Present
                                                Vice President of CMS Energy                   1999-2001
                                                Vice President of Consumers                    1999-2001
Paul N. Preketes.....................    55     Senior Vice President of Consumers             1999-Present
                                                Vice President of Consumers                    1994-1999
Glenn P. Barba.......................    39     Vice President, Chief Accounting Officer of
                                                CMS Enterprises                                2003-Present
                                                Vice President, Controller and Chief
                                                  Accounting Officer of CMS Energy             2003-Present
                                                Vice President, Controller and Chief
                                                  Accounting Officer of Consumers              2003-Present
                                                Vice President and Controller of Consumers     2001-2003
                                                Controller of CMS Generation                   1997-2001
</Table>

- -------------------------

 * From July 1997 until October 1999, Mr. Russell served as Manager -- Electric
   Customer Operations of Consumers.

** From 1997 to 1999, Mr. Mengebier served as Executive Director of Federal
   Governmental Affairs for CMS Enterprises.

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

     The present term of office of each of the executive officers extends to the
first meeting of the Board of Directors after the next annual election of
Directors of Consumers (scheduled to be held on May 20, 2005).

AVAILABLE INFORMATION

     CMS Energy's internet address is http://www.cmsenergy.com. You can access
free of charge on our website all of our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and

                                        25
<PAGE>

amendments to those reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act. Such reports are available as soon as practical after they are
electronically filed with the SEC. Also on our website are our:

     - Corporate Governance Principles;

     - Code of Conduct (Code of Business Conduct and Ethics); and

     - Board Committee Charters (including the Audit Committee and the
       Governance and Public Responsibility Committee).

     We will provide this information in print to any shareholder who requests
it.

                              ITEM 2. PROPERTIES.

     Descriptions of CMS Energy's and Consumers' properties are found in the
following sections of Item 1, all of which are incorporated by reference herein:

     - BUSINESS -- GENERAL -- Consumers -- Consumers Properties -- General;

     - BUSINESS -- BUSINESS SEGMENTS -- Consumers Electric Utility
       Operations -- Electric Utility Properties;

     - BUSINESS -- BUSINESS SEGMENTS -- Consumers Gas Utility Operations -- Gas
       Utility Properties;

     - BUSINESS -- BUSINESS SEGMENTS -- Natural Gas Transmission -- Natural Gas
       Transmission Properties;

     - BUSINESS -- BUSINESS SEGMENTS -- Independent Power
       Production -- Independent Power Production Properties; and

     - BUSINESS -- BUSINESS SEGMENTS -- International Energy Distribution.

                           ITEM 3. LEGAL PROCEEDINGS.

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

CMS ENERGY

SEC REQUEST

     On August 5, 2004, CMS Energy received a request from the SEC that CMS
Energy voluntarily produce all documents and data relating to the SEC's inquiry
into payments made to the government and officials of the government of
Equatorial Guinea. On August 17, 2004, CMS Energy submitted its response,
advising the SEC of the information and documentation it had available. On March
8, 2005, CMS Energy received a request from the SEC that CMS Energy voluntarily
produce certain of such documents.

     From 1991 through January 3, 2002, subsidiaries of CMS Energy held interest
in, and beginning in 1995 operated, hydrocarbon production and processing
facilities and a methanol plant in Equatorial Guinea. On January 3, 2002, CMS
Energy sold all its Equatorial Guinea holdings. The SEC's inquiry follows an
investigation and public hearing conducted by the United States Senate Permanent
Subcommittee on investigations, which reviewed the U.S. banking transactions of
various foreign governments, including that of Equatorial Guinea. The
investigation and hearing also reviewed the operations of certain U.S. oil
companies in Equatorial Guinea. There

                                        26
<PAGE>

were no findings of violations of the U.S. Foreign Corrupt Practices Act by the
U.S. oil companies in the report of the Minority Staff of the Subcommittee, the
only report issued to date as a result of the hearing. The Subcommittee did find
that oil companies operating in Equatorial Guinea may have contributed to
corrupt practices in that country.

DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS

     In May 2002, 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 certain 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. In December 2002, two new directors were appointed
to the Board. The Board formed a special litigation committee in January 2003 to
determine whether it is in CMS Energy's best interest to bring the action
demanded by the shareholder. The disinterested members of the Board appointed
the two new directors to serve on the special litigation committee.

     In December 2003, during the continuing review by the special litigation
committee, CMS Energy was served with a derivative complaint filed on behalf of
the shareholder in the Circuit Court of Jackson County, Michigan in furtherance
of his demands. CMS Energy cannot predict the outcome of this matter.

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 dozens of other energy
companies. The court ordered the Cornerstone complaint to be consolidated with
similar complaints filed by Dominick Viola and Roberto Calle Gracey. The
plaintiffs filed a consolidated complaint on January 20, 2004. The consolidated
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. Plaintiffs are seeking to have a class
certified and to have the class recover actual damages and costs, including
attorneys fees. CMS Energy is no longer a defendant, however, CMS MST and CMS
Field Services are named as defendants. (CMS Energy sold CMS Field Services to
Cantera Natural Gas, LLC, which changed the name from CMS Field Services to
Cantera Gas Company. CMS Energy is required to indemnify Cantera Natural Gas,
LLC with respect to this action.)

     In a similar but unrelated matter, Texas-Ohio Energy, Inc. filed a putative
class action lawsuit in the United States District Court for the Eastern
District of California in November 2003 against a number of energy companies
engaged in the sale of natural gas in the United States. CMS Energy is named as
a defendant. The complaint alleges defendants entered into a price-fixing scheme
by engaging in activities to manipulate the price of natural gas in California.
The complaint contains counts alleging violations of the federal Sherman Act,
the California Cartwright Act, and the California Business and Professions Code
relating to unlawful, unfair and deceptive business practices. The complaint
seeks both actual and exemplary damages for alleged overcharges, attorneys fees
and injunctive relief regulating defendants' future conduct relating to pricing
and price reporting. In April 2004, a Nevada multi district court litigation
(MDL) panel decided to transfer the Texas-Ohio case to a pending MDL matter in
the Nevada federal district court that at the time involved seven complaints
originally filed in various state courts in California. These complaints make
allegations similar to those in the Texas-Ohio case regarding price reporting,
although none contain a federal Sherman Act claim. In November 2004, those seven
complaints, as well as a number of others that were originally filed in various
state courts in California and subsequently transferred to the MDL proceeding,
were remanded back to California state court. The Texas-Ohio case remains in
Nevada federal district court, and defendants, with CMS Energy joining, filed a
motion to dismiss, which remains pending.

     Three federal putative class actions, Fairhaven Power Company v. Encana
Corp. et al., Utility Savings & Refund Services LLP v. Reliant Energy Resources
Inc. et al., and Abelman Art Glass v. Encana Corp. et al., all of which make
allegations similar to those in the Texas-Ohio case regarding price manipulation
and seek similar relief, were originally filed in the United States District
Court for the Eastern District of California in September

                                        27
<PAGE>

2004, November 2004 and December 2004, respectively. The Fairhaven and Abelman
Art Glass cases also include claims for unjust enrichment and a constructive
trust. The three complaints were filed against CMS Energy and many of the other
defendants named in the Texas-Ohio case. In addition, the Utility Savings case
names CMS MST and Cantera Resources Inc. (Cantera Resources Inc. is the parent
of Cantera Natural Gas, LLC. and CMS Energy is required to indemnify Cantera
Natural Gas, LLC and Cantera Resources Inc. with respect to these actions.)

     Both the Fairhaven and Utility Savings cases have been transferred to the
MDL proceeding, where the Texas-Ohio case is pending. Pursuant to stipulation by
the parties and court order, defendants are not required to respond to the
Fairhaven and Utility Savings complaints until the court rules on defendants'
Motion to Dismiss, which is pending in the Texas-Ohio case. Should the court
grant defendants' motion without leave to amend, any remaining cases in the MDL
proceeding shall be refiled as a consolidated complaint within 20 days of such
ruling. If the motion is denied, or granted with leave to amend, the Texas-Ohio
case and any others pending in the MDL proceeding shall be refiled as a
consolidated complaint within 20 days of the court's ruling. In February 2005,
the Abelman Art Glass case was conditionally transferred to the MDL proceeding.
Abelman Art Glass has until March 10, 2005 to oppose the conditional transfer
order.

     Commencing in or about February 2004, 15 state law complaints containing
allegations similar to those made in the Texas-Ohio case, but generally limited
to the California Cartwright Act and unjust enrichment, were filed in various
California state courts against many of the same defendants named in the federal
price manipulation cases discussed above. In addition to CMS Energy, CMS MST is
named in all of the 15 state law complaints. Cantera Gas Company and Cantera
Natural Gas, LLC (erroneously sued as Cantera Natural Gas, Inc.) are named in
all but the Benscheidt complaint. Two of these cases are styled as class
actions, Benscheidt v. AEP Energy Services, Inc., et al. and Older v. Sempra
Energy, et al., and include a claim for violation of the California Business and
Professions Code relating to unlawful, unfair and deceptive business practices.
Two others, City and County of San Francisco and the People of the State of
California, ex rel. Dennis J. Herrera, in his official capacity as City Attorney
for the City and County of San Francisco v. Sempra Energy, et al. and
Owens-Brockway Glass Container Inc. v. Sempra Energy et al., also include such a
claim under the California Business and Professions Code and are styled as
representative actions.

     In February 2005, these 15 separate actions, as well as nine other similar
actions that were filed in California state court but do not name CMS Energy or
any of its former or current subsidiaries, were ordered coordinated with pending
coordinated proceedings in the San Diego Superior Court. The pending coordinated
proceedings, Natural Gas Antitrust Cases I-IV, involve an alleged 1990's
conspiracy by major gas pipeline companies not to build a new pipeline into
Southern California, and a conspiracy to limit gas transmission over an existing
pipeline. The 24 state court complaints involving price reporting were
coordinated as Natural Gas Antitrust Cases V. Plaintiffs in Natural Gas
Antitrust Cases V have been ordered to file a consolidated complaint.

     Samuel D. Leggett, et al v. Duke Energy Corporation, et al, a class action
complaint brought on behalf of retail and business purchasers of natural gas in
Tennessee, was filed in the Chancery Court of Fayette County, Tennessee in
January 2005. The complaint contains claims for violations of the Tennessee
Trade Practices Act based upon allegations of false reporting of price
information by defendants to publications that compile and publish indices of
natural gas prices for various natural gas hubs. The complaint seeks statutory
full consideration damages and attorneys fees and injunctive relief regulating
defendants' future conduct. The defendants include CMS Energy, CMS MST and CMS
Field Services.

     CMS Energy and the other CMS defendants will defend themselves vigorously
against these matters but cannot predict their outcome.

ROUND-TRIP TRADING INVESTIGATIONS

     During the period of May 2000 through January 2002, CMS MST engaged in
simultaneous, prearranged commodity trading transactions in which energy
commodities were sold and repurchased at the same price. These so called
round-trip trades had no impact on previously reported consolidated net income,
earnings per share, or

                                        28
<PAGE>

cash flows, but had the effect of increasing operating revenues, operating
expenses, accounts receivable, accounts payable, and reported trading volumes.

     CMS Energy is cooperating with an investigation by the DOJ concerning
round-trip trading, which the DOJ commenced in May 2002. CMS Energy is unable to
predict the outcome of this matter and what effect, if any, this investigation
will have on its business. In March 2004, the SEC approved a cease-and-desist
order settling an administrative action against CMS Energy related to round-trip
trading. The order did not assess a fine and CMS Energy neither admitted to nor
denied the order's findings. The settlement resolved the SEC investigation
involving CMS Energy and CMS MST.

CMS ENERGY AND CONSUMERS

EMPLOYMENT RETIREMENT INCOME SECURITY ACT 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 Employees'
Savings and Incentive Plan (the "Plan"). The two cases, filed in July 2002 in
United States 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 CMS
Energy Common Stock held in the Plan. Plaintiffs also seek other equitable
relief and legal fees. The judge issued an opinion and order dated March 31,
2004 in connection with the motions to dismiss filed by CMS Energy, Consumers
and the individuals. The judge dismissed certain of the amended counts in the
plaintiffs' complaint and denied CMS Energy's motion to dismiss the other claims
in the complaint. CMS Energy, Consumers and the individual defendants filed
answers to the amended complaint on May 14, 2004. The judge issued an opinion
and order dated December 27, 2004, conditionally granting plaintiffs' motion for
class certification. A trial date has not been set, but is expected to be no
earlier than late in 2005. CMS Energy and Consumers will defend themselves
vigorously but 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 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 judge issued an opinion and order dated March 31, 2004
in connection with various pending motions, including plaintiffs' motion to
amend the complaint and the motions to dismiss the complaint filed by CMS
Energy, Consumers and other defendants. The judge directed plaintiffs to file an
amended complaint under seal and ordered an expedited hearing on the motion to
amend, which was held on May 12, 2004. At the hearing, the judge ordered
plaintiffs to file a Second Amended Consolidated Class Action complaint deleting
Counts III and IV relating to purchasers of CMS PEPS, which the judge ordered
dismissed with prejudice. Plaintiffs filed this complaint on May 26, 2004. CMS
Energy, Consumers, and the individual defendants filed new motions to dismiss on
June 21, 2004. The judge issued an opinion and order dated January 7, 2005,
granting the motion to dismiss for Consumers and three of the individual
defendants, but denying the motions to dismiss for CMS Energy and the 13
remaining individual defendants. CMS Energy and the individual defendants will
defend themselves vigorously but cannot predict the outcome of this litigation.

                                        29
<PAGE>

ENVIRONMENTAL MATTERS

     CMS Energy and Consumers, as well as 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 legal and factual developments, they believe it is unlikely
that these actions, individually or in total, will have a material adverse
effect on their financial condition or future results of operations. For
additional information, see both CMS Energy's and Consumers' ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS and both CMS Energy's and Consumers' ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

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

CMS ENERGY

     During the fourth quarter of 2004, CMS Energy did not submit any matters to
a vote of security holders.

CONSUMERS

     During the fourth quarter of 2004, Consumers did not submit any matters to
a vote of security holders.

                                        30
<PAGE>

                                    PART II

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

CMS ENERGY

     Market prices for CMS Energy's Common Stock and related security holder
matters are contained in ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND
ANALYSIS and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 17 OF
CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (QUARTERLY FINANCIAL AND
COMMON STOCK INFORMATION), which is incorporated by reference herein. At March
7, 2005, the number of registered holders of CMS Energy Common Stock totaled
57,787. In January 2003, CMS Energy suspended the payment of dividends on its
common stock. Information regarding securities authorized for issuance under
equity compensation plans is included in our definitive proxy statement, which
is incorporated by reference herein.

CONSUMERS

     Consumers' common stock is privately held by its parent, CMS Energy, and
does not trade in the public market. In February, May, August, and November
2004, Consumers paid $77.5 million, $27 million, $81.9 million and $3.6 million
in cash dividends, respectively, on its common stock. In January, May, August
and November 2003, Consumers paid $77.5 million, $31 million, $53 million and
$56.5 million in cash dividends, respectively, on its common stock.

                        ITEM 6. SELECTED FINANCIAL DATA.

CMS ENERGY

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

CONSUMERS

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

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

CMS ENERGY

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

CONSUMERS

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

                                        31
<PAGE>

      ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

CMS ENERGY

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

CONSUMERS

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

                                        32
<PAGE>

              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Financial Statements:

<Table>
<Caption>
                                                                  PAGE
                                                                  ----
<S>                                                             <C>
CMS ENERGY CORPORATION
Selected Financial Information..............................     CMS-2
Management's Discussion and Analysis
  Executive Overview........................................     CMS-3
  Consolidation of Variable Interest Entities...............     CMS-4
  Forward-Looking Statements and Risk Factors...............     CMS-4
  Results of Operations.....................................     CMS-6
  Critical Accounting Policies..............................     CMS-13
  Capital Resources and Liquidity...........................     CMS-23
  Outlook...................................................     CMS-27
  New Accounting Standards..................................     CMS-38
Management's Report on Internal Control Over Financial
  Reporting.................................................     CMS-39
Report of Independent Registered Public Accounting
  Firm -- Internal Control..................................     CMS-40
MCV Management's Report on Internal Control Over Financial
  Reporting.................................................     CMS-41
Consolidated Financial Statements
  Consolidated Statements of Income (Loss)..................     CMS-42
  Consolidated Statements of Cash Flows.....................     CMS-44
  Consolidated Balance Sheets...............................     CMS-46
  Consolidated Statements of Common Stockholders' Equity....     CMS-48
Notes to Consolidated Financial Statements:
   1. Corporate Structure and Accounting Policies...........     CMS-51
   2. Discontinued Operations, Other Asset Sales,
      Impairments, and Restructuring........................     CMS-57
   3. Contingencies.........................................     CMS-62
   4. Financings and Capitalization.........................     CMS-75
   5. Earnings Per Share....................................     CMS-82
   6. Financial and Derivative Instruments..................     CMS-83
   7. Retirement Benefits...................................     CMS-88
   8. Asset Retirement Obligations..........................     CMS-93
   9. Income Taxes..........................................     CMS-95
  10. Executive Incentive Compensation......................     CMS-97
  11. Leases................................................    CMS-100
  12. Equity Method Investments.............................    CMS-101
  13. Goodwill..............................................    CMS-105
  14. Jointly Owned Regulated Utility Facilities............    CMS-105
  15. Reportable Segments...................................    CMS-106
  16. Implementation of New Accounting Standards............    CMS-108
  17. Quarterly Financial and Common Stock Information
     (Unaudited)............................................    CMS-111
Reports of Independent Registered Public Accounting Firms...    CMS-113
</Table>

                                        33
<PAGE>

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
CONSUMERS ENERGY COMPANY
Selected Financial Information..............................   CE-2
Management's Discussion and Analysis
  Executive Overview........................................   CE-3
  Consolidation of the MCV Partnership and the FMLP.........   CE-4
  Forward-Looking Statements and Risk Factors...............   CE-4
  Results of Operations.....................................   CE-6
  Critical Accounting Policies..............................  CE-10
  Capital Resources and Liquidity...........................  CE-18
  Outlook...................................................  CE-21
  New Accounting Standards..................................  CE-31
Management's Report on Internal Controls Over Financial
  Reporting.................................................  CE-32
Report of Independent Registered Public Accounting
  Firm -- Internal Control..................................  CE-33
MCV Management's Report on Internal Control Over Financial
  Reporting.................................................  CE-34
Consolidated Financial Statements
  Consolidated Statements of Income.........................  CE-35
  Consolidated Statements of Cash Flows.....................  CE-36
  Consolidated Balance Sheets...............................  CE-38
  Consolidated Statements of Common Stockholder's Equity....  CE-40
Notes to Consolidated Financial Statements:
   1. Corporate Structure and Accounting Policies...........  CE-43
   2. Contingencies.........................................  CE-48
   3. Financings and Capitalization.........................  CE-59
   4. Financial and Derivative Instruments..................  CE-63
   5. Retirement Benefits...................................  CE-67
   6. Asset Retirement Obligations..........................  CE-72
   7. Income Taxes..........................................  CE-74
   8. Executive Incentive Compensation......................  CE-75
   9. Leases................................................  CE-77
  10. Summarized Financial Information of Significant
      Related Energy Supplier...............................  CE-78
  11. Jointly Owned Regulated Utility Facilities............  CE-80
  12. Reportable Segments...................................  CE-80
  13. Implementation of New Accounting Standards............  CE-82
  14. Quarterly Financial and Common Stock Information
     (Unaudited)............................................  CE-84
Reports of Independent Registered Public Accounting Firms...  CE-85
</Table>

                                        34
<PAGE>

                               (CMS ENERGY LOGO)

                     2004 CONSOLIDATED FINANCIAL STATEMENTS

                                      CMS-1
<PAGE>

                             CMS ENERGY CORPORATION
                         SELECTED FINANCIAL INFORMATION

<Table>
<Caption>
                                                           2004      2003      2002      2001      2000
                                                           ----      ----      ----      ----      ----
<S>                                                  <C>  <C>       <C>       <C>       <C>       <C>
Operating revenue (in millions)....................  ($)    5,472     5,513     8,673     8,006     6,623
Earnings from equity method investees (in
  millions)........................................  ($)      115       164        92       172       213
Income (loss) from continuing operations (in
  millions)........................................  ($)      127       (42)     (394)     (327)      (85)
Cumulative effect of change in accounting (in
  millions)........................................  ($)       (2)      (24)       18        (4)       --
Net income (loss) (in millions)....................  ($)      121       (43)     (650)     (459)        5
Net income (loss) available to common stockholders
  (in millions)....................................  ($)      110       (44)     (650)     (459)        5
Average common shares outstanding (in thousands)...       168,553   150,434   139,047   130,758   113,128
Net income (loss) from continuing operations per
  average common share
    CMS Energy -- Basic............................  ($)     0.68     (0.30)    (2.84)    (2.50)    (0.76)
                 -- Diluted........................  ($)     0.67     (0.30)    (2.84)    (2.50)    (0.76)
Cumulative effect of change in accounting per
  average common share
    CMS Energy -- Basic............................  ($)    (0.01)    (0.16)     0.13     (0.03)       --
                 -- Diluted........................  ($)    (0.01)    (0.16)     0.13     (0.03)       --
Income (loss) per average common share
    CMS Energy -- Basic............................  ($)     0.65     (0.30)    (4.68)    (3.51)     0.04
                 -- Diluted........................  ($)     0.64     (0.30)    (4.68)    (3.51)     0.04
Cash provided by (used in) operations (in
  millions)........................................  ($)      398      (250)      614       372       600
Capital expenditures, excluding acquisitions,
  capital lease additions and DSM (in millions)....  ($)      525       535       747     1,239     1,032
Total assets (in millions)(a)......................  ($)   15,872    13,838    14,781    17,633    17,801
Long-term debt, excluding current portion (in
  millions)(a).....................................  ($)    6,444     6,020     5,357     5,842     6,052
Long-term debt-related parties, excluding current
  portion (in millions)(b).........................  ($)      504       684        --        --        --
Non-current portion of capital leases (in
  millions)........................................  ($)      315        58       116        71        49
Total preferred stock (in millions)................  ($)      305       305        44        44        44
Total Trust Preferred Securities (in
  millions)(b).....................................  ($)       --        --       883     1,214     1,088
Cash dividends declared per common share...........  ($)       --        --      1.09      1.46      1.46
Market price of common stock at year-end...........  ($)    10.45      8.52      9.44     24.03     31.69
Book value per common share at year-end............  ($)    10.62      9.84      7.48     14.98     19.62
Number of employees at year-end (full-time
  equivalents).....................................         8,660     8,411    10,477    11,510    11,652
ELECTRIC UTILITY STATISTICS
  Sales (billions of kWh)..........................            40        39        39        40        41
  Customers (in thousands).........................         1,772     1,754     1,734     1,712     1,691
  Average sales rate per kWh.......................  ($)     6.88      6.91      6.88      6.65      6.56
GAS UTILITY STATISTICS
  Sales and transportation deliveries (bcf)........           385       380       376       367       410
  Customers (in thousands)(c)......................         1,691     1,671     1,652     1,630     1,611
  Average sales rate per mcf.......................  ($)     8.04      6.72      5.67      5.34      4.39
</Table>

- -------------------------
(a)  Under revised FASB Interpretation No. 46, we are the primary beneficiary of
     the MCV Partnership and the FMLP. As a result, we have consolidated their
     assets, liabilities and activities into our financial statements as of and
     for the year ended December 31, 2004. These partnerships had third party
     obligations totaling $582 million at December 31, 2004. Property, plant and
     equipment serving as collateral for these obligations had a carrying value
     of $1.426 billion at December 31, 2004.

(b)  Effective December 31, 2003, Trust Preferred Securities are classified on
     the balance sheet as long-term debt-related parties.

(c)  Excludes off-system transportation customers.

                                      CMS-2
<PAGE>

                             CMS Energy Corporation
                      Management's Discussion and Analysis

     This MD&A is a consolidated report of CMS Energy and Consumers. The terms
"we" and "our" as used in this report refer to CMS Energy and its subsidiaries
as a consolidated entity, except where it is clear that such term means only CMS
Energy.

EXECUTIVE OVERVIEW

     CMS Energy is an integrated energy company with a business strategy focused
primarily in Michigan. We are the parent holding company of Consumers and
Enterprises. Consumers is a combination electric and gas utility company serving
Michigan's Lower Peninsula. Enterprises, through various subsidiaries and equity
investments, is engaged in domestic and international diversified energy
businesses including independent power production and natural gas transmission,
storage, and processing. We manage our businesses by the nature of services each
provides. We operate principally in three business segments: electric utility,
gas utility, and enterprises.

     We earn our revenue and generate cash from operations by providing electric
and natural gas utility services, electric power generation, gas transmission,
storage, and processing. Our businesses are affected primarily by:

     - weather, especially during the traditional heating and cooling seasons,

     - economic conditions primarily in Michigan,

     - regulation and regulatory issues that affect our gas and electric utility
       operations,

     - interest rates,

     - our debt credit rating, and

     - energy commodity prices.

     Our business strategy involves improving our balance sheet and maintaining
focus on our core strength: superior utility operation and service. Our primary
focus with respect to our non-utility businesses has been to optimize cash flow
and further reduce our business risk and leverage through the sale of
non-strategic assets, and to improve earnings and cash flow from the businesses
we plan to retain. Although much of our asset sales program is complete, we
still may sell certain remaining businesses that are not strategic to us. Over
the next few years, we expect that this strategy will result in reduced parent
company debt, improved credit ratings, earnings growth, restoration of a common
stock dividend, and a company positioned to make new investments consistent with
our strengths. In the near term, our new investments will focus principally on
the utility.

     We face important challenges in the future. We continue to lose industrial
and commercial customers to alternative electric suppliers as a result of
Michigan's Customer Choice Act. As of March 2005, we have lost 900 MW, or 12
percent, of our electric load to these alternative electric suppliers. Based on
current trends, we predict total load loss by the end of 2005 to be in the range
of 1,000 MW to 1,200 MW. However, no assurance can be made that the actual load
loss will fall within that range. Existing state legislation encourages
competition and provides for recovery of Stranded Costs caused by the lost
sales. In fact, in November 2004, the MPSC ordered Consumers to recover 2002 and
2003 Stranded Costs in the amount of $63 million. In 2004, several bills were
introduced into the Michigan Senate that could change Michigan's Customer Choice
Act.

     Another important challenge relates to the economics of the MCV
Partnership. The MCV Partnership's costs of producing electricity are tied to
the cost of natural gas. Because natural gas prices have increased substantially
in recent years and the price the MCV Partnership can charge us for energy has
not, the MCV Partnership's financial performance has been impacted negatively.
In January 2005, the MPSC issued an order approving the RCP to change the way
the facility is used. The purpose of the RCP is to conserve natural gas

                                      CMS-3
<PAGE>

through a change in the dispatch of the MCV Facility and thereby improve the
financial performance of the MCV Partnership without increased costs to
customers. The approved plan will:

     - allow for dispatching the MCV Facility based on natural gas market
       prices, which is expected to reduce gas consumption by an estimated 30 to
       40 bcf per year,

     - allocate 50 percent of Consumers' direct savings to customers in 2005 and
       70 percent of Consumers' direct savings to customers thereafter, and

     - fund $5 million annually for renewable energy sources such as wind power
       projects.

     Our business plan is targeted at predictable earnings growth and debt
reduction. Between 2001 and 2003, we reduced parent debt (ie: excluding
Consumers' and other subsidiaries' debt) by 50 percent. We are now in the second
year of a five-year plan to reduce further, by about half, the debt of CMS
Energy. In 2004, we issued 32.8 million shares of our common stock. We also
issued over $1 billion in FMBs and $288 million of convertible senior notes.
Proceeds from these transactions were used to retire higher-interest rate
long-term debt and to make capital infusions of $250 million into Consumers,
providing additional liquidity and flexibility for our utility operations. In
January 2005, we continued to retire higher-interest rate debt through the use
of proceeds from the issuance of $150 million of CMS Energy senior notes and
$250 million of Consumers' FMBs. We also infused an additional $200 million into
Consumers in January 2005. These efforts, and others, are designed to lead us to
be a strong, reliable energy company that will be poised to take advantage of
opportunities for further growth.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

     Under Revised FASB Interpretation No. 46, we are the primary beneficiary of
several entities, most notably the MCV Partnership and the FMLP. As a result, we
have consolidated the assets, liabilities, and activities of these entities into
our financial statements as of and for the year ended December 31, 2004. These
entities are reported as equity method investments in our financial statements
for all periods prior to January 1, 2004. For additional details, see Note 16,
Implementation of New Accounting Standards.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     This Form 10-K and other written and oral statements that we make contain
forward-looking statements as defined in Rule 3b-6 of the Securities Exchange
Act of 1934, as amended, Rule 175 of the Securities Exchange Act of 1933, as
amended, and relevant legal decisions. Our intention with the use of such words
as "may," "could," "anticipates," "believes," "estimates," "expects," "intends,"
"plans," and other similar words is to identify forward-looking statements that
involve risk and uncertainty. We designed this discussion of potential risks and
uncertainties to highlight important factors that may impact our business and
financial outlook. We have 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 the statements. These
forward-looking statements are subject to various factors that could cause our
actual results to differ materially from the results anticipated in these
statements. Such factors include our inability to predict and/or control:

     - capital and financial market conditions, including the price of CMS
       Energy Common Stock and the effect of such market conditions on the
       Pension Plan, interest rates, and access to the capital markets as well
       as availability of financing to CMS Energy, Consumers, or any of their
       affiliates, and the energy industry,

     - market perception of the energy industry, CMS Energy, Consumers, or any
       of their affiliates,

     - credit ratings of CMS Energy, Consumers, or any of their affiliates,

     - currency fluctuations, transfer restrictions, and exchange controls,

     - factors affecting utility and diversified energy operations such as
       unusual weather conditions, catastrophic weather-related damage,
       unscheduled generation outages, maintenance or repairs, environmental
       incidents, or electric transmission or gas pipeline system constraints,

     - international, national, regional, and local economic, competitive, and
       regulatory policies, conditions and developments,
                                      CMS-4
<PAGE>

     - adverse regulatory or legal decisions, including those related to
       environmental laws and regulations, and potential environmental
       remediation costs associated with such decisions,

     - potentially adverse regulatory treatment and/or regulatory lag concerning
       a number of significant questions presently before the MPSC relating to
       the Customer Choice Act including:

        - recovery of future Stranded Costs incurred due to customers choosing
          alternative energy suppliers,

        - recovery of Clean Air Act costs and other environmental and
          safety-related expenditures,

        - power supply and natural gas supply costs when oil prices and other
          fuel prices are rapidly increasing,

        - timely recognition in rates of additional equity investments in
          Consumers, and

        - adequate and timely recovery of additional electric and gas rate-based
          expenditures,

     - the impact of adverse natural gas prices on the MCV Partnership
       investment, and regulatory decisions that limit our recovery of capacity
       and fixed energy payments,

     - federal regulation of electric sales and transmission of electricity
       including periodic re-examination by federal regulators of the
       market-based sales authorizations under which our subsidiaries
       participate in wholesale power markets without price restrictions,

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

     - potential for the Midwest Energy Market to develop into an active energy
       market in the state of Michigan, which may lead us to account for
       electric capacity and energy contracts with the MCV Partnership and other
       independent power producers as derivatives,

     - the GAAP requirement that we utilize mark-to-market accounting on certain
       of our energy commodity contracts and interest rate swaps, which may
       have, in any given period, a significant positive or negative effect on
       earnings, which could change dramatically or be eliminated in subsequent
       periods and could add to earnings volatility,

     - potential disruption, expropriation or interruption of facilities or
       operations due to accidents, war, terrorism, or changing political
       conditions and the ability to obtain or maintain insurance coverage for
       such events,

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

     - technological developments in energy production, delivery, and usage,

     - achievement of capital expenditure and operating expense goals,

     - changes in financial or regulatory accounting principles or policies,

     - outcome, cost, and other effects of legal and administrative proceedings,
       settlements, investigations and claims, including particularly claims,
       damages, and fines resulting from round-trip trading and inaccurate
       commodity price reporting, including investigations by the DOJ regarding
       round-trip trading and price reporting,

     - limitations on our ability to control the development or operation of
       projects in which our subsidiaries have a minority interest,

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

                                      CMS-5
<PAGE>

     - the efficient sale of non-strategic or under-performing domestic or
       international assets and discontinuation of certain operations,

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

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

RESULTS OF OPERATIONS

     Our business strategy involves improving our balance sheet and maintaining
focus on our core strength: superior utility operation and service. Our primary
focus with respect to our non-utility businesses has been to optimize cash flow
and further reduce our business risk and leverage through the sale of
non-strategic assets, and to improve earnings and cash flow from the businesses
we plan to retain. The level of inflation in the U.S. and in other countries in
which we have businesses or investments has not had a significant effect on our
consolidated results of operations.

CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004       2003        2002
- -----------------------                                         ----       ----        ----
                                                                 IN MILLIONS (EXCEPT FOR PER
                                                                       SHARE AMOUNTS)
<S>                                                             <C>      <C>         <C>
Net Income (Loss) Available to Common Stockholders..........    $ 110     $  (44)     $ (650)
Basic Earnings (Loss) Per Share.............................    $0.65     $(0.30)     $(4.68)
Diluted Earnings (Loss) Per Share...........................    $0.64     $(0.30)     $(4.68)
</Table>

<Table>
<Caption>
YEARS ENDED DECEMBER 31                         2004       2003      CHANGE      2003        2002      CHANGE
- -----------------------                         ----       ----      ------      ----        ----      ------
                                                                         IN MILLIONS
<S>                                             <C>      <C>         <C>       <C>         <C>         <C>
Electric Utility............................    $ 223     $ 167       $ 56      $ 167       $ 264      $ (97)
Gas Utility.................................       71        38         33         38          46         (8)
Enterprises.................................       19         8         11          8        (419)       427
Corporate Interest and Other................     (197)     (256)        59       (256)       (285)        29
Discontinued Operations.....................       (4)       23        (27)        23        (274)       297
Accounting Changes..........................       (2)      (24)        22        (24)         18        (42)
                                                -----     -----       ----      -----       -----      -----
Net Income (Loss) Available to Common
  Stockholders..............................    $ 110     $ (44)      $154      $ (44)      $(650)     $ 606
                                                =====     =====       ====      =====       =====      =====
</Table>

     2004 COMPARED TO 2003: For the year ended December 31, 2004, our net income
available to common stockholders was $110 million, compared to a net loss
available to common stockholders of $44 million for the year ended December 31,
2003. The improvement reflects the increased earnings from our utility due in
large part to rulings from the MPSC. The increase also reflects our continued
commitment to cost management, the continued reduction of debt at our parent
company, lower interest expense from refinanced debt, and benefits from recent
tax legislation. This improvement was offset partially by increased impairment
charges as we continued to dispose of certain businesses that are not strategic
to us. Net income was also reduced by an environmental remediation charge
related to our involvement in Bay Harbor.

     Specific increases to net income available to common stockholders are:

     - a $56 million increase in net income at our electric utility as favorable
       treatment of depreciation and interest under the Customer Choice Act and
       reduced pension and benefit costs more than offset the effects of milder
       weather, reduced tariff revenues equivalent to the Big Rock nuclear
       decommissioning surcharge, and customers choosing alternative electric
       suppliers,

     - a $56 million net reduction in corporate interest expense,

     - a $35 million net gain from the 2004 sales of our Parmelia business and
       our interest in Goldfields;

                                      CMS-6
<PAGE>

     - a $33 million increase in net income at our gas utility resulting from
       favorable impacts of MPSC rate orders, reduced pension and benefit costs
       outpacing increased interest costs, and the effects of milder weather,

     - a $21 million income tax benefit recorded at Enterprises resulting from
       the American Jobs Creation Act of 2004,

     - a $20 million net reduction in operating and maintenance expenses at
       Enterprises resulting from a reduction in expenses at CMS ERM, which sold
       its non-essential business segments and moved its headquarters from
       Houston, Texas to Jackson, Michigan in 2003,

     - a $5 million net reduction in debt retirement charges,

     - a $22 million reduction in charges related to changes in accounting, and

     - the absence in 2004 of a $34 million deferred tax asset valuation reserve
       established in 2003.

     These increases were offset partially by:

     - a $36 million increase in net asset impairment charges,

     - a $29 million net environmental remediation charge associated with our
       involvement in Bay Harbor,

     - a $10 million increase in the declaration and payment of CMS Energy
       preferred dividends;

     - the absence in 2004 of $30 million of MSBT refunds received in 2003, and

     - the absence in 2004 of $23 million in gains in Discontinued Operations
       recorded in 2003.

     2003 COMPARED TO 2002: For the year ended December 31, 2003, our net loss
available to common stockholders was $44 million, compared to a net loss
available to common stockholders of $650 million for the year ended December 31,
2002. The improvement reflects the absence of impairment charges from businesses
that were not strategic to us, reduced corporate debt, and increased earnings
from equity method investments. These improvements were offset partially by
lower earnings at our electric utility, a net settlement and curtailment loss
related to our employee benefit plans, and changes in accounting.

     Specific increases to net income available to common stockholders are:

     - the absence in 2003 of $379 million of net goodwill impairments
       associated with discontinued operations recorded in 2002,

     - a $427 million increase in net income at Enterprises, primarily due to a
       significant reduction in asset impairment charges and increased earnings
       from equity investments,

     - $30 million of MSBT refunds, and

     - a $25 million net reduction in corporate interest.

     These increases were offset partially by:

     - a $97 million reduction in net income from our electric utility due to
       the impact of milder weather on electric deliveries, higher pension
       expense, greater depreciation and amortization expense, and customers
       choosing alternative electric suppliers,

     - a $48 million net settlement and curtailment charge related to a large
       number of employees retiring and exiting our employee benefit plans,

     - a $44 million net loss on the sale of Panhandle,

     - a $34 million deferred tax asset valuation reserve established in 2003,

     - a $24 million charge related to changes in accounting primarily due to
       energy trading contracts that did not meet the definition of a
       derivative, and

                                      CMS-7
<PAGE>

     - an $8 million decrease in net income at our gas utility primarily due to
       increased pension and benefit expense, greater depreciation expense and
       higher average debt levels, offset partially by the favorable impact of a
       MPSC rate order.

ELECTRIC UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                2004    2003    CHANGE    2003    2002    CHANGE
- -----------------------                                ----    ----    ------    ----    ----    ------
                                                                         IN MILLIONS
<S>                                                    <C>     <C>     <C>       <C>     <C>     <C>
Net income.........................................    $223    $167     $ 56     $167    $264     $(97)
                                                       ====    ====     ====     ====    ====     ====
REASONS FOR THE CHANGE:
Electric deliveries................................                     $(34)                     $(41)
Power supply costs and related revenue.............                      (31)                       26
Other operating expenses, other income and
  non-commodity revenue............................                       86                       (80)
Regulatory return on capital expenditures..........                      113                        --
Gain on asset sales................................                       --                       (38)
General taxes......................................                       (8)                       10
Fixed charges......................................                      (40)                      (22)
Income taxes.......................................                      (30)                       48
                                                                        ----                      ----
Total change.......................................                     $ 56                      $(97)
                                                                        ====                      ====
</Table>

     ELECTRIC DELIVERIES: For the year 2004, electric deliveries including
transactions with other wholesale marketers, other electric utilities, and
customers choosing alternative electric suppliers increased 1.3 billion kWh or
3.3 percent versus 2003. Despite the increase in electric deliveries, electric
delivery revenue decreased due to the milder summer temperatures' negative
impact on higher margin residential customer air conditioning usage, customers
choosing alternative electric suppliers, and tariff revenue reductions. The
tariff revenue reductions began on January 1, 2004, and were equivalent to the
Big Rock nuclear decommissioning surcharge in effect when our electric retail
rates were frozen from June 2000 through December 31, 2003. The tariff revenue
reductions decreased electric delivery revenue by $35 million.

     Surcharges related to the recovery of costs incurred in the transition to
customer choice offset partially the reductions to electric delivery revenue.
Recovery of these costs began on July 1, 2004 and increased electric delivery
revenue by $10 million.

     For the year 2003, electric delivery revenue decreased, reflecting lower
deliveries versus 2002. Most significantly, sales volumes to commercial and
industrial customers were lower than in 2002, a result of these sectors'
continued migration to alternative electric suppliers as allowed by the Customer
Choice Act. Milder summer temperatures reduced air conditioning usage by the
higher-margin residential customers, further decreasing electric delivery
revenue. Overall, electric deliveries, including transactions with other
wholesale marketers and other electric utilities, decreased 0.4 billion kWh or
1.1 percent.

     POWER SUPPLY COSTS AND RELATED REVENUE: For the year 2004, our recovery of
power supply costs was capped for the residential and small commercial customer
classes. Operating income decreased $31 million in 2004 versus 2003 primarily
due to power supply-related costs exceeding power supply-related revenue charged
to capped customers. Power supply-related costs increased in 2004 primarily due
to higher priced purchased power necessary to replace the generation loss from
an extended refueling outage at our Palisades nuclear generating plant and
higher coal prices.

     For the year 2003, our recovery of power supply costs was fixed for all
customers, as required under the Customer Choice Act. Therefore, power
supply-related revenue in excess of actual power supply costs increased
operating income. By contrast, if power supply-related revenue had been less
than actual power supply costs, the impact would have decreased operating
income. For the year 2003, power supply-related revenue in excess of actual
power supply costs benefited operating income by $26 million versus 2002. This
increase was primarily the

                                      CMS-8
<PAGE>

result of increased intersystem revenue, efficient operation of our generating
plants, and lower priced purchased power.

     OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: For the
year 2004, other income increased $7 million, other operating expenses decreased
$82 million, and non-commodity revenue decreased $3 million versus 2003. Other
income increased primarily due to $7 million of interest income related to our
2002 and 2003 Stranded Cost recovery as authorized by the MPSC. Our recognition
of this recovery decreased operating expense $57 million in 2004, and along with
decreased depreciation, pension, and benefit costs contributed to the reduction
in other operating expenses. The decrease in depreciation expense reflects our
ability to defer depreciation expense on the excess of capital expenditures over
our depreciation base as authorized by the Customer Choice Act. The decrease in
pension expense reflects fewer current year retirees choosing to receive a
single lump sum distribution and increased plan earnings from higher average
plan assets. The reduction in benefit expense is due to the subsidy provided
under Part D of the Medicare Prescription Drug, Improvement and Modernization
Act.

     For the year 2003, net other operating expenses, other income and
non-commodity revenue decreased operating income versus 2002. The decrease
related to increased pension and other benefit costs, a scheduled refueling
outage at Palisades, and higher transmission costs. In addition, depreciation
and amortization expense increased, reflecting higher levels of plant in
service, and higher amortization of securitized assets. Higher non-commodity
revenue associated with other income offset slightly the increased operating
expenses.

     REGULATORY RETURN ON CAPITAL EXPENDITURES: As allowed by Section 10d(4) of
the Customer Choice Act, on January 1, 2004, we began recording the 2004 portion
of the return on certain capital expenditures incurred during the rate freeze
period of June 2000 through December 2003. This increased income by $41 million
in 2004. Based on an interpretation of the Customer Choice Act by the MPSC in a
rate order involving Detroit Edison, in November 2004 we recorded an additional
$72 million return on Clean Air Act costs incurred during the period of June
2000 through December 2003.

     GAIN ON ASSET SALES: The reduction in operating income from asset sales for
2003 versus 2002 reflected the $31 million pretax gain associated with the 2002
sale of our electric transmission system and the $7 million pretax gain
associated with the 2002 sale of nuclear equipment from the cancelled Midland
project.

     GENERAL TAXES: For the year 2004, general taxes increased primarily due to
increases in property tax expense and the absence of a MSBT credit received in
2003. The 2003 MSBT credit was associated with the construction of our corporate
headquarters on a qualifying Brownfield site. For the year 2003, this MSBT
credit decreased general taxes versus 2002.

     FIXED CHARGES: Fixed charges increased for the year 2004 versus 2003 due to
higher average debt levels, offset partially by a 46 basis point reduction in
the average rate of interest. Additionally, to recognize a recently issued
interpretation of the Customer Choice Act by the MPSC, we expensed $31 million
of capitalized interest in November related to Clean Air Act costs incurred
during the period of June 2000 through December 2003.

     For the year 2003, fixed charges increased versus 2002 due to higher
average debt levels and higher average interest rates.

     INCOME TAXES: For the year 2004, income taxes increased due to increased
earnings from the electric utility versus 2003. The increase in income taxes
from the tax treatment of items related to plant, property and equipment as
required by past MPSC orders was offset by Part D of the Medicare Prescription
Drug, Improvement and Modernization Act which provides a subsidy that is exempt
from federal taxation. For the year 2003, income tax expense decreased versus
2002 primarily due to lower earnings by the electric utility.

                                      CMS-9
<PAGE>

GAS UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                   2004    2003    CHANGE    2003    2002    CHANGE
- -----------------------                                   ----    ----    ------    ----    ----    ------
                                                                            IN MILLIONS
<S>                                                       <C>     <C>     <C>       <C>     <C>     <C>
Net income............................................    $71     $38      $ 33     $38     $46      $ (8)
                                                          ===     ===      ====     ===     ===      ====
Reasons for the change:
Gas deliveries........................................                     $ (7)                     $ (1)
Gas rate increase.....................................                       28                        39
Gas wholesale and retail services, other gas revenue
  and
  other income........................................                        8                         2
Operation and maintenance.............................                       11                       (34)
General taxes.........................................                       (4)                        3
Depreciation..........................................                       16                       (10)
Fixed charges.........................................                      (14)                       (5)
Income taxes..........................................                       (5)                       (2)
                                                                           ----                      ----
Total change..........................................                     $ 33                      $ (8)
                                                                           ====                      ====
</Table>

     GAS DELIVERIES: For the year 2004, gas deliveries, including transportation
to end-use customers, decreased 15.5 bcf or 4.6 percent due to milder weather
versus 2003. Most significantly, temperatures in the first quarter of the year
were 12.1 percent warmer than in the same period in 2003.

     For the year 2003, gas deliveries, including miscellaneous transportation,
increased due to colder weather during the first quarter of 2003 versus 2002.
Increased deliveries to the residential and commercial sectors resulted in a $6
million increase in gas revenue. This revenue increase was offset by a $7
million reduction to gas revenue associated with our analysis of gas losses
related to the gas transmission and distribution system.

     GAS RATE INCREASE: In December 2003, the MPSC issued an interim gas rate
order authorizing a $19 million annual increase to gas tariff rates. In October
2004, the MPSC issued a final order authorizing an increase of $58 million in
each of the next two years. As a result of these orders, gas revenues increased
$28 million for the year 2004 versus 2003.

     In November 2002, the MPSC issued a final gas rate order authorizing a $56
million annual increase to gas tariff rates. As a result of this order, gas
revenue increased $39 million for the year 2003 versus 2002.

     GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUE AND OTHER INCOME: In
2004, gas wholesale and retail services and other gas revenue increased
primarily due to the absence of certain 2003 reductions to revenue. In 2003, gas
revenue was reduced primarily due to an $11 million 2002-2003 GCR disallowance.

     For the year 2003, gas wholesale and retail services and other gas revenue
increased versus 2002. This increase was primarily due to increased gas title
tracking services and miscellaneous revenue in 2003. The increased revenue was
offset partially by a disallowance for the 2002-2003 GCR year.

     OPERATION AND MAINTENANCE: For the year 2004 versus 2003, operation and
maintenance expenses decreased versus 2003 primarily due to reduced pension and
benefit expense of $23 million. The decrease in pension expense reflects fewer
current year retirees choosing to receive a single lump sum distribution and
increased plan earnings from higher average plan assets. The reduction in
benefit expense is due to the subsidy provided under Part D of the Medicare
Prescription Drug, Improvement and Modernization Act. These reductions were
offset partially by additional expenditures on safety, reliability, and customer
service.

     For the year 2003, operation and maintenance expenses increased versus 2002
due to increases in pension and other benefit costs of $27 million and
additional expenditures on safety, reliability, and customer service.

     GENERAL TAXES: For the year 2004, general taxes increased due to the
absence of a MSBT credit received in 2003. The 2003 MSBT credit received from
the State of Michigan was associated with the construction of our corporate
headquarters on a qualifying Brownfield site. For the year 2003, this MSBT
credit decreased general taxes versus 2002.

                                      CMS-10
<PAGE>

     DEPRECIATION: For the year 2004 versus 2003, depreciation expense decreased
primarily due to reduced rates authorized by the MPSC's December 2003 interim
rate order and the MPSC's October 2004 order, as modified by its December 2004
order granting rehearing. For the year 2003, depreciation expense increased
because of increased plant in service versus 2002.

     FIXED CHARGES: Fixed charges increased for the year 2004 versus 2003 due to
higher average debt levels, offset partially by a 46 basis point reduction in
the average rate of interest. For the year 2003, fixed charges increased versus
2002 due to higher average debt levels and higher average interest rates.

     INCOME TAXES: For the year 2004, income taxes increased due to increased
earnings from the gas utility versus 2003. The increase in income taxes was
offset partially by reductions from the tax treatment of items related to plant,
property and equipment as required by past MPSC orders, and by Part D of the
Medicare Prescription Drug, Improvement and Modernization Act which provides a
subsidy that is exempt from federal taxation.

     For the year 2003 versus 2002, income tax expense increased primarily due
to the tax treatment of items related to plant, property and equipment as
required by past MPSC orders.

ENTERPRISES RESULTS OF OPERATIONS

<Table>
<Caption>
YEAR ENDED DECEMBER 31                                  2004    2003    CHANGE    2003    2002     CHANGE
- ----------------------                                  ----    ----    ------    ----    ----     ------
                                                                           IN MILLIONS
<S>                                                     <C>     <C>     <C>       <C>     <C>      <C>
Net Income (Loss)...................................    $19      $8     $  11      $8     $(419)   $   427
                                                        ===      ==     =====      ==     =====    =======
Reasons for the change:
  Results of FASB Interpretation No. 46 Entities....                    $ (40)                     $    --
Reasons for change excluding FASB Interpretation No.
  46:
  Operating revenues................................                     (334)                      (3,498)
  Cost of gas and purchased power...................                      375                        3,399
  Earnings from equity method investees.............                       (8)                          71
  Operation and maintenance.........................                       31                           93
  General taxes, depreciation, and other income.....                      (22)                          40
  Gain (loss) on sale of assets.....................                       53                           (3)
  Asset impairment charges..........................                      (75)                         508
  Environmental remediation.........................                      (45)                          --
  Fixed charges.....................................                       16                          (14)
  Income taxes......................................                       60                         (169)
                                                                        -----                      -------
  Total change......................................                    $  11                      $   427
                                                                        =====                      =======
</Table>

     RESULTS OF FASB INTERPRETATION NO. 46: Due to the implementation of FASB
Interpretation No. 46, certain equity investments, determined to be variable
interest entities under this interpretation, which were previously included in
equity earnings are now included as fully consolidated subsidiaries in the
results of operations. The MCV Partnership and the FMLP were determined to be
variable interest entities under this interpretation, and are included as fully
consolidated subsidiaries in the results of operations in 2004. Three electric
generating plants in Michigan, T.E.S. Filer City Station Limited Partnership,
Grayling Generating Station Limited Partnership, and Genesee Power Station
Limited Partnership, were determined to be variable interest entities under this
interpretation and were included in the results of operations beginning in 2003.
For comparability purposes, the change in net earnings of these entities is
presented separately.

     For 2004, earnings decreased versus 2003 primarily due to mark-to-market
losses related to gas contracts and increased fuel and dispatch costs at the MCV
Partnership. These decreases were offset partially by dispatch and variable
energy rate variance revenue.

     For 2003 versus 2002, consolidation of the three electric generating plants
in Michigan had no impact on earnings.

                                      CMS-11
<PAGE>

     OPERATING REVENUES AND COST OF GAS AND PURCHASED POWER: For 2004, operating
revenues, net of the related cost of gas and purchased power, increased versus
2003. This increase was primarily due to higher margins from South American
subsidiaries, offset partially by the sale of wholesale gas and power contracts
at CMS ERM.

     For 2003, operating revenues, net of the related cost of gas and purchased
power, decreased versus 2002 primarily due to the sale of wholesale gas and
power contracts at CMS ERM.

     EARNINGS FROM EQUITY METHOD INVESTEES: Earnings from equity method
investees decreased for 2004 versus 2003 due to a reduction in earnings from
Goldfields, which was sold in August 2004, and losses on the settlement of
derivative contracts. These decreases were offset partially by earnings from
Shuweihat, which became partially operational during the fourth quarter of 2004.

     Equity earnings increased for 2003 versus 2002 due to impairment losses in
2002 and an increase in mark-to-market valuation adjustments on interest rate
swaps and power contracts in 2003. Lower earnings offset these increases
partially in 2003 due to sales of equity investments in 2002.

     OPERATION AND MAINTENANCE: Operating and maintenance decreased for 2004
versus 2003 and for 2003 versus 2002. These decreases were the result of a
reduction in expenses at CMS ERM, which sold its non-essential business segments
and moved its headquarters from Houston, Texas to Jackson, Michigan in 2003.

     GENERAL TAXES, DEPRECIATION AND OTHER INCOME: For 2004, the net of general
tax expense, depreciation and other income decreased income versus 2003. The
change was due to foreign exchange losses offset partially by lower depreciation
due to the sale of non-essential assets at ERM in 2003.

     For 2003, the net of general tax expense, depreciation and other income
increased income versus 2002. The change was due to lower depreciation from
assets impaired in 2002, higher interest income, and foreign exchange gains
offset partially by higher general taxes.

     GAIN (LOSS) ON SALE OF ASSETS: Gains on asset sales increased in 2004
versus 2003. This is primarily due to the gains on the sales of Goldfields and
land in Moapa, Nevada in 2004.

     For 2003, loss on asset sales increased versus 2002. This is primarily due
to the losses on the sales of CMS ERM Wholesale Gas contracts and Guardian
Pipeline in 2003.

     For additional details, see Note 2, Discontinued Operations, Other Asset
Sales, Impairments, and Restructuring.

     ASSET IMPAIRMENT CHARGES: Asset impairment charges increased in 2004 versus
2003. Impairments recorded in 2004 included a reduction in the fair value of Loy
Yang and impairments related to the sales of our interests in SLAP and GVK. In
February 2005, we completed the sale of our interest in GVK. We expect to
complete the sale of SLAP in 2005.

     Asset impairment charges decreased in 2003 versus 2002. In 2003, the
impairments of our equity investments at CMS Generation and our investment in
CMS Electric and Gas' Venezuelan distribution utility were significantly lower
than our 2002 asset impairments that were related primarily to DIG and Michigan
Power.

     For additional details, see Note 2, Discontinued Operations, Other Asset
Sales, Impairments, and Restructuring.

     ENVIRONMENTAL REMEDIATION: For 2004, we recorded estimated environmental
remediation costs for indemnification claims related to our involvement in Bay
Harbor.

     For additional details, see Note 3, Contingencies.

     FIXED CHARGES: For 2004, fixed charges decreased versus 2003 due to lower
average debt levels and lower average interest rates primarily resulting from
the payoff of a short-term revolving credit line held by Enterprises during
2003, offset partially by the payment of preferred dividends to the investor in
our Michigan gas assets in 2004 and higher letter of credit fees.

                                      CMS-12
<PAGE>

     For 2003, fixed charges increased versus 2002 due to higher average debt
levels and higher average interest rates primarily due to a short-term revolving
credit line held by Enterprises during part of 2003.

     INCOME TAXES: For 2004, income taxes decreased as compared to 2003
primarily due to the foreign earnings repatriation tax benefit arising from the
American Jobs Creation Act of 2004, and a decrease in tax reserves.

     For 2003, income taxes increased as compared to 2002 due to the absence in
2003, of the tax benefit related to the 2002 impairment charges.

CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONS

<Table>
<Caption>
YEAR ENDED DECEMBER 31                   2004        2003        CHANGE       2003        2002        CHANGE
- ----------------------                   ----        ----        ------       ----        ----        ------
                                                                     IN MILLIONS
<S>                                      <C>         <C>         <C>          <C>         <C>         <C>
Net Loss..........................       $(197)      $(256)       $59         $(256)      $(285)       $29
                                         =====       =====        ===         =====       =====        ===
</Table>

     For the year ended December 31, 2004, corporate interest and other net
expenses were $197 million, a decrease of $59 million versus the same period in
2003. The decrease reflects $56 million of lower interest due to lower average
debt levels and a 58 basis point reduction in the average rate of interest, a $5
million reduction in debt retirement charges, and the absence in 2004 of a $34
million deferred tax asset valuation reserve established in 2003. These
decreases were offset partially by a $24 million increase in general taxes
primarily due to the absence of MSBT refunds received in 2003, a $10 million
increase in the declaration and payment of CMS Energy preferred dividends and a
$2 million increase in other various expenses.

     Our 2003 corporate interest and other net expenses decreased $29 million
from 2002 primarily due to reduced restructuring costs and reduced taxes, offset
partially by an increase in interest allocated to continuing operations.

     DISCONTINUED OPERATIONS: For the year ended December 31, 2004, our net loss
from Discontinued Operations was $4 million, a decrease of $27 million versus
the same period in 2003. The net loss for 2004 was related primarily to income
tax adjustments offset partially by gains on asset sales. Income from 2003
primarily reflects an increase to net income due to the reclassification of our
international energy distribution business from discontinued operations to
continuing operations. The reclassification resulted in a reversal of a
previously recognized impairment loss. This increase was offset partially by an
impairment of Parmelia, interest allocated to discontinued operations, and a
loss on the disposal of CMS Viron.

     For additional details, see Note 2, Discontinued Operations, Other Asset
Sales, Impairments, and Restructuring.

     ACCOUNTING CHANGES: In 2004, we recorded a $2 million loss for the
cumulative effect of a change in accounting principle. The loss was the result
of a change in the measurement date on our benefit plans. For additional
details, see Note 7, Retirement Benefits.

     A $24 million loss for the cumulative effect of changes in accounting
principle was recognized in the first quarter of 2003, of which $23 million was
related to energy trading contracts and $1 million was related to asset
retirement obligations.

CRITICAL ACCOUNTING POLICIES

     The following accounting policies are important to an understanding of our
results of operations and financial condition and should be considered an
integral part of our MD&A:

     - use of estimates and assumptions in accounting for long-lived assets,
       contingencies, and equity method investments,

     - accounting for the effects of industry regulation

     - accounting for financial and derivative instruments, trading activities,
       and market risk information,

                                      CMS-13
<PAGE>

     - accounting for international operations and foreign currency,

     - accounting for pension and OPEB,

     - accounting for asset retirement obligations, and

     - accounting for nuclear decommissioning costs.

     For additional accounting policies, see Note 1, Corporate Structure and
Accounting Policies.

USE OF ESTIMATES AND ASSUMPTIONS

     In preparing our financial statements, we use estimates and assumptions
that may affect reported amounts and disclosures. Accounting estimates are used
for asset valuations, depreciation, amortization, financial and derivative
instruments, employee benefits, and contingencies. For example, we estimate the
rate of return on plan assets and the cost of future health-care benefits to
determine our annual pension and other postretirement benefit costs. There are
risks and uncertainties that may cause actual results to differ from estimated
results, such as changes in the regulatory environment, competition, foreign
exchange, regulatory decisions, and lawsuits.

     LONG-LIVED ASSETS AND EQUITY METHOD INVESTMENTS: Our assessment of the
recoverability of long-lived assets and equity method investments involves
critical accounting estimates. Tests of impairment are performed periodically if
certain conditions that are other than temporary exist that may indicate the
carrying value may not be recoverable. Of our total assets, recorded at $15.872
billion at December 31, 2004, 59 percent represent long-lived assets and equity
method investments that are subject to this type of analysis. We base our
evaluations of impairment on such indicators as:

     - the nature of the assets,

     - projected future economic benefits,

     - domestic and foreign regulatory and political environments,

     - state and federal regulatory and political environments,

     - historical and future cash flow and profitability measurements, and

     - other external market conditions or factors.

     If an event occurs or circumstances change in a manner that indicates the
recoverability of a long-lived asset should be assessed, we evaluate the asset
for impairment. An asset held-in-use is evaluated for impairment by calculating
the undiscounted future cash flows expected to result from the use of the asset
and its eventual disposition. If the undiscounted future cash flows are less
than the carrying amount, we recognize an impairment loss. The impairment loss
recognized is the amount by which the carrying amount exceeds the fair value. We
estimate the fair market value of the asset utilizing the best information
available. This information includes quoted market prices, market prices of
similar assets, and discounted future cash flow analyses. An asset considered
held-for-sale is recorded at the lower of its carrying amount or fair value,
less cost to sell.

     We also assess our ability to recover the carrying amounts of our equity
method investments. This assessment requires us to determine the fair values of
our equity method investments. The determination of fair value is based on
valuation methodologies including discounted cash flows and the ability of the
investee to sustain an earnings capacity that justifies the carrying amount of
the investment. We also consider the existence of CMS Energy guarantees on
obligations of the investee or other commitments to provide further financial
support. If the fair value is less than the carrying value and the decline in
value is considered to be other than temporary, an appropriate write-down is
recorded.

     Our assessments of fair value using these valuation methodologies represent
our best estimates at the time of the reviews and are consistent with our
internal planning. The estimates we use can change over time. If fair values
were estimated differently, they could have a material impact on our financial
statements.

     CONTINGENCIES: We are involved in various regulatory and legal proceedings
that arise in the ordinary course of our business. We record a liability for
contingencies based upon our assessment that the occurrence of

                                      CMS-14
<PAGE>

loss is probable and the amount of loss can be reasonably estimated. The
recording of estimated liabilities for contingencies is guided by the principles
in SFAS No. 5. We consider many factors in making these assessments, including
history and the specifics of each matter. The most significant of these
contingencies are our pending class actions arising out of round-trip trading
and gas price reporting, our electric and gas environmental estimates, our
indemnity and environmental remediation obligations at Bay Harbor, and the
potential underrecoveries from our power purchase contract with the MCV
Partnership.

     The amount of income taxes we pay is subject to ongoing audits by federal,
state, foreign tax authorities, which can result in proposed assessments. Our
estimate for the potential outcome for any uncertain tax issue is highly
judgmental. We believe we have adequately provided for any likely outcome
related to these matters. However, our future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in the period the
assessments are made or resolved or when statutes of limitation on potential
assessments expire. As a result, our effective tax rate may fluctuate
significantly on a quarterly basis.

     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. We hold a 49
percent partnership interest in the MCV Partnership, and a 35 percent lessor
interest in the MCV Facility.

     The cost that we incur under the MCV Partnership PPA exceeds the recovery
amount allowed by the MPSC. As a result, we estimate that cash underrecoveries
of capacity and fixed energy payments will aggregate $150 million from 2005
through 2007. After September 15, 2007, we expect to claim relief under the
regulatory out provision in the PPA, thereby limiting our capacity and fixed
energy payments to the MCV Partnership to the amounts collected from our
customers. The effect of any such action would be to:

     - reduce cash flow to the MCV Partnership, which could have an adverse
       effect on our investment, and

     - eliminate our underrecoveries of capacity and fixed energy payments.

     The MCV Partnership has indicated that it may take issue with our exercise
of the regulatory out clause after September 2007. We believe that the clause is
valid and fully effective, but cannot assure that it will prevail in the event
of a dispute. The MPSC's future actions on the capacity and fixed energy
payments recoverable from customers subsequent to September 2007 may affect
negatively the earnings of the MCV Partnership and the value of our investment
in the MCV Partnership.

     Further, under the PPA, variable energy payments to the MCV Partnership are
based on the cost of coal burned at our coal plants and our operation and
maintenance expenses. However, the MCV Partnership's costs of producing
electricity are tied to the cost of natural gas. Because natural gas prices have
increased substantially in recent years and the price the MCV Partnership can
charge us for energy has not, the MCV Partnership's financial performance has
been impacted negatively. Even with the approved RCP, if gas prices continue at
present levels or increase, the economics of operating the MCV Facility may be
adverse enough to require us to recognize an impairment.

     In January 2005, the MPSC issued an order approving the RCP, with
modifications. The RCP allows us to recover the same amount of capacity and
fixed energy charges from customers as approved in prior MPSC orders. However,
we are able to dispatch the MCV Facility on the basis of natural gas market
prices, which will reduce the MCV Facility's annual production of electricity
and, as a result, reduce the MCV Facility's consumption of natural gas by an
estimated 30 to 40 bcf annually. This decrease in the quantity of high-priced
natural gas consumed by the MCV Facility will benefit our ownership interest in
the MCV Partnership.

     The substantial MCV Facility fuel cost savings will be used first to offset
fully the cost of replacement power. Second, $5 million annually will be used to
fund a renewable energy program. Remaining savings will be split between the MCV
Partnership and Consumers. Consumers' direct savings will be shared 50 percent
with its customers in 2005 and 70 percent in 2006 and beyond. Consumers' direct
savings from the RCP, after a portion is allocated to customers, will be used to
offset our capacity and fixed energy underrecoveries expense. Since the MPSC has
excluded these underrecoveries from the rate making process, we anticipate that
our savings from the RCP will not affect our return on equity used in our base
rate filings.

                                      CMS-15
<PAGE>

     In January 2005, Consumers and the MCV Partnership's general partners
accepted the terms of the order and implemented the RCP. The underlying
agreement for the RCP between Consumers and the MCV Partnership extends through
the term of the PPA. However, either party may terminate that agreement under
certain conditions. In February 2005, a group of intervenors in the RCP case
filed an application for rehearing of the MPSC order. The Attorney General also
filed a claim of appeal with the Michigan Court of Appeals. We cannot predict
the outcome of these appeals.

     For additional details on the MCV Partnership, see Note 3, Contingencies,
"Other Consumers' Electric Utility Contingencies -- The Midland Cogeneration
Venture."

ACCOUNTING FOR THE EFFECTS OF INDUSTRY REGULATION

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

     For example, we may record as regulatory assets items that a non-regulated
entity normally would expense if the actions of the regulator indicate such
expenses will be recovered in future rates. Conversely, we may record as
regulatory liabilities items that non-regulated entities may normally recognize
as revenues if the actions of the regulator indicate they will require such
revenues be refunded to customers. Judgment is required to determine the
recoverability of items recorded as regulatory assets and liabilities. As of
December 31, 2004, we had $1.696 billion recorded as regulatory assets and
$1.574 billion recorded as regulatory liabilities.

     For additional details on industry regulation, see Note 1, Corporate
Structure and Accounting Policies, "Utility Regulation."

ACCOUNTING FOR FINANCIAL AND DERIVATIVE INSTRUMENTS, TRADING ACTIVITIES, AND
MARKET RISK INFORMATION

     FINANCIAL INSTRUMENTS: We account for investments in debt and equity
securities using SFAS No. 115. Debt and equity securities classified as
available-for-sale are reported at fair value determined from quoted market
prices. Debt and equity securities classified as held-to-maturity are reported
at cost. Unrealized gains or losses resulting from changes in fair value of
certain available-for-sale debt and equity securities are reported, net of tax,
in equity as part of accumulated other comprehensive income. Unrealized gains or
losses are excluded from earnings unless the related changes in fair value are
determined to be other than temporary.

     Unrealized gains or losses on our nuclear decommissioning investments are
reflected as regulatory liabilities on our Consolidated Balance Sheets. Realized
gains or losses would not affect our earnings or cash flows.

     DERIVATIVE INSTRUMENTS: We use the criteria in SFAS No. 133 to determine if
certain contracts must be accounted for as derivative instruments. This criteria
is complex and significant judgment is often required in applying the criteria
to specific contracts. 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. The recorded fair value is then
adjusted quarterly to reflect any change in the market value of the contract, a
practice known as marking the contract to market. Changes in fair value (that
is, gains or losses) are reported either in earnings or accumulated other
comprehensive income, depending on whether the derivative qualifies for cash
flow hedge accounting treatment.

     The types of contracts we typically classify as derivative instruments are
interest rate swaps, foreign currency exchange contracts, electric call options,
gas supply call and put options, gas fuel futures and swaps, gas fuel options,
certain gas fuel contracts, and certain gas and electric forward contracts. The
majority of our contracts are not subject to derivative accounting under SFAS
No. 133 because they qualify for the normal purchases and sales exception, or
because there is not an active market for the commodity. Certain of our electric
capacity and energy contracts are not accounted for as derivatives due to the
lack of an active energy market in the state of Michigan and the significant
transportation costs that would be incurred to deliver the power under the
contracts to the closest active energy market at the Cinergy hub in Ohio.
Similarly, our coal purchase contracts are not accounted for as derivatives due
to the lack of an active market for the coal that we purchase. If active

                                      CMS-16
<PAGE>

markets for these commodities develop in the future, we may be required to
account for these contracts as derivatives, and the resulting mark-to-market
impact on earnings could be material to our financial statements.

     The MISO is scheduled to begin the Midwest Energy Market on April 1, 2005,
which will include day-ahead and real-time energy market information and
centralized dispatch for market participants. At this time, we believe that the
commencement of this market will not constitute the development of an active
energy market in the state of Michigan. However, after having adequate
experience with the Midwest Energy Market, we will reevaluate whether or not the
activity level within this market leads to the conclusion that an active energy
market exists. For additional information, see "Electric Utility Business
Uncertainties -- Competition and Regulatory Restructuring -- Transmission Market
Developments" within this MD&A.

     The MCV Partnership uses natural gas fuel contracts to buy gas as fuel for
generation, and to manage gas fuel costs. The MCV Partnership believes that
certain of its long-term gas contracts qualify as normal purchases under SFAS
No. 133 and therefore, these contracts are not recognized at fair value on the
balance sheet. Due to the implementation of the RCP in January 2005, the MCV
Partnership has determined that a significant portion of its gas fuel contracts
no longer qualify as normal purchases because the contracted gas will not be
consumed as fuel for electric production. Accordingly, these contracts will be
treated as derivatives and will be marked-to-market through earnings each
quarter, which could increase earnings volatility. Based on market prices for
natural gas as of January 31, 2005, the accounting for the MCV Partnership's
long-term gas contracts, including those affected by the implementation of the
RCP, could result in an estimated $100 million (pretax before minority interest)
gain recorded to earnings in the first quarter of 2005. This estimated gain will
reverse in subsequent quarters as the contracts settle. For further details on
the RCP, see "Critical Accounting Policies -- Use of Estimates and
Assumptions -- MCV Underrecoveries" within this MD&A. If there are further
changes in the level of planned electric production or gas consumption, the MCV
Partnership may be required to account for additional long-term gas contracts as
derivatives, which could add to earnings volatility.

     To determine the fair value of our derivative contracts, we use a
combination of quoted market prices, prices obtained from external sources, such
as brokers, and mathematical valuation models. Valuation models require various
inputs, including forward prices, strike prices, volatilities, interest rates,
and maturity dates. Changes in forward prices or volatilities could change
significantly the calculated fair value of certain contracts. At December 31,
2004, we assumed a market-based interest rate of 2.75 percent and monthly
volatility rates ranging between 38 percent and 73 percent to calculate the fair
value of our gas options. Also, at December 31, 2004, we assumed a market-based
interest rate of 2.75 percent and daily volatility rates ranging between 80
percent and 157 percent to calculate the fair value of our electric options. At
December 31, 2004, we assumed market-based interest rates ranging between 2.40
percent and 4.48 percent (depending on the term of the contract) and monthly
volatility rates ranging between 25 percent and 68 percent to calculate the fair
value of the gas fuel derivative contracts held by the MCV Partnership.

     In certain contracts, long-term commitments may extend beyond the period in
which market quotations for such contracts are available. Mathematical models
are developed to determine various inputs into the fair value calculation
including price and other variables that may be required to calculate fair
value. Realized cash returns on these commitments may vary, either positively or
negatively, from the results estimated through application of the mathematical
model. In connection with the market valuation of our derivative contracts, we
maintain reserves, if necessary, for credit risks based on the financial
condition of counterparties.

     CMS ERM CONTRACTS: CMS ERM enters into and owns energy contracts that are
related to activities considered to be an integral part of CMS Energy's ongoing
operations. CMS ERM holds certain forward contracts for the purchase and sale of
electricity and natural gas that result in physical delivery of the underlying
commodity at contractual prices. These contracts are generally long-term in
nature and are classified as non-trading. CMS ERM also uses various financial
instruments, including swaps, options, and futures, to manage the commodity
price risks associated with its forward purchase and sales contracts as well as
generation assets owned by CMS Energy or its subsidiaries. These financial
contracts are classified as trading activities. Non-trading and trading
contracts that meet the definition of a derivative under SFAS No. 133 are
recorded as assets or liabilities in the financial statements at the fair value
of the contracts. Gains or losses arising from changes in fair value of these
contracts are recognized into earnings in the period in which the changes occur.
Gains and losses on trading

                                      CMS-17
<PAGE>

contracts are recorded net in accordance with EITF Issue No. 02-03. Contracts
that do not meet the definition of a derivative are accounted for as executory
contracts (i.e., on an accrual basis).

     The fair value of the derivative contracts held by CMS ERM is included in
either Price risk management assets or Price risk management liabilities on our
Consolidated Balance Sheets. The following tables provide a summary of these
contracts as of December 31, 2004:

<Table>
<Caption>
                                                                NON-TRADING    TRADING    TOTAL
                                                                -----------    -------    -----
                                                                          IN MILLIONS
<S>                                                             <C>            <C>        <C>
Fair value of contracts outstanding as of December 31,
  2003......................................................       $(181)       $196      $ 15
Fair value of new contracts when entered into during the
  period(a).................................................          (3)         (3)       (6)
Changes in fair value attributable to changes in valuation
  techniques and assumptions................................          --          --        --
Contracts realized or otherwise settled during the period...          49         (69)      (20)
Other changes in fair value(b)..............................         (64)         77        13
                                                                   -----        ----      ----
Fair value of contracts outstanding as of December 31,
  2004......................................................       $(199)       $201      $  2
                                                                   =====        ====      ====
</Table>

- -------------------------
(a)  Reflects only the initial premium payments/(receipts) for new contracts. No
     unrealized gains or losses were recognized at the inception of any new
     contracts.

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

<Table>
<Caption>
                                                                     FAIR VALUE OF NON-TRADING CONTRACTS AT
                                                                                DECEMBER 31, 2004
                                                                -------------------------------------------------
                                                                               MATURITY (IN YEARS)
                                                    TOTAL       -------------------------------------------------
SOURCE OF FAIR VALUE                              FAIR VALUE    LESS THAN 1    1 TO 3    4 TO 5    GREATER THAN 5
- --------------------                              ----------    -----------    ------    ------    --------------
                                                                            IN MILLIONS
<S>                                               <C>           <C>            <C>       <C>       <C>
Prices actively quoted........................      $  --          $ --         $ --      $ --          $--
Prices obtained from external sources or based
  on models and other valuation methods.......       (199)          (52)         (89)      (49)          (9)
                                                    -----          ----         ----      ----          ---
Total.........................................      $(199)         $(52)        $(89)     $(49)         $(9)
                                                    =====          ====         ====      ====          ===
</Table>

<Table>
<Caption>
                                                                       FAIR VALUE OF TRADING CONTRACTS AT
                                                                                DECEMBER 31, 2004
                                                                -------------------------------------------------
                                                                               MATURITY (IN YEARS)
                                                    TOTAL       -------------------------------------------------
SOURCE OF FAIR VALUE                              FAIR VALUE    LESS THAN 1    1 TO 3    4 TO 5    GREATER THAN 5
- --------------------                              ----------    -----------    ------    ------    --------------
                                                                            IN MILLIONS
<S>                                               <C>           <C>            <C>       <C>       <C>
Prices actively quoted........................       $(43)         $(11)        $(17)     $(15)         $--
Prices obtained from external sources or based
  on models and other valuation methods.......        244            64          111        61            8
                                                     ----          ----         ----      ----          ---
Total.........................................       $201          $ 53         $ 94      $ 46          $ 8
                                                     ====          ====         ====      ====          ===
</Table>

     MARKET RISK INFORMATION: We are exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, currency exchange
rates, and equity security prices. We manage these risks using established
policies and procedures, under the direction of both an executive oversight
committee consisting of senior management representatives and a risk committee
consisting of business-unit managers. We may use various derivative contracts to
manage these risks, including swaps, options, futures, and forward contracts. We
intend that gains or losses on these contracts will be offset by an opposite
movement in the value of the item at risk. Risk management contracts are
classified as either non-trading or trading.

     These contracts contain credit risk if the counterparties, including
financial institutions and energy marketers, fail to perform under the
agreements. We minimize such risk through established credit policies that
include performing financial credit reviews of our counterparties. Determination
of our counterparties' credit

                                      CMS-18
<PAGE>

quality is based upon a number of factors, including credit ratings, disclosed
financial condition, and collateral requirements. Where contractual terms
permit, we employ standard agreements that allow for netting of positive and
negative exposures associated with a single counterparty. Based on these
policies, our current exposures, and our credit reserves, we do not anticipate a
material adverse effect on our financial position or earnings as a result of
counterparty nonperformance.

     The following risk sensitivities indicate the potential loss in fair value,
cash flows, or future earnings from our derivative contracts and other financial
instruments based upon a hypothetical 10 percent adverse change in market rates
or prices. Changes in excess of the amounts shown in the sensitivity analyses
could occur if market rates or prices exceed the 10 percent shift used for the
analyses.

     Interest Rate Risk: We are exposed to interest rate risk resulting from
issuing fixed-rate and variable-rate financing instruments, and from interest
rate swap agreements. We use a combination of these instruments to manage this
risk as deemed appropriate, based upon market conditions. These strategies are
designed to provide and maintain a balance between risk and the lowest cost of
capital.

     Interest Rate Risk Sensitivity Analysis (assuming a 10 percent adverse
change in market interest rates):

<Table>
<Caption>
AS OF DECEMBER 31                                               2004    2003
- -----------------                                               ----    ----
                                                                IN MILLIONS
<S>                                                             <C>     <C>
Variable-rate financing -- before-tax annual earnings
  exposure..................................................    $  2    $  1
Fixed-rate financing -- potential loss in fair value(a).....     216     242
</Table>

- -------------------------
(a)  Fair value exposure could only be realized if we repurchased all of our
     fixed-rate financing.

     Certain equity method investees have entered into interest rate swaps.
These instruments are not required to be included in the sensitivity analysis,
but can have an impact on financial results.

     Commodity Price Risk: For purposes other than trading, we enter into
electric call options and gas supply call and put options. Electric call options
are purchased to protect against the risk of fluctuations in the market price of
electricity, and to ensure a reliable source of capacity to meet our customers'
electric needs. Purchased electric call options give us the right, but not the
obligation, to purchase electricity at predetermined fixed prices. Our gas
supply call and put options are used to purchase reasonably priced gas supply.
Purchases of gas supply call options give us the right, but not the obligation,
to purchase gas supply at predetermined fixed prices. Gas supply put options
sold give third-party suppliers the right, but not the obligation, to sell gas
supply to us at predetermined fixed prices. At December 31, 2004, we held gas
supply call options and had sold gas supply put options. Also, at December 31,
2004, CMS ERM held certain non-trading derivative contracts for the purchase and
sale of electricity and natural gas as further explained under "CMS ERM
Contracts" within this section.

     The MCV Partnership uses natural gas fuel contracts to buy gas as fuel for
generation, and to manage gas fuel costs. Some of these contracts are treated as
derivative instruments. The MCV Partnership also enters into natural gas futures
contracts, option contracts, and over-the-counter swap transactions in order to
hedge against unfavorable changes in the market price of natural gas in future
months when gas is expected to be needed. These financial instruments are being
used principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of natural gas
previously obtained in order to optimize the MCV Partnership's existing gas
supply, storage, and transportation arrangements.

     Commodity Price Risk Sensitivity Analysis (assuming a 10 percent adverse
change in market prices):

<Table>
<Caption>
AS OF DECEMBER 31                                               2004    2003
- -----------------                                               ----    ----
                                                                IN MILLIONS
<S>                                                             <C>     <C>
Potential reduction in fair value:
  Gas supply option contracts...............................    $ 1     $  1
  CMS ERM electric and gas forward contracts................     10        9
  Derivative contracts associated with Consumers' investment
     in the MCV Partnership:
     Gas fuel contracts.....................................     17      N/A
     Gas fuel futures and swaps.............................     41      N/A
</Table>

                                      CMS-19
<PAGE>

     We did not perform a sensitivity analysis for the derivative contracts held
by the MCV Partnership as of December 31, 2003, because the MCV Partnership was
not consolidated into our financial statements until 2004, as discussed in Note
16, Implementation of New Accounting Standards.

     Trading Activity Commodity Price Risk: CMS ERM uses various financial
instruments, including swaps, options, and futures, to manage the commodity
price risks associated with its forward purchase and sales contracts as well as
generation assets owned by CMS Energy or its subsidiaries.

     Trading Activity Commodity Price Risk Sensitivity Analysis (assuming a 10
percent adverse change in market prices):

<Table>
<Caption>
AS OF DECEMBER 31                                               2004    2003
- -----------------                                               ----    ----
                                                                IN MILLIONS
<S>                                                             <C>     <C>
Potential reduction in fair value:
  Electricity-related option contracts......................    $--     $ 1
  Gas-related option contracts..............................      3      --
  Gas-related swaps and futures.............................      7      11
</Table>

     Currency Exchange Risk: We are exposed to currency exchange risk arising
from investments in foreign operations as well as various international projects
in which we have an equity interest and which have debt denominated in U.S.
dollars. We may use forward exchange contracts and other risk mitigating
instruments to hedge currency exchange rates. The purpose of our foreign
currency hedging activities is to protect the company from the risk associated
with adverse changes in currency exchange rates that could affect cash flow
materially. As of December 31, 2004, we had no outstanding foreign exchange
contracts.

     Investment Securities Price Risk: Our investments in debt and equity
securities are exposed to changes in interest rates and price fluctuations in
equity markets. The following table shows the potential effect of adverse
changes in interest rates and fluctuations in equity prices on our
available-for-sale investments.

     Investment Securities Price Risk Sensitivity Analysis:

<Table>
<Caption>
AS OF DECEMBER 31                                               2004    2003
- -----------------                                               ----    ----
                                                                IN MILLIONS
<S>                                                             <C>     <C>
Potential reduction in fair value:
  Available-for-sale investments(a):
     Equity Securities(b)...................................    $ 5      $4
     Debt Securities(c).....................................     --       1
</Table>

- -------------------------
(a)  Primarily SERP Investments.

(b)  Assumes a 10 percent adverse change in market prices.

(c)  Assumes a 50 basis point increase in the yield to maturity of the 10-year
     Treasury Note, which approximates a 10 percent change in market yields.

     Consumers maintains trust funds, as required by the NRC, which may only be
used to fund certain costs of nuclear plant decommissioning. As of December 31,
2004 and 2003, these funds were invested primarily in equity securities,
fixed-rate, fixed-income debt securities, and cash and cash equivalents, and are
recorded at fair value on our Consolidated Balance Sheets. Those investments are
exposed to price fluctuations in equity markets and changes in interest rates.
Because the accounting for nuclear plant decommissioning recognizes that costs
are recovered through Consumers' electric rates, fluctuations in equity prices
or interest rates do not affect earnings or cash flows.

     For additional details on market risk and derivative activities, see Note
6, Financial and Derivative Instruments.

                                      CMS-20
<PAGE>

INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY

     We have investments in energy-related projects in selected markets around
the world. As a result of a change in business strategy, we have been selling
certain foreign investments. For additional details on the divestiture of
foreign investments, see Note 2, Discontinued Operations, Other Asset Sales,
Impairments, and Restructuring.

     BALANCE SHEET: Our 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. Gains
or losses that result from this translation and gains or losses on long-term
intercompany foreign currency transactions are reflected as a component of
stockholders' equity on our Consolidated Balance Sheets as "Accumulated Other
Comprehensive Loss." As of December 31, 2004, cumulative foreign currency
translation decreased stockholders' equity by $319 million. We translate the
revenue and expense accounts of these subsidiaries and affiliates into U.S.
dollars at the average exchange rate during the period.

     Australia: The Foreign Currency Translation component of stockholders'
equity at December 31, 2003 included an approximate $110 million unrealized net
foreign currency translation loss related to our investment in Loy Yang and an
approximate $6 million unrealized net foreign currency translation gain related
to our investments in SCP and Parmelia. In March 2004, we recognized the Loy
Yang foreign currency translation loss in earnings as a component of the Loy
Yang impairment of approximately $81 million, net of tax, recorded as a result
of the sale of Loy Yang that was completed in April 2004. In August 2004, we
sold our investments in SCP and Parmelia and recognized the $6 million foreign
currency translation gain. As of December 31, 2004, we no longer have any
investments in Australia.

     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 Argentine 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, we adopted the Argentine peso as the functional
currency for our Argentine investments. We had used previously the U.S. dollar
as the functional currency. As a result, we translated the assets and
liabilities of our Argentine entities into U.S. dollars using an exchange rate
of 3.45 pesos per U.S. dollar, and recorded an initial charge to the Foreign
Currency Translation component of stockholders' equity of $400 million.

     As of December 31, 2004, the net foreign currency loss due to the
unfavorable exchange rate of the Argentine peso recorded in the Foreign Currency
Translation component of stockholders' equity using an exchange rate of 2.976
pesos per U.S. dollar was $264 million. This amount also reflects the effect of
recording, at December 31, 2002, U.S. income taxes on temporary differences
between the book and tax bases of foreign investments, including the foreign
currency translation associated with our Argentine investments.

     INCOME STATEMENT: We use the U.S. dollar as the functional currency of
subsidiaries operating in highly inflationary economies and of subsidiaries that
meet the U.S. dollar functional currency criteria in SFAS No. 52. Gains and
losses that arise from transactions denominated in a currency other than the
U.S. dollar, except those that are hedged, are included in determining net
income.

     HEDGING STRATEGY: We 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 our foreign currency hedging activities is
to protect the company from the risk associated with adverse changes in currency
exchange rates that could affect cash flow materially. These contracts would
limit the risk from exchange rate movements because gains and losses on such
contracts offset losses and gains, respectively, on assets and liabilities being
hedged.

ACCOUNTING FOR PENSION AND OPEB

     Pension: We have established external trust funds to provide retirement
pension benefits to our employees under a non-contributory, defined benefit
Pension Plan. We have implemented a cash balance plan for certain employees
hired after June 30, 2003. We use SFAS No. 87 to account for pension costs.

                                      CMS-21
<PAGE>

     401(k): In our efforts to reduce costs, the employer's match for the 401(k)
plan was suspended effective September 1, 2002. The employer's match for the
401(k) plan resumed on January 1, 2005.

     OPEB: We provide postretirement health and life benefits under our OPEB
plan to substantially all our retired employees. We use SFAS No. 106 to account
for other postretirement benefit costs.

     Liabilities for both pension and OPEB are recorded on the balance sheet at
the present value of their future obligations, net of any plan assets. The
calculation of the liabilities and associated expenses requires the expertise of
actuaries. Many assumptions are made including:

     - life expectancies,

     - present-value discount rates,

     - expected long-term rate of return on plan assets,

     - rate of compensation increases, and

     - anticipated health care costs.

     Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year.

     The following table provides an estimate of our pension cost, OPEB cost,
and cash contributions for the next three years:

<Table>
<Caption>
EXPECTED COSTS                                                PENSION COST    OPEB COST    CONTRIBUTIONS
- --------------                                                ------------    ---------    -------------
                                                                             IN MILLIONS
<S>                                                           <C>             <C>          <C>
2005......................................................        $52            $38            $63
2006......................................................         73             34             80
2007......................................................         85             30            114
</Table>

     Actual future pension cost and contributions will depend on future
investment performance, changes in future discount rates, and various other
factors related to the populations participating in the Pension Plan.

     Lowering the expected long-term rate of return on the Pension Plan assets
by 0.25 percent (from 8.75 percent to 8.50 percent) would increase estimated
pension cost for 2005 by $3 million. Lowering the discount rate by 0.25 percent
(from 6.00 percent to 5.75 percent) would increase estimated pension cost for
2005 by $4 million.

     For additional details on postretirement benefits, see Note 7, Retirement
Benefits.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

     SFAS No. 143 became effective January 2003. It requires companies to record
the fair value of the cost to remove assets at the end of their useful lives, if
there is a legal obligation to remove them. We have legal obligations to remove
some of our assets, including our nuclear plants, at the end of their useful
lives. For our regulated utility, as required by SFAS No. 71, we account for the
implementation of this standard by recording regulatory assets and liabilities
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 to assume 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 our ARO fair value estimate since a reasonable estimate could
not be made.

     If a reasonable estimate of fair value cannot be made in the period in
which the ARO is incurred, such as for assets with indeterminate lives, the
liability is recognized when a reasonable estimate of fair value can be made.
Generally, electric and gas transmission and distribution assets have
indeterminate lives. Retirement cash flows cannot be determined and there is a
low probability of a retirement date. Therefore, no liability has been recorded

                                      CMS-22
<PAGE>

for these assets. Also, no liability has been recorded for assets that have
insignificant cumulative disposal costs, such as substation batteries. The
measurement of the ARO liabilities for Palisades and Big Rock are based on
decommissioning studies that largely utilize third-party cost estimates. For
additional details on ARO, see Note 8, Asset Retirement Obligations.

ACCOUNTING FOR NUCLEAR DECOMMISSIONING COSTS

     The MPSC and the FERC regulate the recovery of costs to decommission our
Big Rock and Palisades nuclear plants. We have established external trust funds
to finance the decommissioning of both plants. We record the trust fund balances
as a non-current asset on our Consolidated Balance Sheets.

     Our decommissioning cost estimates for the Big Rock and Palisades plants
assume:

     - each plant site will be restored to conform to the adjacent landscape,

     - all contaminated equipment and material will be removed and disposed of
       in a licensed burial facility, and

     - the site will be released for unrestricted use.

     Independent contractors with expertise in decommissioning have helped us
develop decommissioning cost estimates. Various inflation rates for labor,
non-labor, and contaminated equipment disposal costs are used to escalate these
cost estimates to the future decommissioning cost. A portion of future
decommissioning cost will result from the failure of the DOE to remove fuel from
the sites, as required by the Nuclear Waste Policy Act of 1982.

     The decommissioning trust funds include 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.
The funds provided by the trusts, additional customer surcharges, and potential
funds from the DOE litigation are all required to cover fully the
decommissioning costs. The costs of decommissioning these sites and the adequacy
of the trust funds could be affected by:

     - variances from expected trust earnings,

     - a lower recovery of costs from the DOE and lower rate recovery from
       customers, and

     - changes in decommissioning technology, regulations, estimates, or
       assumptions.

     Based on current projections, the current level of funds provided by the
trusts is not adequate to fund fully the decommissioning of Big Rock or
Palisades. This is due in part to the DOE's failure to accept the spent nuclear
fuel on schedule and lower returns on the trust funds. We are attempting to
recover our additional costs for storing spent nuclear fuel through litigation.
We are also seeking additional relief from the MPSC. For additional details on
nuclear decommissioning, see Note 3, Contingencies, "Other Consumers' Electric
Utility Contingencies -- Nuclear Plant Decommissioning" and "Nuclear Matters."

CAPITAL RESOURCES AND LIQUIDITY

     Our liquidity and capital requirements are a function of our results of
operations, capital expenditures, contractual obligations, debt maturities,
working capital needs, and collateral requirements. During the summer months, we
purchase natural gas and store it for resale primarily during the winter heating
season. The market price for natural gas has increased. Although our natural gas
purchases are recoverable from our customers, the amount paid for natural gas
stored as inventory could require additional liquidity due to the timing of the
cost recoveries. In addition, a few of our commodity suppliers have requested
nonstandard payment terms or other forms of assurances, including margin calls,
in connection with maintenance of ongoing deliveries of gas and electricity.

     Our current financial plan includes controlling our operating expenses and
capital expenditures and evaluating market conditions for financing
opportunities. We believe our current level of cash and access to borrowing
capacity in the capital markets, along with anticipated cash flows from
operating and investing activities, will be sufficient to meet our liquidity
needs through 2006. We have not made a specific determination

                                      CMS-23
<PAGE>

concerning the reinstatement of common stock dividends. The Board of Directors
may reconsider or revise its dividend policy based upon certain conditions,
including our results of operations, financial condition, and capital
requirements, as well as other relevant factors.

CASH POSITION, INVESTING, AND FINANCING

     Our operating, investing, and financing activities meet consolidated cash
needs. At December 31, 2004, $725 million consolidated cash was on hand, which
includes $56 million of restricted cash and $128 million from the effect of
Revised FASB Interpretation No. 46 consolidation. For additional details on cash
equivalents and restricted cash, see Note 1, Corporate Structure and Accounting
Policies. For additional details on FASB Interpretation No. 46, see Note 16,
Implementation of New Accounting Standards.

     Our primary ongoing source of cash is dividends and other distributions
from our subsidiaries, including proceeds from asset sales. For the year ended
December 31, 2004, Consumers paid $190 million in common stock dividends and
Enterprises paid $336 million in common stock dividends and other distributions
to CMS Energy.

SUMMARY OF CASH FLOWS:

<Table>
<Caption>
                                                                2004     2003      2002
                                                                ----     ----      ----
                                                                       IN MILLIONS
<S>                                                             <C>      <C>      <C>
Net cash provided by (used in):
  Operating activities......................................    $ 398    $(250)   $   614
  Investing activities......................................     (392)     203        829
                                                                -----    -----    -------
Net cash provided by (used in) operating and investing
  activities................................................        6      (47)     1,443
  Financing activities......................................      (43)     229     (1,223)
Effect of exchange rates on cash............................       --       (1)         8
                                                                -----    -----    -------
Net increase (decrease) in cash and cash equivalents........    $ (37)   $ 181    $   228
                                                                =====    =====    =======
</Table>

OPERATING ACTIVITIES:

     2004: Net cash provided by operating activities was $398 million in 2004
compared to net cash used in operating activities of $250 million in 2003. The
increase of $648 million primarily represents the absence, in 2004, of $560
million in pension contributions made in 2003 and the reduced effect of rising
gas prices on inventory. These changes were offset partially by increases in
accounts receivable due to higher gas prices and the net effect of the sale of
CMS ERM's wholesale gas and power contracts in 2003 resulting from our continued
focus to optimize cash flow through the sale of non-strategic assets.

     2003: Net cash used in operating activities was $250 million in 2003
compared to net cash provided by operating activities of $614 million in 2002.
The change of $864 million was primarily due to an increase in pension plan
contributions of $496 million, an increase in inventories of $428 million due to
higher gas purchases at higher prices by our gas utility operations, and the net
effect of the sale of CMS ERM's wholesale gas and power contracts resulting from
our focus on optimizing cash flow through the sale of non-strategic assets.

INVESTING ACTIVITIES:

     2004: Net cash used in investing activities increased $595 million
primarily due to a decrease in asset sale proceeds of $720 million and an
increase in investments in unconsolidated subsidiaries of $71 million. In 2003,
we sold Panhandle, Field Services, and CMS ERM's wholesale gas and power
contracts. Our 2004 $71 million investment was primarily for our equity interest
in Shuweihat. These changes were offset partially by a decrease in the amount of
cash restricted of $308 million resulting from our improved financial condition.
In 2004, $145 million in restricted cash was no longer required to be held as
collateral for letters of credit.

     2003: Net cash provided by investing activities decreased $626 million
primarily due to a decrease in asset sale proceeds from Equatorial Guinea,
Powder River, and GMS Oil & Gas of $720 million in 2002. This was

                                      CMS-24
<PAGE>

offset by a decrease in 2003 capital expenditures of $212 million as a result of
our strategic plan to reduce capital expenditures.

FINANCING ACTIVITIES:

     2004: Net cash used in financing activities increased $272 million
primarily due to a decrease of $232 million in net proceeds from borrowings.

     2003: Net cash provided by financing activities increased $1.452 billion
primarily due to an increase in net proceeds from borrowings of $988 million and
net proceeds from preferred securities issuances of $272 million.

     For additional details on long-term debt activity, see Note 4, Financings
and Capitalization.

SUBSEQUENT FINANCING ACTIVITIES: In January 2005, we redeemed $103 million of
general term notes. In January 2005, we issued $150 million of 6.30 percent
Senior Notes due 2012. We used the net proceeds of $147 million to redeem the
remaining general term notes and for other corporate purposes.

     In January 2005, Consumers issued $250 million of 5.15 percent FMBs due
2017. Consumers used the net proceeds of $247 million to pay off its $60 million
long-term bank loan, to redeem the $73 million 8.36 percent subordinated
deferrable interest notes, and to redeem the $124 million 8.20 percent
subordinated deferrable interest notes. The subordinated deferrable interest
notes are classified as Long-term debt -- related parties on our accompanying
Consolidated Balance Sheets.

OBLIGATIONS AND COMMITMENTS

     CONTRACTUAL OBLIGATIONS: The following table summarizes our contractual
cash obligations for each of the periods presented. The table shows the timing
and effect that such obligations are expected to have on our liquidity and cash
flow in future periods. The table excludes all amounts classified as current
liabilities on our Consolidated Balance Sheets, other than the current portion
of long-term debt and capital and finance leases. The majority of current
liabilities will be paid in cash in 2005.

<Table>
<Caption>
                                                                  PAYMENTS DUE
       CONTRACTUAL OBLIGATIONS         -------------------------------------------------------------------
       AS OF DECEMBER 31, 2004          TOTAL      2005      2006      2007      2008      2009     BEYOND
       -----------------------          -----      ----      ----      ----      ----      ----     ------
                                                                   IN MILLIONS
<S>                                    <C>        <C>       <C>       <C>       <C>       <C>       <C>
CONTRACTUAL OBLIGATIONS
Long-term debt.......................  $ 6,711    $  267    $  554    $  555    $  973    $  877    $3,485
Long-term debt -- related parties....      684       180        --        --        --        --       504
Interest payments on long-term
  debt...............................    3,511       438       424       390       326       262     1,671
Capital and finance leases...........      344        29        28        28        27        27       205
Interest payments on capital and
  finance leases.....................      224        30        28        27        25        23        91
Operating leases.....................       92        16        15        13        12         8        28
Purchase obligations.................    7,726     1,918     1,063       707       587       526     2,925
Long-term service agreements.........      207        16        17        11        11        12       140
                                       -------    ------    ------    ------    ------    ------    ------
Total contractual obligations........  $19,499    $2,894    $2,129    $1,731    $1,961    $1,735    $9,049
                                       =======    ======    ======    ======    ======    ======    ======
</Table>

     Long-Term Debt: The amounts in the table above represent the principal
amounts due on outstanding debt obligations, current and long-term, as of
December 31, 2004. For additional details on long-term debt, see Note 4,
Financings and Capitalization.

     Interest Payments on Long-term Debt: The amounts in the table above
represent the currently scheduled interest payments on both variable and fixed
rate long-term debt and long-term debt -- related parties, current and
long-term. Variable interest payments are based on contractual rates in effect
at December 31, 2004.

                                      CMS-25
<PAGE>

     Capital and Finance Leases: The amounts in the table above represent the
minimum lease payments payable under our capital and finance leases. They are
comprised mainly of the leased portion of the MCV Partnership facility, leased
service vehicles, and leased office furniture.

     Interest Payments on Capital and Finance Leases: The amounts in the table
represent imputed interest in the capital leases and currently scheduled
interest payments on the finance leases.

     Operating Leases: The amounts in the table above represent the minimum
noncancelable lease payments under our leases of railroad cars, certain
vehicles, and miscellaneous office buildings and equipment, which are accounted
for as operating leases.

     Purchase Obligations: Long-term contracts for purchase of commodities and
services are purchase obligations. These obligations include operating contracts
used to assure adequate supply with generating facilities that meet PURPA
requirements. The commodities and services include:

     - natural gas,

     - electricity,

     - coal and associated transportation, and

     - electric transmission.

     Our purchase obligations include long-term power purchase agreements with
various generating plants, which require us to make monthly capacity payments
based on the plants' availability or deliverability. These payments will
approximate $10 million per month during 2005. If a plant is not available to
deliver electricity, we are not obligated to make the capacity payments to the
plant for that period of time. For additional details on power supply costs, see
"Electric Utility Results of Operations" within this MD&A and Note 3,
Contingencies, "Consumers' Electric Utility Rate Matters -- Power Supply Costs."

     Long-term Service Agreements: These obligations of the MCV Partnership
represent the cost of the current MCV Facility maintenance service agreements
and cost of spare parts.

     REVOLVING CREDIT FACILITIES: At December 31, 2004, CMS Energy had $194
million available, Consumers had $475 million available, and the MCV Partnership
had $48 million available in secured revolving credit facilities. The facilities
are available for general corporate purposes, working capital, and letters of
credit. For additional details on revolving credit facilities, see Note 4,
Financings and Capitalization.

     OFF-BALANCE SHEET ARRANGEMENTS:  CMS Energy and certain of its subsidiaries
enter into guarantee arrangements in the normal course of business to facilitate
commercial transactions with third parties. These arrangements include financial
and performance guarantees, letters of credit, debt guarantees, surety bonds and
indemnifications. For additional details on guarantee arrangements, see Note 4,
Financings and Capitalization, "FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," and in "Commercial Commitments" within
this section.

     Non-recourse Debt: Our share of unconsolidated debt associated with
partnerships and joint ventures in which we have a minority interest is
non-recourse and totals $1.368 billion at December 31, 2004. The timing of the
payments of non-recourse debt only affects the cash flow and liquidity of the
partnerships and joint ventures. For additional details, see Note 12, Equity
Method Investments.

     Sale of Accounts Receivable: Under a revolving accounts receivable sales
program, Consumers may sell up to $325 million of certain accounts receivable.
For additional details, see Note 4, Financings and Capitalization.

     COMMERCIAL COMMITMENTS: Our contingent commercial commitments include
guarantees, indemnities, and letters of credit. Guarantees represent our
guarantees of performance, commitments, and liabilities of our consolidated and
unconsolidated subsidiaries, partnerships, and joint ventures. Indemnities are
agreements to reimburse other companies, such as an insurance company, if those
companies have to complete our contractual performance in a third-party
contract. Banks, on our behalf, issue letters of credit guaranteeing payment to
a third party. Letters of credit substitute the bank's credit for ours and
reduce credit risk for the third-party beneficiary. We monitor these obligations
and believe it is unlikely that we would be required to perform or otherwise
incur
                                      CMS-26
<PAGE>

any material losses associated with these guarantees. Our off-balance sheet
commitments at December 31, 2004, expire as follows:

<Table>
<Caption>
                                                                      COMMITMENT EXPIRATION
                                                   -----------------------------------------------------------
                                                                                                      2010 AND
                                                   TOTAL    2005    2006    2007     2008     2009     BEYOND
                                                   -----    ----    ----    ----     ----     ----    --------
                                                                           IN MILLIONS
<S>                                                <C>      <C>     <C>     <C>      <C>      <C>     <C>
COMMERCIAL COMMITMENTS
Off-balance sheet:
  Guarantees.....................................  $210     $ 37    $ 5     $ --     $ --     $ 9       $159
  Surety bonds and other indemnifications(a).....    25       --     --       --       --      --         25
  Letters of credit..............................   165      129      6        5        5      13          7
                                                   ----     ----    ---     -----    -----    ---       ----
Total............................................  $400     $166    $11     $  5     $  5     $22       $191
                                                   ====     ====    ===     =====    =====    ===       ====
</Table>

- -------------------------
(a)  The surety bonds are continuous in nature. The need for the bonds is
     determined on an annual basis.

     DIVIDEND RESTRICTIONS: Our amended and restated $300 million secured
revolving credit facility restricts payments of dividends on our common stock
during a 12-month period to $75 million, dependent on the aggregate amounts of
unrestricted cash and unused commitments under the facility.

     Under the provisions of its articles of incorporation, at December 31,
2004, Consumers had $456 million of unrestricted retained earnings available to
pay common stock dividends. However, covenants in Consumers' debt facilities cap
common stock dividend payments at $300 million in a calendar year. In October
2004, the MPSC rescinded its December 2003 interim gas rate order, which
included a $190 million annual dividend cap imposed on Consumers. For the year
ended December 31, 2004, we received $190 million of common stock dividends from
Consumers.

     CAPITAL EXPENDITURES: We estimate that we will make the following capital
expenditures, including new lease commitments, by business segments during 2005
through 2007. We prepare these estimates for planning purposes and may revise
them.

<Table>
<Caption>
YEARS ENDING DECEMBER 31                                      2005      2006      2007
- ------------------------                                      ----      ----      ----
                                                                    IN MILLIONS
<S>                                                           <C>       <C>       <C>
Electric utility operations(a)(b)...........................  $370      $525      $490
Gas utility operations......................................   165       205       185
Enterprises.................................................    10         5         5
                                                              ----      ----      ----
                                                              $545      $735      $680
                                                              ====      ====      ====
</Table>

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

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

OUTLOOK

CORPORATE OUTLOOK

     During 2004, we have continued to implement a business strategy that
involves improving our balance sheet and providing superior utility operations
and service. This strategy is designed to generate cash to pay down debt and
provide for more predictable future operating revenues and earnings.

     Our primary focus with respect to our non-utility businesses has been to
optimize cash flow and further reduce our business risk and leverage through the
sale of non-strategic assets, and to improve earnings and cash flow from
businesses we plan to retain. Although much of our asset sales program is
complete, we still may sell certain remaining businesses that are not strategic
to us. As this continues, the percentage of our future earnings relating to our
larger equity method investments, including Jorf Lasfar, may increase and our
total future earnings

                                      CMS-27
<PAGE>

may depend more significantly upon the performance of those investments. For
additional details, see Note 12, Equity Method Investments.

     Over the next few years, we expect our business strategy to reduce parent
company debt substantially, improve our credit ratings, grow earnings, restore a
common stock dividend, and position the company to make new investments
consistent with our strengths. In the near term, our new investments will focus
principally on the utility.

ELECTRIC UTILITY BUSINESS OUTLOOK

     GROWTH: In 2004, we experienced cooler than normal summer weather. As a
result, our electric deliveries in 2004, including deliveries to customers who
chose to buy generation service from alternative electric suppliers, increased
less than one-half of one percent over the levels experienced in 2003. In 2005,
we project electric deliveries to grow almost three percent. This short-term
outlook for 2005 assumes a stronger economy than in 2004 and normal weather
conditions throughout the year.

     Over the next five years, we expect electric deliveries to grow at an
average rate of approximately two percent per year, based primarily on a
steadily growing customer base and economy. This growth rate includes both
full-service sales and delivery service to customers who choose to buy
generation service from an alternative electric supplier, but excludes
transactions with other wholesale market participants and other electric
utilities. 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
fluctuations in weather conditions and changes in economic conditions, including
utilization and expansion of manufacturing facilities.

ELECTRIC UTILITY BUSINESS UNCERTAINTIES

     Several electric business trends or uncertainties may affect our financial
results and condition. These trends or uncertainties have, or we reasonably
expect could have, a material impact on revenues or income from continuing
electric operations. Such trends and uncertainties include:

     Environmental

     - increasing capital expenditures and operating expenses for Clean Air Act
       compliance and/or Clear Skies legislation compliance,

     - compliance with legislative proposals that would require reductions in
       emissions of greenhouse gases, and

     - potential environmental liabilities arising from various environmental
       laws and regulations, including potential liability or expenses relating
       to the Michigan Natural Resources and Environmental Protection Acts and
       Superfund.

     Restructuring

     - response of the MPSC and Michigan legislature to electric industry
       restructuring issues,

     - ability to meet peak electric demand requirements at a reasonable cost,
       without market disruption,

     - recovery of our Section 10d(4) Regulatory Assets,

     - effects of lost electric supply load to alternative electric suppliers,
       and

     - status as an electric transmission customer instead of an electric
       transmission owner and the impact of the evolving RTO infrastructure.

     Regulatory

     - financial and operating effects of regulatory requirements imposed by the
       MISO, the FERC, state and federal regulators, or others, seeking to
       improve reliability of national and state transmission systems,

     - inadequate regulatory response to applications for requested rate
       increases,

     - responses from regulators regarding the storage and ultimate disposal of
       spent nuclear fuel,

                                      CMS-28
<PAGE>

     - recovery of nuclear decommissioning costs. For additional details, see
       "Accounting for Nuclear Decommissioning Costs" within this MD&A, and

     - potential for the Midwest Energy Market to develop into an active energy
       market in the state of Michigan and the potential derivative accounting
       impact. For additional details, see "Accounting for Financial and
       Derivative Instruments, Trading Activities, and Market Risk Information"
       within this MD&A.

     Other

     - effects of commodity fuel prices such as natural gas, oil, and coal,

     - pending litigation filed by PURPA qualifying facilities, and

     - other pending litigation.

     For additional details about these trends or uncertainties, see Note 3,
Contingencies.

     ELECTRIC ENVIRONMENTAL ESTIMATES: Our operations are subject to
environmental laws and regulations. Costs to operate our facilities in
compliance with these laws and regulations generally have been recovered in
customer rates.

     Clean Air: Compliance with the federal Clean Air Act and resulting
regulations has been, and will continue to be, a significant focus for us. The
Title I provisions of the Clean Air Act require significant reductions in
nitrogen oxide emissions. To comply with the regulations, we expect to incur
capital expenditures totaling $802 million. The key assumptions included in the
capital expenditure estimate include:

     - construction commodity prices, especially construction material and
       labor,

     - project completion schedules,

     - cost escalation factor used to estimate future years' costs, and

     - allowance for funds used during construction (AFUDC) rate.

     Our current capital cost estimates include an escalation rate of 2.6
percent and an AFUDC capitalization rate of 8.06 percent. As of December 31,
2004, we have incurred $525 million in capital expenditures to comply with these
regulations and anticipate that the remaining $277 million of capital
expenditures will be made between 2005 and 2011. These expenditures include
installing selective catalytic reduction technology at four of our coal-fired
electric plants. In addition to modifying the coal-fired electric plants, we
expect to utilize nitrogen oxide emissions allowances for years 2005 through
2009, most of which have been purchased. The cost of the allowances is estimated
to average $8 million per year for 2005-2006. The need for allowances will
decrease after year 2006 with the installation of emissions control technology.
The cost of the allowances is accounted for as inventory. The allowance
inventory is expensed as the coal-fired electric generating units emit nitrogen
oxide.

     The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.

     The EPA has proposed a Clean Air Interstate Rule that would require
additional coal-fired electric plant emission controls for nitrogen oxides and
sulfur dioxide. If implemented, this rule potentially would require expenditures
equivalent to those efforts in progress to reduce nitrogen oxide emissions as
required under the Title I provisions of the Clean Air Act. The rule proposes a
two-phase program to reduce emissions of sulfur dioxide by 70 percent and
nitrogen oxides by 65 percent by 2015. Additionally, the EPA also proposed two
alternative sets of rules to reduce emissions of mercury from coal-fired
electric plants and nickel from oil-fired electric plants. Until the proposed
environmental rules are finalized, an accurate cost of compliance cannot be
determined.

                                      CMS-29
<PAGE>

     Our switch to western coal as a primary fuel source has resulted in reduced
plant emissions and increased our flexibility in meeting future regulatory
compliance requirements. Excess sulfur dioxide allowances optimize our overall
cost of regulatory compliance by delaying capital expenditures and minimizing
regulatory uncertainty. Additionally, the excess sulfur dioxide allowances can
be used to trade for nitrogen oxide allowances supplementing our nitrogen oxide
allowance bank. Western coal has reduced our overall cost of fuel and reduced
the economic impact from the recent increases in eastern coal prices.

     Several legislative proposals have been introduced in the United States
Congress that would require reductions in emissions of greenhouse gases,
however, none have yet been enacted. We cannot predict whether any federal
mandatory greenhouse gas emission reduction rules ultimately will be enacted, or
the specific requirements of any such rules.

     To the extent that greenhouse gas emission reduction rules come into
effect, such mandatory emissions reduction requirements could have far-reaching
and significant implications for the energy sectors. We cannot estimate the
potential effect of federal or state level greenhouse gas policy on our future
consolidated results of operations, cash flows, or financial position due to the
speculative nature of the policies at this time. However, we stay abreast of and
engage in the greenhouse gas policy developments and will continue to assess and
respond to their potential implications on our business operations.

     Water: In March 2004, the EPA issued rules that govern generating plant
cooling water intake systems. The new rules require significant reduction in
fish killed by operating equipment. Some of our facilities will be required to
comply with the new rules by 2006. We are currently studying the rules to
determine the most cost-effective solutions for compliance.

     For additional details on electric environmental matters, see Note 3,
Contingencies, "Consumers' Electric Utility Contingencies -- Electric
Environmental Matters."

     COMPETITION AND REGULATORY RESTRUCTURING: Michigan's Customer Choice Act
and other developments will continue to result in increased competition in the
electric business. The Customer Choice Act allows all of our electric customers
to buy electric generation service from us or from an alternative electric
supplier. As of March 2005, alternative electric suppliers are providing 900 MW
of generation supply to ROA customers. This amount represents 12 percent of our
distribution load and an increase of 23 percent compared to March 2004. Based on
current trends, we predict total load loss by the end of 2005 to be in the range
of 1,000 MW to 1,200 MW. However, no assurance can be made that the actual load
loss will fall within that range.

     In July 2004, as a result of legislative hearings, several bills were
introduced into the Michigan Senate that could change Michigan's Customer Choice
Act. The proposals include:

     - requiring that all rate classes of regulated utilities be based on cost
       of service,

     - establishing a defined Stranded Cost calculation method,

     - allowing customers who stay with or switch to alternative electric
       suppliers after December 31, 2005 to return to utility services, and
       requiring them to pay current market rates upon return,

     - establishing reliability standards that all electric suppliers must
       follow,

     - requiring utilities and alternative electric suppliers to maintain a 15
       percent power reserve margin,

     - creating a service charge to fund the Low Income and Energy Efficiency
       Fund,

     - giving kindergarten through twelfth-grade schools a discount of 10
       percent to 20 percent on electric rates, and

     - authorizing a service charge payable by all customers for meeting Clean
       Air Act requirements.

     This legislation was not enacted before the end of the 2003-2004
legislative session. We anticipate that some or all of the bills may be
reintroduced in the 2005-2006 legislative session. We cannot predict the outcome
of these legislative proceedings.

                                      CMS-30
<PAGE>

     Implementation Costs: Applications for recovery of $7 million of
implementation costs for 2002 and $1 million for 2003 are pending MPSC approval.
In September 2004, the ALJ issued a Proposal for Decision recommending full
recovery of these costs.

     We are also pursuing authorization at the FERC for the MISO to reimburse us
for approximately $8 million of Alliance RTO development costs. Included in this
amount is $5 million pending approval by the MPSC as part of our 2002
implementation costs application. The FERC has denied our request for
reimbursement and we are appealing the FERC ruling at the United States Court of
Appeals for the District of Columbia. Although we believe these implementation
costs are fully recoverable in accordance with the Customer Choice Act, we
cannot predict the amount, if any, the MPSC or the FERC will approve as
recoverable.

     Section 10d(4) Regulatory Assets: Section 10d(4) of the Customer Choice Act
allows us to recover certain regulatory assets through deferred recovery of
annual capital expenditures in excess of depreciation levels and certain other
expenses incurred prior to and throughout the rate freeze and rate cap periods,
including the cost of money. In October 2004, we filed an application with the
MPSC seeking recovery of $628 million of Section 10d(4) Regulatory Assets for
the period June 2000 through December 2005 consisting of:

     - capital expenditures in excess of depreciation,

     - Clean Air Act costs,

     - other expenses related to changes in law or governmental action incurred
       during the rate freeze and rate cap periods, and

     - the associated cost of money through the period of collection.

     Of the $628 million, $152 million relates to the cost of money. In March
2005, the MPSC Staff filed testimony recommending the MPSC approve recovery of
approximately $323 million. We cannot predict the amount, if any, the MPSC will
approve as recoverable.

     Rate Caps: The Customer Choice Act imposes certain limitations on electric
rates that could result in our inability to collect our full cost of conducting
business from electric customers. Rate caps are effective through December 31,
2005 for residential customers. As a result, we may be unable to maintain our
profit margins in our electric utility business during the rate cap period. In
particular, if we need to purchase power supply from wholesale suppliers while
retail rates are capped, the rate restrictions may preclude full recovery of
purchased power and associated transmission costs.

     Power Supply Costs: To reduce the risk of high electric prices during peak
demand periods and to achieve our reserve margin target, we employ a strategy of
purchasing electric capacity and energy contracts for the physical delivery of
electricity primarily in the summer months and to a lesser degree in the winter
months. We are currently planning for a reserve margin of approximately 11
percent for summer 2005, or supply resources equal to 111 percent of projected
summer peak load. Of the 2005 supply resources target of 111 percent, we expect
to meet approximately 102 percent from our electric generating plants and
long-term power purchase contracts, and approximately 9 percent from short-term
contracts, options for physical deliveries, and other agreements. We have
purchased capacity and energy contracts partially covering the estimated reserve
margin requirements for 2005 through 2007. As a result, we have recognized an
asset of $12 million for unexpired capacity and energy contracts as of December
31, 2004.

     PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs actually incurred by us. In September 2004, we submitted our 2005
PSCR filing to the MPSC. The proposed PSCR charge would allow us to recover a
portion of our increased power supply costs from commercial and industrial
customers and, subject to the overall rate caps, from other customers. We
self-implemented the proposed 2005 PSCR charge in January 2005. The revenues
from the PSCR charges are subject to reconciliation at the end of the year after
actual costs have been reviewed for reasonableness and prudence. We cannot
predict the outcome of these PSCR proceedings.

     Special Contracts: We entered into multi-year electric supply contracts
with certain industrial and commercial customers. The contracts provide
electricity at specially negotiated prices that are at a discount from

                                      CMS-31
<PAGE>

tariff prices, but above our incremental cost of service. As of February 2005,
special contracts for approximately 630 MW of load are in place, most of which
are in effect through 2005. We cannot predict the amount of electric load from
these customers that will continue with our electric service after their
contracts expire.

     Transmission Costs: In May 2002, we sold our electric transmission system
for $290 million to MTH. We are in arbitration with MTH regarding property tax
items used in establishing the selling price of our electric transmission
system. An unfavorable outcome could result in a reduction of sale proceeds
previously recognized by approximately $2 million to $3 million.

     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 affect significantly:

     - transmission cost trends,

     - delivered power costs to us, and

     - delivered power costs to our retail electric customers.

     In November 2004, the FERC ruled on MISO and PJM RTO "through and out"
rates. Through and out rates are applied to transmission transactions when a
transmission customer purchases electricity that travels through multiple
transmission pricing zones. Effective December 1, 2004, regional through and out
rates for transactions between the PJM RTO and the MISO were eliminated by the
FERC. In that November 2004 order, the FERC conditionally accepted, for a period
beginning December 1, 2004 and ending January 31, 2008, a "license plate"
pricing structure. License plate pricing provides for access to the combined
regional transmission systems of the PJM RTO and the MISO at a single rate,
although the rate may vary based on where the customer's load is located.

     The order also adopts a transitional charge from December 1, 2004 through
March 31, 2006, intended to mitigate abrupt cost shifts between transmission
owners and customers as a result of the pricing structure change. The manner in
which these transitional charges are calculated and implemented is currently the
subject of multiple disputes pending at the FERC. Based on the compliance
filings with the FERC made by the MISO and PJM RTO transmission owners, the new
transitional charges will not have a significant impact on our electric results
of operations. However, we cannot predict the outcome of the disputes concerning
these transitional charges pending at the FERC.

     Transmission Market Developments: The MISO is scheduled to begin the
Midwest Energy Market on April 1, 2005. At that time, the MISO will implement a
day-ahead and real-time energy market and centralized dispatch for the MISO's
market participants. These changes are anticipated to ensure that load
requirements in the region are met reliably and efficiently, to better manage
congestion on the grid, and to produce consumer savings through the centralized
dispatch of generation throughout the region. The MISO is expected to provide
other functions, including long-term regional planning and market monitoring.

     In addition, we are evaluating whether or not there may be impacts on
electric reliability associated with changes in the composition of transmission
markets. For example, Commonwealth Edison Company joined the PJM RTO in May 2004
and American Electric Power Service Corporation joined the PJM RTO in October
2004. These integrations may be creating different patterns of power flow within
the Midwest area and could affect adversely our ability to provide reliable
service to our customers. We are presently evaluating what financial impacts, if
any, these market developments are having on our operations.

     August 14, 2003 Blackout: The NERC and the U.S. and Canadian Power System
Outage Task Force have released electric operations recommendations resulting
from their investigation into the August 14, 2003 blackout. Few of the
recommendations apply directly to us, since we are not a transmission owner.
However, the recommendations could result in increased transmission costs to us
and require upgrades to our distribution system. We cannot quantify the
financial impact of these recommendations at this time.

                                      CMS-32
<PAGE>

     For additional details and material changes relating to the restructuring
of the electric utility industry and electric rate matters, see Note 3,
Contingencies, "Consumers' Electric Utility Restructuring Matters," and
"Consumers' Electric Utility Rate Matters."

     ELECTRIC RATE CASE: In December 2004, we filed an application with the MPSC
to increase our retail electric base rates. The electric rate case filing
requests an annual increase in revenues of approximately $320 million. The
primary reasons for the request are increased system maintenance and improvement
costs, Clean Air Act related expenditures, and employee pension costs. A final
order from the MPSC on our electric rate case is expected in late 2005. If
approved as requested, the rate increase would go into effect in January 2006
and would apply to all retail electric customers. We cannot predict the amount
or timing of the rate increase, if any, which the MPSC will approve.

     BURIAL OF OVERHEAD POWER LINES: In September 2004, the Michigan Court of
Appeals upheld a lower court decision that requires Detroit Edison to obey a
municipal ordinance enacted by the City of Taylor, Michigan. The ordinance
requires Detroit Edison to bury a section of its overhead power lines at its own
expense. Detroit Edison has filed an appeal with the Michigan Supreme Court.
Unless overturned by the Michigan Supreme Court, the decision could encourage
other municipalities to adopt similar ordinances, as has occurred or is being
discussed in a few municipalities in Consumers' service territory. If incurred,
we would seek recovery of these costs from our customers, subject to MPSC
approval. This case has potentially broad ramifications for the electric utility
industry in Michigan; however, at this time, we cannot predict the outcome of
this matter.

OTHER ELECTRIC UTILITY BUSINESS UNCERTAINTIES

     NUCLEAR MATTERS:

     Big Rock: Dismantlement of plant systems is essentially complete and
demolition of the remaining plant structures has begun. The restoration project
is on schedule to return approximately 530 acres of the site, including the area
formerly occupied by the nuclear plant, to a natural setting for unrestricted
use in mid-2006. An additional 30 acres, the area where seven transportable dry
casks loaded with spent nuclear fuel and an eighth cask loaded with high-level
radioactive waste material are stored, will be returned to a natural state by
the end of 2012 if the DOE begins removing the spent nuclear fuel by 2010.

     Palisades: In August 2004, the NRC completed its mid-cycle plant
performance assessment of Palisades. The assessment for Palisades covered the
first half of 2004. The NRC determined that Palisades was operated in a manner
that preserved public health and safety and fully met all cornerstone
objectives. As of December 2004, all inspection findings were classified as
having very low safety significance and all performance indicators show
performance at a level requiring no additional oversight. Based on the plant's
performance, only regularly scheduled inspections are planned through March
2006.

     The amount of spent nuclear fuel at Palisades exceeds the plant's temporary
onsite storage pool capacity. We are using dry casks for temporary onsite
storage. As of December 31, 2004, we have loaded 22 dry casks with spent nuclear
fuel. For additional information on disposal of spent nuclear fuel, see Note 3,
Contingencies, "Other Consumers' Electric Utility Contingencies -- Nuclear
Matters."

     In September 2004, we announced that we will seek a license renewal for the
Palisades plant. The plant's current license from the NRC expires in 2011. NMC,
which operates the facility, will apply for a 20-year license renewal for the
plant on behalf of Consumers. The Palisades renewal application is scheduled to
be filed by the end of the first quarter of 2005.

     We have authorized the purchase of a replacement reactor vessel closure
head. The replacement head is being manufactured and scheduled to be installed
in 2007. Palisades, like many other nuclear plants, has experienced cracking in
reactor head nozzle penetrations. Repairs to two nozzles were made in 2004. The
replacement head nozzles will be manufactured from materials less susceptible to
cracking and should minimize inspection and repair costs after replacement.

     Spent nuclear fuel complaint: In March 2003, the Michigan Environmental
Council, the Public Interest Research Group in Michigan, and the Michigan
Consumer Federation filed a complaint with the MPSC, which

                                      CMS-33
<PAGE>

was served on us by the MPSC in April 2003. The complaint asks the MPSC to
initiate 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. The complaint states that amounts
collected from customers for spent nuclear fuel storage and disposal should be
placed in an independent trust. The complaint also asks the MPSC to take
additional actions. In May 2003, Consumers and other named utilities each filed
motions to dismiss the complaint. We are unable to predict the outcome of this
matter.

GAS UTILITY BUSINESS OUTLOOK

     GROWTH: Over the next five years, we expect gas deliveries to grow at an
average rate of less than one percent per year. Actual gas deliveries in future
periods may be affected by:

     - fluctuations in weather patterns,

     - use by independent power producers,

     - competition in sales and delivery,

     - Michigan economic conditions,

     - gas consumption per customer, and

     - increases in gas commodity prices.

     In February 2004, we filed an application with the MPSC for a Certificate
of Public Convenience and Necessity to construct a 25-mile gas transmission
pipeline in northern Oakland County. The project is necessary to meet estimated
peak load beginning in the winter of 2005 through 2006. In December 2004, the
MPSC approved a settlement agreement authorizing us to construct and operate the
pipeline. Construction is expected to begin late spring of 2005.

     In October 2004, we filed an application with the MPSC for a Certificate of
Public Convenience and Necessity to construct a 10.8-mile gas transmission
pipeline in northwestern Wayne County. The project is necessary to meet the
projected capacity demands beginning in the winter of 2007. If we are unable to
construct the pipeline, we will need to pursue more costly alternatives or
curtail serving the system's load growth in that area.

GAS UTILITY BUSINESS UNCERTAINTIES

     Several gas business trends or uncertainties may affect our financial
results and conditions. These trends or uncertainties could have a material
impact on revenues or income from gas operations. The trends and uncertainties
include:

     Regulatory

     - inadequate regulatory response to applications for requested rate
       increases,

     - response to increases in gas costs, including adverse regulatory response
       and reduced gas use by customers, and

     - proposed distribution pipeline integrity rules and mandates.

     Environmental

     - potential environmental remediation costs at a number of sites, including
       sites formerly housing manufactured gas plant facilities.

     Other

     - transmission pipeline integrity mandates, maintenance and remediation
       costs, and

                                      CMS-34
<PAGE>

     - other pending litigation.

     GAS TITLE TRACKING FEES AND SERVICES: On February 14, 2005, the FERC issued
its latest order involving Consumers' Gas Title Transfer Tracking Fees and
Services. In doing so, the FERC agreed with us that such orders only apply to a
title transfer tracking fee charged and collected in connection with the
Consumers' FERC blanket transportation service. Because of the newly stated
limits on what fees are subject to refund, we believe that if any such refunds
are ultimately required, they will not be material.

     GAS COST RECOVERY: The GCR process is designed to allow us to recover all
of our purchased natural gas costs if incurred under reasonable and prudent
policies and practices. The MPSC reviews these costs for prudency in an annual
reconciliation proceeding.

     The following table summarizes our GCR reconciliation filings with the
MPSC. For additional details, see Note 3, Contingencies, "Consumers' Gas Utility
Rate Matters -- Gas Cost Recovery."

GAS COST RECOVERY RECONCILIATION

<Table>
<Caption>
                                        NET OVER-
GCR YEAR    DATE FILED   ORDER DATE     RECOVERY                     STATUS
- --------    ----------   ----------     ---------                    ------
<S>         <C>         <C>            <C>           <C>
2001-2002   June 2002   May 2004       $ 3 million   $2 million has been refunded,
                                                     $1 million is included in our
                                                     2003-2004 GCR reconciliation filing
2002-2003   June 2003   March 2004     $ 5 million   Net over-recovery includes interest
                                                     accrued through March 2003 and an
                                                     $11 million disallowance settlement
                                                     agreement
2003-2004   June 2004   February 2005  $31 million   Filing includes the $1 million and the
                                                     $5 million GCR net over-recovery above
</Table>

     Net over-recovery amounts included in the table above include refunds that
we received from our suppliers that are required to be refunded to our
customers.

     GCR year 2003-2004: In February 2005, the MPSC approved a settlement
agreement that resulted in a credit to our GCR customers for a $28 million
over-recovery, plus $3 million interest, using a roll-in refund methodology. The
roll-in methodology incorporates a GCR over/under-recovery in the next GCR plan
year.

     GCR plan for year 2004-2005: In December 2003, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2004
through March 2005. In June 2004, the MPSC issued a final Order in our GCR plan
approving a settlement. The settlement included a quarterly mechanism for
setting a GCR ceiling price. The current ceiling price is $6.57 per mcf. Actual
gas costs and revenues will be subject to an annual reconciliation proceeding.

     GCR plan for year 2005-2006: In December 2004, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2005
through March 2006. Our request proposes using a GCR factor consisting of:

     - a base GCR factor of $6.98 per mcf, plus

     - a quarterly GCR ceiling price adjustment contingent upon future events.

     The GCR factor can be adjusted monthly, provided it remains at or below the
current ceiling price. The quarterly adjustment mechanism allows an increase in
the GCR ceiling price to reflect a portion of cost increases if the average
NYMEX price for a specified period is greater than that used in calculating the
base GCR factor. Actual gas costs and revenues will be subject to an annual
reconciliation proceeding.

     2003 GAS RATE CASE: In March 2003, we filed an application with the MPSC
for a gas rate increase in the annual amount of $156 million. In December 2003,
the MPSC granted an interim rate increase in the amount of $19 million annually.
The MPSC also ordered an annual $34 million reduction in our annual depreciation
expense and related taxes.

                                      CMS-35
<PAGE>

     On October 14, 2004, the MPSC issued its Opinion and Order on final rate
relief. In the order, the MPSC authorized us to place into effect surcharges
that would increase annual gas revenues by $58 million. Further, the MPSC
rescinded the $19 million annual interim rate increase. The final rate relief
was contingent upon our agreement to:

     - achieve a common equity level of at least $2.3 billion by year-end 2005
       and propose a plan to improve the common equity level thereafter until
       our target capital structure is reached,

     - make certain safety-related operation and maintenance, pension, retiree
       health-care, employee health-care, and storage working capital
       expenditures for which the surcharge is granted,

     - refund surcharge revenues when our rate of return on common equity
       exceeds its authorized 11.4 percent rate,

     - prepare and file annual reports that address certain issues identified in
       the order, and

     - file a general rate case on or before the date that the surcharge expires
       (which is two years after the surcharge goes into effect).

     On October 15, 2004, we agreed to these commitments.

     2001 GAS DEPRECIATION CASE: In December 2003, we filed an update to our gas
utility plant depreciation case originally filed in June 2001. On December 18,
2003, the MPSC ordered an annual $34 million reduction in our depreciation
expense and related taxes in an interim rate order issued in our 2003 gas rate
case.

     In October and December 2004, the MPSC issued Opinions and Orders in our
gas depreciation case. The October 2004 order requires us to file an application
for new depreciation accrual rates for our natural gas utility plant on, or no
earlier than three months prior to, the date we file our next natural gas
general rate case. The MPSC also directed us to undertake a study to determine
why our removal costs are in excess of those of other regulated Michigan natural
gas utilities and file a report with the MPSC Staff on or before December 31,
2005.

     In February 2005, we requested a delay in the filing date for the next
depreciation case until after the MPSC considers the removal cost study, and
after the MPSC issues an order in a pending case relating to asset retirement
obligation accounting.

     GAS ENVIRONMENTAL ESTIMATES: We expect to incur investigation and remedial
action costs at a number of sites, including 23 former manufactured gas plant
sites. We expect our remaining remedial action costs to be between $37 million
and $90 million. We expect to fund most of these costs through insurance
proceeds and through the MPSC approved rates charged to our customers. 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 our estimate of remedial action costs.
For additional details, see Note 3, Contingencies, "Consumers' Gas Utility
Contingencies -- Gas Environmental Matters."

OTHER CONSUMERS' OUTLOOK

     MCV PARTNERSHIP PROPERTY TAXES: In January 2004, the Michigan Tax Tribunal
issued its decision in the MCV Partnership's tax appeal against the City of
Midland for tax years 1997 through 2000. The MCV Partnership estimates that the
decision will result in a refund to the MCV Partnership of approximately $35
million in taxes plus $10 million of interest. The Michigan Tax Tribunal
decision has been appealed to the Michigan Court of Appeals by the City of
Midland and the MCV Partnership has filed a cross-appeal at the Michigan Court
of Appeals. The MCV Partnership also has a pending case with the Michigan Tax
Tribunal for tax years 2001 through 2004. The MCV Partnership cannot predict the
outcome of these proceedings; therefore, the above refund (net of approximately
$16 million of deferred expenses) has not been recognized in 2004 earnings.

     COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees
are represented by the Utility Workers of America Union. The Union represents
Consumers' operating, maintenance, and construction employees and our call
center employees. The collective bargaining agreement with the Union for our
operating, maintenance, and construction employees will expire on June 1, 2005
and negotiations for a new agreement is
                                      CMS-36
<PAGE>

underway currently. The collective bargaining agreement with the Union for our
call center employees will expire on August 1, 2005.

ENTERPRISES OUTLOOK

     INDEPENDENT POWER PRODUCTION: We plan to continue the restructuring of our
IPP business with the objective of narrowing the focus of our operations to
primarily North America, South America, and the Middle East/North Africa. We
will continue to sell designated assets and investments that are
under-performing or are not consistent with this focus. In February 2005, we
sold our interest in GVK for $20 million.

     CMS ERM: CMS ERM has streamlined its portfolio in order to reduce business
risk and outstanding credit guarantees. Our future activities will be centered
on fuel procurement activities and merchant power marketing in such a way as to
optimize the earnings from our IPP generation assets.

     CMS GAS TRANSMISSION: CMS Gas Transmission has completed its plan to sell
the majority of its international assets and businesses. Future operations will
be conducted mainly in Michigan and South America.

     GasAtacama: On March 24, 2004, the Argentine Government authorized the
restriction of exports of natural gas to Chile, giving priority to domestic
demand in Argentina. This restriction could have a detrimental effect on
GasAtacama's earnings since GasAtacama's gas-fired electric generation plant is
located in Chile and uses Argentine gas for fuel. From April through December
2004, Bolivia agreed to export 4 million cubic meters of gas per day to
Argentina, which allowed Argentina to minimize its curtailments to Chile.

     Argentina and Bolivia extended the term of that agreement through December
31, 2005. With the Bolivian gas supply, Argentina relaxed its export
restrictions to GasAtacama, currently allowing GasAtacama to receive
approximately 50 percent of its contracted gas quantities at its electric
generation plant. At this point in time, it is not possible to predict the
outcome of these events and their effect on the earnings of GasAtacama.

     Other: In July 2003, CMS Gas Transmission completed the sale of CMS Field
Services to Cantera Natural Gas, Inc. for gross cash proceeds of approximately
$113 million, subject to post closing adjustments, and a $50 million face value
contingent note of Cantera Natural Gas, Inc., which is not included in our
consolidated financial statements. The contingent 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 financial
performance is dependent primarily on the number of new wells connected,
transportation volumes, and revenue with certain EBITDA thresholds required to
be achieved in order for us to receive payments on the contingent note. It has
not been determined for 2004 results whether we will receive a payment on the
note in 2005.

     UNCERTAINTIES: The results of operations and the financial position of our
diversified energy businesses may be affected by a number of trends or
uncertainties. Those that could have a material impact on our income, cash
flows, or balance sheet and credit improvement include:

     - our ability to sell or to improve the performance of assets and
       businesses in accordance with our business plan,

     - changes in exchange rates or in local economic or political conditions,
       particularly in Argentina, Venezuela, Brazil, and the Middle East,

     - changes in foreign laws or in governmental or regulatory policies that
       could reduce significantly the tariffs charged and revenues recognized by
       certain foreign subsidiaries, or increase expenses,

     - imposition of stamp taxes on South American contracts that could increase
       project expenses substantially,

     - impact of any future rate cases, FERC actions, or orders on regulated
       businesses,

     - impact of ratings downgrades on our liquidity, operating costs, and cost
       of capital,

     - impact of changes in commodity prices and interest rates on certain
       derivative contracts that do not qualify for hedge accounting and must be
       marked to market through earnings, and

                                      CMS-37
<PAGE>

     - changes in available gas supplies or Argentine government regulations
       that could restrict natural gas exports to our GasAtacama generating
       plant.

OTHER OUTLOOK

     LITIGATION AND REGULATORY INVESTIGATION: We are the subject of an
investigation by the DOJ regarding round-trip trading transactions by CMS MST.
Additionally, we are named as a party in various litigation matters including,
but not limited to, a shareholder derivative lawsuit, a securities class action
lawsuit, a class action lawsuit alleging ERISA violations, and several lawsuits
regarding alleged false natural gas price reporting and price manipulation. For
additional details regarding these investigations and litigation, see Note 3,
Contingencies.

NEW ACCOUNTING STANDARDS

     For a discussion of new pronouncements, see Note 16, Implementation of New
Accounting Standards.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

     SFAS NO. 123R, SHARE-BASED PAYMENT: The Statement requires companies to
expense the grant date fair value of employee stock options and similar awards.
The Statement also clarifies and expands SFAS No. 123's guidance in several
areas, including measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting periods.

     In addition, this Statement amends SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits related to the excess of the tax deductible
amount over the compensation cost recognized be classified as a financing cash
inflow rather than as a reduction of taxes paid in operating cash flows.

     This Statement is effective for us as of the beginning of the third quarter
of 2005. We adopted the fair value method of accounting for share-based awards
effective December 2002, and therefore, expect this Statement to have an
insignificant impact on our results of operations when it becomes effective.

                                      CMS-38
<PAGE>

                             CMS ENERGY CORPORATION
        MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     CMS Energy's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) under the Exchange Act. Under the supervision and with the
participation of management, including its CEO and CFO, CMS Energy conducted an
evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on such
evaluation, CMS Energy's management concluded that its internal control over
financial control reporting was effective as of December 31, 2004.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     CMS Energy's management's assessment of the effectiveness of CMS Energy's
internal control over financial reporting as of December 31, 2004 has been
audited by Ernst & Young LLP, an independent registered public accounting firm,
who audited the consolidated financial statements of CMS Energy included in this
Form 10-K. Ernst & Young LLP's attestation report on CMS Energy's management's
assessment of internal control over financial reporting follows this report.

                                      CMS-39
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of CMS Energy Corporation

     We have audited management's assessment, included in MANAGEMENT'S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING, that CMS Energy Corporation (a
Michigan Corporation) and subsidiaries maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established
in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). CMS
Energy Corporation's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audit. We did not examine the effectiveness of internal control over
financial reporting of Midland Cogeneration Venture Limited Partnership, a 49%
owned variable interest entity which has been consolidated pursuant to Revised
Financial Accounting Standards Board Interpretation No. 46, "Consolidation of
Variable Interest Entities", whose financial statements reflect total assets and
revenues constituting 12% and 12%, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31, 2004. The
effectiveness of Midland Cogeneration Venture Limited Partnership's internal
control over financial reporting was audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the
effectiveness of Midland Cogeneration Venture Limited Partnership's internal
control over financial reporting, is based solely on the report of the other
auditors.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit and the report of the other auditors
provide a reasonable basis for our opinion.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     In our opinion, based on our audit and the report of the other auditors,
management's assessment that CMS Energy Corporation maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, based on our audit and the report of the other auditors, CMS Energy
Corporation maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of CMS Energy Corporation and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of income (loss), common
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2004 and our report dated March 7, 2005 expressed an
unqualified opinion thereon.

                                          /s/ Ernst & Young LLP

Detroit, Michigan
March 7, 2005

                                      CMS-40
<PAGE>

MCV MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     MCV's management is responsible for establishing and maintaining an
adequate system of internal control over financial reporting of MCV. This system
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.

     MCV's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of MCV; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
MCV are being made only in accordance with authorizations of management and the
Management Committee of MCV; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of MCV's assets that could have a material effect on the financial statements.

     Because of its inherent limitations, a system of internal control over
financial reporting can provide only reasonable assurance and may not prevent or
detect misstatements. Further, because of changes in conditions, effectiveness
of internal controls over financial reporting may vary over time. Our system
contains self-monitoring mechanisms, and actions are taken to correct
deficiencies as they are identified.

     MCV management conducted an evaluation of the effectiveness of the system
of internal control over financial reporting based on the framework in "Internal
Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that MCV's system of internal control over financial reporting was
effective as of December 31, 2004. MCV management's assessment of the
effectiveness of MCV's internal control over financial reporting has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.

                                      CMS-41
<PAGE>

                             CMS ENERGY CORPORATION

                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31
                                                                --------------------------
                                                                 2004      2003      2002
                                                                 ----      ----      ----
                                                                       IN MILLIONS
<S>                                                             <C>       <C>       <C>
OPERATING REVENUE...........................................    $5,472    $5,513    $8,673
EARNINGS FROM EQUITY METHOD INVESTEES.......................       115       164        92
OPERATING EXPENSES
  Fuel for electric generation..............................       793       405       341
  Purchased and interchange power...........................       344       540     2,677
  Purchased power -- related parties........................        --       455       564
  Cost of gas sold..........................................     1,786     1,791     2,745
  Other operating expenses..................................       954       951       915
  Maintenance...............................................       256       226       212
  Depreciation, depletion and amortization..................       431       428       412
  General taxes.............................................       270       191       222
  Asset impairment charges..................................       160        95       602
                                                                ------    ------    ------
                                                                 4,994     5,082     8,690
                                                                ------    ------    ------
OPERATING INCOME............................................       593       595        75
OTHER INCOME (DEDUCTIONS)
  Accretion expense.........................................       (23)      (29)      (31)
  Gain (loss) on asset sales, net...........................        52        (3)       37
  Interest and dividends....................................        27        28        15
  Regulatory return on capital expenditures.................       113        --        --
  Foreign currency gains (losses), net......................        (3)       15        (7)
  Other income..............................................        27        25        13
  Other expense.............................................       (15)      (22)      (27)
                                                                ------    ------    ------
                                                                   178        14        --
                                                                ------    ------    ------
FIXED CHARGES
  Interest on long-term debt................................       502       473       404
  Interest on long-term debt -- related parties.............        58        58        --
  Other interest............................................        44        59        32
  Capitalized interest......................................        25        (9)      (16)
  Preferred dividends of subsidiaries.......................         5         2         2
  Preferred securities distributions........................        --        10        86
                                                                ------    ------    ------
                                                                   634       593       508
                                                                ------    ------    ------
INCOME (LOSS) BEFORE MINORITY INTERESTS.....................       137        16      (433)
MINORITY INTERESTS..........................................        15        --         2
                                                                ------    ------    ------
INCOME (LOSS) BEFORE INCOME TAXES...........................       122        16      (435)
INCOME TAX EXPENSE (BENEFIT)................................        (5)       58       (41)
                                                                ------    ------    ------
INCOME (LOSS) FROM CONTINUING OPERATIONS....................       127       (42)     (394)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, NET OF $18 TAX
  EXPENSE IN 2004, $50 TAX EXPENSE IN 2003 AND $118 TAX
  BENEFIT IN 2002...........................................        (4)       23      (274)
                                                                ------    ------    ------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING................................................       123       (19)     (668)
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING, NET OF $1 TAX
  BENEFIT IN 2004, $13 TAX BENEFIT IN 2003 AND $10 TAX
  EXPENSE IN 2002
  RETIREMENT BENEFITS.......................................        (2)       --        --
  DERIVATIVES...............................................        --       (23)       18
  ASSET RETIREMENT OBLIGATIONS, SFAS NO. 143................        --        (1)       --
                                                                ------    ------    ------
                                                                    (2)      (24)       18
                                                                ------    ------    ------
NET INCOME (LOSS)...........................................       121       (43)     (650)
PREFERRED DIVIDENDS.........................................        11         1        --
                                                                ------    ------    ------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS..........    $  110    $  (44)   $ (650)
                                                                ======    ======    ======
</Table>

                                      CMS-42
<PAGE>

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31
                                                                --------------------------
                                                                 2004      2003      2002
                                                                ------    ------    ------
                                                                       IN MILLIONS,
                                                                 EXCEPT PER SHARE AMOUNTS
<S>                                                             <C>       <C>       <C>
CMS ENERGY
  NET INCOME (LOSS)
     Net Income (Loss) Available to Common Stockholders.....    $  110    $  (44)   $ (650)
                                                                ======    ======    ======
  BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE
     Income (Loss) from Continuing Operations...............    $ 0.68    $(0.30)   $(2.84)
     Income (Loss) from Discontinued Operations.............     (0.02)     0.16     (1.97)
     Income (Loss) from Changes in Accounting...............     (0.01)    (0.16)     0.13
                                                                ------    ------    ------
     Net Income (Loss) Attributable to Common Stock.........    $ 0.65    $(0.30)   $(4.68)
                                                                ======    ======    ======
  DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE
     Income (Loss) from Continuing Operations...............    $ 0.67    $(0.30)   $(2.84)
     Income (Loss) from Discontinued Operations.............     (0.02)     0.16     (1.97)
     Income (Loss) from Changes in Accounting...............     (0.01)    (0.16)     0.13
                                                                ------    ------    ------
     Net Income (Loss) Attributable to Common Stock.........    $ 0.64    $(0.30)   $(4.68)
                                                                ======    ======    ======
  DIVIDENDS DECLARED PER COMMON SHARE.......................    $   --    $   --    $ 1.09
                                                                ------    ------    ------
</Table>

        The accompanying notes are an integral part of these statements.

                                      CMS-43
<PAGE>

                             CMS ENERGY CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31
                                                                -----------------------------
                                                                 2004       2003       2002
                                                                -------    -------    -------
                                                                         IN MILLIONS
<S>                                                             <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss).........................................    $   121    $   (43)   $  (650)
     Adjustments to reconcile net income (loss) to net cash
      provided by operating activities
       Depreciation, depletion, and amortization (includes
        nuclear decommissioning of $6 per year).............        431        428        412
       Depreciation and amortization of discontinued
        operations..........................................         --         34         73
       Loss on disposal of discontinued operations..........          2         46        237
       Regulatory return on capital expenditures............       (113)        --         --
       Asset impairment charges.............................        160         95        602
       Capital lease and debt discount amortization.........         28         25         18
       Accretion expense....................................         23         29         31
       Bad debt expense.....................................         19         28         22
       Distributions from related parties less than
        earnings............................................        (88)       (41)       (39)
       Loss (gain) on sale of assets........................        (52)         3        (37)
       Cumulative effect of changes in accounting...........          2         24        (18)
       Pension contribution.................................         --       (560)       (64)
       Changes in assets and liabilities:
          Decrease (increase) in accounts receivable and
             accrued revenue................................       (144)       200         99
          Decrease (increase) in inventories................       (109)      (288)       140
          Increase (decrease) in accounts payable...........         86       (231)      (243)
          Increase (decrease) in accrued expenses...........         37        (49)       195
          Deferred income taxes and investment tax credit...         94        242       (398)
          Decrease (increase) in other current and
             non-current assets.............................        (98)        10       (271)
          Increase (decrease) in other current and
             non-current liabilities........................         (1)      (202)       505
                                                                -------    -------    -------
       Net cash provided by (used in) operating
        activities..........................................        398       (250)       614
                                                                -------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital
     lease).................................................       (525)      (535)      (747)
  Investments in partnerships and unconsolidated
     subsidiaries...........................................        (71)        --        (55)
  Cost to retire property...................................        (73)       (72)       (66)
  Restricted cash...........................................        145       (163)       (34)
  Investments in Electric Restructuring Implementation
     Plan...................................................         (7)        (8)        (8)
  Investments in nuclear decommissioning trust funds........         (6)        (6)        (6)
  Proceeds from nuclear decommissioning trust funds.........         36         34         30
  Proceeds from short-term investments......................      2,267         --         --
  Purchase of short-term investments........................     (2,376)        --         --
  Maturity of MCV restricted investment securities
     held-to-maturity.......................................        675         --         --
  Purchase of MCV restricted investment securities
     held-to-maturity.......................................       (674)        --         --
  Proceeds from sale of assets..............................        219        939      1,659
  Other investing...........................................         (2)        14         56
                                                                -------    -------    -------
       Net cash provided by (used in) investing
        activities..........................................       (392)       203        829
                                                                -------    -------    -------
</Table>

                                      CMS-44
<PAGE>

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31
                                                                -----------------------------
                                                                 2004       2003       2002
                                                                -------    -------    -------
                                                                         IN MILLIONS
<S>                                                             <C>        <C>        <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes, bonds and other long-term debt.......      1,392      2,080        725
  Issuance of common stock..................................        290         --         --
  Issuance of preferred stock...............................         --        272         --
  Retirement of bonds and other long-term debt..............     (1,631)    (1,656)    (1,834)
  Common stock repurchased..................................         --         --         (8)
  Payment of common stock dividends.........................         --         --       (149)
  Payment of preferred stock dividends......................        (11)        (1)        --
  Payment of capital and finance lease obligations..........        (44)       (13)       (15)
  Increase (decrease) in notes payable......................         --       (470)        75
  Other financing...........................................        (39)        17        (17)
                                                                -------    -------    -------
     Net cash provided by (used in) financing activities....        (43)       229     (1,223)
                                                                -------    -------    -------
EFFECT OF EXCHANGE RATES ON CASH............................         --         (1)         8
NET INCREASE IN CASH AND CASH EQUIVALENTS...................        (37)       181        228
CASH AND CASH EQUIVALENTS FROM EFFECT OF REVISED FASB
  INTERPRETATION NO. 46 CONSOLIDATION.......................        174         --         --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............        532        351        123
                                                                -------    -------    -------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................    $   669    $   532    $   351
                                                                =======    =======    =======
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND
  FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
  Interest paid (net of amounts capitalized)................    $   601    $   564    $   409
  Income taxes paid (net of refunds)........................         --        (33)      (217)
  OPEB cash contribution....................................         63         76         84
NON-CASH TRANSACTIONS
  Other assets placed under capital lease...................    $     3    $    19    $    62
                                                                =======    =======    =======
</Table>

        The accompanying notes are an integral part of these statements.

                                      CMS-45
<PAGE>

                             CMS ENERGY CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                    DECEMBER 31
                                                                -------------------
                                                                 2004        2003
                                                                 ----        ----
                                                                    IN MILLIONS
<S>                                                             <C>        <C>
ASSETS
PLANT AND PROPERTY (AT COST)
  Electric utility..........................................    $ 7,967    $ 7,600
  Gas utility...............................................      2,995      2,875
  Enterprises...............................................      3,391        837
  Other.....................................................         28         32
                                                                -------    -------
                                                                 14,381     11,344
  Less accumulated depreciation, depletion, and
     amortization...........................................      6,115      4,842
                                                                -------    -------
                                                                  8,266      6,502
  Construction work-in-progress.............................        370        388
                                                                -------    -------
                                                                  8,636      6,890
                                                                -------    -------
INVESTMENTS
  Enterprises...............................................        729        724
  Midland Cogeneration Venture Limited Partnership..........         --        419
  First Midland Limited Partnership.........................         --        224
  Other.....................................................         23         23
                                                                -------    -------
                                                                    752      1,390
                                                                -------    -------
CURRENT ASSETS
  Cash and cash equivalents at cost, which approximates
     market.................................................        669        532
  Restricted cash...........................................         56        201
  Short-term investments at cost, which approximates
     market.................................................        109         --
  Accounts receivable, notes receivable, and accrued
     revenue, less allowances of $38 in 2004 and $40 in
     2003...................................................        528        363
  Accounts receivable and notes receivable -- related
     parties................................................         53         73
  Inventories at average cost
     Gas in underground storage.............................        856        741
     Materials and supplies.................................         90         98
     Generating plant fuel stock............................         84         52
  Assets held for sale......................................         --         24
  Price risk management assets..............................         91        102
  Regulatory assets -- postretirement benefits..............         19         19
  Derivative instruments....................................         96          2
  Deferred property taxes...................................        167        146
  Prepayments and other.....................................        181        116
                                                                -------    -------
                                                                  2,999      2,469
                                                                -------    -------
NON-CURRENT ASSETS
  Regulatory Assets
  Securitized costs.........................................        604        648
  Additional minimum pension................................        372         --
  Postretirement benefits...................................        139        162
  Abandoned Midland project.................................         10         10
  Other.....................................................        552        266
  Assets held for sale......................................         --          2
  Price risk management assets..............................        214        177
  Nuclear decommissioning trust funds.......................        575        575
  Prepaid pension costs.....................................         --        388
  Goodwill..................................................         23         25
  Notes receivable -- related parties.......................        217        242
  Notes receivable..........................................        178        150
  Other.....................................................        601        444
                                                                -------    -------
                                                                  3,485      3,089
                                                                -------    -------
TOTAL ASSETS................................................    $15,872    $13,838
                                                                =======    =======
</Table>

                                      CMS-46
<PAGE>

                             CMS ENERGY CORPORATION

<Table>
<Caption>
                                                                    DECEMBER 31
                                                                -------------------
                                                                 2004        2003
                                                                 ----        ----
                                                                    IN MILLIONS
<S>                                                             <C>        <C>
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION
  Common stockholders' equity
  Common stock, authorized 350.0 shares; outstanding 195.0
     shares in 2004 and 161.1 shares in 2003................    $     2    $     2
  Other paid-in capital.....................................      4,140      3,846
  Accumulated other comprehensive loss......................       (336)      (419)
  Retained deficit..........................................     (1,734)    (1,844)
                                                                -------    -------
                                                                  2,072      1,585
  Preferred stock of subsidiary.............................         44         44
  Preferred stock...........................................        261        261
  Long-term debt............................................      6,444      6,020
  Long-term debt -- related parties.........................        504        684
  Non-current portion of capital and finance lease
     obligations............................................        315         58
                                                                -------    -------
                                                                  9,640      8,652
                                                                -------    -------
MINORITY INTERESTS..........................................        733         73
                                                                -------    -------
CURRENT LIABILITIES
  Current portion of long-term debt, capital and finance
     leases.................................................        296        519
  Current portion of long-term debt -- related parties......        180         --
  Accounts payable..........................................        391        303
  Accounts payable -- related parties.......................          1         40
  Accrued interest..........................................        145        130
  Accrued taxes.............................................        312        285
  Liabilities held for sale.................................         --          2
  Price risk management liabilities.........................         90         89
  Current portion of purchase power contracts...............         --         27
  Current portion of gas supply contract obligations........         32         29
  Deferred income taxes.....................................         19         27
  Other.....................................................        289        185
                                                                -------    -------
                                                                  1,755      1,636
                                                                -------    -------
NON-CURRENT LIABILITIES
  Regulatory Liabilities
  Regulatory liabilities for cost of removal................      1,044        983
     Income taxes, net......................................        357        312
     Other regulatory liabilities...........................        173        172
     Postretirement benefits................................        275        265
  Deferred income taxes.....................................        671        615
  Deferred investment tax credit............................         79         85
  Asset retirement obligation...............................        439        359
  Price risk management liabilities.........................        213        175
  Gas supply contract obligations...........................        176        208
  Other.....................................................        317        303
                                                                -------    -------
                                                                  3,744      3,477
                                                                -------    -------
     Commitments and Contingencies (Notes 3, 4, 6, 9, 11)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES..............    $15,872    $13,838
                                                                =======    =======
</Table>

        The accompanying notes are an integral part of these statements.

                                      CMS-47
<PAGE>

                             CMS ENERGY CORPORATION

             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31
                                          ----------------------------------------------------------------
                                           2004       2003       2002       2004        2003        2002
                                           ----       ----       ----       ----        ----        ----
                                          NUMBER OF SHARES IN THOUSANDS              IN MILLIONS
<S>                                       <C>        <C>        <C>        <C>        <C>         <C>
COMMON STOCK
  At beginning and end of period........                                   $     2    $     2     $     1
OTHER PAID-IN CAPITAL
  At beginning of period................  161,130    144,088    132,989      3,846      3,605       3,257
  Common stock repurchased..............      (43)       (14)       (39)        (1)        --          (8)
  Common stock reacquired...............     (270)      (217)      (220)        (5)        (5)         (1)
  Common stock issued...................   34,180     17,273     11,358        301        234         357
  Common stock reissued.................       --         --         --         --          1          --
  Issuance cost of preferred stock......       --         --         --         (1)        (8)         --
  Deferred gain.........................       --         --         --         --         19          --
                                          -------    -------    -------    -------    -------     -------
       At end of period.................  194,997    161,130    144,088      4,140      3,846       3,605
                                          -------    -------    -------    -------    -------     -------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Minimum Pension Liability
     At beginning of period.............                                        --       (241)         --
     Minimum pension liability
       adjustments(a)...................                                       (17)       241        (241)
                                                                           -------    -------     -------
       At end of period.................                                       (17)        --        (241)
                                                                           -------    -------     -------
  Investments
     At beginning of period.............                                         8          2          (5)
     Unrealized gain on
       investments(a)...................                                         1          6          --
     Realized gain on investments(a)....                                        --         --           7
                                                                           -------    -------     -------
       At end of period.................                                         9          8           2
                                                                           -------    -------     -------
  Derivative Instruments
     At beginning of period.............                                        (8)       (31)        (28)
     Unrealized gain (loss) on
       derivative instruments(a)........                                         5          4          (7)
     Realized gain (loss) on derivative
       instruments(a)...................                                        (6)        19           4
                                                                           -------    -------     -------
       At end of period.................                                        (9)        (8)        (31)
                                                                           -------    -------     -------
FOREIGN CURRENCY TRANSLATION
  At beginning of period................                                      (419)      (458)       (233)
  Loy Yang sale.........................                                       110         --          --
  Other foreign currency translations...                                       (10)        39        (225)
                                                                           -------    -------     -------
       At end of period.................                                      (319)      (419)       (458)
                                                                           -------    -------     -------
          At end of period..............                                      (336)      (419)       (728)
                                                                           -------    -------     -------
RETAINED DEFICIT
  At beginning of period................                                    (1,844)    (1,800)     (1,001)
  Consolidated net income (loss)(a).....                                       121        (43)       (650)
  Preferred stock dividends declared....                                       (11)        (1)         --
  Common stock dividends declared.......                                        --         --        (149)
                                                                           -------    -------     -------
       At end of period.................                                    (1,734)    (1,844)     (1,800)
                                                                           -------    -------     -------
TOTAL COMMON STOCKHOLDERS' EQUITY.......                                   $ 2,072    $ 1,585     $ 1,078
                                                                           =======    =======     =======
</Table>

                                      CMS-48
<PAGE>

<Table>
<Caption>
                                                               2004      2003      2002
                                                               ----      ----      ----
                                                                      IN MILLIONS
<S>                                                           <C>       <C>       <C>
(a)  DISCLOSURE OF OTHER COMPREHENSIVE INCOME (LOSS):
     Minimum pension liability
       Minimum pension liability adjustments, net of tax
          (tax benefit) of $(9), $132 and $(132),
          respectively......................................  $   (17)  $   241   $  (241)
     Investments
       Unrealized gain on investments, net of tax of $1, $3
          and $--, respectively.............................        1         6        --
       Realized gain on investments, net of tax of $--, $--,
          and $--, respectively.............................       --        --         7
     Derivative Instruments
       Unrealized gain (loss) on derivative instruments, net
          of tax (tax benefit) of $12, $--, and $(4),
          respectively......................................        5         4        (7)
       Realized gain (loss) on derivative instruments, net
          of tax (tax benefit) of $(6), $11, and $2,
          respectively......................................       (6)       19         4
     Foreign currency translation, net......................      100        39      (225)
     Consolidated net income (loss).........................      121       (43)     (650)
                                                              -------   -------   -------
       Total Other Comprehensive Income (Loss)..............  $   204   $   266   $(1,112)
                                                              =======   =======   =======
</Table>

        The accompanying notes are an integral part of these statements.

                                      CMS-49
<PAGE>

                      (This page intentionally left blank)

                                      CMS-50
<PAGE>

                             CMS ENERGY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1: CORPORATE STRUCTURE AND ACCOUNTING POLICIES

     CORPORATE STRUCTURE: CMS Energy is an integrated energy company with a
business strategy focused primarily in Michigan. We are the parent holding
company of Consumers and Enterprises. Consumers is a combination electric and
gas utility company serving Michigan's Lower Peninsula. Enterprises, through
various subsidiaries and equity investments, is engaged in domestic and
international diversified energy businesses, including independent power
production and natural gas transmission, storage and processing. We manage our
businesses by the nature of services each provides and operate principally in
three business segments, electric utility, gas utility, and enterprises.

     PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of CMS Energy, Consumers, Enterprises, and all other entities in
which we have a controlling financial interest or are the primary beneficiary,
in accordance with Revised FASB Interpretation No. 46. The primary beneficiary
of a variable interest entity is the party that absorbs or receives a majority
of the entity's expected losses or expected residual returns or both as a result
of holding variable interests, which are ownership, contractual, or other
economic interests. In accordance with Revised FASB Interpretation No. 46, in
2003, we consolidated three Michigan electric generating plants and in 2004, we
consolidated the MCV Partnership and the FMLP. For additional details, see Note
16, Implementation of New Accounting Standards. We use the equity method of
accounting for investments in companies and partnerships that are not
consolidated, where we have significant influence over operations and financial
policies, but are not the primary beneficiary. Intercompany transactions and
balances have been eliminated.

     USE OF ESTIMATES: We prepare our consolidated financial statements in
conformity with U.S. generally accepted accounting principles. We are required
to make estimates using assumptions that may affect the reported amounts and
disclosures. Actual results could differ from those estimates.

     We are required to record estimated liabilities in the consolidated
financial statements when it is probable that a loss will be incurred in the
future as a result of a current event, and when an amount can be reasonably
estimated. We have used this accounting principle to record estimated
liabilities as discussed in Note 3, Contingencies.

     REVENUE RECOGNITION POLICY: We recognize revenues from deliveries of
electricity and natural gas, and the transportation, processing, and storage of
natural gas when services are provided. Sales taxes are recorded as liabilities
and are not included in revenues. Revenues on sales of marketed electricity,
natural gas, and other energy products are recognized at delivery.
Mark-to-market changes in the fair values of energy trading contracts that
qualify as derivatives are recognized as revenues in the periods in which the
changes occur.

     ACCRETION EXPENSE: CMS ERM has entered into prepaid sales arrangements to
provide natural gas to various entities over periods of up to 12 years at
predetermined price levels. CMS ERM has established a liability for these
outstanding obligations equal to the discounted present value of the contracts,
and has hedged its exposures under these arrangements. The amounts recorded as
liabilities on our Consolidated Balance Sheets are guaranteed by Enterprises. As
CMS ERM fulfills its obligations under the contracts, it recognizes revenues
upon the delivery of natural gas, records a reduction to the outstanding
obligation, and recognizes accretion expense.

     CAPITALIZED INTEREST: We are required to capitalize interest on certain
qualifying assets that are undergoing activities to prepare them for their
intended use. Capitalization of interest for the period is limited to the actual
interest cost that is incurred, and our non-regulated businesses are prohibited
from imputing interest costs on any equity funds. Our regulated businesses are
permitted to capitalize an allowance for funds used during construction on
regulated construction projects and to include such amounts in plant in service.

     CASH EQUIVALENTS AND RESTRICTED CASH: All highly liquid investments with an
original maturity of three months or less are considered cash equivalents.

                                      CMS-51
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 2004, our restricted cash on hand was $56 million.
Restricted cash dedicated for repayment of Securitization bonds is classified as
a current asset as the payments on the related Securitization bonds occur within
one year.

     COST METHOD INVESTMENTS: At December 31, 2004, our cost method investments
totaled $22 million, substantially all of which were evaluated for impairment in
2004. We periodically reevaluate the fair value of our cost method investments
if there are specific events or changes in circumstances that may have a
significant adverse effect on the fair value of our investments.

     EARNINGS PER SHARE: Basic and diluted earnings per share are based on the
weighted average number of shares of common stock and dilutive 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, warrants and convertible securities. The effect on number of shares 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
5, Earnings Per Share.

     FINANCIAL INSTRUMENTS: We account for investments in debt and equity
securities using SFAS No. 115. Debt and equity securities classified as
available-for-sale are reported at fair value determined from quoted market
prices. Debt and equity securities classified as held-to-maturity are reported
at cost. Unrealized gains or losses resulting from changes in fair value of
certain available-for-sale debt and equity securities are reported, net of tax,
in equity as part of accumulated other comprehensive income. Unrealized gains or
losses are excluded from earnings unless the related changes in fair value are
determined to be other than temporary.

     Unrealized gains or losses on our nuclear decommissioning investments are
reflected as regulatory liabilities on our Consolidated Balance Sheets. Realized
gains or losses would not affect our earnings or cash flows.

     For additional details regarding financial instruments, see Note 6,
Financial and Derivative Instruments.

     FOREIGN CURRENCY TRANSLATION: Our subsidiaries and affiliates whose
functional currency is not 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. We translate revenue and expense accounts of such subsidiaries
and affiliates into U.S. dollars at the average exchange rates that prevailed
during the period. The gains or losses that result from this process are shown
in the stockholders' equity section on our Consolidated Balance Sheets. 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.

     GAS INVENTORY: We use the weighted average cost method for valuing working
gas and recoverable cushion gas in underground storage facilities.

     GENERATING PLANT FUEL STOCK INVENTORY: We use the weighted average cost
method for valuing coal inventory and classify these costs as generating plant
fuel stock on our Consolidated Balance Sheets. The MCV Partnership's natural gas
inventory is also included in this category, stated at the lower of cost or
market and valued using the last-in, first-out ("LIFO") method.

     GOODWILL: Goodwill represents the excess of the purchase price over the
fair value of the net assets of acquired companies. Goodwill is not amortized,
but is tested annually for impairment. For additional information, see Note 13,
Goodwill.

     IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS: We evaluate potential
impairments of our investments in 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 its estimated

                                      CMS-52
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

     MAINTENANCE AND DEPRECIATION: We charge property repairs and minor property
replacements to maintenance expense. We also charge planned major maintenance
activities to operating expense unless the cost represents the acquisition of
additional components or the replacement of an existing component. We capitalize
the cost of plant additions and replacements. We depreciate utility property
using straight-line rates approved by the MPSC. The composite depreciation rates
for our properties are:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004    2003    2002
- -----------------------                                         ----    ----    ----
<S>                                                             <C>     <C>     <C>
Electric utility property...................................    3.2%    3.1%     3.1%
Gas utility property........................................    3.7%    4.6%     4.5%
Other property..............................................    8.4%    8.1%     7.2%
</Table>

     NUCLEAR FUEL COST: We amortize nuclear fuel cost to fuel expense based on
the quantity of heat produced for electric generation. For nuclear fuel used
after April 6, 1983, we charge certain disposal costs to nuclear fuel expense,
recover these costs through electric rates, and remit them to the DOE quarterly.
We elected to defer payment for disposal of spent nuclear fuel burned before
April 7, 1983. As of December 31, 2004, we have recorded a liability to the DOE
of $141 million, including interest, which is payable upon the first delivery of
spent nuclear fuel to the DOE. The amount of this liability, excluding a portion
of interest, was recovered through electric rates. For additional details on
disposal of spent nuclear fuel, see Note 3, Contingencies, "Other Consumers'
Electric Utility Contingencies -- Nuclear Matters."

     OTHER INCOME AND OTHER EXPENSE: The following tables show the components of
Other income and Other expense:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004    2003    2002
- -----------------------                                         ----    ----    ----
                                                                    IN MILLIONS
<S>                                                             <C>     <C>     <C>
Other income
  Interest and dividends -- related parties.................    $ 6     $ 6     $ 3
  Return on stranded costs..................................      7      --      --
  Return on security costs..................................      2      --      --
  Electric restructuring return.............................      6       8       4
  Investment sale gain......................................     --       4      --
  All other.................................................      6       7       6
                                                                ---     ---     ---
Total other income..........................................    $27     $25     $13
                                                                ===     ===     ===
</Table>

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004    2003    2002
- -----------------------                                         ----    ----    ----
                                                                    IN MILLIONS
<S>                                                             <C>     <C>     <C>
Other expense
  Loss on SERP investment...................................    $ (3)   $ (2)   $(10)
  Donations.................................................      (1)     (1)     (9)
  CMS ERM remediation costs.................................      --      (6)     (1)
  Civic and political expenditures..........................      (2)     (2)     (3)
  All other.................................................      (9)    (11)     (4)
                                                                ----    ----    ----
Total other expense.........................................    $(15)   $(22)   $(27)
                                                                ====    ====    ====
</Table>

     PROPERTY, PLANT, AND EQUIPMENT: We record property, plant, and equipment at
original cost when placed into service. When regulated assets are retired, or
otherwise disposed of in the ordinary course of business, the original cost is
charged to accumulated depreciation. The cost of removal, less salvage, is
recorded as a regulatory liability. For additional details, see Note 8, Asset
Retirement Obligations. An allowance for funds used during

                                      CMS-53
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

construction is capitalized on regulated construction projects. With respect to
the retirement or disposal of non-regulated assets, the resulting gains or
losses are recognized in income.

     Property, plant, and equipment at December 31, 2004 and 2003, was as
follows:

<Table>
<Caption>
                                                                   ESTIMATED
                                                                  DEPRECIABLE
YEARS ENDED DECEMBER 31                                         LIFE IN YEARS(e)     2004      2003
- -----------------------                                         ----------------     ----      ----
                                                                                      IN MILLIONS
<S>                                                             <C>                 <C>       <C>
Electric:
  Generation................................................         13-105         $3,433    $3,332
  Distribution..............................................          12-75          4,069     3,799
  Other.....................................................           7-50            384       388
  Capital leases(a).........................................                            81        81
Gas:
  Underground storage facilities(b).........................          30-65            255       232
  Transmission..............................................          15-75            367       342
  Distribution..............................................          40-75          2,057     1,976
  Other.....................................................           7-50            290       300
  Capital leases(a).........................................                            26        25
Enterprises:
  IPP.......................................................           3-40          2,982       451
  CMS Gas Transmission......................................           5-40            124       117
  CMS Electric and Gas......................................           2-30            257       241
  Other.....................................................           4-25             28        28
Other:......................................................           7-71             28        32
Construction work-in-progress...............................                           370       388
Less accumulated depreciation, depletion, and
  amortization(c)...........................................                         6,115     4,842
                                                                                    ------    ------
Net property, plant, and equipment(d).......................                        $8,636    $6,890
                                                                                    ======    ======
</Table>

- -------------------------
(a)  Capital leases presented in this table are gross amounts. Amortization of
     capital leases was $49 million in 2004 and $38 million in 2003.

(b)  Includes unrecoverable base natural gas in underground storage of $26
     million at December 31, 2004 and $23 million at December 31, 2003, which is
     not subject to depreciation.

(c) Accumulated depreciation, depletion, and amortization is made up of $5.665
    billion from our public utility plant assets and $450 million from other
    plant assets as of December 31, 2004 and $4.417 billion from public utility
    plant assets and $425 million from other plant assets as of December 31,
    2003.

(d) Included in net property, plant and equipment are intangible assets related
    primarily to software development costs, consents, leasehold improvements,
    and rights of way. The estimated amortization life for software development
    costs is seven years, leasehold improvements is over the life of the lease
    and other intangible

                                      CMS-54
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    amortization lives range from 50 to 105 years. Intangible assets at December
    31, 2004 and 2003 were as follows:

<Table>
<Caption>
                                                                       ACCUMULATED     INTANGIBLE
YEAR ENDED DECEMBER 31, 2004                             GROSS COST    AMORTIZATION    ASSET, NET
- ----------------------------                             ----------    ------------    ----------
                                                                       IN MILLIONS
<S>                                                      <C>           <C>             <C>
Software development.................................       $179           $117           $ 62
Rights of way........................................         94             28             66
Leasehold improvements...............................         22             14              8
Franchises and consents..............................         19              9             10
Other intangibles....................................         64             25             39
                                                            ----           ----           ----
Totals...............................................       $378           $193           $185
                                                            ====           ====           ====
</Table>

<Table>
<Caption>
                                                                       ACCUMULATED     INTANGIBLE
YEAR ENDED DECEMBER 31, 2003                             GROSS COST    AMORTIZATION    ASSET, NET
- ----------------------------                             ----------    ------------    ----------
                                                                       IN MILLIONS
<S>                                                      <C>           <C>             <C>
Software development.................................       $178           $107           $ 71
Rights of way........................................         89             25             64
Leasehold improvements...............................         32             30              2
Franchises and consents..............................         19              8             11
Other intangibles....................................        101             41             60
                                                            ----           ----           ----
Totals...............................................       $419           $211           $208
                                                            ====           ====           ====
</Table>

    Pretax amortization expense related to these intangible assets was $21
    million for the year ended December 31, 2004, $21 million for the year ended
    December 31, 2003, and $20 million for the year ended December 31, 2002.
    Intangible assets amortization is forecasted to range from $10 million to
    $21 million per year over the next five years.

(e) The following table illustrates the depreciable life for electric and gas
    structures and improvements.

<Table>
<Caption>
                         ESTIMATED                                        ESTIMATED
                        DEPRECIABLE                                      DEPRECIABLE
ELECTRIC               LIFE IN YEARS                GAS                 LIFE IN YEARS
- --------               -------------                ---                 -------------
<S>                    <C>             <C>                              <C>
Generation:                            Underground storage facilities     45-50
  Coal                   39-43         Transmission                        60
  Nuclear                17-25         Distribution                        50
  Hydroelectric          55-71         Other                               50
  Other                   32
Distribution             50-60
Other                    40-42
</Table>

     RECLASSIFICATIONS: Certain prior year amounts have been reclassified for
comparative purposes. These reclassifications did not affect consolidated net
income (loss) for the years presented.

                                      CMS-55
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     RELATED-PARTY TRANSACTIONS: We received income from related parties as
follows:

<Table>
<Caption>
TYPE OF INCOME                               RELATED PARTY              2004    2003    2002
- --------------                               -------------              ----    ----    ----
                                                                            (IN MILLIONS)
<S>                                 <C>                                 <C>     <C>     <C>
Income from our investments in
  related party trusts(c)           Trust Preferred Securities          $ 2     $ 2     $  --
                                    Companies.......................
Electric generating capacity and
  energy from T.E.S. Filer City,
  Grayling Generation, and
  Genesee Power Station(a)          Consumers Energy................     --      64        67
Gas sales, storage,
  transportation, and other
  services(b)                       MCV Partnership.................     --      17        41
</Table>

     We recorded expense from related parties as follows:

<Table>
<Caption>
TYPE OF COST                                RELATED PARTY             2004    2003    2002
- ------------                                -------------             ----    ----    ----
                                                                         (IN MILLIONS)
<S>                                <C>                                <C>     <C>     <C>
Interest expense on long-term
  debt(c)                          Trust Preferred Securities         $ 58    $ 58    $ --
                                   Companies......................
Electric generating capacity
  and energy(b)                    MCV Partnership................      --     455     497
</Table>

- -------------------------
(a)  At December 31, 2003, we consolidated the T.E.S. Filer City Station Limited
     Partnership, Grayling Generating Station Limited Partnership, and Genessee
     Power Station Limited Partnership into our consolidated financial
     statements in accordance with Revised FASB Interpretation No. 46. For
     additional details, see Note 16, Implementation of New Accounting
     Standards.

(b)  In 2004, we consolidated the MCV Partnership and the FMLP into our
     consolidated financial statements in accordance with Revised FASB
     Interpretation No. 46. For additional details, see Note 16, Implementation
     of New Accounting Standards.

(c)  We issued Trust Preferred Securities through several CMS Energy and
     Consumers affiliated companies. As of December 31, 2003, we deconsolidated
     the trusts that hold the mandatorily redeemable Trust Preferred Securities.
     As a result of the deconsolidation, we now record on our Consolidated
     Statements of Income (Loss), Interest on Long-term debt -- related parties
     to the trusts holding the Trust Preferred Securities. For additional
     information on our affiliated Trust Preferred Securities companies, see
     Note 16, Implementation of New Accounting Standards.

     TRADE RECEIVABLES: We record our accounts receivable at fair value.
Accounts deemed uncollectible are charged to operating expense.

     UNAMORTIZED DEBT PREMIUM, DISCOUNT, AND EXPENSE: We capitalize premiums,
discounts, and expenses incurred in connection with the issuance of long-term
debt and amortize those costs ratably over the terms of the debt issues. Any
refinancing costs are charged to expenses as incurred. For the regulated
portions of our businesses, if we refinance debt, we capitalize any remaining
unamortized premiums, discounts, and expenses and amortize them ratably over the
terms of the newly issued debt.

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

     We reflect the following regulatory assets and liabilities, which include
both current and non-current amounts, on our Consolidated Balance Sheets. We
expect to recover these costs through rates over periods of up

                                      CMS-56
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to 14 years. We recognized an OPEB transition obligation in accordance with SFAS
No. 106 and established a regulatory asset for the amount that we expect to
recover in rates over the next eight years.

<Table>
<Caption>
DECEMBER 31                                                      2004      2003
- -----------                                                      ----      ----
                                                                 (IN MILLIONS)
<S>                                                             <C>       <C>
Securitized costs (Note 4)..................................    $  604    $  648
Postretirement benefits (Note 7)............................       530       181
Electric Restructuring Implementation Plan (Note 3).........        88        91
Manufactured gas plant sites (Note 3).......................        65        67
Abandoned Midland project...................................        10        10
Unamortized debt costs......................................        71        51
Asset retirement obligation (Note 8)........................        83        49
Stranded costs (Note 3).....................................        63        --
Section 10d(4) regulatory asset (Note 3)....................       141        --
Other.......................................................        41         8
                                                                ------    ------
Total regulatory assets(a)..................................    $1,696    $1,105
                                                                ======    ======
Cost of removal (Note 8)....................................    $1,044    $  983
Income taxes (Note 9).......................................       357       312
Asset retirement obligation (Note 8)........................       168       168
Other.......................................................         5         4
                                                                ------    ------
Total regulatory liabilities(a).............................    $1,574    $1,467
                                                                ======    ======
</Table>

- -------------------------
(a)  At December 31, 2004, we classified $19 million of regulatory assets as
     current regulatory assets and we classified $1.677 billion of regulatory
     assets as non-current regulatory assets. At December 31, 2003, we
     classified $19 million of regulatory assets as current regulatory assets
     and we classified $1.086 billion of regulatory assets as non-current
     regulatory assets. At December 31, 2004 and December 31, 2003, all of our
     regulatory liabilities represented non-current regulatory liabilities.

2: DISCONTINUED OPERATIONS, OTHER ASSET SALES, IMPAIRMENTS, AND RESTRUCTURING

     Our continued focus on financial improvement has led to discontinuing
operations, completing many asset sales, impairing some assets, and incurring
costs to restructure our business. Gross cash proceeds received from the sale of
assets totaled $219 million for the year ended December 31, 2004 and $939
million for the year ended December 31, 2003.

                                      CMS-57
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 2004, we no longer have assets that qualify as "held for
sale." At December 31, 2003, "Assets held for sale" included Parmelia, Bluewater
Pipeline, and our investment in the American Gas Index fund. The major classes
of assets and liabilities held for sale on our Consolidated Balance Sheets are
as follows:

<Table>
<Caption>
DECEMBER 31                                                         2003
- -----------                                                         ----
                                                                (IN MILLIONS)
<S>                                                             <C>
Assets
  Cash......................................................         $ 7
  Accounts receivable.......................................           2
  Property, plant and equipment -- net......................           2
  Other.....................................................          15
                                                                     ---
Total assets held for sale..................................         $26
                                                                     ===
Liabilities
  Accounts payable..........................................         $ 2
                                                                     ---
Total liabilities held for sale.............................         $ 2
                                                                     ===
</Table>

DISCONTINUED OPERATIONS

     We have discontinued the following operations:

<Table>
<Caption>
                                                           PRETAX        AFTER-TAX
                                                         GAIN (LOSS)    GAIN (LOSS)
BUSINESS/PROJECT                        DISCONTINUED       ON SALE        ON SALE            STATUS
- ----------------                        ------------     -----------    -----------          ------
                                                               (IN MILLIONS)
<S>                                    <C>               <C>            <C>            <C>
Equatorial Guinea..................    December 2001        $ 497          $310        Sold January 2002
Powder River.......................    March 2002              17            11        Sold May 2002
Zirconium Recovery.................    June 2002              (47)          (31)       Abandoned
CMS Viron..........................    June 2002              (14)           (9)       Sold June 2003
Oil and Gas........................    September 2002        (126)          (82)       Sold September 2002
Panhandle..........................    December 2002          (39)          (44)       Sold June 2003
Field Services.....................    December 2002           (5)           (1)       Sold July 2003
Marysville.........................    June 2003                2             1        Sold November 2003
Parmelia(a)........................    December 2003           10             6        Sold August 2004
</Table>

- -------------------------
(a)  In August 2004, we sold our Parmelia business and our interest in
     Goldfields, which did not meet the criteria for discontinued operations, to
     APT for A$204 million (approximately $147 million in U.S. dollars). The $10
     million ($6 million after-tax) gain on the sale of Parmelia includes a $3
     million ($2 million after-tax) foreign currency translation loss.

                                      CMS-58
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following amounts are reflected in the Consolidated Statements of
Income (Loss), in the Gain (Loss) From Discontinued Operations line:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004      2003      2002
- -----------------------                                         ----      ----      ----
                                                                      (IN MILLIONS)
<S>                                                             <C>       <C>       <C>
Revenues....................................................    $11       $504      $ 891
                                                                ===       ====      =====
Discontinued operations:
  Pretax gain (loss) from discontinued operations...........    $(1)      $115      $ (38)
  Income tax expense (benefit)..............................      1         46         (1)
                                                                ---       ----      -----
  Gain (loss) from discontinued operations..................     (2)        69        (37)
  Pretax gain (loss) from disposal of discontinued
     operations.............................................     15        (42)      (354)
  Income tax expense (benefit)..............................     17          4       (117)
                                                                ---       ----      -----
  Loss from disposal of discontinued operations.............     (2)       (46)      (237)
                                                                ---       ----      -----
Gain (loss) from discontinued operations....................    $(4)      $ 23      $(274)
                                                                ===       ====      =====
</Table>

     The gain (loss) from 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 less than $1 million for 2004, $22 million
for 2003, and $71 million for 2002 has been allocated based on a ratio of the
expected proceeds for the asset to be sold divided by CMS Energy's total
capitalization of each discontinued operation multiplied by CMS Energy's
interest expense.

OTHER ASSET SALES

     Our other asset sales include the following assets. The impacts of these
sales are included in Gain (loss) on asset sales, net in our Consolidated
Statements of Income (Loss).

     For the year ended December 31, 2004, we sold the following assets that did
not meet the definition of, and therefore were not reported as, discontinued
operations:

<Table>
<Caption>
                                                                             PRETAX    AFTER-TAX
DATE SOLD    BUSINESS/PROJECT                                                 GAIN       GAIN
- ---------    ----------------                                                ------    ---------
                                                                                (IN MILLIONS)
<S>          <C>                                                             <C>       <C>
February     Bluewater Pipeline..........................................     $ 1         $ 1
April        Loy Yang(a).................................................      --          --
May          American Gas Index fund(b)..................................       1           1
August       Goldfields(c)...............................................      45          29
December     Moapa(d)....................................................       3           2
Various      Other.......................................................       2           1
                                                                              ---         ---
             Total gain on asset sales                                        $52         $34
                                                                              ===         ===
</Table>

- -------------------------
(a)  In April 2004, we and our partners sold the 2,000 MW Loy Yang power plant
     and adjacent coal mine in Victoria, Australia for about A$3.5 billion ($2.6
     billion in U.S. dollars), including A$145 million for the project equity.
     Our share of the proceeds, net of transaction costs and closing
     adjustments, was $44 million. In anticipation of the sale, we recorded an
     impairment in the first quarter, as discussed in "Asset Impairments" within
     this Note.

(b)  In May 2004, we sold our interest in the American Gas Index fund for $7
     million.

(c)  In August 2004, we sold our interest in Goldfields and our Parmelia
     business, a discontinued operation, to APT for A$204 million (approximately
     $147 million in U.S. dollars). The $45 million ($29 million after-

                                      CMS-59
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     tax) gain on the sale of Goldfields includes a $9 million ($6 million
     after-tax) foreign currency translation gain.

(d)  In December 2004, we sold land in Moapa, Nevada for $3 million.

     For the year ended December 31, 2003, we sold the following assets that did
not meet the definition of, and therefore were not reported as, discontinued
operations:

<Table>
<Caption>
                                                                               PRETAX        AFTER-TAX
DATE SOLD    BUSINESS/PROJECT                                                GAIN (LOSS)    GAIN (LOSS)
- ---------    ----------------                                                -----------    -----------
                                                                                   (IN MILLIONS)
<S>          <C>                                                             <C>            <C>
January      CMS MST Wholesale Gas.......................................        $(6)           $(4)
March        CMS MST Wholesale Power.....................................          2              1
June         Guardian Pipeline...........................................         (4)            (3)
December     CMS Land -- Arcadia.........................................          3              2
Various      Other.......................................................          2              1
                                                                                 ---            ---
             Total loss on asset sales...................................        $(3)           $(3)
                                                                                 ===            ===
</Table>

     For the year ended December 31, 2002, we sold the following assets that did
not meet the definition of, and therefore were not reported as, discontinued
operations:

<Table>
<Caption>
                                                                               PRETAX        AFTER-TAX
DATE SOLD    BUSINESS/PROJECT                                                GAIN (LOSS)    GAIN (LOSS)
- ---------    ----------------                                                -----------    -----------
                                                                                   (IN MILLIONS)
<S>          <C>                                                             <C>            <C>
January      Equatorial Guinea -- methanol plant.........................       $ 19           $ 12
April        Toledo Power................................................        (11)            (5)
May          Electric Transmission System................................         38             31
August       National Power Supply.......................................         15             30
October      Vasavi Power Plant..........................................        (25)           (24)
Various      Other.......................................................          1             --
                                                                                ----           ----
             Total gain on asset sales                                          $ 37           $ 44
                                                                                ====           ====
</Table>

ASSET IMPAIRMENTS

     We record an asset impairment when we determine that the expected future
cash flows from an asset would be insufficient to provide for recovery of the
asset's carrying value. An asset held-in-use is evaluated for impairment by
calculating the undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition. If the undiscounted future cash flows
are less than the carrying amount, we recognize an impairment loss. The
impairment loss recognized is the amount by which the carrying amount exceeds
the fair value. We estimate the fair market value of the asset utilizing the
best information available. This information includes quoted market prices,
market prices of similar assets, and discounted future cash flow analyses. The
assets written down include both domestic and foreign electric power plants, gas
processing facilities, and certain equity method and other investments. In
addition, we have written off the carrying value of projects under development
that will no longer be pursued.

                                      CMS-60
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The table below summarizes our asset impairments:

<Table>
<Caption>
                                            PRETAX   AFTER-TAX   PRETAX   AFTER-TAX   PRETAX   AFTER-TAX
YEARS ENDED DECEMBER 31                      2004      2004       2003      2003       2002      2002
- -----------------------                     ------   ---------   ------   ---------   ------   ---------
                                                                   (IN MILLIONS)
<S>                                         <C>      <C>         <C>      <C>         <C>      <C>
Asset impairments:
  Enterprises:
     Loy Yang(a)..........................   $125      $ 81       $--        $--       $ --      $ --
     International Energy
       Distribution(b)....................     --        --        72         53          4         3
     GVK(c)...............................     30        20        --         --         --        --
     SLAP(c)..............................      5         3        --         --         --        --
     CMS Generation
       DIG(d).............................     --        --        --         --        460       299
       Michigan Power.....................     --        --        --         --         62        40
       Craven.............................     --        --        --         --         23        15
       Other(e)...........................     --        --        16         11         20        13
     Marketing, Services and Trading......     --        --        --         --         18        11
     Other................................     --        --         7          4         15        10
                                             ----      ----       ---        ---       ----      ----
Total asset impairments...................   $160      $104       $95        $68       $602      $391
                                             ====      ====       ===        ===       ====      ====
</Table>

- -------------------------
(a)  In the first quarter of 2004, an impairment charge was recorded to
     recognize the reduction in fair value as a result of the sale of Loy Yang,
     completed in April 2004, which included a cumulative net foreign currency
     translation loss of approximately $110 million.

(b)  In September 2003, we wrote down our investment in CMS Electric and Gas'
     Venezuelan electric distribution utility to reflect fair value. The
     impairment was based on estimates of the utility's future cash flows,
     incorporating certain assumptions about Venezuela's regulatory, political,
     and economic environment.

(c)  In December 2004, we recorded impairment charges to adjust our carrying
     value to fair market value as a result of the planned sales of our
     investments in GVK and SLAP. We closed on the sale of GVK in February 2005.
     We expect the sale of SLAP to close in the first quarter of 2005.

(d)  DIG's reduced valuation was primarily a reflection of the unfavorable terms
     of its power purchase agreement.

(e)  In 2003, we determined that the fair values of certain equity investments
     at CMS Generation were lower than their carrying amount, and that these
     declines in value were other than temporary. Therefore, in accordance with
     APB No. 18, we recognized an impairment charge of $16 million ($11 million,
     net of tax).

                                      CMS-61
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RESTRUCTURING AND OTHER COSTS

     In June 2002, we announced a series of initiatives to reduce our annual
operating costs.

     The following table shows the amount charged to expense for restructuring
costs, the payments made, and the unpaid balance of accrued costs at December
31, 2002, 2003, and 2004:

<Table>
<Caption>
                                                              INVOLUNTARY      LEASE
                                                              TERMINATION   TERMINATION   TOTAL
                                                              -----------   -----------   -----
                                                                        (IN MILLIONS)
<S>                                                           <C>           <C>           <C>
Beginning accrual balance, January 1, 2002..................     $ --           $--       $ --
Expense.....................................................       22            11         33
Payments....................................................      (10)           (3)       (13)
                                                                 ----           ---       ----
Ending accrual balance at December 31, 2002.................     $ 12           $ 8       $ 20
                                                                 ----           ---       ----
Expense.....................................................        3            --          3
Payments....................................................      (12)           (2)       (14)
                                                                 ----           ---       ----
Ending accrual balance at December 31, 2003.................     $  3           $ 6       $  9
                                                                 ----           ---       ----
Expense.....................................................       --            --         --
Payments....................................................       (1)           (3)        (4)
                                                                 ----           ---       ----
Ending accrual balance at December 31, 2004.................     $  2           $ 3       $  5
                                                                 ====           ===       ====
</Table>

3: CONTINGENCIES

     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 recurrence 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 implemented,
the recommendations of the Special Committee.

     CMS Energy is cooperating with an investigation by the DOJ concerning
round-trip trading. CMS Energy is unable to predict the outcome of this matter
and what effect, if any, this investigation will have on its business. In March
2004, the SEC approved a cease-and-desist order settling an administrative
action against CMS Energy related to round-trip trading. The order did not
assess a fine and CMS Energy neither admitted to nor denied the order's
findings. The settlement resolved the SEC investigation involving CMS Energy and
CMS MST.

     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. These cases were later
consolidated by the court. The plaintiffs generally seek unspecified damages
based on allegations that the defendants violated United States securities laws
and regulations by making allegedly false and misleading statements about CMS
Energy's business and financial condition, particularly with respect to revenues
and expenses recorded in connection with round trip trading by CMS MST. CMS
Energy, Consumers, and the individual defendants filed motions to dismiss on
June 21, 2004. The judge issued an opinion and order dated January 7, 2005,
granting the motion to dismiss for Consumers and three of the individual
defendants, but denying the motions to dismiss for CMS Energy and the 13
remaining individual defendants.

                                      CMS-62
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CMS Energy and the individual defendants will defend themselves vigorously but
cannot predict the outcome of this litigation.

     DEMAND FOR ACTION AGAINST OFFICERS AND DIRECTORS: In May 2002, 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 certain 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. In December 2002, two new directors were appointed to the Board.
The Board formed a special litigation committee in January 2003 to determine
whether it is in CMS Energy's best interest to bring the action demanded by the
shareholder. The disinterested members of the Board appointed the two new
directors to serve on the special litigation committee.

     In December 2003, during the continuing review by the special litigation
committee, CMS Energy was served with a derivative complaint filed on behalf of
the shareholder in the Circuit Court of Jackson County, Michigan in furtherance
of his demands. CMS Energy cannot predict the outcome of this matter.

     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 CMS Employees' Savings and Incentive Plan (the "Plan"). The two cases
were filed in July 2002 in United States District Court for the Eastern District
of Michigan and were later consolidated by the court. 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. The judge
issued an opinion and order dated December 27, 2004, conditionally granting
plaintiffs' motion for class certification. A trial date has not been set, but
is expected to be no earlier than late in 2005. CMS Energy and Consumers will
defend themselves vigorously but 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 an ongoing
investigation by the DOJ regarding this matter. CMS Energy is unable to predict
the outcome of the DOJ investigation and what effect, if any, the investigation
will have on its business. The CFTC filed a civil injunctive action against two
former CMS Field Services employees in Oklahoma federal district court on
February 1, 2005. The action alleges the two engaged in reporting false natural
gas trade information, and the action seeks to enjoin such acts, compel
compliance with the Commodities Exchange Act, and impose monetary penalties.

     BAY HARBOR: Certain subsidiaries of CMS Energy participated in the
development of Bay Harbor, a residential/commercial real estate project on the
site of a discontinued cement and quarry operation near Petoskey, Michigan. As
part of the development, which went forward under an agreement with the MDEQ, a
golf course was constructed over several abandoned cement kiln dust piles (CKD
piles), leftover from the former cement plant operation. Another former CKD area
has been converted into a park. Part of the agreement with the MDEQ required the
construction of a water collection system to recover seep water from one of the
CKD piles. In 2002, CMS Energy sold its interests in Bay Harbor, but retained
its obligations under previous environmental indemnifications entered into at
the inception of the project.

     From January to September 2004, the seep collection system was down for
maintenance and/or awaiting permission to restart from the City of Petoskey. In
September 2004, the MDEQ issued a notice of noncompliance (NON), after finding
high pH-seep water in Lake Michigan adjacent to the project. The MDEQ also found
higher than acceptable levels of heavy metals, including mercury, in the seep
water.

                                      CMS-63
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Coincident with the MDEQ inspections, the EPA also assigned an inspector to
the site. In November 2004, the EPA issued a Notice of Potential Liability under
the Comprehensive Environmental Response, Compensation, and Liability Act, and
initiated discussions with the MDEQ, CMS Energy and other parties, toward
arriving at a suitable administrative consent order to address problems at Bay
Harbor.

     In February 2005, CMS Energy signed an Administrative Order on Consent
(AOC) with the EPA and the EPA has executed the AOC. Under the AOC, CMS Energy
is generally obligated, among other things, to: (i) engage in measures to
restrict access to seep areas, install methods to interrupt the flow of seep
water to Lake Michigan, and take other measures as may be required by the EPA
under an approved plan; (ii) investigate and study the extent of hazardous
substances at the site, evaluate alternatives to address a long-term remedy, and
issue a report of the investigation and study; and (iii) within 120 days after
EPA approval of the investigation report, enter into an enforceable agreement
with the MDEQ to address a long-term remedy under certain criteria set forth in
the AOC.

     Several parties have issued demand letters to CMS Energy claiming breach of
the indemnification provisions, making requests for payment of their expenses
related to the NON, and/or claiming damages to property or personal injury with
regard to the matter. CMS Energy responded to the indemnification claims by
stating that it had not breached its indemnity obligations, it will comply with
the indemnities, it has restarted the seep water collection facility and it has
responded to the NON. CMS Energy will defend vigorously any property damage and
personal injury claims, and has reserved all rights and defenses.

     Based on preliminary studies, CMS Energy has identified several remediation
options. The estimated potential capital and near-term expenditures for these
options range from $25 million to $40 million, with continuing yearly operating
and maintenance expenses ranging from $0.8 million to $1.6 million. Final
remediation and resulting claims against third parties for reimbursement of
remediation costs could increase or decrease these amounts. CMS Energy has
recorded a liability for its obligations associated with this matter in the
amount of $45 million, with a resultant charge to its income statement of $29
million, net of deferred income taxes, in the fourth quarter of 2004, reflecting
CMS Energy's current best estimate of both the capital and near-term costs as
well as the present value of continuing future operating costs.

     An adverse outcome of this matter could, depending on the size of any
indemnification obligation or liability under environmental laws, have a
potentially significant adverse effect on CMS Energy's financial condition and
liquidity and could negatively impact CMS Energy's financial results. CMS Energy
cannot predict the ultimate cost or outcome of this matter.

CONSUMERS' ELECTRIC UTILITY CONTINGENCIES

     ELECTRIC ENVIRONMENTAL MATTERS: Our operations are subject to environmental
laws and regulations. Costs to operate our facilities in compliance with these
laws and regulations generally have been recovered in customer rates.

     Clean Air: The EPA and the state regulations require us to make significant
capital expenditures estimated to be $802 million. As of December 31, 2004, we
have incurred $525 million in capital expenditures to comply with the EPA
regulations and anticipate that the remaining $277 million of capital
expenditures will be made between 2005 and 2011.

     The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.

                                      CMS-64
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In addition to modifying the coal-fired electric plants, we expect to
utilize nitrogen oxide emissions allowances for years 2005 through 2009, most of
which have been purchased. The cost of the allowances is estimated to average $8
million per year for 2005-2006. The need for allowances will decrease after year
2006 with the installation of emissions control technology.

     Cleanup and Solid Waste: Under the Michigan Natural Resources and
Environmental Protection Act, we expect that we will ultimately incur
investigation and remedial action costs at a number of sites. We believe that
these costs will be recoverable in rates under current ratemaking policies.

     We are a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several, meaning
that many other creditworthy parties with substantial assets are potentially
responsible with respect to the individual sites. Based on past experience, we
estimate that our share of the total liability for the known Superfund sites
will be between $1 million and $9 million. As of December 31, 2004, we have
recorded a liability for the minimum amount of our estimated Superfund
liability.

     In October 1998, during routine maintenance activities, we identified PCB
as a component in certain paint, grout, and sealant materials at the Ludington
Pumped Storage facility. We removed and replaced part of the PCB material. We
have proposed a plan to deal with the remaining materials and are awaiting a
response from the EPA.

     LITIGATION: In October 2003, a group of eight PURPA qualifying facilities
selling power to us filed a lawsuit in Ingham County Circuit Court. The lawsuit
alleges that we incorrectly calculated the energy charge payments made pursuant
to power purchase agreements with qualifying facilities. In February 2004, the
Ingham County Circuit Court judge deferred to the primary jurisdiction of the
MPSC, dismissing the circuit court case without prejudice. In February 2005, the
MPSC issued an order in the 2004 PSCR plan case concluding that we have been
correctly administering the energy charge calculation methodology. The eight
plaintiff qualifying facilities have appealed the dismissal of the circuit court
case to the Michigan Court of Appeals. We cannot predict the outcome of this
appeal.

CONSUMERS' ELECTRIC UTILITY RESTRUCTURING MATTERS

     ELECTRIC ROA: The MPSC approved revised tariffs that establish the rates,
terms, and conditions under which retail customers are permitted to choose an
electric supplier. These revised tariffs allow ROA customers, upon as little as
30 days notice to us, to return to our generation service at current tariff
rates. If any class of customers' (residential, commercial, or industrial) ROA
load reaches ten percent of our total load for that class of customers, then
returning ROA customers for that class must give 60 days notice to return to our
generation service at current tariff rates. However, we may not have capacity
available to serve returning ROA customers that is sufficient or reasonably
priced. As a result, we may be forced to purchase electricity on the spot market
at higher prices than we can recover from our customers during the rate cap
periods. We cannot predict the total amount of electric supply load that may be
lost to alternative electric suppliers. As of March 2005, alternative electric
suppliers are providing 900 MW of generation supply to ROA customers. This
amount represents 12 percent of our distribution load and an increase of 23
percent compared to March 2004.

                                      CMS-65
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     ELECTRIC RESTRUCTURING PROCEEDINGS: Below is a discussion of our electric
restructuring proceedings.

     The following chart summarizes our electric restructuring filings with the
MPSC:

<Table>
<Caption>
                       YEAR(S)      YEARS
PROCEEDING              FILED      COVERED    REQUESTED AMOUNT                STATUS
- ----------             -------     -------    ----------------                ------
<S>                   <C>         <C>         <C>                <C>
Stranded Costs        2002-2004   2000-2003   $137 million(a)    The MPSC ruled that we
                                                                 experienced zero Stranded Costs
                                                                 for 2000 through 2001. The MPSC
                                                                 approved recovery of $63 million
                                                                 in Stranded Costs for 2002
                                                                 through 2003.

Implementation Costs  1999-2004   1997-2003   $91 million(b)     The MPSC allowed $68 million for
                                                                 the years 1997-2001, plus $20
                                                                 million for the cost of money
                                                                 through 2003. Implementation
                                                                 cost filings for 2002 and 2003
                                                                 in the amount of $8 million,
                                                                 which includes the cost of money
                                                                 through 2003, are pending MPSC
                                                                 approval.

Section 10d(4)             2004   2000-2005   $628 million       Filed with the MPSC in October
Regulatory Assets                                                2004.
</Table>

- -------------------------

(a)  Amount includes the cost of money through the year in which we expected to
     receive recovery from the MPSC and assumes recovery of Clean Air Act costs
     through the Section 10d(4) Regulatory Asset case.

(b)  Amount includes the cost of money through the year prior to the year filed.

     Section 10d(4) Regulatory Assets: Section 10d(4) of the Customer Choice Act
allows us to recover certain regulatory assets through deferred recovery of
annual capital expenditures in excess of depreciation levels and certain other
expenses incurred prior to and throughout the rate freeze and rate cap periods,
including the cost of money. The section also allows deferred recovery of
expenses incurred during the rate freeze and rate cap periods that result from
changes in taxes, laws, or other state or federal governmental actions. In
October 2004, we filed an application with the MPSC seeking recovery of $628
million of Section 10d(4) Regulatory Assets for the period June 2000 through
December 2005 consisting of:

     - capital expenditures in excess of depreciation,

     - Clean Air Act costs,

     - other expenses related to changes in law or governmental action incurred
       during the rate freeze and rate cap periods, and

     - the associated cost of money through the period of collection.

Of the $628 million, $152 million relates to the cost of money.

     As allowed by the Customer Choice Act, in January 2004, we began accruing
and deferring for recovery the 2004 portion of our Section 10d(4) Regulatory
Assets. In November 2004, the MPSC issued an order in Detroit Edison's general
electric rate case which concluded that Detroit Edison's return of and on Clean
Air Act costs incurred from June 2000 through December 2003 are recoverable
under Section 10d(4). Based on the precedent set by this order, we recorded an
additional regulatory asset in November 2004 for our return of and on Clean Air
Act expenditures incurred from 2000 through 2003. Unless we receive an order
from the MPSC to the contrary, we will continue to record additional accruals.
However, certain aspects of Detroit Edison's electric rate case are different
from our Section 10d(4) Regulatory Asset filing. In March 2005, the MPSC Staff
filed testimony
                                      CMS-66
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

recommending the MPSC approve recovery of approximately $323 million. We cannot
predict the amount, if any, the MPSC will approve as recoverable. At December
31, 2004, total Section 10d(4) Regulatory Assets totaled $141 million.

     TRANSMISSION SALE: In May 2002, we sold our electric transmission system to
MTH, a non-affiliated limited partnership whose general partner is a subsidiary
of Trans-Elect, Inc. We are in arbitration with MTH regarding property tax items
used in establishing the selling price of our electric transmission system. An
unfavorable outcome could result in a reduction of sale proceeds previously
recognized of approximately $2 million to $3 million.

CONSUMERS' ELECTRIC UTILITY RATE MATTERS

     ELECTRIC RATE CASE: In December 2004, we filed an application with the MPSC
to increase our retail electric base rates. The electric rate case filing
requests an annual increase in revenues of approximately $320 million. The
primary reasons for the request are increased system maintenance and improvement
costs, Clean Air Act related expenditures, and employee pension costs. A final
order from the MPSC on our electric rate case is expected in late 2005. If
approved as requested, the rate increase would go into effect in January 2006
and would apply to all retail electric customers. We cannot predict the amount
or timing of the rate increase, if any, which the MPSC will approve.

     POWER SUPPLY COSTS: To reduce the risk of high electric prices during peak
demand periods and to achieve our reserve margin target, we employ a strategy of
purchasing electric capacity and energy contracts for the physical delivery of
electricity primarily in the summer months and to a lesser degree in the winter
months. We have purchased capacity and energy contracts partially covering the
estimated reserve margin requirements for 2005 through 2007. As a result, we
have recognized an asset of $12 million for unexpired capacity and energy
contracts as of December 31, 2004. The total premium costs of electric capacity
and energy contracts for 2004 were approximately $12 million.

     PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs actually incurred by us. In September 2004, we submitted our 2005
PSCR filing to the MPSC. The proposed PSCR charge would allow us to recover a
portion of our increased power supply costs from commercial and industrial
customers and, subject to the overall rate caps, from other customers. We
self-implemented the proposed 2005 PSCR charge in January 2005. We estimate the
increased recovery of power supply costs from commercial and industrial
customers to be approximately $49 million in 2005. The revenues from the PSCR
charges are subject to reconciliation at the end of the year after actual costs
have been reviewed for reasonableness and prudence. We cannot predict the
outcome of these PSCR proceedings.

OTHER CONSUMERS' ELECTRIC UTILITY CONTINGENCIES

     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. We
hold a 49 percent partnership interest in the MCV Partnership, and a 35 percent
lessor interest in the MCV Facility.

     In 2004, we consolidated the MCV Partnership and the FMLP into our
consolidated financial statements in accordance with Revised FASB Interpretation
No. 46. For additional details, see Note 16, Implementation of New Accounting
Standards. Our consolidated retained earnings include undistributed earnings
from the MCV Partnership of $237 million at December 31, 2004 and $245 million
at December 31, 2003.

                                      CMS-67
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The cost that we incur under the MCV Partnership PPA exceeds the recovery
amount allowed by the MPSC. We expense all cash underrecoveries directly to
income. We estimate cash underrecoveries of capacity and fixed energy payments
as follows:

<Table>
<Caption>
                                                                2005    2006    2007
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
Estimated cash underrecoveries..............................    $56     $55     $39
                                                                ===     ===     ===
</Table>

     After September 15, 2007, we expect to claim relief under the regulatory
out provision in the PPA, limiting our capacity and fixed energy payments to the
MCV Partnership to the amount collected from our customers. The MCV Partnership
has indicated that it may take issue with our exercise of the regulatory out
clause after September 2007. We believe that the clause is valid and fully
effective, but cannot assure that it will prevail in the event of a dispute. The
MPSC's future actions on the capacity and fixed energy payments recoverable from
customers subsequent to September 15, 2007 may affect negatively the earnings of
the MCV Partnership and the value of our investment in the MCV Partnership.

     Further, under the PPA, variable energy payments to the MCV Partnership are
based on the cost of coal burned at our coal plants and our operation and
maintenance expenses. However, the MCV Partnership's costs of producing
electricity are tied to the cost of natural gas. Because natural gas prices have
increased substantially in recent years and the price the MCV Partnership can
charge us for energy has not, the MCV Partnership's financial performance has
been impacted negatively. Even with the approved RCP, if gas prices continue at
present levels or increase, the economics of operating the MCV Facility may be
adverse enough to require us to recognize an impairment.

     In January 2005, the MPSC issued an order approving the RCP, with
modifications. The RCP allows us to recover the same amount of capacity and
fixed energy charges from customers as approved in prior MPSC orders. However,
we are able to dispatch the MCV Facility on the basis of natural gas market
prices, which will reduce the MCV Facility's annual production of electricity
and, as a result, reduce the MCV Facility's consumption of natural gas by an
estimated 30 to 40 bcf annually. This decrease in the quantity of high-priced
natural gas consumed by the MCV Facility will benefit our ownership interest in
the MCV Partnership.

     The substantial MCV Facility fuel cost savings will be used first to offset
fully the cost of replacement power. Second, $5 million annually will be used to
fund a renewable energy program. Remaining savings will be split between the MCV
Partnership and Consumers. Consumers' direct savings will be shared 50 percent
with its customers in 2005 and 70 percent in 2006 and beyond. Consumers' direct
savings from the RCP, after a portion is allocated to customers, will be used to
offset our capacity and fixed energy underrecoveries expense. Since the MPSC has
excluded these underrecoveries from the rate making process, we anticipate that
our savings from the RCP will not affect our return on equity used in our base
rate filings.

     In January 2005, Consumers and the MCV Partnership's general partners
accepted the terms of the order and implemented the RCP. The underlying
agreement for the RCP between Consumers and the MCV Partnership extends through
the term of the PPA. However, either party may terminate that agreement under
certain conditions. In February 2005, a group of intervenors in the RCP case
filed an application for rehearing of the MPSC order. The Attorney General also
filed a claim of appeal with the Michigan Court of Appeals. We cannot predict
the outcome of these appeals.

     MCV PARTNERSHIP PROPERTY TAXES: In January 2004, the Michigan Tax Tribunal
issued its decision in the MCV Partnership's tax appeal against the City of
Midland for tax years 1997 through 2000. The MCV Partnership estimates that the
decision will result in a refund to the MCV Partnership of approximately $35
million in taxes plus $10 million of interest. The Michigan Tax Tribunal
decision has been appealed to the Michigan Court of Appeals by the City of
Midland and the MCV Partnership has filed a cross-appeal at the Michigan Court
of Appeals. The MCV Partnership also has a pending case with the Michigan Tax
Tribunal for tax years 2001 through 2004. The MCV Partnership cannot predict the
outcome of these proceedings; therefore,

                                      CMS-68
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the above refund (net of approximately $16 million of deferred expenses) has not
been recognized in 2004 earnings.

     NUCLEAR PLANT DECOMMISSIONING: Decommissioning funding practices approved
by the MPSC require us to file a report on the adequacy of funds for
decommissioning at three-year intervals. We prepared and filed updated cost
estimates for Big Rock and Palisades on March 31, 2004. Excluding additional
costs for spent nuclear fuel storage, due to the DOE's failure to accept this
spent nuclear fuel on schedule, these reports show a decommissioning cost of
$361 million for Big Rock and $868 million for Palisades. Since Big Rock is
currently in the process of being decommissioned, the estimated cost includes
historical expenditures in nominal dollars and future costs in 2003 dollars,
with all Palisades costs given in 2003 dollars.

     In 1999, the MPSC orders for Big Rock and Palisades provided for fully
funding the decommissioning trust funds for both sites. In December 2000,
funding of the Big Rock trust fund stopped because the MPSC-authorized
decommissioning surcharge collection period expired. The MPSC order set the
annual decommissioning surcharge for Palisades at $6 million through 2007.
Amounts collected from electric retail customers and deposited in trusts,
including trust earnings, are credited to a regulatory liability and asset
retirement obligation.

     BIG ROCK: Excluding the additional nuclear fuel storage costs due to the
DOE's failure to accept this spent fuel on schedule, we are currently projecting
that the level of funds provided by the trust for Big Rock will fall short of
the amount needed to complete the decommissioning by $26 million. At this time,
we plan to provide the additional amounts needed from our corporate funds and,
subsequent to the completion of radiological decommissioning work, seek recovery
of such expenditures at the MPSC. We cannot predict how the MPSC will rule on
our request. The following table shows our Big Rock decommissioning activities:

<Table>
<Caption>
                                                                  YEAR-TO-DATE        CUMULATIVE
                                                                DECEMBER 31, 2004    TOTAL-TO-DATE
                                                                -----------------    -------------
                                                                          (IN MILLIONS)
<S>                                                             <C>                  <C>
Decommissioning expenditures(a).............................           $35               $298
Withdrawals from trust funds................................            36                279
                                                                       ===               ====
</Table>

- -------------------------

(a)  Includes site restoration expenditures.

     These activities had no material impact on net income. At December 31,
2004, we have an investment in nuclear decommissioning trust funds of $52
million for Big Rock. In addition, at December 31, 2004, we have charged $8
million to our FERC jurisdictional depreciation reserve for the decommissioning
of Big Rock.

     PALISADES: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept this spent fuel on schedule, we concluded that the existing
surcharge for Palisades needed to be increased to $25 million annually,
beginning January 1, 2006, and continue through 2011, our current license
expiration date. In June 2004, we filed an application with the MPSC seeking
approval to increase the surcharge for recovery of decommissioning costs related
to Palisades beginning in 2006. In September 2004, we announced that we will
seek a 20-year license renewal for Palisades. In January 2005, we filed a
settlement agreement with the MPSC that was agreed to by four of the six
parties. The settlement agreement provides for the continuation of the existing
$6 million annual decommissioning surcharge through 2011 and for the next
periodic review to be filed in March 2007. We are seeking MPSC approval of the
settlement, under a contested settlement proceeding, but cannot predict the
outcome.

     At December 31, 2004, we have an investment in the MPSC nuclear
decommissioning trust funds of $513 million for Palisades. In addition, at
December 31, 2004, we have a FERC decommissioning trust fund with a balance of
$10 million. For additional details on decommissioning costs accounted for as
asset retirement obligations, see Note 8, Asset Retirement Obligations.

                                      CMS-69
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     NUCLEAR MATTERS:

     DOE Litigation: 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 1998. Subsequent U.S. Court of Appeals litigation, in which we and other
utilities participated, has not been successful in producing more specific
relief for the DOE's failure to accept the spent nuclear fuel.

     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 nuclear fuel. Over 60 utilities have initiated
litigation in the United States Court of Claims; we filed our complaint in
December 2002. In July 2004, the DOE filed an amended answer and motion to
dismiss the complaint. In October 2004, we filed a response to the DOE's motion
and our motion for summary judgment on liability. Oral argument has been held,
and the motions are now before the Court for a decision. If our litigation
against the DOE is successful, we anticipate future recoveries from the DOE. We
plan to use recoveries to pay the cost of spent nuclear fuel storage until the
DOE takes possession as required by law. We can make 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. We expect that
the DOE will submit an application to the NRC sometime in 2005 for a license to
begin construction of the repository. The application and review process is
estimated to take several years.

     Insurance: We maintain nuclear insurance coverage on our nuclear plants. At
Palisades, we maintain nuclear property insurance from NEIL totaling $2.750
billion and insurance that would partially cover the cost of replacement power
during certain prolonged accidental outages. Because NEIL is a mutual insurance
company, we could be subject to assessments of up to $27 million in any policy
year if insured losses in excess of NEIL's maximum policyholders surplus occur
at our, or any other member's, nuclear facility. NEIL's policies include
coverage for acts of terrorism.

     At Palisades, we maintain nuclear liability insurance for third-party
bodily injury and off-site property damage resulting from a nuclear hazard for
up to approximately $10.761 billion, the maximum insurance liability limits
established by the Price-Anderson Act. The United States Congress enacted the
Price-Anderson Act to provide financial liability protection for those parties
who may be liable for a nuclear accident or incident. Part of the Price-Anderson
Act's financial protection is a mandatory industry-wide program under which
owners of nuclear generating facilities could be assessed if a nuclear incident
occurs at any nuclear generating facility. The maximum assessment against us
could be $101 million per occurrence, limited to maximum annual installment
payments of $10 million.

     We also maintain insurance under a program that covers tort claims for
bodily injury to nuclear 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, we remain
responsible for a maximum assessment of up to $6 million.

     Big Rock remains insured for nuclear liability by a combination of
insurance and a NRC indemnity totaling $544 million, and a nuclear property
insurance policy from NEIL.

     Insurance policy terms, limits, and conditions are subject to change during
the year as we renew our policies.

CONSUMERS' GAS UTILITY CONTINGENCIES

     GAS ENVIRONMENTAL MATTERS: We expect to incur investigation and remedial
costs at a number of sites under the Michigan Natural Resources and
Environmental Protection Act, a Michigan statute that covers environmental
activities including remediation. These sites include 23 former manufactured gas
plant facilities. We operated the facilities on these sites for some part of
their operating lives. For some of these sites, we have no current ownership or
may own only a portion of the original site. We have completed initial
investigations at the
                                      CMS-70
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23 sites. We will continue to implement remediation plans for sites where we
have received MDEQ remediation plan approval. We will also work toward resolving
environmental issues at sites as studies are completed.

     We have estimated our costs for investigation and remedial action at all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. We expect our 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. We base the estimates on discounted 2003
costs using a discount rate of three percent. The discount rate represents a
10-year average of U.S. Treasury bond rates reduced for increases in the
consumer price index. We expect to fund most of these costs through insurance
proceeds and MPSC-approved rates. As of December 31, 2004, we have recorded a
liability of $38 million, net of $44 million of expenditures incurred to date,
and a regulatory asset of $65 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 our estimate of remedial action costs.

     In its November 2002 gas distribution rate order, the MPSC authorized us to
continue to recover approximately $1 million of manufactured gas plant
facilities environmental clean-up costs annually. This amount will continue to
be offset by $2 million to reflect amounts recovered from all other sources. We
defer and amortize, over a period of 10 years, manufactured gas plant facilities
environmental clean-up costs above the amount currently included in rates.
Additional amortization of the expense in our rates cannot begin until after a
prudency review in a gas rate case.

CONSUMERS' GAS UTILITY RATE MATTERS

     GAS COST RECOVERY: The GCR process is designed to allow us to recover all
of our purchased natural gas costs if incurred under reasonable and prudent
policies and practices. The MPSC reviews these costs for prudency in an annual
reconciliation proceeding.

     The following table summarizes our GCR reconciliation filings with the
MPSC. Additional details related to these proceedings follow the table.

GAS COST RECOVERY RECONCILIATION

<Table>
<Caption>
                                             NET OVER
GCR YEAR     DATE FILED     ORDER DATE       RECOVERY                         STATUS
- --------     ----------     ----------       --------                         ------
<S>          <C>           <C>              <C>            <C>
2001-2002    June 2002       May 2004        $3 million    $2 million has been refunded, $1 million is
                                                           included in our 2003-2004 GCR reconciliation
                                                           filing
2002-2003    June 2003      March 2004       $5 million    Net over-recovery includes interest accrued
                                                           through March 2003, and an $11 million
                                                           disallowance settlement agreement
2003-2004    June 2004     February 2005    $31 million    Filing includes the $1 million and the $5
                                                           million GCR net over-recovery above
</Table>

     Net over-recovery amounts included in the table above include refunds that
we received from our suppliers which are required to be refunded to our
customers.

     GCR Year 2003-2004: In February 2005, the MPSC approved a settlement
agreement that resulted in a credit to our GCR customers for a $28 million
over-recovery, plus $3 million interest, using a roll-in refund methodology. The
roll-in methodology incorporates a GCR over/under-recovery in the next GCR plan
year.

     GCR Plan for Year 2004-2005: In December 2003, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2004
through March 2005. In June 2004, the MPSC issued a final Order in our GCR plan
approving a settlement. The settlement included a quarterly mechanism for
setting a GCR

                                      CMS-71
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ceiling price. The current ceiling price is $6.57 per mcf. Actual gas costs and
revenues will be subject to an annual reconciliation proceeding.

     GCR Plan for Year 2005-2006: In December 2004, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2005
through March 2006. Our request proposes using a GCR factor consisting of:

     - a base GCR factor of $6.98 per mcf, plus

     - a quarterly GCR ceiling price adjustment contingent upon future events.

     The GCR factor can be adjusted monthly, provided it remains at or below the
current ceiling price. The quarterly adjustment mechanism allows an increase in
the GCR ceiling price to reflect a portion of cost increases if the average
NYMEX price for a specified period is greater than that used in calculating the
base GCR factor. Actual gas costs and revenues will be subject to an annual
reconciliation proceeding.

     2003 GAS RATE CASE: In March 2003, we filed an application with the MPSC
for a gas rate increase in the annual amount of $156 million. In December 2003,
the MPSC granted an interim rate increase in the amount of $19 million annually.
The MPSC also ordered an annual $34 million reduction in our annual depreciation
expense and related taxes.

     On October 14, 2004, the MPSC issued its Opinion and Order on final rate
relief. In the order, the MPSC authorized us to place into effect surcharges
that would increase annual gas revenues by $58 million. Further, the MPSC
rescinded the $19 million annual interim rate increase. The final rate relief
was contingent upon our agreement to:

     - achieve a common equity level of at least $2.3 billion by year-end 2005
       and propose a plan to improve the common equity level thereafter until
       our target capital structure is reached,

     - make certain safety-related operation and maintenance, pension, retiree
       health-care, employee health-care, and storage working capital
       expenditures for which the surcharge is granted,

     - refund surcharge revenues when our rate of return on common equity
       exceeds its authorized 11.4 percent rate,

     - prepare and file annual reports that address certain issues identified in
       the order, and

     - file a general rate case on or before the date that the surcharge expires
       (which is two years after the surcharge goes into effect).

On October 15, 2004, we agreed to these commitments.

     2001 GAS DEPRECIATION CASE: In December 2003, we filed an update to our gas
utility plant depreciation case originally filed in June 2001. On December 18,
2003, the MPSC ordered an annual $34 million reduction in our depreciation
expense and related taxes in an interim rate order issued in our 2003 gas rate
case.

     In October and December 2004, the MPSC issued Opinions and Orders in our
gas depreciation case. The October 2004 order requires us to file an application
for new depreciation accrual rates for our natural gas utility plant on, or no
earlier than three months prior to, the date we file our next natural gas
general rate case. The MPSC also directed us to undertake a study to determine
why our removal costs are in excess of those of other regulated Michigan natural
gas utilities and file a report with the MPSC Staff on or before December 31,
2005.

     In February 2005, we requested a delay in the filing date for the next
depreciation case until after the MPSC considers the removal cost study, and
after the MPSC issues an order in a pending case relating to asset retirement
obligation accounting.

                                      CMS-72
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OTHER MATTERS

     COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees
are represented by the Utility Workers of America Union. The Union represents
Consumers' operating, maintenance, and construction employees and our call
center employees. The collective bargaining agreement with the Union for our
operating, maintenance, and construction employees will expire on June 1, 2005
and negotiations for a new agreement is underway currently. The collective
bargaining agreement with the Union for our call center employees will expire on
August 1, 2005.

OTHER CONTINGENCIES

     EQUATORIAL GUINEA TAX CLAIM: CMS Energy received a request for
indemnification from Perenco, the purchaser of CMS Oil and Gas. The
indemnification claim relates to the sale by CMS Energy of its oil, gas, and
methanol projects in Equatorial Guinea and the claim of the government of
Equatorial Guinea that $142 million in taxes is owed it in connection with that
sale. Based on information currently available, CMS Energy and its tax advisors
have concluded that the government's tax claim is without merit, and Perenco has
submitted a response to the government rejecting the claim. CMS Energy cannot
predict the outcome of this matter.

     GAS INDEX PRICE REPORTING LITIGATION: CMS Energy, CMS MST, CMS Field
Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field
Services) and Cantera Gas Company are named as defendants in various lawsuits
arising as a result of false natural gas price reporting. Allegations include
manipulation of NYMEX natural gas futures and options prices, price-fixing
conspiracies, and artificial inflation of natural gas retail prices in
California and Tennessee. CMS Energy and the other CMS defendants will defend
themselves vigorously against these matters but cannot predict their outcome.

     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
litigation. DIG will continue to defend itself vigorously and pursue its claims.
DIG cannot predict the outcome of this matter.

     DIG NOISE ABATEMENT LAWSUIT: In February 2003, DIG was served with a
three-count first amended complaint filed in Wayne County Circuit Court seeking
damages and injunctive relief based upon allegations of excessive noise and
vibration created by operation of the power plant on behalf of six named
plaintiffs, all alleged to be adjacent or nearby residents or property owners
and a class of "potentially thousands" who have been similarly affected. The
parties entered into a settlement agreement on June 25, 2004, whereby DIG agreed
to remediate the sound emitted from various pieces of plant equipment to a level
below the ambient noise level and pay a substantial portion of plaintiffs'
attorney fees and costs. The court entered an Order for Conditional Class
Certification and Settlement Approval on August 27, 2004. No class members opted
out of the settlement. DIG believes remediation is now complete at a cost of
approximately $0.6 million. The parties shall seek a Final Order for Class
Certification and Settlement Approval and dismissal of the action. Until such
time as the entry of this Order, DIG cannot predict the final cost associated
with the settlement of this matter, but expects that it will be less than $1
million.

     FORMER CMS OIL AND GAS OPERATIONS: A Michigan trial judge granted Star
Energy, Inc. and White Pine Enterprises, LLC a declaratory judgment in an action
filed in 1999 that claimed Terra Energy Ltd., a former CMS Oil and Gas
subsidiary, violated an oil and gas lease and other arrangements by failing to
drill wells it had

                                      CMS-73
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

committed to drill. A jury then awarded the plaintiffs a $7.6 million award.
Terra appealed this matter to the Michigan Court of Appeals. The Michigan 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. The trial
judge reinstated the judgment against Terra and awarded Terra title to the
minerals. Terra has appealed this judgment. Enterprises has an indemnity
obligation with regard to losses to Terra that might result from this
litigation.

     LEONARD FIELD DISPUTE: CMS Gas Transmission is involved in various disputes
related to the Leonard Storage Field in Addison Township, Michigan. The dispute
centers around excess odor discharge and untimely removal of certain equipment
from the Leonard Facility. CMS Gas Transmission cannot predict the outcome of
this matter, and the ultimate consequence of an adverse outcome would be our
inability to extract approximately 500,000 mcf of gas remaining in the Leonard
Field that has a $1 million book value at December 31, 2004.

     CMS ENSENADA CUSTOMER DISPUTE: Pursuant to a long-term power purchase
agreement, CMS Ensenada sells power and steam to YPF Repsol at the YPF refinery
in La Plata, Argentina. As a result of the so-called "Emergency Laws," payments
by YPF Repsol under the power purchase agreement have been converted to pesos at
the exchange rate of one U.S. dollar to one Argentine peso. Such payments are
currently insufficient to cover CMS Ensenada's operating costs, including
quarterly debt service payments to the OPIC. Enterprises is party to a Sponsor
Support Agreement pursuant to which Enterprises has guaranteed CMS Ensenada's
debt service payments to OPIC up to an amount which is in dispute, but which
Enterprises estimated to be approximately $9 million at June 30, 2004. Following
a payment made to OPIC in July 2004, Enterprises now believes this amount to be
approximately $7 million.

     The Argentine commercial court granted injunctive relief to CMS Ensenada
pursuant to an ex parte action, and such relief will remain in effect until
completion of an arbitration on the matter, to be administered by the
International Chamber of Commerce.

     OTHER: 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 within 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.

     We have accrued estimated losses for certain contingencies discussed within
this Note. Resolution of these contingencies is not expected to have a material
adverse impact on our financial position, liquidity, or results of operations.

                                      CMS-74
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4:  FINANCINGS AND CAPITALIZATION

     Long-term debt as of December 31 follows:

<Table>
<Caption>
                                                       INTEREST RATE (%)       MATURITY      2004      2003
                                                       -----------------       --------      ----      ----
                                                                                             (IN MILLIONS)
<S>                                                    <C>                     <C>          <C>       <C>
CMS ENERGY CORPORATION
  Senior notes.....................................          7.625               2004       $   --    $  176
                                                             9.875               2007          468       468
                                                             8.900               2008          260       260
                                                             7.500               2009          409       409
                                                             7.750               2010          300       300
                                                             8.500               2011          300       300
                                                             3.375(a)            2023          150       150
                                                             2.875(a)            2024          288        --
                                                                                            ------    ------
                                                                                             2,175     2,063
                                                                                            ------    ------
  General term notes(b)............................          7.327(c)          2005-2009       220       496
  Extendible tenor rate adjusted securities
    (X-TRAS).......................................          7.000               2005           --       180
  Revolving credit facilities and other............                                              5         7
                                                                                            ------    ------
    Total -- CMS Energy Corporation................                                          2,400     2,746
                                                                                            ------    ------
CONSUMERS ENERGY COMPANY
  First mortgage bonds.............................          4.250               2008          250       250
                                                             4.800               2009          200       200
                                                             4.400               2009          150        --
                                                             4.000               2010          250       250
                                                             5.000               2012          300        --
                                                             5.375               2013          375       375
                                                             6.000               2014          200       200
                                                             5.000               2015          225        --
                                                             5.500               2016          350        --
                                                             7.375               2023           --       208
                                                                                            ------    ------
                                                                                             2,300     1,483
                                                                                            ------    ------
  Senior notes.....................................          6.000               2005           --       300
                                                             6.500               2005           --       141
                                                             6.250               2006          332       332
                                                             6.375               2008          159       159
                                                             6.875               2018          180       180
                                                             6.500               2028          141       142
                                                                                            ------    ------
                                                                                               812     1,254
                                                                                            ------    ------
  Securitization bonds.............................          5.188(c)          2005-2015       398       426
  FMLP debt........................................                                            296        --
  Nuclear fuel disposal liability..................                               (d)          141       139
  Tax-exempt pollution control revenue bonds.......        Various             2010-2018       126       126
  Long-term bank debt(e)...........................       Variable               2006           60       200
  Other............................................                                              1         4
                                                                                            ------    ------
    Total -- Consumers Energy Company..............                                          4,134     3,632
                                                                                            ------    ------
ENTERPRISES........................................                                            208       191
                                                                                            ------    ------
Total principal amount outstanding.................                                          6,742     6,569
  Current amounts..................................                                           (267)     (509)
  Net unamortized discount.........................                                            (31)      (40)
                                                                                            ------    ------
Total long-term debt...............................                                         $6,444    $6,020
                                                                                            ======    ======
</Table>

- -------------------------

(a)  Contingently convertible notes. See "Contingently Convertible Securities"
     within this Note for further discussion of the conversion features.

(b)  Redeemed $103 million in January 2005 and $117 million in February 2005.

(c)  Represents the weighted average interest rate at December 31, 2004.

                                      CMS-75
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(d)  Maturity date uncertain.

(e)  Paid off in January 2005.

     FINANCINGS: The following is a summary of significant long-term debt
issuances and retirements during 2004:

<Table>
<Caption>
                                         PRINCIPAL                           ISSUE/RETIREMENT
                                       (IN MILLIONS)    INTEREST RATE (%)          DATE          MATURITY DATE
                                       -------------    -----------------    ----------------    -------------
<S>                                    <C>              <C>                  <C>                 <C>
DEBT ISSUANCES
CMS ENERGY
  Senior notes.....................       $  288               2.875          December 2004      December 2024
CONSUMERS
  FMB..............................          150               4.400           August 2004        August 2009
  FMB..............................          300               5.000           August 2004       February 2012
  FMB..............................          350               5.500           August 2004        August 2016
  FMB..............................          225               5.000          December 2004        March 2015
                                          ------
       Total debt issuances........       $1,313
                                          ======
DEBT RETIREMENTS
CMS ENERGY
  Senior notes.....................       $  176               7.625          November 2004      November 2004
  X-TRAS...........................          180               7.000          December 2004       January 2005
CONSUMERS
  FMLP debt........................          115              11.750            July 2004          July 2004
  Long-term bank debt..............          140            Variable           August 2004         March 2009
  Senior notes.....................          141               6.500         September 2004        June 2018
  Senior notes.....................          300               6.000         September 2004        March 2005
  FMB..............................          208               7.375          December 2004      September 2023
                                          ------
       Total debt retirements......       $1,260
                                          ======
</Table>

     Issuance costs associated with the issuances of senior notes totaled $8
million and are being amortized ratably over the lives of the related debt.
Issuance costs associated with the issuances of FMBs totaled $7 million and are
being amortized ratably over the lives of the related debt. Call premiums
associated with the Consumers debt retirements totaled $20 million and are being
amortized ratably over the lives of the newly issued debt. An option payment
associated with CMS Energy's retirement of the X-TRAS totaled $22 million and
was charged to other interest expense in 2004.

     SUBSEQUENT FINANCING ACTIVITIES: In January 2005, we redeemed $103 million
of general term notes. In January 2005, we issued $150 million of 6.30 percent
Senior Notes due 2012. We used the net proceeds of $147 million to redeem the
remaining general term notes and for other corporate purposes.

     In January 2005, Consumers issued $250 million of 5.15 percent FMBs due
2017. Consumers used the net proceeds of $247 million to pay off its $60 million
long-term bank loan and to redeem the $73 million 8.36 percent and the $124
million 8.20 percent subordinated deferrable interest notes. The subordinated
deferrable interest notes are classified as Long-term debt -- related parties on
the accompanying Consolidated Balance Sheets.

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

                                      CMS-76
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     SECURITIZATION BONDS: Securitization bonds are collateralized by certain
regulatory assets. The bondholders have no recourse to our other assets. Through
Consumers' rate structure, we bill customers for securitization surcharges to
fund the payment of principal, interest, and other related expenses on the
Securitization bonds. Securitization surcharges totaled $50 million annually in
2003 and 2004.

     FMLP DEBT: We consolidate the FMLP in accordance with Revised FASB
Interpretation No. 46. At December 31, 2004, long-term debt of the FMLP consists
of:

<Table>
<Caption>
                                                                MATURITY    IN MILLIONS
                                                                --------    -----------
<S>                                                             <C>         <C>
11.75% subordinated secured notes...........................      2005         $ 70
13.25% subordinated secured notes...........................      2006           75
6.875% tax-exempt subordinated secured notes................      2009          137
6.750% tax-exempt subordinated secured notes................      2009           14
                                                                               ----
  Total amount outstanding..................................                   $296
                                                                               ====
</Table>

     The FMLP debt is essentially project debt secured by certain assets of the
MCV Partnership and the FMLP. The debt is non-recourse to other assets of CMS
Energy and Consumers.

     LONG-TERM DEBT -- RELATED PARTIES: CMS Energy and Consumers each formed
various statutory wholly-owned business trusts for the sole purpose of issuing
preferred securities and lending the gross proceeds to ourselves. The sole
assets of the trusts consist of the debentures described below. These debentures
have terms similar to those of the mandatorily redeemable preferred securities
the trusts issued. We determined that we do not hold the controlling financial
interest in our trust preferred security structures. Accordingly, those entities
were deconsolidated as of December 31, 2003 and are reflected in Long-term
debt -- related parties. The trust preferred securities were previously included
in mezzanine equity.

     The following is a summary of Long-term debt -- related parties as of
December 31:

<Table>
<Caption>
DEBENTURE AND RELATED PARTY                              INTEREST RATE (%)    MATURITY     2004     2003
- ---------------------------                              -----------------    --------     ----     ----
                                                                                           (IN MILLIONS)
<S>                                                      <C>                  <C>          <C>      <C>
Convertible subordinated debentures,
  CMS Energy Trust I.................................           7.75            2027       $ 178    $178
Subordinated deferrable interest notes,
  Consumers Power Company Financing I(a).............           8.36            2015          73      73
Subordinated deferrable interest notes,
  Consumers Energy Company Financing II(a)...........           8.20            2027         124     124
Subordinated debentures,
  Consumers Energy Company Financing III(b)..........           9.25            2029         180     180
Subordinated debentures,
  Consumers Energy Company Financing IV..............           9.00            2031         129     129
                                                                                           -----    ----
Total principal amounts outstanding..................                                        684     684
  Current amounts....................................                                       (180)     --
                                                                                           -----    ----
Total Long-term debt -- related parties..............                                      $ 504    $684
                                                                                           =====    ====
</Table>

- -------------------------
(a)  Redeemed in February 2005.

(b)  Redeemed in January 2005 with available cash.

     In the event of default, holders of the trust preferred securities would be
entitled to exercise and enforce the trusts' creditor rights against us, which
may include acceleration of the principal amount due on the debentures. We have
issued certain guarantees with respect to payments on the preferred securities.
These guarantees, when

                                      CMS-77
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

taken together with our obligations under the debentures, related indenture and
trust documents, provide full and unconditional guarantees for the trusts'
obligations under the preferred securities.

     DEBT MATURITIES: At December 31, 2004, the aggregate annual maturities for
long-term debt for the next five years are:

<Table>
<Caption>
                                                                            PAYMENTS DUE
                                                                ------------------------------------
                                                                2005    2006    2007    2008    2009
                                                                ----    ----    ----    ----    ----
                                                                           (IN MILLIONS)
<S>                                                             <C>     <C>     <C>     <C>     <C>
Long-term debt..............................................    $267    $554    $555    $973    $877
</Table>

     REGULATORY AUTHORIZATION FOR FINANCINGS: Consumers has FERC authorization
to issue or guarantee up to $1.1 billion of short-term securities and up to $1.1
billion of short-term FMBs as collateral for such short-term securities.
Consumers has FERC authorization to issue up to $1 billion of long-term
securities for refinancing or refunding purposes, $1.5 billion of long-term
securities for general corporate purposes, and $2.5 billion of long-term FMBs to
be issued solely as collateral for other long-term securities.

     REVOLVING CREDIT FACILITIES: The following secured revolving credit
facilities with banks are available as of December 31, 2004:

<Table>
<Caption>
                                                                                     OUTSTANDING
                                                            AMOUNT OF     AMOUNT     LETTERS-OF-     AMOUNT
COMPANY                                  EXPIRATION DATE    FACILITY     BORROWED      CREDIT       AVAILABLE
- -------                                  ---------------    ---------    --------    -----------    ---------
                                                                              (IN MILLIONS)
<S>                                      <C>                <C>          <C>         <C>            <C>
CMS Energy(a)........................    August 3, 2007       $300        $  --         $106          $194
Consumers(b).........................                          500           --           25           475
The MCV Partnership..................    August 27, 2005        50           --            2            48
</Table>

- -------------------------
(a)  The annual interest rate on borrowings under this facility is LIBOR plus
     275 basis points. Annual fees for letters-of-credit are 275 basis points on
     the amount outstanding. A quarterly fee of 50 basis points is payable on
     the average daily unused balance.

(b)  This facility expires in August 2005 and may be extended annually at
     Consumers' option to July 31, 2007. The annual interest rate on borrowings
     under this facility is LIBOR plus 125 basis points. Annual fees for
     letters-of-credit are 125 basis points on the amount outstanding. A
     quarterly fee of 22.5 basis points is payable on the average daily unused
     balance.

     SALE OF ACCOUNTS RECEIVABLE: Under a revolving accounts receivable sales
program, we currently sell certain accounts receivable to a wholly owned,
consolidated, bankruptcy remote special purpose entity. In turn, the special
purpose entity may sell an undivided interest in up to $325 million of the
receivables. We sold $304 million of receivables at December 31, 2004 and we
sold $297 million of receivables at December 31, 2003. These sold amounts are
excluded from accounts receivable on our Consolidated Balance Sheets. We
continue to service the receivables sold to the special purpose entity. The
purchaser of the receivables has no recourse against our 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 we retain no interest in the receivables sold.

     Certain cash flows under our accounts receivable sales program are shown in
the following table:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004      2003
- -----------------------                                          ----      ----
                                                                 (IN MILLIONS)
<S>                                                             <C>       <C>
Net cash flow as a result of accounts receivable                $    7    $  (28)
  financing.................................................
Collections from customers..................................    $4,541    $4,361
</Table>

                                      CMS-78
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     DIVIDEND RESTRICTIONS: Our amended and restated $300 million secured
revolving credit facility restricts payments of dividends on our common stock
during a 12-month period to $75 million, dependent on the aggregate amounts of
unrestricted cash and unused commitments under the facility.

     Under the provisions of its articles of incorporation, at December 31,
2004, Consumers had $456 million of unrestricted retained earnings available to
pay common stock dividends. However, covenants in Consumers' debt facilities cap
common stock dividend payments at $300 million in a calendar year. In October
2004, the MPSC rescinded its December 2003 interim gas rate order, which
included a $190 million annual dividend cap imposed on Consumers. For the year
ended December 31, 2004, we received $190 million of common stock dividends from
Consumers.

     CAPITALIZATION: The authorized capital stock of CMS Energy consists of:

     - 350 million shares of CMS Energy Common Stock, par value $0.01 per share;
       and

     - 10 million shares of CMS Energy Preferred Stock, par value $0.01 per
       share.

     In October 2004, we issued 32.8 million shares of our common stock. We
realized net proceeds of $288 million.

     PREFERRED STOCK:  Our Preferred Stock outstanding follows:

<Table>
<Caption>
                                                                 NUMBER OF SHARES
                                                              ----------------------
DECEMBER 31                                                     2004         2003       2004     2003
- -----------                                                     ----         ----       ----     ----
                                                                                        (IN MILLIONS)
<S>                                                           <C>          <C>          <C>      <C>
Preferred Stock
  4.50% convertible, Authorized 10,000,000 shares(a)......    5,000,000    5,000,000    $250     $250
  Preferred subsidiary interest(b)........................                                11       11
                                                                                        ----     ----
Total Preferred stock.....................................                              $261     $261
                                                                                        ====     ====
</Table>

- -------------------------
(a)  See the "Contingently Convertible Securities" section within this Note for
     further discussion of the convertible preferred stock.

(b)  In December 2003, we sold, in a private placement, a non-voting preferred
     interest in an indirect subsidiary of Enterprises that owns certain gas
     pipeline and power generation assets. CMS Energy received $30 million for
     the preferred interest, of which $19 million has been recorded as an
     addition to other paid-in capital (deferred gain) and $11 million has been
     recorded as a preferred stock issuance.

     PREFERRED STOCK OF SUBSIDIARY:  Consumers' Preferred Stock outstanding
follows:

<Table>
<Caption>
                                                            OPTIONAL      NUMBER OF SHARES
                                                           REDEMPTION    ------------------
DECEMBER 31                                      SERIES      PRICE        2004       2003      2004     2003
- -----------                                      ------    ----------     ----       ----      ----     ----
                                                                                               (IN MILLIONS)
<S>                                              <C>       <C>           <C>        <C>        <C>      <C>
Preferred Stock
  Cumulative $100 par value, Authorized
     7,500,000 shares, with no mandatory
     redemption..............................    $4.16      $103.25       68,451     68,451     $ 7      $ 7
                                                  4.50       110.00      373,148    373,148      37       37
                                                                                                ---      ---
Total Preferred stock of subsidiary..........                                                   $44      $44
                                                                                                ===      ===
</Table>

     FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF
OTHERS: This Interpretation became effective January 2003. It describes the
disclosure to be made by a guarantor about its obligations under certain
guarantees that it has

                                      CMS-79
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

issued. At the inception of a guarantee, it requires a guarantor to recognize 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 some guarantee contracts, such as warranties,
derivatives, or guarantees between either parent and subsidiaries or
corporations under common control, although disclosure of these guarantees is
required. For contracts that are within the recognition and measurement
provision of this Interpretation, the provisions were to be applied to
guarantees issued or modified after December 31, 2002.

     The following table describes our guarantees at December 31, 2004:

<Table>
<Caption>
                                                ISSUE     EXPIRATION     MAXIMUM      CARRYING       RECOURSE
GUARANTEE DESCRIPTION                           DATE         DATE       OBLIGATION    AMOUNT(B)    PROVISION(C)
- ---------------------                           -----     ----------    ----------    ---------    ------------
                                                                                     (IN MILLIONS)
<S>                                            <C>        <C>           <C>           <C>          <C>
Indemnifications from asset sales and other
  agreements(a)............................    Various     Various        $1,206        $   1         $  --
Letters of credit..........................    Various     Various           165           --            --
Surety bonds and other indemnifications....    Various     Various            25           --            --
Other guarantees...........................    Various     Various           210           --            --
Nuclear insurance retrospective premiums...    Various     Various           134           --            --
</Table>

- -------------------------
(a)  The majority of this amount arises from routine provisions in stock and
     asset sales agreements under which we indemnify the purchaser for losses
     resulting from events such as failure of title to the assets or stock sold
     by us to the purchaser. We believe the likelihood of a loss for any
     remaining indemnifications to be remote.

(b)  The carrying amount represents the fair market value of guarantees and
     indemnities recorded on our 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.

     The following table provides additional information regarding our
guarantees:

<Table>
<Caption>
                                                                        EVENTS THAT WOULD
    GUARANTEE DESCRIPTION             HOW GUARANTEE AROSE              REQUIRE PERFORMANCE
    ---------------------             -------------------              -------------------
<S>                              <C>                              <C>
Indemnifications from asset      Stock and asset sales            Findings of
  sales and other agreements       agreements                       misrepresentation, breach
                                                                    of warranties, and other
                                                                    specific events or
                                                                    circumstances
Letters of credit                Normal operations of coal        Noncompliance with
                                   power plants                     environmental regulations
                                                                    and non-responsiveness to
                                                                    demands for corrective
                                                                    action
                                 Natural gas transportation       Nonperformance
                                 Self-insurance requirement       Nonperformance
                                 Nuclear plant closure            Nonperformance
Surety bonds and other           Normal operating activity,       Nonperformance
  indemnifications                 permits and license
Other guarantees                 Normal operating activity        Nonperformance or non-payment
                                                                    by a subsidiary under a
                                                                    related contract
Nuclear insurance                Normal operations of nuclear     Call by NEIL and
  retrospective premiums           plants                           Price-Anderson Act for
                                                                    nuclear incident
</Table>

     We have 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

                                      CMS-80
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

agreements generally are not limited in amount and, while a maximum amount of
exposure cannot be identified, the probability of liability is considered
remote.

     We have guaranteed payment of obligations through letters of credit,
indemnities, surety bonds, and other guarantees of unconsolidated affiliates and
related parties of $400 million as of December 31, 2004. We monitor and approve
these obligations and believe it is unlikely that we would be required to
perform or otherwise incur any material losses associated with the above
obligations.

     CONTINGENTLY CONVERTIBLE SECURITIES: The following transactions took place
in December 2004:

     - we completed an exchange offering in which 82 percent of our 3.375
       percent contingently convertible senior notes and 98 percent of our 4.50
       percent contingently convertible preferred stock were exchanged, and

     - we issued $287.5 million of 2.875 percent contingently convertible senior
       notes.

     At December 31, 2004, the significant terms of our contingently convertible
securities were as follows:

<Table>
<Caption>
CONTINGENTLY CONVERTIBLE       YEAR     NUMBER OF     OUTSTANDING     CONVERSION     TRIGGER      SETTLEMENT METHOD
SECURITY(a)                   ISSUED      UNITS      (IN MILLIONS)     PRICE(b)     PRICE(b)      UPON CONVERSION(c)
- ------------------------      ------    ---------    -------------    ----------    --------      ------------------
<S>                           <C>       <C>          <C>              <C>           <C>          <C>
3.375% senior notes.......     2004       122,850       $122.9          $10.67       $12.81      Net share settlement
3.375% senior notes.......     2003        27,150         27.1          $10.67       $12.81      Common stock
                                        ---------       ------
                                          150,000       $150.0
4.50% preferred stock.....     2004     4,910,000       $245.5          $ 9.89       $11.87      Net share settlement
4.50% preferred stock.....     2003        90,000          4.5          $ 9.89       $11.87      Common stock
                                        ---------       ------
                                        5,000,000       $250.0
2.875% senior notes.......     2004       287,500       $287.5          $14.75       $17.70      Net share settlement
</Table>

- -------------------------
(a)  The notes are putable to CMS Energy by the note holders at par on July 15,
     2008, 2013, and 2018 for our 3.375 percent convertible senior notes and on
     December 1, 2011, 2014, and 2019 for our 2.875 percent convertible senior
     notes. On or after December 5, 2008, we may cause the 4.50 percent
     convertible preferred stock to convert if the closing price of our common
     stock remains at or above $12.86 for 20 of any 30 consecutive trading days.
     The $12.86 price may be adjusted if there is a payment or distribution to
     our common stockholders.

(b)  The securities become convertible for a calendar quarter if the price of
     our common stock remains at or above the trigger price for 20 of 30
     consecutive trading days ending on the last trading day the previous
     quarter. The trigger price at which these securities become convertible is
     120 percent of the conversion price, which may be adjusted if there is a
     payment or distribution to our common stockholders.

(c)  The exchanged 3.375 percent convertible senior notes, the exchanged 4.50
     percent convertible preferred stock, and all of our 2.875 percent
     convertible senior notes require us, if converted, to pay cash up to the
     principal (or par) amount of the securities and any conversion value in
     excess of that amount in shares of our common stock. This method of
     conversion is referred to as the "net share settlement" method. The
     remaining securities that were not exchanged retained their original
     settlement features.

     In January 2005, the remaining 18 percent, or $27.1 million of our 3.375
percent convertible senior notes and the remaining 2 percent, or $4.5 million of
our 4.50 percent convertible preferred stock were exchanged, bringing the total
exchanged for both securities to 100 percent. As a result, all of our
contingently convertible securities now have a net share settlement feature.

                                      CMS-81
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5: EARNINGS PER SHARE

     The following table presents the basic and diluted earnings per share
computations.

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004      2003      2002
- -----------------------                                          ----      ----      ----
                                                                   (IN MILLIONS, EXCEPT
                                                                    PER SHARE AMOUNTS)
<S>                                                             <C>       <C>       <C>
EARNINGS AVAILABLE TO COMMON STOCK:
  Income (Loss) from Continuing Operations..................    $  127    $  (42)   $ (394)
  Less Preferred Dividends..................................       (11)       (1)       --
                                                                ------    ------    ------
  Income (Loss) from Continuing Operations Available to
     Common Stock -- Basic..................................    $  116    $  (43)   $ (394)
  Add conversion of Contingently Convertible Securities (net
     of tax)................................................         1        --(a)     --(a)
                                                                ------    ------    ------
  Income (Loss) from Continuing Operations Available to
     Common Stock -- Diluted................................    $  117    $  (43)   $ (394)
                                                                ======    ======    ======
AVERAGE COMMON SHARES OUTSTANDING APPLICABLE TO BASIC AND
  DILUTED EPS
  CMS Energy:
     Average Shares -- Basic................................     168.6     150.4     139.0
     Add conversion of Contingently Convertible
      Securities............................................       3.0        --(a)     --(a)
     Add Dilutive Stock Options and Warrants................       0.5(b)     --(b)     --(b)
                                                                ------    ------    ------
     Average Shares -- Diluted..............................     172.1     150.4     139.0
                                                                ======    ======    ======
EARNINGS (LOSS) PER AVERAGE COMMON SHARE AVAILABLE TO COMMON
  STOCK
  Basic.....................................................    $ 0.68    $(0.30)   $(2.84)
  Diluted...................................................    $ 0.67    $(0.30)   $(2.84)
</Table>

- -------------------------
(a)  Computation of diluted earnings per share for the years ended 2002 and 2003
     excluded conversion of our 3.375 percent contingently convertible senior
     notes and our 4.50 percent contingently convertible preferred stock.
     Neither security was outstanding in 2002. In 2003, both securities were
     excluded from diluted earnings per share due to antidilution.

(b)  Since the exercise price was greater than the average market price of the
     common stock, options and warrants to purchase 4.5 million shares of common
     stock were excluded from the computation of diluted earnings per share for
     the year ended 2004. Due to antidilution, options and warrants to purchase
     6.0 million shares of common stock were excluded for the year ended 2003,
     and 5.1 million shares of common stock were excluded for the year ended
     2002.

     Contingently Convertible Securities: At its September 2004 meeting, the
EITF reached a final consensus that contingently convertible instruments should
be included in the diluted earnings per share computation (if dilutive)
regardless of whether the market price trigger has been met. We adopted EITF
Issue No. 04-8 for the period ending December 31, 2004. For additional details,
see Note 16, Implementation of New Accounting Standards. Prior to our adoption
of EITF Issue No. 04-8, we completed an exchange offer for our 3.375 percent
contingently convertible senior notes and our 4.50 percent contingently
convertible preferred stock, intended to mitigate the earnings per share impact.

     The exchanged securities have the potential to dilute earnings per share to
the extent that the conversion value exceeds the principal or par value.

     The remaining contingently convertible securities that were not exchanged
were included in the diluted earnings per share calculation using the
"if-converted" method for the year ended December 31, 2004. All such

                                      CMS-82
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

remaining contingently convertible securities were exchanged in January 2005.
For additional details, see Note 4, Financings and Capitalization, "Contingently
Convertible Securities."

     Trust Preferred Securities: Due to antidilution, the computation of diluted
earnings per share excluded the conversion of Trust Preferred Securities into
4.2 million shares of common stock and an $8.7 million reduction of interest
expense, net of tax, for the years ended 2002, 2003, and 2004. Effective July
2001, we can revoke the conversion rights if certain conditions are met.

     Other: In October 2004, we issued 32.8 million shares of our common stock.
For additional details, see Note 4, Financings and Capitalization.

6: FINANCIAL AND DERIVATIVE INSTRUMENTS

     FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term
investments, and current liabilities approximate their fair values because of
their short-term nature. We estimate the fair values of long-term financial
instruments based on quoted market prices or, in the absence of specific market
prices, on quoted market prices of similar instruments, or other valuation
techniques.

     The cost and fair value of our long-term financial instruments are as
follows:

<Table>
<Caption>
                                                        2004                               2003
                                           -------------------------------    -------------------------------
                                                      FAIR     UNREALIZED                FAIR     UNREALIZED
DECEMBER 31                                 COST     VALUE     GAIN (LOSS)     COST     VALUE     GAIN (LOSS)
- -----------                                 ----     -----     -----------     ----     -----     -----------
                                                                     (IN MILLIONS)
<S>                                        <C>       <C>       <C>            <C>       <C>       <C>
Long-term debt(a)......................    $6,711    $7,052       $(341)      $6,529    $6,762       $(233)
Long-term debt -- related parties(b)...       684       653          31          684       648          36

Available-for-sale securities:
SERP:
  Equity securities....................        33        47          14           32        43          11
  Debt securities(d)...................        20        20          --           22        23           1
Nuclear decommissioning investments(c):
  Equity securities....................       136       262         126          143       260         117
  Debt securities(d)...................       291       302          11          288       304          16
</Table>

- -------------------------
(a)  Includes current maturities of $267 million at December 31, 2004 and $509
     million at December 31, 2003. Settlement of long-term debt is generally not
     expected until maturity.

(b)  Includes current maturities of $180 million at December 31, 2004.

(c)  Nuclear decommissioning investments include cash and equivalents and
     accrued income totaling $11 million at December 31, 2004 and $11 million at
     December 31, 2003. Unrealized gains and losses on nuclear decommissioning
     investments are reflected as regulatory liabilities.

(d)  The fair value of available-for-sale debt securities by contractual
     maturity as of December 31, 2004 is as follows:

<Table>
<Caption>
                                                                    (IN MILLIONS)
    <S>                                                             <C>
    Due in one year or less.....................................        $ 31
    Due after one year through five years.......................         127
    Due after five years through ten years......................         126
    Due after ten years.........................................          38
                                                                        ----
      Total.....................................................        $322
                                                                        ====
</Table>

                                      CMS-83
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Our held-to-maturity investments consist of debt securities held by the MCV
Partnership totaling $139 million as of December 31, 2004. These securities
represent funds restricted primarily for future lease payments and are
classified as Other assets on our Consolidated Balance Sheets. These investments
have original maturity dates of approximately one year or less and, because of
their short maturities, their carrying amounts approximate their fair values.

     DERIVATIVE INSTRUMENTS: We are exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, currency exchange
rates, and equity security prices. We manage these risks using established
policies and procedures, under the direction of both an executive oversight
committee consisting of senior management representatives and a risk committee
consisting of business-unit managers. We may use various contracts to manage
these risks including swaps, options, futures, and forward contracts.

     We intend that any gains or losses on these contracts will be offset by an
opposite movement in the value of the item at risk. Risk management contracts
are classified as either non-trading or trading. These contracts contain credit
risk if the counterparties, including financial institutions and energy
marketers, fail to perform under the agreements. We minimize such risk through
established credit policies that include performing financial credit reviews of
our counterparties. Determination of our counterparties' credit quality is based
upon a number of factors, including credit ratings, disclosed financial
condition, and collateral requirements. Where contractual terms permit, we
employ standard agreements that allow for netting of positive and negative
exposures associated with a single counterparty. Based on these policies, our
current exposures, and our credit reserves, we do not anticipate a material
adverse effect on our financial position or earnings as a result of counterparty
nonperformance.

     Contracts used to manage market risks 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. The recorded fair value is then adjusted quarterly to
reflect any change in the market value of the contract, a practice known as
marking the contract to market. Changes in fair value (that is, gains or losses)
are reported either in earnings or accumulated other comprehensive income,
depending on whether the derivative qualifies for cash flow hedge accounting
treatment.

     For derivative instruments to qualify for hedge accounting, 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 recognized immediately 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. The
ineffective portion, if any, of all hedges is recognized in earnings.

     We use a combination of quoted market prices, prices obtained from external
sources, such as brokers, and mathematical valuation models to determine the
fair value of those contracts requiring derivative accounting. In certain
contracts, long-term commitments may extend beyond the period in which market
quotations for such contracts are available. Mathematical models are developed
to determine various inputs into the fair value calculation including price and
other variables that may be required to calculate fair value. Realized cash
returns on these commitments may vary, either positively or negatively, from the
results estimated through application of the mathematical model. In connection
with the market valuation of our derivative contracts, we maintain reserves, if
necessary, for credit risks based on the financial condition of counterparties.

     The majority of our contracts are not subject to derivative accounting
under SFAS No. 133 because they qualify for the normal purchases and sales
exception, or because there is not an active market for the commodity. Certain
of our electric capacity and energy contracts are not accounted for as
derivatives due to the lack of an

                                      CMS-84
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

active energy market in the state of Michigan and the significant transportation
costs that would be incurred to deliver the power under the contracts to the
closest active energy market at the Cinergy hub in Ohio. Similarly, our coal
purchase contracts are not accounted for as derivatives due to the lack of an
active market for the coal that we purchase. If active markets for these
commodities develop in the future, we may be required to account for these
contracts as derivatives, and the resulting mark-to-market impact on earnings
could be material to our financial statements.

     The MISO is scheduled to begin the Midwest Energy Market on April 1, 2005,
which will include day-ahead and real-time energy market information and
centralized dispatch for market participants. At this time, we believe that the
commencement of this market will not constitute the development of an active
energy market in the state of Michigan. However, after having adequate
experience with the Midwest Energy Market, we will reevaluate whether or not the
activity level within this market leads to the conclusion that an active energy
market exists.

     Derivative accounting is required for certain contracts used to limit our
exposure to commodity price risk, interest rate risk, and foreign exchange risk.
The following table reflects the fair value of all contracts requiring
derivative accounting:

<Table>
<Caption>
DECEMBER 31                                                  2004                            2003
- -----------                                      ----------------------------    -----------------------------
                                                         FAIR     UNREALIZED              FAIR     UNREALIZED
DERIVATIVE INSTRUMENTS                           COST    VALUE    GAIN (LOSS)    COST     VALUE    GAIN (LOSS)
- ----------------------                           ----    -----    -----------    ----     -----    -----------
                                                                         (IN MILLIONS)
<S>                                              <C>     <C>      <C>            <C>      <C>      <C>
Non-trading:
  Gas contracts..............................    $  2    $  --       $  (2)      $  3     $   2       $  (1)
  Interest rate risk contracts...............      --       (1)         (1)        --        (3)         (3)
  Derivative contracts associated with
     Consumers' investment in the MCV
     Partnership:
     Prior to consolidation(a)...............      --       --          --         --        15          15
     After consolidation:
       Gas fuel contracts....................      --       56          56         --        --          --
       Gas fuel futures and swaps............      --       64          64         --        --          --
CMS ERM contracts:
  Non-trading electric/gas contracts.........      --     (199)       (199)        --      (181)       (181)
  Trading electric/gas contracts.............      (4)     201         205         (2)      196         198
Derivative contracts associated with equity
  investments in:
  Shuweihat..................................      --      (25)        (25)        --       (27)        (27)
  Taweelah...................................     (35)     (24)         11         --       (26)        (26)
  Jorf Lasfar................................      --      (11)        (11)        --       (11)        (11)
  Other......................................      --       --          --         --         1           1
</Table>

- -------------------------
(a)  The amount associated with derivative contracts held by the MCV Partnership
     as of December 31, 2003 represents our proportionate share of the
     unrealized gain on those contracts accounted for as cash flow hedges
     included in Accumulated other comprehensive loss. Our proportionate share
     of the total fair value of all derivative instruments held by the MCV
     Partnership as of December 31, 2003 was $51 million, and is included in
     Investments -- Midland Cogeneration Venture Limited Partnership on our
     Consolidated Balance Sheets.

     The fair value of our non-trading gas contracts, interest rate risk
contracts, and the derivative contracts associated with Consumers' investment in
the MCV Partnership is included in Derivative instruments, Other assets, or
Other liabilities on our Consolidated Balance Sheets. The fair value of the
derivative contracts held by CMS ERM is included in either Price risk management
assets or Price risk management liabilities on our

                                      CMS-85
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Consolidated Balance Sheets. The fair value of derivative contracts associated
with our equity investments is included in Investments -- Enterprises on our
Consolidated Balance Sheets.

     GAS CONTRACTS: Our gas utility business uses fixed-priced weather-based gas
supply call options and fixed-priced gas supply call and put options to meet our
regulatory obligation to provide gas to our customers at a reasonable and
prudent cost. Unrealized gains and losses associated with these options are
reported directly in earnings as part of Other income, and then directly offset
in earnings and recorded on the balance sheet as a regulatory asset or liability
as part of the GCR process. At December 31, 2004, we held fixed-priced weather-
based gas supply call options and had sold fixed-priced gas supply put options.

     INTEREST RATE RISK CONTRACTS: We use interest rate swaps to hedge the risk
associated with forecasted interest payments on variable-rate debt and to reduce
the impact of interest rate fluctuations. Most of our interest rate swaps are
designated as cash flow hedges. As such, we record changes in the fair value of
these contracts in Accumulated other comprehensive loss unless the swaps are
sold. For interest rate swaps that did not qualify for hedge accounting
treatment, we record changes in the fair value of these contracts in earnings as
part of Other income.

     The following table reflects the outstanding floating-to-fixed interest
rates swaps:

<Table>
<Caption>
FLOATING TO FIXED                                               NOTIONAL    MATURITY     FAIR
INTEREST RATE SWAPS                                              AMOUNT       DATE       VALUE
- -------------------                                             --------    --------     -----
                                                                        (IN MILLIONS)
<S>                                                             <C>         <C>          <C>
December 31, 2004...........................................      $25       2005-2006     $(1)
December 31, 2003...........................................       28       2005-2006      (3)
</Table>

     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 our exposure to credit or market
risks. The weighted average interest rate associated with outstanding swaps was
approximately 7.4 percent at December 31, 2004 and December 31, 2003.

     There was no ineffectiveness associated with any of the interest rate swaps
that qualified for hedge accounting treatment. As of December 31, 2004, we have
recorded an unrealized loss of $1 million, net of tax, in Accumulated other
comprehensive loss related to interest rate risk contracts accounted for as cash
flow hedges. We expect to reclassify this amount as a decrease to earnings
during the next 12 months primarily to offset the variable-rate interest expense
on hedged debt.

     At December 31, 2004 and 2003, Shuweihat, Taweelah, and Jorf Lasfar, three
of our equity method investees, held interest rate swaps that hedged the risk
associated with variable-rate debt. These instruments are not included in this
analysis, but can have an impact on financial results. The accounting for these
instruments depends on whether they qualify for cash flow hedge accounting
treatment. The interest rate swaps held by Taweelah do not qualify as cash flow
hedges, and therefore, we record our proportionate share of the change in the
fair value of these contracts in Earnings from Equity Method Investees. The
remainder of these instruments do qualify as cash flow hedges, and we record our
proportionate share of the change in the fair value of these contracts in
Accumulated other comprehensive loss.

     DERIVATIVE CONTRACTS ASSOCIATED WITH CONSUMERS' INVESTMENT IN THE MCV
PARTNERSHIP:

     Gas Fuel Contracts: The MCV Partnership uses natural gas fuel contracts to
buy gas as fuel for generation, and to manage gas fuel costs. The MCV
Partnership believes that certain of its long-term natural gas contracts qualify
as normal purchases under SFAS No. 133 and therefore, these contracts were not
recognized at fair value on the balance sheet as of December 31, 2004. The MCV
Partnership also held certain long-term gas contracts that did not qualify as
normal purchases as of December 31, 2004, because these contracts contained
volume optionality. Accordingly, these contracts were accounted for as
derivatives, with changes in fair value recorded in earnings each quarter. The
MCV Partnership expects future earnings volatility on these contracts, since
gains and

                                      CMS-86
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

losses will be recorded each quarter. For the year ended December 31, 2004, we
recorded a $19 million net loss associated with these gas contracts in Fuel for
electric generation on our Consolidated Statements of Income. The fair value of
these contracts will reverse over the remaining life of the contracts ranging
from 2005 to 2007.

     Due to the implementation of the RCP in January 2005, the MCV Partnership
has determined that a significant portion of its gas fuel contracts no longer
qualify as normal purchases because the contracted gas will not be consumed for
electric production. Accordingly, these contracts will be treated as derivatives
and will be marked-to-market through earnings each quarter, which could increase
earnings volatility. Based on market prices for natural gas as of January 31,
2005, the accounting for the MCV Partnership's long-term gas contracts,
including those affected by the implementation of the RCP, could result in an
estimated $100 million (pretax before minority interest) gain recorded to
earnings in the first quarter of 2005. This estimated gain will reverse in
subsequent quarters as the contracts settle. For further details on the RCP, see
Note 3, Contingencies, "Other Consumers' Electric Utility Contingencies -- The
Midland Cogeneration Venture." If there are further changes in the level of
planned electric production or gas consumption, the MCV Partnership may be
required to account for additional long-term gas contracts as derivatives, which
could add to earnings volatility.

     Gas Fuel Futures and Swaps: The MCV Partnership enters into natural gas
futures contracts, option contracts, and over-the-counter swap transactions in
order to hedge against unfavorable changes in the market price of natural gas in
future months when gas is expected to be needed. These financial instruments are
used principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of natural gas
previously obtained in order to optimize the MCV Partnership's existing gas
supply, storage, and transportation arrangements. At December 31, 2004, the MCV
Partnership held gas fuel futures and swaps.

     The contracts that are used to secure anticipated natural gas requirements
necessary for projected electric and steam sales qualify as cash flow hedges
under SFAS No. 133. The MCV Partnership also engages in cost mitigation
activities to offset the fixed charges the MCV Partnership incurs in operating
the MCV Facility. These cost mitigation activities include the use of futures
and options contracts to purchase and/or sell natural gas to maximize the use of
the transportation and storage contracts when it is determined that they will
not be needed for the MCV Facility operation. Although these cost mitigation
activities do serve to offset the fixed monthly charges, these cost mitigation
activities are not considered a normal course of business for the MCV
Partnership and do not qualify as hedges. Therefore, the mark-to-market gains
and losses from these cost mitigation activities are recorded in earnings each
quarter.

     As of December 31, 2004, we have recorded a cumulative net gain of $21
million, net of tax, in Accumulated other comprehensive loss relating to our
proportionate share of the contracts held by the MCV Partnership that qualify as
cash flow hedges. This balance represents natural gas futures, options, and
swaps with maturities ranging from January 2005 to December 2009, of which $11
million of this gain is expected to be reclassified as an increase to earnings
during the next 12 months. In addition, for the year ended December 31, 2004, we
recorded a net gain of $37 million in earnings from hedging activities related
to natural gas requirements for the MCV Facility operations and a net gain of $2
million in earnings from the MCV Partnership's cost mitigation activities.

     CMS ERM CONTRACTS: Through December 31, 2002, our wholesale power and gas
trading activities were accounted for under the mark-to-market method of
accounting in accordance with EITF Issue No. 98-10. Effective January 1, 2003,
EITF Issue No. 98-10 was rescinded and replaced by EITF Issue No. 02-03. As a
result, only energy contracts that meet the definition of a derivative under
SFAS No. 133 are to be carried at fair value. The impact of this change was
recognized as a cumulative effect of a change in accounting principle loss of
$23 million, net of tax, for the three month period ended March 31, 2003.

     During 2003, we sold a majority of our wholesale natural gas and
power-trading portfolio, and exited the energy services and retail customer
choice business. As a result, our trading activities have been reduced

                                      CMS-87
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

significantly. Our current activities center around entering into energy
contracts that are related to the activities considered to be an integral part
of our ongoing operations. CMS ERM holds certain forward contracts for the
purchase and sale of electricity and natural gas that result in physical
delivery of the underlying commodity at contractual prices. These contracts are
generally long-term in nature and are classified as non-trading. CMS ERM also
uses various financial instruments, including swaps, options, and futures, to
manage the commodity price risks associated with its forward purchase and sales
contracts as well as generation assets owned by CMS Energy or its subsidiaries.
These financial contracts are classified as trading activities.

     Non-trading and trading contracts that meet the definition of a derivative
under SFAS No. 133 are recorded as assets or liabilities in the financial
statements at the fair value of the contracts. Gains or losses arising from
changes in fair value of these contracts are recognized into earnings as a
component of Operating Revenue in the period in which the changes occur. Gains
and losses on trading contracts are recorded net in accordance with EITF Issue
No. 02-03. Contracts that do not meet the definition of a derivative are
accounted for as executory contracts (i.e., on an accrual basis).

     FOREIGN EXCHANGE DERIVATIVES: We may use forward exchange and option
contracts to hedge certain receivables, payables, long-term debt, and equity
value relating to our investments in foreign operations. The purpose of our
foreign currency hedging activities is to protect the company from the risk
associated with adverse changes in currency exchange rates that could affect
cash flow materially. These contracts would limit the risk from exchange rate
movements because gains and losses on such contracts offset losses and gains,
respectively, on assets and liabilities being hedged. At December 31, 2004 and
2003, we had no outstanding foreign exchange contracts.

     The impact of hedges on our investments in foreign operations is reflected
in Accumulated other comprehensive loss as a component of the foreign currency
translation adjustment on our Consolidated Balance Sheets. Gains or losses from
the settlement of these hedges are maintained in the foreign currency
translation adjustment until we sell or liquidate the investments on which the
hedges were taken. At December 31, 2004, the total foreign currency translation
adjustment was a net loss of $319 million, which included a net hedging loss of
$27 million, net of tax, related to settled contracts.

     At December 31, 2004 and 2003, Taweelah, one of our equity method
investees, held a foreign exchange contract that hedged the foreign currency
risk associated with payments to be made under an operating and maintenance
service agreement. This contract did not qualify as a cash flow hedge; and
therefore, we record our proportionate share of the change in the fair value of
the contract in Earnings from Equity Method Investees.

7: RETIREMENT BENEFITS

     We provide retirement benefits to our employees under a number of different
plans, including:

     - non-contributory, defined benefit Pension Plan,

     - a cash balance pension plan for certain employees hired after June 30,
       2003,

     - benefits to certain management employees under SERP,

     - a defined contribution 401(k) plan,

     - benefits to a select group of management under EISP, and

     - health care and life insurance benefits under OPEB.

     Pension Plan: The Pension Plan includes funds for all of our employees, and
the employees of our subsidiaries, including Panhandle. The Pension Plan's
assets are not distinguishable by company.

     In June 2003, we sold Panhandle to Southern Union Panhandle Corp. No
portion of the Pension Plan assets were transferred with the sale and Panhandle
employees are no longer eligible to accrue additional benefits. The
                                      CMS-88
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Pension Plan retained pension payment obligations for Panhandle employees that
were vested under the Pension Plan.

     The sale of Panhandle resulted in a significant change in the makeup of the
Pension Plan. A remeasurement of the obligation was required at the date of
sale. The remeasurement further resulted in the following:

     - an increase in OPEB expense of $4 million for 2003, and

     - an additional charge to accumulated other comprehensive income of $34
       million ($22 million after-tax) in 2003 as a result of the increase in
       the additional minimum pension liability. As a result of Company
       contributions in 2003, the additional minimum pension liability was
       eliminated as of December 31, 2003.

     Additionally, a significant number of Panhandle employees elected to retire
as of July 1, 2003. As a result, in 2003, we recorded a $25 million ($16 million
after-tax) settlement loss, and a $10 million ($7 million after-tax) curtailment
gain, pursuant to the provisions of SFAS No. 88, which is reflected in
discontinued operations.

     In 2003, a substantial number of non-Panhandle retiring employees also
elected a lump sum payment instead of receiving pension benefits as an annuity
over time. Lump sum payments constitute a settlement under SFAS No. 88. A
settlement loss must be recognized when the cost of all settlements paid during
the year exceeds the sum of the service and interest costs for that year. We
recorded a settlement loss of $59 million ($39 million after-tax) in December
2003.

     SERP: SERP benefits are paid from a trust established in 1988. SERP is not
a qualified plan under the Internal Revenue Code; SERP trust earnings are
taxable and trust assets are included in consolidated assets. Trust assets were
$67 million at December 31, 2004, and $66 million at December 31, 2003. The
assets are classified as Other non-current assets. The Accumulated Benefit
Obligation for SERP was $67 million at December 31, 2004 and $62 million at
December 31, 2003.

     401(k): Employer matching contributions to the 401(k) plan are invested in
CMS Energy common stock. The amount charged to expense for this plan was $12
million in 2002. The employer's match for the 401(k) plan was suspended on
September 1, 2002 and was resumed on January 1, 2005.

     The MCV Partnership sponsors a defined contribution retirement plan
covering all employees. Under the terms of the plan, the MCV Partnership makes
contributions of either 5 or 10 percent of an employee's eligible annual
compensation dependent upon the employee's age. The MCV Partnership also
sponsors a 401(k) savings plan for employees. Contributions and costs for this
plan are based on matching an employee's savings up to a maximum level. Amounts
contributed under these plans were $1 million in 2004.

     EISP: We implemented an EISP in 2002 to provide flexibility in separation
of employment by officers, a select group of management, or other highly
compensated employees. Terms of the plan may include payment of a lump sum,
payment of monthly benefits for life, payment of premium for continuation of
health care, or any other legally permissible term deemed to be in our best
interest to offer. EISP expense was less than $1 million in 2004, $1 million in
2003, and $2 million in 2002. The Accumulated Benefit Obligation for EISP was $4
million at December 31, 2004 and $3 million at December 31, 2003.

     OPEB: Retiree health care costs at December 31, 2004 are based on the
assumption that costs would increase 7.5 percent in 2004. The rate of increase
is expected to be 10 percent for 2005. The rate of increase is expected to slow
to an estimated 5 percent by 2010 and thereafter.

     The MCV Partnership sponsors defined cost postretirement health care plans
that cover all full-time employees, except key management. Participants in the
postretirement health care plans become eligible for the benefits if they retire
on or after the attainment of age 65 or upon a qualified disability retirement,
or if they have 10 or more years of service and retire at age 55 or older. The
accumulated benefit obligation of the MCV Partnership's postretirement plans was
$5 million at December 31, 2004. The MCV Partnership's net periodic
postretirement health care cost for 2004 was less than $1 million.
                                      CMS-89
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The health care cost trend rate assumption affects the estimated costs
recorded. A one-percentage point change in the assumed health care cost trend
assumption would have the following effects:

<Table>
<Caption>
                                                                                       ONE
                                                                ONE PERCENTAGE      PERCENTAGE
                                                                POINT INCREASE    POINT DECREASE
                                                                --------------    --------------
                                                                         (IN MILLIONS)
<S>                                                             <C>               <C>
Effect on total service and interest cost component.........         $ 13             $ (11)
Effect on postretirement benefit obligation.................         $157             $(137)
</Table>

     We adopted SFAS No. 106, effective as of the beginning of 1992. Consumers
recorded a liability of $466 million for the accumulated transition obligation
and a corresponding regulatory asset for anticipated recovery in utility rates.
For additional details, see Note 1, Corporate Structure and Accounting Policies,
"Utility Regulation." The MPSC authorized recovery of the electric utility
portion of these costs in 1994 over 18 years and the gas utility portion in 1996
over 16 years.

     The measurement date for all CMS Energy plans is November 30 for 2004, and
December 31 for 2003 and 2002. We believe accelerating the measurement date on
our benefits plans by one month is preferable as it improves control procedures
and allows more time to review the completeness and accuracy of the actuarial
measurements. As a result of the measurement date change in 2004, we recorded a
$2 million cumulative effect of change in accounting, net of tax benefit, as a
decrease to earnings. We also increased the amount of accrued benefit cost on
our Consolidated Balance Sheets by $4 million. The effect of the measurement
date change was immaterial. The measurement date for the MCV Partnership's plan
is December 31, 2004.

     Assumptions: The following table recaps the weighted-average assumptions
used in our retirement benefits plans to determine benefit obligations and net
periodic benefit cost:

<Table>
<Caption>
                                                      PENSION & SERP                  OPEB
                                                  -----------------------    -----------------------
                                                  2004     2003     2002     2004     2003     2002
                                                  ----     ----     ----     ----     ----     ----
<S>                                               <C>      <C>      <C>      <C>      <C>      <C>
Discount rate.................................    6.00%    6.25%    6.75%    6.00%    6.25%    6.75%
Expected long-term rate of return on plan
  assets(a)...................................    8.75%    8.75%    8.75%
  Union.......................................                               8.75%    8.75%    8.75%
  Non-Union...................................                               6.00%    6.00%    6.00%
Rate of compensation increase:
  Pension.....................................    3.50%    3.25%    3.50%
  SERP........................................    5.50%    5.50%    5.50%
</Table>

- -------------------------
(a) We determine our long-term rate of return by considering historical market
    returns, the current and future economic environment, the capital market
    principles of risk and return, and the expert opinions of individuals and
    firms with financial market knowledge. We use the asset allocation of the
    portfolio to forecast the future expected total return of the portfolio. The
    goal is to determine a long-term rate of return that can be incorporated
    into the planning of future cash flow requirements in conjunction with the
    change in the liability. The use of forecasted returns for various classes
    of assets used to construct an expected return model is reviewed
    periodically for reasonability and appropriateness.

                                      CMS-90
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Costs: The following table recaps the costs incurred in our retirement
benefits plans:

<Table>
<Caption>
                                                             PENSION & SERP                OPEB
                                                         ----------------------    --------------------
YEARS ENDED DECEMBER 31                                  2004     2003    2002     2004    2003    2002
- -----------------------                                  -----    ----    -----    ----    ----    ----
                                                         (IN MILLIONS)
<S>                                                      <C>      <C>     <C>      <C>     <C>     <C>
Service cost.........................................    $  37    $ 40    $  44    $ 19    $ 21    $ 20
Interest expense.....................................       79      79       89      58      66      69
Expected return on plan assets.......................     (109)    (81)    (103)    (48)    (42)    (43)
Plan amendments......................................       --      --        4      --      --      --
Curtailment credit...................................       --      (2)      --      --      (8)     --
Settlement charge....................................       --      84       --      --      --      --
Amortization of:
  Net (Gain) Loss....................................       14       9       (1)     10      19      10
  Prior service cost.................................        6       7        8      (9)     (7)     (1)
                                                         -----    ----    -----    ----    ----    ----
Net periodic pension and postretirement benefit
  cost...............................................    $  27    $136    $  41    $ 30    $ 49    $ 55
                                                         =====    ====    =====    ====    ====    ====
</Table>

     Reconciliations: The following table reconciles the funding of our
retirement benefits plans with our retirement benefits plans' liability:

<Table>
<Caption>
                                                       PENSION PLAN          SERP             OPEB
                                                     ----------------    ------------    ---------------
YEARS ENDED DECEMBER 31                               2004      2003     2004    2003     2004     2003
- -----------------------                               ----      ----     ----    ----     ----     ----
                                                                        (IN MILLIONS)
<S>                                                  <C>       <C>       <C>     <C>     <C>       <C>
Benefit obligation at beginning of period........    $1,189    $1,256    $ 76    $ 81    $  871    $ 982
Service cost.....................................        35        38       2       2        19       21
Interest cost....................................        74        74       5       5        58       66
Plan amendment...................................        --       (19)     --      --        --      (47)
Actuarial loss (gain)............................       138        55       3     (10)      166      (67)
Business combinations............................        --        --      --      --        --      (42)
Benefits paid....................................      (108)     (215)     (3)     (2)      (41)     (42)
                                                     ------    ------    ----    ----    ------    -----
Benefit obligation at end of period(a)...........     1,328     1,189      83      76     1,073      871
                                                     ------    ------    ----    ----    ------    -----
Plan assets at fair value at beginning of
  period.........................................     1,067       607      --      --       618      508
Actual return on plan assets.....................        81       115      --      --        28       75
Company contribution.............................        --       560       3       2        48       76
Actual benefits paid.............................      (108)     (215)     (3)     (2)      (40)     (41)
                                                     ------    ------    ----    ----    ------    -----
Plan assets at fair value at end of period.......     1,040     1,067      --      --       654      618
                                                     ------    ------    ----    ----    ------    -----
Benefit obligation in excess of plan assets......      (288)     (122)    (83)    (76)     (419)    (253)
Unrecognized net loss from experience different
  than assumed...................................       642       501       5       3       340      155
Unrecognized prior service cost (benefit)........        23        29       1       1      (103)    (112)
                                                     ------    ------    ----    ----    ------    -----
Net Balance Sheet Asset (Liability)..............       377       408     (77)    (72)     (182)    (210)
Additional VEBA Contributions or Non-Trust
  Benefit Payments...............................                                            15
Additional minimum liability adjustment(b).......      (419)       --      --      --        --       --
                                                     ------    ------    ----    ----    ------    -----
Total Net Balance Sheet Asset (Liability)........    $  (42)   $  408    $(77)   $(72)   $ (167)   $(210)
                                                     ======    ======    ====    ====    ======    =====
</Table>

- -------------------------
(a)  The Medicare Prescription Drug, Improvement and Modernization Act of 2003
     was signed into law in December 2003. The Act establishes a prescription
     drug benefit under Medicare (Medicare Part D), and a federal subsidy, which
     is tax exempt, to sponsors of retiree health care benefit plans that
     provide a benefit that is actuarially equivalent to Medicare Part D.
                                      CMS-91
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     We believe our plan is actuarially equivalent to Medicare Part D and have
     incorporated, retroactively, the effects of the subsidy into our financial
     statements as of June 30, 2004, in accordance with FASB Staff Position, No.
     SFAS 106-2. We remeasured our obligation as of December 31, 2003 to
     incorporate the impact of the Act, which resulted in a reduction to the
     accumulated postretirement benefit obligation of $158 million. The
     remeasurement resulted in a reduction of OPEB cost of $24 million for 2004.
     The reduction of $24 million includes $7 million in capitalized OPEB costs.
     For additional details, see Note 16, Implementation of New Accounting
     Standards.

(b)  The Pension Plan's Accumulated Benefit Obligation of $1.082 billion
     exceeded the value of the Pension Plan assets and net balance sheet asset
     at December 31, 2004. As a result, we recorded an additional minimum
     liability of $419 million. Consistent with MPSC guidance, Consumers
     recognized the cost of their additional minimum liability as a regulatory
     asset. Accordingly, our additional minimum liability includes an intangible
     asset of $22 million, $17 million, net of tax of accumulated other
     comprehensive income, and a regulatory asset of $372 million. The
     Accumulated Benefit Obligation for the Pension Plan was $1.019 billion at
     December 31, 2003.

     Plan Assets: The following table recaps the categories of plan assets in
our retirement benefits plans:

<Table>
<Caption>
                                                                   PENSION               OPEB
                                                                --------------      --------------
                                                                2004      2003      2004      2003
                                                                ----      ----      ----      ----
<S>                                                             <C>       <C>       <C>       <C>
Asset Category:
  Fixed Income..............................................     34%      52%(b)     45%       51%
  Equity Securities.........................................     61%      44%        54%       48%
     CMS Energy Common Stock(a).............................      5%       4%         1%        1%
</Table>

- -------------------------
(a)  At November 30, 2004, there were 4,892,000 shares of CMS Energy Common
     Stock in the Pension Plan assets with a fair value of $50 million, and
     493,000 shares in the OPEB plan assets with a fair value of $5 million. At
     December 31, 2003, there were 4,970,000 shares of CMS Energy Common Stock
     in the Pension Plan assets with a fair value of $42 million, and 414,000
     shares in the OPEB plan assets with a fair value of $4 million.

(b)  The percentage of fixed income at December 31, 2003 is high because our
     December 2003 contribution of $350 million was deposited temporarily into
     fixed income securities.

     We contributed $63 million to our OPEB plan in 2004. We plan to contribute
$63 million to our OPEB plan in 2005. We did not contribute to our Pension Plan
in 2004. We do not plan to contribute to our Pension Plan in 2005.

     We have established a target asset allocation for our Pension Plan assets
of 65 percent equity and 35 percent fixed income investments to maximize the
long-term return on plan assets, while maintaining a prudent level of risk. The
level of acceptable risk is a function of the liabilities of the plan. Equity
investments are diversified mostly across the Standard & Poor's 500 Index, with
a lesser allocation to the Standard & Poor's Mid Cap and Small Cap Indexes and a
Foreign Equity Index Fund. Fixed income investments are diversified across
investment grade instruments of both government and corporate issuers. Annual
liability measurements, quarterly portfolio reviews, and periodic
asset/liability studies are used to evaluate the need for adjustments to the
portfolio allocation.

     We have established union and non-union VEBA trusts to fund our future
retiree health and life insurance benefits. These trusts are funded through the
rate making process for Consumers, and through direct contributions from the
non-utility subsidiaries. The equity portions of the union and non-union health
care VEBA trusts are invested in a Standard & Poor's 500 Index fund. The fixed
income portion of the union health care VEBA trust is invested in domestic
investment grade taxable instruments. The fixed income portion of the non-union
health care VEBA trust is invested in a diversified mix of domestic tax-exempt
securities. The investment selections of each

                                      CMS-92
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

VEBA are influenced by the tax consequences, as well as the objective of
generating asset returns that will meet the medical and life insurance costs of
retirees.

     Benefit Payments: The expected benefit payments for each of the next five
years and the five-year period thereafter are as follows:

<Table>
<Caption>
                                                                PENSION    SERP    OPEB(a)
                                                                -------    ----    -------
                                                                      (IN MILLIONS)
<S>                                                             <C>        <C>     <C>
2005........................................................     $113      $ 4      $ 53
2006........................................................      105        4        51
2007........................................................       96        4        53
2008........................................................       90        4        54
2009........................................................       89        4        56
2010-2014...................................................      423       22       322
                                                                 ====      ===      ====
</Table>

- -------------------------
(a)  OPEB benefit payments are net of employee contributions and expected
     Medicare Part D prescription drug subsidy payments.

8: ASSET RETIREMENT OBLIGATIONS

     SFAS NO. 143: This standard became effective January 2003. It requires
companies to record the fair value of the cost to remove assets at the end of
their useful life, if there is a legal obligation to remove them. We have legal
obligations to remove some of our assets, including our nuclear plants, at the
end of their useful lives. For our regulated utility, as required by SFAS No.
71, we account for the implementation of this standard by recording regulatory
assets and liabilities 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 to assume 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 our ARO fair value estimate since a reasonable estimate could
not be made. If a five percent market risk premium were assumed, our ARO
liability would increase by $22 million.

     If a reasonable estimate of fair value cannot be made in the period in
which the ARO is incurred, such as for assets with indeterminate lives, the
liability is to be recognized when a reasonable estimate of fair value can be
made. Generally, electric and gas transmission and distribution assets have
indeterminate lives. 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. Also, no liability has been recorded for assets that have
insignificant cumulative disposal costs, such as substation batteries. The
measurement of the ARO liabilities for Palisades and Big Rock are based on
decommissioning studies that largely utilize third-party cost estimates.

                                      CMS-93
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following tables describe our assets that have legal obligations to be
removed at the end of their useful life:

<Table>
<Caption>
                                           IN SERVICE
ARO DESCRIPTION                               DATE                LONG LIVED ASSETS               TRUST FUND
- ---------------                            ----------             -----------------              -------------
                                                                                                 (IN MILLIONS)
<S>                                        <C>           <C>                                     <C>
December 31, 2004
Palisades-decommission plant site......        1972      Palisades nuclear plant                     $523
Big Rock-decommission plant site.......        1962      Big Rock nuclear plant                        52
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          --
Natural gas-fired power plant..........        1997      Gas fueled power plant                        --
Close gas treating plant and gas
  wells................................     Various      Gas transmission and storage                  --
</Table>

<Table>
<Caption>
                                                ARO                                                           ARO
                                             LIABILITY                                        CASH FLOW    LIABILITY
ARO DESCRIPTION                               1/1/03      INCURRED    SETTLED    ACCRETION    REVISIONS    12/31/03
- ---------------                              ---------    --------    -------    ---------    ---------    ---------
                                                                          (IN MILLIONS)
<S>                                          <C>          <C>         <C>        <C>          <C>          <C>
Palisades-decommission...................      $249         $--        $ --         $19          $--         $268
Big Rock-decommission....................        61          --         (40)         13           --           34
JHCampbell intake line...................        --          --          --          --           --           --
Coal ash disposal areas..................        51          --          (3)          5           --           53
Wells at gas storage fields..............         2          --          --          --           --            2
Indoor gas services relocations..........         1          --          --          --           --            1
Natural gas-fired power plant............         1          --          --          --           --            1
Closure of gas pipelines(a)..............         8          --          (8)         --           --           --
                                               ----         ---        ----         ---          ---         ----
       Total.............................      $373         $--        $(51)        $37          $--         $359
                                               ====         ===        ====         ===          ===         ====
</Table>

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

<Table>
<Caption>
                                                ARO                                                           ARO
                                             LIABILITY                                        CASH FLOW    LIABILITY
ARO DESCRIPTION                              12/31/03     INCURRED    SETTLED    ACCRETION    REVISIONS    12/31/04
- ---------------                              ---------    --------    -------    ---------    ---------    ---------
                                                                          (IN MILLIONS)
<S>                                          <C>          <C>         <C>        <C>          <C>          <C>
Palisades-decommission...................      $268         $--        $ --         $22          $60         $350
Big Rock-decommission....................        34          --         (40)         14           22           30
JHCampbell intake line...................        --          --          --          --           --           --
Coal ash disposal areas..................        53          --          (4)          5           --           54
Wells at gas storage fields..............         2          --          (1)         --           --            1
Indoor gas services relocations..........         1          --          --          --           --            1
Natural gas-fired power plant............         1          --          --          --           --            1
Close gas treating plant and gas wells...        --           1          --           1           --            2
                                               ----         ---        ----         ---          ---         ----
Total....................................      $359         $ 1        $(45)        $42          $82         $439
                                               ====         ===        ====         ===          ===         ====
</Table>

     The Palisades and Big Rock cash flow revisions resulted from new
decommissioning reports filed with the MPSC in March 2004. The Palisades ARO
also reflects a cash flow revision for the probability of operating license
renewal; the renewal would extend the plant's operating license by twenty years.
For additional details, see Note 3, Contingencies, "Other Consumers' Electric
Utility Contingencies -- Nuclear Plant Decommissioning."

     On October 14, 2004, the MPSC issued a generic proceeding to review SFAS
No. 143, Accounting for Asset Retirement Obligations, FERC Order No. 631,
Accounting, Financial Reporting, and Rate Filing Requirements for Asset
Retirement Obligations, and their accounting and ratemaking issues. Utilities
are required to respond to

                                      CMS-94
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Order by March 15, 2005. We consider the proceeding a clarification of
accounting and reporting issues that relate to all Michigan utilities; we
anticipate no financial impact.

9: INCOME TAXES

     CMS Energy and its subsidiaries file a consolidated federal income tax
return. Income taxes generally are allocated based on each company's separate
taxable income. We utilize deferred tax accounting for temporary differences.

     We use ITC to reduce current income taxes payable, and amortize ITC over
the life of the related property. AMT paid generally becomes a tax credit that
we can carry forward indefinitely to reduce regular tax liabilities in future
periods when regular taxes paid exceed the tax calculated for AMT. At December
31, 2004, we had AMT credit carryforwards in the amount of $218 million that do
not expire and tax loss carryforwards in the amount of $1.348 billion that
expire from 2021 through 2024. We do not believe that a valuation allowance is
required, as we expect to utilize the loss carryforward prior to its expiration.
In addition, we had general business credit carryforwards in the amount of $41
million and charitable contribution carryforwards in the amount of $21 million
that primarily expire in 2005, for which valuation allowances have been
provided.

     U.S. income taxes are not recorded on the undistributed earnings of foreign
subsidiaries that have been or are intended to be reinvested indefinitely. Upon
distribution, those earnings may be subject to both U.S. income taxes (adjusted
for foreign tax credits or deductions) and withholding taxes payable to various
foreign countries. We determine annually the amount of undistributed foreign
earnings that we expect will remain invested indefinitely in foreign
subsidiaries. Cumulative undistributed earnings of foreign subsidiaries for
which income taxes have not been provided totaled approximately $211 million at
December 31, 2004. It is impractical to estimate the amount of unrecognized
deferred income taxes or withholding taxes on these undistributed earnings.
Also, at December 31, 2004 and 2003, we recorded U.S. income taxes with respect
to temporary differences between the book and tax bases of foreign investments
that were determined to be no longer essentially permanent in duration.

     The American Jobs Creation Act of 2004 creates a one-year opportunity to
receive a tax benefit for U.S. corporations that reinvest dividends from
controlled foreign corporations in the U.S. in a 12-month period (calendar year
2005 for CMS Energy). Although the tax benefit is subject to a number of
limitations, we believe that we have the information necessary to make an
informed decision on the impact of this act on our repatriation plan.

     In January 2005, we repatriated $80 million in cash, $71 million of which
should qualify for the tax benefit. Historically, we recorded deferred taxes on
these repatriated earnings. Since this repatriation should qualify for the tax
benefit and our decision to repatriate was made in 2004, we have reversed $21
million of our deferred tax liability. This adjustment was recorded as a
component of income from continuing operations in 2004.

     During 2005, we may have the ability to repatriate additional amounts that
may qualify for the repatriation tax benefit. If successful, our current
estimate is that additional amounts could range between $100 million and $120
million. The amount of additional repatriation remains uncertain because it is
based on future foreign subsidiary operations, cash flow, financings, and
repatriation limitations. This potential additional repatriation could reduce
our recorded deferred tax liability $30 million to $36 million. We expect to be
in a position to finalize our assessment, which may be higher or lower,
regarding any potential repatriation in the fourth quarter of 2005.

                                      CMS-95
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004      2003      2002
- -----------------------                                         ----      ----      ----
                                                                      (IN MILLIONS)
<S>                                                             <C>       <C>       <C>
Current income taxes:
  Federal...................................................    $ --      $(17)     $(171)
  State and local...........................................       3         1         (8)
  Foreign...................................................       9        17         28
                                                                ----      ----      -----
                                                                $ 12      $  1      $(151)
Deferred income taxes
  Federal...................................................    $  8      $ 54      $ 107
  Federal tax benefit of American Jobs Creation Act of
     2004...................................................     (21)       --         --
  State.....................................................      (5)        4          7
  Foreign...................................................       6         5          2
                                                                ----      ----      -----
                                                                $(12)     $ 63      $ 116
Deferred ITC, net...........................................      (5)       (6)        (6)
                                                                ----      ----      -----
Tax expense (benefit).......................................    $ (5)     $ 58      $ (41)
                                                                ====      ====      =====
</Table>

     Deferred tax assets and liabilities are recognized for the estimated future
tax effect of temporary differences between the tax basis of assets or
liabilities and the reported amounts in the financial statements. Deferred tax
assets and liabilities are classified as current or noncurrent according to the
classification of the related assets or liabilities. Deferred tax assets and
liabilities not related to assets or liabilities are classified according to the
expected reversal date of the temporary differences.

     The principal components of deferred tax assets (liabilities) recognized in
our Consolidated Balance Sheets are as follows:

<Table>
<Caption>
DECEMBER 31                                                      2004       2003
- -----------                                                      ----       ----
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
Property....................................................    $(1,128)   $(1,096)
Securitization costs........................................       (176)      (186)
Employee benefits...........................................        (64)       (76)
Gas inventories.............................................       (126)      (100)
Tax loss/credit carryforwards...............................        738        668
Valuation allowances........................................        (42)       (42)
Regulatory liabilities......................................        135        120
Other, net..................................................        (27)        70
                                                                -------    -------
  Net deferred tax liabilities..............................    $  (690)   $  (642)
                                                                =======    =======
Deferred tax liabilities....................................    $(1,795)   $(1,581)
Deferred tax assets, net of valuation reserves..............      1,105        939
                                                                -------    -------
  Net deferred tax liabilities..............................    $  (690)   $  (642)
                                                                =======    =======
</Table>

                                      CMS-96
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The actual income tax expense (benefit) on continuing operations differs
from the amount computed by applying the statutory federal tax rate of 35
percent to income before income taxes as follows:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                           2004      2003       2002
- -----------------------                                           ----      ----       ----
                                                                        (IN MILLIONS)
<S>                                                               <C>       <C>        <C>
Income (loss) from continuing operations before income
  taxes(a)
  Domestic..................................................      $199      $ (74)     $(527)
  Foreign...................................................       (77)        90         92
                                                                  ----      -----      -----
       Total................................................       122         16       (435)
Statutory federal income tax rate...........................      X 35%      X 35%      X 35%
                                                                  ----      -----      -----
Expected income tax expense (benefit).......................        42          6       (152)
Increase (decrease) in taxes from:
  Property differences......................................        13         18         18
  Income tax effect of foreign investments..................       (25)       (18)        47
  Benefit of qualifying foreign dividends received
     deduction..............................................       (21)        --         --
  Tax credits...............................................        (6)        (6)        51
  State and local income taxes, net of federal benefit......        (1)        --         (7)
  Tax return accrual adjustments............................        (5)        (1)        (7)
  Medicare part D exempt income.............................        (6)        --         --
  Tax exempt income.........................................        (3)        (3)        --
  Tax contingency reserves..................................         5         --         --
  Valuation allowance provision.............................        --         50         --
  Other, net................................................         2         12          9
                                                                  ----      -----      -----
Recorded income tax expense (benefit)(a)....................      $ (5)     $  58      $ (41)
                                                                  ----      -----      -----
Effective tax rate..........................................      (4.1)%       (b)       9.4%
                                                                  ====      =====      =====
</Table>

- -------------------------
(a)  The increased income tax expense from 2002 to 2003 is primarily
     attributable to the valuation reserve provisions for the possible lost
     general business credit, capital loss, and charitable contribution
     carryforwards. The decreased income tax expense from 2003 to 2004 is
     primarily attributable to the benefit recorded from the American Jobs
     Creation Act of 2004 of $21 million.

(b)  Because of the small size of the net income in 2003, the effective tax rate
     is not meaningful. Changes in the effective tax rate in 2002 from 2001
     resulted principally from the reduction in AMT credit carryforwards.

     The amount of income taxes we pay is subject to ongoing audits by federal,
state and foreign tax authorities, which can result in proposed assessments. The
IRS is currently conducting audits of our federal income tax returns for the
years 1998 through 2002. Our estimate for the potential outcome for any
uncertain tax issue is highly judgmental. We believe that our accrued tax
liabilities are adequate for all years.

10: EXECUTIVE INCENTIVE COMPENSATION

     We provide a Performance Incentive Stock Plan (the Plan) to key employees
and non-employee Directors or consultants based on their contributions to the
successful management of the company. On May 28, 2004, shareholders approved an
amendment to the Plan, with an effective date of June 1, 2004. The amendment
established a 5-year term for the Plan. The Plan includes the following type of
awards:

     - phantom shares,

     - performance units,

     - restricted stock,

                                      CMS-97
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     - stock options,

     - stock appreciation rights, and

     - management stock purchases.

     Phantom shares are valued at the fair market price of common stock when
granted. They give the holder the right to receive the appreciation value of
common stock on one or more valuation dates, according to a specified vesting
schedule determined at time of grant. These shares are subject to forfeiture if
employment terminates before vesting.

     Performance units have an initial value that is established at time of
grant. Performance criteria are established at the time of grant and, depending
upon the extent to which they are met, will determine the value of the payout,
which may be in the form of cash, common stock, or a combination of both. These
units are subject to forfeiture if employment terminates.

     Restricted shares of common stock are outstanding shares with full voting
and dividend rights. These awards vest 100 percent after three years and are
subject to achievement of specified levels of total shareholder return including
a comparison to a peer group of companies. Some awards vest based solely on
continued employment. These awards are subject to forfeiture if employment
terminates before vesting. Restricted shares vest fully if control of CMS Energy
changes, as defined by the Plan.

     Stock options give the holder the right to purchase common stock at a given
price over an extended period of time. Stock appreciation rights give the holder
the right to receive common stock appreciation, defined as the excess of the
market price of the stock at the date of exercise over the grant date price. All
stock options and stock appreciation rights are valued at fair market price when
granted. All options and rights may be exercised upon grant, and expire up to 10
years and one month from the date of grant.

     Management stock purchases are the election of select participants in the
Officer's Incentive Compensation Plan to receive all or a portion of their
incentive payments in the form of shares of restricted common stock or shares of
restricted stock units. These participants may also receive awards of additional
restricted common stock or restricted stock units provided that the total value
of these additional grants does not exceed $2.5 million for any fiscal year.

     Under the revised Plan, shares awarded or subject to options, phantom
shares and performance units may not exceed 6 million shares from June 2004
through May 2009, nor may such grants or awards to any participant exceed
250,000 shares in any fiscal year.

     Shares for which payment or exercise is in cash, as well as shares or
options that are forfeited, may be awarded or granted again under the Plan.

     Awards of up to 5,482,690 shares of CMS Energy Common Stock may be issued
as of December 31, 2004. All grants awarded under this Plan in 2004 were in the
form of restricted stock.

                                      CMS-98
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes the restricted stock and stock options
granted to our key employees under the Performance Incentive Stock Plan:

<Table>
<Caption>
                                                       RESTRICTED STOCK                OPTIONS
                                                       ----------------    -------------------------------
                                                          NUMBER OF        NUMBER OF     WEIGHTED AVERAGE
CMS ENERGY COMMON STOCK                                     SHARES          SHARES        EXERCISE PRICE
- -----------------------                                   ---------        ---------     ----------------
<S>                                                    <C>                 <C>          <C>
Outstanding at January 1, 2002.....................         787,985        3,912,180          $31.58
  Granted..........................................         512,726        1,492,200          $15.64
  Exercised or Issued..............................        (116,562)         (39,600)         $17.07
  Forfeited or Expired.............................        (225,823)        (243,160)         $28.91
                                                          ---------        ---------          ------
Outstanding at December 31, 2002...................         958,326        5,121,620          $27.18
  Granted..........................................         600,000        1,593,000          $ 6.35
  Exercised or Issued..............................         (80,425)          (8,000)         $ 8.12
  Forfeited or Expired.............................        (213,873)        (885,044)         $28.66
                                                          ---------        ---------          ------
Outstanding at December 31, 2003...................       1,264,028        5,821,576          $21.27
  Granted..........................................         525,310               --              --
  Exercised or Issued..............................        (142,699)        (600,000)         $ 6.67
  Forfeited or Expired.............................        (269,629)        (433,550)         $27.84
                                                          ---------        ---------          ------
Outstanding at December 31, 2004...................       1,377,010        4,788,026          $22.50
                                                          =========        =========          ======
</Table>

     At December 31, 2004, 426,500 of the 1,377,010 shares of restricted common
stock outstanding are subject to performance objectives. Compensation expense
included in income for restricted stock was $2 million for 2004, $2 million in
2003, and less than $1 million in 2002.

     The following table summarizes our stock options outstanding at December
31, 2004:

<Table>
<Caption>
                                                                       NUMBER OF SHARES    WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES                                                 OUTSTANDING        REMAINING LIFE
- ------------------------                                               ----------------    ----------------
<S>                                                <C>                 <C>                 <C>
CMS ENERGY COMMON STOCK:
$6.35-$8.12....................................       1,544,500          8.42 years             $ 6.86
$17.00-$22.20..................................       1,051,420          6.39 years             $19.97
$22.69-$31.04..................................       1,050,602          4.79 years             $29.75
$34.80-$43.38..................................       1,141,504          3.91 years             $39.34
                                                      ---------           ---------             ------
$6.35-$43.38...................................       4,788,026          6.10 years             $22.50
                                                      =========           =========             ======
</Table>

     The number of stock options exercisable was 4,778,488 at December 31, 2004,
5,795,145 at December 31, 2003 and 5,007,329 at December 31, 2002.

     In December 2002, we adopted the fair value based method of accounting for
stock-based employee compensation, under SFAS No. 123, as amended by SFAS No.
148. We elected to adopt the prospective method recognition provisions of this
Statement, which applies the recognition provisions to all awards granted,
modified, or settled after the beginning of the fiscal year that the recognition
provisions are first applied.

     The following table summarizes the weighted average fair value of stock
options granted:

<Table>
<Caption>
OPTIONS GRANT DATE                                              2004(a)    2003       2002(b)
- ------------------                                              -------    ----       -------
<S>                                                             <C>        <C>      <C>
Fair value at grant date....................................       --      $2.96    $3.84, $1.44
</Table>

- -------------------------
(a) There were no stock option grants during 2004.

(b) For 2002, there were two stock option grants totaling 1,492,200 options.

                                      CMS-99
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The stock options fair value is estimated using the Black-Scholes model, a
mathematical formula used to value options traded on securities exchanges. The
following assumptions were used in the Black-Scholes model:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                      2004(a)       2003            2002(b)
- -----------------------                                      -------       -----       ---------------
<S>                                                          <C>           <C>         <C>
CMS ENERGY COMMON STOCK OPTIONS
  Risk-free interest rate................................       --          3.02%          3.95%, 3.16%
  Expected stock price volatility........................       --         55.46%        32.44%, 40.81%
  Expected dividend rate.................................       --            --       $0.365, $0.1825
  Expected option life (years)...........................       --           4.2                   4.2
</Table>

- -------------------------
(a)  There were no stock option grants during 2004.

(b)  For 2002, there were two stock option grants totaling 1,492,200 options.

     We recorded $5 million as stock-based employee compensation cost for 2003
and $4 million for 2002. All stock options vest at date of grant.

11: LEASES

     We lease various assets, including vehicles, railcars, construction
equipment, furniture, and buildings. We have both full-service and net leases. A
net lease requires us to pay for taxes, maintenance, operating costs, and
insurance. Most of our leases contain options at the end of the initial lease
term to:

     - purchase the asset at fair value, or

     - renew the lease at fair rental value.

     Our capital leases are comprised mainly of leased service vehicles and
office furniture. As of December 31, 2004, capital lease obligations totaled $58
million. Consumers is authorized by the MPSC to record both capital and
operating lease payments as operating expenses and recover the total costs from
their customers. Capital lease expenses were $13 million in 2004, $17 million in
2003, and $20 million in 2002. In November 2003, we exercised our purchase
option under the capital lease agreement for our main headquarters building in
Jackson, Michigan. Operating lease charges were $14 million in 2004, $14 million
in 2003, and $13 million in 2002. Income from subleases was $1 million in 2004
and $1 million in 2003.

     In order to obtain permanent financing for the MCV Facility, the MCV
Partnership entered into a sale and lease back agreement with a lessor group,
which includes the FMLP, for substantially all of the MCV Partnership's fixed
assets. In accordance with SFAS No. 98, the MCV Partnership accounted for the
transaction as a financing arrangement. As of December 31, 2004, finance lease
obligations totaled $286 million, which represents the third-party portion of
the MCV Partnership's finance lease obligation.

     Charges under the MCV Partnership's finance lease obligation were $105
million in 2004. For additional details on transactions with the MCV Partnership
and the FMLP, see Note 3, Contingencies, "Other Consumers' Electric Utility
Contingencies -- The Midland Cogeneration Venture."

                                     CMS-100
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Minimum annual rental commitments under our non-cancelable leases at
December 31, 2004 were:

<Table>
<Caption>
                                                                CAPITAL    FINANCE    OPERATING
                                                                LEASES      LEASE      LEASES
                                                                -------    -------    ---------
                                                                         (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
2005........................................................      $13       $ 19         $15
2006........................................................       13         18          14
2007........................................................       12         18          12
2008........................................................       10         19          12
2009........................................................        8         20           8
2010 and thereafter.........................................       15        192          28
                                                                  ---       ----         ---
Total minimum lease payments(a).............................       71        286          89
Less imputed interest.......................................       13         --          --
                                                                  ---       ----         ---
Present value of net minimum lease payments.................       58        286          --
Less current portion........................................       10         19          --
                                                                  ---       ----         ---
Non-current portion.........................................      $48       $267         $89
                                                                  ===       ====         ===
</Table>

- -------------------------
(a)  Minimum payments have not been reduced by minimum sublease rentals of $2
     million due in the future under noncancelable subleases.

12: EQUITY METHOD INVESTMENTS

     Where ownership is more than 20 percent but less than a majority, we
account for certain investments in other companies, partnerships, and joint
ventures by the equity method of accounting in accordance with APB Opinion No.
18. Net income from these investments included undistributed earnings of $88
million in 2004, $41 million in 2003, and $39 million in 2002.

     The most significant of these investments are:

     - our 50 percent interest in Jorf Lasfar, and

     - our 40 percent interest in Taweelah.

                                     CMS-101
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Summarized financial information for these equity method investments is as
follows:

Income Statement Data

<Table>
<Caption>
                                                                    YEAR ENDED DECEMBER 31, 2004
                                                              -----------------------------------------
                                                                JORF                    ALL
                                                              LASFAR(a)    TAWEELAH    OTHERS    TOTAL
                                                              ---------    --------    ------    -----
                                                                            (IN MILLIONS)
<S>                                                           <C>          <C>         <C>       <C>
Operating revenue.........................................      $461         $99       $1,448    $2,008
Operating expenses........................................       282          40        1,207     1,529
                                                                ----         ---       ------    ------
Operating income..........................................       179          59          241       479
Other expense, net........................................        53          23          140       216
                                                                ----         ---       ------    ------
Net income................................................      $126         $36       $  101    $  263
                                                                ====         ===       ======    ======
</Table>

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31, 2003
                                      ---------------------------------------------------------------------------
                                        JORF                                                    ALL
                                      LASFAR(a)    FMLP(b)    TAWEELAH    SCP(c)    ATACAMA    OTHERS    TOTAL(d)
                                      ---------    -------    --------    ------    -------    ------    --------
                                                                     (IN MILLIONS)
<S>                                   <C>          <C>        <C>         <C>       <C>        <C>       <C>
Operating revenue.................      $369         $79        $99        $74       $182      $1,054     $1,857
Operating expenses................       191           4         38         18        144         932      1,327
                                        ----         ---        ---        ---       ----      ------     ------
Operating income..................       178          75         61         56         38         122        530
Other expense, net................        58          43         18         25         25          39        208
                                        ----         ---        ---        ---       ----      ------     ------
Net income........................      $120         $32        $43        $31       $ 13      $   83     $  322
                                        ====         ===        ===        ===       ====      ======     ======
</Table>

<Table>
<Caption>
                                                                YEAR ENDED DECEMBER 31, 2002
                                              ----------------------------------------------------------------
                                                JORF                                         ALL
                                              LASFAR(a)    FMLP(b)    TAWEELAH    SCP(c)    OTHERS    TOTAL(d)
                                              ---------    -------    --------    ------    ------    --------
                                                                       (IN MILLIONS)
<S>                                           <C>          <C>        <C>         <C>       <C>       <C>
Operating revenue.........................      $364         $91        $101       $43      $3,376     $3,975
Operating expenses........................       176           4          33        13       3,209      3,435
                                                ----         ---        ----       ---      ------     ------
Operating income..........................       188          87          68        30         167        540
Other expense, net........................        56          49          86        16         210        417
                                                ----         ---        ----       ---      ------     ------
Net income (loss).........................      $132         $38        $(18)      $14      $  (43)    $  123
                                                ====         ===        ====       ===      ======     ======
</Table>

                                     CMS-102
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Balance Sheet Data

<Table>
<Caption>
                                                                          DECEMBER 31, 2004
                                                              -----------------------------------------
                                                                JORF                    ALL
                                                              LASFAR(A)    TAWEELAH    OTHERS    TOTAL
                                                              ---------    --------    ------    -----
                                                                            (IN MILLIONS)
<S>                                                           <C>          <C>         <C>       <C>
Assets
  Current assets..........................................     $  314        $122      $  554    $  990
  Property, plant and equipment, net......................         12         629       3,104     3,745
  Other assets............................................      1,088          --         910     1,998
                                                               ------        ----      ------    ------
                                                               $1,414        $751      $4,568    $6,733
                                                               ======        ====      ======    ======
Liabilities
  Current liabilities.....................................     $  234        $ 75      $  240    $  549
  Long-term debt and other non-current liabilities........        562         523       3,079     4,164
Equity....................................................        618         153       1,249     2,020
                                                               ------        ----      ------    ------
                                                               $1,414        $751      $4,568    $6,733
                                                               ======        ====      ======    ======
</Table>

<Table>
<Caption>
                                                                       DECEMBER 31, 2003
                                          ---------------------------------------------------------------------------
                                            JORF                                                    ALL
                                          LASFAR(A)    FMLP(B)    TAWEELAH    SCP(C)    ATACAMA    OTHERS    TOTAL(D)
                                          ---------    -------    --------    ------    -------    ------    --------
                                                                         (IN MILLIONS)
<S>                                       <C>          <C>        <C>         <C>       <C>        <C>       <C>
Assets
  Current assets......................     $    277     $ --        $ 93       $ 60      $103      $  326     $  859
  Property, plant and equipment,
     net..............................           10       --         638        383       676       2,099      3,806
  Other assets........................        1,152      893          10         --        27         715      2,797
                                           --------     ----        ----       ----      ----      ------     ------
                                           $  1,439     $893        $741       $443      $806      $3,140     $7,462
                                           ========     ====        ====       ====      ====      ======     ======
Liabilities
  Current liabilities.................     $    314     $ 21        $ 81       $ 19      $ 41      $  360     $  836
  Long-term debt and other non-current
     liabilities......................          612      411         509        225       443       2,315      4,515
Equity................................          513      461         151        199       322         465      2,111
                                           --------     ----        ----       ----      ----      ------     ------
                                           $  1,439     $893        $741       $443      $806      $3,140     $7,462
                                           ========     ====        ====       ====      ====      ======     ======
</Table>

- -------------------------
(a)  Our investment in Jorf Lasfar was $309 million at December 31, 2004 and
     $256 million at December 31, 2003. Our share of net income from Jorf Lasfar
     was $63 million for the year ended December 31, 2004, $60 million for the
     year ended December 31, 2003, and $66 million for the year ended December
     31, 2002.

(b)  Under Revised FASB Interpretation No. 46, we are the primary beneficiary of
     the FMLP and have consolidated their assets, liabilities, and financial
     activities for 2004.

(c)  In August 2004, we sold our investment in SCP.

(d)  For 2003 and 2002, the MCV Partnership was accounted for as an equity
     method investment but their summarized financial information is not
     included in these tables. Our 49 percent investment in the MCV Partnership
     was $419 million at December 31, 2003 and our share of net income was $29
     million for the year ended December 31, 2003 and $65 million for the year
     ended December 31, 2002. Such information is shown below in the section
     "Summarized Financial Information of Significant Related Energy Supplier."
     Under Revised FASB Interpretation No. 46, we are the primary beneficiary of
     the MCV Partnership. We consolidated their assets, liabilities, and
     financial activities into our financial statements as of and for the

                                     CMS-103
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

year ended December 31, 2004. As of December 31, 2004, the MCV Partnership had
total assets of $1.980 billion and a net loss of $24 million for the year.

     SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT RELATED ENERGY
SUPPLIER: Under the PPA with the MCV Partnership discussed in Note 3,
Contingencies, our 2003 obligation to purchase electric capacity from the MCV
Partnership provided 15 percent of our owned and contracted electric generating
capacity. Summarized financial information of the MCV Partnership for 2003 and
2002 follows:

Statements of Income

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2003     2002
- -----------------------                                         -----    -----
                                                                (IN MILLIONS)
<S>                                                             <C>      <C>
Operating revenue(a)........................................    $584     $597
Operating expenses..........................................     416      409
                                                                ----     ----
Operating income............................................     168      188
Other expense, net..........................................     108      114
                                                                ----     ----
Income before cumulative effect of accounting change........      60       74
Cumulative effect of change in method of accounting for
  derivative options contracts(b)...........................      --       58
                                                                ----     ----
Net Income..................................................    $ 60     $132
                                                                ====     ====
</Table>

Balance Sheet

<Table>
<Caption>
DECEMBER 31                         2003
- -----------                     -------------
                                (IN MILLIONS)
<S>                             <C>
ASSETS
Current assets(c)............      $  389
Plant, net...................       1,494
Other assets.................         187
                                   ------
                                   $2,070
                                   ======
</Table>

<Table>
<Caption>
DECEMBER 31                         2003
- -----------                     -------------
                                (IN MILLIONS)
<S>                             <C>
LIABILITIES AND EQUITY
Current liabilities..........      $  250
Non-current liabilities(d)...       1,021
Partners' equity(e)..........         799
                                   ------
                                   $2,070
                                   ======
</Table>

- -------------------------
(a)  Revenue from Consumers totaled $514 million in 2003 and $557 million in
     2002.

(b)  On April 1, 2002, the MCV Partnership implemented a new accounting standard
     for derivatives. As a result, the MCV Partnership began accounting for
     several natural gas contracts containing an option component at fair value.
     The MCV Partnership recorded a $58 million cumulative effect adjustment for
     the change in accounting principle as an increase to earnings. CMS
     Midland's 49 percent ownership share was $28 million ($18 million
     after-tax), which is reflected as a change in accounting principle on our
     Consolidated Statements of Income (Loss) in 2002.

(c)  Receivables from Consumers totaled $40 million for December 31, 2003.

(d)  FMLP is the sole beneficiary of a trust that is the lessor in a long-term
     direct finance lease with the MCV Partnership. CMS Holdings holds a 46.4
     percent ownership interest in the FMLP. The MCV Partnership's

                                     CMS-104
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

lease obligations, assets, and operating revenues secure FMLP's debt. The
following table summarizes obligation and payment information regarding the
     direct finance lease.

<Table>
<Caption>
    DECEMBER 31                                                                                   2003
    -----------                                                                                   ----
                                                                                              (IN MILLIONS)
    <S>                          <C>                                                          <C>
    Balance Sheet:
      MCV Partnership:           Lease obligation.........................................        $894
      FMLP:                      Non-recourse debt........................................         431
                                 Lease payment to service non-recourse debt (including
                                 interest)................................................         158
      CMS Holdings:              Share of interest portion of lease payment...............          37
                                 Share of principle portion of lease payment..............          36
</Table>

<Table>
<Caption>
    YEARS ENDED DECEMBER 31                                                            2003      2002
    -----------------------                                                            ----      ----
                                                                                       (IN MILLIONS)
    <S>                   <C>                                                          <C>       <C>
    Income Statement:
      FMLP:               Earnings.................................................    $32       $38
</Table>

(e)  CMS Midland's recorded investment in the MCV Partnership includes
     capitalized interest, which we are expensing over the life of our
     investment in the MCV Partnership. The financing agreements prohibit the
     MCV Partnership from distributing any cash to its owners until it meets
     certain financial test requirements. We do not anticipate receiving a cash
     distribution in the near future.

13: GOODWILL

     The changes in the carrying amount of goodwill for the years ended December
31, 2003 and 2004, by reportable segment, are as follows:

<Table>
<Caption>
                                                          ELECTRIC      GAS
                                                          UTILITY     UTILITY    ENTERPRISES    OTHER    TOTAL
                                                          --------    -------    -----------    -----    -----
                                                                             (IN MILLIONS)
<S>                                                       <C>         <C>        <C>            <C>      <C>
Balance as of January 1, 2003.........................     $  --       $  --        $ 31        $ --     $ 31
  Impairments(a)......................................        --          --         (18)         --      (18)
  Additions...........................................        --          --           5          --        5
  Currency translation adjustment.....................        --          --           6          --        6
  Other/reclassification..............................        --          --           1          --        1
                                                           -----       -----        ----        -----    ----
Balance as of December 31, 2003.......................     $  --       $  --        $ 25        $ --     $ 25
  Impairments(b)......................................        --          --          (5)         --       (5)
  Currency translation adjustment.....................        --          --           3          --        3
                                                           -----       -----        ----        -----    ----
Balance as of December 31, 2004.......................     $  --       $  --        $ 23        $ --     $ 23
                                                           =====       =====        ====        =====    ====
</Table>

- -------------------------
(a)  In 2003, we performed an impairment test on the Enterprises segment which
     determined the book value of our goodwill related to CPEE exceeded the fair
     value. Therefore, we recorded a goodwill impairment.

(b)  In the fourth quarter of 2004, an impairment charge was recorded to
     recognize a reduction in fair value as a result of the sale of GVK, which
     included a goodwill impairment of $5 million. We closed on the sale of GVK
     in February 2005.

14: JOINTLY OWNED REGULATED UTILITY FACILITIES

     We are required to provide only our share of financing for the jointly
owned utility facilities. The direct expenses of the jointly owned plants are
included in operating expenses. Operation, maintenance, and other expenses of
these jointly owned utility facilities are shared in proportion to each
participant's undivided
                                     CMS-105
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ownership interest. The following table indicates the extent of our investment
in jointly owned regulated utility facilities:

<Table>
<Caption>
                                                                    NET
                                                                INVESTMENT                        CONSTRUCTION
                                                             -----------------    ACCUMULATED       WORK IN
                                                             OWNERSHIP            DEPRECIATION      PROGRESS
                                                               SHARE              ------------    ------------
DECEMBER 31                                                  (PERCENT)    2004    2003    2004    2003    2004
- -----------                                                  ---------    ----    ----    ----    ----    ----
                                                                        (IN MILLIONS)
<S>                                             <C>          <C>          <C>     <C>     <C>     <C>     <C>
Campbell Unit 3.............................        93.3       $284       $299    $339    $328    $158    $113
Ludington...................................        51.0         79         84      91      87      --      (1)
Distribution................................     Various         77         74      33      32       6       5
</Table>

15: REPORTABLE SEGMENTS

     Our reportable segments consist of business units organized and managed by
their products and services. We evaluate performance based upon the net income
of each segment. We operate principally in three reportable segments: electric
utility, gas utility, and enterprises.

     The electric utility segment consists of regulated activities associated
with the generation and distribution of electricity in the state of Michigan
through our 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 our 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.

     Accounting policies of our segments are the same as we describe in the
summary of significant accounting policies. Our financial statements reflect the
assets, liabilities, revenues, and expenses directly related to the individual
segments where it is appropriate. We allocate accounts between the segments
where common accounts are attributable to more than one segment. The allocations
are based on certain measures of business activities, such as revenue, labor
dollars, customers, other operation and maintenance expense, construction
expense, leased property, taxes or functional surveys. For example, customer
receivables are allocated based on revenue. Pension provisions are allocated
based on labor dollars. We account for inter-segment sales and transfers at
current market prices and eliminate them in consolidated net income (loss) by
segment.

     The "Other" segment includes corporate interest and other, discontinued
operations, and the cumulative effect of accounting changes. The following
tables show our financial information by reportable segment:

Reportable Segments

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004       2003       2002
- -----------------------                                          ----       ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
Operating Revenues
  Electric utility..........................................    $ 2,583    $ 2,583    $ 2,644
  Gas utility...............................................      2,081      1,845      1,519
  Enterprises...............................................        808      1,085      4,508
  Other.....................................................         --         --          2
                                                                -------    -------    -------
                                                                $ 5,472    $ 5,513    $ 8,673
                                                                =======    =======    =======
</Table>

                                     CMS-106
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004       2003       2002
- -----------------------                                          ----       ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
Earnings from Equity Method Investees
  Enterprises...............................................    $   113    $   164    $    92
  Other.....................................................          2         --         --
                                                                -------    -------    -------
                                                                $   115    $   164    $    92
                                                                =======    =======    =======
Depreciation, Depletion, and Amortization
  Electric utility..........................................    $   189    $   247    $   228
  Gas utility...............................................        112        128        118
  Enterprises...............................................        129         52         64
  Other.....................................................          1          1          2
                                                                -------    -------    -------
                                                                $   431    $   428    $   412
                                                                =======    =======    =======
Interest Charges
  Electric utility..........................................    $   203    $   164    $   109
  Gas utility...............................................         64         51         36
  Enterprises...............................................         87         37         10
  Other.....................................................        275        329        265
                                                                -------    -------    -------
                                                                $   629    $   581    $   420
                                                                =======    =======    =======
Income Tax Expense (Benefit)
  Electric utility..........................................    $   120    $    90    $   138
  Gas utility...............................................         40         35         33
  Enterprises...............................................        (46)        14       (155)
  Other.....................................................       (119)       (81)       (57)
                                                                -------    -------    -------
                                                                $    (5)   $    58    $   (41)
                                                                =======    =======    =======
Net Income (Loss) Available to Common Stockholders
  Electric utility..........................................    $   223    $   167    $   264
  Gas utility...............................................         71         38         46
  Enterprises...............................................         19          8       (419)
  Other.....................................................       (203)      (257)      (541)
                                                                -------    -------    -------
                                                                $   110    $   (44)   $  (650)
                                                                =======    =======    =======
Investments in Equity Method Investees
  Enterprises...............................................    $   729    $ 1,367    $ 1,367
  Other.....................................................         23         23          2
                                                                -------    -------    -------
                                                                $   752    $ 1,390    $ 1,369
                                                                =======    =======    =======
Total Assets
  Electric utility(a).......................................    $ 7,289    $ 6,831    $ 6,058
  Gas utility(a)............................................      3,187      2,983      2,586
  Enterprises...............................................      4,980      3,670      5,724
  Other.....................................................        416        354        413
                                                                -------    -------    -------
                                                                $15,872    $13,838    $14,781
                                                                =======    =======    =======
</Table>

                                     CMS-107
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004       2003       2002
- -----------------------                                          ----       ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
Capital Expenditures(b)
  Electric utility..........................................    $   360    $   310    $   437
  Gas utility...............................................        137        135        181
  Enterprises...............................................         37         49        235
  Other.....................................................          1         --          8
                                                                -------    -------    -------
                                                                $   535    $   494    $   861
                                                                =======    =======    =======
</Table>

Geographic Areas(c)

<Table>
<Caption>
                                                                 2004       2003       2002
                                                                 ----       ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
United States
  Operating Revenue.........................................    $ 5,163    $ 5,222    $ 8,361
  Operating Income (Loss)...................................        586        511        (36)
  Total Assets..............................................     14,419     12,372     13,355
International
  Operating Revenue.........................................    $   309    $   291    $   312
  Operating Income..........................................          7         84        111
  Total Assets..............................................      1,453      1,466      1,426
</Table>

- -------------------------
(a)  Amounts includes a portion of Consumers' assets for both the Electric and
     Gas utility units.

(b)  Amounts include electric restructuring implementation plan, purchase of
     nuclear fuel, and other assets. Amounts also include a portion of
     Consumers' capital expenditures for plant and equipment that both the
     electric and gas utility units use.

(c)  Revenues are based on the country location of customers.

16: IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

     FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST
ENTITIES: The FASB issued this Interpretation in January 2003. The objective of
the Interpretation is to assist in determining when one party controls another
entity in circumstances where a controlling financial interest cannot be
properly identified based on voting interests. Entities with this characteristic
are considered variable interest entities. The Interpretation requires the party
with the controlling financial interest, known as the primary beneficiary, in a
variable interest entity to consolidate the entity.

     In December 2003, the FASB issued Revised FASB Interpretation No. 46. For
entities that had not previously adopted FASB Interpretation No. 46, Revised
FASB Interpretation No. 46 provided an implementation deferral until the first
quarter of 2004. As of and for the quarter ended March 31, 2004, we adopted
Revised FASB Interpretation No. 46 for all entities.

     We determined that we are the primary beneficiary of both the MCV
Partnership and the FMLP. We have a 49 percent partnership interest in the MCV
Partnership and a 46.4 percent partnership interest in the FMLP. Consumers is
the primary purchaser of power from the MCV Partnership through a long-term
power purchase agreement. The FMLP holds a 75.5 percent lessor interest in the
MCV Facility, which results in Consumers holding a 35 percent lessor interest in
the MCV Facility. Collectively, these interests make us the primary beneficiary
of these entities. As such, we consolidated their assets, liabilities, and
activities into our financial statements as of and for the year ended December
31, 2004. These partnerships have third-party obligations totaling $582 million
at December 31, 2004. Property, plant, and equipment serving as collateral for
these

                                     CMS-108
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

obligations has a carrying value of $1.426 billion at December 31, 2004. The
creditors of these partnerships do not have recourse to the general credit of
CMS Energy.

     At December 31, 2003, we determined that we are the primary beneficiary of
three other entities that are determined to be variable interest entities. We
have 50 percent partnership interest in the T.E.S. Filer City Station Limited
Partnership, the Grayling Generating Station Limited Partnership, and the
Genesee Power Station Limited Partnership. Additionally, we have operating and
management contracts and are the primary purchaser of power from each
partnership through long-term power purchase agreements. Collectively, these
interests make us the primary beneficiary as defined by the Interpretation.
Therefore, we consolidated these partnerships into our consolidated financial
statements beginning in 2003. These partnerships have third-party obligations
totaling $116 million at December 31, 2004. Property, plant, and equipment
serving as collateral for these obligations has a carrying value of $168 million
as of December 31, 2004. Other than outstanding letters of credit and guarantees
of $5 million, the creditors of these partnerships do not have recourse to the
general credit of CMS Energy.

     We determined that we are not the primary beneficiary of our trust
preferred security structures. Accordingly, those entities were deconsolidated
as of December 31, 2003. Company Obligated Trust Preferred Securities totaling
$663 million that were previously included in mezzanine equity, were eliminated
due to deconsolidation. At December 31, 2004, we reflected Long-term
debt -- related parties of $504 million, current portion of Long-term
debt -- related parties of $180 million, and an investment in related parties of
$21 million.

     We are not required to restate prior periods for the impact of this
accounting change.

     Additionally, we have variable interest entities in which we are not the
primary beneficiary. FASB Interpretation No. 46 requires us to disclose certain
information about these entities. The following chart details our involvement in
these entities at December 31, 2004:

<Table>
<Caption>
                                                                          INVESTMENT        OPERATING         TOTAL
NAME                     NATURE OF THE                    INVOLVEMENT       BALANCE       AGREEMENT WITH    GENERATING
(OWNERSHIP INTEREST)        ENTITY          COUNTRY          DATE        (IN MILLIONS)      CMS ENERGY       CAPACITY
- --------------------     -------------      -------       -----------    -------------    --------------    ----------
<S>                      <C>              <C>             <C>            <C>              <C>               <C>
Taweelah (40%)           Generator        United Arab        1999            $ 81              Yes             777 MW
                                          Emirates
Jubail (25%)             Generator --     Saudi Arabia       2001            $ --              Yes             250 MW
                         Under
                         Construction
Shuweihat (20%)          Generator        United Arab        2001            $ 41(a)           Yes           1,500 MW
                                          Emirates
                                                                             ----                            --------
Total                                                                        $122                            2,527 MW
                                                                             ====                            ========
</Table>

- -------------------------
(a)  At December 31, 2004, the balance includes our proportionate share of the
     negative fair value of derivative instruments of $25 million.

     Our maximum exposure to loss through our interests in these variable
interest entities is limited to our investment balance of $122 million, and
letters of credit, guarantees, and indemnities relating to Taweelah and
Shuweihat totaling $84 million. In the third quarter of 2004, we contributed an
investment of $70 million in Shuweihat. The contribution was made pursuant to
the Shuweihat Shareholders' Agreement, which was entered into in 2001.

     FASB STAFF POSITION, NO. SFAS 106-2, ACCOUNTING AND DISCLOSURE REQUIREMENTS
RELATED TO THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF
2003: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(the Act) was signed into law in December 2003. The Act establishes a
prescription drug benefit under Medicare (Medicare Part D) and a federal
subsidy, which is exempt

                                     CMS-109
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

from federal taxation, to sponsors of retiree health care benefit plans that
provide a benefit that is actuarially equivalent to Medicare Part D.

     We believe our plan is actuarially equivalent to Medicare Part D and have
incorporated retroactively the effects of the subsidy into our financial
statements as of June 30, 2004, in accordance with FASB Staff Position, No. SFAS
106-2. We remeasured our obligation as of December 31, 2003 to incorporate the
impact of the Act, which resulted in a reduction to the accumulated
postretirement benefit obligation of $158 million. The remeasurement resulted in
a total OPEB cost reduction of $24 million for 2004. Consumers capitalizes a
portion of OPEB cost in accordance with regulatory accounting. As such, the
remeasurement resulted in a net reduction of OPEB expense of $17 million for
2004.

     EITF ISSUE NO. 04-8, THE EFFECT OF CONTINGENTLY CONVERTIBLE DEBT ON DILUTED
EARNINGS PER SHARE: At its September 2004 meeting, the EITF reached a final
consensus that contingently convertible instruments should be included in the
diluted earnings per share computation (if dilutive) regardless of whether the
market price trigger has been met.

     In December 2004, we completed an exchange offer for our 3.375 percent
contingently convertible senior notes and our 4.50 percent contingently
convertible preferred stock. For additional information, see Note 4, Financings
and Capitalization, "Contingently Convertible Securities."

     We adopted the provisions of EITF Issue No. 04-8 as of December 31, 2004.
Upon adoption, our 2004 year-to-date diluted earnings per share was reduced by
$0.01 per share. Adoption of this EITF Issue did not impact our diluted earnings
per share for any prior periods.

     FSP 109-1, ACCOUNTING AND DISCLOSURE GUIDANCE FOR THE TAX DEDUCTION
PROVIDED TO U.S. BASED MANUFACTURERS BY THE AMERICAN JOBS CREATION ACT OF
2004: The American Jobs Creation Act of 2004 provides for a deduction, starting
in 2005, of a portion of the income from certain production activities,
including the production of electricity. FSP 109-1 indicates that the deduction
should be accounted for as a special deduction rather than a tax rate reduction
under SFAS No. 109. We are currently studying this act for its impact on us;
however, we do not anticipate a material amount of tax benefit from the domestic
production activities deduction in the near future.

     FSP 109-2, ACCOUNTING AND DISCLOSURE GUIDANCE FOR THE FOREIGN EARNINGS
REPATRIATION PROVISION WITHIN THE AMERICAN JOBS CREATION ACT OF 2004: The
American Jobs Creation Act of 2004 creates a one-year opportunity to receive a
tax benefit for U.S. corporations that reinvest dividends from controlled
foreign corporations in the U.S. in a 12-month period (2005 for CMS Energy).
Although the tax benefit is subject to a number of limitations, we believe that
we have the information necessary to make an informed decision on the impact of
this act on our repatriation plan. FSP 109-2 provides accounting guidance and
disclosure requirements relating to this act. For additional details, see Note
9, Income Taxes.

     EITF ISSUE NO. 03-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENTS: The
Issue addresses the definition of an other-than-temporary impairment of certain
investments and provides additional disclosure requirements. The scope of EITF
Issue No. 03-1 includes debt and equity securities accounted for under SFAS No.
115, debt and equity securities held by non-profit organizations under SFAS No.
124, and cost method investments under APB No. 18. We analyzed our in-scope
investments under the guidance of this Issue and have provided additional
disclosures.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

     SFAS NO. 123R, SHARE-BASED PAYMENT: The Statement requires companies to
expense the grant date fair value of employee stock options and similar awards.
The Statement also clarifies and expands SFAS No. 123's guidance in several
areas, including measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting periods.

                                     CMS-110
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In addition, this Statement amends SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits related to the excess of the tax deductible
amount over the compensation cost recognized be classified as a financing cash
inflow rather than as a reduction of taxes paid in operating cash flows.

     This Statement is effective for us as of the beginning of the third quarter
of 2005. We adopted the fair value method of accounting for share-based awards
effective December 2002, and therefore, expect this Statement to have an
insignificant impact on our results of operations when it becomes effective.

17: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)

<Table>
<Caption>
                                                                                  2004
                                                               ------------------------------------------
QUARTERS ENDED                                                 MARCH 31    JUNE 30    SEPT. 30    DEC. 31
- --------------                                                 --------    -------    --------    -------
                                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                            <C>         <C>        <C>         <C>
Operating revenue(a).......................................     $1,754     $1,093      $1,063     $1,562
Operating income(a)(d).....................................        145        148         158        142
Income (loss) from continuing operations(d)................         (2)        19          51         59
Income (loss) from discontinued operations(b)..............         (2)        --           8        (10)
Cumulative effect of change in accounting(b)(c)............         (2)        --          --         --
Net income (loss)(c)(d)....................................         (6)        19          59         49
Preferred dividends........................................          3          3           3          2
Net income (loss) available to common stockholders(c)(d)...         (9)        16          56         47
Income (loss) from continuing operations per average common
  share -- basic...........................................      (0.04)      0.10        0.30       0.30
Income (loss) from continuing operations per average common
  share -- diluted.........................................      (0.04)      0.10        0.29       0.29
Basic earnings (loss) per average common share(e)..........      (0.06)      0.10        0.35       0.25
Diluted earnings (loss) per average common share(e)........      (0.06)      0.10        0.34       0.24
Common stock prices(f)
  High.....................................................       9.51       9.32        9.73      10.53
  Low......................................................       8.36       7.90        8.59       8.93
                                                                ======     ======      ======     ======
</Table>

                                     CMS-111
<PAGE>
                             CMS ENERGY CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
                                                                                  2003
                                                               ------------------------------------------
QUARTERS ENDED                                                 MARCH 31    JUNE 30    SEPT. 30    DEC. 31
- --------------                                                 --------    -------    --------    -------
                                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                            <C>         <C>        <C>         <C>
Operating revenue..........................................     $1,968     $1,126      $1,047     $1,372
Operating income...........................................        236        176          78        105
Income (loss) from continuing operations...................         75        (12)        (71)       (34)
Discontinued operations(b).................................         31        (53)          2         43
Cumulative effect of change in accounting(b)...............        (24)        --          --         --
Net income (loss)..........................................         82        (65)        (69)         9
Preferred dividends........................................         --         --          --          1
Net income (loss) available to common stockholders.........         82        (65)        (69)         8
Income (loss) from continuing operations per average common
  share -- basic...........................................       0.52      (0.08)      (0.47)     (0.22)
Income (loss) from continuing operations per average common
  share -- diluted.........................................       0.47      (0.08)      (0.47)     (0.22)
Basic earnings (loss) per average common share(e)..........       0.57      (0.45)      (0.46)      0.05
Diluted earnings (loss) per average common share(e)........       0.52      (0.45)      (0.46)      0.05
Common stock prices(f)
  High.....................................................      10.59       8.50        7.99       8.63
  Low......................................................       3.49       4.58        6.11       7.44
                                                                ======     ======      ======     ======
</Table>

- -------------------------
(a)  As of March 31, 2004, we determined that the MCV Partnership and the FMLP
     should be consolidated in accordance with revised FASB Interpretation No.
     46. As such, we consolidated their financial activities into our financial
     statements as of and for the year ended December 31, 2004. For additional
     details, see Note 16, Implementation of New Accounting Standards.

(b)  Net of tax.

(c)  Quarterly data for March 31, 2004 differs from amounts previously reported
     as a result of accelerating the measurement date on our benefit plans by
     one month. For additional information, see Note 7, Retirement Benefits.

(d)  Quarterly data for March 31, 2004 differs from amounts previously reported
     due to the remeasurement of our post retirement benefit obligation in
     accordance with FASB Staff Position, No. SFAS 106-2. For additional
     information, see Note 16, Implementation of New Accounting Standards.

(e)  Sum of the quarters may not equal the annual earnings per share due to
     changes in shares outstanding.

(f)  Based on New York Stock Exchange -- Composite transactions.

                                     CMS-112
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of CMS Energy Corporation

     We have audited the accompanying consolidated balance sheets of CMS Energy
Corporation (a Michigan corporation) as of December 31, 2004 and 2003, and the
related consolidated statements of income (loss), common stockholders' equity
and cash flows for each of three years in the period ended December 31, 2004.
Our audits also included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. The financial statements
of Midland Cogeneration Venture Limited Partnership, a 49% owned variable
interest entity which has been consolidated in 2004 pursuant to Revised
Financial Accounting Standards Board Interpretation No. 46, "Consolidation of
Variable Interest Entities" and accounted for under the equity method of
accounting in 2003 and 2002 and Jorf Lasfar Energy Company S.C.A., which
represents an investment accounted for under the equity method of accounting,
have been audited by other auditors whose reports have been furnished to us;
insofar as our opinion on the consolidated financial statements relates to the
amounts included for Midland Cogeneration Venture Limited Partnership and Jorf
Lasfar Energy Company S.C.A., respectively, it is based solely on their reports.

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

     In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CMS Energy Corporation
at December 31, 2004 and 2003, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004 in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

     As discussed in Note 16 to the consolidated financial statements, in 2004,
the Company adopted Revised Financial Accounting Standards Board (FASB)
Interpretation No. 46, "Consolidation of Variable Interest Entities". In
addition, as discussed in Note 7 to the consolidated financial statements, in
2004, the Company changed its measurement date for all CMS Energy Corporation
pension and postretirement benefit plans. As discussed in Notes 6, 8, and 16 to
the consolidated financial statements, in 2003, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 143,
"Accounting for Asset Retirement Obligations", EITF Issue No. 02-03,
"Recognition and Reporting of Gains and Losses on Energy Trading Contracts" and
of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities".

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of CMS
Energy Corporation's internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 7, 2005 expressed an unqualified opinion thereon.

                                          /s/ ERNST & YOUNG LLP

Detroit, Michigan
March 7, 2005

                                     CMS-113
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

     We have completed an integrated audit of Midland Cogeneration Venture
Limited Partnership's 2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2004 and audits of its 2003
and 2002 consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, partners' equity and cash flows
(not presented herein) present fairly, in all material respects, the financial
position of Midland Cogeneration Limited Partnership (a Michigan limited
partnership) and its subsidiaries (MCV) at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of MCV's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

     Also, in our opinion, management's assessment, included in Management's
Report on Internal Control Over Financial Reporting, that MCV maintained
effective internal control over financial reporting as of December 31, 2004
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, MCV maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control -- Integrated Framework issued by COSO.
MCV's management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
management's assessment and on the effectiveness of MCV's internal control over
financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,

                                     CMS-114
<PAGE>

accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

                                          /s/ PricewaterhouseCoopers LLP

                                          Detroit, Michigan
                                          February 25, 2005

                                     CMS-115
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Management Committee
and Stockholders of Jorf Lasfar
Energy Company S.C.A.
B.P. 99 Sidi Bouzid
El Jadida

     We have audited the accompanying balance sheets of Jorf Lasfar Energy
Company S.C.A. (the "Company") as of December 31, 2004, 2003 and 2002, and the
related statements of income, of stockholders' equity and of cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jorf Lasfar Energy Company
S.C.A. at December 31, 2004, 2003 and 2002, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Price Waterhouse

Price Waterhouse
Casablanca, Morocco,
February 11, 2005

                                     CMS-116
<PAGE>

[CONSUMERS ENERGY LOGO]

                     2004 CONSOLIDATED FINANCIAL STATEMENTS

                                       CE-1
<PAGE>

                            CONSUMERS ENERGY COMPANY

                         SELECTED FINANCIAL INFORMATION

<Table>
<Caption>
                                                              2004      2003     2002     2001     2000
                                                              ----      ----     ----     ----     ----
<S>                                                   <C>    <C>       <C>       <C>      <C>      <C>
Operating revenue (in millions)...................    ($)     4,711     4,435    4,169    3,976    3,878
Earnings from equity method investees (in
  millions).......................................    ($)         1        42       53       38       57
Income before cumulative effect of change in
  accounting principle (in millions)..............    ($)       280       196      363      199      284
Net income (in millions)(a).......................    ($)       279       196      381      188      284
Net income available to common stockholder (in
  millions).......................................    ($)       277       194      335      145      248
Cash from operations (in millions)................    ($)       640         5      760      518      515
Capital expenditures, excluding capital lease
  additions (in millions).........................    ($)       508       486      559      745      498
Total assets (in millions)(b).....................    ($)    12,811    10,745    9,598    9,191    8,672
Long-term debt, excluding current portion (in
  millions)(b)....................................    ($)     4,000     3,583    2,442    2,472    2,110
Long-term debt -- related parties, excluding
  current portion (in millions)(c)................    ($)       326       506       --       --       --
Non-current portion of capital leases (in
  millions).......................................    ($)       315        58      116       72       49
Total preferred stock (in millions)...............    ($)        44        44       44       44       44
Total Trust Preferred Securities (in
  millions)(c)....................................    ($)        --        --      490      520      395
Number of preferred shareholders at year-end......            1,931     2,032    2,132    2,220    2,365
Book value per common share at year-end...........    ($)     28.68     24.51    22.46    22.81    23.85
Number of full-time equivalent employees at
  year-end
     Consumers....................................            8,050     7,947    8,311    8,405    8,698
     Michigan Gas Storage(d)......................               --        --       --       62       57
ELECTRIC STATISTICS
  Sales (billions of kWh).........................               40        39       39       40       41
  Customers (in thousands)........................            1,772     1,754    1,734    1,712    1,691
  Average sales rate per kWh......................    (c)      6.88      6.91     6.88     6.65     6.56
GAS UTILITY STATISTICS
  Sales and transportation deliveries (bcf).......              385       380      376      367      410
  Customers (in thousands)(e).....................            1,691     1,671    1,652    1,630    1,611
  Average sales rate per mcf......................    ($)      8.04      6.72     5.67     5.34     4.39
</Table>

- -------------------------
(a)  See Notes 1 and 2 in the notes to the consolidated financial statements.

(b)  Under revised FASB Interpretation No. 46, we are the primary beneficiary of
     the MCV Partnership and the FMLP. As a result, we have consolidated their
     assets, liabilities and activities into our financial statements as of and
     for the year ended December 31, 2004. These partnerships had third party
     obligations totaling $582 million at December 31, 2004. Property, plant and
     equipment serving as collateral for these obligations had a carrying value
     of $1.426 billion at December 31, 2004.

(c)  Effective December 31, 2003, Trust Preferred Securities are classified on
     the balance sheets as Long-term debt -- related parties.

(d)  Effective November 2002, Michigan Gas Storage Company was merged into
     Consumers.

(e)  Excludes off-system transportation customers.

                                       CE-2
<PAGE>

                            CONSUMERS ENERGY COMPANY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     In this MD&A, Consumers Energy, which includes Consumers Energy Company and
all of its subsidiaries, is at times referred to in the first person as "we,"
"our" or "us."

EXECUTIVE OVERVIEW

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

     We manage our business by the nature of services each provides. We operate
principally in two business segments: electric utility and gas utility. Our
electric utility operations include the generation, purchase, distribution, and
sale of electricity. Our gas utility operations include the purchase,
transportation, storage, distribution, and sale of natural gas.

     We earn our revenue and generate cash from operations by providing electric
and natural gas utility services, electric power generation, gas transmission
and storage, and other energy related services. Our businesses are affected
primarily by:

     - weather, especially during the traditional heating and cooling seasons,

     - economic conditions,

     - regulation and regulatory issues,

     - interest rates,

     - our debt credit rating, and

     - energy commodity prices.

     Our business strategy involves improving our balance sheet and maintaining
focus on our core strength: superior utility operation and service. Over the
next few years, we expect that this strategy will result in improved credit
ratings, earnings growth, and a company positioned to make new investments.

     Despite strong financial and operational performance, we face important
challenges in the future. We continue to lose industrial and commercial
customers to alternative electric suppliers as a result of Michigan's Customer
Choice Act. As of March 2005, we have lost 900 MW, or 12 percent, of our
electric load to these alternative electric suppliers. Based on current trends,
we predict total load loss by the end of 2005 to be in the range of 1,000 MW to
1,200 MW. However, no assurance can be made that the actual load loss will fall
within that range. Existing state legislation encourages competition and
provides for recovery of Stranded Costs caused by the lost sales. In fact, in
November 2004, the MPSC ordered us to recover 2002 and 2003 Stranded Costs in
the amount of $63 million. In 2004, several bills were introduced into the
Michigan Senate that could change Michigan's Customer Choice Act.

     Another important challenge relates to the economics of the MCV
Partnership. The MCV Partnership's costs of producing electricity are tied to
the cost of natural gas. Because natural gas prices have increased substantially
in recent years and the price the MCV Partnership can charge us for energy has
not, the MCV Partnership's financial performance has been impacted negatively.
In January 2005, the MPSC issued an order approving the RCP to change the way
the facility is used. The purpose of the RCP is to conserve natural gas through
a change in the dispatch of the MCV Facility and thereby improve the financial
performance of the MCV Partnership without increased costs to customers. The
approved plan will:

     - allow for dispatching the MCV Facility based on natural gas market
       prices, which is expected to reduce gas consumption by an estimated 30 to
       40 bcf per year,

                                       CE-3
<PAGE>

     - allocate 50 percent of our direct savings to customers in 2005 and 70
       percent of our direct savings to customers thereafter, and

     - fund $5 million annually for renewable energy sources such as wind power
       projects.

     We are focused on further reducing our business, financial, and regulatory
risks, while growing the equity base of our company. In 2004, we issued over $1
billion in FMBs. Proceeds from these transactions were used to retire other
higher-interest rate long-term debt. Also in 2004, we received cash
contributions from CMS Energy of $250 million, providing additional liquidity
and flexibility for our operations. In January 2005, we continued to retire
higher-interest rate debt through the use of proceeds from the issuance of $250
million of FMBs. We also received an additional cash contribution from CMS
Energy of $200 million in January 2005. The efforts, and others, are designed to
lead us to be a strong, reliable utility company that will be poised to take
advantage of opportunities for further growth.

CONSOLIDATION OF THE MCV PARTNERSHIP AND THE FMLP

     Under Revised FASB Interpretation No. 46, we are the primary beneficiary of
the MCV Partnership and the FMLP. As a result, we have consolidated the assets,
liabilities, and activities of these entities into our financial statements as
of and for the year ended December 31, 2004. These entities are reported as
equity method investments in our financial statements for all periods prior to
January 1, 2004. For additional details, see Note 13, Implementation of New
Accounting Standards.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     This Form 10-K and other written and oral statements that we make contain
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995. Our intention with the use of words such as "may," "could,"
"anticipates," "believes," "estimates," "expects," "intends," "plans," and other
similar words is to identify forward-looking statements that involve risk and
uncertainty. We designed this discussion of potential risks and uncertainties to
highlight important factors that may impact our business and financial outlook.
We have 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 the statements. These forward-looking statements are
subject to various factors that could cause our actual results to differ
materially from the results anticipated in these statements. Such factors
include our inability to predict and/or control:

     - capital and financial market conditions, including the price of CMS
       Energy Common Stock and the effect of such market conditions on the
       Pension Plan, interest rates, and access to the capital markets as well
       as availability of financing to Consumers, CMS Energy, or any of their
       affiliates and the energy industry,

     - market perception of the energy industry, Consumers, CMS Energy, or any
       of their affiliates,

     - credit ratings of Consumers, CMS Energy, or any of their affiliates,

     - factors affecting utility and diversified energy operations such as
       unusual weather conditions, catastrophic weather-related damage,
       unscheduled generation outages, maintenance or repairs, environmental
       incidents, or electric transmission or gas pipeline system constraints,

     - international, national, regional, and local economic, competitive, and
       regulatory policies, conditions and developments,

     - adverse regulatory or legal decisions, including those related to
       environmental laws and regulations, and potential environmental
       remediation costs associated with such decisions,

     - potentially adverse regulatory treatment and/or regulatory lag concerning
       a number of significant questions presently before the MPSC relating to
       the Customer Choice Act including:

       - recovery of future Stranded Costs incurred due to customers choosing
         alternative energy suppliers,

       - recovery of Clean Air Act costs and other environmental and
         safety-related expenditures,

       - power supply and natural gas supply costs when oil prices and other
         fuel prices are rapidly increasing,
                                       CE-4
<PAGE>

       - timely recognition in rates of additional equity investments in
         Consumers, and

       - adequate and timely recovery of additional electric and gas rate-based
         expenditures,

     - the impact of adverse natural gas prices on the MCV Partnership
       investment, and regulatory decisions that limit our recovery of capacity
       and fixed energy payments,

     - federal regulation of electric sales and transmission of electricity
       including periodic re-examination by federal regulators of our
       market-based sales authorizations in wholesale power markets without
       price restrictions,

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

     - potential for the Midwest Energy Market to develop into an active energy
       market in the state of Michigan, which may lead us to account for
       electric capacity and energy contracts with the MCV Partnership and other
       independent power producers as derivatives,

     - the GAAP requirement that we utilize mark-to-market accounting on certain
       of our energy commodity contracts and interest rate swaps, which may
       have, in any given period, a significant positive or negative effect on
       earnings, which could change dramatically or be eliminated in subsequent
       periods and could add to earnings volatility,

     - potential disruption or interruption of facilities or operations due to
       accidents or terrorism, and the ability to obtain or maintain insurance
       coverage for such events,

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

     - technological developments in energy production, delivery, and usage,

     - achievement of capital expenditure and operating expense goals,

     - changes in financial or regulatory accounting principles or policies,

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

     - limitations on our ability to control the development or operation of
       projects in which our subsidiaries have a minority interest,

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

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

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

                                       CE-5
<PAGE>

RESULTS OF OPERATIONS

NET INCOME AVAILABLE TO COMMON STOCKHOLDER

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                       ------------------------------------------------
                                                       2004    2003    CHANGE    2003    2002    CHANGE
                                                       ----    ----    ------    ----    ----    ------
                                                                        (IN MILLIONS)
<S>                                                    <C>     <C>     <C>       <C>     <C>     <C>
Net income available to common stockholder
  Electric.........................................    $222    $167     $55      $167    $264    $ (97)
  Gas..............................................      71      38      33        38      46       (8)
  Other (Includes MCV partnership interest)........     (16)    (11)     (5)      (11)     25      (36)
                                                       ----    ----     ---      ----    ----    -----
Total net income available to common stockholder...    $277    $194     $83      $194    $335    $(141)
                                                       ====    ====     ===      ====    ====    =====
</Table>

     For the year 2004, our net income available to the common stockholder was
$277 million, compared to net income available to the common stockholder of $194
million for the year 2003. The $83 million increase in net income available to
the common stockholder reflects:

     - an $82 million decrease in operating expense, reflecting the MPSC's
       approval for recovery of stranded costs for 2002 and 2003, the deferral
       of electric depreciation expense on our excess capital expenditures as
       permitted by the Customer Choice Act, reduced gas depreciation rates as
       authorized by the MPSC, decreased pension costs, and the 2004 reduction
       to benefit expense due to the subsidy provided under Part D of the
       Medicare Prescription Drug, Improvement and Modernization Act,

     - a $73 million increase in other income, reflecting the return on certain
       costs recoverable under the Customer Choice Act beginning in 2004,

     - an $18 million increase in gas utility revenues due to the MPSC's
       December 2003 interim and October 2004 final gas rate orders,

     - the absence of a $12 million charge taken in 2003 to reflect a decline in
       the market value of CMS Energy common stock held by us,

     - a $5 million increase in gas wholesale and retail services and other gas
       revenues, primarily due to the absence of a 2003 revenue reduction due to
       the 2002-2003 GCR disallowance.

     These increases to net income available to the common stockholder were
offset partially by reductions to net income available to the common stockholder
from:

     - a $33 million increase in fixed charges because we expensed capitalized
       interest on the Clean Air Act costs incurred during the period of June
       2000 through December 2003 and increased our average borrowings,

     - a $22 million decrease in electric delivery revenue primarily due to
       tariff revenue reductions, customers choosing alternative electric
       suppliers, and milder summer temperatures' negative impact on air
       conditioning usage,

     - a $19 million decrease in earnings from our ownership interest in the MCV
       Partnership primarily due to increases in non-recoverable fuel costs
       incurred at the MCV Facility,

     - a $20 million underrecovery of power supply revenue due to
       non-recoverable power supply costs related to capped customers,

     - an $8 million increase in general taxes primarily due to the absence of a
       2003 reduction to MSBT expense from a tax credit received for
       construction of our corporate headquarters on a Brownfield site, and

     - a $5 million reduction in gas delivery revenue due to milder weather.

                                       CE-6
<PAGE>

     For the year 2003, our net income available to the common stockholder was
$194 million, compared to net income available to the common stockholder of $335
million for the year 2002. The $141 million decrease in net income available to
the common stockholder primarily reflects:

     - an $80 million increase in operating expense due to higher pension and
       other benefit costs, and increased depreciation and amortization expense,

     - a $27 million decrease in electric delivery revenue due to milder summer
       weather and the migration of commercial and industrial customers to
       alternative electric suppliers,

     - a $27 million decline in earnings from our ownership interest in the MCV
       Partnership primarily due to the decrease in fair value of certain gas
       contracts held by the MCV Partnership,

     - a $23 million increase in fixed charges due to higher average debt levels
       and higher average interest rates,

     - a $7 million charge at CMS Holdings to reflect the loss of certain tax
       credits, and

     - the absence of a $31 million gain primarily associated with the sale of
       our electric transmission system in 2002.

     These decreases to net income were offset partially by increases to net
income from:

     - a $25 million increase in gas tariff rates authorized by the MPSC in late
       2002,

     - an $8 million decrease of general tax expense primarily due to reduced
       MSBT expense from a tax credit received for building our corporate
       headquarters on a Brownfield site, and

     - a $17 million benefit from power supply overrecoveries due to lower
       average fuel costs and higher market prices for excess capacity sold.

     For additional details, see "Electric Utility Results of Operations" and
"Gas Utility Results of Operations" within this section and Note 2,
Contingencies.

ELECTRIC UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                       ------------------------------------------------
                                                       2004    2003    CHANGE    2003    2002    CHANGE
                                                       ----    ----    ------    ----    ----    ------
                                                                        (IN MILLIONS)
<S>                                                    <C>     <C>     <C>       <C>     <C>     <C>
Net income.........................................    $222    $167     $ 55     $167    $264     $(97)
                                                       ====    ====     ====     ====    ====     ====
Reasons for the change:
Electric deliveries................................                     $(34)                     $(41)
Power supply costs and related revenue.............                      (31)                       26
Other operating expenses, other income and
  non-commodity revenue............................                       86                       (80)
Regulatory return on capital expenditures..........                      113                        --
Gain on asset sales................................                       --                       (38)
General taxes......................................                       (8)                       10
Fixed charges......................................                      (40)                      (22)
Income taxes.......................................                      (30)                       48
Cumulative effect of change in accounting, net of
  tax expense......................................                       (1)                       --
                                                                        ----                      ----
Total change.......................................                     $ 55                      $(97)
                                                                        ====                      ====
</Table>

     ELECTRIC DELIVERIES: For the year 2004, electric deliveries including
transactions with other wholesale marketers, other electric utilities, and
customers choosing alternative electric suppliers increased 1.3 billion kWh or
3.3 percent versus 2003. Despite the increase in electric deliveries, electric
delivery revenue decreased due to the milder summer temperatures' negative
impact on higher margin residential customer air conditioning usage, customers
choosing alternative electric suppliers, and tariff revenue reductions. The
tariff revenue reductions

                                       CE-7
<PAGE>

began on January 1, 2004, and were equivalent to the Big Rock nuclear
decommissioning surcharge in effect when our electric retail rates were frozen
from June 2000 through December 31, 2003. The tariff revenue reductions
decreased electric delivery revenue by $35 million.

     Surcharges related to the recovery of costs incurred in the transition to
customer choice offset partially the reductions to electric delivery revenue.
Recovery of these costs began on July 1, 2004 and increased electric delivery
revenue by $10 million.

     For the year 2003, electric delivery revenue decreased, reflecting lower
deliveries versus 2002. Most significantly, sales volumes to commercial and
industrial customers were lower than in 2002, a result of these sectors'
continued migration to alternative electric suppliers as allowed by the Customer
Choice Act. Milder summer temperatures reduced air conditioning usage by the
higher-margin residential customers, further decreasing electric delivery
revenue. Overall, electric deliveries, including transactions with other
wholesale marketers and other electric utilities, decreased 0.4 billion kWh or
1.1 percent.

     POWER SUPPLY COSTS AND RELATED REVENUE: For the year 2004, our recovery of
power supply costs was capped for the residential and small commercial customer
classes. Operating income decreased $31 million in 2004 versus 2003 primarily
due to power supply-related costs exceeding power supply-related revenue charged
to capped customers. Power supply-related costs increased in 2004 primarily due
to higher priced purchased power necessary to replace the generation loss from
an extended refueling outage at our Palisades nuclear generating plant and
higher coal prices.

     For the year 2003, our recovery of power supply costs was fixed for all
customers, as required under the Customer Choice Act. Therefore, power
supply-related revenue in excess of actual power supply costs increased
operating income. By contrast, if power supply-related revenue had been less
than actual power supply costs, the impact would have decreased operating
income. For the year 2003, power supply-related revenue in excess of actual
power supply costs benefited operating income by $26 million versus 2002. This
increase was primarily the result of increased intersystem revenue, efficient
operation of our generating plants, and lower priced purchased power.

     OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: For the
year 2004, other income increased $7 million, other operating expenses decreased
$82 million, and non-commodity revenue decreased $3 million versus 2003. Other
income increased primarily due to $7 million of interest income related to our
2002 and 2003 Stranded Cost recovery as authorized by the MPSC. Our recognition
of this recovery decreased operating expense $57 million in 2004, and along with
decreased depreciation, pension, and benefit costs contributed to the reduction
in other operating expenses. The decrease in depreciation expense reflects our
ability to defer depreciation expense on the excess of capital expenditures over
our depreciation base as authorized by the Customer Choice Act. The decrease in
pension expense reflects fewer current year retirees choosing to receive a
single lump sum distribution, and increased plan earnings from higher average
plan assets. The reduction in benefit expense is due to the subsidy provided
under Part D of the Medicare Prescription Drug, Improvement and Modernization
Act.

     For the year 2003, net other operating expenses, other income and
non-commodity revenue decreased operating income versus 2002. The decrease
related to increased pension and other benefit costs, a scheduled refueling
outage at Palisades, and higher transmission costs. In addition, depreciation
and amortization expense increased, reflecting higher levels of plant in
service, and higher amortization of securitized assets. Higher non-commodity
revenue associated with other income offset slightly the increased operating
expenses.

     REGULATORY RETURN ON CAPITAL EXPENDITURES: As allowed by Section 10d(4) of
the Customer Choice Act, on January 1, 2004, we began recording the 2004 portion
of the return on certain capital expenditures incurred during the rate freeze
period of June 2000 through December 2003. This increased income by $41 million
in 2004. Based on an interpretation of the Customer Choice Act by the MPSC in a
rate order involving Detroit Edison, in November 2004 we recorded an additional
$72 million return on Clean Air Act costs incurred during the period of June
2000 through December 2003.

                                       CE-8
<PAGE>

     GAIN ON ASSET SALES: The reduction in operating income from asset sales for
2003 versus 2002 reflected the $31 million pretax gain associated with the 2002
sale of our electric transmission system and the $7 million pretax gain
associated with the 2002 sale of nuclear equipment from the cancelled Midland
project.

     GENERAL TAXES: For the year 2004, general taxes increased primarily due to
increases in property tax expense and the absence of a MSBT credit received in
2003. The 2003 MSBT credit was associated with the construction of our corporate
headquarters on a qualifying Brownfield site. For the year 2003, this MSBT
credit decreased general taxes versus 2002.

     FIXED CHARGES: Fixed charges increased for the year 2004 versus 2003 due to
higher average debt levels, offset partially by a 46 basis point reduction in
the average rate of interest. Additionally, to recognize a recently issued
interpretation of the Customer Choice Act by the MPSC, we expensed $31 million
of capitalized interest in November related to Clean Air Act costs incurred
during the period of June 2000 through December 2003.

     For the year 2003, fixed charges increased versus 2002 due to higher
average debt levels and higher average interest rates.

     INCOME TAXES: For the year 2004, income taxes increased due to increased
earnings from the electric utility versus 2003. The increase in income taxes
from the tax treatment of items related to plant, property and equipment as
required by past MPSC orders was offset by Part D of the Medicare Prescription
Drug, Improvement and Modernization Act which provides a subsidy that is exempt
from federal taxation. For the year 2003, income tax expense decreased versus
2002 primarily due to lower earnings by the electric utility.

     CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING, NET OF TAX EXPENSE: The
measurement date for all of Consumers' plans is November 30 for 2004, and
December 31 for 2003 and 2002. We believe accelerating the measurement date on
our benefit plans by one month is preferable as it improves control procedures
and allows more time to review the completeness and accuracy of the actuarial
measurements. As a result of the measurement date change, we recorded a $1
million, net of tax, cumulative effect adjustment as a decrease to earnings. For
additional details, see Note 5, Retirement Benefits.

GAS UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31,
                                                     -------------------------------------------
                                                     2004   2003   CHANGE   2003   2002   CHANGE
                                                     ----   ----   ------   ----   ----   ------
                                                                    (IN MILLIONS)
<S>                                                  <C>    <C>    <C>      <C>    <C>    <C>
Net income.........................................  $71    $38     $ 33    $38    $46     $ (8)
                                                     ===    ===     ====    ===    ===     ====
Reasons for the change:
Gas deliveries.....................................                 $ (7)                  $ (1)
Gas rate increase..................................                   28                     39
Gas wholesale and retail services, other gas
  revenue and other income.........................                    8                      2
Operation and maintenance..........................                   11                    (34)
General taxes......................................                   (4)                     3
Depreciation.......................................                   16                    (10)
Fixed charges......................................                  (14)                    (5)
Income taxes.......................................                   (5)                    (2)
                                                                    ----                   ----
Total change.......................................                 $ 33                   $ (8)
                                                                    ====                   ====
</Table>

     GAS DELIVERIES: For the year 2004, gas deliveries, including transportation
to end-use customers, decreased 15.5 bcf or 4.6 percent due to milder weather
versus 2003. Most significantly, temperatures in the first quarter of the year
were 12.1 percent warmer than in the same period in 2003.

     For the year 2003, gas deliveries, including miscellaneous transportation,
increased due to colder weather during the first quarter of 2003 versus 2002.
Increased deliveries to the residential and commercial sectors resulted in a $6
million increase in gas revenue. This revenue increase was offset by a $7
million reduction to gas revenue associated with our analysis of gas losses
related to the gas transmission and distribution system.

                                       CE-9
<PAGE>

     GAS RATE INCREASE: In December 2003, the MPSC issued an interim gas rate
order authorizing a $19 million annual increase to gas tariff rates. In October
2004, the MPSC issued a final order authorizing an increase of $58 million in
each of the next two years. As a result of these orders, gas revenues increased
$28 million for the year 2004 versus 2003.

     In November 2002, the MPSC issued a final gas rate order authorizing a $56
million annual increase to gas tariff rates. As a result of this order, gas
revenue increased $39 million for the year 2003 versus 2002.

     GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUE AND OTHER INCOME: In
2004, gas wholesale and retail services and other gas revenue increased
primarily due to the absence of certain 2003 reductions to revenue. In 2003, gas
revenue was reduced primarily due to an $11 million 2002-2003 GCR disallowance.

     For the year 2003, gas wholesale and retail services and other gas revenue
increased versus 2002. This increase was primarily due to increased gas title
tracking services and miscellaneous revenue in 2003. The increased revenue was
offset partially by a disallowance for the 2002-2003 GCR year.

     OPERATION AND MAINTENANCE: For the year 2004 versus 2003, operation and
maintenance expenses decreased versus 2003 primarily due to reduced pension and
benefit expense of $23 million. The decrease in pension expense reflects fewer
current year retirees choosing to receive a single lump sum distribution, and
increased plan earnings from higher average plan assets. The reduction in
benefit expense is due to the subsidy provided under Part D of the Medicare
Prescription Drug, Improvement and Modernization Act. These reductions were
offset partially by additional expenditures on safety, reliability, and customer
service.

     For the year 2003, operation and maintenance expenses increased versus 2002
due to increases in pension and other benefit costs of $27 million and
additional expenditures on safety, reliability, and customer service.

     GENERAL TAXES: For the year 2004, general taxes increased due to the
absence of a MSBT credit received in 2003. The 2003 MSBT credit received from
the State of Michigan was associated with the construction of our corporate
headquarters on a qualifying Brownfield site. For the year 2003, this MSBT
credit decreased general taxes versus 2002.

     DEPRECIATION: For the year 2004 versus 2003, depreciation expense decreased
primarily due to reduced rates authorized by the MPSC's December 2003 interim
rate order and the MPSC's October 2004 order, as modified by its December 2004
order granting rehearing. For the year 2003, depreciation expense increased
because of increased plant in service versus 2002.

     FIXED CHARGES: Fixed charges increased for the year 2004 versus 2003 due to
higher average debt levels, offset partially by a 46 basis point reduction in
the average rate of interest. For the year 2003, fixed charges increased versus
2002 due to higher average debt levels and higher average interest rates.

     INCOME TAXES: For the year 2004, income taxes increased due to increased
earnings from the gas utility versus 2003. The increase in income taxes was
offset partially by reductions from the tax treatment of items related to plant,
property and equipment as required by past MPSC orders, and by Part D of the
Medicare Prescription Drug, Improvement and Modernization Act which provides a
subsidy that is exempt from federal taxation.

     For the year 2003 versus 2002, income tax expense increased primarily due
to the tax treatment of items related to plant, property and equipment as
required by past MPSC orders.

CRITICAL ACCOUNTING POLICIES

     The following accounting policies are important to an understanding of our
results of operations and financial condition and should be considered an
integral part of our MD&A:

     - use of estimates and assumptions in accounting for contingencies and
       equity method investments,

     - accounting for the effects of industry regulation,

     - accounting for financial and derivative instruments and market risk
       information,

                                      CE-10
<PAGE>

     - accounting for pension and OPEB,

     - accounting for asset retirement obligations,

     - accounting for nuclear decommissioning costs, and

     - accounting for related party transactions.

For additional accounting policies, see Note 1, Corporate Structure and
Accounting Policies.

USE OF ESTIMATES AND ASSUMPTIONS

     In preparing our financial statements, we use estimates and assumptions
that may affect reported amounts and disclosures. Accounting estimates are used
for asset valuations, depreciation, amortization, financial and derivative
instruments, employee benefits, and contingencies. For example, we estimate the
rate of return on plan assets and the cost of future health-care benefits to
determine our annual pension and other postretirement benefit costs. There are
risks and uncertainties that may cause actual results to differ from estimated
results, such as changes in the regulatory environment, competition, regulatory
decisions, and lawsuits.

     CONTINGENCIES: We are involved in various regulatory and legal proceedings
that arise in the ordinary course of our business. We record a liability for
contingencies based upon our assessment that the occurrence of loss is probable
and the amount of loss can be reasonably estimated. The recording of estimated
liabilities for contingencies is guided by the principles in SFAS No. 5. We
consider many factors in making these assessments, including history and the
specifics of each matter. The most significant of these contingencies are our
electric and gas environmental estimates, which are discussed in the "Outlook"
section included in this MD&A, and the potential underrecoveries from our power
purchase contract with the MCV Partnership.

     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. We hold a 49
percent partnership interest in the MCV Partnership, and a 35 percent lessor
interest in the MCV Facility.

     The cost that we incur under the MCV Partnership PPA exceeds the recovery
amount allowed by the MPSC. As a result, we estimate that cash underrecoveries
of capacity and fixed energy payments will aggregate $150 million from 2005
through 2007. After September 15, 2007, we expect to claim relief under the
regulatory out provision in the PPA, thereby limiting our capacity and fixed
energy payments to the MCV Partnership to the amounts collected from our
customers. The effect of any such action would be to:

     - reduce cash flow to the MCV Partnership, which could have an adverse
       effect on our investment, and

     - eliminate our underrecoveries of capacity and fixed energy payments.

     The MCV Partnership has indicated that it may take issue with our exercise
of the regulatory out clause after September 2007. We believe that the clause is
valid and fully effective, but cannot assure that it will prevail in the event
of a dispute. The MPSC's future actions on the capacity and fixed energy
payments recoverable from customers subsequent to September 2007 may affect
negatively the earnings of the MCV Partnership and the value of our investment
in the MCV Partnership.

     Further, under the PPA, variable energy payments to the MCV Partnership are
based on the cost of coal burned at our coal plants and our operation and
maintenance expenses. However, the MCV Partnership's costs of producing
electricity are tied to the cost of natural gas. Because natural gas prices have
increased substantially in recent years and the price the MCV Partnership can
charge us for energy has not, the MCV Partnership's financial performance has
been impacted negatively. Even with the approved RCP, if gas prices continue at
present levels or increase, the economics of operating the MCV Facility may be
adverse enough to require us to recognize an impairment.

     In January 2005, the MPSC issued an order approving the RCP, with
modifications. The RCP allows us to recover the same amount of capacity and
fixed energy charges from customers as approved in prior MPSC orders. However,
we are able to dispatch the MCV Facility on the basis of natural gas market
prices, which will reduce

                                      CE-11
<PAGE>

the MCV Facility's annual production of electricity and, as a result, reduce the
MCV Facility's consumption of natural gas by an estimated 30 to 40 bcf annually.
This decrease in the quantity of high-priced natural gas consumed by the MCV
Facility will benefit our ownership interest in the MCV Partnership.

     The substantial MCV Facility fuel cost savings will be used first to offset
fully the cost of replacement power. Second, $5 million annually will be used to
fund a renewable energy program. Remaining savings will be split between the MCV
Partnership and Consumers. Consumers' direct savings will be shared 50 percent
with its customers in 2005 and 70 percent in 2006 and beyond. Consumers' direct
savings from the RCP, after a portion is allocated to customers, will be used to
offset our capacity and fixed energy underrecoveries expense. Since the MPSC has
excluded these underrecoveries from the rate making process, we anticipate that
our savings from the RCP will not affect our return on equity used in our base
rate filings.

     In January 2005, Consumers and the MCV Partnership's general partners
accepted the terms of the order and implemented the RCP. The underlying
agreement for the RCP between Consumers and the MCV Partnership extends through
the term of the PPA. However, either party may terminate that agreement under
certain conditions. In February 2005, a group of intervenors in the RCP case
filed an application for rehearing of the MPSC order. The Attorney General also
filed a claim of appeal with the Michigan Court of Appeals. We cannot predict
the outcome of these appeals.

     For additional details on the MCV Partnership, see Note 2, Contingencies,
"Other Electric Contingencies -- The Midland Cogeneration Venture."

ACCOUNTING FOR THE EFFECTS OF INDUSTRY REGULATION

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

     For example, we may record as regulatory assets items that a non-regulated
entity normally would expense if the actions of the regulator indicate such
expenses will be recovered in future rates. Conversely, we may record as
regulatory liabilities items that non-regulated entities may normally recognize
as revenues if the actions of the regulator indicate they will require such
revenues be refunded to customers. Judgment is required to determine the
recoverability of items recorded as regulatory assets and liabilities. As of
December 31, 2004, we had $1.696 billion recorded as regulatory assets and
$1.574 billion recorded as regulatory liabilities.

     For additional details on industry regulation, see Note 1, Corporate
Structure and Accounting Policies, "Utility Regulation."

ACCOUNTING FOR FINANCIAL AND DERIVATIVE INSTRUMENTS AND MARKET RISK INFORMATION

     FINANCIAL INSTRUMENTS: We account for investments in debt and equity
securities using SFAS No. 115. Debt and equity securities classified as
available-for-sale are reported at fair value determined from quoted market
prices. Debt and equity securities classified as held-to-maturity are reported
at cost. Unrealized gains or losses resulting from changes in fair value of
certain available-for-sale debt and equity securities are reported, net of tax,
in equity as part of accumulated other comprehensive income. Unrealized gains or
losses are excluded from earnings unless the related changes in fair value are
determined to be other than temporary.

     Unrealized gains or losses on our nuclear decommissioning investments are
reflected as regulatory liabilities on our Consolidated Balance Sheets. Realized
gains or losses would not affect our earnings or cash flows.

     DERIVATIVE INSTRUMENTS: We use the criteria in SFAS No. 133 to determine if
certain contracts must be accounted for as derivative instruments. This criteria
is complex and significant judgment is often required in applying the criteria
to specific contracts. 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. The recorded fair value is then
adjusted quarterly to reflect any change in the market value of the contract, a
practice known as marking the contract to market. Changes in fair value (that
is, gains or losses) are reported either in earnings or accumulated

                                      CE-12
<PAGE>

other comprehensive income, depending on whether the derivative qualifies for
cash flow hedge accounting treatment.

     The types of contracts we typically classify as derivative instruments are
interest rate swaps, electric call options, gas supply call and put options, gas
fuel futures and swaps, gas fuel options, and certain gas fuel contracts. The
majority of our contracts are not subject to derivative accounting under SFAS
No. 133 because they qualify for the normal purchases and sales exception, or
because there is not an active market for the commodity. Our electric capacity
and energy contracts are not accounted for as derivatives due to the lack of an
active energy market in the state of Michigan and the significant transportation
costs that would be incurred to deliver the power under the contracts to the
closest active energy market at the Cinergy hub in Ohio. Similarly, our coal
purchase contracts are not accounted for as derivatives due to the lack of an
active market for the coal that we purchase. If active markets for these
commodities develop in the future, we may be required to account for these
contracts as derivatives, and the resulting mark-to-market impact on earnings
could be material to our financial statements.

     The MISO is scheduled to begin the Midwest Energy Market on April 1, 2005,
which will include day-ahead and real-time energy market information and
centralized dispatch for market participants. At this time, we believe that the
commencement of this market will not constitute the development of an active
energy market in the state of Michigan. However, after having adequate
experience with the Midwest Energy Market, we will reevaluate whether or not the
activity level within this market leads to the conclusion that an active energy
market exists. For additional information, see "Electric Business
Uncertainties -- Competition and Regulatory Restructuring -- Transmission Market
Developments" within this MD&A.

     The MCV Partnership uses natural gas fuel contracts to buy gas as fuel for
generation, and to manage gas fuel costs. The MCV Partnership believes that
certain of its long-term gas contracts qualify as normal purchases under SFAS
No. 133, and therefore, these contracts are not recognized at fair value on the
balance sheet. Due to the implementation of the RCP in January 2005, the MCV
Partnership has determined that a significant portion of its gas fuel contracts
no longer qualify as normal purchases because the contracted gas will not be
consumed as fuel for electric production. Accordingly, these contracts will be
treated as derivatives and will be marked-to-market through earnings each
quarter, which could increase earnings volatility. Based on market prices for
natural gas as of January 31, 2005, the accounting for the MCV Partnership's
long-term gas contracts, including those affected by the implementation of the
RCP, could result in an estimated $100 million (pretax before minority interest)
gain recorded to earnings in the first quarter of 2005. This estimated gain will
reverse in subsequent quarters as the contracts settle. For further details on
the RCP, see "Critical Accounting Policies -- Use of Estimates and
Assumptions -- MCV Underrecoveries" within this MD&A. If there are further
changes in the level of planned electric production or gas consumption, the MCV
Partnership may be required to account for additional long-term gas contracts as
derivatives, which could add to earnings volatility.

     To determine the fair value of our derivative contracts, we use a
combination of quoted market prices, prices obtained from external sources, such
as brokers, and mathematical valuation models. Valuation models require various
inputs, including forward prices, strike prices, volatilities, interest rates,
and maturity dates. Changes in forward prices or volatilities could change
significantly the calculated fair value of certain contracts. At December 31,
2004, we assumed a market-based interest rate of 2.75 percent and monthly
volatility rates ranging between 60 percent and 73 percent to calculate the fair
value of our gas options. At December 31, 2004, we assumed market-based interest
rates ranging between 2.40 percent and 4.48 percent (depending on the term of
the contract) and monthly volatility rates ranging between 25 percent and 68
percent to calculate the fair value of the gas fuel derivative contracts held by
the MCV Partnership.

     In certain contracts, long-term commitments may extend beyond the period in
which market quotations for such contracts are available. Mathematical models
are developed to determine various inputs into the fair value calculation
including price and other variables that may be required to calculate fair
value. Realized cash returns on these commitments may vary, either positively or
negatively, from the results estimated through application of the mathematical
model. In connection with the market valuation of our derivative contracts, we
maintain reserves, if necessary, for credit risks based on the financial
condition of counterparties.

                                      CE-13
<PAGE>

     MARKET RISK INFORMATION: We are exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, and equity security
prices. We manage these risks using established policies and procedures, under
the direction of both an executive oversight committee consisting of senior
management representatives and a risk committee consisting of business-unit
managers. We may use various derivative contracts to manage these risks,
including swaps, options, futures, and forward contracts. We intend that any
gains or losses on these contracts will be offset by an opposite movement in the
value of the item at risk. We enter into all risk management contracts for
purposes other than trading.

     These contracts contain credit risk if the counterparties, including
financial institutions and energy marketers, fail to perform under the
agreements. We minimize such risk through established credit policies that
include performing financial credit reviews of our counterparties. Determination
of our counterparties' credit quality is based upon a number of factors,
including credit ratings, disclosed financial condition, and collateral
requirements. Where contractual terms permit, we employ standard agreements that
allow for netting of positive and negative exposures associated with a single
counterparty. Based on these policies and our current exposures, we do not
anticipate a material adverse effect on our financial position or earnings as a
result of counterparty nonperformance.

     The following risk sensitivities indicate the potential loss in fair value,
cash flows, or future earnings from our derivative contracts and other financial
instruments based upon a hypothetical 10 percent adverse change in market rates
or prices. Changes in excess of the amounts shown in the sensitivity analyses
could occur if market rates or prices exceed the 10 percent shift used for the
analyses.

     Interest Rate Risk: We are exposed to interest rate risk resulting from
issuing fixed-rate and variable-rate financing instruments, and from interest
rate swap agreements. We use a combination of these instruments to manage this
risk as deemed appropriate, based upon market conditions. These strategies are
designed to provide and maintain a balance between risk and the lowest cost of
capital.

     Interest Rate Risk Sensitivity Analysis (assuming a 10 percent adverse
change in market interest rates):

<Table>
<Caption>
AS OF DECEMBER 31                                             2004    2003
- -----------------                                             -----   -----
                                                              (IN MILLIONS)
<S>                                                           <C>     <C>
Variable-rate financing -- before tax annual earnings
  exposure..................................................  $  2    $  1
Fixed-rate financing -- potential loss in fair value(a).....   138     154
</Table>

- ------------------------

(a)  Fair value exposure could only be realized if we repurchased all of our
     fixed-rate financing.

     Commodity Price Risk: For purposes other than trading, we enter into
electric call options and gas supply call and put options. Electric call options
are purchased to protect against the risk of fluctuations in the market price of
electricity, and to ensure a reliable source of capacity to meet our customers'
electric needs. Purchased electric call options give us the right, but not the
obligation, to purchase electricity at predetermined fixed prices. Our gas
supply call and put options are used to purchase reasonably priced gas supply.
Purchases of gas supply call options give us the right, but not the obligation,
to purchase gas supply at predetermined fixed prices. Gas supply put options
sold give third-party suppliers the right, but not the obligation, to sell gas
supply to us at predetermined fixed prices. At December 31, 2004, we held gas
supply call options and had sold gas supply put options.

     The MCV Partnership uses natural gas fuel contracts to buy gas as fuel for
generation and to manage gas fuel costs. Some of these contracts are treated as
derivative instruments. The MCV Partnership also enters into natural gas futures
contracts, option contracts, and over-the-counter swap transactions in order to
hedge against unfavorable changes in the market price of natural gas in future
months when gas is expected to be needed. These financial instruments are being
used principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of natural gas
previously obtained in order to optimize the MCV Partnership's existing gas
supply, storage, and transportation arrangements.

                                      CE-14
<PAGE>

     Commodity Price Risk Sensitivity Analysis (assuming a 10 percent adverse
change in market prices):

<Table>
<Caption>
AS OF DECEMBER 31                                             2004    2003
- -----------------                                             -----   -----
                                                              (IN MILLIONS)
<S>                                                           <C>     <C>
Potential reduction in fair value:
  Gas supply option contracts...............................   $ 1     $ 1
  Derivative contracts associated with Consumers' investment
     in the MCV Partnership:
     Gas fuel contracts.....................................    17     N/A
     Gas fuel futures and swaps.............................    41     N/A
</Table>

     We did not perform a sensitivity analysis for the derivative contracts held
by the MCV Partnership as of December 31, 2003, because the MCV Partnership was
not consolidated into our financial statements until 2004, as discussed in Note
13, Implementation of New Accounting Standards.

     Investment Securities Price Risk: Our investments in debt and equity
securities are exposed to changes in interest rates and price fluctuations in
equity markets. The following table shows the potential effect of adverse
changes in interest rates and fluctuations in equity prices on our
available-for-sale investments.

     Investment Securities Price Risk Sensitivity Analysis:

<Table>
<Caption>
AS OF DECEMBER 31                                             2004    2003
- -----------------                                             -----   -----
                                                              (IN MILLIONS)
<S>                                                           <C>     <C>
Potential reduction in fair value:
  Available-for-sale investments(a):
     Equity Securities(b)...................................   $ 5     $ 3
     Debt Securities(c).....................................    --      --
</Table>

- ------------------------

(a)  Primarily SERP investments and investments in CMS Energy common stock.

(b)  Assumes a 10 percent adverse change in market prices.

(c)  Assumes a 50 basis point increase in the yield to maturity of the 10-year
     Treasury Note which approximates a 10 percent change in market yields.

     We maintain trust funds, as required by the NRC, which may only be used to
fund certain costs of nuclear plant decommissioning. As of December 31, 2004 and
2003, these funds were invested primarily in equity securities, fixed-rate,
fixed-income debt securities, and cash and cash equivalents, and are recorded at
fair value on our Consolidated Balance Sheets. Those investments are exposed to
price fluctuations in equity markets and changes in interest rates. Because the
accounting for nuclear plant decommissioning recognizes that costs are recovered
through our electric rates, fluctuations in equity prices or interest rates do
not affect consolidated earnings or cash flows.

     For additional details on market risk and derivative activities, see Note
4, Financial and Derivative Instruments.

ACCOUNTING FOR PENSION AND OPEB

     Pension: We have established external trust funds to provide retirement
pension benefits to our employees under a non-contributory, defined benefit
Pension Plan. We implemented a cash balance plan for certain employees hired
after June 30, 2003. We use SFAS No. 87 to account for pension costs.

     401(k): In our effort to reduce costs, the employer's match for the 401(k)
plan was suspended effective September 1, 2002. The employer's match for the
401(k) plan resumed on January 1, 2005.

     OPEB: We provide postretirement health and life benefits under our OPEB
plan to substantially all our retired employees. We use SFAS No. 106 to account
for other postretirement benefit costs.

                                      CE-15
<PAGE>

     Liabilities for both pension and OPEB are recorded on the balance sheet at
the present value of their future obligations, net of any plan assets. The
calculation of the liabilities and associated expenses requires the expertise of
actuaries. Many assumptions are made including:

     - life expectancies,

     - present value discount rates,

     - expected long-term rate of return on plan assets,

     - rate of compensation increases, and

     - anticipated health care costs.

     Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year.

     The following table provides an estimate of our pension cost, OPEB cost,
and cash contributions for the next three years:

<Table>
<Caption>
                                                                        EXPECTED COSTS
                                                           ----------------------------------------
                                                           PENSION COST   OPEB COST   CONTRIBUTIONS
                                                           ------------   ---------   -------------
                                                                        (IN MILLIONS)
<S>                                                        <C>            <C>         <C>
2005.....................................................      $49           $39          $ 62
2006.....................................................       68            35            78
2007.....................................................       79            32           110
</Table>

     Actual future pension cost and contributions will depend on future
investment performance, changes in future discount rates, and various other
factors related to the populations participating in the Pension Plan.

     Lowering the expected long-term rate of return on the Pension Plan assets
by 0.25 percent (from 8.75 percent to 8.50 percent) would increase estimated
pension cost for 2005 by $3 million. Lowering the discount rate by 0.25 percent
(from 6.00 percent to 5.75 percent) would increase estimated pension cost for
2005 by $4 million.

     For additional details on postretirement benefits, see Note 5, Retirement
Benefits.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

     SFAS No. 143 became effective January 2003. It requires companies to record
the fair value of the cost to remove assets at the end of their useful lives, if
there is a legal obligation to remove them. We have legal obligations to remove
some of our assets, including our nuclear plants, at the end of their useful
lives. As required by SFAS No. 71, we accounted for the implementation of this
standard by recording regulatory assets and liabilities 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 to assume 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 our ARO fair value estimate since a reasonable estimate could
not be made.

     If a reasonable estimate of fair value cannot be made in the period in
which the ARO is incurred, such as for assets with indeterminate lives, the
liability is recognized when a reasonable estimate of fair value can be made.
Generally, gas transmission and electric and gas distribution assets have
indeterminate lives. 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. Also, no liability has been recorded for assets that have
insignificant cumulative disposal costs, such as substation batteries. The
measurement of the ARO liabilities for Palisades and Big Rock are based on
decommissioning studies that largely utilize third-party cost estimates. For
additional details on ARO, see Note 6, Asset Retirement Obligations.

                                      CE-16
<PAGE>

ACCOUNTING FOR NUCLEAR DECOMMISSIONING COSTS

     The MPSC and the FERC regulate the recovery of costs to decommission our
Big Rock and Palisades nuclear plants. We have established external trust funds
to finance the decommissioning of both plants. We record the trust fund balances
as a non-current asset on our Consolidated Balance Sheets.

     Our decommissioning cost estimates for the Big Rock and Palisades plants
assume:

     - each plant site will be restored to conform to the adjacent landscape,

     - all contaminated equipment and material will be removed and disposed of
       in a licensed burial facility, and

     - the site will be released for unrestricted use.

     Independent contractors with expertise in decommissioning have helped us
develop decommissioning cost estimates. Various inflation rates for labor,
non-labor, and contaminated equipment disposal costs are used to escalate these
cost estimates to the future decommissioning cost. A portion of future
decommissioning cost will result from the failure of the DOE to remove fuel from
the sites, as required by the Nuclear Waste Policy Act of 1982.

     The decommissioning trust funds include 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.
The funds provided by the trusts, additional customer surcharges, and potential
funds from the DOE litigation are all required to cover fully the
decommissioning costs. The costs of decommissioning these sites and the adequacy
of the trust funds could be affected by:

     - variances from expected trust earnings,

     - a lower recovery of costs from the DOE and lower rate recovery from
       customers, and

     - changes in decommissioning technology, regulations, estimates, or
       assumptions.

     Based on current projections, the current level of funds provided by the
trusts is not adequate to fund fully the decommissioning of Big Rock or
Palisades. This is due in part to the DOE's failure to accept the spent nuclear
fuel on schedule and lower returns on the trust funds. We are attempting to
recover our additional costs for storing spent nuclear fuel through litigation.
We are also seeking additional relief from the MPSC. For additional details on
nuclear decommissioning, see Note 2, Contingencies, "Other Electric
Contingencies -- Nuclear Plant Decommissioning" and "Nuclear Matters."

RELATED PARTY TRANSACTIONS

     We enter into a number of significant transactions with related parties.
These transactions include:

     - issuance of trust preferred securities with Consumers' affiliated
       companies,

     - purchase and sale of electricity from and to Enterprises,

     - purchase of gas transportation from CMS Bay Area Pipeline, L.L.C.,

     - payment of parent company overhead costs to CMS Energy, and

     - investment in CMS Energy Common Stock.

     Transactions involving CMS Energy and its affiliates generally are based on
regulated prices, market prices, or competitive bidding. Transactions involving
the power supply purchases from certain affiliates of Enterprises are based upon
avoided costs under PURPA and competitive bidding. The payment of parent company
overhead costs is based on the use of accepted industry allocation
methodologies.

     For additional details on related party transactions, see Note 1, Corporate
Structure and Accounting Policies, "Related Party Transactions", and Note 2,
Contingencies, "Other Electric Contingencies -- The Midland Cogeneration
Venture."

                                      CE-17
<PAGE>

CAPITAL RESOURCES AND LIQUIDITY

     Our liquidity and capital requirements are a function of our results of
operations, capital expenditures, contractual obligations, debt maturities,
working capital needs, and collateral requirements. During the summer months, we
purchase natural gas and store it for resale primarily during the winter heating
season. The market price for natural gas has increased. Although our natural gas
purchases are recoverable from our customers, the amount paid for natural gas
stored as inventory could require additional liquidity due to the timing of the
cost recoveries. In addition, a few of our commodity suppliers have requested
nonstandard payment terms or other forms of assurances, including margin calls,
in connection with maintenance of ongoing deliveries of gas and electricity.

     Our current financial plan includes controlling our operating expenses and
capital expenditures and evaluating market conditions for financing
opportunities. We believe our current level of cash and access to borrowing
capacity in the capital markets, along with anticipated cash flows from
operating and investing activities, will be sufficient to meet our liquidity
needs through 2006.

CASH POSITION, INVESTING, AND FINANCING

     Our operating, investing, and financing activities meet consolidated cash
needs. At December 31, 2004, $192 million consolidated cash was on hand, which
includes $21 million of restricted cash and $126 million from the effect of
Revised FASB Interpretation No. 46 consolidation. For additional details on cash
equivalents and restricted cash, see Note 1, Corporate Structure and Accounting
Policies. For additional details on FASB Interpretation No. 46, see Note 13,
Implementation of New Accounting Standards.

SUMMARY OF CASH FLOWS:

<Table>
<Caption>
                                                                2004     2003        2002
                                                                ----     ----        ----
                                                                        (IN MILLIONS)
<S>                                                             <C>      <C>      <C>
Net cash provided by (used in):
  Operating activities......................................    $ 640    $   5       $ 760
  Investing activities......................................     (562)    (528)       (325)
                                                                -----    -----       -----
Net cash provided by (used in) operating and investing
activities..................................................       78     (523)        435
  Financing activities......................................     (127)     325        (204)
                                                                -----    -----       -----
Net Increase (Decrease) in Cash and Cash Equivalents........    $ (49)   $(198)      $ 231
                                                                =====    =====       =====
</Table>

OPERATING ACTIVITIES:

     2004: Net cash provided by operating activities increased $635 million in
2004. The absence, in 2004, of $501 million in pension contributions made in
2003, the reduced effect of rising gas prices on inventory, and other timing
differences represent the majority of the increase. These increases more than
offset an increase in accounts receivable and accrued revenue resulting from
higher gas prices.

     2003: Net cash provided by operating activities decreased $755 million in
2003 primarily due to an increase in pension plan contributions of $454 million
and an increase in gas inventory of $346 million due to higher gas purchases at
higher prices.

INVESTING ACTIVITIES:

     2004: Net cash used in investing activities increased $34 million in 2004
primarily due to an increase in capital expenditures of $22 million. The
increase in capital expenditures resulted from the consolidation of the MCV
Partnership and the FMLP.

     2003: Net cash used in investing activities increased $203 million in 2003
primarily due to a decrease in asset sale proceeds of $288 million resulting
from the sale of METC in 2002, offset by a decrease in 2003 versus 2002 capital
expenditures of $73 million as a result of our strategic plan to reduce capital
expenditures.

                                      CE-18
<PAGE>

FINANCING ACTIVITIES:

     2004: Net cash used in financing activities increased $452 million in 2004
primarily due to a decrease in net proceeds from borrowings of $699 million.
This decrease was offset by a $250 million stockholder's contribution from the
parent.

     2003: Net cash provided by financing activities increased $529 million in
2003 primarily due to an increase in net proceeds from borrowings of $490
million.

     For additional details on long-term debt activity, see Note 3, Financings
and Capitalization.

SUBSEQUENT FINANCING ACTIVITIES:

     In January 2005, we issued $250 million of 5.15 percent FMBs due 2017. We
used the net proceeds of $247 million to pay off our $60 million long-term bank
loan, to redeem our $73 million 8.36 percent subordinated deferrable interest
notes, and to redeem our $124 million 8.20 percent subordinated deferrable
interest notes. The subordinated deferrable interest notes are classified as
Long-term debt -- related parties on our accompanying Consolidated Balance
Sheets.

OBLIGATIONS AND COMMITMENTS

     CONTRACTUAL OBLIGATIONS: The following table summarizes our contractual
cash obligations for each of the periods presented. The table shows the timing
and effect that such obligations are expected to have on our liquidity and cash
flow in future periods. The table excludes all amounts classified as current
liabilities on our Consolidated Balance Sheets, other than the current portion
of long-term debt and capital and finance leases. The majority of current
liabilities will be paid in cash in 2005.

CONTRACTUAL OBLIGATIONS AS OF DECEMBER 31, 2004

<Table>
<Caption>
                                                                         PAYMENTS DUE
                                                  ----------------------------------------------------------
                                        TOTAL      2005      2006      2007      2008      2009      BEYOND
                                        -----      ----      ----      ----      ----      ----      ------
                                                                   (IN MILLIONS)
<S>                                    <C>        <C>       <C>       <C>       <C>       <C>       <C>
  Long-term debt...................    $ 4,118    $  118    $  478    $   59    $  504    $  443     $2,516
  Long-term debt -- related
     parties.......................        506       180        --        --        --        --        326
  Interest payments on long-term
     debt..........................      2,180       241       232       203       188       165      1,151
  Capital and finance leases.......        344        29        28        28        27        27        205
  Interest payments on capital and
     finance leases................        224        30        28        27        25        23         91
  Operating leases.................         80        13        12        10        10         7         28
  Purchase obligations.............      7,726     1,918     1,063       707       587       526      2,925
  Purchase obligations -- related
     parties.......................      1,514        68        68        68        68        67      1,175
  Long-term service agreements.....        207        16        17        11        11        12        140
                                       -------    ------    ------    ------    ------    ------     ------
     Total contractual
       obligations.................    $16,899    $2,613    $1,926    $1,113    $1,420    $1,270     $8,557
                                       =======    ======    ======    ======    ======    ======     ======
</Table>

     Long-Term Debt: The amounts in the table above represent the principal
amounts due on outstanding debt obligations, current and long-term, as of
December 31, 2004. For additional details on long-term debt, see Note 3,
Financings and Capitalization.

     Interest Payments on Long-term Debt: The amounts in the table above
represent the currently scheduled interest payments on both variable and fixed
rate long-term debt and long-term debt -- related parties, current and
long-term. Variable interest payments are based on contractual rates in effect
at December 31, 2004.

     Capital and Finance Leases: The amounts in the table above represent the
minimum lease payments payable under our capital and finance leases. They are
comprised mainly of the leased portion of the MCV Partnership facility, leased
service vehicles, and leased office furniture.

                                      CE-19
<PAGE>

     Interest Payments on Capital and Finance Leases: The amounts in the table
represent imputed interest in the capital leases and currently scheduled
interest payments on the finance leases.

     Operating Leases: The amounts in the table above represent the minimum
noncancelable lease payments under our leases of railroad cars, certain
vehicles, and miscellaneous office buildings and equipment, which are accounted
for as operating leases.

     Purchase Obligations: Long-term contracts for purchase of commodities and
services are purchase obligations. These obligations include operating contracts
used to assure adequate supply with generating facilities that meet PURPA
requirements. The commodities and services include:

     - natural gas,

     - electricity,

     - coal and associated transportation, and

     - electric transmission.

     Our purchase obligations include long-term power purchase agreements with
various generating plants, which require us to make monthly capacity payments
based on the plants' availability or deliverability. These payments will
approximate $14 million per month during 2005. If a plant is not available to
deliver electricity, we are not obligated to make the capacity payments to the
plant for that period of time. For additional details on power supply costs, see
"Electric Utility Results of Operations" within this MD&A and Note 2,
Contingencies, "Electric Rate Matters -- Power Supply Costs."

     Long-term Service Agreements: These obligations of the MCV Partnership
represent the cost of the current MCV Facility maintenance service agreements
and cost of spare parts.

     REVOLVING CREDIT FACILITIES: At December 31, 2004, we had $475 million
available and the MCV Partnership had $48 million available in revolving credit
facilities. The facilities are available for general corporate purposes, working
capital, and letters of credit. For additional details on revolving credit
facilities, see Note 3, Financings and Capitalization.

     OFF-BALANCE SHEET ARRANGEMENTS: We enter into guarantee arrangements in the
normal course of business to facilitate commercial transactions with third
parties. These arrangements include letters of credit, surety bonds and
indemnifications. For additional details on guarantee arrangements, see Note 3,
Financings and Capitalization, "FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," and in "Commercial Commitments" within
this section.

     Sale of Accounts Receivable: Under a revolving accounts receivable sales
program, we may sell up to $325 million of certain accounts receivable. For
additional details, see Note 3, Financings and Capitalization.

     COMMERCIAL COMMITMENTS: Our commercial contingent commitments include
indemnities and letters of credit. Indemnities are agreements to reimburse other
companies, such as an insurance company, if those companies have to complete our
contractual performance in a third-party contract. Banks, on our behalf, issue
letters of credit guaranteeing payment to a third party. Letters of credit
substitute the bank's credit for ours and reduce credit risk for the third-party
beneficiary. We monitor these obligations and believe it is unlikely that we

                                      CE-20
<PAGE>

would be required to perform or otherwise incur any material losses associated
with these guarantees. Our off-balance sheet commitments at December 31, 2004
will expire as follows:

CONTINGENT COMMITMENTS

<Table>
<Caption>
                                                                             COMMITMENT EXPIRATION
                                                              ----------------------------------------------------
                                                                                                          2010 AND
                                                     TOTAL    2005    2006     2007     2008     2009      BEYOND
                                                     -----    ----    ----     ----     ----     ----     --------
                                                                             (IN MILLIONS)
<S>                                                  <C>      <C>     <C>      <C>      <C>      <C>      <C>
Off-balance sheet:
  Surety bonds and other indemnifications(a).....     $ 6     $--     $ --     $ --     $ --     $ --        $6
  Letters of credit(b)...........................      25      17        1       --       --       --         7
</Table>

- -------------------------
(a)  The surety bonds are continuous in nature. The need for the bonds is
     determined on an annual basis.

(b)  The $2 million letter of credit for workers compensation self insurance and
     $5 million of MDEQ letters of credit are renewed annually.

     DIVIDEND RESTRICTIONS: Under the provisions of our articles of
incorporation, at December 31, 2004, we had $456 million of unrestricted
retained earnings available to pay common stock dividends. However, covenants in
our debt facilities cap common stock dividend payments at $300 million in a
calendar year. In October 2004, the MPSC rescinded its December 2003 interim gas
rate order, which included a $190 million annual dividend cap. For the year
ended December 31, 2004, we paid $190 million in common stock dividends to CMS
Energy.

     CAPITAL EXPENDITURES: We estimate that we will make the following capital
expenditures, including new lease commitments, by expenditure type and by
business segments during 2005 through 2007. We prepare these estimates for
planning purposes and may revise them.

<Table>
<Caption>
                                                                    YEARS ENDING
                                                                    DECEMBER 31,
                                                                --------------------
                                                                2005    2006    2007
                                                                ----    ----    ----
                                                                   (IN MILLIONS)
<S>                                                             <C>     <C>     <C>
Construction................................................    $508    $678    $634
Nuclear fuel................................................      18      34      23
Other capital leases........................................       9      18      18
                                                                ----    ----    ----
                                                                $535    $730    $675
                                                                ====    ====    ====
Electric utility operations(a)(b)...........................    $370    $525    $490
Gas utility operations......................................     165     205     185
                                                                ----    ----    ----
                                                                $535    $730    $675
                                                                ====    ====    ====
</Table>

- -------------------------
(a)  These amounts include a portion of our anticipated capital expenditures for
     plant and equipment attributable to both the electric and gas utility
     businesses.

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

OUTLOOK

ELECTRIC BUSINESS OUTLOOK

     GROWTH: In 2004, we experienced cooler than normal summer weather. As a
result, our electric deliveries in 2004, including deliveries to customers who
chose to buy generation service from alternative electric suppliers, increased
less than one-half of one percent over the levels experienced in 2003. In 2005,
we project electric deliveries to grow almost three percent. This short-term
outlook for 2005 assumes a stronger economy than in 2004 and normal weather
conditions throughout the year.

                                      CE-21
<PAGE>

     Over the next five years, we expect electric deliveries to grow at an
average rate of approximately two percent per year, based primarily on a
steadily growing customer base and economy. This growth rate includes both
full-service sales and delivery service to customers who choose to buy
generation service from an alternative electric supplier, but excludes
transactions with other wholesale market participants and other electric
utilities. 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
fluctuations in weather conditions and changes in economic conditions, including
utilization and expansion of manufacturing facilities.

ELECTRIC BUSINESS UNCERTAINTIES

     Several electric business trends or uncertainties may affect our financial
results and condition. These trends or uncertainties have, or we reasonably
expect could have, a material impact on revenues or income from continuing
electric operations. Such trends and uncertainties include:

     Environmental

     - increasing capital expenditures and operating expenses for Clean Air Act
       compliance and/or Clear Skies legislation compliance,

     - compliance with legislative proposals that would require reductions in
       emissions of greenhouse gases, and

     - potential environmental liabilities arising from various environmental
       laws and regulations, including potential liability or expenses relating
       to the Michigan Natural Resources and Environmental Protection Acts and
       Superfund.

     Restructuring

     - response of the MPSC and Michigan legislature to electric industry
       restructuring issues,

     - ability to meet peak electric demand requirements at a reasonable cost,
       without market disruption,

     - recovery of our Section 10d(4) Regulatory Assets,

     - effects of lost electric supply load to alternative electric suppliers,
       and

     - status as an electric transmission customer instead of an electric
       transmission owner and the impact of the evolving RTO infrastructure.

     Regulatory

     - financial and operating effects of regulatory requirements imposed by the
       MISO, the FERC, state and federal regulators, or others, seeking to
       improve reliability of national and state transmission systems,

     - inadequate regulatory response to applications for requested rate
       increases,

     - responses from regulators regarding the storage and ultimate disposal of
       spent nuclear fuel,

     - recovery of nuclear decommissioning costs. For additional details, see
       "Accounting for Nuclear Decommissioning Costs" within this MD&A, and

     - potential for the Midwest Energy Market to develop into an active energy
       market in the state of Michigan and the potential derivative accounting
       impact. For additional details, see "Accounting for Financial and
       Derivative Instruments and Market Risk Information" within this MD&A.

     Other

     - effects of commodity fuel prices such as natural gas, oil, and coal,

     - pending litigation filed by PURPA qualifying facilities, and

     - other pending litigation.

     For additional details about these trends or uncertainties, see Note 2,
Contingencies.

                                      CE-22
<PAGE>

     ELECTRIC ENVIRONMENTAL ESTIMATES: Our operations are subject to
environmental laws and regulations. Costs to operate our facilities in
compliance with these laws and regulations generally have been recovered in
customer rates.

     Clean Air: Compliance with the federal Clean Air Act and resulting
regulations has been, and will continue to be, a significant focus for us. The
Title I provisions of the Clean Air Act require significant reductions in
nitrogen oxide emissions. To comply with the regulations, we expect to incur
capital expenditures totaling $802 million. The key assumptions included in the
capital expenditure estimate include:

     - construction commodity prices, especially construction material and
       labor,

     - project completion schedules,

     - cost escalation factor used to estimate future years' costs, and

     - allowance for funds used during construction (AFUDC) rate.

     Our current capital cost estimates include an escalation rate of 2.6
percent and an AFUDC capitalization rate of 8.06 percent. As of December 31,
2004, we have incurred $525 million in capital expenditures to comply with these
regulations and anticipate that the remaining $277 million of capital
expenditures will be made between 2005 and 2011. These expenditures include
installing selective catalytic reduction technology at four of our coal-fired
electric plants. In addition to modifying the coal-fired electric plants, we
expect to utilize nitrogen oxide emissions allowances for years 2005 through
2009, most of which have been purchased. The cost of the allowances is estimated
to average $8 million per year for 2005-2006. The need for allowances will
decrease after year 2006 with the installation of emissions control technology.
The cost of the allowances is accounted for as inventory. The allowance
inventory is expensed as the coal-fired electric generating units emit nitrogen
oxide.

     The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.

     The EPA has proposed a Clean Air Interstate Rule that would require
additional coal-fired electric plant emission controls for nitrogen oxides and
sulfur dioxide. If implemented, this rule potentially would require expenditures
equivalent to those efforts in progress to reduce nitrogen oxide emissions as
required under the Title I provisions of the Clean Air Act. The rule proposes a
two-phase program to reduce emissions of sulfur dioxide by 70 percent and
nitrogen oxides by 65 percent by 2015. Additionally, the EPA also proposed two
alternative sets of rules to reduce emissions of mercury from coal-fired
electric plants and nickel from oil-fired electric plants. Until the proposed
environmental rules are finalized, an accurate cost of compliance cannot be
determined.

     Our switch to western coal as a primary fuel source has resulted in reduced
plant emissions and increased our flexibility in meeting future regulatory
compliance requirements. Excess sulfur dioxide allowances optimize our overall
cost of regulatory compliance by delaying capital expenditures and minimizing
regulatory uncertainty. Additionally, the excess sulfur dioxide allowances can
be used to trade for nitrogen oxide allowances supplementing our nitrogen oxide
allowance bank. Western coal has reduced our overall cost of fuel and reduced
the economic impact from the recent increases in eastern coal prices.

     Several legislative proposals have been introduced in the United States
Congress that would require reductions in emissions of greenhouse gases,
however, none have yet been enacted. We cannot predict whether any federal
mandatory greenhouse gas emission reduction rules ultimately will be enacted, or
the specific requirements of any such rules.

     To the extent that greenhouse gas emission reduction rules come into
effect, such mandatory emissions reduction requirements could have far-reaching
and significant implications for the energy sectors. We cannot estimate the
potential effect of federal or state level greenhouse gas policy on our future
consolidated results of

                                      CE-23
<PAGE>

operations, cash flows, or financial position due to the speculative nature of
the policies at this time. However, we stay abreast of and engage in the
greenhouse gas policy developments and will continue to assess and respond to
their potential implications on our business operations.

     Water: In March 2004, the EPA issued rules that govern generating plant
cooling water intake systems. The new rules require significant reduction in
fish killed by operating equipment. Some of our facilities will be required to
comply with the new rules by 2006. We are currently studying the rules to
determine the most cost-effective solutions for compliance.

     For additional details on electric environmental matters, see Note 2,
Contingencies, "Electric Contingencies -- Electric Environmental Matters."

     COMPETITION AND REGULATORY RESTRUCTURING: Michigan's Customer Choice Act
and other developments will continue to result in increased competition in the
electric business. The Customer Choice Act allows all of our electric customers
to buy electric generation service from us or from an alternative electric
supplier. As of March 2005, alternative electric suppliers are providing 900 MW
of generation supply to ROA customers. This amount represents 12 percent of our
distribution load and an increase of 23 percent compared to March 2004. Based on
current trends, we predict total load loss by the end of 2005 to be in the range
of 1,000 MW to 1,200 MW. However, no assurance can be made that the actual load
loss will fall within that range.

     In July 2004, as a result of legislative hearings, several bills were
introduced into the Michigan Senate that could change Michigan's Customer Choice
Act. The proposals include:

     - requiring that all rate classes of regulated utilities be based on cost
       of service,

     - establishing a defined Stranded Cost calculation method,

     - allowing customers who stay with or switch to alternative electric
       suppliers after December 31, 2005 to return to utility services, and
       requiring them to pay current market rates upon return,

     - establishing reliability standards that all electric suppliers must
       follow,

     - requiring utilities and alternative electric suppliers to maintain a 15
       percent power reserve margin,

     - creating a service charge to fund the Low Income and Energy Efficiency
       Fund,

     - giving kindergarten through twelfth-grade schools a discount of 10
       percent to 20 percent on electric rates, and

     - authorizing a service charge payable by all customers for meeting Clean
       Air Act requirements.

     This legislation was not enacted before the end of the 2003-2004
legislative session. We anticipate that some or all of the bills may be
reintroduced in the 2005-2006 legislative session. We cannot predict the outcome
of these legislative proceedings.

     Implementation Costs: Applications for recovery of $7 million of
implementation costs for 2002 and $1 million for 2003 are pending MPSC approval.
In September 2004, the ALJ issued a Proposal for Decision recommending full
recovery of these costs.

     We are also pursuing authorization at the FERC for the MISO to reimburse us
for approximately $8 million of Alliance RTO development costs. Included in this
amount is $5 million pending approval by the MPSC as part of our 2002
implementation costs application. The FERC has denied our request for
reimbursement and we are appealing the FERC ruling at the United States Court of
Appeals for the District of Columbia. Although we believe these implementation
costs are fully recoverable in accordance with the Customer Choice Act, we
cannot predict the amount, if any, the MPSC or the FERC will approve as
recoverable.

     Section 10d(4) Regulatory Assets: Section 10d(4) of the Customer Choice Act
allows us to recover certain regulatory assets through deferred recovery of
annual capital expenditures in excess of depreciation levels and certain other
expenses incurred prior to and throughout the rate freeze and rate cap periods,
including the cost of

                                      CE-24
<PAGE>

money. In October 2004, we filed an application with the MPSC seeking recovery
of $628 million of Section 10d(4) Regulatory Assets for the period June 2000
through December 2005 consisting of:

     - capital expenditures in excess of depreciation,

     - Clean Air Act costs,

     - other expenses related to changes in law or governmental action incurred
       during the rate freeze and rate cap periods, and

     - the associated cost of money through the period of collection.

Of the $628 million, $152 million relates to the cost of money. In March 2005,
the MPSC Staff filed testimony recommending the MSPC approve recovery of
approximately $323 million. We cannot predict the amount, if any, the MPSC will
approve as recoverable.

     Rate Caps: The Customer Choice Act imposes certain limitations on electric
rates that could result in our inability to collect our full cost of conducting
business from electric customers. Rate caps are effective through December 31,
2005 for residential customers. As a result, we may be unable to maintain our
profit margins in our electric utility business during the rate cap period. In
particular, if we need to purchase power supply from wholesale suppliers while
retail rates are capped, the rate restrictions may preclude full recovery of
purchased power and associated transmission costs.

     Power Supply Costs: To reduce the risk of high electric prices during peak
demand periods and to achieve our reserve margin target, we employ a strategy of
purchasing electric capacity and energy contracts for the physical delivery of
electricity primarily in the summer months and to a lesser degree in the winter
months. We are currently planning for a reserve margin of approximately 11
percent for summer 2005, or supply resources equal to 111 percent of projected
summer peak load. Of the 2005 supply resources target of 111 percent, we expect
to meet approximately 102 percent from our electric generating plants and
long-term power purchase contracts, and approximately 9 percent from short-term
contracts, options for physical deliveries, and other agreements. We have
purchased capacity and energy contracts partially covering the estimated reserve
margin requirements for 2005 through 2007. As a result, we have recognized an
asset of $12 million for unexpired capacity and energy contracts as of December
31, 2004.

     PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs actually incurred by us. In September 2004, we submitted our 2005
PSCR filing to the MPSC. The proposed PSCR charge would allow us to recover a
portion of our increased power supply costs from commercial and industrial
customers and, subject to the overall rate caps, from other customers. We
self-implemented the proposed 2005 PSCR charge in January 2005. The revenues
from the PSCR charges are subject to reconciliation at the end of the year after
actual costs have been reviewed for reasonableness and prudence. We cannot
predict the outcome of these PSCR proceedings.

     Special Contracts: We entered into multi-year electric supply contracts
with certain industrial and commercial customers. The contracts provide
electricity at specially negotiated prices that are at a discount from tariff
prices, but above our incremental cost of service. As of February 2005, special
contracts for approximately 630 MW of load are in place, most of which are in
effect through 2005. We cannot predict the amount of electric load from these
customers that will continue with our electric service after their contracts
expire.

     Transmission Costs: In May 2002, we sold our electric transmission system
for $290 million to MTH. We are in arbitration with MTH regarding property tax
items used in establishing the selling price of our electric transmission
system. An unfavorable outcome could result in a reduction of sale proceeds
previously recognized by approximately $2 million to $3 million.

                                      CE-25
<PAGE>

     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 affect significantly:

     - transmission cost trends,

     - delivered power costs to us, and

     - delivered power costs to our retail electric customers.

     In November 2004, the FERC ruled on MISO and PJM RTO "through and out"
rates. Through and out rates are applied to transmission transactions when a
transmission customer purchases electricity that travels through multiple
transmission pricing zones. Effective December 1, 2004, regional through and out
rates for transactions between the PJM RTO and the MISO were eliminated by the
FERC. In that November 2004 order, the FERC conditionally accepted, for a period
beginning December 1, 2004 and ending January 31, 2008, a "license plate"
pricing structure. License plate pricing provides for access to the combined
regional transmission systems of the PJM RTO and the MISO at a single rate,
although the rate may vary based on where the customer's load is located.

     The order also adopts a transitional charge from December 1, 2004 through
March 31, 2006, intended to mitigate abrupt cost shifts between transmission
owners and customers as a result of the pricing structure change. The manner in
which these transitional charges are calculated and implemented is currently the
subject of multiple disputes pending at the FERC. Based on the compliance
filings with the FERC made by the MISO and PJM RTO transmission owners, the new
transitional charges will not have a significant impact on our electric results
of operations. However, we cannot predict the outcome of the disputes concerning
these transitional charges pending at the FERC.

     Transmission Market Developments: The MISO is scheduled to begin the
Midwest Energy Market on April 1, 2005. At that time, the MISO will implement a
day-ahead and real-time energy market and centralized dispatch for the MISO's
market participants. These changes are anticipated to ensure that load
requirements in the region are met reliably and efficiently, to better manage
congestion on the grid, and to produce consumer savings through the centralized
dispatch of generation throughout the region. The MISO is expected to provide
other functions, including long-term regional planning and market monitoring.

     In addition, we are evaluating whether or not there may be impacts on
electric reliability associated with changes in the composition of transmission
markets. For example, Commonwealth Edison Company joined the PJM RTO in May 2004
and American Electric Power Service Corporation joined the PJM RTO in October
2004. These integrations may be creating different patterns of power flow within
the Midwest area and could affect adversely our ability to provide reliable
service to our customers. We are presently evaluating what financial impacts, if
any, these market developments are having on our operations.

     August 14, 2003 Blackout: The NERC and the U.S. and Canadian Power System
Outage Task Force have released electric operations recommendations resulting
from their investigation into the August 14, 2003 blackout. Few of the
recommendations apply directly to us, since we are not a transmission owner.
However, the recommendations could result in increased transmission costs to us
and require upgrades to our distribution system. We cannot quantify the
financial impact of these recommendations at this time.

     For additional details and material changes relating to the restructuring
of the electric utility industry and electric rate matters, see Note 2,
Contingencies, "Electric Restructuring Matters," and "Electric Rate Matters."

     ELECTRIC RATE CASE: In December 2004, we filed an application with the MPSC
to increase our retail electric base rates. The electric rate case filing
requests an annual increase in revenues of approximately $320 million. The
primary reasons for the request are increased system maintenance and improvement
costs, Clean Air Act related expenditures, and employee pension costs. A final
order from the MPSC on our electric rate case is expected in late 2005. If
approved as requested, the rate increase would go into effect in January 2006
and would apply to all retail electric customers. We cannot predict the amount
or timing of the rate increase, if any, which the MPSC will approve.

                                      CE-26
<PAGE>

     BURIAL OF OVERHEAD POWER LINES: In September 2004, the Michigan Court of
Appeals upheld a lower court decision that requires Detroit Edison to obey a
municipal ordinance enacted by the City of Taylor, Michigan. The ordinance
requires Detroit Edison to bury a section of its overhead power lines at its own
expense. Detroit Edison has filed an appeal with the Michigan Supreme Court.
Unless overturned by the Michigan Supreme Court, the decision could encourage
other municipalities to adopt similar ordinances, as has occurred or is being
discussed in a few municipalities in Consumers' service territory. If incurred,
we would seek recovery of these costs from our customers, subject to MPSC
approval. This case has potentially broad ramifications for the electric utility
industry in Michigan; however, at this time, we cannot predict the outcome of
this matter.

OTHER ELECTRIC BUSINESS UNCERTAINTIES

     NUCLEAR MATTERS:

     Big Rock: Dismantlement of plant systems is essentially complete and
demolition of the remaining plant structures has begun. The restoration project
is on schedule to return approximately 530 acres of the site, including the area
formerly occupied by the nuclear plant, to a natural setting for unrestricted
use in mid-2006. An additional 30 acres, the area where seven transportable dry
casks loaded with spent nuclear fuel and an eighth cask loaded with high-level
radioactive waste material are stored, will be returned to a natural state by
the end of 2012 if the DOE begins removing the spent nuclear fuel by 2010.

     Palisades: In August 2004, the NRC completed its mid-cycle plant
performance assessment of Palisades. The assessment for Palisades covered the
first half of 2004. The NRC determined that Palisades was operated in a manner
that preserved public health and safety and fully met all cornerstone
objectives. As of December 2004, all inspection findings were classified as
having very low safety significance and all performance indicators show
performance at a level requiring no additional oversight. Based on the plant's
performance, only regularly scheduled inspections are planned through March
2006.

     The amount of spent nuclear fuel at Palisades exceeds the plant's temporary
onsite storage pool capacity. We are using dry casks for temporary onsite
storage. As of December 31, 2004, we have loaded 22 dry casks with spent nuclear
fuel. For additional information on disposal of spent nuclear fuel, see Note 2,
Contingencies, "Other Electric Contingencies -- Nuclear Matters."

     In September 2004, we announced that we will seek a license renewal for the
Palisades plant. The plant's current license from the NRC expires in 2011. NMC,
which operates the facility, will apply for a 20-year license renewal for the
plant on behalf of Consumers. The Palisades renewal application is scheduled to
be filed by the end of the first quarter of 2005.

     We have authorized the purchase of a replacement reactor vessel closure
head. The replacement head is being manufactured and scheduled to be installed
in 2007. Palisades, like many other nuclear plants, has experienced cracking in
reactor head nozzle penetrations. Repairs to two nozzles were made in 2004. The
replacement head nozzles will be manufactured from materials less susceptible to
cracking and should minimize inspection and repair costs after replacement.

     Spent nuclear fuel complaint: In March 2003, the Michigan Environmental
Council, the Public Interest Research Group in Michigan, and the Michigan
Consumer Federation filed a complaint with the MPSC, which was served on us by
the MPSC in April 2003. The complaint asks the MPSC to initiate 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. The complaint states that amounts collected from customers for
spent nuclear fuel storage and disposal should be placed in an independent
trust. The complaint also asks the MPSC to take additional actions. In May 2003,
Consumers and other named utilities each filed motions to dismiss the complaint.
We are unable to predict the outcome of this matter.

                                      CE-27
<PAGE>

GAS BUSINESS OUTLOOK

     GROWTH: Over the next five years, we expect gas deliveries to grow at an
average rate of less than one percent per year. Actual gas deliveries in future
periods may be affected by:

     - fluctuations in weather patterns,

     - use by independent power producers,

     - competition in sales and delivery,

     - Michigan economic conditions,

     - gas consumption per customer, and

     - increases in gas commodity prices.

     In February 2004, we filed an application with the MPSC for a Certificate
of Public Convenience and Necessity to construct a 25-mile gas transmission
pipeline in northern Oakland County. The project is necessary to meet estimated
peak load beginning in the winter of 2005 through 2006. In December 2004, the
MPSC approved a settlement agreement authorizing us to construct and operate the
pipeline. Construction is expected to begin late spring of 2005.

     In October 2004, we filed an application with the MPSC for a Certificate of
Public Convenience and Necessity to construct a 10.8-mile gas transmission
pipeline in northwestern Wayne County. The project is necessary to meet the
projected capacity demands beginning in the winter of 2007. If we are unable to
construct the pipeline, we will need to pursue more costly alternatives or
curtail serving the system's load growth in that area.

GAS BUSINESS UNCERTAINTIES

     Several gas business trends or uncertainties may affect our financial
results and conditions. These trends or uncertainties could have a material
impact on revenues or income from gas operations. The trends and uncertainties
include:

     Regulatory

     - inadequate regulatory response to applications for requested rate
       increases,

     - response to increases in gas costs, including adverse regulatory response
       and reduced gas use by customers, and

     - proposed distribution pipeline integrity rules and mandates.

     Environmental

     - potential environmental remediation costs at a number of sites, including
       sites formerly housing manufactured gas plant facilities.

     Other

     - transmission pipeline integrity mandates, maintenance and remediation
       costs, and

     - other pending litigation.

     GAS TITLE TRACKING FEES AND SERVICES: On February 14, 2005, the FERC issued
its latest order involving Consumers' Gas Title Transfer Tracking Fees and
Services. In doing so, the FERC agreed with us that such orders only apply to a
title transfer tracking fee charged and collected in connection with the
Consumers' FERC blanket transportation service. Because of the newly stated
limits on what fees are subject to refund, we believe that if any such refunds
are ultimately required, they will not be material.

                                      CE-28
<PAGE>

     GAS COST RECOVERY: The GCR process is designed to allow us to recover all
of our purchased natural gas costs if incurred under reasonable and prudent
policies and practices. The MPSC reviews these costs for prudency in an annual
reconciliation proceeding.

     The following table summarizes our GCR reconciliation filings with the
MPSC. For additional details, see Note 2, Contingencies, "Gas Rate Matters--Gas
Cost Recovery."

GAS COST RECOVERY RECONCILIATION

<Table>
<Caption>
                                             NET OVER-
GCR YEAR     DATE FILED     ORDER DATE       RECOVERY                         STATUS
- --------     ----------     ----------       ---------                        ------
<C>          <C>           <C>              <C>            <S>
2001-2002    June 2002          May 2004    $ 3 million    $2 million has been refunded, $1 million is
                                                           included in our 2003-2004 GCR reconciliation
                                                           filing
2002-2003    June 2003        March 2004    $ 5 million    Net over-recovery includes interest accrued
                                                           through March 2003 and an $11 million
                                                           disallowance settlement agreement
2003-2004    June 2004     February 2005    $31 million    Filing includes the $1 million and the $5
                                                           million GCR net over-recovery above
</Table>

     Net over-recovery amounts included in the table above include refunds that
we received from our suppliers that are required to be refunded to our
customers.

     GCR Year 2003-2004: In February 2005, the MPSC approved a settlement
agreement that resulted in a credit to our GCR customers for a $28 million
over-recovery, plus $3 million interest, using a roll-in refund methodology. The
roll-in methodology incorporates a GCR over/under-recovery in the next GCR plan
year.

     GCR Plan for Year 2004-2005: In December 2003, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2004
through March 2005. In June 2004, the MPSC issued a final Order in our GCR plan
approving a settlement. The settlement included a quarterly mechanism for
setting a GCR ceiling price. The current ceiling price is $6.57 per mcf. Actual
gas costs and revenues will be subject to an annual reconciliation proceeding.

     GCR Plan for Year 2005-2006: In December 2004, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2005
through March 2006. Our request proposes using a GCR factor consisting of:

     - a base GCR factor of $6.98 per mcf, plus

     - a quarterly GCR ceiling price adjustment contingent upon future events.

     The GCR factor can be adjusted monthly, provided it remains at or below the
current ceiling price. The quarterly adjustment mechanism allows an increase in
the GCR ceiling price to reflect a portion of cost increases if the average
NYMEX price for a specified period is greater than that used in calculating the
base GCR factor. Actual gas costs and revenues will be subject to an annual
reconciliation proceeding.

     2003 GAS RATE CASE: In March 2003, we filed an application with the MPSC
for a gas rate increase in the annual amount of $156 million. In December 2003,
the MPSC granted an interim rate increase in the amount of $19 million annually.
The MPSC also ordered an annual $34 million reduction in our annual depreciation
expense and related taxes.

     On October 14, 2004, the MPSC issued its Opinion and Order on final rate
relief. In the order, the MPSC authorized us to place into effect surcharges
that would increase annual gas revenues by $58 million. Further, the MPSC
rescinded the $19 million annual interim rate increase. The final rate relief
was contingent upon our agreement to:

     - achieve a common equity level of at least $2.3 billion by year-end 2005
       and propose a plan to improve the common equity level thereafter until
       our target capital structure is reached,

                                      CE-29
<PAGE>

     - make certain safety-related operation and maintenance, pension, retiree
       health-care, employee health-care, and storage working capital
       expenditures for which the surcharge is granted,

     - refund surcharge revenues when our rate of return on common equity
       exceeds its authorized 11.4 percent rate,

     - prepare and file annual reports that address certain issues identified in
       the order, and

     - file a general rate case on or before the date that the surcharge expires
       (which is two years after the surcharge goes into effect).

     On October 15, 2004, we agreed to these commitments.

     2001 GAS DEPRECIATION CASE: In December 2003, we filed an update to our gas
utility plant depreciation case originally filed in June 2001. On December 18,
2003, the MPSC ordered an annual $34 million reduction in our depreciation
expense and related taxes in an interim rate order issued in our 2003 gas rate
case.

     In October and December 2004, the MPSC issued Opinions and Orders in our
gas depreciation case. The October 2004 order requires us to file an application
for new depreciation accrual rates for our natural gas utility plant on, or no
earlier than three months prior to, the date we file our next natural gas
general rate case. The MPSC also directed us to undertake a study to determine
why our removal costs are in excess of those of other regulated Michigan natural
gas utilities and file a report with the MPSC Staff on or before December 31,
2005.

     In February 2005, we requested a delay in the filing date for the next
depreciation case until after the MPSC considers the removal cost study, and
after the MPSC issues an order in a pending case relating to asset retirement
obligation accounting.

     GAS ENVIRONMENTAL ESTIMATES: We expect to incur investigation and remedial
action costs at a number of sites, including 23 former manufactured gas plant
sites. We expect our remaining remedial action costs to be between $37 million
and $90 million. We expect to fund most of these costs through insurance
proceeds and through the MPSC approved rates charged to our customers. 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 our estimate of remedial action costs.
For additional details, see Note 2, Contingencies, "Gas Contingencies -- Gas
Environmental Matters."

OTHER OUTLOOK

     MCV PARTNERSHIP PROPERTY TAXES: In January 2004, the Michigan Tax Tribunal
issued its decision in the MCV Partnership's tax appeal against the City of
Midland for tax years 1997 through 2000. The MCV Partnership estimates that the
decision will result in a refund to the MCV Partnership of approximately $35
million in taxes plus $10 million of interest. The Michigan Tax Tribunal
decision has been appealed to the Michigan Court of Appeals by the City of
Midland and the MCV Partnership has filed a cross-appeal at the Michigan Court
of Appeals. The MCV Partnership also has a pending case with the Michigan Tax
Tribunal for tax years 2001 through 2004. The MCV Partnership cannot predict the
outcome of these proceedings; therefore, the above refund (net of approximately
$16 million of deferred expenses) has not been recognized in 2004 earnings.

     COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees
are represented by the Utility Workers of America Union. The Union represents
Consumers' operating, maintenance, and construction employees and our call
center employees. The collective bargaining agreement with the Union for our
operating, maintenance, and construction employees will expire on June 1, 2005
and negotiations for a new agreement is underway currently. The collective
bargaining agreement with the Union for our call center employees will expire on
August 1, 2005.

     LITIGATION AND REGULATORY INVESTIGATION: CMS Energy is the subject of
various investigations as a result of round-trip trading transactions by CMS
MST, including an investigation by the DOJ. Additionally, CMS Energy and
Consumers are named as parties in various litigation matters including a
shareholder derivative

                                      CE-30
<PAGE>

lawsuit, a securities class action lawsuit, and a class action lawsuit alleging
ERISA violations. For additional details regarding these investigations and
litigation, see Note 2, Contingencies.

NEW ACCOUNTING STANDARDS

     For a discussion of new pronouncements, see Note 13, Implementation of New
Accounting Standards.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

     SFAS NO. 123R, SHARE-BASED PAYMENT: The Statement requires companies to
expense the grant date fair value of employee stock options and similar awards.
The Statement also clarifies and expands SFAS No. 123's guidance in several
areas, including measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting periods.

     In addition, this Statement amends SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits related to the excess of the tax deductible
amount over the compensation cost recognized be classified as a financing cash
inflow rather than as a reduction of taxes paid in operating activities.

     This Statement is effective for us as of the beginning of third quarter
2005. We adopted the fair value method of accounting for share-based awards
effective December 2002, and therefore, expect this statement to have an
insignificant impact on our results of operations when it becomes effective.

                                      CE-31
<PAGE>

                            CONSUMERS ENERGY COMPANY

        MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Consumers' management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) under the Exchange Act. Under the supervision and with the
participation of management, including its CEO and CFO, Consumers conducted an
evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on such
evaluation, Consumers' management concluded that its internal control over
financial reporting was effective as of December 31, 2004.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     Consumers' management's assessment of the effectiveness of Consumers'
internal control over financial reporting as of December 31, 2004 has been
audited by Ernst & Young LLP, an independent registered public accounting firm,
who audited the consolidated financial statements of Consumers included in this
Form 10-K. Ernst & Young LLP's attestation report on Consumers' management's
assessment of internal control over financial reporting follows this report.

                                      CE-32
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of Consumers Energy Company

     We have audited management's assessment, included in MANAGEMENT'S REPORT ON
INTERNAL CONTROLS OVER FINANCIAL REPORTING, that Consumers Energy Company (a
Michigan Corporation and wholly-owned subsidiary of CMS Energy Corporation) and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, based on criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Consumers Energy
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit. We did not examine
the effectiveness of internal control over financial reporting of Midland
Cogeneration Venture Limited Partnership, a 49% owned variable interest entity
which has been consolidated pursuant to Revised Financial Accounting Standards
Board Interpretation No. 46, "Consolidation of Variable Interest Entities",
whose financial statements reflect total assets and revenues constituting 15%
and 14%, respectively, of the related consolidated financial statement amounts
as of and for the year ended December 31, 2004. The effectiveness of Midland
Cogeneration Venture Limited Partnership's internal control over financial
reporting was audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the effectiveness of Midland
Cogeneration Venture Limited Partnership's internal control over financial
reporting, is based solely on the report of the other auditors.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit and the report of the other auditors
provide a reasonable basis for our opinion.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     In our opinion, based on our audit and the report of the other auditors,
management's assessment that Consumers Energy Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, based on our audit and the report of the other auditors, Consumers
Energy Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Consumers Energy Company and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of income, common stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 2004 and our report dated March 7, 2005 expressed an unqualified opinion
thereon.

                                          /s/ Ernst & Young LLP

Detroit, Michigan
March 7, 2005

                                      CE-33
<PAGE>

MCV MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     MCV's management is responsible for establishing and maintaining an
adequate system of internal control over financial reporting of MCV. This system
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.

     MCV's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of MCV; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
MCV are being made only in accordance with authorizations of management and the
Management Committee of MCV; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of MCV's assets that could have a material effect on the financial statements.

     Because of its inherent limitations, a system of internal control over
financial reporting can provide only reasonable assurance and may not prevent or
detect misstatements. Further, because of changes in conditions, effectiveness
of internal controls over financial reporting may vary over time. Our system
contains self-monitoring mechanisms, and actions are taken to correct
deficiencies as they are identified.

     MCV management conducted an evaluation of the effectiveness of the system
of internal control over financial reporting based on the framework in "Internal
Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that MCV's system of internal control over financial reporting was
effective as of December 31, 2004. MCV management's assessment of the
effectiveness of MCV's internal control over financial reporting has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.

                                      CE-34
<PAGE>

                            CONSUMERS ENERGY COMPANY
                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2004      2003      2002
                                                                 ----      ----      ----
                                                                      (IN MILLIONS)
<S>                                                             <C>       <C>       <C>
OPERATING REVENUE...........................................    $4,711    $4,435    $4,169
EARNINGS FROM EQUITY METHOD INVESTEES.......................         1        42        53
OPERATING EXPENSES
  Fuel for electric generation..............................       720       320       320
  Purchased and interchange power...........................       224       310       296
  Purchased power -- related parties........................        67       519       564
  Cost of gas sold..........................................     1,468     1,221       831
  Cost of gas sold -- related parties.......................         1        28       131
  Other operating expenses..................................       717       739       660
  Maintenance...............................................       227       199       190
  Depreciation, depletion, and amortization.................       391       377       348
  General taxes.............................................       223       181       193
                                                                ------    ------    ------
                                                                 4,038     3,894     3,533
                                                                ------    ------    ------
OPERATING INCOME............................................       674       583       689
OTHER INCOME (DEDUCTIONS)
  Accretion expense.........................................        (3)       (7)       (6)
  Interest and dividends....................................        11         8         5
  Interest and dividends from affiliates....................        --         2         3
  Gain on asset sales, net..................................         1         1        39
  Regulatory return on capital expenditures.................       113        --        --
  Other income..............................................        16        10         6
  Other expense.............................................        (7)      (19)      (25)
                                                                ------    ------    ------
                                                                   131        (5)       22
                                                                ------    ------    ------
INTEREST CHARGES
  Interest on long-term debt................................       284       196       153
  Interest on long-term debt -- related parties.............        44        45        --
  Other interest............................................        13        13        27
  Capitalized interest......................................        25        (9)      (12)
                                                                ------    ------    ------
                                                                   366       245       168
                                                                ------    ------    ------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS...........       439       333       543
MINORITY INTERESTS..........................................         7        --        --
                                                                ------    ------    ------
INCOME BEFORE INCOME TAXES..................................       432       333       543
INCOME TAX EXPENSE..........................................       152       137       180
                                                                ------    ------    ------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
  PRINCIPLE.................................................       280       196       363
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING, NET OF $- TAX
  BENEFIT IN 2004 AND $10 TAX EXPENSE 2002
  DERIVATIVE INSTRUMENTS....................................        --        --        18
  RETIREMENT BENEFITS.......................................        (1)       --        --
                                                                ------    ------    ------
NET INCOME..................................................       279       196       381
PREFERRED STOCK DIVIDENDS...................................         2         2         2
PREFERRED SECURITIES DISTRIBUTIONS..........................        --        --        44
                                                                ------    ------    ------
NET INCOME AVAILABLE TO COMMON STOCKHOLDER..................    $  277    $  194    $  335
                                                                ------    ------    ------
</Table>

        The accompanying notes are an integral part of these statements.

                                      CE-35
<PAGE>

                            CONSUMERS ENERGY COMPANY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 2004        2003       2002
                                                                 ----        ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>          <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................    $   279      $ 196      $ 381
     Adjustments to reconcile net income to net cash
      provided by operating activities
       Depreciation, depletion, and amortization (includes
        nuclear decommissioning of $6 per year).............        391        377        348
       Regulatory return on capital expenditures............       (113)        --         --
       Capital lease and other amortization.................         29         28         15
       Bad debt expense.....................................         20         21         17
       Gain on sale of assets...............................         (1)        (1)       (39)
       Loss on CMS Energy stock.............................         --         12         12
       Cumulative effect of changes in accounting...........          1         --        (18)
       Distributions from related parties in excess of (less
        than) earnings......................................         --          3        (38)
       Pension contribution.................................         --       (501)       (47)
       Changes in assets and liabilities:
          Increase in accounts receivable and accrued
            revenue.........................................       (112)       (33)      (115)
          Decrease (increase) in inventories................       (126)      (256)        90
          Increase (decrease) in accounts payable...........         44        (61)       (39)
          Increase in accrued expenses......................         63         13          9
          Deferred income taxes and investment tax credit...        137        195        277
          Decrease (increase) in other current and
            non-current assets..............................        (44)        37        (98)
          Increase (decrease) in other current and
            non-current liabilities.........................         72        (25)         5
                                                                -------      -----      -----
            Net cash provided by operating activities.......        640          5        760
                                                                -------      -----      -----
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital
     lease).................................................       (508)      (486)      (559)
  Cost to retire property...................................        (73)       (72)       (66)
  Restricted cash on hand...................................         (3)        --        (14)
  Investments in Electric Restructuring Implementation
     Plan...................................................         (7)        (8)        (8)
  Investments in nuclear decommissioning trust funds........         (6)        (6)        (6)
  Proceeds from nuclear decommissioning trust funds.........         36         34         30
  Proceeds from short-term investments......................      1,048         --         --
  Purchase of short-term investments........................     (1,052)        --         --
  Maturity of MCV restricted investment securities
     held-to-maturity.......................................        675         --         --
  Purchase of MCV restricted investment securities
     held-to-maturity.......................................       (674)        --         --
  Cash proceeds from sale of assets.........................          2         10        298
                                                                -------      -----      -----
            Net cash used in investing activities...........       (562)      (528)      (325)
                                                                -------      -----      -----
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of long term debt..................      1,055      1,625        600
  Retirement of long-term debt..............................       (963)      (755)      (574)
  Payment of common stock dividends.........................       (190)      (218)      (231)
  Preferred securities distributions........................         --         --        (44)
  Redemption of preferred securities........................         --         --        (30)
  Payment of capital and finance lease obligations..........        (44)       (13)       (15)
  Stockholder's contribution, net...........................        250         --         50
  Payment of preferred stock dividends......................         (2)        (2)        (2)
  Increase (decrease) in notes payable, net.................       (200)      (257)        41
  Other financing...........................................        (33)       (55)         1
                                                                -------      -----      -----
            Net cash provided by (used in) financing
               activities...................................       (127)       325       (204)
                                                                -------      -----      -----
</Table>

                                      CE-36
<PAGE>

<Table>
<Caption>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 2004        2003       2002
                                                                 ----        ----       ----
                                                                        (IN MILLIONS)
<S>                                                             <C>          <C>        <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........        (49)      (198)       231
CASH AND CASH EQUIVALENTS FROM EFFECT OF REVISED FASB
  INTERPRETATION NO. 46 CONSOLIDATION.......................        174         --         --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............         46        244         13
                                                                -------      -----      -----
CASH AND CASH EQUIVALENTS, END OF PERIOD....................    $   171      $  46      $ 244
                                                                =======      =====      =====
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND
  FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
  Interest paid (net of amounts capitalized)................    $   324      $ 227      $ 147
  Income taxes paid (net of refunds, $50, $91, and $205,
     respectively)..........................................        (27)       (56)       (78)
  OPEB cash contribution....................................         62         71         73
NON-CASH TRANSACTIONS
  Other assets placed under capital lease...................          3         19         62
</Table>

        The accompanying notes are an integral part of these statements.
                                      CE-37
<PAGE>

                            CONSUMERS ENERGY COMPANY

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 2004       2003
                                                                 ----       ----
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
ASSETS
PLANT AND PROPERTY (AT COST)
  Electric..................................................    $ 7,967    $ 7,600
  Gas.......................................................      2,995      2,875
  Other.....................................................      2,523         15
                                                                -------    -------
                                                                 13,485     10,490
  Less accumulated depreciation, depletion, and
     amortization...........................................      5,665      4,417
                                                                -------    -------
                                                                  7,820      6,073
  Construction work-in-progress.............................        353        375
                                                                -------    -------
                                                                  8,173      6,448
                                                                -------    -------
INVESTMENTS
  Stock of affiliates.......................................         25         20
  First Midland Limited Partnership.........................         --        224
  Midland Cogeneration Venture Limited Partnership..........         --        419
  Other.....................................................         19         18
                                                                -------    -------
                                                                     44        681
                                                                -------    -------
CURRENT ASSETS
  Cash and cash equivalents at cost, which approximates
     market.................................................        171         46
  Short-term investments at cost, which approximates
     market.................................................          4         --
  Restricted cash...........................................         21         18
  Accounts receivable, notes receivable, and accrued
     revenue, less allowances of $10 in 2004 and $8 in
     2003...................................................        374        257
  Accounts receivable -- related parties....................         18          4
  Inventories at average cost
     Gas in underground storage.............................        855        739
     Materials and supplies.................................         67         70
     Generating plant fuel stock............................         66         41
  Deferred property taxes...................................        165        143
  Regulatory assets -- postretirement benefits..............         19         19
  Derivative instruments....................................         96          2
  Other.....................................................         95         78
                                                                -------    -------
                                                                  1,951      1,417
                                                                -------    -------
NON-CURRENT ASSETS
  Regulatory Assets
     Securitized costs......................................        604        648
     Additional minimum pension.............................        372         --
     Postretirement benefits................................        139        162
     Abandoned Midland project..............................         10         10
     Other..................................................        552        266
  Nuclear decommissioning trust funds.......................        575        575
  Prepaid pension costs.....................................         --        364
  Other.....................................................        391        174
                                                                -------    -------
                                                                  2,643      2,199
                                                                -------    -------
TOTAL ASSETS................................................    $12,811    $10,745
                                                                =======    =======
</Table>

                                      CE-38
<PAGE>

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 2004       2003
                                                                 ----       ----
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
STOCKHOLDER'S INVESTMENT AND LIABILITIES
CAPITALIZATION
  Common stockholder's equity
     Common stock, authorized 125.0 shares; outstanding 84.1
      shares for all periods................................    $   841    $   841
     Paid-in capital........................................        932        682
     Accumulated other comprehensive income.................         31         17
     Retained earnings since December 31, 1992..............        608        521
                                                                -------    -------
                                                                  2,412      2,061
  Preferred stock...........................................         44         44
  Long-term debt............................................      4,000      3,583
  Long-term debt -- related parties.........................        326        506
  Non-current portion of capital leases and finance lease
     obligations............................................        315         58
                                                                -------    -------
                                                                  7,097      6,252
                                                                -------    -------
MINORITY INTERESTS..........................................        657         --
                                                                -------    -------
CURRENT LIABILITIES
  Current portion of long-term debt, capital leases and
     finance leases.........................................        147         38
  Current portion of long-term debt -- related parties......        180         --
  Note payable -- related parties...........................         --        200
  Accounts payable..........................................        267        200
  Accounts payable -- related parties.......................         14         75
  Accrued interest..........................................         83         58
  Accrued taxes.............................................        254        209
  Current portion of purchase power contracts...............         --         27
  Deferred income taxes.....................................         20         33
  Other.....................................................        238        127
                                                                -------    -------
                                                                  1,203        967
                                                                -------    -------
NON-CURRENT LIABILITIES
  Deferred income taxes.....................................      1,350      1,233
  Regulatory Liabilities
  Regulatory liabilities for cost of removal................      1,044        983
  Income taxes, net.........................................        357        312
  Other regulatory liabilities..............................        173        172
  Postretirement benefits...................................        207        190
  Asset retirement obligations..............................        436        358
  Deferred investment tax credit............................         79         85
  Other.....................................................        208        193
                                                                -------    -------
                                                                  3,854      3,526
                                                                -------    -------
Commitments and Contingencies (Notes 2, 3, 4, 7, and 9)
TOTAL STOCKHOLDER'S INVESTMENT AND LIABILITIES..............    $12,811    $10,745
                                                                =======    =======
</Table>

        The accompanying notes are an integral part of these statements.
                                      CE-39
<PAGE>

                            CONSUMERS ENERGY COMPANY

             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2004      2003      2002
                                                                 ----      ----      ----
                                                                      (IN MILLIONS)
<S>                                                             <C>       <C>       <C>
COMMON STOCK
  At beginning and end of period(a).........................    $  841    $  841    $  841
                                                                ------    ------    ------
OTHER PAID-IN CAPITAL
  At beginning of period....................................       682       682       632
  Stockholder's contribution................................       250        --       150
  Return of stockholder's contribution......................        --        --      (100)
                                                                ------    ------    ------
  At end of period..........................................       932       682       682
                                                                ------    ------    ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  Minimum Pension Liability
     At beginning of period.................................        --      (185)       --
     Minimum pension liability adjustments(b)...............        (1)      185      (185)
                                                                ------    ------    ------
       At end of period.....................................        (1)       --      (185)
                                                                ------    ------    ------
  Investments
     At beginning of period.................................         9         1        16
     Unrealized gain (loss) on investments(b)...............         3         8       (16)
     Reclassification adjustments included in net
      income(b).............................................        --        --         1
                                                                ------    ------    ------
       At end of period.....................................        12         9         1
                                                                ------    ------    ------
  Derivative Instruments
     At beginning of period.................................         8         5       (12)
     Unrealized gain on derivative instruments(b)...........        23        13        10
     Realized gain (loss) on derivative instruments(b)......       (11)      (10)        7
                                                                ------    ------    ------
       At end of period.....................................        20         8         5
                                                                ------    ------    ------
Total Accumulated Other Comprehensive Income (Loss).........        31        17      (179)
                                                                ------    ------    ------
RETAINED EARNINGS
  At beginning of period....................................       521       545       441
  Net income(b).............................................       279       196       381
  Cash dividends declared -- Common Stock...................      (190)     (218)     (231)
  Cash dividends declared -- Preferred Stock................        (2)       (2)       (2)
  Preferred securities distributions........................        --        --       (44)
                                                                ------    ------    ------
  At end of period..........................................       608       521       545
                                                                ------    ------    ------
TOTAL COMMON STOCKHOLDER'S EQUITY...........................    $2,412    $2,061    $1,889
                                                                ======    ======    ======
</Table>

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

                                      CE-40
<PAGE>

(b)  Disclosure of Other Comprehensive Income:

<Table>
<Caption>
                                                                2004    2003    2002
                                                                ----    ----    ----
                                                                    (IN MILLIONS)
<S>                                                             <C>     <C>     <C>
Minimum pension liability adjustments, net of tax (tax
  benefit) of $(1), $100, and $(100), respectively..........    $ (1)   $185    $(185)
Investments
  Unrealized gain (loss) on investments, net of tax (tax
     benefit) of $2, $4, and $(9), respectively.............       3       8      (16)
  Reclassification adjustments included in net income, net
     of tax of $-, $-, and $1, respectively.................      --      --        1
  Derivative Instruments
  Unrealized gain on derivative instruments, net of tax of
     $12, $7, and $6, respectively..........................      23      13       10
  Realized gain (loss) on derivative instruments, net of tax
     (tax benefit) of $(6), $(5), and $4, respectively......     (11)    (10)       7
Net income..................................................     279     196      381
                                                                ----    ----    -----
Total Comprehensive Income..................................    $293    $392    $ 198
                                                                ====    ====    =====
</Table>

        The accompanying notes are an integral part of these statements.
                                      CE-41
<PAGE>

                      (This page intentionally left blank)

                                      CE-42
<PAGE>

                            CONSUMERS ENERGY COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1: CORPORATE STRUCTURE AND ACCOUNTING POLICIES

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

     PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
Consumers, and all other entities in which we have a controlling financial
interest or are the primary beneficiary, in accordance with Revised FASB
Interpretation No. 46. The primary beneficiary of a variable interest entity is
the party that absorbs or receives a majority of the entity's expected losses or
expected residual returns or both as a result of holding variable interests,
which are ownership, contractual, or other economic interests. In 2004, we
consolidated the MCV Partnership and the FMLP in accordance with Revised FASB
Interpretation No. 46. For additional details, see Note 13, Implementation of
New Accounting Standards. These entities are reported as equity method
investments in our consolidated financial statements for all periods prior to
January 1, 2004. We use the equity method of accounting for investments in
companies and partnerships that are not consolidated, where we have significant
influence over operations and financial policies, but are not the primary
beneficiary. Intercompany transactions and balances have been eliminated.

     USE OF ESTIMATES: We prepare our consolidated financial statements in
conformity with U.S. generally accepted accounting principles. We are required
to make estimates using assumptions that may affect the reported amounts and
disclosures. Actual results could differ from those estimates.

     We are required to record estimated liabilities in the consolidated
financial statements when it is probable that a loss will be incurred in the
future as a result of a current event, and when the amount can be reasonably
estimated. We have used this accounting principle to record estimated
liabilities as discussed in Note 2, Contingencies.

     REVENUE RECOGNITION POLICY: We recognize revenues from deliveries of
electricity and natural gas, and the storage of natural gas when services are
provided. Sales taxes are recorded as liabilities and are not included in
revenues.

     CAPITALIZED INTEREST: We are required to capitalize interest on certain
qualifying assets that are undergoing activities to prepare them for their
intended use. Capitalization of interest for the period is limited to the actual
interest cost that is incurred. Our regulated businesses are permitted to
capitalize an allowance for funds used during construction on regulated
construction projects and to include such amounts in plant in service.

     CASH EQUIVALENTS AND RESTRICTED CASH: All highly liquid investments with an
original maturity of three months or less are considered cash equivalents.

     At December 31, 2004, our restricted cash on hand was $21 million.
Restricted cash dedicated for repayment of Securitization bonds is classified as
a current asset as the payments on the related Securitization bonds occur within
one year.

     FINANCIAL INSTRUMENTS: We account for investments in debt and equity
securities using SFAS No. 115. Debt and equity securities classified as
available-for-sale are reported at fair value determined from quoted market
prices. Debt and equity securities classified as held-to-maturity are reported
at cost. Unrealized gains or losses resulting from changes in fair value of
certain available-for-sale debt and equity securities are reported, net of tax,
in equity as part of accumulated other comprehensive income. Unrealized gains or
losses are excluded from earnings unless the related changes in fair value are
determined to be other than temporary.

     Unrealized gains or losses on our nuclear decommissioning investments are
reflected as regulatory liabilities on our Consolidated Balance Sheets. Realized
gains or losses would not affect our earnings or cash flows.

     For additional details regarding financial instruments, see Note 4,
Financial and Derivative Instruments.
                                      CE-43
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     GAS INVENTORY: We use the weighted average cost method for valuing working
gas and recoverable cushion gas in underground storage facilities

     GENERATING PLANT FUEL STOCK INVENTORY: We use the weighted average cost
method for valuing coal inventory and classify these costs as generating plant
fuel stock on our Consolidated Balance Sheets. The MCV Partnership's natural gas
inventory is also included in this category, stated at the lower of cost or
market and valued using the last-in, first-out ("LIFO") method.

     IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS: We evaluate the potential
impairment of our 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 its estimated undiscounted future cash
flows, an impairment loss is recognized, and the investment or asset is written
down to its estimated fair value.

     MAINTENANCE AND DEPRECIATION: We charge property repairs and minor property
replacements to maintenance expense. We also charge planned major maintenance
activities to operating expense unless the cost represents the acquisition of
additional components or the replacement of an existing component. We capitalize
the cost of plant additions and replacements. We depreciate utility property
using straight-line rates approved by the MPSC. The composite depreciation rates
for our properties are:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004    2003    2002
- -----------------------                                         ----    ----    ----
<S>                                                             <C>     <C>     <C>
Electric utility property...................................    3.2%    3.1%     3.1%
Gas utility property........................................    3.7%    4.6%     4.5%
Other property..............................................    8.4%    8.1%     7.2%
</Table>

     NUCLEAR FUEL COST: We amortize nuclear fuel cost to fuel expense based on
the quantity of heat produced for electric generation. For nuclear fuel used
after April 6, 1983, we charge certain disposal costs to nuclear fuel expense,
recover these costs through electric rates, and remit them to the DOE quarterly.
We elected to defer payment for disposal of spent nuclear fuel burned before
April 7, 1983. As of December 31, 2004, we have recorded a liability to the DOE
of $141 million, including interest, which is payable upon the first delivery of
spent nuclear fuel to the DOE. The amount of this liability, excluding a portion
of interest, was recovered through electric rates. For additional details on
disposal of spent nuclear fuel, see Note 2, Contingencies, "Other Electric
Contingencies -- Nuclear Matters."

     OTHER INCOME AND OTHER EXPENSE: The following tables show the components of
Other income and Other expense:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                       2004   2003   2002
- -----------------------                                       ----   ----   ----
                                                                (IN MILLIONS)
<S>                                                           <C>    <C>    <C>
Other income
  Electric restructuring return.............................  $ 6    $ 8    $ 4
  Return on stranded costs..................................    7     --     --
  Return on security costs..................................    2     --     --
  All other.................................................    1      2      2
                                                              ---    ---    ---
Total other income..........................................  $16    $10    $ 6
                                                              ===    ===    ===
</Table>

                                      CE-44
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                       2004   2003   2002
- -----------------------                                       ----   ----   ----
                                                                (IN MILLIONS)
<S>                                                           <C>    <C>    <C>
Other expense
  Loss on SERP investment...................................  $ (1)  $ (1)  $ (3)
  Loss on CMS Energy stock..................................    --    (12)   (12)
  Civic and political expenditures..........................    (2)    (2)    (3)
  Donations.................................................    (1)    --     --
  All other.................................................    (3)    (4)    (7)
                                                              ----   ----   ----
Total other expense.........................................  $ (7)  $(19)  $(25)
                                                              ====   ====   ====
</Table>

     PROPERTY, PLANT, AND EQUIPMENT: We record property, plant, and equipment at
original cost when placed into service. When regulated assets are retired, or
otherwise disposed of in the ordinary course of business, the original cost is
charged to accumulated depreciation. The cost of removal, less salvage, is
recorded as a regulatory liability. For additional details, see Note 6, Asset
Retirement Obligations. An allowance for funds used during construction is
capitalized on regulated construction projects. With respect to the retirement
or disposal of non-regulated assets, the resulting gains or losses are
recognized in income.

     Property, plant, and equipment at December 31, 2004 and 2003, was as
follows:

<Table>
<Caption>
                                                                   ESTIMATED
                                                                  DEPRECIABLE
YEARS ENDED DECEMBER 31                                         LIFE IN YEARS(e)     2004      2003
- -----------------------                                         ----------------     ----      ----
                                                                           (IN MILLIONS)
<S>                                                             <C>                 <C>       <C>
Electric:
  Generation................................................         13-105         $3,433    $3,332
  Distribution..............................................          12-75          4,069     3,799
  Other.....................................................           7-50            384       388
  Capital leases(a).........................................                            81        81
Gas:
  Underground storage facilities(b).........................          30-65            255       232
  Transmission..............................................          15-75            367       342
  Distribution..............................................          40-75          2,057     1,976
  Other.....................................................           7-50            290       300
  Capital leases(a).........................................                            26        25
Other:
  MCV Facility..............................................           5-35          2,481        --
  Non-utility property......................................           7-71             15        15
  Construction work-in-progress.............................                           353       375
  Other.....................................................                            27        --
Less accumulated depreciation, depletion, and
  amortization(c)...........................................                         5,665     4,417
                                                                                    ------    ------
Net property, plant, and equipment(d).......................                        $8,173    $6,448
                                                                                    ======    ======
</Table>

- -------------------------
(a)  Capital leases presented in this table are gross amounts. Accumulated
     amortization of capital leases was $49 million at December 31, 2004 and $38
     million at December 31, 2003.

(b)  Includes unrecoverable base natural gas in underground storage of $26
     million at December 31, 2004 and $23 million at December 31, 2003, which is
     not subject to depreciation.

(c)  As of December 31, 2004, accumulated depreciation, depletion, and
     amortization is comprised of $4.601 billion from public utility plant,
     $1.063 billion related to the consolidation of the MCV Facility, and $1
     million from our non-utility plant assets. As of December 31, 2003,
     accumulated depreciation, depletion,

                                      CE-45
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     and amortization included $4.416 billion from our public utility plant and
     $1 million related to non-utility plant assets.

(d)  Included in net property, plant and equipment are intangible assets
     primarily related to software development costs, consents, leasehold
     improvements, and rights of way. The estimated amortization life for
     software development costs is seven years. The estimated amortization life
     for leasehold improvements is over the life of the lease. Other intangible
     amortization lives range from 50 to 105 years. Intangible assets at
     December 31, 2004 and 2003 were as follows:

<Table>
<Caption>
                                                                     GROSS    ACCUMULATED     INTANGIBLE
      YEAR ENDED DECEMBER 31, 2004                                   COST     AMORTIZATION    ASSET, NET
      ----------------------------                                   -----    ------------    ----------
                                                                                (IN MILLIONS)
      <S>                                                            <C>      <C>             <C>
      Software development.......................................    $179         $117           $ 62
      Rights of way..............................................      93           28             65
      Leasehold improvements.....................................      20           13              7
      Franchises and consents....................................      19            9             10
      Other intangibles..........................................      18           14              4
                                                                     ----         ----           ----
      Totals.....................................................    $329         $181           $148
                                                                     ====         ====           ====
</Table>

<Table>
<Caption>
                                                                     GROSS    ACCUMULATED     INTANGIBLE
      YEAR ENDED DECEMBER 31, 2003                                   COST     AMORTIZATION    ASSET, NET
      ----------------------------                                   -----    ------------    ----------
                                                                                (IN MILLIONS)
      <S>                                                            <C>      <C>             <C>
      Software development.......................................    $178         $107           $ 71
      Rights of way..............................................      89           25             64
      Leasehold improvements.....................................      32           30              2
      Franchises and consents....................................      19            8             11
      Other intangibles..........................................      18           14              4
                                                                     ----         ----           ----
      Totals.....................................................    $336         $184           $152
                                                                     ====         ====           ====
</Table>

     Pre-tax amortization expense related to these intangible assets was $19
     million for the year ended December 31, 2004, $19 million for the year
     ended December 31, 2003, and $17 million for the year ended December 31,
     2002. Intangible assets amortization is forecasted to range from $8 million
     to $19 million per year over the next five years.

(e)  The following table illustrates the depreciable life for electric and gas
     structures and improvements:

<Table>
<Caption>
                                           ESTIMATED                                           ESTIMATED
                                          DEPRECIABLE                                         DEPRECIABLE
      ELECTRIC                           LIFE IN YEARS                  GAS                  LIFE IN YEARS
      --------                           -------------                  ---                  -------------
      <S>                                <C>              <C>                                <C>
      Generation:
        Coal.........................      39-43          Underground storage                  45-50
                                                          facilities.....................
        Nuclear......................      17-25          Transmission...................       60
        Hydroelectric................      55-71          Distribution...................       50
        Other........................       32            Other..........................       50
      Distribution...................      50-60
      Other..........................      40-42
</Table>

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

                                      CE-46
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     RELATED PARTY TRANSACTIONS: We received income from related parties as
follows:

<Table>
<Caption>
TYPE OF INCOME                                                 RELATED PARTY         2004    2003    2002
- --------------                                                 -------------         ----    ----    ----
                                                                                        (IN MILLIONS)
<S>                                                        <C>                       <C>     <C>     <C>
Gas sales, storage, transportation and other
  services(a)..........................................    MCV Partnership           $--     $17     $27
                                                           Consumers' affiliated
Income from our investments in related party
  trusts(b)............................................    Trust Preferred             1       2      --
                                                           Securities companies
Dividend income(b).....................................    CMS Energy parent          --      --       3
                                                           company
</Table>

     We recorded expense from related parties as follows:

<Table>
<Caption>
TYPE OF COST                                       RELATED PARTY                2004    2003    2002
- ------------                                       -------------                ----    ----    ----
                                                                                   (IN MILLIONS)
<S>                                     <C>                                     <C>     <C>     <C>
Electric generating capacity and
  energy(a).........................    MCV Partnership                         $--     $455    $497
Electric generating capacity and
  energy............................    Affiliates of Enterprises                67       64      67
Interest expense on long-term
  debt(b)...........................    Consumers' affiliated Trust
                                        Preferred Securities companies           44       45      --
Gas purchases.......................    CMS ERM                                   1       27     127
Overhead expense(c).................    CMS Energy parent company                --        8      18
Gas transportation(d)...............    Panhandle/Trunkline                      --        1      22
Gas transportation..................    CMS Bay Area Pipeline, L.L.C.             4        4       4
</Table>

- -------------------------
(a)  In 2004, we consolidated the MCV Partnership and the FMLP into our
     consolidated financial statements in accordance with Revised FASB
     Interpretation No. 46. For additional details, see Note 13, Implementation
     of New Accounting Standards.

(b)  We issued Trust Preferred Securities through several Consumers' affiliated
     companies. As of December 31, 2003, we deconsolidated the trusts that hold
     the mandatorily redeemable Trust Preferred Securities. As a result of the
     deconsolidation, we now record on the Consolidated Statements of Income,
     Interest on Long-term debt -- related parties to the trusts holding the
     Trust Preferred Securities. For additional information on Consumers'
     affiliated Trust Preferred Securities companies, see Note 13,
     Implementation of New Accounting Standards.

(c)  We base our related party transactions on regulated prices, market prices,
     or competitive bidding. In 2003, we paid overhead costs to CMS Energy based
     on an industry allocation methodology, such as the Massachusetts Formula.
     In 2004, we paid no overhead costs to CMS Energy.

(d)  Panhandle was sold in June 2003.

     We own 2.4 million shares of CMS Energy Common Stock with a fair value of
$25 million at December 31, 2004. For additional details on our investment in
CMS Energy Common Stock, see Note 4, Financial and Derivative Instruments.

     TRADE RECEIVABLES: We record our accounts receivable at fair value.
Accounts deemed uncollectible are charged to operating expense.

     UNAMORTIZED DEBT PREMIUM, DISCOUNT, AND EXPENSE: We capitalize premiums,
discounts, and expenses incurred in connection with the issuance of long-term
debt and amortize those costs ratably over the terms of the debt issues. Any
refinancing costs are charged to expenses as incurred. For the regulated
portions of our businesses, if we refinance debt, we capitalize any remaining
unamortized premiums, discounts, and expenses and amortize them ratably over the
terms of the newly issued debt.

                                      CE-47
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

     We reflect the following regulatory assets and liabilities, which include
both current and non-current amounts, on our Consolidated Balance Sheets. We
expect to recover these costs through rates over periods of up to 14 years. We
recognized an OPEB transition obligation in accordance with SFAS No. 106 and
established a regulatory asset for the amount that we expect to recover in rates
over the next eight years.

<Table>
<Caption>
DECEMBER 31                                                      2004      2003
- -----------                                                      ----      ----
                                                                 (IN MILLIONS)
<S>                                                             <C>       <C>
Securitized costs (Note 3)..................................    $  604    $  648
Postretirement benefits (Note 5)............................       530       181
Electric Restructuring Implementation Plan (Note 2).........        88        91
Manufactured gas plant sites (Note 2).......................        65        67
Abandoned Midland project...................................        10        10
Unamortized debt costs......................................        71        51
Asset retirement obligation (Note 6)........................        83        49
Stranded costs (Note 2).....................................        63        --
Section 10d(4) regulatory asset (Note 2)....................       141        --
Other.......................................................        41         8
                                                                ------    ------
Total regulatory assets(a)..................................    $1,696    $1,105
                                                                ======    ======
Cost of removal (Note 6)....................................    $1,044    $  983
Income taxes (Note 7).......................................       357       312
Asset retirement obligation (Note 6)........................       168       168
Other.......................................................         5         4
                                                                ------    ------
Total regulatory liabilities(a).............................    $1,574    $1,467
                                                                ======    ======
</Table>

- -------------------------
(a)  At December 31, 2004, we classified $19 million of regulatory assets as
     current regulatory assets and we classified $1.677 billion of regulatory
     assets as non-current regulatory assets. At December 31, 2003, we
     classified $19 million of regulatory assets as current regulatory assets
     and we classified $1.086 billion of regulatory assets as non-current
     regulatory assets. At December 31, 2004 and December 31, 2003, all of our
     regulatory liabilities represented non-current regulatory liabilities.

2: CONTINGENCIES

     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 recurrence 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 implemented
the recommendations of the Special Committee.

     CMS Energy is cooperating with an investigation by the DOJ concerning
round-trip trading. CMS Energy is unable to predict the outcome of this matter
and what effect, if any, this investigation will have on its business. In March
2004, the SEC approved a cease-and-desist order settling an administrative
action against CMS Energy

                                      CE-48
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

related to round-trip trading. The order did not assess a fine and CMS Energy
neither admitted nor denied the order's findings. The settlement resolved the
SEC investigation involving CMS Energy and CMS MST.

     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. These cases were later
consolidated by the court. The plaintiffs generally seek unspecified damages
based on allegations that the defendants violated United States securities laws
and regulations by making allegedly false and misleading statements about CMS
Energy's business and financial condition, particularly with respect to revenues
and expenses recorded in connection with round trip trading by CMS MST. CMS
Energy, Consumers, and the individual defendants filed motions to dismiss on
June 21, 2004. The judge issued an opinion and order dated January 7, 2005,
granting the motion to dismiss for Consumers and three of the individual
defendants, but denying the motions to dismiss for CMS Energy and the 13
remaining individual defendants. CMS Energy and the individual defendants will
defend themselves vigorously 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 CMS Employees' Savings and Incentive Plan (the "Plan"). The two cases
were filed in July 2002 in United States District Court for the Eastern District
of Michigan and were later consolidated by the court. 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. The judge
issued an opinion and order dated December 27, 2004, conditionally granting
plaintiffs' motion for class certification. A trial date has not been set, but
is expected to be no earlier than late in 2005. CMS Energy and Consumers will
defend themselves vigorously but cannot predict the outcome of this litigation.

ELECTRIC CONTINGENCIES

     ELECTRIC ENVIRONMENTAL MATTERS: Our operations are subject to environmental
laws and regulations. Costs to operate our facilities in compliance with these
laws and regulations generally have been recovered in customer rates.

     Clean Air: The EPA and the state regulations require us to make significant
capital expenditures estimated to be $802 million. As of December 31, 2004, we
have incurred $525 million in capital expenditures to comply with the EPA
regulations and anticipate that the remaining $277 million of capital
expenditures will be made between 2005 and 2011.

     The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.

     In addition to modifying the coal-fired electric plants, we expect to
utilize nitrogen oxide emissions allowances for years 2005 through 2009, most of
which have been purchased. The cost of the allowances is estimated to average $8
million per year for 2005-2006. The need for allowances will decrease after year
2006 with the installation of emissions control technology.

                                      CE-49
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Cleanup and Solid Waste: Under the Michigan Natural Resources and
Environmental Protection Act, we expect that we will ultimately incur
investigation and remedial action costs at a number of sites. We believe that
these costs will be recoverable in rates under current ratemaking policies.

     We are a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several, meaning
that many other creditworthy parties with substantial assets are potentially
responsible with respect to the individual sites. Based on past experience, we
estimate that our share of the total liability for the known Superfund sites
will be between $1 million and $9 million. As of December 31, 2004, we have
recorded a liability for the minimum amount of our estimated Superfund
liability.

     In October 1998, during routine maintenance activities, we identified PCB
as a component in certain paint, grout, and sealant materials at the Ludington
Pumped Storage facility. We removed and replaced part of the PCB material. We
have proposed a plan to deal with the remaining materials and are awaiting a
response from the EPA.

     LITIGATION: In October 2003, a group of eight PURPA qualifying facilities
selling power to us filed a lawsuit in Ingham County Circuit Court. The lawsuit
alleges that we incorrectly calculated the energy charge payments made pursuant
to power purchase agreements with qualifying facilities. In February 2004, the
Ingham County Circuit Court judge deferred to the primary jurisdiction of the
MPSC, dismissing the circuit court case without prejudice. In February 2005, the
MPSC issued an order in the 2004 PSCR plan case concluding that we have been
correctly administering the energy charge calculation methodology. The eight
plaintiff qualifying facilities have appealed the dismissal of the circuit court
case to the Michigan Court of Appeals. We cannot predict the outcome of this
appeal.

ELECTRIC RESTRUCTURING MATTERS

     ELECTRIC ROA: The MPSC approved revised tariffs that establish the rates,
terms, and conditions under which retail customers are permitted to choose an
electric supplier. These revised tariffs allow ROA customers, upon as little as
30 days notice to us, to return to our generation service at current tariff
rates. If any class of customers' (residential, commercial, or industrial) ROA
load reaches ten percent of our total load for that class of customers, then
returning ROA customers for that class must give 60 days notice to return to our
generation service at current tariff rates. However, we may not have capacity
available to serve returning ROA customers that is sufficient or reasonably
priced. As a result, we may be forced to purchase electricity on the spot market
at higher prices than we can recover from our customers during the rate cap
periods. We cannot predict the total amount of electric supply load that may be
lost to alternative electric suppliers. As of March 2005, alternative electric
suppliers are providing 900 MW of generation supply to ROA customers. This
amount represents 12 percent of our distribution load and an increase of 23
percent compared to March 2004.

     ELECTRIC RESTRUCTURING PROCEEDINGS: Below is a discussion of our electric
restructuring proceedings.

                                      CE-50
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following chart summarizes our electric restructuring filings with the
MPSC:

<Table>
<Caption>
                       YEAR(S)      YEARS
PROCEEDING              FILED      COVERED    REQUESTED AMOUNT                STATUS
- ----------             -------     -------    ----------------                ------
<S>                   <C>         <C>         <C>                <C>
Stranded Costs        2002-2004   2000-2003   $137 million(a)    The MPSC ruled that we
                                                                 experienced zero Stranded Costs
                                                                 for 2000 through 2001. The MPSC
                                                                 approved recovery of $63 million
                                                                 in Stranded Costs for 2002
                                                                 through 2003.
Implementation Costs  1999-2004   1997-2003   $91 million(b)     The MPSC allowed $68 million for
                                                                 the years 1997-2001, plus $20
                                                                 million for the cost of money
                                                                 through 2003. Implementation
                                                                 cost filings for 2002 and 2003
                                                                 in the amount of $8 million,
                                                                 which includes the cost of money
                                                                 through 2003, are pending MPSC
                                                                 approval.
Section 10d(4)             2004   2000-2005   $628 million       Filed with the MPSC in October
  Regulatory Assets                                              2004.
</Table>

- -------------------------
(a)  Amount includes the cost of money through the year in which we expected to
     receive recovery from the MPSC and assumes recovery of Clean Air Act costs
     through the Section 10d(4) Regulatory Asset case.

(b)  Amount includes the cost of money through the year prior to the year filed.

     Section 10d(4) Regulatory Assets: Section 10d(4) of the Customer Choice Act
allows us to recover certain regulatory assets through deferred recovery of
annual capital expenditures in excess of depreciation levels and certain other
expenses incurred prior to and throughout the rate freeze and rate cap periods,
including the cost of money. The section also allows deferred recovery of
expenses incurred during the rate freeze and rate cap periods that result from
changes in taxes, laws, or other state or federal governmental actions. In
October 2004, we filed an application with the MPSC seeking recovery of $628
million of Section 10d(4) Regulatory Assets for the period June 2000 through
December 2005 consisting of:

     - capital expenditures in excess of depreciation,

     - Clean Air Act costs,

     - other expenses related to changes in law or governmental action incurred
       during the rate freeze and rate cap periods, and

     - the associated cost of money through the period of collection.

Of the $628 million, $152 million relates to the cost of money.

     As allowed by the Customer Choice Act, in January 2004, we began accruing
and deferring for recovery the 2004 portion of our Section 10d(4) Regulatory
Assets. In November 2004, the MPSC issued an order in Detroit Edison's general
electric rate case which concluded that Detroit Edison's return of and on Clean
Air Act costs incurred from June 2000 through December 2003 are recoverable
under Section 10d(4). Based on the precedent set by this order, we recorded an
additional regulatory asset in November 2004 for our return of and on Clean Air
Act expenditures incurred from 2000 through 2003. Unless we receive an order
from the MPSC to the contrary, we will continue to record additional accruals.
However, certain aspects of Detroit Edison's electric rate case are different
from our Section 10d(4) Regulatory Asset filing. In March 2005, the MPSC Staff
filed testimony recommending the MPSC approve recovery of approximately $323
million. We cannot predict the amount, if any,

                                      CE-51
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the MPSC will approve as recoverable. At December 31, 2004, total Section 10d(4)
Regulatory Assets totaled $141 million.

     TRANSMISSION SALE: In May 2002, we sold our electric transmission system to
MTH, a non-affiliated limited partnership whose general partner is a subsidiary
of Trans-Elect, Inc. We are in arbitration with MTH regarding property tax items
used in establishing the selling price of our electric transmission system. An
unfavorable outcome could result in a reduction of sale proceeds previously
recognized of approximately $2 million to $3 million.

ELECTRIC RATE MATTERS

     ELECTRIC RATE CASE: In December 2004, we filed an application with the MPSC
to increase our retail electric base rates. The electric rate case filing
requests an annual increase in revenues of approximately $320 million. The
primary reasons for the request are increased system maintenance and improvement
costs, Clean Air Act related expenditures, and employee pension costs. A final
order from the MPSC on our electric rate case is expected in late 2005. If
approved as requested, the rate increase would go into effect in January 2006
and would apply to all retail electric customers. We cannot predict the amount
or timing of the rate increase, if any, which the MPSC will approve.

     POWER SUPPLY COSTS: To reduce the risk of high electric prices during peak
demand periods and to achieve our reserve margin target, we employ a strategy of
purchasing electric capacity and energy contracts for the physical delivery of
electricity primarily in the summer months and to a lesser degree in the winter
months. We have purchased capacity and energy contracts partially covering the
estimated reserve margin requirements for 2005 through 2007. As a result, we
have recognized an asset of $12 million for unexpired capacity and energy
contracts as of December 31, 2004. The total premium costs of electric capacity
and energy contracts for 2004 were approximately $12 million.

     PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs actually incurred by us. In September 2004, we submitted our 2005
PSCR filing to the MPSC. The proposed PSCR charge would allow us to recover a
portion of our increased power supply costs from commercial and industrial
customers and, subject to the overall rate caps, from other customers. We
self-implemented the proposed 2005 PSCR charge in January 2005. We estimate the
increased recovery of power supply costs from commercial and industrial
customers to be approximately $49 million in 2005. The revenues from the PSCR
charges are subject to reconciliation at the end of the year after actual costs
have been reviewed for reasonableness and prudence. We cannot predict the
outcome of these PSCR proceedings.

OTHER ELECTRIC CONTINGENCIES

     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. We
hold a 49 percent partnership interest in the MCV Partnership, and a 35 percent
lessor interest in the MCV Facility.

     In 2004, we consolidated the MCV Partnership and the FMLP into our
consolidated financial statements in accordance with Revised FASB Interpretation
No. 46. For additional details, see Note 13, Implementation of New Accounting
Standards. Our consolidated retained earnings include undistributed earnings
from the MCV Partnership of $237 million at December 31, 2004 and $245 million
at December 31, 2003.

                                      CE-52
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The cost that we incur under the MCV Partnership PPA exceeds the recovery
amount allowed by the MPSC. We expense all cash underrecoveries directly to
income. We estimate cash underrecoveries of capacity and fixed energy payments
as follows:

<Table>
<Caption>
                                                                2005    2006    2007
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
Estimated cash underrecoveries..............................    $56     $55     $39
                                                                ===     ===     ===
</Table>

     After September 15, 2007, we expect to claim relief under the regulatory
out provision in the PPA, limiting our capacity and fixed energy payments to the
MCV Partnership to the amount collected from our customers. The MCV Partnership
has indicated that it may take issue with our exercise of the regulatory out
clause after September 2007. We believe that the clause is valid and fully
effective, but cannot assure that it will prevail in the event of a dispute. The
MPSC's future actions on the capacity and fixed energy payments recoverable from
customers subsequent to September 15, 2007 may affect negatively the earnings of
the MCV Partnership and the value of our investment in the MCV Partnership.

     Further, under the PPA, variable energy payments to the MCV Partnership are
based on the cost of coal burned at our coal plants and our operation and
maintenance expenses. However, the MCV Partnership's costs of producing
electricity are tied to the cost of natural gas. Because natural gas prices have
increased substantially in recent years and the price the MCV Partnership can
charge us for energy has not, the MCV Partnership's financial performance has
been impacted negatively. Even with the approved RCP, if gas prices continue at
present levels or increase, the economics of operating the MCV Facility may be
adverse enough to require us to recognize an impairment.

     In January 2005, the MPSC issued an order approving the RCP, with
modifications. The RCP allows us to recover the same amount of capacity and
fixed energy charges from customers as approved in prior MPSC orders. However,
we are able to dispatch the MCV Facility on the basis of natural gas market
prices, which will reduce the MCV Facility's annual production of electricity
and, as a result, reduce the MCV Facility's consumption of natural gas by an
estimated 30 to 40 bcf annually. This decrease in the quantity of high-priced
natural gas consumed by the MCV Facility will benefit our ownership interest in
the MCV Partnership.

     The substantial MCV Facility fuel cost savings will be used first to offset
fully the cost of replacement power. Second, $5 million annually will be used to
fund a renewable energy program. Remaining savings will be split between the MCV
Partnership and Consumers. Consumers' direct savings will be shared 50 percent
with its customers in 2005 and 70 percent in 2006 and beyond. Consumers' direct
savings from the RCP, after a portion is allocated to customers, will be used to
offset our capacity and fixed energy underrecoveries expense. Since the MPSC has
excluded these underrecoveries from the rate making process, we anticipate that
our savings from the RCP will not affect our return on equity used in our base
rate filings.

     In January 2005, Consumers and the MCV Partnership's general partners
accepted the terms of the order and implemented the RCP. The underlying
agreement for the RCP between Consumers and the MCV Partnership extends through
the term of the PPA. However, either party may terminate that agreement under
certain conditions. In February 2005, a group of intervenors in the RCP case
filed an application for rehearing of the MPSC order. The Attorney General also
filed a claim of appeal with the Michigan Court of Appeals. We cannot predict
the outcome of these appeals.

     MCV PARTNERSHIP PROPERTY TAXES: In January 2004, the Michigan Tax Tribunal
issued its decision in the MCV Partnership's tax appeal against the City of
Midland for tax years 1997 through 2000. The MCV Partnership estimates that the
decision will result in a refund to the MCV Partnership of approximately $35
million in taxes plus $10 million of interest. The Michigan Tax Tribunal
decision has been appealed to the Michigan Court of Appeals by the City of
Midland and the MCV Partnership has filed a cross-appeal at the Michigan Court
of Appeals. The MCV Partnership also has a pending case with the Michigan Tax
Tribunal for tax years 2001 through 2004. The MCV Partnership cannot predict the
outcome of these proceedings; therefore,

                                      CE-53
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the above refund (net of approximately $16 million of deferred expenses) has not
been recognized in 2004 earnings.

     NUCLEAR PLANT DECOMMISSIONING: Decommissioning funding practices approved
by the MPSC require us to file a report on the adequacy of funds for
decommissioning at three-year intervals. We prepared and filed updated cost
estimates for Big Rock and Palisades on March 31, 2004. Excluding additional
costs for spent nuclear fuel storage, due to the DOE's failure to accept this
spent nuclear fuel on schedule, these reports show a decommissioning cost of
$361 million for Big Rock and $868 million for Palisades. Since Big Rock is
currently in the process of being decommissioned, the estimated cost includes
historical expenditures in nominal dollars and future costs in 2003 dollars,
with all Palisades costs given in 2003 dollars.

     In 1999, the MPSC orders for Big Rock and Palisades provided for fully
funding the decommissioning trust funds for both sites. In December 2000,
funding of the Big Rock trust fund stopped because the MPSC-authorized
decommissioning surcharge collection period expired. The MPSC order set the
annual decommissioning surcharge for Palisades at $6 million through 2007.
Amounts collected from electric retail customers and deposited in trusts,
including trust earnings, are credited to a regulatory liability and asset
retirement obligation.

     Big Rock: Excluding the additional nuclear fuel storage costs due to the
DOE's failure to accept this spent fuel on schedule, we are currently projecting
that the level of funds provided by the trust for Big Rock will fall short of
the amount needed to complete the decommissioning by $26 million. At this time,
we plan to provide the additional amounts needed from our corporate funds and,
subsequent to the completion of radiological decommissioning work, seek recovery
of such expenditures at the MPSC. We cannot predict how the MPSC will rule on
our request. The following table shows our Big Rock decommissioning activities:

<Table>
<Caption>
                                                                  YEAR-TO-DATE        CUMULATIVE
                                                                DECEMBER 31, 2004    TOTAL-TO-DATE
                                                                -----------------    -------------
                                                                          (IN MILLIONS)
<S>                                                             <C>                  <C>
Decommissioning expenditures(a).............................           $35               $298
Withdrawals from trust funds................................            36                279
                                                                       ===               ====
</Table>

- -------------------------

(a)  Includes site restoration expenditures.

     These activities had no material impact on net income. At December 31,
2004, we have an investment in nuclear decommissioning trust funds of $52
million for Big Rock. In addition, at December 31, 2004, we have charged $8
million to our FERC jurisdictional depreciation reserve for the decommissioning
of Big Rock.

     Palisades: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept this spent fuel on schedule, we concluded that the existing
surcharge for Palisades needed to be increased to $25 million annually,
beginning January 1, 2006, and continue through 2011, our current license
expiration date. In June 2004, we filed an application with the MPSC seeking
approval to increase the surcharge for recovery of decommissioning costs related
to Palisades beginning in 2006. In September 2004, we announced that we will
seek a 20-year license renewal for Palisades. In January 2005, we filed a
settlement agreement with the MPSC that was agreed to by four of the six
parties. The settlement agreement provides for the continuation of the existing
$6 million annual decommissioning surcharge through 2011 and for the next
periodic review to be filed in March 2007. We are seeking MPSC approval of the
settlement, under a contested settlement proceeding, but cannot predict the
outcome.

     At December 31, 2004, we have an investment in the MPSC nuclear
decommissioning trust funds of $513 million for Palisades. In addition, at
December 31, 2004, we have a FERC decommissioning trust fund with a balance of
$10 million. For additional details on decommissioning costs accounted for as
asset retirement obligations, see Note 6, Asset Retirement Obligations.

                                      CE-54
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     NUCLEAR MATTERS:

     DOE Litigation: 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 1998. Subsequent U.S. Court of Appeals litigation, in which we and other
utilities participated, has not been successful in producing more specific
relief for the DOE's failure to accept the spent nuclear fuel.

     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 nuclear fuel. Over 60 utilities have initiated
litigation in the United States Court of Claims; we filed our complaint in
December 2002. In July 2004, the DOE filed an amended answer and motion to
dismiss the complaint. In October 2004, we filed a response to the DOE's motion
and our motion for summary judgment on liability. Oral argument has been held,
and the motions are now before the Court for a decision. If our litigation
against the DOE is successful, we anticipate future recoveries from the DOE. We
plan to use recoveries to pay the cost of spent nuclear fuel storage until the
DOE takes possession as required by law. We can make 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. We expect that
the DOE will submit an application to the NRC sometime in 2005 for a license to
begin construction of the repository. The application and review process is
estimated to take several years.

     Insurance: We maintain nuclear insurance coverage on our nuclear plants. At
Palisades, we maintain nuclear property insurance from NEIL totaling $2.750
billion and insurance that would partially cover the cost of replacement power
during certain prolonged accidental outages. Because NEIL is a mutual insurance
company, we could be subject to assessments of up to $27 million in any policy
year if insured losses in excess of NEIL's maximum policyholders surplus occur
at our, or any other member's, nuclear facility. NEIL's policies include
coverage for acts of terrorism.

     At Palisades, we maintain nuclear liability insurance for third-party
bodily injury and off-site property damage resulting from a nuclear hazard for
up to approximately $10.761 billion, the maximum insurance liability limits
established by the Price-Anderson Act. The United States Congress enacted the
Price-Anderson Act to provide financial liability protection for those parties
who may be liable for a nuclear accident or incident. Part of the Price-Anderson
Act's financial protection is a mandatory industry-wide program under which
owners of nuclear generating facilities could be assessed if a nuclear incident
occurs at any nuclear generating facility. The maximum assessment against us
could be $101 million per occurrence, limited to maximum annual installment
payments of $10 million.

     We also maintain insurance under a program that covers tort claims for
bodily injury to nuclear 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, we remain
responsible for a maximum assessment of up to $6 million.

     Big Rock remains insured for nuclear liability by a combination of
insurance and a NRC indemnity totaling $544 million, and a nuclear property
insurance policy from NEIL.

     Insurance policy terms, limits, and conditions are subject to change during
the year as we renew our policies.

GAS CONTINGENCIES

     GAS ENVIRONMENTAL MATTERS: We expect to incur investigation and remedial
costs at a number of sites under the Michigan Natural Resources and
Environmental Protection Act, a Michigan statute that covers environmental
activities including remediation. These sites include 23 former manufactured gas
plant facilities. We operated the facilities on these sites for some part of
their operating lives. For some of these sites, we have no current ownership or
may own only a portion of the original site. We have completed initial
investigations at the
                                      CE-55
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23 sites. We will continue to implement remediation plans for sites where we
have received MDEQ remediation plan approval. We will also work toward resolving
environmental issues at sites as studies are completed.

     We have estimated our costs for investigation and remedial action at all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. We expect our 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. We base the estimates on discounted 2003
costs using a discount rate of three percent. The discount rate represents a
10-year average of U.S. Treasury bond rates reduced for increases in the
consumer price index. We expect to fund most of these costs through insurance
proceeds and MPSC-approved rates. As of December 31, 2004, we have recorded a
liability of $38 million, net of $44 million of expenditures incurred to date,
and a regulatory asset of $65 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 our estimate of remedial action costs.

     In its November 2002 gas distribution rate order, the MPSC authorized us to
continue to recover approximately $1 million of manufactured gas plant
facilities environmental clean-up costs annually. This amount will continue to
be offset by $2 million to reflect amounts recovered from all other sources. We
defer and amortize, over a period of 10 years, manufactured gas plant facilities
environmental clean-up costs above the amount currently included in rates.
Additional amortization of the expense in our rates cannot begin until after a
prudency review in a gas rate case.

GAS RATE MATTERS

     GAS COST RECOVERY: The GCR process is designed to allow us to recover all
of our purchased natural gas costs if incurred under reasonable and prudent
policies and practices. The MPSC reviews these costs for prudency in an annual
reconciliation proceeding.

     The following table summarizes our GCR reconciliation filings with the
MPSC. Additional details related to these proceedings follow the table.

Gas Cost Recovery Reconciliation

<Table>
<Caption>
                                             NET OVER
GCR YEAR     DATE FILED     ORDER DATE       RECOVERY                         STATUS
- --------     ----------     ----------       --------                         ------
<C>          <C>           <C>              <C>            <S>
2001-2002    June 2002          May 2004    $ 3 million    $2 million has been refunded, $1 million is
                                                           included in our 2003-2004 GCR reconciliation
                                                           filing
2002-2003    June 2003        March 2004    $ 5 million    Net over-recovery includes interest accrued
                                                           through March 2003, and an $11 million
                                                           disallowance settlement agreement
2003-2004    June 2004     February 2005    $31 million    Filing includes the $1 million and the $5
                                                           million GCR net over-recovery above
</Table>

     Net over-recovery amounts included in the table above include refunds that
we received from our suppliers which are required to be refunded to our
customers.

     GCR Year 2003-2004: In February 2005, the MPSC approved a settlement
agreement that resulted in a credit to our GCR customers for a $28 million
over-recovery, plus $3 million interest, using a roll-in refund methodology. The
roll-in methodology incorporates a GCR over/under-recovery in the next GCR plan
year.

     GCR Plan for Year 2004-2005: In December 2003, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2004
through March 2005. In June 2004, the MPSC issued a final

                                      CE-56
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Order in our GCR plan approving a settlement. The settlement included a
quarterly mechanism for setting a GCR ceiling price. The current ceiling price
is $6.57 per mcf. Actual gas costs and revenues will be subject to an annual
reconciliation proceeding.

     GCR Plan for Year 2005-2006: In December 2004, we filed an application with
the MPSC seeking approval of a GCR plan for the 12-month period of April 2005
through March 2006. Our request proposes using a GCR factor consisting of:

     - a base GCR factor of $6.98 per mcf, plus

     - a quarterly GCR ceiling price adjustment contingent upon future events.

     The GCR factor can be adjusted monthly, provided it remains at or below the
current ceiling price. The quarterly adjustment mechanism allows an increase in
the GCR ceiling price to reflect a portion of cost increases if the average
NYMEX price for a specified period is greater than that used in calculating the
base GCR factor. Actual gas costs and revenues will be subject to an annual
reconciliation proceeding.

     2003 GAS RATE CASE: In March 2003, we filed an application with the MPSC
for a gas rate increase in the annual amount of $156 million. In December 2003,
the MPSC granted an interim rate increase in the amount of $19 million annually.
The MPSC also ordered an annual $34 million reduction in our annual depreciation
expense and related taxes.

     On October 14, 2004, the MPSC issued its Opinion and Order on final rate
relief. In the order, the MPSC authorized us to place into effect surcharges
that would increase annual gas revenues by $58 million. Further, the MPSC
rescinded the $19 million annual interim rate increase. The final rate relief
was contingent upon our agreement to:

     - achieve a common equity level of at least $2.3 billion by year-end 2005
       and propose a plan to improve the common equity level thereafter until
       our target capital structure is reached,

     - make certain safety-related operation and maintenance, pension, retiree
       health-care, employee health-care, and storage working capital
       expenditures for which the surcharge is granted,

     - refund surcharge revenues when our rate of return on common equity
       exceeds its authorized 11.4 percent rate,

     - prepare and file annual reports that address certain issues identified in
       the order, and

     - file a general rate case on or before the date that the surcharge expires
       (which is two years after the surcharge goes into effect).

On October 15, 2004, we agreed to these commitments.

     2001 GAS DEPRECIATION CASE: In December 2003, we filed an update to our gas
utility plant depreciation case originally filed in June 2001. On December 18,
2003, the MPSC ordered an annual $34 million reduction in our depreciation
expense and related taxes in an interim rate order issued in our 2003 gas rate
case.

     In October and December 2004, the MPSC issued Opinions and Orders in our
gas depreciation case. The October 2004 order requires us to file an application
for new depreciation accrual rates for our natural gas utility plant on, or no
earlier than three months prior to, the date we file our next natural gas
general rate case. The MPSC also directed us to undertake a study to determine
why our removal costs are in excess of those of other regulated Michigan natural
gas utilities and file a report with the MPSC Staff on or before December 31,
2005.

     In February 2005, we requested a delay in the filing date for the next
depreciation case until after the MPSC considers the removal cost study, and
after the MPSC issues an order in a pending case relating to asset retirement
obligation accounting.

                                      CE-57
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OTHER MATTERS

     COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees
are represented by the Utility Workers of America Union. The Union represents
Consumers' operating, maintenance, and construction employees and our call
center employees. The collective bargaining agreement with the Union for our
operating, maintenance, and construction employees will expire on June 1, 2005
and negotiations for a new agreement is underway currently. The collective
bargaining agreement with the Union for our call center employees will expire on
August 1, 2005.

OTHER CONTINGENCIES

     In addition to the matters disclosed within this Note, we are party 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.

     We have accrued estimated losses for certain contingencies discussed within
this Note. Resolution of these contingencies is not expected to have a material
adverse impact on our financial position, liquidity, or results of operations.

                                      CE-58
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3: FINANCINGS AND CAPITALIZATION

Long-term debt as of December 31 follows:

<Table>
<Caption>
                                                      INTEREST RATE (%)    MATURITY      2004      2003
                                                      -----------------    --------      ----      ----
                                                                                         (IN MILLIONS)
<S>                                                   <C>                  <C>          <C>       <C>
  First mortgage bonds............................           4.250           2008       $  250    $  250
                                                             4.800           2009          200       200
                                                             4.400           2009          150        --
                                                             4.000           2010          250       250
                                                             5.000           2012          300        --
                                                             5.375           2013          375       375
                                                             6.000           2014          200       200
                                                             5.000           2015          225        --
                                                             5.500           2016          350        --
                                                             7.375           2023           --       208
                                                                                        ------    ------
                                                                                         2,300     1,483
                                                                                        ------    ------
  Senior notes....................................           6.000           2005           --       300
                                                             6.500           2005           --       141
                                                             6.250           2006          332       332
                                                             6.375           2008          159       159
                                                             6.875           2018          180       180
                                                             6.500           2028          141       142
                                                                                        ------    ------
                                                                                           812     1,254
                                                                                        ------    ------
  Securitization bonds............................           5.188(a)      2005-2015       398       426
                                                                                        ------    ------
  FMLP Debt(b):
     Subordinated secured notes...................          11.750           2005           70        --
     Subordinated secured notes...................          13.250           2006           75        --
     Tax-exempt subordinated secured notes........           6.875           2009          137        --
     Tax-exempt subordinated secured notes........           6.750           2009           14        --
                                                                                        ------    ------
                                                                                           296        --
                                                                                        ------    ------
  Nuclear fuel disposal liability.................                            (c)          141       139
  Tax-exempt pollution control revenue bonds......         Various         2010-2018       126       126
  Long-term bank debt(d)..........................        Variable           2006           60       200
  Other...........................................                                           1         4
                                                                                        ------    ------
                                                                                           328       469
                                                                                        ------    ------
Total principal amounts outstanding...............                                       4,134     3,632
  Current amounts.................................                                        (118)      (28)
  Net unamortized discount........................                                         (16)      (21)
                                                                                        ------    ------
Total Long-term debt..............................                                      $4,000    $3,583
                                                                                        ======    ======
</Table>

- -------------------------
(a)  Represents the weighted average interest rate at December 31, 2004 (5.097
     percent at December 31, 2003).

(b)  We consolidate the FMLP in accordance with Revised FASB Interpretation No.
     46. The FMLP debt is essentially project debt secured by certain assets of
     the MCV Partnership and the FMLP. The debt is non-recourse to other assets
     of Consumers.

(c)  Maturity date uncertain.

(d)  Paid off in January 2005.
                                      CE-59
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     FINANCINGS: The following is a summary of significant long-term debt
issuances and retirements during 2004:

<Table>
<Caption>
                                                            INTEREST         ISSUE/RETIREMENT
                                         PRINCIPAL          RATE (%)               DATE          MATURITY DATE
                                         ---------          --------         ----------------    -------------
                                       (IN MILLIONS)
<S>                                    <C>              <C>                  <C>                 <C>
DEBT ISSUANCES
  FMB..............................       $  150               4.400           August 2004        August 2009
  FMB..............................          300               5.000           August 2004       February 2012
  FMB..............................          350               5.500           August 2004        August 2016
  FMB..............................          225               5.000          December 2004        March 2015
                                       -------------
     Total debt issuances..........       $1,025
                                       =============
DEBT RETIREMENTS
  FMLP debt........................       $  115              11.750            July 2004          July 2004
  Long-term bank debt..............          140            Variable           August 2004         March 2009
  Senior notes.....................          141               6.500         September 2004        June 2018
  Senior notes.....................          300               6.000         September 2004        March 2005
  FMB..............................          208               7.375          December 2004      September 2023
                                       -------------
     Total debt retirements........       $  904
                                       =============
</Table>

     Issuance costs associated with the issuances of FMBs totaled $7 million and
are being amortized ratably over the lives of the related debt. Call premiums
associated with the debt retirements totaled $20 million and are being amortized
ratably over the lives of the newly issued debt.

     SUBSEQUENT FINANCING ACTIVITIES: In January 2005, we issued $250 million of
5.15 percent FMBs due 2017. We used the net proceeds of $247 million to pay off
our $60 million long-term bank loan, to redeem our $73 million 8.36 percent
subordinated deferrable interest notes, and to redeem our $124 million 8.20
percent subordinated deferrable interest notes. The subordinated deferrable
interest notes are classified as Long-term debt -- related parties on our
accompanying Consolidated Balance Sheets.

     FIRST MORTGAGE BONDS: We secure our FMBs by a mortgage and lien on
substantially all of our property. Our ability to issue and sell securities is
restricted by certain provisions in the first mortgage bond indenture, our
articles of incorporation, and the need for regulatory approvals under federal
law.

     SECURITIZATION BONDS: Securitization bonds are collateralized by certain
regulatory assets. The bondholders have no recourse to our other assets. Through
our rate structure, we bill customers for securitization surcharges to fund the
payment of principal, interest, and other related expenses on the Securitization
bonds. Securitization surcharges totaled $50 million annually in 2003 and 2004.

     LONG-TERM DEBT -- RELATED PARTIES: We formed various statutory wholly-owned
business trusts for the sole purpose of issuing preferred securities and lending
the gross proceeds to ourselves. The sole assets of the trusts consist of the
debentures described below. These debentures have terms similar to those of the
mandatorily redeemable preferred securities the trusts issued. We determined
that we do not hold the controlling financial interest in our trust preferred
security structures. Accordingly, those entities were deconsolidated as of
December 31, 2003 and are reflected in Long-term debt -- related parties. The
trust preferred securities were previously included in mezzanine equity.

                                      CE-60
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following is a summary of Long-term debt -- related parties as of
December 31:

<Table>
<Caption>
                                                               INTEREST
DEBENTURE AND RELATED PARTY                                    RATE (%)         MATURITY    2004     2003
- ---------------------------                                    --------         --------    ----     ----
                                                                                            (IN MILLIONS)
<S>                                                        <C>                  <C>         <C>      <C>
Subordinated deferrable interest notes, Consumers
  Power Company Financing I(a).........................          8.36             2015      $  73    $ 73
Subordinated deferrable interest notes, Consumers
  Energy Company Financing II(a).......................          8.20             2027        124     124
Subordinated debentures, Consumers Energy Company
  Financing III(b).....................................          9.25             2029        180     180
Subordinated debentures, Consumers Energy Company
  Financing IV.........................................          9.00             2031        129     129
                                                                                            -----    ----
Total principal amounts outstanding....................                                       506     506
  Current amounts......................................                                      (180)     --
                                                                                            -----    ----
Total Long-term debt -- related parties................                                     $ 326    $506
                                                                                            =====    ====
</Table>

- -------------------------
(a)  Redeemed in February 2005.

(b)  Redeemed in January 2005 with available cash.

     In the event of default, holders of the trust preferred securities would be
entitled to exercise and enforce the trusts' creditor rights against us, which
may include acceleration of the principal amount due on the debentures. We have
issued certain guarantees with respect to payments on the preferred securities.
These guarantees, when taken together with our obligations under the debentures,
related indenture and trust documents, provide full and unconditional guarantees
for the trusts' obligations under the preferred securities.

     DEBT MATURITIES: At December 31, 2004, the aggregate annual maturities for
long-term debt for the next five years are:

<Table>
<Caption>
                                                                            PAYMENTS DUE
                                                                ------------------------------------
                                                                2005    2006    2007    2008    2009
                                                                ----    ----    ----    ----    ----
                                                                           (IN MILLIONS)
<S>                                                             <C>     <C>     <C>     <C>     <C>
Long-term debt..............................................    $118    $478    $59     $504    $443
</Table>

     REGULATORY AUTHORIZATION FOR FINANCINGS: We have FERC authorization to
issue or guarantee up to $1.1 billion of short-term securities and up to $1.1
billion of short-term FMBs as collateral for such short-term securities. We have
FERC authorization to issue up to $1 billion of long-term securities for
refinancing or refunding purposes, $1.5 billion of long-term securities for
general corporate purposes, and $2.5 billion of long-term FMBs to be issued
solely as collateral for other long-term securities.

     REVOLVING CREDIT FACILITIES: The following secured revolving credit
facilities with banks are available as of December 31, 2004:

<Table>
<Caption>
                                                                                     OUTSTANDING
                                                            AMOUNT OF     AMOUNT     LETTERS-OF-     AMOUNT
COMPANY                                  EXPIRATION DATE    FACILITY     BORROWED      CREDIT       AVAILABLE
- -------                                  ---------------    ---------    --------    -----------    ---------
                                                                              (IN MILLIONS)
<S>                                      <C>                <C>          <C>         <C>            <C>
Consumers(a).........................                         $500        $  --          $25          $475
The MCV Partnership..................    August 27, 2005        50           --            2            48
</Table>

- -------------------------
(a)  This facility expires in August 2005 and may be extended annually at
     Consumers' option to July 31, 2007. The interest rate on borrowings under
     this facility is LIBOR plus 125 basis points. Annual fees for letters-of-

                                      CE-61
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

credit are 125 basis points on the amount outstanding. A quarterly fee of 22.5
basis points is payable on the average daily unused balance.

     SALE OF ACCOUNTS RECEIVABLE: Under a revolving accounts receivable sales
program, we currently sell certain accounts receivable to a wholly owned,
consolidated, bankruptcy remote special purpose entity. In turn, the special
purpose entity may sell an undivided interest in up to $325 million of the
receivables. We sold $304 million of receivables at December 31, 2004 and we
sold $297 million of receivables at December 31, 2003. These sold amounts are
excluded from accounts receivable on our Consolidated Balance Sheets. We
continue to service the receivables sold to the special purpose entity. The
purchaser of the receivables has no recourse against our 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 we retain no interest in the receivables sold.

     Certain cash flows under our accounts receivable sales program are shown in
the following table:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004      2003
- -----------------------                                          ----      ----
                                                                 (IN MILLIONS)
<S>                                                             <C>       <C>
Net cash flow as a result of accounts receivable
  financing.................................................    $    7    $  (28)
Collections from customers..................................    $4,541    $4,361
</Table>

     DIVIDEND RESTRICTIONS: Under the provisions of our articles of
incorporation, at December 31, 2004, we had $456 million of unrestricted
retained earnings available to pay common stock dividends. However, covenants in
our debt facilities cap common stock dividend payments at $300 million in a
calendar year. In October 2004, the MPSC rescinded its December 2003 interim gas
rate order, which included a $190 million annual dividend cap. For the year
ended December 31, 2004, we paid $190 million in common stock dividends to CMS
Energy.

     PREFERRED STOCK: Our Preferred Stock outstanding follows:

<Table>
<Caption>
                                                            OPTIONAL      NUMBER OF SHARES
                                                           REDEMPTION     ----------------
DECEMBER 31                                      SERIES      PRICE        2004       2003      2004     2003
- -----------                                      ------    ----------     ----       ----      ----     ----
                                                                                               (IN MILLIONS)
<S>                                              <C>       <C>           <C>        <C>        <C>      <C>
Preferred Stock
  Cumulative $100 par value, Authorized
     7,500,000 shares, with no mandatory
     redemption..............................    $4.16      $103.25       68,451     68,451     $ 7      $ 7
                                                  4.50       110.00      373,148    373,148      37       37
                                                                                               -----    -----
Total Preferred Stock........................                                                   $44      $44
                                                                                               =====    =====
</Table>

     FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF
OTHERS: This Interpretation became effective January 2003. It describes the
disclosure to be made by a guarantor about its obligations under certain
guarantees that it has issued. At the inception of a guarantee, it requires a
guarantor to recognize 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 some guarantee contracts,
such as warranties, derivatives, or guarantees between either parent and
subsidiaries or corporations under common control, although disclosure of these
guarantees is required. For contracts that are within the recognition and
measurement provision of this Interpretation, the provisions were to be applied
to guarantees issued or modified after December 31, 2002.

                                      CE-62
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table describes our guarantees at December 31, 2004:

<Table>
<Caption>
                                                 ISSUE     EXPIRATION     MAXIMUM      CARRYING      RECOURSE
GUARANTEE DESCRIPTION                            DATE         DATE       OBLIGATION     AMOUNT     PROVISION(A)
- ---------------------                            -----     ----------    ----------    --------    ------------
                                                                                     (IN MILLIONS)
<S>                                             <C>        <C>           <C>           <C>         <C>
Standby letters of credit...................    Various     Various         $ 25        $  --         $  --
Surety bonds................................    Various     Various            6           --            --
Nuclear insurance retrospective premiums....    Various     Various          134           --            --
                                                                                        =====         =====
</Table>

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

     The following table provides additional information regarding our
guarantees:

<Table>
<Caption>
GUARANTEE DESCRIPTION                 HOW GUARANTEE AROSE         EVENTS THAT WOULD REQUIRE PERFORMANCE
- ---------------------                 -------------------         -------------------------------------
<S>                              <C>                              <C>
Standby letters of credit        Normal operations of coal        Noncompliance with environmental
                                 power plants                     regulations and non-responsive to
                                                                  demands for corrective action
                                 Natural gas transportation       Nonperformance
                                 Self-insurance requirement       Nonperformance
                                 Nuclear plant closure            Nonperformance
Surety bonds                     Normal operating activity,       Nonperformance
                                 permits and license
Nuclear insurance                Normal operations of nuclear     Call by NEIL and Price-Anderson Act
  retrospective premiums         plants                           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 because of
their short-term nature. We estimate the fair values of long-term financial
instruments based on quoted market prices or, in the absence of specific market
prices, on quoted market prices of similar instruments or other valuation
techniques.

     The cost and fair value of our long-term financial instruments are as
follows:

<Table>
<Caption>
                                                     2004                                     2003
                                    ---------------------------------------    -----------------------------------
                                                              UNREALIZED                               UNREALIZED
DECEMBER 31                          COST     FAIR VALUE      GAIN (LOSS)       COST     FAIR VALUE    GAIN (LOSS)
- -----------                          ----     ----------      -----------       ----     ----------    -----------
                                                                    (IN MILLIONS)
<S>                                 <C>       <C>           <C>                <C>       <C>           <C>
Long-term debt(a)...............    $4,118      $4,232           $(114)        $3,611      $3,711         $(100)
Long-term debt -- related
  parties(b)....................       506         518             (12)           506         518           (12)
Available-for-sale securities:
Common stock of CMS Energy(c)...        10          25              15             10          20            10
SERP:
  Equity securities.............        15          21               6             10          14             4
  Debt securities(e)............         9           9              --              7           7            --
Nuclear decommissioning
  investments(d):
  Equity securities.............       136         262             126            143         260           117
  Debt securities(e)............       291         302              11            288         304            16
</Table>

- -------------------------
(a)  Includes current maturities of $118 million at December 31, 2004 and $28
     million at December 31, 2003. Settlement of long-term debt is generally not
     expected until maturity.

                                      CE-63
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(b)  Includes current maturities of $180 million at December 31, 2004.

(c)  At December 31, 2004, we held 2.4 million shares of CMS Energy Common
     Stock.

(d)  Nuclear decommissioning investments include cash and equivalents and
     accrued income totaling $11 million at December 31, 2004 and $11 million at
     December 31, 2003. Unrealized gains and losses on nuclear decommissioning
     investments are reflected as regulatory liabilities.

(e)  The fair value of available-for-sale debt securities by contractual
     maturity as of December 31, 2004 is as follows:

<Table>
<Caption>
                                                                      (IN MILLIONS)
      <S>                                                             <C>
      Due in one year or less.....................................        $ 31
      Due after one year through five years.......................         122
      Due after five years through ten years......................         120
      Due after ten years.........................................          38
                                                                          ----
        Total.....................................................        $311
                                                                          ====
</Table>

     Our held-to-maturity investments consist of debt securities held by the MCV
Partnership totaling $139 million as of December 31, 2004. These securities
represent funds restricted primarily for future lease payments and are
classified as Other assets on our Consolidated Balance Sheets. These investments
have original maturity dates of approximately one year or less and, because of
their short maturities, their carrying amounts approximate their fair values.

     DERIVATIVE INSTRUMENTS: We are exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, and equity security
prices. We manage these risks using established policies and procedures, under
the direction of both an executive oversight committee consisting of senior
management representatives and a risk committee consisting of business-unit
managers. We may use various contracts to manage these risks including swaps,
options, futures, and forward contracts.

     We intend that any gains or losses on these contracts will be offset by an
opposite movement in the value of the item at risk. We enter into all risk
management contracts for purposes other than trading. These contracts contain
credit risk if the counterparties, including financial institutions and energy
marketers, fail to perform under the agreements. We minimize such risk through
established credit policies that include performing financial credit reviews of
our counterparties. Determination of our counterparties' credit quality is based
upon a number of factors, including credit ratings, disclosed financial
condition, and collateral requirements. Where contractual terms permit, we
employ standard agreements that allow for netting of positive and negative
exposures associated with a single counterparty. Based on these policies and our
current exposures, we do not anticipate a material adverse effect on our
financial position or earnings as a result of counterparty nonperformance.

     Contracts used to manage market risks 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. The recorded fair value is then adjusted quarterly to
reflect any change in the market value of the contract, a practice known as
marking the contract to market. Changes in fair value (that is, gains or losses)
are reported either in earnings or accumulated other comprehensive income,
depending on whether the derivative qualifies for cash flow hedge accounting
treatment.

     For derivative instruments to qualify for hedge accounting, 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 recognized immediately in
earnings. If a

                                      CE-64
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. The ineffective
portion, if any, of all hedges is recognized in earnings.

     We use a combination of quoted market prices, prices obtained from external
sources, such as brokers, and mathematical valuation models to determine the
fair value of those contracts requiring derivative accounting. In certain
contracts, long-term commitments may extend beyond the period in which market
quotations for such contracts are available. Mathematical models are developed
to determine various inputs into the fair value calculation including price and
other variables that may be required to calculate fair value. Realized cash
returns on these commitments may vary, either positively or negatively, from the
results estimated through application of the mathematical model. In connection
with the market valuation of our derivative contracts, we maintain reserves, if
necessary, for credit risks based on the financial condition of counterparties.

     The majority of our contracts are not subject to derivative accounting
under SFAS No. 133 because they qualify for the normal purchases and sales
exception, or because there is not an active market for the commodity. Our
electric capacity and energy contracts are not accounted for as derivatives due
to the lack of an active energy market in the state of Michigan and the
significant transportation costs that would be incurred to deliver the power
under the contracts to the closest active energy market at the Cinergy hub in
Ohio. Similarly, our coal purchase contracts are not accounted for as
derivatives due to the lack of an active market for the coal that we purchase.
If active markets for these commodities develop in the future, we may be
required to account for these contracts as derivatives, and the resulting
mark-to-market impact on earnings could be material to our financial statements.

     The MISO is scheduled to begin the Midwest Energy Market on April 1, 2005,
which will include day-ahead and real-time energy market information and
centralized dispatch for market participants. At this time, we believe that the
commencement of this market will not constitute the development of an active
energy market in the state of Michigan. However, after having adequate
experience with the Midwest Energy Market, we will reevaluate whether or not the
activity level within this market leads to the conclusion that an active energy
market exists.

     Derivative accounting is required for certain contracts used to limit our
exposure to commodity price risk. The following table reflects the fair value of
all contracts requiring derivative accounting:

<Table>
<Caption>
                                                               2004                            2003
DECEMBER 31                                        ----------------------------    ----------------------------
- -----------                                                FAIR     UNREALIZED             FAIR     UNREALIZED
DERIVATIVE INSTRUMENTS                             COST    VALUE    GAIN (LOSS)    COST    VALUE    GAIN (LOSS)
- ----------------------                             ----    -----    -----------    ----    -----    -----------
                                                                          (IN MILLIONS)
<S>                                                <C>     <C>      <C>            <C>     <C>      <C>
Gas contracts..................................    $ 2      $--         $(2)       $ 3      $ 2         $(1)
Derivative contracts associated with Consumers'
  investment in the MCV Partnership:
  Prior to consolidation(a)....................     --       --          --         --       15          15
  After consolidation:
     Gas fuel contracts........................     --       56          56         --       --          --
     Gas fuel futures and swaps................     --       64          64         --       --          --
                                                   ===      ===         ===        ===      ===         ===
</Table>

- -------------------------
(a)  The amount associated with derivative contracts held by the MCV Partnership
     as of December 31, 2003 represents our proportionate share of the
     unrealized gain on those contracts accounted for as cash flow hedges
     included in Accumulated other comprehensive income. Our proportionate share
     of the total fair value of all derivative instruments held by the MCV
     Partnership as of December 31, 2003 was $51 million, and is included in
     Investments -- Midland Cogeneration Venture Limited Partnership on our
     Consolidated Balance Sheets.

     The fair value of our derivative contracts is included in Derivative
instruments, Other assets, or Other liabilities on our Consolidated Balance
Sheets.

                                      CE-65
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     GAS CONTRACTS: Our gas utility business uses fixed-priced weather-based gas
supply call options and fixed-priced gas supply call and put options to meet our
regulatory obligation to provide gas to our customers at a reasonable and
prudent cost. Unrealized gains and losses associated with these options are
reported directly in earnings as part of Other income, and then directly offset
in earnings and recorded on the balance sheet as a regulatory asset or liability
as part of the GCR process. At December 31, 2004, we held fixed-priced weather-
based gas supply call options and had sold fixed-priced gas supply put options.

     DERIVATIVE CONTRACTS ASSOCIATED WITH CONSUMERS' INVESTMENT IN THE MCV
PARTNERSHIP:

     Gas Fuel Contracts: The MCV Partnership uses natural gas fuel contracts to
buy gas as fuel for generation, and to manage gas fuel costs. The MCV
Partnership believes that certain of its long-term natural gas contracts qualify
as normal purchases under SFAS No. 133, and therefore, these contracts were not
recognized at fair value on the balance sheet as of December 31, 2004. The MCV
Partnership also held certain long-term gas contracts that did not qualify as
normal purchases as of December 31, 2004, because these contracts contained
volume optionality. Accordingly, these contracts were accounted for as
derivatives, with changes in fair value recorded in earnings each quarter. The
MCV Partnership expects future earnings volatility on these contracts, since
gains and losses will be recorded each quarter. For the year ended December 31,
2004, we recorded a $19 million net loss associated with these gas contracts in
Fuel for electric generation on our Consolidated Statements of Income. The fair
value of these contracts will reverse over the remaining life of the contracts
ranging from 2005 to 2007.

     Due to the implementation of the RCP in January 2005, the MCV Partnership
has determined that a significant portion of its gas fuel contracts no longer
qualify as normal purchases because the contracted gas will not be consumed for
electric production. Accordingly, these contracts will be treated as derivatives
and will be marked-to-market through earnings each quarter, which could increase
earnings volatility. Based on market prices for natural gas as of January 31,
2005, the accounting for the MCV Partnership's long-term gas contracts,
including those affected by the implementation of the RCP, could result in an
estimated $100 million (pretax before minority interest) gain recorded to
earnings in the first quarter of 2005. This estimated gain will reverse in
subsequent quarters as the contracts settle. For further details on the RCP, see
Note 2, Contingencies, "Other Electric Contingencies -- The Midland Cogeneration
Venture." If there are further changes in the level of planned electric
production or gas consumption, the MCV Partnership may be required to account
for additional long-term gas contracts as derivatives, which could add to
earnings volatility.

     Gas Fuel Futures and Swaps: The MCV Partnership enters into natural gas
futures contracts, option contracts, and over-the-counter swap transactions in
order to hedge against unfavorable changes in the market price of natural gas in
future months when gas is expected to be needed. These financial instruments are
used principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of natural gas
previously obtained in order to optimize the MCV Partnership's existing gas
supply, storage, and transportation arrangements. At December 31, 2004, the MCV
Partnership held gas fuel futures and swaps.

     The contracts that are used to secure anticipated natural gas requirements
necessary for projected electric and steam sales qualify as cash flow hedges
under SFAS No. 133. The MCV Partnership also engages in cost mitigation
activities to offset the fixed charges the MCV Partnership incurs in operating
the MCV Facility. These cost mitigation activities include the use of futures
and options contracts to purchase and/or sell natural gas to maximize the use of
the transportation and storage contracts when it is determined that they will
not be needed for the MCV Facility operation. Although these cost mitigation
activities do serve to offset the fixed monthly charges, these cost mitigation
activities are not considered a normal course of business for the MCV
Partnership and do not qualify as hedges. Therefore, the mark-to-market gains
and losses from these cost mitigation activities are recorded in earnings each
quarter.

     As of December 31, 2004, we have recorded a cumulative net gain of $21
million, net of tax, in Accumulated other comprehensive income relating to our
proportionate share of the contracts held by the MCV

                                      CE-66
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Partnership that qualify as cash flow hedges. This balance represents natural
gas futures, options, and swaps with maturities ranging from January 2005 to
December 2009, of which $11 million of this gain is expected to be reclassified
as an increase to earnings during the next 12 months. In addition, for the year
ended December 31, 2004, we recorded a net gain of $37 million in earnings from
hedging activities related to natural gas requirements for the MCV Facility
operations and a net gain of $2 million in earnings from the MCV Partnership's
cost mitigation activities.

5: RETIREMENT BENEFITS

     We provide retirement benefits to our employees under a number of different
plans, including:

     - non-contributory, defined benefit Pension Plan,

     - a cash balance pension plan for certain employees hired after June 30,
       2003,

     - benefits to certain management employees under SERP,

     - a defined contribution 401(k) plan,

     - benefits to a select group of management under EISP, and

     - health care and life insurance benefits under OPEB.

     Pension Plan: The Pension Plan includes funds for our employees and our
non-utility affiliates, including Panhandle. The Pension Plan's assets are not
distinguishable by company.

     In June 2003, CMS Energy sold Panhandle to Southern Union Panhandle Corp.
No portion of the Pension Plan assets were transferred with the sale and
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.

     The sale of Panhandle resulted in a significant change in the makeup of the
Pension Plan. A remeasurement of the obligation was required at the date of
sale. The remeasurement further resulted in the following:

     - an increase in OPEB expense of $4 million for 2003, and

     - an additional charge to accumulated other comprehensive income of $31
       million ($20 million after-tax) in 2003 as a result of the increase in
       the additional minimum pension liability. As a result of company
       contributions in 2003, the additional minimum pension liability was
       eliminated as of December 31, 2003.

     In 2003, a substantial number of retiring employees elected a lump sum
payment instead of receiving pension benefits as an annuity over time. Lump sum
payments constitute a settlement under SFAS No. 88. A settlement loss must be
recognized when the cost of all settlements paid during the year exceeds the sum
of the service and interest costs for that year. We recorded a settlement loss
of $48 million ($31 million after-tax) in December 2003.

     SERP: SERP benefits are paid from a trust established in 1988. SERP is not
a qualified plan under the Internal Revenue Code; SERP trust earnings are
taxable and trust assets are included in consolidated assets. Trust assets were
$30 million at December 31, 2004, and $22 million at December 31, 2003. The
assets are classified as Other non-current assets. The Accumulated Benefit
Obligation for SERP was $30 million at December 31, 2004 and $19 million at
December 31, 2003.

     401(k): Employer matching contributions to the 401(k) plan are invested in
CMS Energy common stock. The amount charged to expense for this plan was $8
million in 2002. The employer's match for the 401(k) plan was suspended on
September 1, 2002 and was resumed on January 1, 2005.

                                      CE-67
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The MCV Partnership sponsors a defined contribution retirement plan
covering all employees. Under the terms of the plan, the MCV Partnership makes
contributions of either 5 or 10 percent of an employee's eligible annual
compensation dependent upon the employee's age. The MCV Partnership also
sponsors a 401(k) savings plan for employees. Contributions and costs for this
plan are based on matching an employee's savings up to a maximum level. Amounts
contributed under these plans were $1 million in 2004.

     EISP: We implemented an EISP in 2002 to provide flexibility in separation
of employment by officers, a select group of management, or other highly
compensated employees. Terms of the plan may include payment of a lump sum,
payment of monthly benefits for life, payment of premium for continuation of
health care, or any other legally permissible term deemed to be in our best
interest to offer. As of December 31, 2004, the Accumulated Benefit Obligation
of the EISP was $4 million.

     OPEB: Retiree health care costs at December 31, 2004 are based on the
assumption that costs would increase 7.5 percent in 2004. The rate of increase
is expected to be 10 percent for 2005. The rate of increase is expected to slow
to an estimated 5 percent by 2010 and thereafter.

     The MCV Partnership sponsors defined cost postretirement health care plans
that cover all full-time employees, except key management. Participants in the
postretirement health care plans become eligible for the benefits if they retire
on or after the attainment of age 65 or upon a qualified disability retirement,
or if they have 10 or more years of service and retire at age 55 or older. The
accumulated benefit obligation of the MCV Partnership's postretirement plans was
$5 million at December 31, 2004. The MCV Partnership's net periodic
postretirement health care cost for 2004 was less than $1 million.

     The health care cost trend rate assumption affects the estimated costs
recorded. A one-percentage point change in the assumed health care cost trend
assumption would have the following effects:

<Table>
<Caption>
                                                                ONE PERCENTAGE    ONE PERCENTAGE
                                                                POINT INCREASE    POINT DECREASE
                                                                --------------    --------------
                                                                         (IN MILLIONS)
<S>                                                             <C>               <C>
Effect on total service and interest cost component.........         $ 12             $ (10)
Effect on postretirement benefit obligation.................         $149             $(129)
                                                                     ====             =====
</Table>

     We adopted SFAS No. 106, effective as of the beginning of 1992. We recorded
a liability of $466 million for the accumulated transition obligation and a
corresponding regulatory asset for anticipated recovery in utility rates. For
additional details, see Note 1, Corporate Structure and Accounting Policies,
"Utility Regulation." The MPSC authorized recovery of the electric utility
portion of these costs in 1994 over 18 years and the gas utility portion in 1996
over 16 years.

     The measurement date for all of Consumers' plans is November 30 for 2004,
and December 31 for 2003 and 2002. We believe accelerating the measurement date
on our benefit plans by one month is preferable as it improves control
procedures and allows more time to review the completeness and accuracy of the
actuarial measurements. As a result of the measurement date change in 2004, we
recorded a $1 million cumulative effect of change in accounting, net of tax
benefit, as a decrease to earnings. We also increased the amount of accrued
benefit cost on our Consolidated Balance Sheets by $2 million. The effect of the
measurement date change was immaterial. The measurement date for the MCV
Partnership's plan is December 31, 2004.

                                      CE-68
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Assumptions: The following table recaps the weighted-average assumptions
used in our retirement benefits plans to determine the benefit obligation and
net periodic benefit cost:

<Table>
<Caption>
                                                      PENSION & SERP                  OPEB
                                                  -----------------------    -----------------------
                                                  2004     2003     2002     2004     2003     2002
                                                  ----     ----     ----     ----     ----     ----
<S>                                               <C>      <C>      <C>      <C>      <C>      <C>
Discount rate.................................    6.00%    6.25%    6.75%    6.00%    6.25%    6.75%
Expected long-term rate of return on plan
  assets(a)...................................    8.75%    8.75%    8.75%
  Union.......................................                               8.75%    8.75%    8.75%
  Non-Union...................................                               6.00%    6.00%    6.00%
Rate of compensation increase:
  Pension.....................................    3.50%    3.25%    3.50%
  SERP........................................    5.50%    5.50%    5.50%
</Table>

- -------------------------
(a)  We determine our long-term rate of return by considering historical market
     returns, the current and future economic environment, the capital market
     principals of risk and return, and the expert opinions of individuals and
     firms with financial market knowledge. We use the asset allocation of the
     portfolio to forecast the future expected total return of the portfolio.
     The goal is to determine a long-term rate of return that can be
     incorporated into the planning of future cash flow requirements in
     conjunction with the change in the liability. The use of forecasted returns
     for various classes of assets used to construct an expected return model is
     reviewed periodically for reasonability and appropriateness.

     Costs: The following table recaps the costs incurred in our retirement
benefits plans:

<Table>
<Caption>
                                                             PENSION & SERP                OPEB
                                                         ----------------------    --------------------
YEARS ENDED DECEMBER 31                                  2004     2003    2002     2004    2003    2002
- -----------------------                                  ----     ----    ----     ----    ----    ----
                                                                          IN MILLIONS
<S>                                                      <C>      <C>     <C>      <C>     <C>     <C>
Service cost.........................................    $  36    $ 39    $  40    $ 18    $17     $ 16
Interest expense.....................................       77      75       86      54     61       63
Expected return on plan assets.......................     (109)    (80)    (103)    (45)   (39)     (40)
Plan amendments......................................       --      --        4      --     --       --
Settlement charge....................................       --      48       --      --     --       --
Amortization of:
  Net loss...........................................       14       9       --      11     18        8
  Prior service cost.................................        6       7        8      (8)    (6)      (1)
                                                         -----    ----    -----    ----    ----    ----
Net periodic pension and postretirement benefit
  cost...............................................    $  24    $ 98    $  35    $ 30    $51     $ 46
                                                         =====    ====    =====    ====    ====    ====
</Table>

                                      CE-69
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Reconciliations: The following table reconciles the funding of our
retirement benefits plans with our retirement benefits plans' liability:

<Table>
<Caption>
                                                       PENSION PLAN          SERP             OPEB
                                                     ----------------    ------------    ---------------
YEARS ENDED DECEMBER 31                               2004      2003     2004    2003     2004     2003
- -----------------------                               ----      ----     ----    ----     ----     ----
                                                                        (IN MILLIONS)
<S>                                                  <C>       <C>       <C>     <C>     <C>       <C>
Benefit obligation at beginning of period........    $1,189    $1,256    $ 22    $ 21    $  812    $ 890
Service cost.....................................        35        38       1       1        18       17
Interest cost....................................        74        74       3       1        54       61
Plan amendment...................................        --       (19)     --      --        --      (44)
Employee Transfers...............................        --        --      12      --        --       --
Actuarial loss...................................       138        55       3      --       168      (72)
Benefits paid....................................      (108)     (215)     (1)     (1)      (39)     (40)
                                                     ------    ------    ----    ----    ------    -----
Benefit obligation at end of period(a)...........     1,328     1,189      40      22     1,013      812
                                                     ------    ------    ----    ----    ------    -----
Plan assets at fair value at beginning of
  period.........................................     1,067       607      --      --       564      465
Actual return on plan assets.....................        81       115      --      --        25       68
Company contribution.............................        --       560      --      --        48       71
Actual benefits paid.............................      (108)     (215)     --      --       (39)     (40)
                                                     ------    ------    ----    ----    ------    -----
Plan assets at fair value at end of period.......     1,040     1,067      --      --       598      564
                                                     ------    ------    ----    ----    ------    -----
Benefit obligation in excess of plan assets......      (288)     (122)    (40)    (22)     (415)    (248)
Unrecognized net loss from experience different
  than assumed...................................       642       501       6       3       347      164
Unrecognized prior service cost (benefit)........        23        29      --      --       (99)    (107)
                                                     ------    ------    ----    ----    ------    -----
Net Balance Sheet Asset (Liability)..............       377       408     (34)    (19)     (167)    (191)
Additional VEBA Contributions or Non-Trust
  Benefit Payments...............................                                            15       --
Additional minimum liability adjustment(b).......      (419)       --      --      --        --       --
                                                     ------    ------    ----    ----    ------    -----
Total Net Balance Sheet Asset (Liability)........    $  (42)   $  408    $(34)   $(19)   $ (152)   $(191)
                                                     ======    ======    ====    ====    ======    =====
</Table>

- -------------------------
(a)  The Medicare Prescription Drug, Improvement and Modernization Act of 2003
     was signed into law in December 2003. The Act establishes a prescription
     drug benefit under Medicare (Medicare Part D), and a federal subsidy, which
     is tax-exempt, to sponsors of retiree health care benefit plans that
     provide a benefit that is actuarially equivalent to Medicare Part D.

     We believe our plan is actuarially equivalent to Medicare Part D and have
     incorporated, retroactively, the effects of the subsidy into our financial
     statements as of June 30, 2004, in accordance with FASB Staff Position, No.
     SFAS 106-2. We remeasured our obligation as of December 31, 2003 to
     incorporate the impact of the Act, which resulted in a reduction to the
     accumulated postretirement benefit obligation of $148 million. The
     remeasurement resulted in a reduction of OPEB cost of $23 million for 2004.
     The reduction of $23 million includes $7 million in capitalized OPEB costs.
     For additional details, see Note 13, Implementation of New Accounting
     Standards.

(b) The Pension Plan's Accumulated Benefit Obligation of $1.082 billion exceeded
    the value of the Pension Plan assets and net balance sheet asset at December
    31, 2004. As a result, we recorded an additional minimum liability of $419
    million. Consistent with MPSC guidance, Consumers recognized the cost of
    their additional minimum liability as a regulatory asset. Accordingly,
    Consumers' additional minimum liability includes an intangible asset of $21
    million, and a regulatory asset of $372 million. The Accumulated Benefit
    Obligation for the Pension Plan was $1.019 billion at December 31, 2003.

                                      CE-70
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Plan Assets: The following table recaps the categories of plan assets in
our retirement benefits plans:

<Table>
<Caption>
                                                                   PENSION               OPEB
                                                                --------------      --------------
                                                                2004      2003      2004      2003
                                                                ----      ----      ----      ----
<S>                                                             <C>       <C>       <C>       <C>
Asset Category:
  Fixed Income..............................................    34%       52%(b)    45%       51%
  Equity Securities.........................................    61%       44%       54%       48%
     CMS Energy Common Stock(a).............................     5%        4%        1%        1%
                                                                ===       ===       ===       ===
</Table>

- -------------------------
(a)  At November 30, 2004, there were 4,892,000 shares of CMS Energy Common
     Stock in the Pension Plan assets with a fair value of $50 million, and
     493,000 shares in the OPEB plan assets, with a fair value of $5 million. At
     December 31, 2003, there were 4,970,000 shares of CMS Energy Common Stock
     in the Pension Plan assets with a fair value of $42 million, and 414,000
     shares in the OPEB plan assets, with a fair value of $4 million.

(b)  The percentage of fixed income at December 31, 2003 is high because our
     December contribution of $329 million was deposited temporarily into fixed
     income securities.

     We contributed $62 million to our OPEB plan in 2004. We plan to contribute
$62 million to our OPEB plan in 2005. We did not contribute to our Pension Plan
in 2004. We do not plan to contribute to our Pension Plan in 2005.

     We have established a target asset allocation for our Pension Plan assets
of 65 percent equity and 35 percent fixed income investments to maximize the
long-term return on plan assets, while maintaining a prudent level of risk. The
level of acceptable risk is a function of the liabilities of the plan. Equity
investments are diversified mostly across the Standard & Poor's 500 Index, with
a lesser allocation to the Standard & Poor's Mid Cap and Small Cap Indexes and a
Foreign Equity Index Fund. Fixed income investments are diversified across
investment grade instruments of both government and corporate issuers. Annual
liability measurements, quarterly portfolio reviews, and periodic
asset/liability studies are used to evaluate the need for adjustments to the
portfolio allocation.

     We have established union and non-union VEBA trusts to fund our future
retiree health and life insurance benefits. These trusts are funded through the
rate making process for Consumers, and through direct contributions from the
non-utility subsidiaries. The equity portions of the union and non-union health
care VEBA trusts are invested in a Standard & Poor's 500 Index fund. The fixed
income portion of the union health care VEBA trust is invested in domestic
investment grade taxable instruments. The fixed income portion of the non-union
health care VEBA trust is invested in a diversified mix of domestic tax-exempt
securities. The investment selections of each VEBA are influenced by the tax
consequences, as well as the objective of generating asset returns that will
meet the medical and life insurance costs of retirees.

                                      CE-71
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Benefit Payments: The expected benefit payments for each of the next five
years and the five-year period thereafter are as follows:

<Table>
<Caption>
                                                                PENSION    SERP    OPEB(a)
                                                                -------    ----    -------
                                                                      (IN MILLIONS)
<S>                                                             <C>        <C>     <C>
2005........................................................     $113      $ 2      $ 53
2006........................................................      105        2        51
2007........................................................       96        2        53
2008........................................................       90        2        54
2009........................................................       89        2        56
2010-2014...................................................      423       13       322
                                                                 ====      ===      ====
</Table>

- -------------------------
(a)  OPEB benefit payments are net of employee contributions and expected
     Medicare Part D subsidy payments.

6: ASSET RETIREMENT OBLIGATIONS

     SFAS NO. 143: This standard became effective January 2003. It requires
companies to record the fair value of the cost to remove assets at the end of
their useful life, if there is a legal obligation to remove them. We have legal
obligations to remove some of our assets, including our nuclear plants, at the
end of their useful lives. As required by SFAS No. 71, we accounted for the
implementation of this standard by recording regulatory assets and liabilities
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 to assume 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 our ARO fair value estimate since a reasonable estimate could
not be made. If a five percent market risk premium were assumed, our ARO
liability would increase by $22 million.

     If a reasonable estimate of fair value cannot be made in the period in
which the ARO is incurred, such as for assets with indeterminate lives, the
liability is to be recognized when a reasonable estimate of fair value can be
made. Generally, gas transmission and electric and gas distribution assets have
indeterminate lives. 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. Also, no liability has been recorded for assets that have
insignificant cumulative disposal costs, such as substation batteries. The
measurement of the ARO liabilities for Palisades and Big Rock are based on
decommissioning studies that largely utilize third-party cost estimates.

                                      CE-72
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following tables describe our assets that have legal obligations to be
removed at the end of their useful life:

<Table>
<Caption>
                                           IN SERVICE
ARO DESCRIPTION                               DATE                LONG LIVED ASSETS               TRUST FUND
- ---------------                            ----------             -----------------               ----------
                                                                                                 (IN MILLIONS)
<S>                                        <C>           <C>                                     <C>
December 31, 2004
  Palisades -- decommission plant
     site..............................        1972      Palisades nuclear plant                     $523
  Big Rock -- decommission plant
     site..............................        1962      Big Rock nuclear plant                        52
  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>

<Table>
<Caption>
                                                                                                              ARO
                                         ARO LIABILITY                                        CASH FLOW    LIABILITY
ARO DESCRIPTION                             1/1/03        INCURRED    SETTLED    ACCRETION    REVISIONS    12/31/03
- ---------------                          -------------    --------    -------    ---------    ---------    ---------
                                                                        (IN MILLIONS)
<S>                                      <C>              <C>         <C>        <C>          <C>          <C>
Palisades -- decommission............        $249           $--        $ --         $19          $--         $268
Big Rock -- decommission.............          61            --         (40)         13           --           34
JHCampbell intake line...............          --            --          --          --           --           --
Coal ash disposal areas..............          51            --          (3)          5           --           53
Wells at gas storage fields..........           2            --          --          --           --            2
Indoor gas services relocations......           1            --          --          --           --            1
                                             ----           ---        ----         ---          ---         ----
          Total......................        $364           $--        $(43)        $37          $--         $358
                                             ====           ===        ====         ===          ===         ====
</Table>

<Table>
<Caption>
                                                                                                              ARO
                                         ARO LIABILITY                                        CASH FLOW    LIABILITY
ARO DESCRIPTION                            12/31/03       INCURRED    SETTLED    ACCRETION    REVISIONS    12/31/04
- ---------------                          -------------    --------    -------    ---------    ---------    ---------
                                                                        (IN MILLIONS)
<S>                                      <C>              <C>         <C>        <C>          <C>          <C>
Palisades -- decommission............        $268           $--        $ --         $22          $60         $350
Big Rock -- decommission.............          34            --         (40)         14           22           30
JHCampbell intake line...............          --            --          --          --           --           --
Coal ash disposal areas..............          53            --          (4)          5           --           54
Wells at gas storage fields..........           2            --          (1)         --           --            1
Indoor gas services relocations......           1            --          --          --           --            1
                                             ----           ---        ----         ---          ---         ----
          Total......................        $358           $--        $(45)        $41          $82         $436
                                             ====           ===        ====         ===          ===         ====
</Table>

     The Palisades and Big Rock cash flow revisions resulted from new
decommissioning reports filed with the MPSC in March 2004. The Palisades ARO
also reflects a cash flow revision for the probability of operating license
renewal; the renewal would extend the plant's operating license by twenty years.
For additional details, see Note 2, Contingencies, "Other Electric
Contingencies -- Nuclear Plant Decommissioning."

     On October 14, 2004 the MPSC issued a generic proceeding to review SFAS No.
143, Accounting for Asset Retirement Obligations, FERC Order No. 631,
Accounting, Financial Reporting, and Rate Filing Requirements for Asset
Retirement Obligations, and their accounting and ratemaking issues. Utilities
are required to respond to the Order by March 15, 2005. We consider the
proceeding a clarification of accounting and reporting issues that relate to all
Michigan utilities; we anticipate no financial impact.

                                      CE-73
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7: INCOME TAXES

     We file a consolidated federal income tax return with CMS Energy. Income
taxes are generally allocated based on each company's separate taxable income.
We had tax related receivables from CMS Energy of $4 million in 2004 and $46
million in 2003.

     We practice deferred tax accounting for temporary differences in accordance
with SFAS No. 109. We use ITC to reduce current income taxes payable, and defer
and amortize ITC over the life of the related property. AMT paid generally
becomes a tax credit that we can carry forward indefinitely to reduce regular
tax liabilities in future periods when regular taxes paid exceed the tax
calculated for AMT. At December 31, 2004, we had AMT credit carryforwards in the
amount of $20 million that do not expire, and tax loss carryforwards in the
amount of $69 million that expire in 2021 through 2023. In addition, at December
31, 2004, we had charitable contribution carryforwards in the amount of $13
million that expire in 2005 through 2008 and general business credit
carryforwards in the amount of $4 million that primarily expire in 2005, for
which a valuation allowance has been provided.

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

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004    2003    2002
- -----------------------                                         ----    ----    ----
                                                                   (IN MILLIONS)
<S>                                                             <C>     <C>     <C>
Current federal income taxes................................    $ 26    $(58)   $(97)
Current federal income tax benefit of operating loss
  carryforwards.............................................     (11)     --      --
Deferred federal income taxes...............................     142     201     283
Deferred ITC, net...........................................      (5)     (6)     (6)
                                                                ----    ----    ----
Income tax expense..........................................    $152    $137    $180
                                                                ====    ====    ====
</Table>

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

<Table>
<Caption>
DECEMBER 31                                                      2004       2003
- -----------                                                      ----       ----
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
Property....................................................    $  (863)   $  (826)
Consolidated investments....................................       (217)      (226)
Securitization costs........................................       (176)      (186)
Gas inventories.............................................       (126)      (100)
Employee benefits...........................................        (79)       (90)
SFAS No. 109 regulatory liability...........................        135        120
Nuclear decommissioning.....................................         63         59
Tax loss and credit carryforwards...........................         52         42
Valuation allowance.........................................         (9)        (8)
Other, net..................................................       (150)       (51)
                                                                -------    -------
Net deferred tax liabilities................................    $(1,370)   $(1,266)
                                                                =======    =======
Deferred tax liabilities....................................    $(2,102)   $(1,967)
Deferred tax assets, net of valuation allowance.............        732        701
                                                                -------    -------
Net deferred tax liabilities................................    $(1,370)   $(1,266)
                                                                =======    =======
</Table>

                                      CE-74
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The actual income tax expense differs from the amount computed by applying
the statutory federal tax rate of 35 percent to income before income taxes as
follows:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004     2003     2002
- -----------------------                                         ----     ----     ----
                                                                     (IN MILLIONS)
<S>                                                             <C>      <C>      <C>
Income before cumulative effect of change in accounting
  principle.................................................    $ 280    $ 196    $ 363
Income tax expense..........................................      152      137      180
Preferred securities distributions (Note 3).................       --       --      (44)
                                                                -----    -----    -----
Pretax income...............................................      432      333      499
Statutory federal income tax rate...........................     X 35%    X 35%    X 35%
                                                                -----    -----    -----
Expected income tax expense.................................      151      117      174
Increase (decrease) in taxes from:
  Property differences not previously deferred..............       13       18       18
  OPEB Medicare subsidy.....................................       (5)      --       --
  Loss on investment in CMS Energy Common Stock.............       --        4        4
  Sale of METC..............................................       --       --       (5)
  ITC amortization/adjustments..............................       (6)      (6)      (6)
  Valuation allowance provision.............................        1        8       --
  Affiliated companies' dividends...........................       --       --       (1)
  Other, net................................................       (2)      (4)      (4)
                                                                -----    -----    -----
Actual income tax expense...................................    $ 152    $ 137    $ 180
                                                                =====    =====    =====
Effective tax rate..........................................     35.2%    41.1%    36.1%
                                                                =====    =====    =====
</Table>

8: EXECUTIVE INCENTIVE COMPENSATION

     We provide a Performance Incentive Stock Plan (the Plan) to key employees
and non-employee Directors or consultants based on their contributions to the
successful management of the company. On May 28, 2004, shareholders approved an
amendment to the Plan, with an effective date of June 1, 2004. The amendment
established a 5-year term for the Plan. The Plan includes the following type of
awards:

     - phantom shares,

     - performance units,

     - restricted stock,

     - stock options,

     - stock appreciation rights, and

     - management stock purchases.

     Phantom shares are valued at the fair market price of common stock when
granted. They give the holder the right to receive the appreciation value of
common stock on one or more valuation dates, according to a specified vesting
schedule determined at time of grant. These shares are subject to forfeiture if
employment terminates before vesting.

     Performance units have an initial value established at the time of grant.
Performance criteria are established at the time of grant and, depending upon
the extent to which they are met, will determine the value of the payout, which
may be in the form of cash, common stock, or a combination of both. These units
are subject to forfeiture if employment terminates.

                                      CE-75
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Restricted shares of common stock are outstanding shares with full voting
and dividend rights. These awards vest 100 percent after three years and are
subject to achievement of specified levels of total shareholder return including
a comparison to a peer group of companies. Some awards vest based solely on
continued employment. These awards are subject to forfeiture if employment
terminates before vesting. Restricted shares vest fully if control of CMS Energy
changes, as defined by the Plan.

     Stock options give the holder the right to purchase common stock at a given
price over an extended period of time. Stock appreciation rights give the holder
the right to receive common stock appreciation, defined as the excess of the
market price of the stock at the date of exercise over the grant date price. All
stock options and stock appreciation rights are valued at fair market price when
granted. All options and rights may be exercised upon grant, and expire up to 10
years and one month from the date of grant.

     Management stock purchases are the election of select participants in the
Officer's Incentive Compensation Plan to receive all or a portion of their
incentive payments in the form of shares of restricted common stock or shares of
restricted stock units. These participants may also receive awards of additional
restricted common stock or restricted stock units provided the total value of
these additional grants does not exceed $2.5 million for any fiscal year.

     Under the revised Plan, shares awarded or subject to options, phantom
shares and performance units may not exceed 6 million shares from June 2004
through May 2009, nor may such grants or awards to any participant exceed
250,000 shares in any fiscal year.

     Shares for which payment or exercise is in cash, as well as shares or
options that are forfeited, may be awarded or granted again under the Plan.

     Awards of up to 5,482,690 shares of CMS Energy Common Stock may be issued
as of December 31, 2004. All grants awarded under this Plan in 2004 were in the
form of restricted stock.

     The following table summarizes the restricted stock and stock options
granted to our key employees under the Performance Incentive Stock Plan:

<Table>
<Caption>
                                                    RESTRICTED STOCK                  OPTIONS
                                                    ----------------    ------------------------------------
                                                       NUMBER OF           NUMBER OF        WEIGHTED AVERAGE
CMS ENERGY COMMON STOCK                                  SHARES              SHARES          EXERCISE PRICE
- -----------------------                                ---------           ---------        ----------------
<S>                                                 <C>                 <C>                 <C>
Outstanding at January 1, 2002..................         239,665           1,100,952             $30.93
Granted.........................................         163,890             490,600             $14.32
Exercised or Issued.............................         (26,663)             (6,083)            $17.13
Forfeited or Expired............................         (56,172)            (65,080)            $32.03
Outstanding at December 31, 2002................         320,720           1,520,389             $25.58
Granted.........................................         434,011           1,105,490             $ 6.35
Exercised or Issued.............................         (22,812)                 --                 --
Forfeited or Expired............................         (69,372)            (31,667)            $26.25
Outstanding at December 31, 2003................         662,547           2,594,212             $17.37
Granted.........................................         395,641                  --                 --
Exercised or Issued.............................         (66,537)           (358,102)            $ 6.65
Forfeited or Expired............................        (128,449)           (151,218)            $29.98
Outstanding at December 31, 2004................         863,202           2,084,892             $18.30
</Table>

     At December 31, 2004, 316,312 of the 863,202 shares of CMS Energy
restricted common stock outstanding are subject to performance objectives.
Compensation expense for restricted stock was $2 million in 2004, $4 million in
2003, and less than $1 million in 2002.

                                      CE-76
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes our stock options outstanding at December
31, 2004:

<Table>
<Caption>
                                                   NUMBER OF SHARES
                                                   OUTSTANDING AND     WEIGHTED AVERAGE    WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES                             EXERCISABLE        REMAINING LIFE      EXERCISE PRICE
- ------------------------                           ----------------    ----------------    ----------------
<S>                                                <C>                 <C>                 <C>
CMS Energy Common Stock:
  $6.35-$6.35..................................         808,188           8.70 years            $ 6.35
  $8.12-$8.12..................................         213,850           7.67 years            $ 8.12
  $17.00-$25.39................................         423,248           5.91 years            $20.48
  $27.25-$39.06................................         551,689           4.60 years            $34.09
  $43.38-$43.38................................          87,917           3.57 years            $43.38
                                                      ---------           ----------            ------
  $6.35-$43.38.................................       2,084,892           6.72 years            $18.30
                                                      =========           ==========            ======
</Table>

     In December 2002, we adopted the fair value based method of accounting for
stock-based employee compensation, under SFAS No. 123, as amended by SFAS No.
148. We elected to adopt the prospective method recognition provisions of this
Statement, which applies the recognition provisions to all awards granted,
modified, or settled after the beginning of the fiscal year that the recognition
provisions are first applied.

     The following table summarizes the weighted average fair value of stock
options granted:

<Table>
<Caption>
OPTIONS GRANT DATE                                              2004(a)    2003       2002(b)
- ------------------                                              -------    ----       -------
<S>                                                             <C>        <C>      <C>
Fair value at grant date....................................       --      $3.04    $3.79, $1.40
</Table>

- -------------------------
(a)  There were no stock option grants during 2004.

(b)  For 2002, there were two stock option grants totaling 490,600 options.

     The stock options fair value is estimated using the Black-Scholes model, a
mathematical formula used to value options traded on securities exchanges. The
following assumptions were used in the Black-Scholes model:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2004(a)    2003         2002(b)
- -----------------------                                         -------    ----         -------
<S>                                                             <C>        <C>      <C>
CMS Energy Common Stock Options
  Risk-free interest rate...................................       --       3.23%      4.02%, 3.28%
  Expected stock price volatility...........................       --      53.10%    31.64%, 39.67%
  Expected dividend rate....................................       --         --      $.365, $.1825
  Expected option life (years)..............................       --        4.7                4.5
</Table>

- -------------------------
(a)  There were no stock option grants during 2004.

(b)  For 2002, there were two stock option grants totaling 490,600 options.

     We recorded $3 million as stock-based employee compensation cost for 2003,
and $1 million for 2002. All stock options vest at date of grant.

9: LEASES

     We lease various assets, including vehicles, railcars, construction
equipment, furniture, and buildings. We have both full-service and net leases. A
net lease requires us to pay for taxes, maintenance, operating costs, and
insurance. Most of our leases contain options at the end of the initial lease
term to:

     - purchase the asset at fair value, or

     - renew the lease at fair rental value.

                                      CE-77
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Our capital leases are comprised mainly of leased service vehicles and
office furniture. As of December 31, 2004, capital lease obligations totaled $58
million. We are authorized by the MPSC to record both capital and operating
lease payments as operating expense and recover the total cost from our
customers. Capital lease expenses were $13 million in 2004, $17 million in 2003,
and $20 million in 2002. In November 2003, we exercised our purchase option
under the capital lease agreement for our main headquarters building in Jackson,
Michigan. Operating lease charges were $13 million in 2004, $13 million in 2003,
and $13 million in 2002.

     In order to obtain permanent financing for the MCV Facility, the MCV
Partnership entered into a sale and lease back agreement with a lessor group,
which includes the FMLP, for substantially all of the MCV Partnership's fixed
assets. In accordance with SFAS No. 98, the MCV Partnership accounts for the
transaction as a financing arrangement. As of December 31, 2004, finance lease
obligations totaled $286 million, which represents the third-party portion of
the MCV Partnership's finance lease obligation. Charges under the MCV
Partnership's finance lease obligation were $105 million in 2004. For additional
details on transactions with the MCV Partnership and the FMLP, see Note 2,
Contingencies, "Other Electric Contingencies -- The Midland Cogeneration
Venture."

     Minimum annual rental commitments under our non-cancelable leases at
December 31, 2004 were:

<Table>
<Caption>
                                                                CAPITAL           FINANCE       OPERATING
                                                                 LEASES            LEASE         LEASES
                                                             --------------    -------------    ---------
                                                                            (IN MILLIONS)
<S>                                                          <C>               <C>              <C>
2005.....................................................         $13              $ 19            $13
2006.....................................................          13                18             12
2007.....................................................          12                18             10
2008.....................................................          10                19             10
2009.....................................................           8                20              7
2010 and thereafter......................................          15               192             28
                                                                  ---              ----            ---
Total minimum lease payments.............................          71               286            $80
                                                                                                   ===
Less imputed interest....................................          13                --
                                                                  ---              ----
Present value of net minimum lease payments..............          58               286
Less current portion.....................................          10                19
                                                                  ---              ----
Non-current portion......................................         $48              $267
                                                                  ===              ====
</Table>

10: SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT RELATED ENERGY SUPPLIER

     Under Revised FASB Interpretation No. 46, we are the primary beneficiary of
the MCV Partnership. We consolidated their assets, liabilities, and financial
activities into our financial statements as of and for the year ended December
31, 2004. As of December 31, 2004, the MCV Partnership had total assets of
$1.980 billion and a net loss of $24 million for the year. For 2003 and 2002,
the MCV Partnership was accounted for as an equity method investment and their
summarized financial information is shown below. Our 49 percent investment in
the MCV Partnership was $419 million at December 31, 2003 and our share of net
income was $29 million for the year ended December 31, 2003 and $65 million for
the year ended December 31, 2002.

                                      CE-78
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Under the PPA with the MCV Partnership discussed in Note 2, Contingencies,
our 2003 obligation to purchase electric capacity from the MCV Partnership
provided 15 percent of our owned and contracted electric generating capacity.
Summarized financial information of the MCV Partnership for 2003 and 2002
follows:

STATEMENTS OF INCOME

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                         2003     2002
- -----------------------                                         ----     ----
                                                                (IN MILLIONS)
<S>                                                             <C>      <C>
Operating revenue(a)........................................    $584     $597
Operating expenses..........................................     416      409
                                                                ----     ----
Operating income............................................     168      188
Other expense, net..........................................     108      114
                                                                ----     ----
Income before cumulative effect of accounting change........      60       74
Cumulative effect of change in method of accounting for
  derivative options contracts(b)...........................      --       58
                                                                ----     ----
Net Income..................................................    $ 60     $132
                                                                ====     ====
</Table>

BALANCE SHEET

<Table>
<Caption>
DECEMBER 31                          2003
- -----------                      -------------
                                 (IN MILLIONS)
<S>                              <C>
Assets
  Current assets(c)..........       $  389
  Plant, net.................        1,494
  Other assets...............          187
                                    ------
                                    $2,070
                                    ======
</Table>

<Table>
<Caption>
DECEMBER 31                          2003
- -----------                      -------------
                                 (IN MILLIONS)
<S>                              <C>
Liabilities and Equity
  Current liabilities........       $  250
  Non-current
     liabilities(d)..........        1,021
  Partners' equity(e)........          799
                                    ------
                                    $2,070
                                    ======
</Table>

- -------------------------
(a)  Revenue from Consumers totaled $514 million in 2003 and $557 million in
     2002.

(b)  On April 1, 2002, the MCV Partnership implemented a new accounting standard
     for derivatives. As a result, the MCV Partnership began accounting for
     several natural gas contracts containing an option component at fair value.
     The MCV Partnership recorded a $58 million cumulative effect adjustment for
     the change in accounting principle as an increase to earnings. CMS
     Midland's 49 percent ownership share was $28 million ($18 million
     after-tax), which is reflected as a change in accounting principle on our
     Consolidated Statements of Income.

(c)  Receivables from Consumers totaled $40 million for December 31, 2003.

(d)  The FMLP is the sole beneficiary of a trust that is the lessor in a
     long-term direct finance lease with the MCV Partnership. CMS Holdings holds
     a 46.4 percent ownership interest in the FMLP. The MCV Partnership's lease
     obligations, assets, and operating revenues secure the FMLP's debt. The
     following table summarizes obligation and payment information regarding the
     direct finance lease:

<Table>
<Caption>
    DECEMBER 31                                                                             2003
    -----------                                                                             ----
                                                                                        (IN MILLIONS)
    <S>                      <C>                                                        <C>
    Balance Sheet:
      MCV Partnership:       Lease obligation.......................................        $894
      FMLP:                  Non-recourse debt......................................         431
                             Lease payment to service non-recourse debt (including
                             interest)..............................................         158
      CMS Holdings:          Share of interest portion of lease payment.............          37
                             Share of principle portion of lease payment............          36
</Table>

                                      CE-79
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
    YEARS ENDED
    DECEMBER 31                                                                          2003     2002
    -----------                                                                          -----    -----
                                                                                         (IN MILLIONS)
    <S>                      <C>                                                         <C>      <C>
    Income Statement:
      FMLP:                  Earnings................................................     $32      $38
</Table>

(e)  CMS Midland's recorded investment in the MCV Partnership includes
     capitalized interest, which we are expensing over the life of our
     investment in the MCV Partnership. The financing agreements prohibit the
     MCV Partnership from distributing any cash to its owners until it meets
     certain financial test requirements. We do not anticipate receiving a cash
     distribution in the near future.

11: JOINTLY OWNED REGULATED UTILITY FACILITIES

     We are required to provide only our share of financing for the jointly
owned utility facilities. The direct expenses of the jointly owned plants are
included in operating expenses. Operation, maintenance, and other expenses of
these jointly owned utility facilities are shared in proportion to each
participant's undivided ownership interest. The following table indicates the
extent of our investment in jointly owned regulated utility facilities:

<Table>
<Caption>
                                                                                             CONSTRUCTION
                                                                 NET         ACCUMULATED       WORK IN
                                                OWNERSHIP     INVESTMENT     DEPRECIATION      PROGRESS
                                                  SHARE      ------------    ------------    ------------
DECEMBER 31                                     (PERCENT)    2004    2003    2004    2003    2004    2003
- -----------                                     ---------    ----    ----    ----    ----    ----    ----
                                                                            (IN MILLIONS)
<S>                                             <C>          <C>     <C>     <C>     <C>     <C>     <C>
Campbell Unit 3.............................        93.3     $284    $299    $339    $328    $158    $113
Ludington...................................        51.0       79      84      91      87      --      (1)
Distribution................................     Various       77      74      33      32       6       5
</Table>

12: REPORTABLE SEGMENTS

     Our reportable segments are strategic business units organized and managed
by the nature of the products and services each provides. We evaluate
performance based upon the net income of each segment. We operate principally in
two segments, electric utility and gas utility.

     The electric utility segment consists of regulated activities associated
with the generation and distribution of electricity in the state of Michigan.
The gas utility segment consists of regulated activities associated with the
transportation, storage, and distribution of natural gas in the state of
Michigan.

     Accounting policies of the segments are the same as we describe in the
summary of significant accounting policies. Our financial statements reflect the
assets, liabilities, revenues, and expenses directly related to the electric and
gas segment where it is appropriate. We allocate accounts between the electric
and gas segments where common accounts are attributable to both segments. The
allocations are based on certain measures of business activities, such as
revenue, labor dollars, customers, other operation and maintenance expense,
construction expense, leased property, taxes or functional surveys. For example,
customer receivables are allocated based on revenue. Pension provisions are
allocated based on labor dollars.

     We account for inter-segment sales and transfers at current market prices
and eliminate them in consolidated net income available to common stockholder by
segment. The "Other" segment includes our consolidated special purpose entity
for the sale of trade receivables, the MCV Partnership and the FMLP.

                                      CE-80
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table shows our financial information by reportable segment:

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004       2003       2002
- -----------------------                                          ----       ----       ----
                                                                       (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
Operating Revenues
  Electric..................................................    $ 2,586    $ 2,590    $2,648
  Gas.......................................................      2,081      1,845     1,519
  Other.....................................................         44         --         2
                                                                -------    -------    ------
                                                                $ 4,711    $ 4,435    $4,169
                                                                =======    =======    ======
Earnings from Equity Method Investees
  Other(a)..................................................    $     1    $    42    $   53
                                                                =======    =======    ======
Depreciation, Depletion and Amortization
  Electric..................................................    $   189    $   247    $  228
  Gas.......................................................        112        128       118
  Other.....................................................         90          2         2
                                                                -------    -------    ------
                                                                $   391    $   377    $  348
                                                                =======    =======    ======
Interest Charges
  Electric..................................................    $   204    $   164    $  111
  Gas.......................................................         65         51        36
  Other.....................................................         97         30        21
                                                                -------    -------    ------
                                                                $   366    $   245    $  168
                                                                =======    =======    ======
Income Tax Expense
  Electric..................................................    $   120    $    90    $  138
  Gas.......................................................         40         35        33
  Other(b)..................................................         (8)        12         9
                                                                -------    -------    ------
                                                                $   152    $   137    $  180
                                                                =======    =======    ======
Net Income Available to Common Stockholder
  Electric..................................................    $   222    $   167    $  264
  Gas.......................................................         71         38        46
  Other.....................................................        (16)       (11)       25
                                                                -------    -------    ------
                                                                $   277    $   194    $  335
                                                                =======    =======    ======
Investments in Equity Method Investees
  Electric..................................................    $     3    $     2    $    2
  Other(c)..................................................         16        659       643
                                                                -------    -------    ------
                                                                $    19    $   661    $  645
                                                                =======    =======    ======
Total Assets
  Electric(d)...............................................    $ 7,289    $ 6,831    $6,058
  Gas(d)....................................................      3,187      2,983     2,586
  Other.....................................................      2,335        931       954
                                                                -------    -------    ------
                                                                $12,811    $10,745    $9,598
                                                                =======    =======    ======
</Table>

                                      CE-81
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>
<Caption>
YEARS ENDED DECEMBER 31                                          2004       2003       2002
- -----------------------                                          ----       ----       ----
                                                                       (IN MILLIONS)
<S>                                                             <C>        <C>        <C>
Capital Expenditures(e)
  Electric..................................................    $   360    $   310    $  437
  Gas.......................................................        137        135       181
  Other.....................................................         21         --        --
                                                                -------    -------    ------
                                                                $   518    $   445    $  618
                                                                =======    =======    ======
</Table>

- -------------------------
(a)  2002 excludes $28 million benefit due to the change in accounting for
     derivative instruments.

(b)  2002 excludes $10 million tax expense due to the change in accounting for
     derivative instruments.

(c)  As of December 31, 2003, the trusts that hold the mandatorily redeemable
     Trust Preferred Securities were deconsolidated. The trusts are now included
     on our Consolidated Balance Sheets as Investments -Other.

(d)  Amounts include a portion of our other common assets attributable to both
     the electric and gas utility businesses.

(e)  Amounts include electric restructuring implementation plan, purchase of
     nuclear fuel, and other assets. Amounts also include a portion of capital
     expenditures for plant and equipment attributable to both the electric and
     gas utility businesses.

13: IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

     FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST
ENTITIES: The FASB issued this Interpretation in January 2003. The objective of
the Interpretation is to assist in determining when one party controls another
entity in circumstances where a controlling financial interest cannot be
properly identified based on voting interests. Entities with this characteristic
are considered variable interest entities. The Interpretation requires the party
with the controlling financial interest, known as the primary beneficiary, in a
variable interest entity to consolidate the entity.

     In December 2003, the FASB issued Revised FASB Interpretation No. 46. For
entities that had not previously adopted FASB Interpretation No. 46, Revised
FASB Interpretation No. 46 provided an implementation deferral until the first
quarter of 2004. As of and for the quarter ended March 31, 2004, we adopted
Revised FASB Interpretation No. 46 for all entities.

     We determined that we are the primary beneficiary of both the MCV
Partnership and the FMLP. We have a 49 percent partnership interest in the MCV
Partnership and a 46.4 percent partnership interest in the FMLP. Consumers is
the primary purchaser of power from the MCV Partnership through a long-term
power purchase agreement. The FMLP holds a 75.5 percent lessor interest in the
MCV Facility, which results in Consumers holding a 35 percent lessor interest in
the MCV Facility. Collectively, these interests make us the primary beneficiary
of these entities. As such, we consolidated their assets, liabilities, and
activities into our financial statements as of and for the year ended December
31, 2004. These partnerships have third-party obligations totaling $582 million
at December 31, 2004. Property, plant, and equipment serving as collateral for
these obligations has a carrying value of $1.426 billion at December 31, 2004.
The creditors of these partnerships do not have recourse to the general credit
of Consumers.

     We determined that we are not the primary beneficiary of our trust
preferred security structures. Accordingly, those entities were deconsolidated
as of December 31, 2003. Company Obligated Trust Preferred Securities totaling
$490 million that were previously included in mezzanine equity, were eliminated
due to deconsolidation. At December 31, 2004, we reflected Long-term
debt -- related parties of $326 million, current portion of Long-term
debt -- related parties of $180 million, and an investment in related parties of
$16 million.

     We are not required to restate prior periods for the impact of this
accounting change.

                                      CE-82
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     FASB STAFF POSITION, NO. SFAS 106-2, ACCOUNTING AND DISCLOSURE REQUIREMENTS
RELATED TO THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF
2003: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(the Act) was signed into law in December 2003. The Act establishes a
prescription drug benefit under Medicare (Medicare Part D) and a federal
subsidy, which is exempt from federal taxation, to sponsors of retiree health
care benefit plans that provide a benefit that is actuarially equivalent to
Medicare Part D.

     We believe our plan is actuarially equivalent to Medicare Part D and have
incorporated retroactively the effects of the subsidy into our financial
statements as of June 30, 2004, in accordance with FASB Staff Position, No. SFAS
106-2. We remeasured our obligation as of December 31, 2003 to incorporate the
impact of the Act, which resulted in a reduction to the accumulated
postretirement benefit obligation of $148 million. The remeasurement resulted in
a total OPEB cost reduction of $23 million for 2004. Consumers capitalizes a
portion of OPEB cost in accordance with regulatory accounting. As such, the
remeasurement resulted in a net reduction of OPEB expense of $16 million for
2004.

     EITF ISSUE NO. 03-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENTS: The
Issue addresses the definition of an other-than-temporary impairment of certain
investments and provides additional disclosure requirements. The scope of EITF
Issue No. 03-1 includes debt and equity securities accounted for under SFAS No.
115, debt and equity securities held by non-profit organizations under SFAS No.
124, and cost method investments under APB No. 18. We analyzed our in-scope
investments under the guidance of this Issue and have provided additional
disclosures.

     FSP 109-1, ACCOUNTING AND DISCLOSURE GUIDANCE FOR THE TAX DEDUCTION
PROVIDED TO U.S. BASED MANUFACTURERS BY THE AMERICAN JOBS CREATION ACT OF
2004: The American Jobs Creation Act of 2004 provides for a deduction, starting
in 2005, of a portion of the income from certain production activities,
including the production of electricity. FSP 109-1 indicates that the deduction
should be accounted for as a special deduction rather than a tax rate reduction
under SFAS No. 109. We are currently studying this act for its impact on us;
however, we do not anticipate a material amount of tax benefit from the domestic
production activities deduction in the near future.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

     SFAS NO. 123R, SHARE-BASED PAYMENT: The Statement requires companies to
expense the grant date fair value of employee stock options and similar awards.
The Statement also clarifies and expands SFAS No. 123's guidance in several
areas, including measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting periods.

     In addition, this Statement amends SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits related to the excess of the tax deductible
amount over the compensation cost recognized be classified as a financing cash
inflow rather than as a reduction of taxes paid in operating activities.

     This Statement is effective for us as of the beginning of third quarter
2005. We adopted the fair value method of accounting for share-based awards
effective December 2002, and therefore, expect this statement to have an
insignificant impact on our results of operations when it becomes effective.

                                      CE-83
<PAGE>
                            CONSUMERS ENERGY COMPANY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)

<Table>
<Caption>
                                                                                  2004
                                                               ------------------------------------------
QUARTERS ENDED                                                 MARCH 31    JUNE 30    SEPT. 30    DEC. 31
- --------------                                                 --------    -------    --------    -------
                                                                             (IN MILLIONS)
<S>                                                            <C>         <C>        <C>         <C>
Operating revenue(a).......................................     $1,547      $923        $885      $1,356
Operating income(a)(d).....................................        247       111         122         194
Income before cumulative effect of change in accounting
  Principle(d).............................................        105        24          34         117
Cumulative effect of change in accounting(b)(c)............         (1)       --          --          --
Net income(c)(d)...........................................        104        24          34         117
Preferred stock dividends..................................         --         1          --           1
Net income available to common stockholder(c)(d)...........        104        23          34         116
</Table>

- -------------------------
(a)  As of March 31, 2004, we determined that the MCV Partnership and the FMLP
     should be consolidated in accordance with revised FASB Interpretation No.
     46. As such, we consolidated their financial activities into our financial
     statements as of and for the year ended December 31, 2004. For additional
     details, see Note 13, Implementation of New Accounting Standards.

(b)  Net of tax.

(c)  Quarterly data for March 31, 2004 differs from amounts previously reported
     as a result of accelerating the measurement date on our benefit plans by
     one month. For additional information, see Note 5, Retirement Benefits.

(d)  Quarterly data for March 31, 2004 differs from amounts previously reported
     due to the remeasurement of our post retirement benefit obligation in
     accordance with FASB Staff Position, No. SFAS 106-2. For additional
     information, see Note 13, Implementation of New Accounting Standards.

<Table>
<Caption>
                                                                                  2003
                                                               ------------------------------------------
QUARTERS ENDED                                                 MARCH 31    JUNE 30    SEPT. 30    DEC. 31
- --------------                                                 --------    -------    --------    -------
                                                                             (IN MILLIONS)
<S>                                                            <C>         <C>        <C>         <C>
Operating revenue..........................................     $1,442      $902        $879      $1,212
Operating income...........................................        233       139         115          96
Income (loss) before cumulative effect of change in
  accounting principle.....................................        110        52          44         (10)
Net income (loss)..........................................        110        52          44         (10)
Preferred stock dividends..................................         --         1          --           1
Preferred securities distributions.........................         11        11          11         (33)
Net income available to common stockholder.................         99        40          33          22
</Table>

                                      CE-84
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of
Consumers Energy Company

     We have audited the accompanying consolidated balance sheets of Consumers
Energy Company (a Michigan corporation and wholly-owned subsidiary of CMS Energy
Corporation) as of December 31, 2004 and 2003, and the related consolidated
statements of income, common stockholder's equity and cash flows for each of the
three years in the period ended December 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The financial statements of Midland
Cogeneration Venture Limited Partnership, a 49% owned variable interest entity
which has been consolidated in 2004 pursuant to Revised Financial Accounting
Standards Board Interpretation No. 46, "Consolidation of Variable Interest
Entities" and accounted for under the equity method of accounting in 2003 and
2002, have been audited by other auditors whose report has been furnished to us;
insofar as our opinion on the consolidated financial statements relates to the
amounts included for Midland Cogeneration Venture Limited Partnership, it is
based solely on their report.

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

     In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Consumers Energy
Company and subsidiaries at December 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

     As discussed in Note 13 to the consolidated financial statements, in 2004,
the Company adopted Revised Financial Accounting Standards Board Interpretation
No. 46, "Consolidation of Variable Interest Entities". In addition, as discussed
in Note 5 to the consolidated financial statements, in 2004, the Company changed
its measurement date for all Consumers Energy Company pension and postretirement
benefit plans. As discussed in Notes 6 and 13 to the consolidated financial
statements, in 2003, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" and of FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities".

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
Consumers Energy Company's internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 7, 2005 expressed an unqualified opinion
thereon.

                                          /s/ Ernst & Young LLP

Detroit, Michigan
March 7, 2005

                                      CE-85
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

     We have completed an integrated audit of Midland Cogeneration Venture
Limited Partnership's 2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2004 and audits of its 2003
and 2002 consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, partners' equity and cash flows
(not presented herein) present fairly, in all material respects, the financial
position of Midland Cogeneration Limited Partnership (a Michigan limited
partnership) and its subsidiaries (MCV) at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of MCV's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

     Also, in our opinion, management's assessment, included in Management's
Report on Internal Control Over Financial Reporting, that MCV maintained
effective internal control over financial reporting as of December 31, 2004
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, MCV maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control -- Integrated Framework issued by COSO.
MCV's management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
management's assessment and on the effectiveness of MCV's internal control over
financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,

                                      CE-86
<PAGE>

accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

                                          /s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 25, 2005

                                      CE-87
<PAGE>

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

CMS ENERGY

     None.

CONSUMERS

     None.

                       ITEM 9A. CONTROLS AND PROCEDURES.

CMS ENERGY

     CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES: Under the supervision and with the participation of management,
including its CEO and CFO, CMS Energy conducted an evaluation of its disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Based on such evaluation, CMS Energy's CEO
and CFO have concluded that its disclosure controls and procedures are effective
as of the end of the period covered by this annual report.

     MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING: CMS
Energy's management's assessment of internal control over financial reporting
appears in ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS, and is
incorporated by reference herein.

CONSUMERS

     CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES: Under the supervision and with the participation of management,
including its CEO and CFO, Consumers conducted an evaluation of its disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Based on such evaluation, Consumers' CEO and
CFO have concluded that its disclosure controls and procedures are effective as
of the end of the period covered by this annual report.

     MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING:
Consumers' management's assessment of internal control over financial reporting
appears in ITEM 7. CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS, and is
incorporated by reference herein.

                          ITEM 9B. OTHER INFORMATION.

CMS ENERGY

     None.

CONSUMERS

     None.

                                       CO-1
<PAGE>

                                    PART III

                   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

CMS ENERGY

     Information that is required in Item 10 regarding directors and executive
officers is included in CMS Energy's definitive proxy statement, which is
incorporated by reference herein.

CONSUMERS

     Information that is required in Item 10 regarding Consumers' directors and
executive officers is included in CMS Energy's definitive proxy statement, which
is incorporated by reference herein.

                        ITEM 11. EXECUTIVE COMPENSATION.

CMS ENERGY

     Information that is required in Item 11 regarding executive compensation is
included in CMS Energy's definitive proxy statement, which is incorporated by
reference herein.

CONSUMERS

     Information that is required in Item 11 regarding executive compensation of
Consumers' executive officers is included in CMS Energy's definitive proxy
statement, which is incorporated by reference herein.

          ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                    MANAGEMENT RELATED STOCKHOLDER MATTERS.

CMS ENERGY

     Information that is required in Item 12 regarding securities authorized for
issuance under equity compensation plans and security ownership of certain
beneficial owners and management is included in CMS Energy's definitive proxy
statement, which is incorporated by reference herein.

CONSUMERS

     Information that is required in Item 12 regarding securities authorized for
issuance under equity compensation plans and security ownership of certain
beneficial owners and management of Consumers is included in CMS Energy's
definitive proxy statement, which is incorporated by reference herein.

            ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CMS ENERGY

     Information that is required in Item 13 regarding certain relationships and
related transactions is included in CMS Energy's definitive proxy statement,
which is incorporated by reference herein.

CONSUMERS

     Information that is required in Item 13 regarding certain relationships and
related transactions regarding Consumers is included in CMS Energy's definitive
proxy statement, which is incorporated by reference herein.

                                       CO-2
<PAGE>

                ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

CMS ENERGY

     Information that is required in Item 14 regarding principal accountant fees
and services is included in CMS Energy's definitive proxy statement, which is
incorporated by reference herein.

CONSUMERS

     Information that is required in Item 14 regarding principal accountant fees
and services relating to Consumers is included in CMS Energy's definitive proxy
statement, which is incorporated by reference herein.

                                    PART IV

              ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1)      Financial Statements and Reports of Independent Public Accountants
            for CMS Energy and Consumers are included in each company's ITEM 8.
            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA and are incorporated by
            reference herein.

(a)(2)      Financial Statement Schedules and Reports of Independent Public
            Accountants for CMS Energy and Consumers are included after the
            Exhibits to the Index to Financial Statement Schedules and are
            incorporated by reference herein.

(a)(3)      Exhibits for CMS Energy and Consumers are listed after Item 15(c)
            below and are incorporated by reference herein.

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

                                       CO-3
<PAGE>

                      CMS ENERGY'S AND CONSUMERS' EXHIBITS

<Table>
<Caption>
                 PREVIOUSLY FILED
            --------------------------
            WITH FILE      AS EXHIBIT
EXHIBITS      NUMBER         NUMBER             DESCRIPTION
- --------    ---------      ----------           -----------
<S>         <C>           <C>           <C>     <C>
(3)(a)      1-9513        (99)(a)       --      Restated Articles of Incorporation of CMS Energy (Form
                                                8-K filed June 3, 2004)
(3)(b)      1-9513        (3)(a)        --      By-Laws of CMS Energy (Form 8-K filed October 6, 2004)
(3)(c)      1-5611        3(c)          --      Restated Articles of Incorporation dated May 26, 2000, of
                                                Consumers (2000 Form 10-K)
(3)(d)      1-5611        (3)(b)        --      By-Laws of Consumers (Form 8-K filed October 6, 2004)
(4)(a)      2-65973       (b)(1)-4      --      Indenture dated as of September 1, 1945, between
                                                Consumers and Chemical Bank (successor to Manufacturers
                                                Hanover Trust Company), as Trustee, including therein
                                                indentures supplemental thereto through the Forty-third
                                                Supplemental Indenture dated as of May 1, 1979
                                        --      Indentures Supplemental thereto:
            1-5611        (4)(a)        --      70th dated as of 02/01/98 (1997 Form 10-K)
            1-5611        (4)(a)        --      71st dated as of 03/06/98 (1997 Form 10-K)
            1-5611        (4)(b)        --      74th dated as of 10/29/98 (3rd qtr. 1998 Form 10-Q)
            1-5611        (4)(b)        --      75th dated as of 10/1/99 (1999 Form 10-K)
            1-5611        (4)(d)        --      77th dated as of 10/1/99 (1999 Form 10-K)
            1-5611        4(b)          --      79th dated as of 9/26/01 (3rd qtr. 2001 10-Q)
            1-5611        (4)(d)        --      90th dated as of 3/30/03 (1st qtr. 2003 Form 10-Q)
            1-5611        (4)(a)        --      91st dated as of 5/23/03 (3rd qtr. 2003 Form 10-Q)
            1-5611        (4)(b)        --      92nd dated as of 8/26/03 (3rd qtr. 2003 Form 10-Q)
            333-111220    (4)(a)(i)     --      94th dated as of 11/7/03 (Consumers Form S-4 dated
                                                December 16, 2003)
            333-120611    (4)(e)(xiii)  --      95th dated as of 8/3/04 (Consumers Form S-3 dated
                                                November 18, 2004)
            1-5611        (4)(a)        --      96th dated as of 8/17/04 (Form 8-K filed August 20, 2004)
            333-120611    (4)(e)(xv)    --      97th dated as of 9/1/04 (Consumers Form S-3 dated
                                                November 18, 2004)
            1-5611        4.4           --      98th dated as of 12/13/04 (Form 8-K filed December 13,
                                                2004)
(4)(a)(i)                               --      99th dated as of 1/20/05
(4)(b)      1-5611        (4)(b)        --      Indenture dated as of January 1, 1996 between Consumers
                                                and The Bank of New York, as Trustee (1995 Form 10-K)
                                        --      Indentures Supplemental thereto:
            1-5611        (4)(b)        --      1st dated as of 01/18/96 (1995 Form 10-K)
            1-5611        (4)(a)        --      2nd dated as of 09/04/97 (3rd qtr. 1997 Form 10-Q)
            1-9513        (4)(a)        --      3rd 11/04/99 (3rd qtr. 1999 Form 10-Q)
(4)(b)(i)                               --      4th dated as of May 31, 2001
(4)(c)      1-5611        (4)(c)        --      Indenture dated as of February 1, 1998 between Consumers
                                                and JPMorgan Chase (formerly "The Chase Manhattan Bank"),
                                                as Trustee (1997 Form 10-K)
                                        --      Indentures Supplemental thereto:
            1-5611        (4)(a)        --      1st dated as of 05/01/98 (1st qtr. 1998 Form 10-Q)
            333-58943     (4)(b)        --      2nd dated as of 06/15/98
            1-5611        (4)(a)        --      3rd dated as of 10/29/98 (3rd qtr. 1998 Form 10-Q)
(4)(d)      33-47629      (4)(a)        --      Indenture dated as of September 15, 1992 between CMS
                                                Energy and NBD Bank, as Trustee (Form S-3 filed May 1,
                                                1992)
                                        --      Indentures Supplemental thereto:
            1-9513        (4)(d)(i)     --      7th dated as of 01/25/99 (1998 Form 10-K)
</Table>

                                       CO-4
<PAGE>

<Table>
<Caption>
                 PREVIOUSLY FILED
            --------------------------
            WITH FILE      AS EXHIBIT
EXHIBITS      NUMBER         NUMBER             DESCRIPTION
- --------    ---------      ----------           -----------
<S>         <C>           <C>           <C>     <C>
            333-48276     (4)           --      10th dated as of 10/12/00 (Form S-3 filed October 19,
                                                2000)
            333-58686     (4)           --      11th dated as of 03/29/01 (Form S-8 filed April 11, 2001)
            333-51932     (4)(a)        --      12th dated as of 07/02/01 (Form POS AM filed August 8,
                                                2001)
            1-9513        (4)(e)(ii)    --      14th dated as of 07/17/03 (2003 Form 10-K)
(4)(d)(i)                               --      15th dated as of 9/29/04
(4)(d)(ii)                              --      16th dated as of 12/16/04
            1-9513        4.2           --      17th dated as of 12/13/04 (Form 8-K filed December 13,
                                                2004)
            1-9513        4.2           --      18th dated as of 1/19/05 (Form 8-K filed January 20,
                                                2005)
(4)(e)      1-9513        (4a)          --      Indenture dated as of June 1, 1997, between CMS Energy
                                                and The Bank of New York, as trustee (Form 8-K filed July
                                                1, 1997)
                                                Indentures Supplemental thereto:
            1-9513        (4)(b)        --      1st dated as of 06/20/97 (Form 8-K filed July 1, 1997)
            333-45556     (4)(e)        --      4th dated as of 08/22/00 (Form S-3 filed September 11,
                                                2000)
(4)(f)      1-9513        (4)(i)        --      Certificate of Designation of 4.50% Cumulative
                                                Convertible Preferred Stock dated as of December 2, 2003
                                                (2003 Form 10-K)
(4)(g)      1-9513        (4)(k)        --      Registration Rights Agreement dated as of July 17, 2003
                                                between CMS Energy and the Initial Purchasers, all as
                                                defined therein (2003 Form 10-K)
(4)(h)      1-9513        (4)(l)        --      Registration Rights Agreement dated as of December 5,
                                                2003 between CMS Energy and the Initial Purchasers, all
                                                as defined therein (2003 Form 10-K)
(4)(i)      1-5611        (4)(b)        --      Registration Rights Agreement dated as of August 17, 2004
                                                between Consumers and the Initial Purchasers, as defined
                                                therein (Form 8-K filed August 20, 2004)
(4)(j)                                  --      $300 million Fifth Amended and Restated Credit Agreement
                                                dated as of August 3, 2004 among CMS Energy, CMS
                                                Enterprises, the Banks, and the Administrative Agent and
                                                Collection Agent, all defined therein
(4)(k)                                  --      Reaffirmation of grant of a security interest, dated as
                                                of August 3, 2004 among CMS Energy, CMS Enterprises, and
                                                the Administrative Agent and Collateral Agent, as defined
                                                therein
(4)(l)                                  --      Cash Collateral Agreement dated as of August 3, 2004 made
                                                by CMS Energy to the Administrative Agent for the lenders
                                                and collateral Agent, as defined therein
(10)(a)     1-9513        (10)(b)       --      Form of Employment Agreement entered into by CMS Energy's
                                                and Consumers' executive officers (1999 Form 10-K)
(10)(b)     1-5611        (10)(g)       --      Consumers' Executive Stock Option and Stock Appreciation
                                                Rights Plan effective December 1, 1989 (1990 Form 10-K)
(10)(c)     1-9513        (10)(d)       --      CMS Energy's Performance Incentive Stock Plan effective
                                                February 3, 1988, as amended December 3, 1999 (1999 Form
                                                10-K)
(10)(d)     1-9513        (10)(d)       --      CMS Energy's Salaried Employees Merit Program for 2003
                                                effective January 1, 2003 (2003 Form 10-K)
(10)(e)     1-9513        (10)(m)       --      CMS Deferred Salary Savings Plan effective January 1,
                                                1994 (1993 Form 10-K)
(10)(f)                                 --      Annual Officer Incentive Compensation Plan for CMS Energy
                                                Corporation and its Subsidiaries effective January 1,
                                                2004
(10)(g)     1-9513        (10)(h)       --      Supplemental Executive Retirement Plan for Employees of
                                                CMS Energy/Consumers Energy Company effective January 1,
                                                1982, as amended December 3, 1999 (1999 Form 10-K)
</Table>

                                       CO-5
<PAGE>

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

                                       CO-6
<PAGE>

<Table>
<Caption>
                 PREVIOUSLY FILED
            --------------------------
            WITH FILE      AS EXHIBIT
EXHIBITS      NUMBER         NUMBER             DESCRIPTION
- --------    ---------      ----------           -----------
<S>         <C>           <C>           <C>     <C>
(10)(r)     1-5611        (10)(aa)*     --      Parent Guaranty dated as of June 14, 1990 from CMS Energy
                                                to MCV, each of the Owner Trustees, the Indenture
                                                Trustees, the Owner Participants and the Initial
                                                Purchasers of Senior Bonds in the MCV Sale Leaseback
                                                transaction, and MEC Development (1991 Form 10-K)
(10)(s)     1-8157        10.41         --      Contract for Firm Transportation of Natural Gas between
                                                Consumers Power Company and Trunkline Gas Company, dated
                                                November 1, 1989, and Amendment, dated November 1, 1989
                                                (1989 Form 10-K of PanEnergy Corp.)
(10)(t)     1-8157        10.41         --      Contract for Firm Transportation of Natural Gas between
                                                Consumers Power Company and Trunkline Gas Company, dated
                                                November 1, 1989 (1991 Form 10-K of PanEnergy Corp.)
(10)(u)     1-2921        10.03         --      Contract for Firm Transportation of Natural Gas between
                                                Consumers Power Company and Trunkline Gas Company, dated
                                                September 1, 1993 (1993 Form 10-K)
(10)(v)     1-5611        10            --      First Amended and Restated Employment Agreement between
                                                Kenneth Whipple and CMS Energy Corporation effective as
                                                of September 1, 2003 (8-K dated October 24, 2003)
(10)(w)                                 --      Annual Management Incentive Compensation Plan for CMS
                                                Energy Corporation and its Subsidiaries effective January
                                                1, 2004
(10)(x)                                 --      Annual Employee Incentive Compensation Plan for CMS
                                                Energy Corporation and its Subsidiaries effective January
                                                1, 2004
(10)(y)     1-9513        (10)(a)       --      Acknowledgement of Resignation between Tamela W. Pallas
                                                and CMS Energy Corporation (2nd qtr 2002 Form 10-Q)
(10)(z)     1-9513        (10)(b)       --      Employment, Separation and General Release Agreement
                                                between William T. McCormick and CMS Energy Corporation
                                                (2nd qtr 2002 Form 10-Q)
(10)(aa)    1-9513        (10)(c)       --      Employment, Separation and General Release Agreement
                                                between Alan M. Wright and CMS Energy Corporation (2nd
                                                qtr 2002 Form 10-Q)
(12)(a)                                 --      Statement regarding computation of CMS Energy's Ratio of
                                                Earnings to Fixed Charges
(12)(b)                                 --      Statement regarding computation of Consumers' Ratio of
                                                Earnings to Fixed Charges and Preferred Securities
                                                Dividends and Distributions
(18)                                    --      Letter from Ernst & Young LLP to the Audit Committee of
                                                the Boards of Directors for CMS Energy and Consumers
                                                regarding the preferability of a change in accounting
                                                principle
(21)        1-9513                      --      Subsidiaries of CMS Energy (Form U-3A-2 filed February
                                                28, 2005)
(23)(a)                                 --      Consent of Ernst & Young LLP for CMS Energy
(23)(b)                                 --      Consent of PricewaterhouseCoopers LLP for CMS Energy re:
                                                MCV
(23)(c)                                 --      Consent of Pricewaterhouse for CMS Energy re: Jorf Lasfar
(23)(d)                                 --      Consent of Ernst & Young LLP for Consumers
(23)(e)                                 --      Consent of PricewaterhouseCoopers LLP for Consumers re:
                                                MCV
(24)(a)                                 --      Power of Attorney for CMS Energy
(24)(b)                                 --      Power of Attorney for Consumers
(31)(a)                                 --      CMS Energy's certification of the CEO pursuant to Section
                                                302 of the Sarbanes-Oxley Act of 2002
</Table>

                                       CO-7
<PAGE>

<Table>
<Caption>
                 PREVIOUSLY FILED
            --------------------------
            WITH FILE      AS EXHIBIT
EXHIBITS      NUMBER         NUMBER             DESCRIPTION
- --------    ---------      ----------           -----------
<S>         <C>           <C>           <C>     <C>
(31)(b)                                 --      CMS Energy's certification of the CFO pursuant to Section
                                                302 of the Sarbanes-Oxley Act of 2002
(31)(c)                                 --      Consumers' certification of the CEO pursuant to Section
                                                302 of the Sarbanes-Oxley Act of 2002
(31)(d)                                 --      Consumers' certification of the CFO pursuant to Section
                                                302 of the Sarbanes-Oxley Act of 2002
(32)(a)                                 --      CMS Energy's certifications pursuant to Section 906 of
                                                the Sarbanes-Oxley Act of 2002
(32)(b)                                 --      Consumers' certifications pursuant to Section 906 of the
                                                Sarbanes-Oxley Act of 2002
(99)(a)                                 --      Financial Statements for Midland Cogeneration Venture
                                                Limited Partnership for the years ended December 31,
                                                2001, 2002, and 2003
(99)(b)                                 --      Financial Statements for Jorf Lasfar for the years ended
                                                December 31, 2002, 2003, and 2004
(99)(c)                                 --      Representation regarding Emirates CMS Power Company
                                                financial statements for the years ended December 31,
                                                2002, 2003 and 2004
(99)(d)                                 --      Representation regarding SCP Investments(1) PTY. LTD.
                                                financial statements for the years ended June 30, 2003,
                                                2004 and 2005
</Table>

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

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

                                       CO-8
<PAGE>

                     INDEX TO FINANCIAL STATEMENT SCHEDULES

<Table>
<Caption>
                                                                 PAGE
                                                                 ----
<S>                                                             <C>
Schedule II
  Valuation and Qualifying Accounts and Reserves 2004, 2003
     and 2002:
     CMS Energy Corporation.................................      CO-10
     Consumers Energy Company...............................      CO-11
Report of Independent Registered Public Accounting Firm
     CMS Energy Corporation.................................    CMS-113
     Consumers Energy Company...............................      CE-85
</Table>

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

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

                                       CO-9
<PAGE>


                                CMS ENERGY CORPORATION

         Schedule II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<Table>
<Caption>
                                                                            CHARGED/
                                                BALANCE AT                  ACCRUED                    BALANCE
                                                BEGINNING      CHARGED      TO OTHER                   AT END
DESCRIPTION                                     OF PERIOD     TO EXPENSE    ACCOUNTS    DEDUCTIONS    OF PERIOD
- -----------                                     ----------    ----------    --------    ----------    ---------
                                                                         (IN MILLIONS)
<S>                                             <C>           <C>           <C>         <C>           <C>
Accumulated provision for uncollectible
  accounts:
  2004......................................       $40           $19          $--          $21           $38
  2003......................................       $23           $28          $ 4          $15           $40
  2002......................................       $23           $22          $(3)         $19           $23
</Table>

                                      CO-10
<PAGE>

                                      CONSUMERS ENERGY COMPANY

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<Table>
<Caption>
                                                                            CHARGED/
                                                BALANCE AT                  ACCRUED                    BALANCE
                                                BEGINNING      CHARGED      TO OTHER                   AT END
DESCRIPTION                                     OF PERIOD     TO EXPENSE    ACCOUNTS    DEDUCTIONS    OF PERIOD
- -----------                                     ----------    ----------    --------    ----------    ---------
                                                                         (IN MILLIONS)
<S>                                             <C>           <C>           <C>         <C>           <C>
Accumulated provision for uncollectible
  accounts:
  2004......................................        $8           $20          $--          $18           $10
  2003......................................        $5           $21          $--          $18           $ 8
  2002......................................        $4           $17          $--          $16           $ 5
</Table>

                                      CO-11
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CMS Energy Corporation has duly caused this Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized, on the
10th day of March 2005.

                                          CMS ENERGY CORPORATION

                                          By         /s/ DAVID W. JOOS
                                            ------------------------------------
                                                       David W. Joos
                                               President and Chief Executive
                                                           Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of CMS
Energy Corporation and in the capacities and on the 10th day of March 2005.

<Table>
<Caption>
                              SIGNATURE                                          TITLE
                              ---------                                          -----
<S>      <C>                                                   <C>

   (i)   Principal executive officer:

                          /s/ DAVID W. JOOS                      President and Chief Executive Officer
         ---------------------------------------------------
                            David W. Joos


  (ii)   Principal financial officer:

                         /s/ THOMAS J. WEBB                           Executive Vice President and
         ---------------------------------------------------            Chief Financial Officer
                           Thomas J. Webb


 (iii)   Controller or principal accounting officer:

                         /s/ GLENN P. BARBA                          Vice President, Controller and
         ---------------------------------------------------            Chief Accounting Officer
                           Glenn P. Barba

  (iv)   A majority of the Directors including those named
         above:

                                  *                                             Director
         ---------------------------------------------------
                          Merribel S. Ayres


                                  *                                             Director
         ---------------------------------------------------
                           Earl D. Holton


                                  *                                             Director
         ---------------------------------------------------
                            David W. Joos


                                  *                                             Director
         ---------------------------------------------------
                         Michael T. Monahan


                                  *                                             Director
         ---------------------------------------------------
                       Joseph F. Paquette, Jr.


                                  *                                             Director
         ---------------------------------------------------
                          William U. Parfet
</Table>

                                      CO-12
<PAGE>

<Table>
<Caption>
                              SIGNATURE                                          TITLE
                              ---------                                          -----

<S>      <C>                                                   <C>

                                  *                                             Director
         ---------------------------------------------------
                           Percy A. Pierre


                                  *                                             Director
         ---------------------------------------------------
                        S. Kinnie Smith, Jr.


                                  *                                             Director
         ---------------------------------------------------
                           Kenneth L. Way


                                  *                                             Director
         ---------------------------------------------------
                           Kenneth Whipple


                                  *                                             Director
         ---------------------------------------------------
                          John B. Yasinsky


  *By:                   /s/ THOMAS J. WEBB
         ---------------------------------------------------
                  Thomas J. Webb, Attorney-in-Fact
</Table>

                                      CO-13
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Consumers Energy Company has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 10th day of March 2005.

                                          CONSUMERS ENERGY COMPANY

                                          By         /s/ DAVID W. JOOS
                                            ------------------------------------
                                                       David W. Joos
                                                  Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of
Consumers Energy Company and in the capacities and on the 10th day of March
2005.

<Table>
<Caption>
                              SIGNATURE                                          TITLE
                              ---------                                          -----
<S>      <C>                                                   <C>

   (v)   Principal executive officer:

                          /s/ DAVID W. JOOS                             Chief Executive Officer
         ---------------------------------------------------
                            David W. Joos


  (vi)   Principal financial officer:

                         /s/ THOMAS J. WEBB                           Executive Vice President and
         ---------------------------------------------------            Chief Financial Officer
                           Thomas J. Webb

 (vii)   Controller or principal accounting officer:

                         /s/ GLENN P. BARBA                          Vice President, Controller and
         ---------------------------------------------------            Chief Accounting Officer
                           Glenn P. Barba

(viii)   A majority of the Directors including those named
         above:

                                  *                                             Director
         ---------------------------------------------------
                          Merribel S. Ayres


                                  *                                             Director
         ---------------------------------------------------
                           Earl D. Holton


                                  *                                             Director
         ---------------------------------------------------
                            David W. Joos


                                  *                                             Director
         ---------------------------------------------------
                         Michael T. Monahan


                                  *                                             Director
         ---------------------------------------------------
                       Joseph F. Paquette, Jr.


                                  *                                             Director
         ---------------------------------------------------
                          William U. Parfet
</Table>

                                      CO-14
<PAGE>

<Table>
<Caption>
                              SIGNATURE                                          TITLE
                              ---------                                          -----

<S>      <C>                                                   <C>

                                  *                                             Director
         ---------------------------------------------------
                           Percy A. Pierre


                                  *                                             Director
         ---------------------------------------------------
                        S. Kinnie Smith, Jr.


                                  *                                             Director
         ---------------------------------------------------
                           Kenneth L. Way


                                  *                                             Director
         ---------------------------------------------------
                           Kenneth Whipple


                                  *                                             Director
         ---------------------------------------------------
                          John B. Yasinsky


  *By:                   /s/ THOMAS J. WEBB
         ---------------------------------------------------
                  Thomas J. Webb, Attorney-in-Fact
</Table>

                                      CO-15
<PAGE>
                    CMS ENERGY'S AND CONSUMERS' EXHIBIT INDEX




<TABLE>
<CAPTION>
EXHIBITS              DESCRIPTION
- --------              -----------
<S>                   <C>
(4)(a)(i)      --     99th Supplemental Indenture dated as of 1/20/05, supplement
                      to Indenture dated as of September 1, 1945, between
                      Consumers and Chemical Bank (successor to Manufacturers
                      Hanover Trust Company), as Trustee
(4)(b)(i)      --     4th Supplemental Indenture dated as of May 31, 2001,
                      supplement to Indenture dated as of January 1, 1996
                      between Consumers and The Bank of New York, as Trustee
(4)(d)(i)      --     15th Supplemental Indenture dated as of 9/29/04, supplement
                      to Indenture dated as of September 15, 1992 between CMS
                      Energy and NBD Bank, as Trustee
(4)(d)(ii)     --     16th Supplemental Indenture dated as of 12/16/04,
                      supplement to Indenture dated as of September 15, 1992
                      between CMS Energy and NBD Bank, as Trustee
(4)(j)         --     $300 million Fifth Amended and Restated Credit Agreement
                      dated as of August 3, 2004 among CMS Energy, CMS
                      Enterprises, the Banks, and the Administrative Agent and
                      Collection Agent, all defined therein
(4)(k)         --     Reaffirmation of grant of a security interest dated as of
                      August 3, 2004 among CMS Energy, CMS Enterprises, and the
                      Administrative Agent and Collateral Agent, as defined
                      therein
(4)(l)         --     Cash Collateral Agreement dated as of August 3, 2004 made
                      by CMS Energy to the Administrative Agent for the lenders
                      and Collateral Agent, as defined therein
(10)(f)        --     Annual Officer Incentive Compensation Plan for CMS Energy
                      Corporation and its Subsidiaries effective January 1, 2004
(10)(w)        --     Annual Management Incentive Compensation Plan for CMS
                      Energy Corporation and its Subsidiaries effective January
                      1, 2004
(10)(x)        --     Annual Employee Incentive Compensation Plan for CMS Energy
                      Corporation and its Subsidiaries effective January 1, 2004
(12)(a)        --     Statement regarding computation of CMS Energy's Ratio of
                      Earnings to Fixed Charges
(12)(b)        --     Statement regarding computation of Consumers' Ratio of
                      Earnings to Fixed Charges and Preferred Securities
                      Dividends and Distributions
(18)           --     Letter from Ernst & Young LLP to the Audit Committee of the
                      Boards of Directors for CMS Energy and Consumers regarding
                      the preferability of a change in accounting principle
(23)(a)        --     Consent of Ernst & Young LLP for CMS Energy
(23)(b)        --     Consent of PricewaterhouseCoopers LLP for CMS Energy re: MCV
(23)(c)        --     Consent of Pricewaterhouse for CMS Energy re: Jorf Lasfar
(23)(d)        --     Consent of Ernst & Young LLP for Consumers
(23)(e)        --     Consent of PricewaterhouseCoopers LLP for Consumers re: MCV
(24)(a)        --     Power of Attorney for CMS Energy
(24)(b)        --     Power of Attorney for Consumers
(31)(a)        --     CMS Energy's certification of the CEO pursuant to Section
                      302 of the Sarbanes-Oxley Act of 2002
(31)(b)        --     CMS Energy's certification of the CFO pursuant to Section
                      302 of the Sarbanes-Oxley Act of 2002
(31)(c)        --     Consumers' certification of the CEO pursuant to Section 302
                        of the Sarbanes-Oxley Act of 2002
(31)(d)        --     Consumers' certification of the CFO pursuant to Section 302
                        of the Sarbanes-Oxley Act of 2002
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
EXHIBITS              DESCRIPTION
- --------              -----------
<S>                   <C>
(32)(a)        --     CMS Energy's certifications pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002
(32)(b)        --     Consumers' certifications pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002
(99)(a)        --     Financial Statements for Midland Cogeneration Venture
                      Limited Partnership for the years ended December 31, 2001,
                      2002, and 2003
(99)(b)        --     Financial Statements for Jorf Lasfar for the years ended
                      December 31, 2002, 2003, and 2004
(99)(c)        --     Representation regarding Emirates CMS Power Company
                      financial statements for the years ended December 31, 2002,
                      2003 and 2004
(99)(d)        --     Representation regarding SCP Investments (1) PTY. LTD.
                      financial statements for the years ended June 30, 2003,
                      2004 and 2005
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)(I)
<SEQUENCE>2
<FILENAME>k91832exv4wxayxiy.txt
<DESCRIPTION>99TH SUPPLEMENTAL INDENTURE DATED AS OF 1/20/05
<TEXT>
<PAGE>
                                                                 EXHIBIT 4(a)(i)



                       NINETY-NINTH SUPPLEMENTAL INDENTURE


                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                       $250,000,000 5.15% SERIES DUE 2017

                                 --------------

                          DATED AS OF JANUARY 20, 2005

                                 --------------

                            CONSUMERS ENERGY COMPANY


                                       TO


                            JPMORGAN CHASE BANK, N.A.

                                     TRUSTEE






                                                         Counterpart _____ of 80





<PAGE>

                  THIS NINETY-NINTH SUPPLEMENTAL INDENTURE, dated as of January
20, 2005 (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, N.A., a national banking association organized under the laws of the
United States of America, 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 effective November 13, 2004, the name of JPMorgan
Chase Bank was changed to JPMorgan Chase Bank, N.A.; 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



                                       1
<PAGE>

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 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 5.15% Series due 2017, each of which bonds shall also bear the
descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2017 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, 2017; and

                  WHEREAS the Company and Barclays Capital Inc., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, ABN AMRO
Incorporated, Comerica Securities, Inc., Fifth Third Securities, Inc. and
Huntington Capital Corp. (the "Underwriters") have entered into an Underwriting
Agreement dated January 13, 2005 (the Underwriting




                                       2
<PAGE>

Agreement"), pursuant to which the Company agreed to sell and the Underwriters
agreed to buy $250,000,000 in aggregate principal amount of 2017 Bonds (such
2017 Bonds, the "Bonds"); and

                  WHEREAS, each of the registered bonds without coupons of 2017
Bonds and the Trustee's Authentication Certificate thereon are to be
substantially in the following form, respectively, to wit:

                   [FORM OF REGISTERED BOND OF THE 2017 BONDS]

                                     [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
                              5.15% SERIES DUE 2017


CUSIP: 210518 CG 9                                                  $250,000,000

ISIN: US 210518CG91

No.:

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered



                                       3
<PAGE>

assigns, the principal sum of Two Hundred Fifty Million Dollars ($250,000,000)
on February 15, 2017, 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 August 15, 2005
in which case from January 20, 2005 (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 August 15, 2005,
from January 20, 2005), 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. 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, N.A., Trustee



                                              By:
                                                 -------------------------------
                                                 Authorized Officer



                                       4
<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                              5.15% SERIES DUE 2017

                  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
in which such interest payment date occurs, 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, 5.15% Series due 2017 (sometimes herein referred to as the "2017
Bonds" 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, N.A.,
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 2017 Bonds 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


                                       5
<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 Barclays Capital
Inc., J.P. Morgan Securities Inc. or Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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 Barclays Capital
Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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.



                                       6
<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, (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 2017 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 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 2017 BONDS]

                          - - - - - - - - - - - - - - -


                                       7
<PAGE>



                  AND WHEREAS all acts and things necessary to make the 2017
Bonds ( 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 2017 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, alienate and convey unto JPMorgan Chase Bank, N.A., 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.



                                       8
<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
"2017 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 2017 Bonds shall be issued in the
aggregate principal amount of $250,000,000, shall mature on February 15, 2017
and shall be issued only as registered bonds without coupons in denominations of
$1,000 and any multiple thereof. The serial numbers of the 2017 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 2017 Bonds 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. 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.



                                       9
<PAGE>

                  SECTION 2.

                  2.01 Form of Bonds.

                  The 2017 Bonds shall 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 (each, a "Global Bond"),
which shall be deposited on behalf of the purchasers of the 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. The
Depositary for the Global Bonds shall be The Depository Trust Company, a New
York corporation, or its duly appointed successor (the "Depository"). This
Section 2.01 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 2017 Bonds in accordance with this Section 2.01, 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.

                  Except as provided in this Section 2.01, Section 2.02 or
Section 2.03, owners of beneficial interests in Global Bonds shall not be
entitled to receive physical delivery of certificated Bonds.

                  2.02 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
         2.03), 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



                                       10
<PAGE>

         or by the Depository or any such nominee to a successor Depository or a
         nominee of such successor Depository.


                  (b) 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.

                  (c) 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.

                  (d) 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



                                       11
<PAGE>

         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.

                  2.03 Certificated Bonds.

                  (a) A Global Bond deposited with the Depository or with the
Trustee as securities custodian pursuant to Section 2.01 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 2.03 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 2.03 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
2.03 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.

                  (c) Subject to the provisions of Section 2.03(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.

                  SECTION 3. The 2017 Bonds 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



                                       12
<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 Barclays Capital
Inc., J.P. Morgan Securities Inc. or Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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 Barclays Capital
Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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.



                                       13
<PAGE>

                  SECTION 4. The 2017 Bonds 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 3 hereof.

                  SECTION 5. The Company reserves the right, without any
consent, vote or other action by the holders of the 2017 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



                                       14
<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 6. 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 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, eighth and ninth recitals hereof), all of
which recitals and statements are made solely by the Company.



                                       15
<PAGE>

                  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 (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 9, 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 10. This Supplemental Indenture and the 2017 Bonds
shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

                  SECTION 11. Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

                  All the electric generating plants and stations of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                      II.

                           ELECTRIC TRANSMISSION LINES

                  All the electric transmission lines of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including towers, poles, pole lines, wires, switches, switch
racks, switchboards, insulators and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges



                                       16
<PAGE>

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.



                                       17
<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,


                                       18
<PAGE>

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 limited to the following described property, such property is subject
to any interests that were excepted or reserved in the conveyance to the
Company:



                                       19
<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.



                                       20
<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.



                                       21
<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:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.



                                       22
<PAGE>

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
         described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
         described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
         as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
         as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 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.


                                       23
<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
         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.



                                       24
<PAGE>

                              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

         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.



                                       25
<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



                                       26
<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"



                                       27
<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



                                       28
<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



                                       29
<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



                                       30
<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 SW 1/4 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.



                                       31
<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.



                                       32
<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 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



                                       33
<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.



                                       34
<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 degrees 22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.



                                       35
<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 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, N.A., 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.




                                       36
<PAGE>




                                                CONSUMERS ENERGY COMPANY



(SEAL)                                      By: /s/ Laura L. Mountcastle
                                                --------------------------------
                                                Laura L. Mountcastle
Attest:                                         Vice President and 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 20th
day of January, 2005, by Laura L. Mountcastle, Vice President and Treasurer of
CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.



                                           /s/ Margaret Hillman
                                           ------------------------------------
                                           Margaret Hillman, Notary Public
[Seal]                                     State of Michigan, County of Jackson
                                           My Commission Expires: 06/14/10
                                           Acting in the County of Jackson



                                      S-1
<PAGE>


                                           JPMORGAN CHASE BANK, N.A., 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, N.A.
in the presence of


/s/ Nicholas Sberlati
- ---------------------------------
Nicholas Sberlati

/s/ James D. Heaney
- ---------------------------------
James D. Heaney


STATE OF NEW YORK  )
                     ss.
COUNTY OF NEW YORK )

                  The foregoing instrument was acknowledged before me this 20th
day of January, 2005, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK,
N.A., as Trustee, a national banking association, on behalf of the bank.


                                        /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)(I)
<SEQUENCE>3
<FILENAME>k91832exv4wxbyxiy.txt
<DESCRIPTION>4TH SUPPLEMENTAL INDENTURE DATED AS OF MAY 31, 2001
<TEXT>
<PAGE>
                                                                 EXHIBIT 4(b)(i)


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


                         FOURTH SUPPLEMENTAL INDENTURE

                                    between

                            CONSUMERS ENERGY COMPANY

                                      and

                              THE BANK OF NEW YORK

                            Dated as of May 31, 2001


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


<PAGE>





                                TABLE OF CONTENTS

<Table>
<Caption>


                                                                                                     Page
                                                                                                     ----
<S>                                                                                                  <C>

                                          ARTICLE I.
                                         DEFINITIONS

SECTION 1.1.     Definition of Terms...................................................................2

                                         ARTICLE II.
                          GENERAL TERMS AND CONDITIONS OF THE NOTES

SECTION 2.1.     Designation and Principal Amount......................................................3
SECTION 2.2.     Maturity..............................................................................3
SECTION 2.3.     Form and Payment......................................................................3
SECTION 2.4.     Global Note...........................................................................3
SECTION 2.5.     Interest..............................................................................5

                                         ARTICLE III.
                                   REDEMPTION OF THE NOTES

SECTION 3.1.     Special Event Redemption..............................................................6
SECTION 3.2.     Optional Redemption by Issuer.........................................................6
SECTION 3.3.     No Sinking Fund.......................................................................7

                                         ARTICLE IV.
                             EXTENSION OF INTEREST PAYMENT PERIOD

SECTION 4.1.     Extension of Interest Payment Period..................................................7
SECTION 4.2.     Notice of Extension...................................................................7

                                          ARTICLE V.
                                           EXPENSES

SECTION 5.1.     Payment of Expenses...................................................................8
SECTION 5.2.     Payment Upon Resignation or Removal...................................................9

                                         ARTICLE VI.
                                        SUBORDINATION

SECTION 6.1.     Agreement to Subordinate..............................................................9
</Table>


                                       i

<PAGE>


<Table>
<S>                                                                                                    <C>

                                          ARTICLE VII.
                                  COVENANT TO LIST ON EXCHANGE

SECTION 7.1.      Listing on an Exchange............................................................... 9

                                         ARTICLE VIII.
                                         FORM OF NOTES

SECTION 8.1.      Form of Note......................................................................... 9

                                          ARTICLE IX.
                                    ORIGINAL ISSUE OF NOTES

SECTION 9.1.      Original Issue of Notes..............................................................15

                                           ARTICLE X.
                                         MISCELLANEOUS

SECTION 10.1      Provisions of Indenture for the Sole Benefit of Parties and
                  Holders of Trust Securities..........................................................15
SECTION 10.2      Ratification of Indenture............................................................15
SECTION 10.3.     Trustee Not Responsible for Recitals.................................................15
SECTION 10.4.     Governing Law........................................................................16
SECTION 10.5.     Separability.........................................................................16
SECTION 10.6.     Counterparts.........................................................................16
</Table>


                                       ii
<PAGE>


            FOURTH SUPPLEMENTAL INDENTURE, dated as of May 31, 2001, (the
"Fourth Supplemental Indenture"), between Consumers Energy Company, a Michigan
Corporation (the "Issuer"), and The Bank of New York, as trustee (the "Trustee")
under the Indenture dated as of January 1, 1996 between the Issuer and the
Trustee (the "Indenture").

            WHEREAS, the Issuer executed and delivered the Indenture to the
Trustee to provide for the future issuance of the Issuer's Securities to be
issued from time to time in one or more series as might be determined by the
Issuer under the Indenture, in an unlimited aggregate principal amount which may
be authenticated and delivered as provided in the Indenture; and

            WHEREAS, Section 2.3 of the Indenture permits the terms of any
series of Securities to be established in an indenture supplemental to the
Indenture; and

            WHEREAS, Section 8.1(d) of the Indenture provided that a
supplemental indenture may be entered into without the consent of any Holders of
Securities to supplement certain provisions of the Indenture; and

            WHEREAS, Section 8.1(e) of the Indenture provides that a
supplemental indenture may be entered into by the Issuer and the Trustee without
the consent of any Holders of the Securities to establish the form and terms of
the Securities of any series; and

            WHEREAS, pursuant to the terms of the Indenture, the Issuer desires
to provide for the establishment of a new series of its Securities to be known
as its 9% subordinated Debentures due June 30, 2031 (the "Notes"), the form and
substance of such Notes and the terms, provisions and conditions thereof to be
set forth as provided in the Indenture and this Fourth Supplemental Indenture;
and

            WHEREAS, Consumers Energy Company Financing IV, a Delaware statutory
business trust (the "Trust"), has offered to the public $125 million aggregate
liquidation amount of its 9% Trust Originated Preferred Securities (the
"Preferred Securities"), representing undivided beneficial interests in the
assets of the Trust and proposes to invest the proceeds from such offering,
together with the proceeds of the issuance and sale by the Trust to the Issuer
of $3,866,000 aggregate liquidation amount of its 9% Trust Originated Common
Securities (together the "Trust Securities"), in $128,866,000 aggregate
principal amount of the Notes; and

            WHEREAS, the Issuer wishes to supplement Section 13.2 of the
Indenture with respect to the Notes and the Preferred Securities; and

            WHEREAS, the Issuer has requested that the Trustee execute and
deliver this Fourth Supplemental Indenture and all requirements necessary to
make this Fourth Supplemental Indenture a valid instrument in accordance with
its terms, and to make the Notes, when executed by the Issuer and authenticated
and delivered by the Trustee, the valid obligations of the Issuer, have been
performed, and the execution and delivery of this Fourth Supplemental Indenture
has been duly authorized in all respects.



                                       1
<PAGE>



            NOW THEREFORE, in consideration of the purchase and acceptance of
the Notes by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Notes and the terms,
provisions and conditions thereof, the Issuer covenants and agrees with the
Trustee as follows:


                                   ARTICLE I.
                                   DEFINITIONS

SECTION 1.1. Definition of Terms.

            Unless the context otherwise requires:

            (a) a term defined in the Indenture has the same meaning when used
in this Fourth Supplemental Indenture;

            (b) a term defined anywhere in this Fourth Supplemental Indenture
has the same meaning throughout;

            (c) the singular includes the plural and vice versa;

            (d) a reference to a Section or Article is to a Section or Article
of this Fourth Supplemental Indenture;

            (e) headings are for convenience of reference only and do not affect
interpretation;

            (f) the following terms have the meanings given to them in the
Declaration: (i) Clearing Agency; (ii) Delaware Trustee; (iii) Redemption Tax
Opinion; (iv) No Recognition Opinion; (v) Preferred Security Certificate; (vi)
Property Trustee; (vii) Regular Trustees; (viii) Special Event; (ix) Tax Event;
(x) Underwriting Agreement; (xi) Investment Company Event; and (xii)
Distribution;

            (g) the following terms have the meanings given to them in this
Section 1.1(g):

            "Additional Interest" shall have the meaning set forth in Section
2.5.

            "Compounded Interest" shall have the meaning set forth in Section
4.1.

            "Coupon Rate" shall have the meaning set forth in Section 2.5.

            "Declaration" means the Amended and Restated Declaration of Trust of
Consumers Energy Company Financing IV, a Delaware statutory business trust,
dated as of         ,   .

            "Deferred Interest" shall have the meaning set forth in Section 4.1.



                                       2
<PAGE>

            "Dissolution Event" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Declaration, and the Notes held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Declaration.

            "Extended Interest Payment Period" shall have the meaning set forth
in Section 4.1.

            "Global Note" shall have the meaning set forth in Section 2.4.

            "Non Book-Entry Preferred Securities" shall have the meaning set
forth in Section 2.4.

            "Optional Redemption Price" shall have the meaning set forth in
Section 3.2.


                                   ARTICLE II.
                    GENERAL TERMS AND CONDITIONS OF THE NOTES

SECTION 2.1. Designation and Principal Amount.

            There is hereby authorized and established a series of unsecured
Securities designated the "9% subordinated Debentures due June 30, 2031",
limited in aggregate principal amount to $125,000,000 (except as contemplated in
Section 2(f)(2) of the Indenture).

SECTION 2.2. Maturity.

            The Maturity Date of the Notes is June 30, 2031.

SECTION 2.3. Form and Payment.

            The Notes shall be issued in fully registered form without interest
coupons. Principal and interest on the Notes issued in certificated form will be
payable, the transfer of such Notes will be registrable and such Notes will be
exchangeable for Notes bearing identical terms and provisions, at the office or
agency of the Trustee in the Borough of Manhattan, the City of New York;
provided, however, that payment of interest may be made at the option of the
Issuer by check mailed to the Holder at such address as shall appear in the
Security Register or by wire transfer to an account maintained by the Holder.
Notwithstanding the foregoing, so long as the Holder of any Notes is the
Property Trustee, the payment of the principal of and interest (including
Compounded Interest and Additional Interest, if any) on such Notes held by the
Property Trustee will be made at such place and to such account as may be
designated by the Property Trustee.

SECTION 2.4. Global Note.

            (a)  In connection with a Dissolution Event,



                                       3
<PAGE>

                  (i) the Notes may be presented to the Trustee by the Property
      Trustee in exchange for a global Note in an aggregate principal amount
      equal to the aggregate principal amount of all outstanding Notes (a
      "Global Note"), to be registered in the name of the Clearing Agency, or
      its nominee, and delivered by the Trustee to the Clearing Agency for
      crediting to the accounts of its participants pursuant to the instructions
      of the Regular Trustees and the Clearing Agency will act as Depository for
      the Notes. The Issuer upon any such presentation, shall execute a Global
      Note in such aggregate principal amount and deliver the same to the
      Trustee for authentication and delivery in accordance with the Indenture
      and this Fourth Supplemental Indenture. Payments on the Notes issued as a
      Global Note will be made to the Depositary; and

                  (ii) if any Preferred Securities are held in non book-entry
      certificated form, the Notes may be presented to the Trustee by the
      Property Trustee and any Preferred Security Certificate which represents
      Preferred Securities other than Preferred Securities held by the Clearing
      Agency or its nominee ("Non Book-Entry Preferred Securities") will be
      deemed to represent beneficial interests in Notes presented to the Trustee
      by the Property Trustee having an aggregate principal amount equal to the
      aggregate liquidation amount of the Non Book-Entry Preferred Securities
      until such Preferred Security Certificates are presented to the Security
      Registrar for transfer or reissuance at which time such Preferred Security
      Certificates will be canceled and a Note, registered in the name of the
      holder of the Preferred Security Certificate or the transferee of the
      holder of such Preferred Security Certificate, as the case may be, with an
      aggregate principal amount equal to the aggregate liquidation amount of
      the Preferred Security Certificate canceled, will be executed by the
      Issuer and delivered to the Trustee for authentication and delivery in
      accordance with the Indenture and this Fourth Supplemental Indenture.

            (b) Except as provided in (c) below, a Global Note may be
transferred, in whole but not in part, only to another nominee of the
Depositary, or to a successor Depositary selected or approved by the Issuer or
to a nominee of such successor Depositary.

            (c) If at any time the Depositary notifies the Issuer that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
for such series shall no longer be registered or in good standing under the
Securities Exchange Act of 1934, as amended, or other applicable statute or
regulation, and a successor Depositary for such series is not appointed by the
Issuer within 90 days after the Issuer receives such notice or becomes aware of
such condition, as the case may be, the Issuer will execute, and, subject to
Section 2.8 of the Indenture, the Trustee, upon written notice from the Issuer,
will authenticate and deliver the Notes in definitive registered form, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Note in exchange for such Global Note. In
addition, the Issuer may at any time determine that the Notes shall no longer be
represented by a Global Note. In such event the Issuer will execute, and subject
to Section 2.8 of the Indenture, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Issuer, will authenticate and
deliver the Notes in definitive registered form, in authorized denominations,
and in an aggregate principal amount equal to the principal amount of the Global
Note in exchange for such Global Note. Upon the exchange of the Global Note for
such Notes in definitive registered form, in authorized denominations, the
Global



                                       4
<PAGE>

Note shall be canceled by the Trustee. Such Notes in definitive registered form
issued in exchange for the Global Note shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver such Notes to the Depositary for delivery to the
Persons in whose names such Notes are so registered.

SECTION 2.5. Interest.

            (a) Each Note will bear interest at the rate of 9% per annum (the
"Coupon Rate") from the original date of issuance until the principal thereof
becomes due and payable, and on any overdue principal and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest, at the Coupon Rate, compounded quarterly, payable
(subject to the provisions of Article IV) quarterly in arrears on March 31, June
30, September 30, and December 31 of each year (each, an "Interest Payment
Date," commencing on June 30, 2001), to the Person in whose name such Note or
any predecessor Note is registered, at the close of business on the regular
record date for such interest installment, which, in respect of any Notes of
which the Property Trustee is the Holder or a Global Note, shall be the close of
business on the Business Day next preceding that Interest Payment Date.
Notwithstanding the foregoing sentence, if the Preferred Securities are no
longer in book-entry only form or, except if the Notes are held by the Property
Trustee, the Notes are not represented by a Global Note, the regular record date
for such interest installment shall be the fifteenth day of the month in which
the applicable Interest Payment Date occurs.

            (b) The amount of interest payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. Except as provided in
the following sentence, the amount of interest payable for any period shorter
than a full quarterly period for which interest is computed, will be computed on
the basis of the actual number of days elapsed in such a 90-day period. In the
event that any date on which interest is payable on the Notes is not a Business
Day, then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.

            (c) If, at any time while the Property Trustee is the Holder of any
Notes, the Trust or the Property Trustee is required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
case, the Issuer will pay as additional interest ("Additional Interest") on the
Notes held by the Property Trustee, such additional amounts as shall be required
so that the net amounts received and retained by the Trust and the Property
Trustee after paying such taxes, duties, assessments or other governmental
charges will be equal to the amounts the Trust and the Property Trustee would
have received had no such taxes, duties, assessments or other governmental
charges been imposed.



                                       5
<PAGE>

                                  ARTICLE III.
                             REDEMPTION OF THE NOTES

SECTION 3.1. Special Event Redemption.

            If (a) a Tax Event has occurred and is continuing and (i) the Issuer
has received a Redemption Tax Opinion, or (ii) The Regular Trustees shall have
been informed by tax counsel that a No Recognition Opinion cannot be delivered
to the Trust, or (b) an Investment Company Event has occurred and is continuing,
then, notwithstanding Section 3.2(a) but subject to Section 3.2(b) and Article
Eleven of the Indenture, the Issuer shall have the right upon not less than 30
days' nor more than 60 days' notice to the Holders of the Notes to redeem the
Notes, in whole or in part, for cash within 90 days' following the occurrence of
such Special Event (the "90 Day Period") at a redemption price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest thereon
to the date of such redemption (the "Redemption Price"), provided that, if at
the time there is available to the Issuer or the Trust the opportunity to
eliminate, within the 90 Day Period, the Special Event by taking some
ministerial action ("Ministerial Action"), such as filing a form or making an
election, or pursuing some other similar reasonable measure which has no adverse
effect on the Issuer, the Trust or the Holders of the Trust Securities issued by
the Trust, the Issuer shall pursue such Ministerial Action in lieu of
redemption, and, provided, further, that the Issuer shall have no right to
redeem the Notes while the Trust is pursuing any Ministerial Action pursuant to
its obligations under the Declaration. The Redemption Price shall be paid prior
to 12:00 noon, New York time, on the date of such redemption or such earlier
time as the Issuer determines, and the Issuer shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on
the date such Redemption Price is to be paid.

SECTION 3.2. Optional Redemption by Issuer.

            (a) Subject to the provisions of Section 3.2(b) and to the
provisions of Article Eleven of the Indenture, the Issuer shall have the right
to redeem the Notes, in whole or in part, from time to time, on or after June
30, 2006, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest thereon to the date of such
redemption (the "Optional Redemption Price"). Any redemption pursuant to this
paragraph will be made upon not less than 30 days' nor more than 60 days' notice
to the Holder of the Notes, at the Optional Redemption Price. If the Notes are
only partially redeemed pursuant to this Section 3.2, the Notes will be redeemed
on a pro rata basis; provided that, if at the time of redemption the Notes are
registered as a Global Note, the Depository shall determine, in accordance with
its procedures, the principal amount of such Notes held by each Holder of Notes
to be redeemed. The Optional Redemption Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or at such earlier time as the
Issuer determines and the Issuer shall deposit with the Trustee an amount
sufficient to pay the Optional Redemption Price by 10:00 a.m., New York time, on
the date such Optional Redemption Price is to be paid.

            (b) If a partial redemption of the Notes would result in the
delisting of the Preferred Securities from any national securities exchange or
other organization on which the Preferred Securities are then listed, the Issuer
shall not be permitted to effect such partial redemption and may only redeem the
Notes in whole.



                                       6
<PAGE>

SECTION 3.3. No Sinking Fund.

            The Notes are not entitled to the benefit of any sinking fund.


                                   ARTICLE IV.
                      EXTENSION OF INTEREST PAYMENT PERIOD

SECTION 4.1. Extension of Interest Payment Period.

            The Issuer shall have the right, at any time and from time to time
during the term of the Notes, to defer payments of interest by extending the
interest payment period of such Notes for a period not exceeding 20 consecutive
quarters (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that, no
Extended Interest Payment Period may extend beyond the Maturity Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 4.1, will bear interest thereon at the Coupon Rate compounded
quarterly for each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Issuer shall
pay all interest accrued and unpaid on the Notes, including any Additional
Interest and Compounded Interest (together, "Deferred Interest") that shall be
payable to the Holders of the Notes in whose names the Notes are registered in
the Security Register on the First record date after the end of the Extended
Interest Payment Period. Prior to the termination of any Extended Interest
Payment Period, the Issuer may further extend such period, provided that such
period together with all such further extensions thereof shall not exceed 20
consecutive quarters. Upon the termination of any Extended Interest Payment
Period and upon the payment of all Deferred Interest then due, the Issuer may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof, but the Issuer may prepay at any time
all or any portion of the interest accrued during an Extended Interest Payment
Period.

            The limitations set forth in Section 3.5 of the Indenture shall
apply during any Extended Interest Payment Period.

SECTION 4.2. Notice of Extension.

            (a) If the Property Trustee is the only registered Holder of the
Notes at the time the Issuer elects an Extended Interest Payment Period, the
Issuer shall give written notice to the Regular Trustees, the Property Trustee
and the Trustee of its election of such Extended Interest Payment Period one
Business Day before the earlier of (i) the next succeeding date on which
Distributions on the Trust Securities issued by the Trust are payable, or (ii)
the date the Trust is required to give notice of the record date, or the date
such Distributions are payable, to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Preferred
Securities, but in any event at least one Business Day before such record date.



                                       7
<PAGE>

            (b) If the Property Trustee is not the only Holder of the Notes at
the time the Issuer elects an Extended Interest Payment Period, the Issuer shall
give the Holders of the Notes and the Trustee written notice of its election of
such Extended Interest Payment Period one Business Days before the earlier of
(i) the next succeeding Interest Payment Date, or (ii) the date the Issuer is
required to give notice of the record or payment date of such interest payment
to the New York Stock Exchange or other applicable self-regulatory organization
or to Holders of the Notes.

            (c) The quarter in which any notice is given pursuant to paragraphs
(a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters
permitted in the maximum Extended Interest Payment Period permitted under
Section 4.1.


                                   ARTICLE V.
                                    EXPENSES

SECTION 5.1. Payment of Expenses.

            In connection with the offering, sale and issuance of the Notes to
the Property Trustee and in connection with the sale of the Trust Securities by
the Trust, the Issuer, in its capacity as borrower with respect to the Notes,
shall:

            (a) pay all costs and expenses relating to the offering, sale and
issuance of the Notes, including commissions to the underwriters payable
pursuant to the Underwriting Agreement and the Pricing Agreements, and
compensation of the Trustee under the Indenture in accordance with the
provisions of Section 6.6 of the Indenture;

            (b) pay all costs and expenses of the Trust (including, but not
limited to, costs and expenses relating to the organization of the Trust, the
offering, sale and issuance of the Trust Securities (including commissions to
the underwriters in connection therewith), the fees and expenses of the Property
Trustee and the Delaware Trustee, the costs and expenses relating to the
operation of the Trust, including without limitation, costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of Trust assets);

            (c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and

            (d) pay any and all taxes (other than United States withholding
taxes attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.



                                       8
<PAGE>

SECTION 5.2. Payment Upon Resignation or Removal.

            Upon termination of this Fourth Supplemental Indenture or the
Indenture or the removal or resignation of the Trustee pursuant to Section 6.10
of the Indenture, the Issuer shall pay to the Trustee all amounts accrued to the
date of such termination, removal or resignation. Upon termination of the
Declaration or the removal or resignation of the Delaware Trustee or the
Property Trustee, as the case may be, pursuant to Section 5.6 of the
Declaration, the Issuer shall pay to the Delaware Trustee or the Property
Trustee, as the case may be, all amounts accrued to the date of such
termination, removal or resignation.


                                   ARTICLE VI.
                                  SUBORDINATION

SECTION 6.1. Agreement to Subordinate.

            The Issuer covenants and agrees, and each Holder of Notes issued
hereunder, by such Holder's acceptance thereof likewise covenants and agrees,
that pursuant to Section 2.3(f)(9) of the Indenture all Notes shall be issued as
Subordinated Securities subject to the provisions of Article Twelve of the
Indenture and this Article VI; and each Holder of a Note by its acceptance
thereof accepts and agrees to be bound by such provisions.


                                  ARTICLE VII.
                          COVENANT TO LIST ON EXCHANGE

SECTION 7.1. Listing on an Exchange.

            In connection with the distribution of the Notes to the holders of
the Preferred Securities upon a Dissolution Event, the Issuer will use its best
efforts to list such Notes on the New York Stock Exchange or on such other
exchange as the Preferred Securities are then listed.


                                  ARTICLE VIII.
                                  FORM OF NOTES

SECTION 8.1. Form of Note.

            The Notes and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms and the Notes
shall have such additional terms as may be set forth in such form:

                             (FORM OF FACE OF NOTE)



                                       9
<PAGE>

            [IF THE NOTE IS TO BE A GLOBAL NOTES, INSERT - This Note is a Global
Note within the meaning of the Indenture hereinafter referred to, and is
registered in the name of, a Depositary or a nominee of a Depositary. This Note
is exchangeable for Notes registered in the name of a person other than the
Depositary or its nominee only in the limited circumstances described in the
Indenture, and no transfer of this Note (other than a transfer of this Note 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) may be
registered except in limited circumstances.

            Unless this Note is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any Note issued
is registered in the name of Cede & Co. or such other name as requested by an
authorized representative of The Depository Trust Company and any payment hereon
is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co.,
has an interest herein.]

No.
       $


CUSIP NO. 21051E202


                            CONSUMERS ENERGY COMPANY

                           9% SUBORDINATED DEBENTURES
                                DUE June 30, 2031

            Consumers Energy Company, a Michigan corporation (the "Issuer",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ______________, or
registered assigns, the principal sum of one hundred twenty eight million eight
hundred sixty six thousand Dollars ($128,866,000) on June 30, 2001, and to pay
interest on said principal sum from May 31, 2001, or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March 31, June 30, September 30, and December 31
of each year commencing June 30, 2001 at the rate of 9% per annum until the
principal hereof shall have become due and payable, and on any overdue principal
and premium, if any, and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which interest is
payable on this Note is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and



                                       10
<PAGE>

effect as if made on such date. The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the person in whose name this Note (or one
or more Predecessor Securities, as defined in said Indenture) is registered at
the close of business on the regular record date for such interest installment,
which shall be the close of business on the Business Day next preceding such
Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF THE INDENTURE THE
DEBENTURES ARE NO LONGER REPRESENTED BY A GLOBAL NOTE -- which shall be the
close of business on the 15th day of the month in which such Interest Payment
Date occurs.] If and to the extent the Issuer shall default in the payment of
the interest due on such Interest Payment Date, interest shall be paid to the
person in whose name this Note is registered at the close of business on a
subsequent record date (which shall not be less than five Business Days prior to
the date of payment of such defaulted interest) established by notice given by
mail by or on behalf of the Issuer to the Holder of this Note not less than 15
days preceding such subsequent Record Date. The principal of (and premium, if
any) and the interest on this Note shall be payable at the office or agency of
the Trustee in the Borough of Manhattan, the City of New York maintained for
that purpose in any coin or currency of the United States of America that at the
time is legal tender for payment of public and private debts; provided, however,
that payment of interest may be made at the option of the Issuer by check mailed
to the registered Holder at such address as shall appear in the Security
Register or by wire transfer to an account maintained by the Holder.
Notwithstanding the foregoing, so long as the Holder of this Note is the
Property Trustee, the payment of the principal of (and premium, if any) and
interest on this Note will be made at such place and to such account as may be
designated by the Property Trustee.

            The indebtedness evidenced by this Note is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Note is issued subject to
the provisions of the Indenture with respect thereto. Each Holder of this Note,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate to acknowledge or effectuate the subordination
so provided and (c) appoints the Trustee his or her attorney-in-fact for any and
all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.

            This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.

            The provisions of this Note are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.



                                       11
<PAGE>

            IN WITNESS WHEREOF, the Issuer has caused this instrument to be
executed.

Dated

                                             Consumers Energy Company

[Seal]                                       By:
                                             Name:
                                             Title


Attest:

By:
Name:
Title:



                     (FORM OF CERTIFICATE OF AUTHENTICATION)

                          CERTIFICATE OF AUTHENTICATION

            This is one of the Securities of the series of Securities described
in the within-mentioned Indenture.



                                             -----------------------------------
                                             as Trustee

                                             By
                                                  Authorized Signatory



                            (FORM OF REVERSE OF NOTE)

            This Note is one of a duly authorized series of Securities of the
Issuer (herein sometimes referred to as the "Notes"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of January 1, 1996, duly executed and delivered between
the Issuer and The Bank of New York, a New York banking corporation, as Trustee
(the "Trustee"), as supplemented by certain supplemental indentures, including
the Fourth Supplemental Indenture dated as of May 31, 2001, between the Issuer
and the Trustee (the Indenture as so supplemented, the "Indenture"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the Holders of the Notes.
By the terms of the Indenture, the Notes are issuable in series that may vary as
to amount, date of maturity, rate of



                                       12
<PAGE>

interest and in other respects as provided in the Indenture. This series of
Notes is limited in aggregate principal amount as specified in said Third
Supplemental Indenture.

            The Issuer shall have the right to redeem this Note at the option of
the Issuer, without premium or penalty, in whole or in part at any time on or
after June 30, 2001 or at any time in certain circumstances upon the occurrence
of a Special Event, at a redemption price equal to 100% of the principal amount
plus any accrued but unpaid interest, to the date of such redemption. Any
redemption pursuant to this paragraph will be made upon not less than 30 days
nor more than 60 days' notice. If the Notes are only partially redeemed by the
Issuer pursuant to an Optional Redemption, the Notes will be redeemed pro rata.

            In the event of redemption of this Note in part only, a new Note or
Notes of this series for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.

            In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be declared,
and upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.

            The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Notes and other Indenture securities of each
series affected at the time Outstanding and affected (voting as one class), as
defined in the Indenture, to execute supplemental indentures for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the Holders of the Notes; provided, however, that the
Company and the Trustee may not, without the consent of the Holder of each Note
then Outstanding and affected thereby: (a) change the time of payment of the
principal (or any installment) of any Note, or reduce the principal amount
thereof, or reduce the rate or change the time of payment of interest thereon,
or impair the right to institute suit for the enforcement of any payment on any
Note when due or (b) reduce the percentage in principal amount of the Notes, the
consent of whose Holders is required for any such modification or for any waiver
provided for in the Indenture. The Indenture also contains provisions providing
that prior to the acceleration of the maturity of any Note or other securities
outstanding under the Indenture, the Holders of a majority in aggregate
principal amount of Notes of and other Securities Outstanding under the
Indenture with respect to which a default or/an Event of Default shall have
occurred and be continuing (voting as one class) may on behalf of the Holders of
all such affected Securities (including the Notes) waive any past default and
its consequences, except a default or an Event of Default in respect of a
covenant or provision of the Indenture or of any Note or other Security which
cannot be modified or amended without the consent of the Holder of each Note or
other Security affected. Any such consent or waiver by the registered Holder of
this Note (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such Holder and upon all future Holders and owners of this Note and
of any Note issued in exchange herefor or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Note.



                                       13
<PAGE>

            No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the time and place and at the rate and in the money
herein prescribed.

            The Issuer shall have the right at any time during the term of the
Notes and from time to time to extend the interest payment period of such Notes
for up to 20 consecutive quarters (an "Extended Interest Payment Period"), at
the end of which period the Issuer shall pay all interest then accrued and
unpaid (together with interest thereon at the rate specified for the Notes to
the extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extended Interest Payment Period, the Issuer
may further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters. At the termination of any such
Extended Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Issuer may commence a new
Extended Interest Payment Period.

            As provided in the Indenture and subject to certain limitations
therein set forth, this Note is transferable by the registered Holder hereof on
the Security Register of the Issuer, upon surrender of this Note for
registration of transfer at the office or agency of the Trustee in the City and
State of New York accompanied by a written instrument or instruments of transfer
in form satisfactory to the Issuer or the Trustee duly executed by the
registered Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount and series will be issued to the designated
transferee or transferees. No service charge will be made for any such transfer,
but the Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.

            Prior to due presentment for registration of transfer of this Note,
the Issuer, the Trustee, any paying agent and the Security Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Note shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Security Registrar) for the purpose
of receiving payment of or on account of the principal hereof and premium, if
any, and interest due hereon and for all other purposes, and neither the Issuer
nor the Trustee nor any paying agent nor any Security Registrar shall be
affected by any notice to the contrary.

            No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
stockholder, officer or director, past, present or future, as such, of the
Issuer or of any predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issuance hereof, expressly waived and
released.

            Notes of this series so issued are issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof. As
provided in the Indenture and subject to



                                       14
<PAGE>

certain limitations herein and therein set forth, Notes of this series so issued
are exchangeable for a like aggregate principal amount of Notes of this series
in authorized denominations, as requested by the Holder surrendering the same.

            All terms used in this Note that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.


                              [END OF FORM OF NOTE]

                                   ARTICLE IX.
                             ORIGINAL ISSUE OF NOTES

SECTION 9.1. Original Issue of Notes.

            Notes in the aggregate principal amount of $128,866,000 may, upon
execution of this Fourth Supplemental Indenture, be executed by the Issuer and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Notes to or upon the written order of the Issuer,
in accordance with Section 2.4 of the Indenture.

                                   ARTICLE X.
                                  MISCELLANEOUS

SECTION 10.1 Provisions of Indenture for the Sole Benefit of Parties and Holders
             of Trust Securities.

            Notwithstanding Section 13.2 of the Indenture, for so long as any
Trust Securities remain outstanding, the Issuer's obligations under the
Indenture and this Fourth Supplemental Indenture will also be for the benefit of
the holders of the Trust Securities, and the Issuer acknowledges and agrees that
such holders will be entitled to enforce certain payment obligations under the
Notes directly against the Issuer to the extent provided in the Declaration.

SECTION 10.2 Ratification of Indenture.

            The Indenture, as supplemented by this Fourth Supplemental
Indenture, is in all respects ratified and confirmed, and this Fourth
Supplemental Indenture shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.

SECTION 10.3. Trustee Not Responsible for Recitals.

            The recitals herein contained are made by the Issuer and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
Fourth Supplemental Indenture.



                                       15
<PAGE>

SECTION 10.4. Governing Law.

            This Fourth Supplemental Indenture and each Note shall be deemed to
be a contract made under the internal laws of the State of Michigan, and for all
purposes shall be construed in accordance with the laws of said State; provided,
however, that the rights, duties and obligations of the Trustee are governed and
construed in accordance with the laws of the State of New York.

SECTION 10.5. Separability.

            In case any one or more of the provisions contained in this Fourth
Supplemental Indenture or in the Notes shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Fourth
Supplemental Indenture or of the Notes, but this Fourth Supplemental Indenture
and the Notes shall be construed as if such invalid or illegal or unenforceable
provision had never been contained herein or therein.

SECTION 10.6. Counterparts.

            This Fourth Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.



                                       16
<PAGE>



            IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed on the date or dates indicated in the
acknowledgments and as of the day and year first above written.

                                   Consumers Energy Company


                                   By: /s/ Alan M. Wright
                                       ----------------------------------------
                                       Name: Alan M. Wright
                                       Title: Executive Vice President,
                                              Chief Financial Officer and Chief
                                              Administrative Officer


[Seal]
Attest:   /s/ Adam Norlander


By: Adam Norlander
    ------------------------


                                   The Bank of New York, as Trustee


                                   By: /s/ Paul Schmalzel
                                       ----------------------------------------
                                       Name: Paul Schmalzel
                                       Title:  Vice President







                                       17
<PAGE>




STATE OF MICHIGAN    )
                 )ss.
COUNTY OF WAYNE      )


      On the 31st day of May, 2001, before me personally came Alan M. Wright, to
me known, who, being by me duly sworn, did depose and say that he resides at Ann
Arbor, Michigan; that he is Executive Vice President, Chief Financial Officer
and Chief Administrative Officer of Consumers Energy Company, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate; that it was so affixed by authority of the Board of Directors of
said corporation; and that he signed his name thereto by like authority.


[Notarial Seal]


/s/ Leslie C. Higdon
- --------------------------------

Notary Public, Wayne County, Michigan
My Commission Expires:  10/5/04


                                       18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(D)(I)
<SEQUENCE>4
<FILENAME>k91832exv4wxdyxiy.txt
<DESCRIPTION>15TH SUPPLEMENTAL INDENTURE DATED AS OF 9/29/04
<TEXT>
<PAGE>
                                                                 EXHIBIT 4(d)(i)



                        FIFTEENTH SUPPLEMENTAL INDENTURE
                         DATED AS OF SEPTEMBER 29, 2004

                              --------------------

         This Fifteenth Supplemental Indenture, dated as of the 29th day of
September, 2004 between CMS Energy Corporation, a corporation duly organized and
existing under the laws of the State of Michigan (hereinafter called the
"Issuer") and having its principal office at One Energy Plaza, Jackson, Michigan
49201, and J.P. Morgan Trust Company, N.A., a national banking association
(hereinafter called the "Trustee") and having its Corporate Trust Office at 227
W. Monroe Street, Suite 2700, Chicago, IL 60606.

                                   WITNESSETH:

         WHEREAS, the Issuer and the Trustee (ultimate successor to NBD Bank,
National Association) entered into an Indenture, dated as of September 15, 1992
(the "Original Indenture"), pursuant to which one or more series of debt
securities of the Issuer (the "Securities") may be issued from time to time; and

         WHEREAS, Section 2.3 of the Original Indenture permits the terms of any
series of Securities to be established in an indenture supplemental to the
Original Indenture; and

         WHEREAS, Section 8.1(e) of the Original Indenture provides that a
supplemental indenture may be entered into by the Issuer and the Trustee without
the consent of any Holders (as defined in the Original Indenture) of the
Securities to establish the form and terms of the Securities of any series; and

         WHERAS, the Issuer issued its series of "7.75% Senior Notes due 2010
(the "Original 2010 Notes") on July 17, 2003 pursuant to the Fourteenth
Supplemental Indenture dated July 17, 2003 between the Issuer and the Trustee;
and

         WHEREAS, the Issuer entered into a registration rights agreement with
the initial purchasers of the Original 2010 Notes whereby the Issuer agreed to
register a series of notes with the Securities and Exchange Commission that
would be exchanged pursuant to an exchange offer to existing holders of the
Original 2010 Notes for their Original 2010 Notes; and

         WHEREAS, the Issuer has registered a new series of notes to be
exchanged for the Original 2010 Notes and has requested the Trustee to join with
it in the execution and delivery of this Fifteenth Supplemental Indenture in
order to supplement and amend the Original Indenture by, among other things,
establishing the form and terms of a series of Securities to be known as the
Issuer's "7.75% Senior Notes due 2010" (the "2010 Notes"), providing for the
issuance of the 2010 Notes and amending and adding certain provisions thereof
for the benefit of the Holders of the 2010 Notes such 2010 Notes to be exchanged
for the Original 2010 Notes; and



                                       1
<PAGE>


         WHEREAS, the Issuer and the Trustee desire to enter into this Fifteenth
Supplemental Indenture for the purposes set forth in Sections 2.3 and 8.1(e) of
the Original Indenture as referred to above; and

         WHEREAS, the Issuer has furnished the Trustee with a copy of the
resolutions of its Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of this Fifteenth Supplemental Indenture;
and

         WHEREAS, all things necessary to make this Fifteenth Supplemental
Indenture a valid agreement of the Issuer and the Trustee and a valid supplement
to the Original Indenture have been done;

         NOW, THEREFORE, for and in consideration of the premises and the
purchase of the 2010 Notes to be issued hereunder by holders thereof, the Issuer
and the Trustee mutually covenant and agree, for the equal and proportionate
benefit of the respective holders from time to time of the 2010 Notes, as
follows:

                                    ARTICLE I
                        STANDARD PROVISIONS; DEFINITIONS

         SECTION 1.01. Standard Provisions. The Original Indenture together with
this Fifteenth Supplemental Indenture and all previous indentures supplemental
thereto entered into pursuant to the applicable terms thereof are hereinafter
sometimes collectively referred to as the "Indenture." All capitalized terms
which are used herein and not otherwise defined herein are defined in the
Indenture and are used herein with the same meanings as in the Indenture.

         SECTION 1.02.  Definitions.

         (a) The following terms have the meanings set forth in the Sections
hereof set forth below:

<Table>
<Caption>
         Term                                                                   Section
         ----                                                                   -------
<S>                                                                             <C>
         Applicable Premium                                                     2.04
         Application Period                                                     4.06
         Asset Sale                                                             4.06
         Change in Control Date                                                 3.01
         Change in Control Purchase Notice                                      3.01(b)
         Change in Control Purchase Price                                       3.01
         Company                                                                2.03
         Depositary                                                             Article VI
         DTC                                                                    2.03
         Events of Default                                                      5.01
         Excess Proceeds                                                        4.06
         Global Note                                                            Article VI
         Indenture                                                              1.01; 2.04
         Interest Payment Date                                                  2.03
</Table>



                                       2
<PAGE>
<Table>
<Caption>
         Term                                                                   Section
         ----                                                                   -------
<S>                                                                             <C>
         Issue                                                                  4.04(a)
         Issuer                                                                 Preamble; 2.03
         Lien                                                                   4.02(a)
         Maturity                                                               2.03
         Original Indenture                                                     Recitals
         Original Issue Date                                                    2.03
         Original 2010 Notes                                                    Recitals
         Place of Payment                                                       2.03
         Purchase Date                                                          3.01(a)(iii)
         Record Date                                                            2.03
         Required Repurchase                                                    3.01
         Required Repurchase Notice                                             3.01(a)
         Restricted Payment                                                     4.05(a)
         Securities                                                             Recitals
         Securities Act                                                         2.03
         Treasury Rate                                                          2.04
         Trustee                                                                Preamble; 2.04
         2010 Notes                                                             Recitals; 2.04
</Table>

         (b) Section 1.1 of the Original Indenture is amended to insert the new
definitions applicable to the 2010 Notes, in the appropriate alphabetical
sequence, as follows:

         "Amortization Expense" means, for any period, amounts recognized during
such period as amortization of capital leases, depletion, nuclear fuel, goodwill
and assets classified as intangible assets in accordance with generally accepted
accounting principles.

         "Average Life" means, as of the date of determination, with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the products
of (x) the number of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (y) the amount
of such principal payment by (ii) the sum of all such principal payments.

         "Capital Lease Obligation" of a Person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.



                                       3
<PAGE>

         "Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock, including any Preferred Stock or Letter
Stock; provided that Hybrid Preferred Securities shall not be considered Capital
Stock for purposes of this definition.

         "Change in Control" means an event or series of events by which: (i)
the Issuer ceases to own beneficially, directly or indirectly, at least 80% of
the total voting power of all classes of Capital Stock then outstanding of
Consumers (whether arising from issuance of securities of the Issuer or
Consumers, any direct or indirect transfer of securities by the Issuer or
Consumers, any merger, consolidation, liquidation or dissolution of the Issuer
or Consumers or otherwise); (ii) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner"
(as such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person or group shall be deemed to have "beneficial ownership" of all
shares that such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the Voting Stock of the Issuer; or (iii) the
Issuer consolidates with or merges into another corporation or directly or
indirectly conveys, transfers or leases all or substantially all of its assets
to any Person, or any corporation consolidates with or merges into the Issuer,
in either event pursuant to a transaction in which the outstanding Voting Stock
of the Issuer is changed into or exchanged for cash, securities, or other
property, other than any such transaction in which (A) the outstanding Voting
Stock of the Issuer is changed into or exchanged for Voting Stock of the
surviving corporation and (B) the holders of the Voting Stock of the Issuer
immediately prior to such transaction retain, directly or indirectly,
substantially proportionate ownership of the Voting Stock of the surviving
corporation immediately after such transaction.

         "CMS Electric and Gas" means CMS Electric and Gas Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.

         "CMS Gas Transmission" means CMS Gas Transmission Company (formerly
known as CMS Gas Transmission and Storage Company), a Michigan corporation and
wholly-owned subsidiary of Enterprises.

         "CMS Generation" means CMS Generation Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.

         "CMS MST" means CMS Marketing, Services and Trading Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.

         "Consolidated Assets" means, at any date of determination, the
aggregate assets of the Issuer and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.



                                       4
<PAGE>

         "Consolidated Coverage Ratio" with respect to any period means the
ratio of (i) the aggregate amount of Operating Cash Flow for such period to (ii)
the aggregate amount of Consolidated Interest Expense for such period.

         "Consolidated Current Liabilities" means, for any period, the aggregate
amount of liabilities of the Issuer and its Consolidated Subsidiaries which may
properly be classified as current liabilities (including taxes accrued as
estimated), after (i) eliminating all inter-company items between the Issuer and
any Consolidated Subsidiary and (ii) deducting all current maturities of
long-term Indebtedness, all as determined in accordance with generally accepted
accounting principles.

         "Consolidated Indebtedness" means, at any date of determination, the
aggregate Indebtedness of the Issuer and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that Consolidated Indebtedness shall not include
any subordinated debt owned by any Hybrid Preferred Securities Subsidiary.

         "Consolidated Interest Expense" means, for any period, the total
interest expense in respect of Consolidated Indebtedness of the Issuer and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other Persons deemed to be Indebtedness of the Issuer
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude (A) any costs otherwise included in interest expense recognized on early
retirement of debt and (B) any interest expense in respect of any Indebtedness
of any Subsidiary of Consumers, CMS Generation, CMS Electric and Gas, CMS Gas
Transmission, CMS MST or any other Designated Enterprises Subsidiary, provided
that such Indebtedness is without recourse to any assets of the Issuer,
Consumers, Enterprises, CMS Generation, CMS Electric and Gas, CMS Gas
Transmission, CMS MST or any other Designated Enterprises Subsidiary.

         "Consolidated Net Income" means, for any period, the net income of the
Issuer and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income:

         (i) any net income of any Person if such Person is not a Subsidiary,
except that (A) the Issuer's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such period
to the Issuer or a Consolidated Subsidiary as a dividend or other distribution
and (B) the Issuer's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;



                                       5
<PAGE>

         (ii) any net income of any Person acquired by the Issuer or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;

         (iii) any gain or loss realized upon the sale or other disposition of
any property, plant or equipment of the Issuer or its Consolidated Subsidiaries
which is not sold or otherwise disposed of in the ordinary course of business
and any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person; and

         (iv) any net income of any Subsidiary of Consumers, CMS Generation, CMS
Electric and Gas, CMS Gas Transmission, CMS MST or any other Designated
Enterprises Subsidiary whose interest expense is excluded from Consolidated
Interest Expense, provided, however, that for purposes of this subsection (iv),
any cash, dividends or distributions of any such Subsidiary to the Issuer shall
be included in calculating Consolidated Net Income.

         "Consolidated Net Tangible Assets" means, for any period, the total
amount of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Issuer and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, and after giving effect to purchase accounting and after
deducting therefrom, to the extent otherwise included, the amounts of: (i)
Consolidated Current Liabilities; (ii) minority interests in Consolidated
Subsidiaries held by Persons other than the Issuer or a Restricted Subsidiary;
(iii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors as evidenced by Board of
Directors resolutions; (iv) any revaluation or other write-up in value of assets
subsequent to December 31, 1996, as a result of a change in the method of
valuation in accordance with generally accepted accounting principles; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (vi) treasury
stock; and (vii) any cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities.

         "Consolidated Net Worth" of any Person means the total of the amounts
shown on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or stated value of all outstanding Capital Stock plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.



                                       6
<PAGE>

         "Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Issuer in accordance
with generally accepted accounting principles.

         "Consumers" means Consumers Energy Company, a Michigan corporation, all
of whose common stock is on the date hereof owned by the Issuer.

         "Designated Enterprises Subsidiary" means any wholly-owned subsidiary
of Enterprises formed after the date of this Fifteenth Supplemental Indenture
which is designated a Designated Enterprises Subsidiary by the Board of
Directors.

         "Enterprises" means CMS Enterprises Company, a Michigan corporation and
wholly-owned subsidiary of the Issuer.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock or Redeemable Stock).

         "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 Issuer or
Consumers in exchange for subordinated debt issued by the Issuer or Consumers
respectively;

         (ii) such preferred securities contain terms providing for the deferral
of distributions corresponding to provisions providing for the deferral of
interest payments on such subordinated debt; and

         (iii) the Issuer or Consumers (as the case may be) makes periodic
interest payments on such subordinated debt, which interest payments are in turn
used by the Hybrid Preferred Securities Subsidiary to make corresponding
payments to the holders of the Hybrid Preferred Securities.

         "Hybrid Preferred Securities Subsidiary" means any 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
Issuer or Consumers) at all times by the Issuer or Consumers, (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
subordinated debt issued by the Issuer or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.



                                       7
<PAGE>

         "Indebtedness" of any Person means, without duplication:

         (i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;

         (ii) all Capital Lease Obligations of such Person;

         (iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all obligations
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business);

         (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit);

         (v) all obligations of the type referred to in clauses (i) through (iv)
above of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable as obligor,
guarantor or otherwise; and

         (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 such
Person (whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured.

         "Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Issuer or any Subsidiary against
fluctuations in interest rates.

         "Letter Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
intended to reflect the separate performance of certain of the businesses or
operations conducted by such corporation or any of its subsidiaries.

         "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
aggregate proceeds of such Asset Sale including the fair market value (as
determined by the Board of Directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by the Issuer, net of (i) brokerage commissions and other
fees and expenses (including fees and expenses of



                                       8
<PAGE>

counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Issuer and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Issuer or any Restricted Subsidiary of
the Issuer as a reserve against any liabilities associated with such Asset Sale
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with generally accepted accounting principles and (b)
with respect to any issuance or sale or contribution in respect of Capital
Stock, the aggregate proceeds of such issuance, sale or contribution, including
the fair market value (as determined by the Board of Directors and net of any
associated debt and of any consideration other than Capital Stock received in
return) of property other than cash, received by the Issuer, net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof,
provided, however, that if such fair market value as determined by the Board of
Directors of property other than cash is greater than $25 million, the value
thereof shall be based upon an opinion from an independent nationally recognized
firm experienced in the appraisal or similar review of similar types of
transactions.

         "Non-Convertible Capital Stock" means, with respect to any corporation,
any non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible Capital Stock other
than Preferred Stock of such corporation; provided, however, that
Non-Convertible Capital Stock shall not include any Redeemable Stock or
Exchangeable Stock.

         "Operating Cash Flow" means, for any period, with respect to the Issuer
and its Consolidated Subsidiaries, the aggregate amount of Consolidated Net
Income after adding thereto Consolidated Interest Expense (adjusted to include
costs recognized on early retirement of debt), income taxes, depreciation
expense, Amortization Expense and any noncash amortization of debt issuance
costs, any nonrecurring, noncash charges to earnings and any negative accretion
recognition.

         "Other Rating Agency" means any one of Fitch, Inc. or Moody's Investors
Service, Inc., and any successor to any of these organizations which is a
nationally recognized statistical rating organization.

         "Paying Agent" means any Person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on any of the 2010 Notes on
behalf of the Issuer. Initially, the Paying Agent shall be the Trustee.



                                       9
<PAGE>

         "Predecessor 2010 Note" of any particular 2010 Note means every
previous 2010 Note evidencing all or a portion of the same debt as that
evidenced by such particular 2010 Note; and, for the purposes of the definition,
any 2010 Note authenticated and delivered under Section 2.9 of the Indenture in
exchange for or in lieu of a mutilated, destroyed, lost or stolen 2010 Note
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen 2010 Note.

         "Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation; provided that Hybrid Preferred Securities shall not be considered
Preferred Stock for purposes of this definition.

         "Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed prior to the first anniversary of the
Stated Maturity of the outstanding 2010 Notes or is redeemable at the option of
the holder thereof at any time prior to the first anniversary of the Stated
Maturity of the outstanding 2010 Notes.

         "Regulation S" means Regulation S under the Securities Act.

         "Restricted Subsidiary" means any Subsidiary (other than Consumers and
its Subsidiaries) of the Issuer which, as of the date of the Issuer's most
recent quarterly consolidated balance sheet, constituted at least 10% of the
total Consolidated Assets of the Issuer and its Consolidated Subsidiaries and
any other Subsidiary which from time to time is designated a Restricted
Subsidiary by the Board of Directors; provided that no Subsidiary may be
designated a Restricted Subsidiary if, immediately after giving effect thereto,
an Event of Default or event that, with the lapse of time or giving of notice or
both, would constitute an Event of Default would exist or the Issuer and its
Restricted Subsidiaries could not incur at least one dollar of additional
Indebtedness under Section 4.04 hereof, and (i) any such Subsidiary so
designated as a Restricted Subsidiary must be organized under the laws of the
United States or any State thereof, (ii) more than 80% of the Voting Stock of
such Subsidiary must be owned of record and beneficially by the Issuer or a
Restricted Subsidiary and (iii) such Restricted Subsidiary must be a
Consolidated Subsidiary.

         "Standard & Poor's" means Standard & Poor's Ratings Group, a division
of The McGraw-Hill Companies, Inc., and any successor thereto which is a
nationally recognized statistical rating organization, or if such entity shall
cease to rate the 2010 Notes or shall cease to exist and there shall be no such
successor thereto, any other nationally recognized statistical rating
organization selected by the Issuer which is acceptable to the Trustee.

         "Subordinated Indebtedness" means any Indebtedness of the Issuer
(whether outstanding on the date of this Fifteenth Supplemental Indenture or
thereafter incurred) which is contractually subordinated or junior in right of
payment to the 2010 Notes.




                                       10
<PAGE>

         "Support Obligations" means, for any Person, without duplication, any
financial obligation, contingent or otherwise, of such Person guaranteeing or
otherwise supporting any debt or other obligation of any other Person in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such debt, (ii) to purchase property, securities or services for the purpose
of assuring the owner of such debt of the payment of such debt, (iii) to
maintain working capital, equity capital, available cash or other financial
statement condition of the primary obligor so as to enable the primary obligor
to pay such debt, (iv) to provide equity capital under or in respect of equity
subscription arrangements (to the extent that such obligation to provide equity
capital does not otherwise constitute debt), or (v) to perform, or arrange for
the performance of, any non-monetary obligations or non-funded debt payment
obligations of the primary obligor.

         "Tax Sharing Agreement" means the Amended and Restated Agreement for
the Allocation of Income Tax Liabilities and Benefits, dated January 1, 1994, as
amended or supplemented from time to time, by and among Issuer, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.

         "Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).



                                       11
<PAGE>



                                   ARTICLE II

                 DESIGNATION AND TERMS OF THE 2010 NOTES; FORMS

         SECTION 2.01.  Establishment of Series.

         (a) There is hereby created a series of Securities to be known and
designated as the "7.75% Senior Notes due 2010" to be issued in aggregate
principal amount of $300,000,000. Additional Securities, without limitation as
to amount, having substantially the same terms as the 2010 Notes (except a
different issue date, issue price and bearing interest from the last Interest
Payment Date to which interest has been paid or duly provided for on the 2010
Notes, and, if no interest has been paid, from September 29, 2004), may also be
issued by the Issuer pursuant to the Indenture without the consent of the
existing Holders of the 2010 Notes. Such additional Securities shall be part of
the same series as the 2010 Notes. The Stated Maturity of the 2010 Notes is
August 1, 2010; the principal amount of the 2010 Notes shall be payable on such
date unless the 2010 Notes are earlier redeemed or purchased in accordance with
the terms of the Indenture.

         (b) The 2010 Notes will bear interest from the Original Issue Date, or
from the most recent date to which interest has been paid or duly provided for
on the Original 2010 Notes, at the rate of 7.75% per annum stated therein until
the principal thereof is paid or made available for payment. Interest will be
payable semiannually on each Interest Payment Date and at Maturity, as provided
in the form of the 2010 Note in Section 2.03 hereof.

         (c) The Record Date referred to in Section 2.3(f)(4) of the Indenture
for the payment of the interest on any 2010 Note payable on any Interest Payment
Date (other than at Maturity) shall be the 15th day preceding the relevant
Interest Payment Date (whether or not a Business Day) except that the Record
Date for interest payable at Maturity shall be the date of Maturity.

         (d) The payment of the principal of, premium (if any) and interest on
the 2010 Notes shall not be secured by a security interest in any property.

         (e) The 2010 Notes shall be redeemable at the option of the Issuer, in
whole or in part, at any time and from time to time, or not less than 30 days
notice at a redemption price equal to 100% of the principal amount of such 2010
Notes being redeemed plus the Applicable Premium, if any, thereon at the time of
redemption, together with accrued interest, if any, thereon to the redemption
date. In no event will the redemption price ever be less than 100% of the
principal amount of the 2010 Notes plus accrued interest to the redemption date.
The 2010 Notes shall be purchased by the Issuer at the option of the Holders
thereof as provided in Article III hereof.

         (f) The 2010 Notes shall not be convertible.

         (g) The 2010 Notes will not be subordinated to the payment of Senior
Debt.



                                       12
<PAGE>

          (h) The events specified in Events of Default with respect to the 2010
Notes shall include the events specified in Article V of this Fifteenth
Supplemental Indenture. In addition to the covenants set forth in Article Three
of the Original Indenture, the Holders of the 2010 Notes shall have the benefit
of the covenants of the Issuer set forth in this Fifteenth Supplemental
Indenture.

         SECTION 2.02. Forms Generally. The 2010 Notes and Trustee's
certificates of authentication shall be in substantially the form set forth in
this Article II, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by the Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such 2010 Notes, as evidenced by their execution thereof.

         The definitive 2010 Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such 2010 Notes, as evidenced by their execution
thereof.

         SECTION 2.03. Form of Face of 2010 Note.

         THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND 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.

         Unless this Global 2010 Note is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to CMS Energy Corporation or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of a nominee of
DTC or in such other name as is requested by an authorized representative of DTC
(and any payment is made to such nominee of DTC or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof has an interest herein.


                                       13
<PAGE>


                             CMS ENERGY CORPORATION
                           7.75% SENIOR NOTES DUE 2010

No. ________                                                        $300,000,000

CUSIP No.: 125896 AV 2

ISIN No.:

         CMS Energy Corporation, a corporation duly organized and existing under
the laws of the State of Michigan (herein called the "Issuer" or "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & Co., or
registered assigns, the principal sum of Three Hundred Million Dollars on August
1, 2010 ("Maturity") and to pay interest thereon from September 29, 2004 (the
"Original Issue Date") or from the date interest has last been paid or duly
provided for on the 7.75% Senior Notes Due 2010 issued by the Issuer on July 17,
2003 (the "Original 2010 Notes") pursuant to the terms of the Fourteenth
Supplemental Indenture dated July 17, 2004 between the Issuer and the Trustee
for which the 2010 Notes have been exchanged, semi-annually in arrears on
February 1 and August 1 in each year, commencing on February 1, 2004 (each an
"Interest Payment Date") to the Persons in whose names the 2010 Notes are
registered at the close of business on the 15th day preceding the relevant
Interest Payment Date (each a "Record Date"), and at Maturity, at the rate of
7.75% per annum, until the principal hereof is paid or made available for
payment. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
2010 Note (or one or more Predecessor 2010 Notes) is registered at the close of
business on the Record Date for such interest, which shall be the 15th day
preceding the relevant Interest Payment Date (whether or not a Business Day)
except that the Record Date for interest payable at Maturity shall be the date
of Maturity. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Record Date and may either
be paid to the Person in whose name this 2010 Note (or one or more Predecessor
2010 Notes) is registered at the close of business on a subsequent Record Date
(which shall be not less than five Business Days prior to the date of payment of
such defaulted interest) for the payment of such defaulted interest to be fixed
by the Trustee, notice whereof shall be given to Holders of 2010 Notes not less
than 15 days preceding such subsequent Record Date.

         This 2010 Note is subject to redemption at the option of the Issuer and
to purchase by the Issuer at the option of the Holder as specified on the
reverse of this 2010 Note.

         Payment of the principal of (and premium, if any) and interest, if any,
on this 2010 Note will be made at the office or agency of the Issuer maintained
for that purpose in New York, New York (the "Place of Payment"), in such coin or
currency of the United




                                       14
<PAGE>

States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Issuer
payment of interest (other than interest payable at Maturity) may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register or by wire transfer to an account designated by
such Person not later than ten days prior to the date of such payment.

         Reference is hereby made to the further provisions of this 2010 Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

         THE HOLDER OF THIS SECURITY AGREES THAT SUCH HOLDER WILL NOT ENGAGE IN
HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this 2010
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

         IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal. Dated:

                                                CMS ENERGY CORPORATION


                                                By
                                                   -----------------------------
                                                Its:


                                                By
                                                  ------------------------------
                                                Its:


         SECTION 2.04.  Form of Reverse of 2010 Note.

         This 7.75% Senior Note due 2010 is one of a duly authorized issue of
securities of the Issuer (herein called the "2010 Notes"), issued and to be
issued under an Indenture, dated as of September 15, 1992, as supplemented by
certain supplemental indentures, including the Fifteenth Supplemental Indenture,
dated as of September 29, 2004 (herein collectively referred to as the
"Indenture"), between the Issuer and J.P. Morgan Trust Company, N.A., a national
banking association (ultimate successor to NBD Bank, National Association), as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Issuer, the Trustee, and the
Holders of the 2010 Notes and of the terms upon which the 2010 Notes are, and
are to be,



                                       15
<PAGE>

authenticated and delivered. This 2010 Note is one of the series designated on
the face hereof, issued in an initial aggregate principal amount of
$300,000,000. Additional Securities, without limitation as to amount, having
substantially the same terms as the 2010 Notes (except a different issue date,
issue price and bearing interest from the last Interest Payment Date to which
interest has been paid or duly provided for on the 2010 Notes, and, if no
interest has been paid, from September 29, 2004), may also be issued by the
Issuer pursuant to the Indenture without the consent of the existing Holders of
the 2010 Notes. Such additional Securities shall be part of the same series as
the 2010 Notes.

         The 2010 Notes are subject to redemption at the option of the Issuer,
in whole or in part, upon not more than 60 nor less than 30 days' notice as
provided in the Indenture at any time and from time to time, at a redemption
price equal to 100% of the principal amount of such 2010 Notes being redeemed
plus the Applicable Premium, if any, thereon at the time of redemption, together
with accrued interest, if any, thereon to the redemption date, but interest
installments whose Stated Maturity is on or prior to such redemption date will
be payable to the Holder of record at the close of business on the relevant
Record Date referred to on the face hereof, all as provided in the Indenture. In
no event will the redemption price ever be less than 100% of the principal
amount of the 2010 Notes plus accrued interest to the redemption date.

         The following definitions are used to determine the Applicable Premium:

         "Applicable Premium" means, with respect to a 2010 Note (or portion
thereof) being redeemed at any time, the excess of (A) the present value at such
time of the principal amount of such 2010 Note (or portion thereof) being
redeemed plus all interest payments due on such 2010 Note (or portion thereof),
which present value shall be computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the principal amount of such 2010
Note (or portion thereof) being redeemed at such time. For purposes of this
definition, the present values of the interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.

         "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the redemption
date or, in the case of defeasance, prior to the date of deposit (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining average life to
stated maturity of the 2010 Notes; provided, however, that if the average life
to stated maturity of the 2010 Notes is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given.





                                       16
<PAGE>


         In the event of redemption of this 2010 Note in part only, a new 2010
Note for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.

         If a Change in Control occurs, the Issuer shall notify the Holder of
this 2010 Note of such occurrence and such Holder shall have the right to
require the Issuer to make a Required Repurchase of all or any part of this 2010
Note at a Change in Control Purchase Price equal to 101% of the principal amount
of this 2010 Note to be so purchased as more fully provided in the Indenture and
subject to the terms and conditions set forth therein. In the event of a
Required Repurchase of only a portion of this 2010 Note, a new 2010 Note or 2010
Notes for the unrepurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.

         If an Event of Default with respect to this 2010 Note shall occur and
be continuing, the principal of this 2010 Note may be declared due and payable
in the manner and with the effect provided in the Indenture.

         In any case where any Interest Payment Date, redemption date,
repurchase date, Stated Maturity or Maturity of any 2010 Note shall not be a
Business Day at any Place of Payment, then (notwithstanding any other provision
of the Indenture or this 2010 Note) payment of interest or principal (and
premium, if any) need not be made at such Place of Payment on such date, but may
be made on the next succeeding Business Day at such Place of Payment with the
same force and effect as if made on the Interest Payment Date, repurchase date
or at the Stated Maturity or Maturity; provided that no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date,
redemption date, repurchase date, Stated Maturity or Maturity, as the case may
be, to such Business Day.

         The Trustee and the Paying Agent shall return to the Issuer upon
written request any money or property held by them for the payment of any amount
with respect to the 2010 Notes that remains unclaimed for two years, provided,
however, that the Trustee or such Paying Agent, before being required to make
any such return, shall at the expense of the Issuer cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
such Holder notice that such money or property remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication or mailing, any unclaimed money or property then remaining
shall be returned to the Issuer. After return to the Issuer, Holders entitled to
the money or property must look to the Issuer for payment as general creditors
unless an applicable abandoned property law designates another Person.

         The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this 2010 Note or (ii) certain restrictive covenants and
Events of Default with respect to this 2010 Note, in each case upon compliance
with certain conditions set forth therein.


                                       17
<PAGE>

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of all outstanding 2010 Notes under the
Indenture at any time by the Issuer and the Trustee with the consent of the
Holders of not less than a majority in principal amount of Securities of all
series then outstanding and affected (voting as one class).

         The Indenture permits the Holders of not less than a majority in
principal amount of Securities of all series at the time outstanding with
respect to which a default shall have occurred and be continuing (voting as one
class) to waive on behalf of the Holders of all outstanding Securities of such
series any past default by the Issuer, provided that no such waiver may be made
with respect to a default in the payment of the principal of or the interest on
any Security of such series or the default by the Issuer in respect of certain
covenants or provisions of the Indenture, the modification or amendment of which
must be consented to by the Holder of each outstanding Security of each series
affected.

         As set forth in, and subject to, the provisions of the Indenture, no
Holder of any 2010 Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default, the Holders of not less than 25% in principal amount of the outstanding
Securities of each affected series (voting as one class) shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in principal amount of the outstanding Securities of each affected
series (voting as one class) a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days; provided,
however, that such limitations do not apply to a suit instituted by the Holder
hereof for the enforcement of payment of the principal of (and premium, if any)
or any interest on this 2010 Note on or after the respective due dates expressed
herein.

         No reference herein to the Indenture and no provision of this 2010 Note
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this 2010 Note at the times, place and rate, and in the coin or currency,
herein prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this 2010 Note is registrable in the Security
Register, upon surrender of this 2010 Note for registration of transfer at the
office or agency of the Issuer in any place where the principal of and any
premium and interest on this 2010 Note are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new 2010 Notes of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.


                                       18
<PAGE>

         The 2010 Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, 2010 Notes are
exchangeable for a like aggregate principal amount of 2010 Notes and of like
tenor of a different authorized denomination, as requested by the Holder
surrendering the same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Issuer shall not be required to (i) issue, exchange or register the
transfer of this 2010 Note for a period of 15 days next preceding the mailing of
the notice of redemption of 2010 Notes or (ii) exchange or register the transfer
of any 2010 Note or any portion thereof selected, called or being called for
redemption, except in the case of any 2010 Note to be redeemed in part, the
portion thereof not so to be redeemed.

         Prior to due presentment of this 2010 Note for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this 2010 Note is registered as the owner hereof
for all purposes, whether or not this 2010 Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.

         All terms used in this 2010 Note without definition which are defined
in the Indenture shall have the meanings assigned to them in the Indenture.

         SECTION 2.05. Form of Trustee's Certificate of Authentication. The
Trustee's certificates of authentication shall be in substantially the following
form:

         This is one of the Securities of the series designated herein referred
to in the within-mentioned Indenture.

                                             J.P. MORGAN TRUST COMPANY, N.A.,
                                                as Trustee


                                             By
                                                --------------------------------
                                             Authorized Officer



                                       19
<PAGE>



                                   ARTICLE III

                                CHANGE IN CONTROL

         SECTION 3.01. Change in Control. Upon the occurrence of a Change in
Control (the effective date of such Change in Control being the "Change in
Control Date"), each Holder of a 2010 Note shall have the right to require that
the Issuer repurchase (a "Required Repurchase") all or any part of such Holder's
2010 Note at a repurchase price payable in cash equal to 101% of the principal
amount of such 2010 Note plus accrued interest to the Purchase Date (the "Change
in Control Purchase Price").

         (a) Within 30 days following the Change in Control Date, the Issuer
shall mail a notice (the "Required Repurchase Notice") to each Holder with a
copy to the Trustee stating:

                  (i) that a Change in Control has occurred and that such Holder
                  has the right to require the Issuer to repurchase all or any
                  part of such Holder's 2010 Notes at the Change in Control
                  Purchase Price;

                  (ii)     the Change in Control Purchase Price;

                  (iii) the date on which any Required Repurchase shall be made
                  (which shall be no earlier than 60 days nor later than 90 days
                  from the date such notice is mailed) (the "Purchase Date");

                  (iv)     the name and address of the Paying Agent; and

                  (v) the procedures that Holders must follow to cause the 2010
                  Notes to be repurchased, which shall be consistent with this
                  Section 3.01 and the Indenture.

         (b) Holders electing to have a 2010 Note repurchased must deliver a
written notice (the "Change in Control Purchase Notice") to the Paying Agent
(initially the Trustee) at its corporate trust office in Chicago, Illinois, or
any other office of the Paying Agent maintained for such purposes, not later
than 30 days prior to the Purchase Date. The Change in Control Purchase Notice
shall state: (i) the portion of the principal amount of any 2010 Notes to be
repurchased, which portion must be $1,000 or an integral multiple thereof; (ii)
that such 2010 Notes are to be repurchased by the Issuer pursuant to the change
in control provisions of the Indenture; and (iii) unless the 2010 Notes are
represented by one or more Global Notes, the certificate numbers of the 2010
Notes to be delivered by the Holder thereof for repurchase by the Issuer. Any
Change in Control Purchase Notice may be withdrawn by the Holder by a written
notice of withdrawal delivered to the Paying Agent not later than three Business
Days prior to the Purchase Date. The notice of withdrawal shall state the
principal amount and, if applicable, the certificate numbers of the 2010 Notes
as to which the withdrawal notice relates and the



                                       20
<PAGE>

principal amount of such 2010 Notes, if any, which remains subject to a Change
in Control Purchase Notice.

         If a 2010 Note is represented by a Global Note (as described in Article
VI hereof), the Depositary or its nominee will be the Holder of such 2010 Note
and therefore will be the only entity that can elect a Required Repurchase of
such 2010 Note. To obtain repayment pursuant to this Section 3.01 with respect
to such 2010 Note, the beneficial owner of such 2010 Note must provide to the
broker or other entity through which it holds the beneficial interest in such
2010 Note (i) the Change in Control Purchase Notice signed by such beneficial
owner, and such signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, and (ii) instructions to such broker or
other entity to notify the Depositary of such beneficial owner's desire to
obtain repayment pursuant to this Section 3.01. Such broker or other entity will
provide to the Paying Agent (i) the Change in Control Purchase Notice received
from such beneficial owner and (ii) a certificate satisfactory to the Paying
Agent from such broker or other entity stating that it represents such
beneficial owner. Such broker or other entity will be responsible for disbursing
any payments it receives pursuant to this Section 3.01 to such beneficial owner.

         (c) Payment of the Change in Control Purchase Price for a 2010 Note for
which a Change in Control Purchase Notice has been delivered and not withdrawn
is conditioned (except in the case of a 2010 Note represented by one or more
Global Notes) upon delivery of such 2010 Note (together with necessary
endorsements) to the Paying Agent at its office in Chicago, Illinois, or any
other office of the Paying Agent maintained for such purpose, at any time
(whether prior to, on or after the Purchase Date) after the delivery of such
Change in Control Purchase Notice. Payment of the Change in Control Purchase
Price for such 2010 Note will be made promptly following the later of the
Purchase Date or the time of delivery of such 2010 Note. If the Paying Agent
holds, in accordance with the terms of the Indenture, money sufficient to pay
the Change in Control Purchase Price of such 2010 Note on the Business Day
following the Purchase Date, then, on and after such date, interest will cease
accruing, and all other rights of the Holder shall terminate (other than the
right to receive the Change in Control Purchase Price upon delivery of the 2010
Note).

         (d) The Issuer shall comply with the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act, which may then be
applicable in connection with any offer by the Issuer to repurchase 2010 Notes
at the option of Holders upon a Change in Control.

         (e) No 2010 Note may be repurchased by the Issuer as a result of a
Change in Control if there has occurred and is continuing an Event of Default
(other than a default in the payment of the Change in Control Purchase Price
with respect to the 2010 Notes).



                                       21
<PAGE>



                                   ARTICLE IV
                       ADDITIONAL COVENANTS OF THE ISSUER
                         WITH RESPECT TO THE 2010 NOTES

         SECTION 4.01. Existence. So long as any of the 2010 Notes are
outstanding, subject to Article Nine of the Original Indenture, the Issuer will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence.

         SECTION 4.02. Limitation on Certain Liens.

         (a) So long as any of the 2010 Notes are outstanding, the Issuer shall
not create, incur, assume or suffer to exist any lien, mortgage, pledge,
security interest, conditional sale, title retention agreement or other charge
or encumbrance of any kind, or any other type of arrangement intended or having
the effect of conferring upon a creditor of the Issuer or any Subsidiary a
preferential interest (hereinafter in this Section 4.02 referred to as a "Lien")
upon or with respect to any of its property of any character, including without
limitation any shares of Capital Stock of Consumers or Enterprises, without
making effective provision whereby the 2010 Notes shall (so long as any such
other creditor shall be so secured) be equally and ratably secured (along with
any other creditor similarly entitled to be secured) by a direct Lien on all
property subject to such Lien, provided, however, that the foregoing
restrictions shall not apply to:

         (i) Liens for taxes, assessments or governmental charges or levies to
         the extent not past due;

         (ii) pledges or deposits to secure (A) obligations under workmen's
         compensation laws or similar legislation, (B) statutory obligations of
         the Issuer or (C) Support Obligations;

         (iii) Liens imposed by law, such as materialmen's, mechanics',
         carriers', workmen's and repairmen's Liens and other similar Liens
         arising in the ordinary course of business securing obligations which
         are not overdue or which have been fully bonded and are being contested
         in good faith;

         (iv) purchase money Liens upon or in property acquired and held by the
         Issuer in the ordinary course of business to secure the purchase price
         of such property or to secure Indebtedness incurred solely for the
         purpose of financing the acquisition of any such property to be subject
         to such Liens, or Liens existing on any such property at the time of
         acquisition, or extensions, renewals or replacements of any of the
         foregoing for the same or a lesser amount, provided that no such Lien
         shall extend to or cover any property other than the property being
         acquired and no such extension, renewal or replacement shall extend to
         or cover property not theretofore subject to the Lien being extended,
         renewed or replaced, and provided, further, that the aggregate
         principal amount of the Indebtedness at any one time outstanding
         secured by Liens permitted by this clause (iv) shall not exceed
         $10,000,000; and



                                       22
<PAGE>

         (v) Liens not otherwise permitted by clauses (i) through (iv) of this
         Section 4.02 securing Indebtedness of the Issuer; provided that on the
         date such Liens are created, and after giving effect to such
         Indebtedness, the aggregate principal amount at maturity of all of the
         secured Indebtedness of the Issuer at such date shall not exceed 5% of
         Consolidated Net Tangible Assets at such date.

         SECTION 4.03. Limitation on Consolidation, Merger, Sale or Conveyance.
So long as any of the 2010 Notes are outstanding and until the 2010 Notes are
rated BBB- or above (or an equivalent rating) by Standard & Poor's and one Other
Rating Agency (or, if Standard & Poor's shall change its rating system, an
equivalent of such rating then employed by such organization), at which time the
Issuer will be permanently released from the provisions of this Section 4.03,
and subject also to Article Nine of the Original Indenture, the Issuer shall not
consolidate with or merge into any other Person or sell, lease or convey the
property of the Issuer in the entirety or substantially as an entirety, unless
(a) immediately after giving effect to such transaction the Consolidated Net
Worth of the surviving entity is at least equal to the Consolidated Net Worth of
the Issuer immediately prior to the transaction and (b) after giving effect to
such transaction, the surviving entity would be entitled to incur at least one
dollar of additional Indebtedness (other than revolving Indebtedness to banks)
without violation of the limitations in Section 4.04 hereof.

         SECTION 4.04. Limitation on Consolidated Indebtedness.

         (a) So long as any of the 2010 Notes are outstanding and until the 2010
Notes are rated BBB- or above (or an equivalent rating) by Standard & Poor's and
one Other Rating Agency (or, if Standard & Poor's shall change its rating
system, an equivalent of such rating then employed by such organization), at
which time the Issuer will be permanently released from the provisions of this
Section 4.04, the Issuer shall not, and shall not permit any Consolidated
Subsidiary of the Issuer to, issue, create, assume, guarantee, incur or
otherwise become liable for (collectively, "issue"), directly or indirectly, any
Indebtedness unless the Consolidated Coverage Ratio of the Issuer and its
Consolidated Subsidiaries for the four consecutive fiscal quarters immediately
preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of the Issuer and its Consolidated Subsidiaries
for the four most recent fiscal quarters ending at least 30 days prior to the
issuance of such Indebtedness after giving effect to (i) the issuance of such
Indebtedness and (if applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if such Indebtedness was issued at the beginning
of the period, (ii) the issuance and retirement of any other Indebtedness since
the first day of the period as if such Indebtedness was issued or retired at the
beginning of the period and (iii) the acquisition of any company or business
acquired by the Issuer or any Subsidiary since the first day of the period
(including giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated contemporaneously
with the issuance of such Indebtedness, as if in each case such acquisition
occurred at the beginning of the period) exceeds a ratio of 1.6 to 1.0.



                                       23
<PAGE>

         (b) Notwithstanding the foregoing paragraph, the Issuer or any
Restricted Subsidiary may issue, directly or indirectly, the following
Indebtedness:

         (1) Indebtedness of the Issuer to banks not to exceed $1,000,000,000 in
         aggregate outstanding principal amount at any time;

         (2) Indebtedness (other than Indebtedness described in Section
         4.04(b)(1) hereof) outstanding on the date of this Fifteenth
         Supplemental Indenture, as set forth on Schedule 4.04(b)(2) attached
         hereto and made a part hereof, and Indebtedness issued in exchange for,
         or the proceeds of which are used to refund or refinance, any
         Indebtedness permitted by this clause (2); provided, however, that (i)
         the principal amount (or accreted value in the case of Indebtedness
         issued at a discount) of the Indebtedness so issued shall not exceed
         the principal amount (or accreted value in the case of Indebtedness
         issued at a discount) of, premium, if any, and accrued but unpaid
         interest on, the Indebtedness so exchanged, refunded or refinanced and
         (ii) the Indebtedness so issued (A) shall not mature prior to the
         stated maturity of the Indebtedness so exchanged, refunded or
         refinanced, (B) shall have an Average Life equal to or greater than the
         remaining Average Life of the Indebtedness so exchanged, refunded or
         refinanced and (C) if the Indebtedness to be exchanged, refunded or
         refinanced is subordinated to the 2010 Notes, the Indebtedness is
         subordinated to the 2010 Notes in right of payment;

         (3) Indebtedness of the Issuer owed to and held by a Subsidiary and
         Indebtedness of a Subsidiary owed to and held by the Issuer; provided,
         however, that, in the case of Indebtedness of the Issuer owed to and
         held by a Subsidiary, (i) any subsequent issuance or transfer of any
         Capital Stock that results in any such Subsidiary ceasing to be a
         Subsidiary or (ii) any transfer of such Indebtedness (except to the
         Issuer or a Subsidiary) shall be deemed for the purposes of this
         Section 4.04(b) to constitute the issuance of such Indebtedness by the
         Issuer;

         (4) Indebtedness of the Issuer issued in exchange for, or the proceeds
         of which are used to refund or refinance, Indebtedness of the Issuer
         issued in accordance with Section 4.04(a) hereof, provided that (i) the
         principal amount (or accreted value in the case of Indebtedness issued
         at a discount) of the Indebtedness so issued shall not exceed the
         principal amount (or accreted value in the case of Indebtedness issued
         at a discount) of, premium, if any, and accrued but unpaid interest on,
         the Indebtedness so exchanged, refunded or refinanced and (ii) the
         Indebtedness so issued (A) shall not mature prior to the stated
         maturity of the Indebtedness so exchanged, refunded or refinanced, (B)
         shall have an Average Life equal to or greater than the remaining
         Average Life of the Indebtedness so exchanged, refunded or refinanced
         and (C) if the Indebtedness to be exchanged, refunded or refinanced is
         subordinated to the 2010 Notes, the Indebtedness so issued is
         subordinated to the 2010 Notes in right of payment;



                                       24
<PAGE>

         (5) Indebtedness of a Restricted Subsidiary issued in exchange for, or
         the proceeds of which are used to refund or refinance, Indebtedness of
         a Restricted Subsidiary issued in accordance with Section 4.04(a)
         hereof, provided that (i) the principal amount (or accreted value in
         the case of Indebtedness issued at a discount) of the Indebtedness so
         issued shall not exceed the principal amount (or accreted value in the
         case of Indebtedness issued at a discount) of, premium, if any, and
         accrued but unpaid interest on, the Indebtedness so exchanged, refunded
         or refinanced and (ii) the Indebtedness so issued (A) shall not mature
         prior to the stated maturity of the Indebtedness so exchanged, refunded
         or refinanced and (B) shall have an Average Life equal to or greater
         than the remaining Average Life of the Indebtedness so exchanged,
         refunded or refinanced.

         (6) Indebtedness of a Consolidated Subsidiary issued to acquire,
         develop, improve, construct or to provide working capital for a gas,
         oil or electric generation, exploration, production, distribution,
         storage or transmission facility and related assets, provided that such
         Indebtedness is without recourse to any assets of the Issuer,
         Consumers, Enterprises, CMS Generation, CMS Electric and Gas, CMS Gas
         Transmission, CMS MST or any other Designated Enterprises Subsidiary;

         (7) Indebtedness of a Person existing at the time at which such Person
         became a Subsidiary and not incurred in connection with, or in
         contemplation of, such Person becoming a Subsidiary. Such Indebtedness
         shall be deemed to be incurred on the date the acquired Person becomes
         a Consolidated Subsidiary;

         (8) Indebtedness issued by the Issuer not to exceed $150,000,000 in
         aggregate principal amount at any time; and

         (9) Indebtedness of a Consolidated Subsidiary in respect of rate
         reduction bonds issued to recover electric restructuring transition
         costs of Consumers, provided that such Indebtedness is without recourse
         to the assets of Consumers.

         SECTION 4.05.  Limitation on Restricted Payments.

         (a) So long as the 2010 Notes are outstanding and until the 2010 Notes
are rated BBB- or above (or an equivalent rating) by Standard & Poor's and one
Other Rating Agency (or, if Standard & Poor's shall change its rating system, an
equivalent of such rating then employed by such organization), at which time the
Issuer will be permanently released from the provisions of this Section 4.05,
the Issuer shall not, and shall not permit any Restricted Subsidiary of the
Issuer, directly or indirectly, to (i) declare or pay any dividend or make any
distribution on the Capital Stock of the Issuer to the direct or indirect
holders of its Capital Stock (except dividends or distributions payable solely
in its Non-Convertible Capital Stock or in options, warrants or other rights to
purchase such Non-Convertible Capital Stock and except dividends or
distributions payable to the Issuer or a Subsidiary), (ii) purchase, redeem or
otherwise acquire or



                                       25
<PAGE>

retire for value any Capital Stock of the Issuer or (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity or scheduled repayment thereof, any Subordinated Indebtedness (any such
dividend, distribution, purchase, redemption, repurchase, defeasing, other
acquisition or retirement being herein referred to as a "Restricted Payment") if
at the time the Issuer or such Subsidiary makes such Restricted Payment:

         (1) an Event of Default, or an event that with the lapse of time or the
         giving of notice or both would constitute an Event of Default, shall
         have occurred and be continuing (or would result therefrom); or

         (2) the aggregate amount of such Restricted Payment and all other
         Restricted Payments made since May 6, 1997 would exceed the sum of:

                  (A) $100,000,000;

                  (B) 100% of Consolidated Net Income, accrued during the period
                  (treated as one accounting period) from May 6, 1997 to the end
                  of the most recent fiscal quarter ending at least 45 days
                  prior to the date of such Restricted Payment (or, in case such
                  sum shall be a deficit, minus 100% of the deficit); and

                  (C) the aggregate Net Cash Proceeds received by the Issuer
                  from the issue or sale of or contribution with respect to its
                  Capital Stock subsequent to May 6, 1997.

         For the purpose of determining the amount of any Restricted Payment not
in the form of cash, the amount shall be the fair value of such Restricted
Payment as determined in good faith by the Board of Directors, provided that if
the value of the non-cash portion of such Restricted Payment as determined by
the Board of Directors is in excess of $25 million, such value shall be based on
the opinion from a nationally recognized firm experienced in the appraisal of
similar types of transactions.

         (b) The provisions of Section 4.05(a) hereof shall not prohibit:

                  (i) any purchase or redemption of Capital Stock of the Issuer
                  made by exchange for, or out of the proceeds of the
                  substantially concurrent sale of, Capital Stock of the Issuer
                  (other than Redeemable Stock or Exchangeable Stock); provided,
                  however, that such purchase or redemption shall be excluded
                  from the calculation of the amount of Restricted Payments;

                  (ii) dividends or other distributions paid in respect of any
                  class of the Issuer's Capital Stock issued in respect of the
                  acquisition of any business or assets by the Issuer or a
                  Restricted Subsidiary if the dividends or other distributions
                  with respect to such Capital Stock are payable solely from the
                  net earnings of such business or assets;



                                       26
<PAGE>

                  (iii) dividends paid within 60 days after the date of
                  declaration thereof if at such date of declaration such
                  dividend would have complied with this Section 4.05; provided,
                  however, that at the time of payment of such dividend, no
                  Event of Default shall have occurred and be continuing (or
                  result therefrom), and provided further, however, that such
                  dividends shall be included (without duplication) in the
                  calculation of the amount of Restricted Payments; or

                  (iv) payments pursuant to the Tax Sharing Agreement.

         SECTION 4.06. Limitation on Asset Sales. So long as any of the 2010
Notes are outstanding, the Issuer may not sell, transfer or otherwise dispose of
any property or assets of the Issuer, including Capital Stock of any
Consolidated Subsidiary, in one transaction or a series of transactions in an
amount which exceeds $50,000,000 (an "Asset Sale") unless the Issuer shall (i)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Indebtedness of a Consolidated Subsidiary or Indebtedness of the Issuer which is
pari passu with the 2010 Notes, (ii) invest an equal amount not so used in
clause (i) in property or assets of related business within 24 months after the
date of the Asset Sale (the "Application Period") or (iii) apply such excess Net
Cash Proceeds not so used in clause (i) or (ii) (the "Excess Proceeds") to make
an offer, within 30 days after the end of the Application Period, to purchase
from the Holders on a pro rata basis an aggregate principal amount of 2010 Notes
on the relevant purchase date equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the 2010 Notes on the
relevant purchase date and unpaid interest, if any, to the purchase date. The
Issuer shall only be required to make an offer to purchase 2010 Notes from
Holders pursuant to clause (iii) if the Excess Proceeds equal or exceed
$25,000,000 at any given time.

         The procedures to be followed by the Issuer in making an offer to
purchase 2010 Notes from the Holders with Excess Proceeds, and for the
acceptance of such offer by the Holders, shall be the same as those set forth in
Section 3.01 herein with respect to a Change in Control.

                                    ARTICLE V
                          ADDITIONAL EVENTS OF DEFAULT
                         WITH RESPECT TO THE 2010 NOTES

         SECTION 5.01. Definition. All of the events specified in clauses (a)
through (h) of Section 5.1 of the Original Indenture shall be Events of Default
with respect to the 2010 Notes.

         SECTION 5.02. Amendments to Section 5.1 of the Original Indenture.
Solely for the purpose of determining Events of Default with respect to the 2010
Notes, paragraphs Section 5.1(e), Section 5.1(f) and Section 5.1(h) of the
Original Indenture shall be amended such that each and every reference therein
to the Issuer shall be deemed to mean either the Issuer or Consumers.


                                       27
<PAGE>

         SECTION 5.03. Additional Events of Default. Solely for the purpose of
determining Events of Default with respect to the 2010 Notes, an Event of
Default shall also include the following:

         (i) default in the payment of any interest upon any 2010 Note when it
         becomes due and payable, and continuance of such default for 30 days;

         (ii) default in the Issuer's obligation to redeem the 2010 Notes after
         exercising its redemption option pursuant to this Fifteenth
         Supplemental Indenture; and

         (iii) default in the Issuer's obligation to purchase 2010 Notes upon
         the occurrence of a Change in Control in accordance with the terms of
         Article III hereof.

                                   ARTICLE VI

                                  GLOBAL NOTES

         The 2010 Notes will be issued initially in the form of Global Notes.
"Global Note" means a registered 2010 Note evidencing one or more 2010 Notes
issued to a depositary (the "Depositary") or its nominee, in accordance with
this Article VI and bearing the legend prescribed in this Article VI. One or
more Global Notes will represent all 2010 Notes. The Issuer shall execute and
the Trustee shall, in accordance with this Article VI and the Issuer Order with
respect to the 2010 Notes, authenticate and deliver one or more Global Notes in
temporary or permanent form that (i) shall represent and shall be denominated in
an aggregate amount equal to the aggregate principal amount of the 2010 Notes to
be represented by such Global Note or Global Notes, (ii) shall be registered in
the name of the Depositary for such Global Note or Global Notes or the nominee
of such Depositary, (iii) shall be delivered by the Trustee to such Depositary
or pursuant to such Depositary's instructions and (iv) shall bear a legend
substantially to the following effect: "Unless the Global 2010 Note is presented
by an authorized representative of the Depositary to the Issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of a nominee of the Depositary or in such other name as
is requested by an authorized representative of the Depositary (and any payment
is made to such nominee of the Depositary or to such other entity as is
requested by an authorized representative of the Depositary), any transfer,
pledge or other use hereof for value or otherwise by or to any Person is
wrongful inasmuch as the registered owner hereof has an interest herein."

         Notwithstanding Section 2.8 of the Original Indenture, unless and until
it is exchanged in whole or in part for 2010 Notes in definitive form, a Global
Note representing one or more 2010 Notes may not be transferred except as a
whole by the Depositary, to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor Depositary for 2010 Notes or a
nominee of such successor Depositary.



                                       28
<PAGE>

         If at any time the Depositary for the 2010 Notes is unwilling or unable
to continue as Depositary for the 2010 Notes, the Issuer shall appoint a
successor Depositary with respect to the 2010 Notes. If a successor Depositary
for the 2010 Notes is not appointed by the Issuer by the earlier of (i) 90 days
from the date the Issuer receives notice to the effect that the Depositary is
unwilling or unable to act, or the Issuer determines that the Depositary is
unable to act or (ii) the effectiveness of the Depositary's resignation or
failure to fulfill its duties as Depositary, the Issuer will execute, and the
Trustee, upon receipt of a Issuer Order for the authentication and delivery of
definitive 2010 Notes, will authenticate and deliver 2010 Notes in definitive
form in an aggregate principal amount equal to the principal amount of the
Global Note or Global Notes representing such 2010 Notes in exchange for such
Global Note or Global Notes.

         The Issuer may at any time and in its sole discretion determine that
the 2010 Notes issued in the form of one or more Global Notes shall no longer be
represented by such Global Note or Global Notes. In such event the Issuer will
execute, and the Trustee, upon receipt of an Issuer Order for the authentication
and delivery of definitive 2010 Notes, will authenticate and deliver 2010 Notes
in definitive form in an aggregate principal amount equal to the principal
amount of the Global Note or Global Notes representing such 2010 Notes in
exchange for such Global Note or Global Notes.

         The Depositary for such 2010 Notes may surrender a Global Note or
Global Notes for such 2010 Notes in exchange in whole or in part for 2010 Notes
in definitive form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon, the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge:

         (i) to each Person specified by such Depositary a new 2010 Note or 2010
         Notes, of any authorized denomination as requested by such Person in
         aggregate principal amount equal to and in exchange for such Person's
         beneficial interest in the Global Note; and

         (ii) to such Depositary a new Global Note in a denomination equal to
         the difference, if any, between the principal amount of the surrendered
         Global Note and the aggregate principal amount of 2010 Notes in
         definitive form delivered to Holders thereof.

         In any exchange provided for in this Article VI, the Issuer will
execute and the Trustee will authenticate and deliver 2010 Notes in definitive
registered form in authorized denominations.

         Upon the exchange of a Global Note for 2010 Notes in definitive form,
such Global Note shall be cancelled by the Trustee. 2010 Notes in definitive
form issued in exchange for a Global Note pursuant to this Article VI shall be
registered in such names



                                       29
<PAGE>

and in such authorized denominations as the Depositary for such Global Note,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee or Security Registrar. The Trustee shall deliver such
2010 Notes to the Persons in whose names such 2010 Notes are so registered.

                                   ARTICLE VII

                                   DEFEASANCE

         All of the provisions of Article Ten of the Original Indenture shall be
applicable to the 2010 Notes. Upon satisfaction by the Issuer of the
requirements of Section 10.1(C) of the Indenture, in connection with any
covenant defeasance (as provided in Section 10.1(C) of the Indenture), the
Issuer shall be released from its obligations under Article Nine of the Original
Indenture and under Article IV of this Fifteenth Supplemental Indenture with
respect to the 2010 Notes.

                                  ARTICLE VIII
                             SUPPLEMENTAL INDENTURES

         This Fifteenth Supplemental Indenture is a supplement to the Original
Indenture. As supplemented by this Fifteenth Supplemental Indenture, the
Original Indenture is in all respects ratified, approved and confirmed, and the
Original Indenture and this Fifteenth Supplemental Indenture shall together
constitute one and the same instrument.

                                   ARTICLE IX
                             MODIFICATION AND WAIVER

         In addition to those matters set forth in Section 8.2 of the Original
Indenture (including the terms and conditions of the 2010 Notes set forth
herein), with respect to the 2010 Notes, no amendment or supplemental indenture
to the Indenture shall, without the consent of the Holder of each 2010 Note
affected thereby:

         (a) reduce the redemption price or Change in Control Purchase Price of
the 2010 Notes; or

         (b) change the terms applicable to redemption or purchase of the 2010
Notes in a manner adverse to the Holder.

         In addition, with respect to the 2010 Notes, notwithstanding Section
5.10 of the Original Indenture, approval of the Holders of each outstanding 2010
Note shall be required to waive any default by the Issuer in any payment of the
redemption price or Change in Control Purchase Price with respect to any 2010
Notes.



                                       30
<PAGE>

                                   TESTIMONIUM

         This Fifteenth Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.



                                       31
<PAGE>



         IN WITNESS WHEREOF, the parties hereto have caused this Fifteenth
Supplemental Indenture to be duly executed and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first written
above.



                                          CMS ENERGY CORPORATION



                                          /s/ Thomas J. Webb
                                          --------------------------------------
                                          Thomas J. Webb
                                          Executive Vice President and
                                          Chief Financial Officer


Attest: /s/ Laura L. Mountcastle
        ------------------------






                                          J.P. MORGAN TRUST COMPANY, N.A.,
                                            as Trustee



                                          /s/ Renee Johnson
                                          --------------------------------------
                                          Renee Johnson

Attest:  /s/ Mietka T. Collins
         ------------------------
         Mietka T. Collins



                                       32
<PAGE>


Schedule 4.04(b)(2)





                                - See Attached -



                                       33

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(D)(II)
<SEQUENCE>5
<FILENAME>k91832exv4wxdyxiiy.txt
<DESCRIPTION>16TH SUPPLEMENTAL INDENTURE DATED AS OF 12/16/04
<TEXT>
<PAGE>
                                                                Exhibit 4(d)(ii)

                        SIXTEENTH SUPPLEMENTAL INDENTURE
                          DATED AS OF DECEMBER 16, 2004

                                   ----------

     This Sixteenth Supplemental Indenture, dated as of the 16th day of
December, 2004 between CMS Energy Corporation, a corporation duly organized and
existing under the laws of the State of Michigan (hereinafter called the
"Issuer") and having its principal office at One Energy Plaza, Jackson, Michigan
49201, and J.P. Morgan Trust Company, N.A., a national banking association
(hereinafter called the "Trustee") and having its Corporate Trust Office at 227
West Monroe St., 26th Floor, Chicago, IL 60606.

                                   WITNESSETH:

     WHEREAS, the Issuer and the Trustee (successor to NBD Bank, National
Association) entered into an Indenture, dated as of September 15, 1992 (the
"Original Indenture"), pursuant to which one or more series of debt securities
of the Issuer (the "Securities") may be issued from time to time; and

     WHEREAS, Section 2.3 of the Original Indenture permits the terms of any
series of Securities to be established in an indenture supplemental to the
Original Indenture; and

     WHEREAS, Section 8.1(e) of the Original Indenture provides that a
supplemental indenture may be entered into by the Issuer and the Trustee without
the consent of any Holders (as defined in the Original Indenture) of the
Securities to establish the form and terms of the Securities of any series; and

     WHEREAS, The Issuer has exchanged the Original 2023 Notes for the 2023
Notes; and

     WHEREAS, the Issuer has requested the Trustee to join with it in the
execution and delivery of this Sixteenth Supplemental Indenture in order to
supplement and amend the Original Indenture by, among other things, establishing
the form and terms of a series of Securities to be known as the Issuer's "3.375%
Convertible Senior Notes due 2023, Series B" (the "2023 Notes"), providing for
the issuance of the 2023 Notes and amending and adding certain provisions
thereof for the benefit of the Holders of the 2023 Notes; and

     WHEREAS, the Issuer and the Trustee desire to enter into this Sixteenth
Supplemental Indenture for the purposes set forth in Sections 2.3 and 8.1(e) of
the Original Indenture as referred to above; and

     WHEREAS, the Issuer has furnished the Trustee with a copy of the
resolutions of its Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of this Sixteenth Supplemental Indenture;
and


                                       1

<PAGE>

     WHEREAS, all things necessary to make this Sixteenth Supplemental Indenture
a valid agreement of the Issuer and the Trustee and a valid supplement to the
Original Indenture have been done;

     NOW, THEREFORE, for and in consideration of the premises and the purchase
of the 2023 Notes to be issued hereunder by holders thereof, the Issuer and the
Trustee mutually covenant and agree, for the equal and proportionate benefit of
the respective holders from time to time of the 2023 Notes, as follows:

                                    ARTICLE I

                        STANDARD PROVISIONS; DEFINITIONS

     SECTION 1.01. Standard Provisions. The Original Indenture together with
this Sixteenth Supplemental Indenture and all previous indentures supplemental
thereto entered into pursuant to the applicable terms thereof are hereinafter
sometimes collectively referred to as the "Indenture." All capitalized terms
which are used herein and not otherwise defined herein are defined in the
Indenture and are used herein with the same meanings as in the Indenture.

     SECTION 1.02. Definitions.

     (a) The following terms have the meanings set forth in the Sections hereof
set forth below:

<TABLE>
<CAPTION>
Term                                    Section
- ----                                 -------------
<S>                                  <C>
Additional Amounts                   2.04
Additional Shares                    6.06(e)
Application Period                   7.06
Asset Sale                           7.06
Company                              2.03
Conversion Date                      6.02
Conversion Rate                      6.01
Conversion Value                     6.13(a)
Depositary                           Article IX
Determination Date                   6.13(b)
Distributed Assets or Securities     6.06(c)
Dividend Adjustment Amount           6.06(d)(ii)
DTC                                  2.03
Effective Date                       2.04(d)
Events of Default                    8.01
ex date                              1.01(b); 2.04
Excess Proceeds                      7.06
Fundamental Change Purchase Date     3.01
Fundamental Change Purchase Notice   3.03
Fundamental Change Purchase Price    3.01
Global Note                          Article IX
Indenture                            1.01; 2.04
</TABLE>


                                       2

<PAGE>

<TABLE>
<CAPTION>
Term                                    Section
- ----                                 --------------
<S>                                  <C>
Interest Payment Date                2.03
Issue                                7.04(a)
Issuer                               Preamble; 2.03
Issuer Notice                        5.01
Issuer Notice Date                   5.01
Lien                                 7.02(a)
Maturity                             2.03
Maximum Conversion Rate              6.06(j)
Net Share Amount                     6.13(b)(ii)
Net Shares                           6.13(b)(ii)
Original 2023 Notes                  2.03
Original Indenture                   Recitals
Original Issue Date                  2.03
Place of Payment                     2.03
Principal Return                     6.13(b)(i)
Pre-Dividend Sale Price              6.06(d)(i)
Public Acquirer Change of Control    6.06(f)
Public Acquirer Common Stock         6.06(f)
Purchase Date                        2.04; 4.01(a)
Purchase Notice                      4.01(a)(i)
Purchase Price                       2.04
Record Date                          2.03
Redemption Price                     2.04
Restricted Payment                   7.05(a)
Rule 144A                            2.03
Securities                           Recitals
Securities Act                       2.03
Ten Day Average Closing Stock Price  6.13(a)
Trading Exception                    2.04
Trustee                              Preamble; 2.04
2023 Notes                           Recitals; 2.04
</TABLE>

     (b) Section 1.1 of the Original Indenture is amended to insert the new
definitions applicable to the 2023 Notes, in the appropriate alphabetical
sequence, as follows:

     "Additional Registration Defaults" means failure of the Issuer to, at
Issuer's cost and using its best efforts, amend the shelf registration statement
on Form S-3 filed with the Securities and Exchange Commission on September 24,
2004 to cover resales of 2023 Notes and cause such shelf registration to be
declared effective under the Securities Act of 1933, as amended, no later than
February 15, 2005.

     "Amortization Expense" means, for any period, amounts recognized during
such period as amortization of capital leases, depletion, nuclear fuel, goodwill
and assets classified as intangible assets in accordance with generally accepted
accounting principles.


                                       3

<PAGE>

     "Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(x) the number of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (y) the amount
of such principal payment by (ii) the sum of all such principal payments.

     "Capital Lease Obligation" of a Person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.

     "Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock or Letter
Stock; provided that Hybrid Preferred Securities shall not be considered Capital
Stock for purposes of this definition.

     "CMS Electric and Gas" means CMS Electric and Gas Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.

     "CMS ERM" means CMS Energy Resource Management Company, formerly CMS MST, a
wholly-owned subsidiary of Enterprises.

     "CMS Gas Transmission" means CMS Gas Transmission Company (formerly known
as CMS Gas Transmission and Storage Company), a Michigan corporation and
wholly-owned subsidiary of Enterprises.

     "CMS Generation" means CMS Generation Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.

     "CMS MST" means CMS Marketing, Services and Trading Company, a wholly-owned
subsidiary of Enterprises, whose name was changed to CMS Energy Resource
Management Company effective January 2004.

     "Common Equity" of any Person means capital stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management or policies of such Person.

     "Consolidated Assets" means, at any date of determination, the aggregate
assets of the Issuer and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.


                                       4

<PAGE>

     "Consolidated Coverage Ratio" with respect to any period means the ratio of
(i) the aggregate amount of Operating Cash Flow for such period to (ii) the
aggregate amount of Consolidated Interest Expense for such period.

     "Consolidated Current Liabilities" means, for any period, the aggregate
amount of liabilities of the Issuer and its Consolidated Subsidiaries which may
properly be classified as current liabilities (including taxes accrued as
estimated), after (i) eliminating all inter-company items between the Issuer and
any Consolidated Subsidiary and (ii) deducting all current maturities of
long-term Indebtedness, all as determined in accordance with generally accepted
accounting principles.

     "Consolidated Indebtedness" means, at any date of determination, the
aggregate Indebtedness of the Issuer and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that Consolidated Indebtedness shall not include
any subordinated debt owned by any Hybrid Preferred Securities Subsidiary.

     "Consolidated Interest Expense" means, for any period, the total interest
expense in respect of Consolidated Indebtedness of the Issuer and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other Persons deemed to be Indebtedness of the Issuer
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude (A) any costs otherwise included in interest expense recognized on early
retirement of debt and (B) any interest expense in respect of any Indebtedness
of any Subsidiary of Consumers, CMS Generation, CMS Electric and Gas, CMS Gas
Transmission, CMS ERM or any other Designated Enterprises Subsidiary, provided
that such Indebtedness is without recourse to any assets of the Issuer,
Consumers, Enterprises, CMS Generation, CMS Electric and Gas, CMS Gas
Transmission, CMS ERM or any other Designated Enterprises Subsidiary.

     "Consolidated Net Income" means, for any period, the net income of the
Issuer and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income:

     (i) any net income of any Person if such Person is not a Subsidiary, except
     that (A) the Issuer's equity in the net income of any such Person for such
     period shall be included in such Consolidated Net Income up to the
     aggregate amount of cash actually distributed by such Person during such
     period to the Issuer or a Consolidated Subsidiary as a dividend or other
     distribution and (B) the Issuer's equity in a net loss of any such Person
     for such period shall be included in determining such Consolidated Net
     Income;


                                       5

<PAGE>

     (ii) any net income of any Person acquired by the Issuer or a Subsidiary in
     a pooling of interests transaction for any period prior to the date of such
     acquisition;

     (iii) any gain or loss realized upon the sale or other disposition of any
     property, plant or equipment of the Issuer or its Consolidated Subsidiaries
     which is not sold or otherwise disposed of in the ordinary course of
     business and any gain or loss realized upon the sale or other disposition
     of any Capital Stock of any Person; and

     (iv) any net income of any Subsidiary of Consumers, CMS Generation, CMS
     Electric and Gas, CMS Gas Transmission, CMS ERM or any other Designated
     Enterprises Subsidiary whose interest expense is excluded from Consolidated
     Interest Expense, provided, however, that for purposes of this subsection
     (iv), any cash, dividends or distributions of any such Subsidiary to the
     Issuer shall be included in calculating Consolidated Net Income.

     "Consolidated Net Tangible Assets" means, for any period, the total amount
of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Issuer and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, and after giving effect to purchase accounting and after
deducting therefrom, to the extent otherwise included, the amounts of: (i)
Consolidated Current Liabilities; (ii) minority interests in Consolidated
Subsidiaries held by Persons other than the Issuer or a Restricted Subsidiary;
(iii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors as evidenced by Board of
Directors resolutions; (iv) any revaluation or other write-up in value of assets
subsequent to December 31, 1996, as a result of a change in the method of
valuation in accordance with generally accepted accounting principles; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (vi) treasury
stock; and (vii) any cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities.

     "Consolidated Net Worth" of any Person means the total of the amounts shown
on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or stated value of all outstanding Capital Stock plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.


                                       6

<PAGE>

     "Consolidated Subsidiary" means any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Issuer in accordance with
generally accepted accounting principles.

     "Consumers" means Consumers Energy Company, a Michigan corporation, all of
whose common stock is on the date hereof owned by the Issuer.

     "Continuing Director" means a director who either was a member of the Board
of Directors on November 9, 2004 or who becomes a member of the Board of
Directors subsequent to that date and whose appointment, election or nomination
for election by the Issuer's shareholders is duly approved by a majority of the
Continuing Directors on the Board of Directors at the time of such approval,
either by a specific vote or by approval of the proxy statement issued by the
Issuer on behalf of the Board of Directors in which such individual is named as
nominee for director.

     "Conversion Agent" means the office or agency designated by the Issuer
where 2023 Notes may be presented for conversion. Initially, the Conversion
Agent shall be the Trustee.

     "Conversion Price" means $1,000 divided by the Conversion Rate.

     "Designated Enterprises Subsidiary" means any wholly-owned subsidiary of
Enterprises formed after the date of this Sixteenth Supplemental Indenture which
is designated a Designated Enterprises Subsidiary by the Board of Directors.

     "Enterprises" means CMS Enterprises Company, a Michigan corporation and
wholly-owned subsidiary of the Issuer.

     "Equity Interests" means any capital stock, partnership, joint venture,
member or limited liability or unlimited liability company interest, beneficial
interest in a trust or similar entity or other equity interest or investment of
whatever nature.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock or Redeemable Stock).

     "Fair Market Value" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.

     A "Fundamental Change" shall be deemed to have occurred at such time after
the original issuance of the 2023 Notes as any of the following occurs: (i) the
Common Stock or other common stock into which the 2023 Notes are convertible is
neither listed for trading on a United States national securities exchange nor
approved for trading on the Nasdaq National Market or another established
automated over-the-counter trading market in the United States; (ii) a "person"
or "group" within the meaning of Section 13(d) of the Exchange Act, other than


                                       7

<PAGE>

the Issuer, any Subsidiary of the Issuer or any employee benefit plan of the
Issuer or any such Subsidiary, files a Schedule TO (or any other schedule, form
or report under the Exchange Act) disclosing that such person or group has
become the direct or indirect ultimate "beneficial owner" (as such term is used
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group
shall be deemed to have "beneficial ownership" of all shares that such person or
group has the right to acquire whether such right is exercisable immediately or
only after the passage of time) of Common Equity of the Issuer representing more
than 50% of the voting power of the Issuer's Common Equity; (iii) consummation
of any share exchange, consolidation or merger of the Issuer pursuant to which
the Common Stock will be converted into cash, securities or other property or
any sale, lease or other transfer (in one transaction or a series of
transactions) of all or substantially all of the consolidated assets of the
Issuer and its Subsidiaries, taken as a whole, to any Person (other than the
Issuer or one or more of the Issuer's Subsidiaries); provided, however, that a
transaction where the holders of the Issuer's Common Equity immediately prior to
such transaction own, directly or indirectly, more than 50% of the aggregate
voting power of all classes of Common Equity of the continuing or surviving
corporation or transferee immediately after such event shall not be a
Fundamental Change; or (iv) Continuing Directors cease to constitute at least a
majority of the Board of Directors; provided, however, that a Fundamental Change
shall not be deemed to have occurred in respect of any of the foregoing if
either (1) the Last Reported Sale Price of Common Stock for any five Trading
Days within the ten consecutive Trading Days ending immediately before the later
of the Fundamental Change or the public announcement thereof equals or exceeds
105% of the applicable Conversion Price of the Notes in effect immediately
before the Fundamental Change or the public announcement thereof (except that
this clause (1) shall not apply to the events described in Section 6.06(e)
hereof) or (2) at least 90% of the consideration (excluding cash payments for
fractional shares) in the transaction or transactions constituting the
Fundamental Change consists of shares of capital stock traded on a national
securities exchange or quoted on the Nasdaq National Market (or which shall be
so traded or quoted when issued or exchanged in connection with such Fundamental
Change) (such securities being referred to as "Publicly Traded Securities") and
as a result of such transaction or transactions the 2023 Notes become
convertible into such Publicly Traded Securities (excluding cash payments for
fractional shares).

     "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 Issuer
     or Consumers in exchange for subordinated debt issued by the Issuer or
     Consumers, respectively;

     (ii) such preferred securities contain terms providing for the deferral of
     distributions corresponding to provisions providing for the deferral of
     interest payments on such subordinated debt; and

     (iii) the Issuer or Consumers (as the case may be) makes periodic interest
     payments on such subordinated debt, which interest payments are in turn
     used by the Hybrid Preferred


                                       8

<PAGE>

     Securities Subsidiary to make corresponding payments to the holders of the
     Hybrid Preferred Securities.

     "Hybrid Preferred Securities Subsidiary" means any 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
Issuer or Consumers) at all times by the Issuer or Consumers, (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
subordinated debt issued by the Issuer or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.

     "Indebtedness" of any Person means, without duplication:

     (i) the principal of and premium (if any) in respect of (A) indebtedness of
     such Person for money borrowed and (B) indebtedness evidenced by notes,
     debentures, bonds or other similar instruments for the payment of which
     such Person is responsible or liable;

     (ii) all Capital Lease Obligations of such Person;

     (iii) all obligations of such Person issued or assumed as the deferred
     purchase price of property, all conditional sale obligations and all
     obligations under any title retention agreement (but excluding trade
     accounts payable arising in the ordinary course of business);

     (iv) all obligations of such Person for the reimbursement of any obligor on
     any letter of credit, bankers' acceptance or similar credit transaction
     (other than obligations with respect to letters of credit securing
     obligations (other than obligations described in clauses (i) through (iii)
     above) entered into in the ordinary course of business of such Person to
     the extent such letters of credit are not drawn upon or, if and to the
     extent drawn upon, such drawing is reimbursed no later than the third
     Business Day following receipt by such Person of a demand for reimbursement
     following payment on the letter of credit);

     (v) all obligations of the type referred to in clauses (i) through (iv)
     above of other Persons and all dividends of other Persons for the payment
     of which, in either case, such Person is responsible or liable as obligor,
     guarantor or otherwise; and

     (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 such
     Person (whether or not such obligation is assumed by such Person), the
     amount of such obligation being deemed to be the lesser of the value of
     such property or assets or the amount of the obligation so secured.

     "Initial Purchasers" has the meaning ascribed to such term in the Purchase
Agreement.


                                       9

<PAGE>

     "Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Issuer or any Subsidiary against
fluctuations in interest rates.

     "Last Reported Sale Price" of the applicable security on any date means the
closing sale price per share (or, if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on that date as reported
in composite transactions for the principal U.S. securities exchange on which
the applicable security is traded or, if the applicable security is not listed
on a U.S. national or regional securities exchange, as reported by the Nasdaq
National Market. If the applicable security is not listed for trading on a U.S.
national or regional securities exchange and not reported by the Nasdaq National
Market on the relevant date, the Last Reported Sale Price shall be the last
quoted bid price for the applicable security in the over-the-counter market on
the relevant date as reported by the National Quotation Bureau or similar
organization. If the applicable security is not so quoted, the Last Reported
Sale Price will be the average of the mid-point of the last bid and ask prices
for the applicable security on the relevant date from each of at least three
nationally recognized independent investment banking firms selected by the
Issuer for this purpose.

     "Letter Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is intended to
reflect the separate performance of certain of the businesses or operations
conducted by such corporation or any of its subsidiaries.

     "Market Price" means the average of the Last Reported Sale Prices of Common
Stock for the 20 Trading Day period ending on the applicable date of
determination (if the applicable date of determination is a Trading Day or, if
not, then on the last Trading Day prior to such applicable date of
determination), appropriately adjusted to take into account the occurrence,
during the period commencing on the first of the Trading Days during such 20
Trading Day period and ending on the applicable date of determination, of any
event that would result in an adjustment of the Conversion Rate under this
Sixteenth Supplemental Indenture.

     "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
aggregate proceeds of such Asset Sale including the fair market value (as
determined by the Board of Directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by the Issuer, net of (i) brokerage commissions and other
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Issuer and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Issuer or any Restricted Subsidiary of the Issuer as a reserve
against any liabilities associated with such Asset Sale including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with generally accepted accounting principles and (b) with respect to any
issuance or sale or contribution in respect of Capital Stock, the aggregate


                                       10

<PAGE>

proceeds of such issuance, sale or contribution, including the fair market value
(as determined by the Board of Directors and net of any associated debt and of
any consideration other than Capital Stock received in return) of property other
than cash, received by the Issuer, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof, provided, however, that if
such fair market value as determined by the Board of Directors of property other
than cash is greater than $25 million, the value thereof shall be based upon an
opinion from an independent nationally recognized firm experienced in the
appraisal or similar review of similar types of transactions.

     "Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.

     "Operating Cash Flow" means, for any period, with respect to the Issuer and
its Consolidated Subsidiaries, the aggregate amount of Consolidated Net Income
after adding thereto Consolidated Interest Expense (adjusted to include costs
recognized on early retirement of debt), income taxes, depreciation expense,
Amortization Expense and any noncash amortization of debt issuance costs, any
nonrecurring, noncash charges to earnings and any negative accretion
recognition.

     "Other Rating Agency" means any one of Fitch, Inc. or Moody's Investors
Service, Inc., and any successor to any of these organizations which is a
nationally recognized statistical rating organization.

     "Paying Agent" means any Person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on any of the 2023 Notes on
behalf of the Issuer. Initially, the Paying Agent shall be the Trustee.

     "Predecessor 2023 Note" of any particular 2023 Note means every previous
2023 Note evidencing all or a portion of the same debt as that evidenced by such
particular 2023 Note; and, for the purposes of the definition, any 2023 Note
authenticated and delivered under Section 2.9 of the Indenture in exchange for
or in lieu of a mutilated, destroyed, lost or stolen 2023 Note shall be deemed
to evidence the same debt as the mutilated, destroyed, lost or stolen 2023 Note.

     "Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation; provided that Hybrid Preferred Securities shall not be considered
Preferred Stock for purposes of this definition.

     "Publicly Traded Securities" has the meaning provided in the definition of
Fundamental Change.


                                       11

<PAGE>

     "Purchase Agreement" means that certain Purchase Agreement dated July 9,
2003 among the Issuer and the Initial Purchasers which provides for the sale by
the Issuer to the Initial Purchasers of the Original 2023 Notes.

     "Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the Stated Maturity
of the outstanding 2023 Notes or is redeemable at the option of the holder
thereof at any time prior to the first anniversary of the Stated Maturity of the
outstanding 2023 Notes.

     "Registrable Securities" has the meaning ascribed to such term in the
Registration Rights Agreement.

     "Registration Default" has the meaning ascribed to such term in the
Registration Rights Agreement, except that Registration Default shall not
include the registration default contained in Section 2(c)(i)(1) of the
Registration Rights Agreement..

     "Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of July 16, 2003, by and among the Issuer and the Initial
Purchasers.

     "Regulation S" means Regulation S under the Securities Act.

     "Restricted Subsidiary" means any Subsidiary (other than Consumers and its
Subsidiaries) of the Issuer which, as of the date of the Issuer's most recent
quarterly consolidated balance sheet, constituted at least 10% of the total
Consolidated Assets of the Issuer and its Consolidated Subsidiaries and any
other Subsidiary which from time to time is designated a Restricted Subsidiary
by the Board of Directors; provided that no Subsidiary may be designated a
Restricted Subsidiary if, immediately after giving effect thereto, an Event of
Default or event that, with the lapse of time or giving of notice or both, would
constitute an Event of Default would exist or the Issuer and its Restricted
Subsidiaries could not incur at least one dollar of additional Indebtedness
under Section 7.04 hereof, and (i) any such Subsidiary so designated as a
Restricted Subsidiary must be organized under the laws of the United States or
any State thereof, (ii) more than 80% of the Voting Stock of such Subsidiary
must be owned of record and beneficially by the Issuer or a Restricted
Subsidiary and (iii) such Restricted Subsidiary must be a Consolidated
Subsidiary.

     "Share Price" means the price per share of Common Stock paid in connection
with a corporate transaction described in Section 6.06(e) hereof, which shall be
equal to (i) if holders of Common Stock receive only cash in such corporate
transaction, the cash amount paid per share of Common Stock and (ii) in all
other cases, the average of the Last Reported Sale Prices of Common Stock on the
five Trading Days up to but not including the Effective Date.

     "Spin-off Market Price" per share of Common Stock or the Equity Interests
in a Subsidiary or other business unit of the Issuer on any day means the
average of the daily Last Reported Sale Price for the 10 consecutive Trading
Days commencing on and including the fifth Trading Day after the ex date with
respect to the issuance or distribution requiring such computations. As used
herein, the term "ex date," when used with respect to any issuance or
distribution, shall mean the first date on which the security trades regular way
on the New York


                                       12

<PAGE>

Stock Exchange or such other national regional exchange or market in which the
security trades without the right to receive such issuance or distribution.

     "Standard & Poor's" means Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc., and any successor thereto which is a nationally
recognized statistical rating organization, or if such entity shall cease to
rate the 2023 Notes or shall cease to exist and there shall be no such successor
thereto, any other nationally recognized statistical rating organization
selected by the Issuer which is acceptable to the Trustee.

     "Subordinated Indebtedness" means any Indebtedness of the Issuer (whether
outstanding on the date of this Sixteenth Supplemental Indenture or thereafter
incurred) which is contractually subordinated or junior in right of payment to
the 2023 Notes.

     "Support Obligations" means, for any Person, without duplication, any
financial obligation, contingent or otherwise, of such Person guaranteeing or
otherwise supporting any debt or other obligation of any other Person in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such debt, (ii) to purchase property, securities or services for the purpose
of assuring the owner of such debt of the payment of such debt, (iii) to
maintain working capital, equity capital, available cash or other financial
statement condition of the primary obligor so as to enable the primary obligor
to pay such debt, (iv) to provide equity capital under or in respect of equity
subscription arrangements (to the extent that such obligation to provide equity
capital does not otherwise constitute debt) or (v) to perform, or arrange for
the performance of, any non-monetary obligations or non-funded debt payment
obligations of the primary obligor.

     "Tax Sharing Agreement" means the Amended and Restated Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated January 1, 1994, as
amended or supplemented from time to time, by and among Issuer, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.

     "Trading Day" means (i) if the applicable security is listed, admitted for
trading or quoted on the New York Stock Exchange, the Nasdaq National Market or
another national security exchange, a day on which the New York Stock Exchange,
the Nasdaq National Market or another national security exchange is open for
business or (ii) if the applicable security is not so listed, admitted for
trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.

     "Trading Price" of the 2023 Notes on any date of determination means the
average of the secondary market bid quotations per $1,000 principal amount of
2023 Notes obtained by the Trustee for $5,000,000 principal amount of 2023 Notes
at approximately 3:30 p.m., New York City time, on such determination date from
three independent nationally recognized securities dealers the Issuer selects,
provided that if three such bids cannot reasonably be obtained by the


                                       13

<PAGE>

Trustee, but two such bids are obtained, then the average of the two bids shall
be used, and if only one such bid can reasonably be obtained by the Trustee,
this one bid shall be used. If the Trustee cannot reasonably obtain at least one
bid for $5,000,000 principal amount of the 2023 Notes from a nationally
recognized securities dealer, then the Trading Price will be deemed to be less
than 95% of the product of the sale price of Common Stock and the then
applicable Conversion Rate.

     "Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).


                                       14

<PAGE>

                                   ARTICLE II

                 DESIGNATION AND TERMS OF THE 2023 NOTES; FORMS

     SECTION 2.01. Establishment of Series.

     (a) There is hereby created a series of Securities to be known and
designated as the "3.375% Convertible Senior Notes due 2023, Series B" to be
issued in an initial aggregate principal amount of up to $150,000,000.
Additional Securities, without limitation as to amount, having substantially the
same terms as the 2023 Notes (except a different issue date, issue price and
bearing interest from the last Interest Payment Date to which interest has been
paid or duly provided for on the 2023 Notes, and, if no interest has been paid,
from December 16, 2004), may also be issued by the Issuer pursuant to the
Indenture without the consent of the existing Holders of the 2023 Notes. Such
additional Securities shall be part of the same series as the 2023 Notes. The
Stated Maturity of the 2023 Notes is July 15, 2023; the principal amount of the
2023 Notes shall be payable on such date unless the 2023 Notes are earlier
redeemed, purchased or converted in accordance with the terms of the Indenture.

     (b) The 2023 Notes will bear interest from the Original Issue Date, or from
the most recent date to which interest has been paid or duly provided for on the
Original 2023 Notes, at the rate of 3.375% per annum stated therein until the
principal thereof is paid or made available for payment. Interest will be
payable semiannually on each Interest Payment Date and at Maturity, as provided
in the form of the 2023 Note in Section 2.03 hereof.

     (c) The Record Date referred to in Section 2.3(f)(4) of the Indenture for
the payment of the interest on any 2023 Note payable on any Interest Payment
Date (other than at Maturity) shall be the 1st day of the calendar month in
which such Interest Payment Date occurs (whether or not a Business Day) except
that the Record Date for interest payable at Maturity shall be the date of
Maturity.

     (d) The payment of the principal of, premium (if any) and interest on the
2023 Notes shall not be secured by a security interest in any property.

     (e) The 2023 Notes shall be purchased by the Issuer at the option of the
Holders thereof as provided in Article III, Article IV and Article V hereof.

     (f) The 2023 Notes shall be convertible in accordance with the terms of
this Sixteenth Supplemental Indenture.

     (g) The 2023 Notes will not be subordinated to the payment of Senior Debt.

     (h) The Issuer will not pay any additional amounts on the 2023 Notes held
by a Person who is not a U.S. person (as defined in Regulation S) in respect of
any tax, assessment or government charge withheld or deducted.


                                       15

<PAGE>

     (i) The events specified in Events of Default with respect to the 2023
Notes shall include the events specified in Article VIII of this Sixteenth
Supplemental Indenture. In addition to the covenants set forth in Article III of
the Original Indenture, the Holders of the 2023 Notes shall have the benefit of
the covenants of the Issuer set forth in this Sixteenth Supplemental Indenture.

     SECTION 2.02. Forms Generally. The 2023 Notes and Trustee's certificates of
authentication shall be in substantially the form set forth in this Article II,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by the Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange
or as may, consistently herewith, be determined by the officers executing such
2023 Notes, as evidenced by their execution thereof.

     The definitive 2023 Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such 2023 Notes, as evidenced by their execution
thereof.

     SECTION 2.03. Form of Face of 2023 Note.

     THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND 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.

     Unless this Global 2023 Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to CMS Energy
Corporation or its agent for registration of transfer, exchange or payment, and
any certificate issued is registered in the name of a nominee of DTC or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to such nominee of DTC or to such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof has an interest herein.


                                       16

<PAGE>

                             CMS ENERGY CORPORATION
               3.375% CONVERTIBLE SENIOR NOTES DUE 2023, SERIES B

No. 1                                                               $150,000,000
CUSIP No.: 125896AT7
ISIN No.: US125896AT74

     CMS Energy Corporation, a corporation duly organized and existing under the
laws of the State of Michigan (herein called the "Issuer" or "Company", which
term includes any successor Person under the Indenture hereinafter referred to),
for value received, hereby promises to pay to CEDE & Co., or registered assigns,
the principal sum of One Hundred Fifty Million Dollars on July 15, 2023
("Maturity") and to pay interest thereon from December 16, 2004 (the "Original
Issue Date") or from the date interest has been paid or duly provided for on the
3.375% Convertible Senior Notes Due 2023 issued by the Issuer on July 16, 2003
(the "Original 2023 Notes") pursuant to the terms of the Thirteenth Supplemental
Indenture dated July 16, 2003 between the Issuer and the Trustee for which the
2023 Notes have been exchanged, semi-annually in arrears on January 15 and July
15, in each year, commencing on January 15, 2005 (each an "Interest Payment
Date") to the Persons in whose names the 2023 Notes are registered at the close
of business on January 1 and July 1 (each a "Record Date"), and at Maturity, at
the rate of 3.375% per annum, until the principal hereof is paid or made
available for payment. The amount of interest payable on any Interest Payment
Date shall be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this 2023 Note (or one or more Predecessor 2023 Notes) is
registered at the close of business on the Record Date for such interest, which
shall be the 1st day of the calendar month in which such Interest Payment Date
occurs (whether or not a Business Day) except that the Record Date for interest
payable at Maturity shall be the date of Maturity. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Record Date and may either be paid to the Person in whose name
this 2023 Note (or one or more Predecessor 2023 Notes) is registered at the
close of business on a subsequent Record Date (which shall be not less than five
Business Days prior to the date of payment of such defaulted interest) for the
payment of such defaulted interest to be fixed by the Trustee, notice whereof
shall be given to Holders of 2023 Notes not less than 15 days preceding such
subsequent Record Date.

     This 2023 Note is convertible and is subject to redemption at the option of
the Issuer and to purchase by the Issuer at the option of the Holder as
specified on the reverse of this 2023 Note.

     Payment of the principal of (and premium, if any) and interest, if any, on
this 2023 Note will be made at the office or agency of the Issuer maintained for
that purpose in New York, New York (the "Place of Payment"), 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; provided, however, that at the
option of the Issuer payment of interest (other than interest payable at
Maturity) may be made by check mailed to the address of the Person entitled
thereto as such address shall appear


                                       17

<PAGE>

in the Security Register or by wire transfer to an account designated by such
Person not later than ten days prior to the date of such payment.

     Reference is hereby made to the further provisions of this 2023 Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

     THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE
UPON CONVERSION HEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A")) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (IV) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (V) TO CMS ENERGY CORPORATION
OR (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH OF CASES (I) THROUGH (VI) IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY FROM
IT OF THE RESALE RESTRICTIONS REFERRED TO IN CLAUSE (A) ABOVE.

     THE HOLDER OF THIS SECURITY AGREES THAT SUCH HOLDER WILL NOT ENGAGE IN
HEDGING TRANSACTIONS INVOLVING THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

     THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED
FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND
OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR
REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE
RESALE OR


                                       18

<PAGE>

TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY SHALL
BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY TO HAVE AGREED TO ANY SUCH
AMENDMENT OR SUPPLEMENT.

     THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF,
A REGISTRATION RIGHTS AGREEMENT, DATED AS OF JULY 16, 2003 ENTERED INTO BY THE
COMPANY FOR THE BENEFIT OF CERTAIN HOLDERS OF SECURITIES FROM TIME TO TIME.

     Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this 2023 Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

     IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.

Dated:

                                        CMS ENERGY CORPORATION


                                        By
                                           -------------------------------------
                                        Its: Executive Vice President and
                                             Chief Financial Officer


                                        By
                                           -------------------------------------
                                        Its: Vice President and Treasurer

     SECTION 2.04. Form of Reverse of 2023 Note.

     This 3.375% Convertible Senior Note due 2023, Series B is one of a duly
authorized issue of securities of the Issuer (herein called the "2023 Notes"),
issued and to be issued under an Indenture, dated as of September 15, 1992, as
supplemented by certain supplemental indentures, including the Sixteenth
Supplemental Indenture, dated as of December 16, 2004 (herein collectively
referred to as the "Indenture"), between the Issuer and J.P. Morgan Trust
Company, N.A., a national banking association (ultimate successor to NBD Bank,
National Association), as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Issuer, the Trustee, and the Holders of the 2023 Notes and of the terms upon
which the 2023 Notes are, and are to be, authenticated and delivered. This 2023
Note is one of the series designated on the face hereof, issued in an initial
aggregate principal amount of $150,000,000. Additional Securities, without
limitation as to amount, having substantially the same terms as the 2023 Notes
(except a different issue date, issue price and bearing interest from the last
Interest Payment Date to which interest has been paid or duly provided for on
the 2023 Notes, and, if no


                                       19

<PAGE>

interest has been paid, from December 16, 2004), may also be issued by the
Issuer pursuant to the Indenture without the consent of the existing Holders of
the 2023 Notes. Such additional Securities shall be part of the same series as
the 2023 Notes.

     Holders of 2023 Notes at the close of business on a Record Date will
receive payment of interest, payable on the corresponding Interest Payment Date
notwithstanding the conversion of such 2023 Notes at any time after the close of
business on such Record Date. 2023 Notes surrendered for conversion by a Holder
during the period from the close of business on any Record Date to the opening
of business on the immediately following Interest Payment Date must be
accompanied by payment of an amount equal to the interest that the Holder is to
receive on the 2023 Notes; provided, however, that no such payment need be made
if (1) the Issuer has specified a redemption date that is after a Record Date
and on or prior to the immediately following Interest Payment Date, (2) the
Issuer has specified a Purchase Date following a Fundamental Change that is
during such period or (3) any overdue interest exists at the time of conversion
with respect to such 2023 Notes to the extent of such overdue interest. The
Holders of the 2023 Notes and any Common Stock issuable upon conversion thereof
will continue to be entitled to receive Additional Amounts in accordance with
the Registration Rights Agreement.

     If the principal hereof or any portion of such principal is not paid when
due (whether upon acceleration, upon the date set for payment of the Redemption
Price, upon the date set for payment of a Purchase Price or Fundamental Change
Purchase Price or upon the Stated Maturity of this 2023 Note) or if interest due
hereon or any portion of such interest is not paid when due in accordance with
the terms of this 2023 Note, then in each such case the overdue amount shall
bear interest at the rate of 3.375% per annum, compounded semiannually (to the
extent that the payment of such interest shall be legally enforceable), which
interest shall accrue from the date such overdue amount was due to the date
payment of such amount, including interest thereon, has been made or duly
provided for, all such interest shall be payable on demand.

     The interest rate borne by the Registrable Securities will be increased by
0.25% per annum upon the occurrence of a Registration Default or upon the
occurrence of an Additional Registration Default, which rate will increase by an
additional 0.25% per annum if such Registration Default or Additional
Registration Default has not been cured within 90 days after the occurrence
thereof and will continue to increase by 0.25% at the beginning of each
subsequent 90-day period until all Registration Defaults and Additional
Registration Defaults have been cured ("Additional Amounts"); provided, that the
aggregate amount of any such increase in the interest rate on the Registrable
Securities shall in no event exceed 0.50% per annum. All accrued Additional
Amounts shall be paid to Holders of Registrable Securities in the same manner
and at the same time as regular payments of interest on the Registrable
Securities. Following the cure of all Registration Defaults and Additional
Registration Defaults, the accrual of Additional Amounts shall cease and the
interest rate on the Registrable Securities will revert to 3.375% per annum.

     In the event of redemption of this 2023 Note in part only, a new 2023 Note
for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof. No sinking fund is provided for the 2023
Notes. The 2023 Notes are redeemable for cash or check in whole, or in part, at
any time on or after July 15, 2008 at the option of the Issuer at a redemption
price ("Redemption Price") equal to 100% of the principal amount of the 2023


                                       20

<PAGE>

Notes to be redeemed plus any accrued and unpaid interest (including Additional
Amounts, if any) to the redemption date. Notice of redemption at the option of
the Issuer shall be mailed at least 30 days but not more than 60 days before a
redemption date to the Trustee, the Paying Agent and each Holder of 2023 Notes
to be redeemed at the Holder's registered address. If money sufficient to pay
the Redemption Price of all 2023 Notes (or portions thereof) to be redeemed on
the redemption date is deposited with the Paying Agent prior to or on the
redemption date, on and after the redemption date interest (including Additional
Amounts, if any), if any, shall cease to accrue on such 2023 Notes or portions
thereof. 2023 Notes in denominations larger than $1,000 principal amount may be
redeemed in part but only in integral multiples of $1,000 principal amount.

     Subject to the terms and conditions of the Indenture, a Holder shall have
the option to require the Issuer to purchase the 2023 Notes held by such Holder
on July 15, 2008, July 15, 2013 and July 15, 2018 (each, a "Purchase Date") at a
purchase price (the "Purchase Price") equal to 100% of the principal amount of
the 2023 Notes to be purchased plus any accrued and unpaid interest (including
Additional Amounts, if any) to but excluding such Purchase Date, upon delivery
of a Purchase Notice containing the information set forth in the Indenture, from
the opening of business on the date that is 20 Business Days prior to such
Purchase Date until the close of business on the fifth Business Day prior to
such Purchase Date and upon delivery of the 2023 Notes to the Paying Agent by
the Holder as set forth in the Indenture. The Issuer will pay the Purchase Price
in cash or by check. 2023 Notes in denominations larger than $1,000 principal
amount may be purchased in part, but only in integral multiples of $1,000
principal amount.

     If a Fundamental Change shall occur at any time prior to July 15, 2008,
each Holder shall have the right, at such Holder's option and subject to the
terms and conditions of the Indenture, to require the Issuer to purchase any or
all of such Holder's 2023 Notes or any portion of the principal amount thereof
that is equal to $1,000 or an integral multiple of $1,000 on the day that is no
earlier than 60 days nor later than 90 days after the date of the Issuer Notice
of the occurrence of the Fundamental Change (subject to extension to comply with
applicable law) for a Fundamental Change Purchase Price equal to 100% of the
principal amount of 2023 Notes purchased plus accrued and unpaid interest
(including Additional Amounts, if any) to the Fundamental Change Purchase Date,
which Fundamental Change Purchase Price shall be paid by the Issuer in cash or
by check, as set forth in the Indenture.

     Holders have the right to withdraw any Purchase Notice or Fundamental
Change Purchase Notice, as the case may be, by delivery to the Paying Agent of a
written notice of withdrawal in accordance with the provisions of the Indenture.

     If cash sufficient to pay a Fundamental Change Purchase Price or Purchase
Price, as the case may be, of all 2023 Notes or portions thereof to be purchased
as of the Purchase Date or the Fundamental Change Purchase Date, as the case may
be, is on deposit with the Paying Agent on the Business Day following the
Purchase Date or the Fundamental Change Purchase Date, as the case may be,
interest (including Additional Amounts, if any) shall cease to accrue on such
2023 Notes (or portions thereof) on and after such date, and the Holder thereof
shall have no other rights as such (other than the right to receive the Purchase
Price or Fundamental Change Purchase Price, as the case may be, upon surrender
of such Note).


                                       21

<PAGE>

     Subject to the procedures set forth in the Indenture, a Holder may convert
2023 Notes into cash and shares of Common Stock on or before the close of
business on July 15, 2023 during the periods and upon satisfaction of at least
one of the conditions set forth below:

     (a) in any calendar quarter (and only during such calendar quarter) if the
     Last Reported Sale Price for Common Stock for at least 20 Trading Days
     during the period of 30 consecutive Trading Days ending on the last Trading
     Day of the previous calendar quarter is greater than or equal to 120% of
     the Conversion Price per share of Common Stock on such last Trading Day;

     (b) prior to Maturity during the five Business Days immediately following
     any ten consecutive Trading Day period in which the Trading Price per
     $1,000 principal amount of 2023 Notes (as determined following a request by
     a Holder of the 2023 Notes in accordance with the procedures described in
     the Indenture) for each day of that period was less than 95% of the product
     of the sale price of Common Stock and the then applicable Conversion Rate
     (the "Trading Exception"); provided, however, that a Holder may not convert
     its 2023 Notes if the average closing sale price of Common Stock for such
     ten consecutive Trading Day period is between the then current Conversion
     Price and 120% of the then applicable Conversion Price; in connection with
     any conversion upon satisfaction of such Trading Price condition, the
     Trustee shall have no obligation to determine the Trading Price unless the
     Issuer has requested such determination; and the Issuer shall have no
     obligation to make such request unless the Holder provides reasonable
     evidence that the Trading Price would be less than 95% of the product of
     the sale price of Common Stock and the then applicable Conversion Rate; at
     which time, the Issuer shall instruct the Trustee to determine the Trading
     Price beginning on the next Trading Day and on each successive Trading Day
     until the Trading Price is greater than or equal to 95% of the product of
     the sale price of Common Stock and the then applicable Conversion Rate;

     (c) in the event that the Issuer calls the 2023 Notes for redemption, at
     any time prior to the close of business on the second Business Day
     immediately preceding the redemption date;

     (d) the Issuer becomes a party to a consolidation, merger or binding share
     exchange pursuant to which the Common Stock would be converted into cash or
     property (other than securities), in which case a Holder may surrender 2023
     Notes for conversion at any time from and after the date which is 15 days
     prior to the anticipated effective date for the transaction until 15 days
     after the actual effective date of such transaction; or

     (e) the Issuer elects to (i) distribute to all holders of Common Stock
     assets, debt securities or rights to purchase securities of the Issuer,
     which distribution has a per share value as determined by the Board of
     Directors exceeding 15% of the Last Reported Sale Price of a share of
     Common Stock on the Trading Day immediately preceding the declaration date
     for such distribution, or (ii) distribute to all holders of Common Stock
     rights entitling them to purchase, for a period expiring within 60 days
     after the date of such distribution, shares of Common Stock at less than
     the Last Reported Sale Price of Common Stock on the Trading Day immediately
     preceding the declaration date of the


                                       22

<PAGE>

     distribution. In the case of the foregoing clauses (i) and (ii), the Issuer
     must notify the Holders at least 20 Business Days immediately prior to the
     ex date for such distribution. Once the Issuer has given such notice,
     Holders may surrender their 2023 Notes for conversion at any time
     thereafter until the earlier of the close of business on the Business Day
     immediately prior to the ex date or the Issuer's announcement that such
     distribution will not take place; provided, however, that a Holder may not
     exercise this right to convert if the Holder may participate in the
     distribution without conversion. As used herein, the term "ex date," when
     used with respect to any issuance or distribution, shall mean the first
     date on which the Common Stock trades regular way on such exchange or in
     such market without the right to receive such issuance or distribution.

     If the Issuer engages in certain reclassifications of its Common Stock or
is a party to a consolidation, merger, binding share exchange or transfer of all
or substantially all of its assets pursuant to which Common Stock is converted
into cash, securities or other property, then, at the effective time of the
transaction, the right to convert a 2023 Note into cash and shares of Common
Stock will be changed into a right to convert a 2023 Note into the kind and
amount of cash, securities or other property which the Holder would have
received if the Holder had converted its 2023 Notes immediately prior to the
transaction. If the Issuer engages in any transaction described in the preceding
sentence, the Conversion Rate will not be adjusted. If the transaction also
constitutes a Fundamental Change, a Holder can require the Issuer to purchase
all or a portion of its 2023 Notes as described in the Indenture.

     2023 Notes in respect of which a Holder has delivered a notice of exercise
of the option to require the Issuer to purchase such 2023 Notes pursuant to
Article VII or Article XIII of the Indenture may be converted only if the notice
of exercise is withdrawn in accordance with the terms of the Indenture.

     The initial Conversion Rate is 93.7137 shares of Common Stock per $1,000
principal amount, subject to adjustment in certain events described in the
Indenture. The Issuer shall deliver cash or a check in lieu of any fractional
share of Common Stock.

     Holders of 2023 Notes at the close of business on a Record Date will
receive payment of interest, payable on the corresponding Interest Payment Date
notwithstanding the conversion of such 2023 Notes at any time after the close of
business on such Record Date. 2023 Notes surrendered for conversion by a Holder
during the period from the close of business on any Record Date to the opening
of business on the immediately following Interest Payment Date must be
accompanied by payment of an amount equal to the interest that the Holder is to
receive on the 2023 Notes; provided, however, that no such payment need be made
if (1) the Issuer has specified a redemption date that is after a Record Date
and on or prior to the immediately following Interest Payment Date, (2) the
Issuer has specified a Purchase Date following a Fundamental Change that is
during such period or (3) any overdue interest exists at the time of conversion
with respect to such 2023 Notes to the extent of such overdue interest. The
Holders of the 2023 Notes and any Common Stock issuable upon conversion thereof
will continue to be entitled to receive Additional Amounts in accordance with
the Registration Rights Agreement.

     To convert the 2023 Notes a Holder must (i) complete and manually sign the
irrevocable conversion notice on the back of the 2023 Notes (or complete and
manually sign a facsimile of


                                       23

<PAGE>

such notice) and deliver such notice to the Conversion Agent at the office
maintained by the Conversion Agent for such purpose, (ii) surrender the 2023
Notes to the Conversion Agent, (iii) furnish appropriate endorsements and
transfer documents if required by the Conversion Agent, the Issuer or the
Trustee and (iv) pay any transfer or similar tax, if required.

     A Holder may convert a portion of the 2023 Notes only if the principal
amount of such portion is $1,000 or a multiple of $1,000. No payment or
adjustment shall be made for dividends on the Common Stock except as provided in
the Indenture. On conversion of the 2023 Notes, that portion of accrued and
unpaid interest attributable to the period from the Original Issue Date to the
Conversion Date shall be deemed canceled, extinguished or forfeited rather than
paid in full to the Holder thereof through the delivery of the cash and shares
of Common Stock (together with any cash payment in lieu of fractional shares) in
exchange for the portion of the 2023 Notes being converted pursuant to the terms
hereof; and the Fair Market Value of any such shares of Common Stock (together
with any such cash payment in lieu of fractional shares) shall be treated as
issued, to the extent thereof, first in exchange for interest accrued and unpaid
through the Conversion Date, and the balance, if any, of such Fair Market Value
of such Common Stock (and any such cash payment) shall be treated as issued in
exchange for the principal amount of the 2023 Notes being converted pursuant to
the provisions hereof. Notwithstanding the conversion of any 2023 Notes, the
Holders of the 2023 Notes and any Common Stock issuable upon conversion thereof
will continue to be entitled to receive Additional Amounts in accordance with
the Registration Rights Agreement.

     If an Event of Default with respect to this 2023 Note shall occur and be
continuing, the principal of this 2023 Note may be declared due and payable in
the manner and with the effect provided in the Indenture.

     In any case where any Interest Payment Date, redemption date, repurchase
date, Stated Maturity or Maturity of any 2023 Note shall not be a Business Day
at any Place of Payment, then (notwithstanding any other provision of the
Indenture or this 2023 Note) payment of interest or principal (and premium, if
any) need not be made at such Place of Payment on such date, but may be made on
the next succeeding Business Day at such Place of Payment with the same force
and effect as if made on the Interest Payment Date, repurchase date or at the
Stated Maturity or Maturity; provided that no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date,
redemption date, repurchase date, Stated Maturity or Maturity, as the case may
be, to such Business Day.

     The Trustee and the Paying Agent shall return to the Issuer upon written
request any money or property held by them for the payment of any amount with
respect to the 2023 Notes that remains unclaimed for two years, provided,
however, that the Trustee or such Paying Agent, before being required to make
any such return, shall at the expense of the Issuer cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
such Holder notice that such money or property remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication or mailing, any unclaimed money or property then remaining
shall be returned to the Issuer. After return to the Issuer, Holders entitled to
the money or property must look to the Issuer for payment as general creditors
unless an applicable abandoned property law designates another Person.


                                       24

<PAGE>

     The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this 2023 Note or (ii) certain restrictive covenants and
Events of Default with respect to this 2023 Note, in each case upon compliance
with certain conditions set forth therein.

     The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of all outstanding 2023 Notes under the
Indenture at any time by the Issuer and the Trustee with the consent of the
Holders of not less than a majority in principal amount of Securities of all
series then outstanding and affected (voting as one class).

     The Indenture permits the Holders of not less than a majority in principal
amount of Securities of all series at the time outstanding with respect to which
a default shall have occurred and be continuing (voting as one class) to waive
on behalf of the Holders of all outstanding Securities of such series any past
default by the Issuer, provided that no such waiver may be made with respect to
a default in the payment of the principal of or the interest on any Security of
such series or the default by the Issuer in respect of certain covenants or
provisions of the Indenture, the modification or amendment of which must be
consented to by the Holder of each outstanding Security of each series affected.

     As set forth in, and subject to, the provisions of the Indenture, no Holder
of any 2023 Note will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
the Holders of not less than 25% in principal amount of the outstanding
Securities of each affected series (voting as one class) shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in principal amount of the outstanding Securities of each affected
series (voting as one class) a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days; provided,
however, that such limitations do not apply to a suit instituted by the Holder
hereof for the enforcement of payment of the principal of (and premium, if any)
or any interest on this 2023 Note on or after the respective due dates expressed
herein.

     No reference herein to the Indenture and no provision of this 2023 Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this 2023 Note at the times, place and rate, and in the coin or currency,
herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this 2023 Note is registrable in the Security Register,
upon surrender of this 2023 Note for registration of transfer at the office or
agency of the Issuer in any place where the principal of and any premium and
interest on this 2023 Note are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Issuer and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new 2023 Notes of this series
and of like tenor, of authorized


                                       25

<PAGE>

denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.

     The 2023 Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, 2023 Notes are
exchangeable for a like aggregate principal amount of 2023 Notes and of like
tenor of a different authorized denomination, as requested by the Holder
surrendering the same.

     No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     In the event of any redemption or purchase in part, the Issuer shall not be
required to (i) issue, exchange or register the transfer of this 2023 Note for a
period of 15 days next preceding the mailing of the notice of redemption of 2023
Notes or (ii) exchange or register the transfer of any 2023 Note or any portion
thereof selected, called or being called for redemption, except in the case of
any 2023 Note to be redeemed in part, the portion thereof not so to be redeemed.

     Prior to due presentment of this 2023 Note for registration of transfer,
the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this 2023 Note is registered as the owner hereof for all
purposes, whether or not this 2023 Note be overdue, and neither the Issuer, the
Trustee nor any such agent shall be affected by notice to the contrary.

     The Issuer will be responsible for making all calculations called for under
the 2023 Notes. These calculations include, but are not limited to,
determination of the market prices for the Common Stock, the Conversion Value,
the Principal Return, the Net Share Amount, accrued interest payable on the 2023
Notes and Conversion Price of the 2023 Notes. The Issuer will make these
calculations in good faith and, absent manifest error, these calculations will
be final and binding on the Holders. The Issuer will provide to each of the
Trustee and the Conversion Agent a schedule of its calculations, and each of the
Trustee and the Conversion Agent is entitled to rely upon the accuracy of such
calculations without independent verification. The Trustee will forward the
Issuer's calculations to any Holder upon the request of such Holder.

     All terms used in this 2023 Note without definition which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.


                                       26

<PAGE>

                            FORM OF CONVERSION NOTICE

To: CMS Energy Corporation

     The undersigned registered holder of this 2023 Note hereby exercises the
option to convert this 2023 Note, or portion hereof (which is $1,000 principal
amount or an integral multiple thereof) designated below, for cash and shares of
Common Stock of CMS Energy Corporation in accordance with the terms of the
Indenture referred to in this 2023 Note, and directs that the shares, if any,
issuable and deliverable upon such conversion, together with any check for cash
deliverable upon such conversion, and any 2023 Notes representing any
unconverted principal amount hereof, be issued and delivered to the registered
holder hereof unless a different name has been indicated below. If shares or any
portion of this 2023 Note not converted are to be issued in the name of a Person
other than the undersigned, the undersigned shall pay all transfer taxes payable
with respect thereto.

     This notice shall be deemed to be an irrevocable exercise of the option to
convert this 2023 Note.

Dated:


                                        ----------------------------------------

                                        ----------------------------------------
                                                      Signature(s)

                                        Signature(s) must be guaranteed by a
                                        commercial bank or trust company or a
                                        member firm of a major stock exchange if
                                        cash and shares of Common Stock are to
                                        be issued, or 2023 Notes to be
                                        delivered, other than to or in the name
                                        of the registered holder.


                                        ----------------------------------------
                                                   Signature Guarantee

Fill in for registration of shares if
to be delivered, and 2023 Notes if to
be issued other than to and in the
name of registered holder:

- -------------------------------------   Principal amount to be purchased (if
(Name)                                  less than all):

- -------------------------------------
(Street Address)                        $______,000

- -------------------------------------   Social Security or other taxpayer number
(City, state and zip code)

Please print name and address

     SECTION 2.05. Form of Trustee's Certificate of Authentication. The
Trustee's certificates of authentication shall be in substantially the following
form:

     This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.


                                       27

<PAGE>

                                        J.P. MORGAN TRUST COMPANY, N.A.,
                                        as Trustee


                                        By
                                           -------------------------------------
                                           Authorized Officer


                                       28

<PAGE>

                                   ARTICLE III

                       PURCHASE UPON A FUNDAMENTAL CHANGE

     SECTION 3.01. Purchase at the Option of the Holder Upon a Fundamental
Change. If a Fundamental Change shall occur at any time prior to July 15, 2008,
each Holder shall have the right, at such Holder's option, to require the Issuer
to purchase any or all of such Holder's 2023 Notes for cash or a check on the
date that is no earlier than 60 days nor later than 90 days after the date of
the Issuer Notice of the occurrence of such Fundamental Change (subject to
extension to comply with applicable law, as provided in Section 5.04) (the
"Fundamental Change Purchase Date"). The 2023 Notes shall be repurchased in
integral multiples of $1,000 of the principal amount. The Issuer shall purchase
such 2023 Notes at a price (the "Fundamental Change Purchase Price") equal to
100% of the principal amount of the Notes to be purchased plus accrued and
unpaid interest, including Additional Amounts, if any, to the Fundamental Change
Purchase Date. No 2023 Notes may be purchased at the option of the Holders upon
a Fundamental Change if there has occurred and is continuing an Event of Default
(other than an Event of Default that is cured by the payment of the Fundamental
Change Purchase Price of the 2023 Notes).

     SECTION 3.02. Notice of Fundamental Change. The Issuer, or at its request
(which must be received by the Paying Agent at least three Business Days (or
such lesser period as agreed to by the Paying Agent) prior to the date the
Paying Agent is requested to give such notice as described below), the Paying
Agent, in the name of and at the expense of the Issuer, shall mail to all
Holders and the Trustee and the Paying Agent an Issuer Notice of the occurrence
of a Fundamental Change and of the purchase right arising as a result thereof,
including the information required by Section 5.01 hereof, on or before the 30th
day after the occurrence of such Fundamental Change.

     SECTION 3.03. Exercise of Option. For a 2023 Note to be so purchased at the
option of the Holder, the Paying Agent must receive such 2023 Note duly endorsed
for transfer, together with a written notice of purchase in the form attached
hereto as Exhibit A (a "Fundamental Change Purchase Notice") and the form
entitled "Form of Fundamental Change Purchase Notice" on the reverse thereof
duly completed, on or before the 30th day prior to the occurrence of such
Fundamental Change, subject to extension to comply with applicable law. The
Fundamental Change Purchase Notice shall state:

     (a) if certificated, the certificate numbers of the 2023 Notes which the
     Holder shall deliver to be purchased, or, if not certificated, the
     Fundamental Change Purchase Notice must comply with appropriate Depositary
     procedures;

     (b) the portion of the principal amount of the 2023 Notes which the Holder
     shall deliver to be purchased, which portion must be $1,000 in principal
     amount or an integral multiple thereof; and

     (c) that such 2023 Notes shall be purchased as of the Fundamental Change
     Purchase Date pursuant to the terms and conditions specified in the 2023
     Notes and in this Sixteenth Supplemental Indenture.


                                       29

<PAGE>

     SECTION 3.04. Procedures. The Issuer shall purchase from a Holder, pursuant
to this Article III, 2023 Notes if the principal amount of such 2023 Notes is
$1,000 or a multiple of $1,000 if so requested by such Holder.

     Any purchase by the Issuer contemplated pursuant to the provisions of this
Article III shall be consummated by the delivery of the Fundamental Change
Purchase Price to be received by the Holder promptly following the later of the
Fundamental Change Purchase Date or the time of book-entry transfer or delivery
of the 2023 Notes.

     Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent the Fundamental Change Purchase Notice contemplated by Section
3.03 hereof shall have the right at any time prior to the close of business on
the Business Day prior to the Fundamental Change Purchase Date to withdraw such
Fundamental Change Purchase Notice (in whole or in part) by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section 5.02
hereof.

     The Paying Agent shall promptly notify the Issuer of the receipt by it of
any Fundamental Change Purchase Notice or written notice of withdrawal thereof.

     On or before 10:00 a.m. (New York City time) on the Fundamental Change
Purchase Date, the Issuer shall deposit with the Paying Agent (or if the Issuer
or an Affiliate of the Issuer is acting as the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the aggregate Fundamental Change Purchase
Price of the 2023 Notes to be purchased pursuant to this Article III. Payment by
the Paying Agent of the Fundamental Change Purchase Price for such 2023 Notes
shall be made promptly following the later of the Fundamental Change Purchase
Date or the time of book-entry transfer or delivery of such 2023 Notes. If the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Fundamental Change Purchase Price of such 2023 Notes on
the Business Day following the Fundamental Change Purchase Date, then, on and
after such date, such 2023 Notes shall cease to be outstanding and interest
(including Additional Amounts, if any) on such 2023 Notes shall cease to accrue,
whether or not book-entry transfer of such 2023 Notes is made or such 2023 Notes
are delivered to the Paying Agent, and all other rights of the Holder shall
terminate (other than the right to receive the Fundamental Change Purchase Price
upon delivery or transfer of the 2023 Notes). Nothing herein shall preclude any
withholding tax required by law.

     The Issuer shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of the
Fundamental Change Purchase Price and shall notify the Trustee of any default by
the Issuer in making any such payment. If the Issuer or an Affiliate of the
Issuer acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund. The Issuer at any time may require a
Paying Agent to deliver all money held by it to the Trustee and to account for
any funds disbursed by the Paying Agent. Upon doing so, the Paying Agent shall
have no further liability for the cash delivered to the Trustee.


                                       30

<PAGE>

     All questions as to the validity, eligibility (including time of receipt)
and acceptance of any 2023 Notes for redemption shall be determined by the
Issuer, whose determination shall be final and binding.

                                   ARTICLE IV

                                OPTIONAL PURCHASE

     SECTION 4.01 Purchase of 2023 Notes by the Issuer at the Option of the
Holder.

     (a) On each of July 15, 2008, July 15, 2013 and July 15, 2018 (each, a
"Purchase Date"), Holders shall have the option to require the Issuer to
purchase any 2023 Notes at the Purchase Price specified in the 2023 Notes, upon:

          (i) delivery to the Paying Agent by the Holder of a written notice of
          purchase in the form attached hereto as Exhibit B (a "Purchase
          Notice") at any time from the opening of business on the date that is
          20 Business Days prior to a Purchase Date until the close of business
          on the fifth Business Day prior to such Purchase Date, stating:

               (A) if certificated, the certificate numbers of the 2023 Notes
               which the Holder will deliver to be purchased, or, if not
               certificated, the Purchase Notice must comply with appropriate
               Depositary procedures;

               (B) the portion of the principal amount of the 2023 Notes which
               the Holder will deliver to be purchased, which portion must be
               $1,000 in principal amount or an integral multiple thereof; and

               (C) that such 2023 Notes shall be purchased as of the Purchase
               Date pursuant to the terms and conditions specified in the 2023
               Notes and in this Sixteenth Supplemental Indenture; and

          (ii) delivery or book-entry transfer of such 2023 Notes to the Paying
          Agent prior to, on or after the Purchase Date (together with all
          necessary endorsements) at the offices of the Paying Agent, such
          delivery or transfer being a condition to receipt by the Holder of the
          Purchase Price therefor; provided, however, that such Purchase Price
          shall be so paid pursuant to this Section 4.01 only if the 2023 Notes
          so delivered or transferred to the Paying Agent shall conform in all
          respects to the description thereof in the related Purchase Notice.

     (b) The Issuer shall purchase from a Holder, pursuant to the terms of this
Section 4.01, 2023 Notes if the principal amount of such 2023 Notes is $1,000 or
a multiple of $1,000 if so requested by such Holder.

     (c) Any purchase by the Issuer contemplated pursuant to the provisions of
this Section 4.01 shall be consummated by the delivery of the Purchase Price to
be received by the Holder promptly following the later of the Purchase Date or
the time of book-entry transfer or delivery of the 2023 Notes.


                                       31

<PAGE>

     (d) Notwithstanding anything herein to the contrary, any Holder delivering
to the Paying Agent the Purchase Notice contemplated by this Section 4.01 shall
have the right at any time prior to the close of business on the Business Day
prior to the Purchase Date to withdraw such Purchase Notice (in whole or in
part) by delivery of a written notice of withdrawal to the Paying Agent in
accordance with Section 5.02 hereof.

     (e) The Paying Agent shall promptly notify the Issuer of the receipt by it
of any Purchase Notice or written notice of withdrawal thereof.

     (f) On or before 10:00 a.m. (New York City time) on the Purchase Date, the
Issuer shall deposit with the Paying Agent (or if the Issuer or an Affiliate of
the Issuer is acting as the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the aggregate Purchase Price of the 2023 Notes to be
purchased pursuant to this Section 4.01. Payment by the Paying Agent of the
Purchase Price for such Notes shall be made promptly following the later of the
Purchase Date or the time of book-entry transfer or delivery of such 2023 Notes.
If the Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Purchase Price of such 2023 Notes on the Business Day
following the Purchase Date, then, on and after such date, such 2023 Notes shall
cease to be outstanding and interest (including Additional Amounts, if any) on
such 2023 Notes shall cease to accrue, whether or not book-entry transfer of
such 2023 Notes is made or such 2023 Notes are delivered to the Paying Agent,
and all other rights of the Holder shall terminate (other than the right to
receive the Purchase Price upon delivery or transfer of the 2023 Notes).

     (g) The Issuer shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of the
Purchase Price and shall notify the Trustee of any default by the Issuer in
making any such payment. If the Issuer or an Affiliate of the Issuer acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Issuer at any time may require a Paying Agent
to deliver all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon doing so, the Paying Agent shall have no
further liability for the cash delivered to the Trustee.

                                    ARTICLE V

          CONDITIONS AND PROCEDURES FOR PURCHASES AT OPTION OF HOLDERS

     SECTION 5.01. Notice of Purchase Date or Fundamental Change. The Issuer
shall send notices (each, an "Issuer Notice") to the Holders (and to beneficial
owners as required by applicable law) at their addresses shown in the Security
Register maintained by the Security Registrar, and delivered to the Trustee and
Paying Agent, not less than 20 Business Days prior to each Purchase Date, or on
or before the 30th day after the occurrence of the Fundamental Change, as the
case may be (each such date of delivery, an "Issuer Notice Date"). Each Issuer
Notice shall include a form of Purchase Notice or Fundamental Change Purchase
Notice to be completed by a Holder and shall state:


                                       32

<PAGE>

     (a) the applicable Purchase Price or Fundamental Change Purchase Price,
     excluding accrued and unpaid interest, Conversion Rate at the time of such
     notice (and any adjustments to the Conversion Rate) and, to the extent
     known at the time of such notice, the amount of interest (including
     Additional Amounts, if any), if any, that will be payable with respect to
     the 2023 Notes on the applicable Purchase Date or Fundamental Change
     Purchase Date;

     (b) if the notice relates to a Fundamental Change, the events causing the
     Fundamental Change and the date of the Fundamental Change;

     (c) the Purchase Date or Fundamental Change Purchase Date;

     (d) the last date on which a Holder may exercise its purchase right;

     (e) the name and address of the Paying Agent and the Conversion Agent;

     (f) that 2023 Notes must be surrendered to the Paying Agent to collect
     payment of the Purchase Price or Fundamental Change Purchase Price;

     (g) that 2023 Notes as to which a Purchase Notice or Fundamental Change
     Purchase Notice has been given may be converted only if the applicable
     Purchase Notice or Fundamental Change Purchase Notice has been withdrawn in
     accordance with the terms of this Sixteenth Supplemental Indenture;

     (h) that the Purchase Price or Fundamental Change Purchase Price for any
     2023 Notes as to which a Purchase Notice or a Fundamental Change Purchase
     Notice, as applicable, has been given and not withdrawn shall be paid by
     the Paying Agent promptly following the later of the Purchase Date or
     Fundamental Change Purchase Date, as applicable, or the time of book-entry
     transfer or delivery of such 2023 Notes;

     (i) the procedures the Holder must follow under Article III or Article IV
     hereof, as applicable, and Article V hereof;

     (j) briefly, the conversion rights of the 2023 Notes;

     (k) that, unless the Issuer defaults in making payment of such Purchase
     Price or Fundamental Change Purchase Price on 2023 Notes covered by any
     Purchase Notice or Fundamental Change Purchase Notice, as applicable,
     interest (including Additional Amounts, if any) will cease to accrue on and
     after the Purchase Date or Fundamental Change Purchase Date, as applicable;

     (l) the CUSIP or ISIN number of the 2023 Notes; and

     (m) the procedures for withdrawing a Purchase Notice or Fundamental Change
     Purchase Notice.

     In connection with providing such Issuer Notice, the Issuer will issue a
press release and publish a notice containing the information in such Issuer
Notice in a newspaper of general


                                       33

<PAGE>

circulation in The City of New York or publish such information on the Issuer's
then existing Web site or through such other public medium as the Issuer may use
at the time.

     At the Issuer's request, made at least five Business Days prior to the date
upon which such notice is to be mailed, and at the Issuer's expense, the Paying
Agent shall give the Issuer Notice in the Issuer's name; provided, however,
that, in all cases, the text of the Issuer Notice shall be prepared by the
Issuer.

     SECTION 5.02. Effect of Purchase Notice or Fundamental Change Purchase
Notice; Effect of Event of Default. Upon receipt by the Issuer of the Purchase
Notice or Fundamental Change Purchase Notice specified in Section 4.01 or
Section 3.03 hereof, as applicable, the Holder of the 2023 Notes in respect of
which such Purchase Notice or Fundamental Change Purchase Notice, as the case
may be, was given shall (unless such Purchase Notice or Fundamental Change
Purchase Notice is withdrawn as specified in the following two paragraphs)
thereafter be entitled to receive solely the Purchase Price or Fundamental
Change Purchase Price with respect to such 2023 Notes. Such Purchase Price or
Fundamental Change Purchase Price shall be paid by the Paying Agent to such
Holder promptly following the later of (x) the Purchase Date or the Fundamental
Change Purchase Date, as the case may be, with respect to such 2023 Notes
(provided the conditions in Section 4.01 or Section 3.03 hereof, as applicable,
have been satisfied) and (y) the time of delivery or book-entry transfer of such
2023 Notes to the Paying Agent by the Holder thereof in the manner required by
Section 4.01 or Section 3.03 hereof, as applicable. 2023 Notes in respect of
which a Purchase Notice or Fundamental Change Purchase Notice, as the case may
be, has been given by the Holder thereof may not be converted for shares of
Common Stock on or after the date of the delivery of such Purchase Notice or
Fundamental Change Purchase Notice, as the case may be, unless such Purchase
Notice or Fundamental Change Purchase Notice, as the case may be, has first been
validly withdrawn as specified in the following two paragraphs.

     A Purchase Notice or Fundamental Change Purchase Notice, as the case may
be, may be withdrawn by means of a written notice of withdrawal delivered to the
office of the Paying Agent at any time prior to 5:00 p.m. New York City time on
the Business Day prior to the Purchase Date or the Fundamental Change Purchase
Date, as the case may be, to which it relates specifying:

     (a) if certificated, the certificate number of the 2023 Notes in respect of
     which such notice of withdrawal is being submitted, or, if not
     certificated, the written notice of withdrawal must comply with appropriate
     Depositary procedures;

     (b) the principal amount of the 2023 Notes with respect to which such
     notice of withdrawal is being submitted; and

     (c) the principal amount, if any, of such 2023 Notes which remains subject
     to the original Purchase Notice or Fundamental Change Purchase Notice, as
     the case may be, and which has been or shall be delivered for purchase by
     the Issuer.

     There shall be no purchase of any 2023 Notes pursuant to Article III or
Article IV hereof if an Event of Default has occurred and is continuing (other
than a default that is cured by the


                                       34

<PAGE>

payment of the Purchase Price or Fundamental Change Purchase Price, as the case
may be). The Paying Agent shall promptly return to the respective Holders
thereof any 2023 Notes (x) with respect to which a Purchase Notice or
Fundamental Change Purchase Notice, as the case may be, has been withdrawn in
compliance with this Sixteenth Supplemental Indenture, or (y) held by it during
the continuance of an Event of Default (other than a default that is cured by
the payment of the Purchase Price or Fundamental Change Purchase Price, as the
case may be) in which case, upon such return, the Purchase Notice or Fundamental
Change Purchase Notice with respect thereto shall be deemed to have been
withdrawn.

     SECTION 5.03. 2023 Notes Purchased in Part. Any 2023 Notes that are to be
purchased only in part shall be surrendered at the office of the Paying Agent
(with, if the Issuer or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Issuer and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing) and the Issuer shall execute and the Trustee or the
Authenticating Agent shall authenticate and deliver to the Holder of such 2023
Notes, without service charge, a new 2023 Note or 2023 Notes, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the portion of the principal amount of the 2023 Notes so
surrendered which is not purchased or redeemed.

     SECTION 5.04. Covenant to Comply with Securities Laws Upon Purchase of 2023
Notes. In connection with any offer to purchase 2023 Notes under Article III or
Article IV hereof, the Issuer shall, to the extent applicable: (a) comply with
Rules 13e-4 and 14e-1 (and any successor provisions thereto) under the Exchange
Act, if applicable; (b) file the related Schedule TO (or any successor schedule,
form or report) under the Exchange Act, if applicable; and (c) otherwise comply
with all applicable federal and state securities laws so as to permit the rights
and obligations under Article III or Article IV hereof to be exercised in the
time and in the manner specified in Article III or Article IV hereof.

     SECTION 5.05. Repayment to the Issuer. The Trustee and the Paying Agent
shall return to the Issuer any cash or property that remains unclaimed as
provided in the 2023 Notes, together with interest that the Trustee or Paying
Agent, as the case may be, has agreed to pay, if any, held by them for the
payment of a Purchase Price or Fundamental Change Purchase Price, as the case
may be; provided, however, that to the extent that the aggregate amount of cash
or property deposited by the Issuer pursuant to Section 4.01(f) or Section 3.04
hereof, as applicable, exceeds the aggregate Purchase Price or Fundamental
Change Purchase Price, as the case may be, of the 2023 Notes or portions thereof
which the Issuer is obligated to purchase as of the Purchase Date or Fundamental
Change Purchase Date, as the case may be, then promptly on and after the
Business Day following the Purchase Date or Fundamental Change Purchase Date, as
the case may be, the Trustee and the Paying Agent shall return any such excess
to the Issuer together with interest that the Trustee or Paying Agent, as the
case may be, has agreed to pay, if any.

     SECTION 5.06. Officers' Certificate. At least five Business Days before the
Issuer Notice Date, the Issuer shall deliver an Officers' Certificate to the
Trustee (provided, that, at the Issuer's option, the matters to be addressed in
such Officers' Certificate may be divided among two such certificates)
specifying:

     (a) the manner of payment selected by the Issuer; and


                                       35

<PAGE>

     (b) whether the Issuer desires the Trustee to give the Issuer Notice
     required by Section 5.01 hereof.

                                   ARTICLE VI

                            CONVERSION OF 2023 NOTES

     SECTION 6.01. Right to Convert. A Holder may convert its 2023 Notes for
cash and shares of Common Stock at any time during which the conditions stated
in the 2023 Notes are met. The cash and number of shares of Common Stock
issuable upon conversion of a 2023 Note per $1,000 principal amount (the
"Conversion Rate") shall be that set forth in Section 6.13 hereof, subject to
adjustment as herein set forth. The initial Conversion Rate is 93.7137 shares of
Common Stock issuable upon conversion of a 2023 Note per $1,000 principal
amount.

     A Holder may convert a portion of the principal amount of 2023 Notes if the
portion is $1,000 or a multiple of $1,000.

     SECTION 6.02. Conversion Procedures. To convert 2023 Notes, a Holder must
satisfy the requirements in this Section 6.02 and in the 2023 Notes. The date on
which the Holder satisfies all those requirements is the conversion date (the
"Conversion Date"). Subject to the procedures set forth in Section 6.13 hereof,
as soon as practicable, but in no event later than the fifth Business Day
following the Conversion Date, the Issuer shall deliver the Conversion Value in
cash and deliver the Common Stock by either of the following methods: (i) update
the global security representing the shares of Common Stock to record the
Holder's interest in the Common Stock, or (ii) deliver to the Holder, through
the Conversion Agent, a certificate for the number of full shares of Common
Stock representing Net Shares, if any, together with, in either case, cash or a
check in lieu of any fractional share determined pursuant to Section 6.03
hereof. The Person in whose name the certificate is registered shall be treated
as a stockholder of record on and after the Conversion Date; provided, however,
that no surrender of 2023 Notes on any date when the stock transfer books of the
Issuer shall be closed shall be effective to constitute the Person or Persons
entitled to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the Person or Persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; such conversion shall be at the Conversion Rate
in effect on the date that such 2023 Notes shall have been surrendered for
conversion, as if the stock transfer books of the Issuer had not been closed.
Upon conversion of 2023 Notes, such Person shall no longer be a Holder of such
2023 Notes.

     No payment or adjustment shall be made for dividends on or other
distributions with respect to any Common Stock except as provided in Section
6.06 hereof or as otherwise provided in this Indenture.

     On conversion of 2023 Notes, delivery of the Principal Return and the Net
Shares (together with the cash or check payment, if any, in lieu of fractional
shares) will be deemed to satisfy the Issuer's obligation to pay the principal
amount of the converted 2023 Notes as well as accrued interest with respect to
the converted 2023 Notes. Accrued interest on the 2023 Notes


                                       36

<PAGE>

shall be deemed canceled, extinguished or forfeited, rather than paid in full.
Notwithstanding conversion of any 2023 Notes, the Holders of the 2023 Notes and
any Common Stock issuable upon conversion thereof will continue to be entitled
to receive Additional Amounts in accordance with the Registration Rights
Agreement.

     If a Holder converts more than one 2023 Note at the same time, the amount
of cash and number of shares of Common Stock issuable upon the conversion shall
be based on the total principal amount of the 2023 Notes converted.

     Upon surrender of a 2023 Note that is converted in part, the Issuer shall
execute, and the Trustee or the Authenticating Agent shall authenticate and
deliver to the Holder, a new 2023 Note in an authorized denomination equal in
principal amount to the unconverted portion of the 2023 Note surrendered.

     If the last day on which 2023 Notes may be converted is a legal holiday in
a place where a Conversion Agent is located, the 2023 Notes may be surrendered
to that Conversion Agent on the next succeeding day that it is not a legal
holiday.

     SECTION 6.03. Cash or Check Payments in Lieu of Fractional Shares. The
Issuer shall not issue a fractional share of Common Stock upon conversion of
2023 Notes. Instead the Issuer shall deliver cash (or Issuer's check) for the
current market value of the fractional share. The current market value of a
fractional share shall be determined to the nearest 1/10,000th of a share by
multiplying the Last Reported Sale Price of a full share of Common Stock on the
Trading Day immediately preceding the Conversion Date by the fractional amount
and rounding the product to the nearest whole cent.

     SECTION 6.04. Taxes on Conversion. If a Holder converts 2023 Notes, the
Issuer shall pay any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion. However, the Holder
shall pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name. The Conversion Agent may refuse
to deliver the certificates representing the Common Stock being issued in a name
other than the Holder's name until the Conversion Agent receives a sum
sufficient to pay any tax which shall be due because the shares are to be issued
in a name other than the Holder's name. Nothing herein shall preclude any
withholding tax required by law.

     SECTION 6.05. Covenants of the Issuer. The Issuer shall, prior to issuance
of any 2023 Notes hereunder, and from time to time as may be necessary, reserve
out of its authorized but unissued Common Stock a sufficient number of shares of
Common Stock to permit the conversion of the 2023 Notes.

     All shares of Common Stock delivered upon conversion of the 2023 Notes
shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive rights
and free of any lien or adverse claim.

     The Issuer shall endeavor promptly to comply with all federal and state
securities laws regulating the order and delivery of shares of Common Stock upon
the conversion of 2023 Notes, if any, and shall cause to have listed or quoted
all such shares of Common Stock on each


                                       37

<PAGE>

United States national securities exchange or over-the-counter or other domestic
market on which the Common Stock is then listed or quoted.

     SECTION 6.06. Adjustments to Conversion Rate. The Conversion Rate shall be
adjusted from time to time, without duplication, as follows:

     (a) In case the Issuer shall: (i) pay a dividend, or make a distribution,
     exclusively in shares of its capital stock, on the Common Stock; (ii)
     subdivide its outstanding Common Stock into a greater number of shares;
     (iii) combine its outstanding Common Stock into a smaller number of shares;
     or (iv) reclassify its Common Stock, the Conversion Rate in effect
     immediately prior to the record date or effective date, as the case may be,
     for the adjustment pursuant to this Section 6.06(a) as described below,
     shall be adjusted so that the Holder of any 2023 Notes thereafter
     surrendered for conversion shall be entitled to receive the cash and number
     of shares of Common Stock of the Issuer which such Holder would have owned
     or have been entitled to receive after the happening of any of the events
     described above had such 2023 Notes been converted immediately prior to
     such record date or effective date, as the case may be. An adjustment made
     pursuant to this Section 6.06(a) shall become effective immediately after
     the applicable record date in the case of a dividend or distribution and
     shall become effective immediately after the applicable effective date in
     the case of subdivision, combination or reclassification of the Issuer's
     Common Stock. If any dividend or distribution of the type described in
     clause (i) above is not so paid or made, the Conversion Rate shall again be
     adjusted to the Conversion Rate which would then be in effect if such
     dividend or distribution had not been declared.

     (b) In case the Issuer shall issue rights or warrants to all holders of the
     Common Stock entitling them (for a period expiring within 60 days after the
     date of issuance of such rights or warrants) to subscribe for or purchase
     Common Stock at a price per share less than the Market Price per share of
     Common Stock on the record date fixed for determination of shareholders
     entitled to receive such rights or warrants, the Conversion Rate in effect
     immediately after such record date shall be adjusted so that the same shall
     equal the Conversion Rate determined by multiplying the Conversion Rate in
     effect immediately after such record date by a fraction of which (i) the
     numerator shall be the number of shares of Common Stock outstanding on such
     record date plus the number of additional shares of Common Stock offered
     for subscription or purchase, and (ii) the denominator shall be the number
     of shares of Common Stock outstanding on such record date plus the number
     of shares which the aggregate offering price of the total number of shares
     so offered would purchase at the Market Price per share of Common Stock on
     the earlier of such record date or the Trading Day immediately preceding
     the ex date for such issuance of rights or warrants. Such adjustment shall
     be made successively whenever any such rights or warrants are issued, and
     shall become effective immediately after the opening of business on the day
     following the record date for the determination of shareholders entitled to
     receive such rights or warrants. To the extent that shares of Common Stock
     are not delivered after the expiration of such rights or warrants, the
     Conversion Rate shall be readjusted to the Conversion Rate which would then
     be in effect had the adjustments made upon the issuance of such rights or
     warrants been made on the basis of delivery of only the number of shares of
     Common Stock actually delivered. If


                                       38

<PAGE>

     such rights or warrants are not so issued, the Conversion Rate shall again
     be adjusted to be the Conversion Rate which would then be in effect if such
     record date for the determination of shareholders entitled to receive such
     rights or warrants had not been fixed. In determining whether any rights or
     warrants entitle the holders to subscribe for or purchase shares of Common
     Stock at less than such Market Price, and in determining the aggregate
     offering price of such shares of Common Stock, there shall be taken into
     account any consideration received by the Issuer for such rights or
     warrants, the value of such consideration, if other than cash, to be
     determined by the Board of Directors.

     (c) In case the Issuer shall, by dividend or otherwise, distribute to all
     holders of Common Stock any assets, debt securities or rights or warrants
     to purchase any of its securities (excluding (i) any dividend, distribution
     or issuance covered by those referred to in Section 6.06(a) or Section
     6.06(b) hereof and (ii) any dividend or distribution paid exclusively in
     cash) (any of the foregoing hereinafter in this Section 6.06(c) called the
     "Distributed Assets or Securities") in an aggregate amount per share of
     Common Stock that, combined together with the aggregate amount of any other
     such distributions to all holders of its Common Stock made within the 12
     months preceding the date of payment of such distribution, and in respect
     of which no adjustment pursuant to this Section 6.06(c) has been made,
     exceeds 15% of the Market Price on the Trading Day immediately preceding
     the declaration of such distribution, then the Conversion Rate shall be
     adjusted so that the same shall equal the Conversion Rate determined by
     multiplying the Conversion Rate in effect immediately prior to the close of
     business on the record date mentioned below by a fraction of which (A) the
     numerator shall be the Market Price per share of the Common Stock on the
     earlier of such record date or the Trading Day immediately preceding the ex
     date for such dividend or distribution, and (B) the denominator shall be
     (1) the Market Price per share of the Common Stock on the earlier of such
     record date or the Trading Day immediately preceding the ex date for such
     dividend or distribution less (2) the Fair Market Value on the earlier of
     such record date or the Trading Day immediately preceding the ex date for
     such dividend or distribution (as determined by the Board of Directors,
     whose determination shall be conclusive, and described in a certificate
     filed with the Trustee and the Paying Agent) of the Distributed Assets or
     Securities so distributed applicable to one share of Common Stock. Such
     adjustment shall become effective immediately after the record date for the
     determination of shareholders entitled to receive such distribution;
     provided, however, that, if (i) the Fair Market Value of the portion of the
     Distributed Assets or Securities so distributed applicable to one share of
     Common Stock is equal to or greater than the Market Price of the Common
     Stock on the record date for the determination of shareholders entitled to
     receive such distribution or (ii) the Market Price of the Common Stock on
     the record date for the determination of shareholders entitled to receive
     such distribution is greater than the Fair Market Value per share of such
     Distributed Assets or Securities by less than $1.00, then, in lieu of the
     foregoing adjustment, adequate provision shall be made so that each Holder
     shall have the right to receive upon conversion, in addition to the cash
     and shares of Common Stock, the kind and amount of assets, debt securities,
     or rights or warrants comprising the Distributed Assets or Securities the
     Holder would have received had such Holder converted such 2023 Notes
     immediately prior to the record date for the determination of shareholders
     entitled to receive such distribution. In the event that such distribution
     is not so paid or made, the applicable Conversion Rate shall again be
     adjusted


                                       39

<PAGE>

     to the Conversion Rate which would then be in effect if such distribution
     had not been declared.

     (d) In case the Issuer shall declare a cash dividend or cash distribution
     to all or substantially all of the holders of Common Stock, the Conversion
     Rate shall be increased so that the applicable Conversion Rate shall equal
     the price determined by multiplying the Conversion Rate in effect
     immediately prior to the record date for such dividend or distribution by a
     fraction,

          (i) the numerator of which shall be the average of the Last Reported
          Sale Price of Common Stock for the five consecutive Trading Days
          ending on the Trading Day immediately preceding the record date for
          such dividend or distribution (the "Pre-Dividend Sale Price"), and

          (ii) the denominator of which shall be the Pre-Dividend Sale Price,
          minus the full amount of such cash dividend or cash distribution
          applicable to one share of Common Stock (the "Dividend Adjustment
          Amount"), with

     such adjustment to become effective immediately after the record date for
     such dividend or distribution; provided that if the denominator of the
     foregoing fraction is less than $1.00 (including a negative amount), then
     in lieu of the foregoing adjustment, adequate provision shall be made so
     that each Holder shall have the right to receive upon conversion, in
     addition to the cash and Common Stock issuable upon such conversion, the
     amount of cash such Holder would have received had such Holder converted
     its 2023 Note solely into Common Stock at the then applicable Conversion
     Rate immediately prior to the record date for such cash dividend or cash
     distribution. If such cash dividend or cash distribution is not so paid or
     made, the applicable Conversion Rate shall again be adjusted to be the
     Conversion Rate that would then be in effect if such dividend or
     distribution had not been declared.

     (e) If a Holder elects to convert 2023 Notes in connection with a corporate
     transaction that occurs on or prior to July 15, 2008, that constitutes a
     Fundamental Change (other than as described in clause (iv) of the
     definition of Fundamental Change) and 10% or more of the Fair Market Value
     of the consideration for the Common Stock (as determined by the Board of
     Directors, whose determination shall be conclusive evidence of such Fair
     Market Value) in the corporate transaction consists of (i) cash, (ii) other
     property or (iii) securities that are not traded or scheduled to be traded
     immediately following such transaction on a U.S. national securities
     exchange or the Nasdaq National Market, then the Conversion Rate for the
     2023 Notes surrendered for conversion by such Holder shall be adjusted so
     that such Holder will be entitled to receive cash and shares of Common
     Stock equal to the sum of (A) the Conversion Value and (B) the number of
     additional shares of Common Stock (the "Additional Shares") determined in
     the manner set forth below, subject in each case to the Issuer's payment
     elections as described in Section 6.13 hereof. For the avoidance of doubt,
     the adjustment provided for in this Section 6.06(e) shall only be made with
     respect to the 2023 Notes being converted in connection with such
     Fundamental Change and shall not be effective as to any 2023 Notes not so
     converted.


                                       40

<PAGE>

          The number of Additional Shares will be determined by reference to the
     table below, based on the date on which such corporate transaction becomes
     effective (the "Effective Date") and the Share Price; provided that if the
     Share Price is between two Share Price amounts in the table below or the
     Effective Date is between two Effective Dates in the table, the number of
     Additional Shares will be determined by a straight-line interpolation
     between the number of Additional Shares set forth for the higher and lower
     Share Price amounts and the two dates, as applicable, based on a 365-day
     year.

          The Share Prices set forth in the first row of the table below (i.e.,
     column headers) will be adjusted as of any date on which the applicable
     Conversion Rate of the 2023 Notes is adjusted pursuant to this Section
     6.06. The adjusted Share Prices will equal the Share Prices applicable
     immediately prior to such adjustment, multiplied by a fraction, the
     numerator of which is the Conversion Rate immediately prior to the
     adjustment giving rise to the share price adjustment and the denominator of
     which is the Conversion Rate as so adjusted.

          The following table sets forth the hypothetical Share Price and number
     of Additional Shares to be received per $1,000 principal amount of 2023
     Notes:

<TABLE>
<CAPTION>
                                                              SHARE PRICE
                 -----------------------------------------------------------------------------------------------------
EFFECTIVE DATE   $7.21 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $50.00
- --------------   ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S>              <C>   <C>   <C>   <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
November 9, 2004  45.0  36.3  28.3   22.6   18.5   15.3   13.0   11.1    9.7    5.6    3.7    2.6    1.9    1.4    0.0
July 15, 2005     45.0  36.4  28.0   22.1   17.9   14.7   12.3   10.5    9.1    5.2    3.5    2.5    1.9    1.4    0.0
July 15, 2006     45.0  35.5  26.7   20.5   16.1   12.9   10.6    8.9    7.6    4.2    2.8    2.0    1.5    1.1    0.0
July 15, 2007     45.0  34.4  24.8   18.2   13.7   10.5    8.3    6.8    5.7    3.1    2.1    1.5    1.2    0.9    0.0
July 15, 2008     44.9  33.1  22.4   15.2   10.6    7.5    5.5    4.3    3.4    1.8    1.3    1.0    0.7    0.6    0.0
</TABLE>

          The Share Prices and Additional Share amounts set forth above are
     based upon an initial Conversion Rate per share of 93.7137 per $1,000
     principal amount of 2023 Notes.

          If the Share Price is equal to or in excess of $50.00 per share
     (subject to adjustment), no Additional Shares will be issued upon
     conversion.

          If the Share Price is less than $7.21 per share (subject to
     adjustment), no Additional Shares will be issued upon conversion.

          Notwithstanding the foregoing, any adjustment to the applicable
     Conversion Rate relating to the issuance of Additional Shares as described
     in this section will not exceed the Maximum Conversion Rate.

     (f) Notwithstanding the foregoing, in the case of a Public Acquirer Change
     of Control, the Issuer may, in lieu of increasing the applicable Conversion
     Rate by Additional Shares as described in Section 6.06(e) hereof, elect to
     adjust the applicable Conversion Rate and the related conversion obligation
     such that upon conversion the Issuer will deliver cash and a number of
     shares of Public Acquirer Common Stock such that by multiplying the
     Conversion Rate in effect immediately before the Public Acquirer Change of
     Control shall be adjusted by a fraction:


                                       41

<PAGE>

          (i) the numerator of which will be the average of the Last Reported
          Sale Price of the Common Stock for the five consecutive Trading Days
          prior to but excluding the effective date of such Public Acquirer
          Change of Control; and

          (ii) the denominator of which will be the average of the Last Reported
          Sale Price of the Public Acquirer Common Stock for the five
          consecutive Trading Days commencing on the Trading Day next succeeding
          the effective date of such Public Acquirer Change of Control.

          A "Public Acquirer Change of Control" means any event described in
     Section 6.06(e) hereof that would otherwise obligate the Issuer to increase
     the Conversion Rate as described in Section 6.06(e) hereof and the acquirer
     (or any entity of which the acquirer is a directly or indirectly
     wholly-owned Subsidiary and such entity provides a guarantee to the new
     2023 Notes) has a class of common stock traded on a U.S. national
     securities exchange or quoted on the Nasdaq National Market or which will
     be so traded or quoted when issued or exchanged in connection with such
     event (the "Public Acquirer Common Stock").

          After the adjustment of the applicable Conversion Rate in connection
     with a Public Acquirer Change of Control, the applicable Conversion Rate
     will be subject to further similar adjustments in the event that any of the
     events described in this Section 6.06 occur thereafter.

          The Issuer is required to notify Holders of its election in writing of
     such transaction which notice shall be made five Business Days prior to the
     effective date of such Public Acquirer Change of Control. In addition, the
     Holder can also, subject to certain conditions, require the Company to
     repurchase all or a portion of its 2023 Notes as described under Article
     III.

     (g) With respect to Section 6.06(c) hereof, in the event that the Issuer
     makes any distribution to all holders of Common Stock consisting of Equity
     Interests in a Subsidiary or other business unit of the Issuer, the
     Conversion Rate shall be adjusted so that the same shall equal the
     Conversion Rate determined by multiplying the Conversion Rate in effect
     immediately prior to the close of business on the record date fixed for the
     determination of holders of Common Stock entitled to receive such
     distribution by a fraction of which (i) the numerator shall be (x) the
     Spin-off Market Price per share of the Common Stock on such record date
     plus (y) the Spin-off Market Price per Equity Interest of the Subsidiary or
     other business unit of the Issuer on such record date and (ii) the
     denominator shall be the Spin-off Market Price per share of the Common
     Stock on such record date, such adjustment to become effective 10 Trading
     Days after the effective date of such distribution of Equity Interests in a
     Subsidiary or other business unit of the Issuer.

     (h) Upon conversion of the 2023 Notes, the Holders shall receive, in
     addition to the cash and Common Stock issuable upon such conversion, the
     rights issued under any future shareholder rights plan the Issuer
     implements (notwithstanding the occurrence of an event causing such rights
     to separate from the Common Stock at or prior to the time of conversion)
     unless, prior to conversion, the rights have expired, terminated or been


                                       42

<PAGE>

     redeemed or exchanged in accordance with such rights plan. If, and only if,
     the Holders of 2023 Notes receive rights under such shareholder rights
     plans as described in the preceding sentence upon conversion of their 2023
     Notes, then no other adjustment pursuant to this Section 6.06 shall be made
     in connection with such shareholder rights plans.

     (i) For purposes of this Section 6.06, the number of shares of Common Stock
     at any time outstanding shall not include shares held in the treasury of
     the Issuer but shall include shares issuable in respect of scrip
     certificates issued in lieu of fractions of shares of Common Stock. The
     Issuer shall not pay any dividend or make any distribution on shares of
     Common Stock held in the treasury of the Issuer.

     (j) Notwithstanding the foregoing, in no event shall the Conversion Rate
     exceed the maximum conversion rate specified under this Section 6.06(j)
     (the "Maximum Conversion Rate") as a result of an adjustment pursuant to
     Sections 6.06(c), 6.06(d) and 6.06(e). The Maximum Conversion Rate shall
     initially be 138.6963 and shall be appropriately adjusted from time to time
     for any stock dividends on or subdivisions or combinations of the Common
     Stock. The Maximum Conversion Rate shall not apply to any adjustments made
     pursuant to any of the events in Section 6.06(a) or Section 6.06(b) hereof.

     SECTION 6.07. Calculation Methodology. No adjustment in the Conversion
Price need be made unless the adjustment would require an increase or decrease
of at least 1% in the Conversion Price then in effect, provided that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. Except as stated in this
Article VI, the Conversion Rate will not be adjusted for the issuance of Common
Stock or any securities convertible into or exchangeable for Common Stock or
carrying the right to purchase any of the foregoing. Any adjustments that are
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under Article V and Section 6.06 hereof and this
Section 6.07 shall be made to the nearest cent or to the nearest 1/10,000th of a
share, as the case may be.

     SECTION 6.08. When No Adjustment Required. No adjustment to the Conversion
Rate need be made:

     (a) upon the issuance of any shares of Common Stock pursuant to any present
     or future plan providing for the reinvestment of dividends or interest
     payable on securities of the Issuer and the investment of additional
     optional amounts in shares of Common Stock under any plan;

     (b) upon the issuance of any shares of Common Stock or options or rights to
     purchase those shares pursuant to any present or future employee, director
     or consultant benefit plan or program of or assumed by the Issuer or any of
     its Subsidiaries;

     (c) upon the issuance of any shares of Common Stock pursuant to any option,
     warrant, right, or exercisable, exchangeable or convertible security not
     described in clause (b) above and outstanding as of the date of this
     Sixteenth Supplemental Indenture;


                                       43

<PAGE>

     (d) for a change in the par value or no par value of the Common Stock;

     (e) for accrued and unpaid interest (including Additional Amounts, if any);
     or

     (f) if Holders are to participate in a merger or consolidation on a basis
     and with notice that the Board of Directors determines to be fair and
     appropriate in light of the basis and notice on which holders of Common
     Stock participate in the transaction; provided that the basis on which the
     Holders are to participate in the transaction shall not be deemed to be
     fair if it would require the conversion of Securities at any time prior to
     the expiration of the conversion period specified for such Securities.

     To the extent the 2023 Notes become convertible into cash, assets, or
property (other than capital stock of the Issuer or securities to which Section
6.12 hereof applies), no adjustment shall be made thereafter as to the cash,
assets or property. Interest shall not accrue on such cash.

     SECTION 6.09. Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Issuer shall promptly mail to Holders a notice of the adjustment.
The Issuer shall file with the Trustee and the Conversion Agent such notice. The
certificate shall, absent manifest error, be conclusive evidence that the
adjustment is correct. Neither the Trustee nor any Conversion Agent shall be
under any duty or responsibility with respect to any such certificate except to
exhibit the same to any Holder desiring inspection thereof.

     SECTION 6.10. Voluntary Increase. The Issuer may make such increases in the
Conversion Rate, in addition to those required by Section 6.06 hereof, as the
Board of Directors considers to be advisable to avoid or diminish any income tax
to holders of Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. To the extent permitted by applicable
law, the Issuer may from time to time increase the Conversion Rate by any
amount, temporarily or otherwise, for any period of at least 20 days if the
increase is irrevocable during the period and the Board of Directors shall have
made a determination that such increase would be in the best interests of the
Issuer, which determination shall be conclusive. Whenever the Conversion Rate is
so increased, the Issuer shall mail to Holders and file with the Trustee and the
Conversion Agent a notice of such increase. Neither the Trustee nor any
Conversion Agent shall be under any duty or responsibility with respect to any
such notice except to exhibit the same to any holder desiring inspection
thereof. The Issuer shall mail the notice at least 15 days before the date the
increased Conversion Rate takes effect. The notice shall state the increased
Conversion Rate and the period it shall be in effect.

     SECTION 6.11. Notice to Holders Prior to Certain Actions. In case:

     (a) the Issuer shall declare a dividend (or any other distribution) on its
     Common Stock that would require an adjustment in the Conversion Rate
     pursuant to Section 6.06 hereof;

     (b) the Issuer shall authorize the granting to all or substantially all the
     holders of its Common Stock of rights or warrants to subscribe for or
     purchase any share of any class or any other rights or warrants;


                                       44

<PAGE>

     (c) of any reclassification or reorganization of the Common Stock of the
     Issuer (other than a subdivision or combination of its outstanding Common
     Stock, or a change in par value, or from par value to no par value, or from
     no par value to par value), or of any consolidation or merger to which the
     Issuer is a party and for which approval of any shareholders of the Issuer
     is required, or of the sale or transfer of all or substantially all of the
     assets of the Issuer; or

     (d) of the voluntary or involuntary dissolution, liquidation or winding-up
     of the Issuer,

     the Issuer shall cause to be filed with the Trustee and to be mailed to
     each Holder at its address appearing on the Security Register, as promptly
     as possible but in any event at least 15 days prior to the applicable date
     hereinafter specified, a notice stating (x) the date on which a record is
     to be taken for the purpose of such dividend, distribution or rights or
     warrants, or, if a record is not to be taken, the date as of which the
     holders of Common Stock of record to be entitled to such dividend,
     distribution, or rights or warrants are to be determined or (y) the date on
     which such reclassification, reorganization, consolidation, merger, sale,
     transfer, dissolution, liquidation or winding-up is expected to become
     effective or occur, and the date as of which it is expected that holders of
     Common Stock of record shall be entitled to exchange their Common Stock for
     securities or other property deliverable upon such reclassification,
     reorganization, consolidation, merger, sale, transfer, dissolution,
     liquidation or winding-up. Failure to give such notice, or any defect
     therein, shall not affect the legality or validity of such dividend,
     distribution, reclassification, reorganization, consolidation, merger,
     sale, transfer, dissolution, liquidation or winding-up.

     SECTION 6.12. Effect of Reclassification, Consolidation, Merger, Binding
Share Exchange or Sale. If any of the following events occur, namely: (a) any
reclassification or change of outstanding shares of Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination); (b) any
consolidation, merger, combination or binding share exchange of the Issuer with
another Person as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock; or (c) any sale or conveyance
of the properties and assets of the Issuer as, or substantially as, an entirety
to any other Person as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, then the Issuer or
the successor or purchasing Person, as the case may be, shall execute with the
Trustee a supplemental indenture to the Indenture, providing that each 2023 Note
shall be convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, binding share
exchange, sale or conveyance by a holder of a number of shares of Common Stock
issuable upon conversion of such 2023 Note immediately prior to such
reclassification, change, consolidation, merger, combination, binding share
exchange, sale or conveyance. Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6.12.


                                       45

<PAGE>

     The Issuer shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder, at its address appearing on the Security
Register, within 20 days after execution thereof. Failure to deliver such notice
shall not affect the legality or validity of such supplemental indenture.

     The above provisions of this Section 6.12 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
binding share exchanges, sales and conveyances.

     If this Section 6.12 applies to any event or occurrence, Section 6.06
hereof shall not apply.

     SECTION 6.13 Conversion Value of 2023 Notes Tendered.

     (a) Subject to certain exceptions described in Sections 2.04(b) and
2.04(e), Holders tendering the 2023 Notes for conversion shall be entitled to
receive, upon conversion of such 2023 Notes, cash and shares of Common Stock,
the value of which (the "Conversion Value") shall be equal to the product of:

          (i) (A) the aggregate principal amount of 2023 Notes to be converted
          divided by 1,000 multiplied by (B) the then applicable Conversion
          Rate; and

          (ii) the average of the Common Stock prices for the ten consecutive
          Trading Days (appropriately adjusted to take into account the
          occurrence during such period of stock splits, stock dividends and
          similar events) beginning on the second Trading Day immediately
          following the day the 2023 Notes are tendered for conversion (the "Ten
          Day Average Closing Stock Price").

     (b) Subject to certain exceptions described below and under Sections
2.04(b) and 2.04(e), the Issuer shall deliver the Conversion Value to converting
Holders as follows:

          (i) an amount in cash (the "Principal Return") equal to the lesser of
          (a) the Conversion Value of the 2023 Notes to be converted and (b) the
          aggregate principal amount of the 2023 Notes to be converted;

          (ii) if the Conversion Value of the 2023 Notes to be converted is
          greater than the Principal Return, an amount in whole shares (the "Net
          Shares"), determined as set forth below, equal to such aggregate
          Conversion Value less the Principal Return (the "Net Share Amount");
          and

          (iii) an amount paid in cash, determined as set forth below, in lieu
          of any fractional shares of Common Stock.

     The number of Net Shares to be paid shall be determined by dividing the Net
Share Amount by the Ten Day Average Closing Stock Price. Holders of 2023 Notes
will not receive fractional shares upon conversion of 2023 Notes. In lieu of
fractional shares, Holders will receive cash for the value of the fractional
shares, which cash payment shall be based on the Ten Day Average Closing Stock
Price.


                                       46

<PAGE>

     The Conversion Value, Principal Return, number of Net Shares and Net Share
Amount shall be determined by the Issuer at the end of the ten consecutive
Trading Day period beginning on the second Trading Day immediately following the
day the 2023 Notes are tendered for conversion (the "Determination Date").

     The Issuer shall pay the Principal Return and cash for fractional shares
and deliver the Net Shares, if any, as promptly as practicable after the
Determination Date, but in no event later than five Business Days thereafter.
Except as provided in Section 2.04, delivery of the Principal Return, Net Shares
and cash in lieu of fractional shares shall be deemed to satisfy the Issuer's
obligation to pay the principal amount of a converted 2023 Note including
accrued but unpaid interest (including Additional Amounts, if any) thereon. Any
accrued and unpaid interest (including Additional Amounts, if any) payable on a
converted 2023 Note shall be deemed canceled, extinguished or forfeited rather
than paid in full.

     (c) Neither the Trustee nor the Conversion Agent has any duty to determine
or calculate the Conversion Value, Principal Return, number of Net Shares, the
Net Share Amount or any other computation required under this Section 6.13, all
of which shall be determined by the Issuer (or the Trustee, as the case may be)
in accordance with the provisions of this Indenture, and the Trustee and
Conversion Agent shall not be under any responsibility to determine the
correctness of any such determinations and/or calculations and may conclusively
rely on the correctness thereof.

     SECTION 6.14. Responsibility of Trustee. The Trustee and any other
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder to either calculate the Conversion Rate or determine whether any
facts exist which may require any adjustment of the Conversion Rate, or with
respect to the nature or extent or calculation of any such adjustment when made,
or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same and shall be protected in
relying upon an Officers' Certificate with respect to the same. The Trustee and
any other Conversion Agent shall not be accountable with respect to the validity
or value (or the kind or amount) of any shares of Common Stock, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any 2023 Notes and the Trustee and any other Conversion Agent make
no representations with respect thereto. Subject to the provisions of Article
Six of the Original Indenture, neither the Trustee nor any Conversion Agent
shall be responsible for any failure of the Issuer to issue, transfer or deliver
any shares of Common Stock or stock certificates or other securities or property
or cash upon the surrender of any 2023 Notes for the purpose of conversion or to
comply with any of the duties, responsibilities or covenants of the Issuer
contained in this Section 6.14. Without limiting the generality of the
foregoing, neither the Trustee nor any Conversion Agent shall be under any
responsibility to determine the correctness of any provisions contained in any
supplemental indenture entered into pursuant to Article VI hereof relating
either to the kind or amount of shares of stock or securities or property
(including cash) receivable by Holders upon the conversion of their 2023 Notes
after any event referred to in such Section 6.12 or to any adjustment to be made
with respect thereto, but, subject to the provisions of Article Six of the
Original Indenture, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Issuer shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.


                                       47

<PAGE>

     SECTION 6.15. Simultaneous Adjustments. In the event that Section 6.06
hereof requires adjustments to the Conversion Rate under more than one of
Section 6.06(a), Section 6.06(b), Section 6.06(c) or Section 6.06(d) hereof, and
the Record Dates for the distributions giving rise to such adjustments shall
occur on the same date, then such adjustments shall be made by applying, first,
the provisions of Section 6.06(c) hereof, second, the provisions of Section
6.06(a) hereof and third, the provisions of Section 6.06(b) hereof; provided,
however, that nothing in this Section 6.15 shall be done to evade the principle
set forth in Section 6.06(j) hereof that the Maximum Conversion Rate shall not
apply to any adjustments made with respect to any of the events in Section
6.06(a) or Section 6.06(b) hereof.

     SECTION 6.16. Successive Adjustments. After an adjustment to the Conversion
Rate under Section 6.06 hereof, any subsequent event requiring an adjustment
under Section 6.06 shall cause an adjustment to the Conversion Rate as so
adjusted.

     SECTION 6.17. General Considerations. Whenever successive adjustments to
the Conversion Rate are called for pursuant to this Article VI, such adjustments
shall be made to the Market Price as may be necessary or appropriate to
effectuate the intent of this Article VI and to avoid unjust or inequitable
results as determined in good faith by the Board of Directors.

     SECTION 6.18. Issuer Determination Final. Any determination which the Board
of Directors must make pursuant to this Article VI shall be conclusive and
binding on the Holders.

     SECTION 6.19. Conversion Provisions. Pursuant to Section 2.3(f)(10) of the
Original Indenture, the obligation of the Issuer to permit the conversion of the
2023 Notes into Common Stock and the terms and conditions upon which such
conversion shall be effected set forth in this Sixteenth Supplemental Indenture
are in addition to and in lieu of those provisions set forth in Article Thirteen
of the Original Indenture relative to such obligation.


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<PAGE>

                                   ARTICLE VII

                       ADDITIONAL COVENANTS OF THE ISSUER
                         WITH RESPECT TO THE 2023 NOTES

     SECTION 7.01. Existence. So long as any of the 2023 Notes are outstanding,
subject to Article Nine of the Original Indenture, the Issuer will do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence.

     SECTION 7.02. Limitation on Certain Liens. (a) So long as any of the 2023
Notes are outstanding, the Issuer shall not create, incur, assume or suffer to
exist any lien, mortgage, pledge, security interest, conditional sale, title
retention agreement or other charge or encumbrance of any kind, or any other
type of arrangement intended or having the effect of conferring upon a creditor
of the Issuer or any Subsidiary a preferential interest (hereinafter in this
Section 7.02 referred to as a "Lien") upon or with respect to any of its
property of any character, including without limitation any shares of Capital
Stock of Consumers or Enterprises, without making effective provision whereby
the 2023 Notes shall (so long as any such other creditor shall be so secured) be
equally and ratably secured (along with any other creditor similarly entitled to
be secured) by a direct Lien on all property subject to such Lien, provided,
however, that the foregoing restrictions shall not apply to:

     (i) Liens for taxes, assessments or governmental charges or levies to the
     extent not past due;

     (ii) pledges or deposits to secure (A) obligations under workmen's
     compensation laws or similar legislation, (B) statutory obligations of the
     Issuer or (C) Support Obligations;

     (iii) Liens imposed by law, such as materialmen's, mechanics', carriers',
     workmen's and repairmen's Liens and other similar Liens arising in the
     ordinary course of business securing obligations which are not overdue or
     which have been fully bonded and are being contested in good faith;

     (iv) purchase money Liens upon or in property acquired and held by the
     Issuer in the ordinary course of business to secure the purchase price of
     such property or to secure Indebtedness incurred solely for the purpose of
     financing the acquisition of any such property to be subject to such Liens,
     or Liens existing on any such property at the time of acquisition, or
     extensions, renewals or replacements of any of the foregoing for the same
     or a lesser amount, provided that no such Lien shall extend to or cover any
     property other than the property being acquired and no such extension,
     renewal or replacement shall extend to or cover property not theretofore
     subject to the Lien being extended, renewed or replaced, and provided,
     further, that the aggregate principal amount of the Indebtedness at any one
     time outstanding secured by Liens permitted by this clause (iv) shall not
     exceed $10,000,000; and

     (v) Liens not otherwise permitted by clauses (i) through (iv) of this
     Section 7.02 securing Indebtedness of the Issuer; provided that on the date
     such Liens are created, and


                                       49

<PAGE>

     after giving effect to such Indebtedness, the aggregate principal amount at
     maturity of all of the secured Indebtedness of the Issuer at such date
     shall not exceed 5% of Consolidated Net Tangible Assets at such date.

     SECTION 7.03. Limitation on Consolidation, Merger, Sale or Conveyance. So
long as any of the 2023 Notes are outstanding and until the 2023 Notes are rated
BBB- or above (or an equivalent rating) by Standard & Poor's and one Other
Rating Agency (or, if Standard & Poor's shall change its rating system, an
equivalent of such rating then employed by such organization), at which time the
Issuer will be permanently released from the provisions of this Section 7.03,
and subject also to Article Nine of the Original Indenture, the Issuer shall not
consolidate with or merge into any other Person or sell, lease or convey the
property of the Issuer in the entirety or substantially as an entirety, unless
(a) immediately after giving effect to such transaction the Consolidated Net
Worth of the surviving entity is at least equal to the Consolidated Net Worth of
the Issuer immediately prior to the transaction and (b) after giving effect to
such transaction, the surviving entity would be entitled to incur at least one
dollar of additional Indebtedness (other than revolving Indebtedness to banks)
without violation of the limitations in Section 7.04 hereof.

     SECTION 7.04. Limitation on Consolidated Indebtedness.

     (a) So long as any of the 2023 Notes are outstanding and until the 2023
Notes are rated BBB- or above (or an equivalent rating) by Standard & Poor's and
one Other Rating Agency (or, if Standard & Poor's shall change its rating
system, an equivalent of such rating then employed by such organization), at
which time the Issuer will be permanently released from the provisions of this
Section 7.04, the Issuer shall not, and shall not permit any Consolidated
Subsidiary of the Issuer to, issue, create, assume, guarantee, incur or
otherwise become liable for (collectively, "issue"), directly or indirectly, any
Indebtedness unless the Consolidated Coverage Ratio of the Issuer and its
Consolidated Subsidiaries for the four consecutive fiscal quarters immediately
preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of the Issuer and its Consolidated Subsidiaries
for the four most recent fiscal quarters ending at least 30 days prior to the
issuance of such Indebtedness after giving effect to (i) the issuance of such
Indebtedness and (if applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if such Indebtedness was issued at the beginning
of the period, (ii) the issuance and retirement of any other Indebtedness since
the first day of the period as if such Indebtedness was issued or retired at the
beginning of the period and (iii) the acquisition of any company or business
acquired by the Issuer or any Subsidiary since the first day of the period
(including giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated contemporaneously
with the issuance of such Indebtedness, as if in each case such acquisition
occurred at the beginning of the period) exceeds a ratio of 1.6 to 1.0.

     (b) Notwithstanding the foregoing paragraph, the Issuer or any Restricted
     Subsidiary may issue, directly or indirectly, the following Indebtedness:

          (1) Indebtedness of the Issuer to banks not to exceed $1,000,000,000
          in aggregate outstanding principal amount at any time;


                                       50

<PAGE>

          (2) Indebtedness (other than Indebtedness described in Section
          7.04(b)(1) hereof) outstanding on the date of this Sixteenth
          Supplemental Indenture, as set forth on Schedule 7.04(b)(2) attached
          hereto and made a part hereof, and Indebtedness issued in exchange
          for, or the proceeds of which are used to refund or refinance, any
          Indebtedness permitted by this clause (2); provided, however, that (i)
          the principal amount (or accreted value in the case of Indebtedness
          issued at a discount) of the Indebtedness so issued shall not exceed
          the principal amount (or accreted value in the case of Indebtedness
          issued at a discount) of, premium, if any, and accrued but unpaid
          interest on, the Indebtedness so exchanged, refunded or refinanced and
          (ii) the Indebtedness so issued (A) shall not mature prior to the
          stated maturity of the Indebtedness so exchanged, refunded or
          refinanced, (B) shall have an Average Life equal to or greater than
          the remaining Average Life of the Indebtedness so exchanged, refunded
          or refinanced and (C) if the Indebtedness to be exchanged, refunded or
          refinanced is subordinated to the 2023 Notes, the Indebtedness is
          subordinated to the 2023 Notes in right of payment;

          (3) Indebtedness of the Issuer owed to and held by a Subsidiary and
          Indebtedness of a Subsidiary owed to and held by the Issuer; provided,
          however, that, in the case of Indebtedness of the Issuer owed to and
          held by a Subsidiary, (i) any subsequent issuance or transfer of any
          Capital Stock that results in any such Subsidiary ceasing to be a
          Subsidiary or (ii) any transfer of such Indebtedness (except to the
          Issuer or a Subsidiary) shall be deemed for the purposes of this
          Section 7.04(b) to constitute the issuance of such Indebtedness by the
          Issuer;

          (4) Indebtedness of the Issuer issued in exchange for, or the proceeds
          of which are used to refund or refinance, Indebtedness of the Issuer
          issued in accordance with Section 7.04(a) hereof, provided that (i)
          the principal amount (or accreted value in the case of Indebtedness
          issued at a discount) of the Indebtedness so issued shall not exceed
          the principal amount (or accreted value in the case of Indebtedness
          issued at a discount) of, premium, if any, and accrued but unpaid
          interest on, the Indebtedness so exchanged, refunded or refinanced and
          (ii) the Indebtedness so issued (A) shall not mature prior to the
          stated maturity of the Indebtedness so exchanged, refunded or
          refinanced, (B) shall have an Average Life equal to or greater than
          the remaining Average Life of the Indebtedness so exchanged, refunded
          or refinanced and (C) if the Indebtedness to be exchanged, refunded or
          refinanced is subordinated to the 2023 Notes, the Indebtedness so
          issued is subordinated to the 2023 Notes in right of payment;

          (5) Indebtedness of a Restricted Subsidiary issued in exchange for, or
          the proceeds of which are used to refund or refinance, Indebtedness of
          a Restricted Subsidiary issued in accordance with Section 7.04(a)
          hereof, provided that (i) the principal amount (or accreted value in
          the case of Indebtedness issued at a discount) of the Indebtedness so
          issued shall not exceed the principal amount (or accreted value in the
          case of Indebtedness issued at a discount) of, premium, if any, and
          accrued but unpaid interest on, the Indebtedness so exchanged,
          refunded or refinanced and (ii) the Indebtedness so issued (A) shall
          not mature prior to the


                                       51

<PAGE>

          stated maturity of the Indebtedness so exchanged, refunded or
          refinanced and (B) shall have an Average Life equal to or greater than
          the remaining Average Life of the Indebtedness so exchanged, refunded
          or refinanced.

          (6) Indebtedness of a Consolidated Subsidiary issued to acquire,
          develop, improve, construct or to provide working capital for a gas,
          oil or electric generation, exploration, production, distribution,
          storage or transmission facility and related assets, provided that
          such Indebtedness is without recourse to any assets of the Issuer,
          Consumers, Enterprises, CMS Generation, CMS Electric and Gas, CMS Gas
          Transmission, CMS ERM or any other Designated Enterprises Subsidiary;

          (7) Indebtedness of a Person existing at the time at which such Person
          became a Subsidiary and not incurred in connection with, or in
          contemplation of, such Person becoming a Subsidiary. Such Indebtedness
          shall be deemed to be incurred on the date the acquired Person becomes
          a Consolidated Subsidiary;

          (8) Indebtedness issued by the Issuer not to exceed $150,000,000 in
          aggregate principal amount at any time; and

          (9) Indebtedness of a Consolidated Subsidiary in respect of rate
          reduction bonds issued to recover electric restructuring transition
          costs of Consumers ,provided that such Indebtedness is without
          recourse to the assets of Consumers.

     SECTION 7.05. Limitation on Restricted Payments.

     (a) So long as the 2023 Notes are outstanding and until the 2023 Notes are
rated BBB- or above (or an equivalent rating) by Standard & Poor's and one Other
Rating Agency (or, if Standard & Poor's shall change its rating system, an
equivalent of such rating then employed by such organization), at which time the
Issuer will be permanently released from the provisions of this Section 7.05,
the Issuer shall not, and shall not permit any Restricted Subsidiary of the
Issuer, directly or indirectly, to (i) declare or pay any dividend or make any
distribution on the Capital Stock of the Issuer to the direct or indirect
holders of its Capital Stock (except dividends or distributions payable solely
in its Non-Convertible Capital Stock or in options, warrants or other rights to
purchase such Non-Convertible Capital Stock and except dividends or
distributions payable to the Issuer or a Subsidiary), (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Issuer or (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity or scheduled repayment thereof, any Subordinated
Indebtedness (any such dividend, distribution, purchase, redemption, repurchase,
defeasing, other acquisition or retirement being herein referred to as a
"Restricted Payment") if at the time the Issuer or such Subsidiary makes such
Restricted Payment:

     (1) an Event of Default, or an event that with the lapse of time or the
     giving of notice or both would constitute an Event of Default, shall have
     occurred and be continuing (or would result therefrom); or


                                       52

<PAGE>

     (2) the aggregate amount of such Restricted Payment and all other
     Restricted Payments made since May 6, 1997 would exceed the sum of:

          (A) $100,000,000;

          (B) 100% of Consolidated Net Income, accrued during the period
          (treated as one accounting period) from May 6, 1997 to the end of the
          most recent fiscal quarter ending at least 45 days prior to the date
          of such Restricted Payment (or, in case such sum shall be a deficit,
          minus 100% of the deficit); and

          (C) the aggregate Net Cash Proceeds received by the Issuer from the
          issue or sale of or contribution with respect to its Capital Stock
          subsequent to May 6, 1997.

     For the purpose of determining the amount of any Restricted Payment not in
the form of cash, the amount shall be the fair value of such Restricted Payment
as determined in good faith by the Board of Directors, provided that if the
value of the non-cash portion of such Restricted Payment as determined by the
Board of Directors is in excess of $25 million, such value shall be based on the
opinion from a nationally recognized firm experienced in the appraisal of
similar types of transactions.

     (b) The provisions of Section 7.05(a) hereof shall not prohibit:

          (i) any purchase or redemption of Capital Stock of the Issuer made by
          exchange for, or out of the proceeds of the substantially concurrent
          sale of, Capital Stock of the Issuer (other than Redeemable Stock or
          Exchangeable Stock); provided, however, that such purchase or
          redemption shall be excluded from the calculation of the amount of
          Restricted Payments;

          (ii) dividends or other distributions paid in respect of any class of
          the Issuer's Capital Stock issued in respect of the acquisition of any
          business or assets by the Issuer or a Restricted Subsidiary if the
          dividends or other distributions with respect to such Capital Stock
          are payable solely from the net earnings of such business or assets;

          (iii) dividends paid within 60 days after the date of declaration
          thereof if at such date of declaration such dividend would have
          complied with this Section 7.05; provided, however, that at the time
          of payment of such dividend, no Event of Default shall have occurred
          and be continuing (or result therefrom), and provided, further,
          however, that such dividends shall be included (without duplication)
          in the calculation of the amount of Restricted Payments; or

          (iv) payments pursuant to the Tax Sharing Agreement.

     SECTION 7.06. Limitation on Asset Sales. So long as any of the 2023 Notes
are outstanding, the Issuer may not sell, transfer or otherwise dispose of any
property or assets of the


                                       53

<PAGE>

Issuer, including Capital Stock of any Consolidated Subsidiary, in one
transaction or a series of transactions in an amount which exceeds $50,000,000
(an "Asset Sale") unless the Issuer shall (i) apply an amount equal to such
excess Net Cash Proceeds to permanently repay Indebtedness of a Consolidated
Subsidiary or Indebtedness of the Issuer which is pari passu with the 2023
Notes, (ii) invest an equal amount not so used in clause (i) in property or
assets of related business within 24 months after the date of the Asset Sale
(the "Application Period") or (iii) apply such excess Net Cash Proceeds not so
used in clause (i) or (ii) (the "Excess Proceeds") to make an offer, within 30
days after the end of the Application Period, to purchase from the Holders on a
pro rata basis an aggregate principal amount of 2023 Notes on the relevant
purchase date equal to the Excess Proceeds on such date, at a purchase price
equal to 100% of the principal amount of the 2023 Notes on the relevant purchase
date and unpaid interest, if any, to the purchase date. The Issuer shall only be
required to make an offer to purchase 2023 Notes from Holders pursuant to clause
(iii) if the Excess Proceeds equal or exceed $25,000,000 at any given time.

     The procedures to be followed by the Issuer in making an offer to purchase
2023 Notes from the Holders with Excess Proceeds, and for the acceptance of such
offer by the Holders, shall be the same as those set forth in Section 5.01
herein with respect to a Fundamental Change.

                                  ARTICLE VIII

                          ADDITIONAL EVENTS OF DEFAULT
                         WITH RESPECT TO THE 2023 NOTES

     SECTION 8.01. Definition. All of the events specified in clauses (a)
through (h) of Section 5.1 of the Original Indenture shall be "Events of
Default" with respect to the 2023 Notes.

     SECTION 8.02. Amendments to Section 5.1 of the Original Indenture. Solely
for the purpose of determining Events of Default with respect to the 2023 Notes,
paragraphs Section 5.1(e), Section 5.1(f) and Section 5.1(h) of the Original
Indenture shall be amended such that each and every reference therein to the
Issuer shall be deemed to mean either the Issuer or Consumers.

     SECTION 8.03. Additional Events of Default. Solely for the purpose of
determining Events of Default with respect to the 2023 Notes, an Event of
Default shall also include the following:

(i) default in the payment of any interest upon any 2023 Note, including
Additional Amounts, if any, when it becomes due and payable, and continuance of
such default for 30 days;

(ii) default in the Issuer's obligation to redeem the 2023 Notes after
exercising its redemption option pursuant to Article XIII hereof;

(iii) default in the Issuer's obligation to convert the 2023 Notes upon exercise
of a Holder's conversion right in accordance with the terms of the 2023 Notes
and Article VI hereof; and

(iv) default in the Issuer's obligation to purchase 2023 Notes upon the
occurrence of a Fundamental Change or the exercise by a Holder of its option to
require the Issuer to repurchase


                                       54

<PAGE>

such Holder's 2023 Notes in accordance with the terms of Article III or Article
IV hereof, as applicable.

                                   ARTICLE IX

                                  GLOBAL NOTES

     The 2023 Notes will be issued initially in the form of Global Notes.
"Global Note" means a registered 2023 Note evidencing one or more 2023 Notes
issued to a depositary (the "Depositary") or its nominee, in accordance with
this Article IX and bearing the legend prescribed in this Article IX. One or
more Global Notes will represent all 2023 Notes. The Issuer shall execute and
the Trustee shall, in accordance with this Article IX and the Issuer Order with
respect to the 2023 Notes, authenticate and deliver one or more Global Notes in
temporary or permanent form that (i) shall represent and shall be denominated in
an aggregate amount equal to the aggregate principal amount of the 2023 Notes to
be represented by such Global Note or Global Notes, (ii) shall be registered in
the name of the Depositary for such Global Note or Global Notes or the nominee
of such Depositary, (iii) shall be delivered by the Trustee to such Depositary
or pursuant to such Depositary's instructions and (iv) shall bear a legend
substantially to the following effect: "Unless the Global 2023 Note is presented
by an authorized representative of the Depositary to the Issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of a nominee of the Depositary or in such other name as
is requested by an authorized representative of the Depositary (and any payment
is made to such nominee of the Depositary or to such other entity as is
requested by an authorized representative of the Depositary), any transfer,
pledge or other use hereof for value or otherwise by or to any Person is
wrongful inasmuch as the registered owner hereof has an interest herein."

     Notwithstanding Section 2.8 of the Original Indenture, unless and until it
is exchanged in whole or in part for 2023 Notes in definitive form, a Global
Note representing one or more 2023 Notes may not be transferred except as a
whole by the Depositary, to a nominee of such Depository or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor Depositary for 2023 Notes or a
nominee of such successor Depositary.

     If at any time the Depositary for the 2023 Notes is unwilling or unable to
continue as Depositary for the 2023 Notes, the Issuer shall appoint a successor
Depositary with respect to the 2023 Notes. If a successor Depositary for the
2023 Notes is not appointed by the Issuer by the earlier of (i) 90 days from the
date the Issuer receives notice to the effect that the Depositary is unwilling
or unable to act, or the Issuer determines that the Depositary is unable to act
or (ii) the effectiveness of the Depositary's resignation or failure to fulfill
its duties as Depositary, the Issuer will execute, and the Trustee, upon receipt
of a Issuer Order for the authentication and delivery of definitive 2023 Notes,
will authenticate and deliver 2023 Notes in definitive form in an aggregate
principal amount equal to the principal amount of the Global Note or Global
Notes representing such 2023 Notes in exchange for such Global Note or Global
Notes.

     The Issuer may at any time and in its sole discretion determine that the
2023 Notes issued in the form of one or more Global Notes shall no longer be
represented by such Global Note or


                                       55

<PAGE>

Global Notes. In such event the Issuer will execute, and the Trustee, upon
receipt of an Issuer Order for the authentication and delivery of definitive
2023 Notes, will authenticate and deliver 2023 Notes in definitive form in an
aggregate principal amount equal to the principal amount of the Global Note or
Global Notes representing such 2023 Notes in exchange for such Global Note or
Global Notes.

     The Depositary for such 2023 Notes may surrender a Global Note or Global
Notes for such 2023 Notes in exchange in whole or in part for 2023 Notes in
definitive form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon, the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge:

     (i) to each Person specified by such Depositary a new 2023 Note or 2023
     Notes, of any authorized denomination as requested by such Person in
     aggregate principal amount equal to and in exchange for such Person's
     beneficial interest in the Global Note; and

     (ii) to such Depositary a new Global Note in a denomination equal to the
     difference, if any, between the principal amount of the surrendered Global
     Note and the aggregate principal amount of 2023 Notes in definitive form
     delivered to Holders thereof.

     In any exchange provided for in this Article IX, the Issuer will execute
and the Trustee will authenticate and deliver 2023 Notes in definitive
registered form in authorized denominations.

     Upon the exchange of a Global Note for 2023 Notes in definitive form, such
Global Note shall be cancelled by the Trustee. 2023 Notes in definitive form
issued in exchange for a Global Note pursuant to this Article IX shall be
registered in such names and in such authorized denominations as the Depositary
for such Global Note, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee or Security Registrar. The
Trustee shall deliver such 2023 Notes to the Persons in whose names such 2023
Notes are so registered.

                                    ARTICLE X

                                   DEFEASANCE

     All of the provisions of Article Ten of the Original Indenture shall be
applicable to the 2023 Notes. Upon satisfaction by the Issuer of the
requirements of Section 10.1(C) of the Indenture, in connection with any
covenant defeasance (as provided in Section 10.1(C) of the Indenture), the
Issuer shall be released from its obligations under Article Nine of the Original
Indenture and under Article VII and Article XIII of this Sixteenth Supplemental
Indenture with respect to the 2023 Notes.


                                       56

<PAGE>

                                   ARTICLE XI

                             SUPPLEMENTAL INDENTURES

     This Sixteenth Supplemental Indenture is a supplement to the Original
Indenture. As supplemented by this Sixteenth Supplemental Indenture, the
Original Indenture is in all respects ratified, approved and confirmed, and the
Original Indenture and this Sixteenth Supplemental Indenture shall together
constitute one and the same instrument.

                                   ARTICLE XII

                             MODIFICATION AND WAIVER

     In addition to those matters set forth in Section 8.2 of the Original
Indenture (including the terms and conditions of the 2023 Notes set forth
herein), with respect to the 2023 Notes, no amendment or supplemental indenture
to the Indenture shall, without the consent of the Holder of each 2023 Note
affected thereby:

(a) reduce the Redemption Price, Purchase Price or Fundamental Change Purchase
Price of the 2023 Notes;

(b) change the terms applicable to redemption or purchase of the 2023 Notes in a
manner adverse to the Holder; or

(c) alter the manner of calculation or rate of Additional Amounts payable on any
2023 Note or extend the time for payment of any such amount.

In addition, with respect to the 2023 Notes, notwithstanding Section 5.10 of the
Original Indenture, approval of the Holders of each outstanding 2023 Note shall
be required to:

(a) waive any default by the Issuer in any payment of the Redemption Price,
Purchase Price or Fundamental Change Purchase Price with respect to any 2023
Notes; or

(b) waive any default which constitutes a failure to convert any 2023 Note in
accordance with its terms and the terms of Article VI hereof.

The reference to "interest" in Section 5.10(i) of the Original Indenture shall
include Additional Amounts, if any.

                                  ARTICLE XIII

                      OPTIONAL REDEMPTION OF THE 2023 NOTES

     SECTION 13.01. Right to Redeem; Notice to Trustee, Paying Agent and
Holders. On or after July 15, 2008, the Issuer may, at its option, redeem the
2023 Notes in whole, or in part, at any time in accordance with the provisions
of the 2023 Notes. If the Issuer elects to redeem 2023 Notes pursuant to the
provisions of the 2023 Notes, it shall notify in writing the Trustee,


                                       57

<PAGE>

the Paying Agent and each Holder of 2023 Notes to be redeemed, as provided in
Section 11.2 of the Indenture and Section 13.04 hereof.

     SECTION 13.02. Fewer Than All Outstanding 2023 Notes to Be Redeemed. If
fewer than all of the outstanding 2023 Notes are to be redeemed, the Trustee
shall select the 2023 Notes to be redeemed in principal amounts of $1,000 or
integral multiples thereof. In the case that the Trustee shall select the 2023
Notes to be redeemed, the Trustee may effectuate such selection by lot, pro
rata, or by any other method that the Trustee considers fair and appropriate.
The Trustee will make such selection promptly following receipt of the notice of
redemption from the Issuer provided pursuant to Section 13.04 hereof.

     SECTION 13.03. Selection of 2023 Notes to Be Redeemed. If any 2023 Notes
selected for partial redemption are thereafter surrendered for conversion in
part before termination of the conversion right with respect to the portion of
the 2023 Notes so selected, the converted portion of such 2023 Notes shall be
deemed (so far as may be), solely for purposes of determining the aggregate
principal amount of 2023 Notes to be redeemed by the Issuer, to be the portion
selected for redemption. 2023 Notes which have been converted during a selection
of 2023 Notes to be redeemed may be treated by the Trustee as outstanding for
the purpose of such selection. Nothing in this Section 13.03 shall affect the
right of any Holder to convert any 2023 Notes pursuant to Article VI hereof
before the termination of the conversion right with respect thereto.

     SECTION 13.04. Notice of Redemption. In addition to those matters set forth
in Section 11.2 of the Indenture, a notice of redemption sent to Holders of 2023
Notes shall state:

     (a) the then current Conversion Rate;

     (b) the name and address of the Paying Agent and the Conversion Agent;

     (c) that the 2023 Notes called for redemption may be converted at any time
before the close of business on the Business Day immediately preceding the
redemption date; and

     (d) that Holders who wish to convert 2023 Notes must comply with the
procedures provided in the 2023 Notes.

     SECTION 13.05. Effect of Notice of Redemption. Once notice of redemption is
mailed, 2023 Notes called for redemption become due and payable on the
redemption date and at the Redemption Price, except for 2023 Notes that are
converted in accordance with the provisions of Article VI hereof and the
provisions of the 2023 Notes. Upon presentation and surrender to the Paying
Agent, 2023 Notes called for redemption shall be paid at the Redemption Price.

     SECTION 13.06. Deposit of Redemption Price. On or before 10:00 a.m. (New
York City time) on the redemption date, the Issuer shall deposit with the Paying
Agent (or if the Issuer or an Affiliate of the Issuer is acting as the Paying
Agent, shall segregate and hold in trust) an amount of money sufficient to pay
the aggregate Redemption Price of all the 2023 Notes to be redeemed on that date
other than the 2023 Notes or portions thereof called for redemption which on or
prior thereto have been delivered by the Issuer to the Security Registrar for
cancellation or


                                       58
<PAGE>

have been converted. The Trustee and Paying Agent shall, as promptly as
practicable, return to the Issuer any money not required for that purpose
because of conversion of the 2023 Notes in accordance with the provisions of
Article VI hereof. If such money is then held by the Issuer or a Subsidiary in
trust and is not required for such purpose, it shall be discharged from such
trust.

                                   TESTIMONIUM

         This Sixteenth Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.


                                       59

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Sixteenth
Supplemental Indenture to be duly executed and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first written
above.

                                        CMS ENERGY CORPORATION


                                        /s/ Thomas J. Webb
                                        ----------------------------------------
                                        Thomas J. Webb
                                        Executive Vice President and
                                        Chief Financial Officer


Attest:


/s/ Laura L. Mountcastle
- -------------------------------------
Laura L. Mountcastle


                                        J.P. MORGAN TRUST COMPANY, N.A.,
                                        as Trustee


                                        /s/ Renee Johnson
                                        ----------------------------------------
                                        Renee Johnson


Attest:


/s/ Mietka T. Collins
- -------------------------------------
Mietka T. Collins

<PAGE>

                               Schedule 7.04(b)(2)

                                - See Attached -

<PAGE>

                                    EXHIBIT A

                   FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE

To: CMS Energy Corporation

     The undersigned registered holder of this 2023 Note hereby acknowledges
receipt of a notice from CMS Energy Corporation (the "Company") as to the
occurrence of a Fundamental Change with respect to the Company and requests and
instructs the Company to repurchase this 2023 Note, or the portion hereof (which
is $1,000 principal amount or a integral multiple thereof) designated below, in
accordance with the terms of the Sixteenth Supplemental Indenture referred to in
this 2023 Note and directs that the check of the Company, in payment for this
2023 Note or the portion thereof and any 2023 Notes representing any
un-repurchased principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated below. If
any portion of this 2023 Note not repurchased is to be issued in the name of a
Person other than the undersigned, the undersigned shall pay all transfer taxes
payable with respect thereto.

Dated:


                                        ----------------------------------------
                                                      Signature(s)

                                        Signature(s) must be guaranteed by a
                                        commercial bank or trust company or a
                                        member firm of a major stock exchange if
                                        cash or 2023 Notes are to be delivered,
                                        other than to or in the name of the
                                        registered holder.


                                        ----------------------------------------
                                                   Signature Guarantee

Fill in for registration of 2023 Notes if to be issued other than to and in the
name of registered holder:

- -------------------------------------
(Name)

- -------------------------------------
(Street Address)

- -------------------------------------
(City, state and zip code)
Please print name and address

                                        Principal amount to be purchased (if
                                        less than all): $______,000
                                        Social Security or other taxpayer
                                        number

<PAGE>

                                    EXHIBIT B

                             FORM OF PURCHASE NOTICE

To: CMS Energy Corporation

     The undersigned registered holder of this 2023 Note hereby acknowledges
receipt of a notice from CMS Energy Corporation (the "Company") as to the
holder's option to require the Company to repurchase this 2023 Note and requests
and instructs the Company to repurchase this 2023 Note, or the portion hereof
(which is $1,000 principal amount or an integral multiple thereof) designated
below, in accordance with the terms of the Sixteenth Supplemental Indenture
referred to in this 2023 Note and directs that the check of the Company in
payment for this 2023 Note or the portion thereof and any 2023 Notes
representing any un-repurchased principal amount hereof, be issued and delivered
to the registered holder hereof unless a different name has been indicated
below. If any portion of this 2023 Note not repurchased is to be issued in the
name of a Person other than the undersigned, the undersigned shall pay all
transfer taxes payable with respect thereto.

Dated:


                                        ----------------------------------------
                                                      Signature(s)

                                        Signature(s) must be guaranteed by a
                                        commercial bank or trust company or a
                                        member firm of a major stock exchange if
                                        cash or 2023 Notes are to be delivered,
                                        other than to or in the name of the
                                        registered holder.


                                        ----------------------------------------
                                                   Signature Guarantee

Fill in for registration of 2023 Notes if to be issued other than to and in the
name of registered holder:

- -------------------------------------
(Name)

- -------------------------------------
(Street Address)

- -------------------------------------
(City, state and zip code)
Please print name and address

                                        Principal amount to be purchased (if
                                        less than all): $______,000

                                        Social Security or other taxpayer
                                        number
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(J)
<SEQUENCE>6
<FILENAME>k91832exv4wxjy.txt
<DESCRIPTION>$300 MILLION FIFTH AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4(j)

                                  $300,000,000

                           FIFTH AMENDED AND RESTATED
                                CREDIT AGREEMENT

                           Dated as of August 3, 2004

                                      Among

                             CMS ENERGY CORPORATION
                                  as a Borrower

                             CMS ENTERPRISES COMPANY
                                  as a Borrower

                             THE BANKS NAMED HEREIN
                                    as Banks

                               CITICORP USA, INC.
                  as Administrative Agent and Collateral Agent

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                              as Syndication Agent

                                       and

                                  BANK ONE, NA
                              BARCLAYS BANK PLC AND
                         UNION BANK OF CALIFORNIA, N.A.
                             as Documentation Agents

                                   ----------

                          CITIGROUP GLOBAL MARKETS INC.
                        AND WACHOVIA CAPITAL MARKETS LLC
                 as Joint Book Managers and Joint Lead Arrangers

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                           Page
- -------                                                                           ----
<S>              <C>                                                              <C>
                                    ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01.    Certain Defined Terms ........................................     2
SECTION 1.02.    Computation of Time Periods; Construction ....................    22
SECTION 1.03.    Accounting Terms .............................................    22

                                   ARTICLE II
             COMMITMENTS, LOANS, FEES, PREPAYMENTS AND OUTSTANDINGS

SECTION 2.01.    Making Loans .................................................    23
SECTION 2.02.    Fees .........................................................    23
SECTION 2.03.    Commitments; Mandatory Prepayments ...........................    24
SECTION 2.04.    Computations of Outstandings .................................    25

                                   ARTICLE III
                                      LOANS

SECTION 3.01.    Loans ........................................................    25
SECTION 3.02.    Conversion of Loans ..........................................    26
SECTION 3.03.    Interest Periods .............................................    26
SECTION 3.04.    Other Terms Relating to the Making and Conversion of Loans ...    27
SECTION 3.05.    Repayment of Loans; Interest .................................    29

                                   ARTICLE IV
                                LETTERS OF CREDIT

SECTION 4.01.    Issuing Banks ................................................    29
SECTION 4.02.    Letters of Credit ............................................    30
SECTION 4.03.    Issuing Bank Fees ............................................    31
SECTION 4.04.    Reimbursement to Issuing Banks ...............................    31
SECTION 4.05.    Obligations Absolute .........................................    32
SECTION 4.06.    Indemnification; Liability of Issuing Banks and the Lenders ..    33
SECTION 4.07.    Currency Equivalents .........................................    34
SECTION 4.08.    Judgement Currency ...........................................    34
SECTION 4.09.    Cash Collateral Agreement ....................................    35
SECTION 4.10.    Court Order ..................................................    35

                                    ARTICLE V
                   PAYMENTS, COMPUTATIONS AND YIELD PROTECTION

SECTION 5.01.    Payments and Computations ....................................    35
</TABLE>


                                       i

<PAGE>

<TABLE>
<S>              <C>                                                              <C>
SECTION 5.02.    Interest Rate Determination ..................................    37
SECTION 5.03.    Prepayments ..................................................    37
SECTION 5.04.    Yield Protection .............................................    38
SECTION 5.05.    Sharing of Payments, Etc .....................................    40
SECTION 5.06.    Taxes ........................................................    40
SECTION 5.07.    Apportionment of Payments ....................................    41
SECTION 5.08.    Proceeds of Collateral .......................................    43

                                   ARTICLE VI
                              CONDITIONS PRECEDENT

SECTION 6.01.    Conditions Precedent to the Effectiveness of this Agreement ..    43
SECTION 6.02.    Conditions Precedent to Each Extension of Credit .............    46
SECTION 6.03.    Conditions Precedent to Certain Extensions of Credit .........    47
SECTION 6.04.    Reliance on Certificates .....................................    47

                                   ARTICLE VII
                         REPRESENTATIONS AND WARRANTIES

SECTION 7.01.    Representations and Warranties of the Borrowers ..............    47

                                  ARTICLE VIII
                           COVENANTS OF THE BORROWERS

SECTION 8.01.    Affirmative Covenants ........................................    52
SECTION 8.02.    Negative Covenants ...........................................    54
SECTION 8.03.    Reporting Obligations ........................................    63

                               ARTICLE IX DEFAULTS

SECTION 9.01.    Events of Default ............................................    66
SECTION 9.02.    Remedies .....................................................    68

                              ARTICLE X THE AGENTS

SECTION 10.01.   Authorization and Action .....................................    69
SECTION 10.02.   Indemnification ..............................................    71
SECTION 10.03.   Concerning the Collateral and the Loan Documents .............    72
SECTION 10 04.   Release of Guarantors ........................................    73

                                   ARTICLE XI
                                  MISCELLANEOUS

SECTION 11.01.   Amendments, Etc ..............................................    73
SECTION 11.02.   Notices, Etc..................................................    74
SECTION 11.03.   No Waiver of Remedies ........................................    74
SECTION 11.04.   Costs, Expenses and Indemnification ..........................    75
SECTION 11.05.   Right of Set-of...............................................    76
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>              <C>                                                              <C>
SECTION 11.06.   Binding Effect ...............................................    76
SECTION 11.07.   Assignments and Participation ................................    77
SECTION 11.08.   Confidentiality ..............................................    79
SECTION 11.09.   Waiver of Jury Trial .........................................    80
SECTION 11.10.   GOVERNING LAW; SUBMISSION TO JURISDICTION ....................    80
SECTION 11.11.   Relation of the Parties; No Beneficiary ......................    81
SECTION 11.12.   Execution in Counterparts ....................................    81
SECTION 11.13.   Survival of Agreement ........................................    81
SECTION 11.14.   Platform .....................................................    81
SECTION 11.15.   USA Patriot Act ..............................................    83

                                   ARTICLE XII
                             CO-BORROWER PROVISIONS

SECTION 12.01.   Appointment ..................................................    83
SECTION 12.02.   Separate Actions .............................................    84
SECTION 12.03.   Obligations Absolute and Unconditional .......................    84
SECTION 12.04.   Waivers and Acknowledgements .................................    84
SECTION 12.05.   Contribution Among Borrowers .................................    85
SECTION 12.06.   Subrogation; Reinstatement ...................................    86
SECTION 12.07.   Subordination ................................................    86

                                  ARTICLE XIII
           NO NOVATION; REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS

SECTION 13.01    No Novation ..................................................    87
SECTION 13.02.   References to This Agreement In Loan Documents ...............    87
</TABLE>


                                      iii

<PAGE>

<TABLE>
<S>             <C>
Exhibits

EXHIBIT A   -   Form of Notice of Borrowing
EXHIBIT B   -   Form of Notice of Conversion
EXHIBIT C   -   Form of Opinion of Belinda Foxworth, Esq., counsel to the Borrowers
EXHIBIT D   -   Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
                special counsel to the Borrowers
EXHIBIT E   -   Form of Compliance Schedule
EXHIBIT F   -   Form of Lender Assignment
EXHIBIT G   -   Terms of Subordination (Junior Subordinated Debt)
EXHIBIT H   -   Terms of Subordination (Guaranty of Hybrid Preferred Securities)
EXHIBIT I   -   Form of Amended and Restated Guaranty
EXHIBIT J   -   Form of Third Amended and Restated Pledge and Security Agreement
                (Company)
EXHIBIT K   -   Form of Pledge and Security Agreement (Enterprises and Grantors)
EXHIBIT L   -   AIG Pledge Agreement
EXHIBIT M   -   Intercreditor Agreement
EXHIBIT N   -   Form of Cash Collateral Account Agreement
</TABLE>

<TABLE>
<S>            <C>
Schedules

COMMITMENT
SCHEDULE
SCHEDULE I     Certain Debt
SCHEDULE II    Pledged Ownership Interests
SCHEDULE III   Transitional Letters of Credit

ATTACHMENT A   Reaffirmation
</TABLE>


                                       iv

<PAGE>

                   FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

                           Dated as of August 3, 2004

     THIS FIFTH AMENDED AND RESTATED CREDIT AGREEMENT (the "AGREEMENT") is made
by and among:

     (I)  CMS Energy Corporation, a Michigan corporation (the "COMPANY"),

     (II) CMS Enterprises Company, a Michigan corporation ("ENTERPRISES" and,
          together with the Company, the "BORROWERS"),

     (III) the banks (the "BANKS") listed on the signature pages hereof and the
          other Lenders (as hereinafter defined) from time to time party hereto,

     (IV) Citicorp USA, Inc. ("CUSA"), as administrative agent (the
          "ADMINISTRATIVE AGENT") for the Lenders hereunder and as collateral
          agent (the "COLLATERAL AGENT") for the Lenders hereunder, and

     (V)  Wachovia Bank, National Association, as syndication agent (the
          "SYNDICATION AGENT"), and Bank One, NA, Barclays Bank PLC and Union
          Bank of California, N.A., as documentation agents (the "DOCUMENTATION
          AGENTS").

                             PRELIMINARY STATEMENTS

     The Borrowers have requested that the Banks amend and restate the Existing
Credit Agreement (as hereafter defined) to provide the credit facility
hereinafter described in the amount and on the terms and conditions set forth
herein. The Banks have so agreed on the terms and conditions set forth herein,
and the Agents have agreed to act as agents for the Lenders and the Issuing
Banks on such terms and conditions.

     The parties hereto acknowledge and agree that neither Consumers (as
hereinafter defined) nor any of its Subsidiaries (as hereinafter defined) will
be a party to, or will in any way be bound by any provision of, this Agreement
or any other Loan Document (as hereinafter defined), and that no Loan Document
will be enforceable against Consumers or any of its Subsidiaries or their
respective assets.

     Accordingly, the parties hereto agree as follows:


                                       1

<PAGE>

                                    ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:

          "ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.

          "ABR LOAN" means a Loan that bears interest as provided in Section
3.05(b)(i).

          "ACCOUNTING CHANGE" is defined in Section 1.03.

          "ADJUSTED LIBO RATE" means, for each Interest Period for each
Eurodollar Rate Loan made as part of the same Borrowing, an interest rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the
LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

          "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.

          "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, as the context may require, the Administrative Agent,
the Collateral Agent, the Syndication Agent or the Documentation Agents, and
"Agents" means any or all of the foregoing.

          "AIG PLEDGE AGREEMENT" means that certain Pledge and Security
Agreement, dated as of January 8, 2003, by and among Enterprises and the other
grantors parties thereto in favor of American Home Assurance Company, as
collateral agent, a copy of which is attached hereto as Exhibit L, as amended,
restated, supplemented or otherwise modified from time to time.

          "ALTERNATE BASE RATE" means, for any day, a rate per annum equal to
the highest of (a) the Prime Rate in effect on such day, (b) 1/2 of one percent
above the CD Rate, and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the
Prime Rate, the CD Rate or the Federal Funds Effective Rate shall be effective
from and including the effective date of such change in the Prime Rate, CD Rate
or the Federal Funds Effective Rate, respectively.

          "ALTERNATIVE CURRENCY" means euro and Indian Rupees; provided, that if
with respect to any of the foregoing currencies (x) currency control or other
exchange regulations are


                                       2

<PAGE>

imposed in the country in which such currency is issued with the result that
different types of such currency are introduced, (y) such currency is, in the
determination of the Administrative Agent, no longer readily available or freely
traded or (z) in the determination of the Administrative Agent, a Dollar
Equivalent of such currency is not readily calculable, the Administrative Agent
shall promptly notify the Lenders and the Company, and such currency shall no
longer be an Alternative Currency until such time as all of the Lenders agree to
reinstate such currency as an Alternative Currency.

          "APPLICABLE LENDING OFFICE" means, with respect to each Lender, at the
address specified for such Lender on its signature page to this Agreement or in
the Lender Assignment pursuant to which it became a Lender, as applicable, or at
any office, branch, subsidiary or affiliate of such Lender specified in a notice
received by the Administrative Agent and the Borrowers from such Lender.

          "APPLICABLE MARGIN" means, on any date of determination with respect
to any Loans, the per annum rate specified in the table below for such Loans:

<TABLE>
<CAPTION>
             Applicable Margin
             -----------------
<S>          <C>
ABR Loans          1.75%
Eurodollar
Rate Loans         2.75%
</TABLE>

          "APPLICABLE RATE" means:

          (i) in the case of each ABR Loan, a rate per annum equal at all times
     to the sum of the Alternate Base Rate in effect from time to time plus the
     Applicable Margin; and

          (ii) in the case of each Eurodollar Rate Loan comprising part of the
     same Borrowing, a rate per annum during each Interest Period equal at all
     times to the sum of the Adjusted LIBO Rate for such Interest Period plus
     the Applicable Margin.

          "ARRANGERS" means Citigroup Global Markets Inc. and Wachovia Capital
Markets LLC.

          "AVAILABLE COMMITMENT" means, for each Lender on any day, the unused
portion of such Lender's Commitment, computed after giving effect to all
Extensions of Credit or prepayments to be made on such day and the application
of proceeds therefrom. "AVAILABLE COMMITMENTS" means the aggregate of the
Lenders' Available Commitments.

          "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Sections 101 et seq.), as amended from time to time, and any successor statute.

          "BOARD" means the Board of Governors of the Federal Reserve System of
the United States of America.


                                       3

<PAGE>

          "BORROWING" means a borrowing consisting of Loans of the same Type,
having the same Interest Period and made or Converted on the same day by the
Lenders, ratably in accordance with their respective Percentages. Any Borrowing
consisting of Loans of a particular Type may be referred to as being a Borrowing
of such "TYPE". All Loans to the same Borrower of the same Type, having the same
Interest Period and made or Converted on the same day shall be deemed a single
Borrowing hereunder until repaid or next Converted.

          "BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York City or Detroit, Michigan, and, if the
applicable Business Day relates to any Eurodollar Rate Loan, on which dealings
are carried on in the London interbank market and, if the applicable Business
Day relates to any Letter of Credit, a day of the year on which banks are not
required or authorized to close in the principal place of business of the
related Issuing Bank.

          "CASH COLLATERAL ACCOUNT" means the "Account" as defined in the Cash
Collateral Agreement.

          "CASH COLLATERAL AGREEMENT" means that certain Cash Collateral
Agreement, dated as of August 3, 2004, between the Borrowers, the Administrative
Agent and the Collateral Agent, for the benefit of the Lenders, substantially in
the form of Exhibit N, as amended, restated, supplemented or otherwise modified
from time to time.

          "CASH COLLATERAL REQUIRED AMOUNT" means, as of any date of
determination, the difference of (i) one hundred five percent (105%) of the
Dollar Equivalent of the aggregate LC Outstandings at such time in respect of
undrawn Letters of Credit less (y) the amount of cash on deposit in the Cash
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.

          "CASH DIVIDEND INCOME" means, for any period, the amount of all cash
dividends received by the Company from its Subsidiaries during such period that
are paid out of the net income or loss (without giving effect to: any
extraordinary gains in excess of $25,000,000, the amount of any write-off or
write-down of assets, including, without limitation, write-offs or write-downs
related to the sale of assets, impairment of assets and loss on contracts, in
each case in accordance with GAAP consistently applied, and up to $200,000,000
of other non-cash write-offs) of such Subsidiaries during such period.

          "CD RATE" means the latest three-week moving average of secondary
market morning offering rates in the United States for three-month certificates
of deposit of major United States money market banks, such three-week moving
average being determined weekly on each Monday (or, if such day is not a
Business Day, on the next succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the basis of such rates reported by
certificate of deposit dealers to and published by the Federal Reserve Bank of
New York or, if such publication shall be suspended or terminated, on the basis
of quotations for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected by Citibank, in
either case, adjusted to the nearest 1/16 of one percent or, if there is no
nearest 1/16 of one percent, to the next higher 1/16 of one percent.


                                       4

<PAGE>

          "CHANGE OF CONTROL" means (a) any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 50% of the then outstanding voting capital stock of the Company, or (b) the
majority of the board of directors of the Company shall fail to consist of
Continuing Directors, or (c) a consolidation or merger of the Company shall
occur after which the holders of the outstanding voting capital stock of the
Company immediately prior thereto hold less than 50% of the outstanding voting
capital stock of the surviving entity, or (d) more than 50% of the outstanding
voting capital stock of the Company shall be transferred to any entity of which
the Company owns less than 50% of the outstanding voting capital stock or (e)
the Company shall cease to own, directly or indirectly, 80% of the outstanding
capital stock of Enterprises.

          "CITIBANK" means Citibank, N.A., a national banking association.

          "CITIGROUP PARTIES" means Citibank, CUSA, Citigroup Global Markets
Inc. and each of their respective Affiliates, and each of their respective
officers, directors, employees, agents, advisors, and representatives.

          "CLOSING DATE" means August 3, 2004.

          "CMS ERM" means CMS Energy Resource Management Company (formerly known
as CMS Marketing, Services and Trading Company), a Michigan corporation, all of
whose capital stock is on the Closing Date owned by Enterprises and its
permitted successors.

          "CMS GENERATION" means CMS Generation Co., a Michigan corporation, all
of whose common stock is on the Closing Date owned by Enterprises and its
permitted successors.

          "COLLATERAL" means all property and interests in property now owned or
hereafter acquired by any Loan Party upon which a Lien is granted under any of
the Loan Documents, including, without limitation, all "Collateral" under (and
as defined in) the Cash Collateral Agreement.

          "COMMITMENT" means, for each Lender, the obligation of such Lender to
make Loans to the Borrowers and to participate in Extensions of Credit resulting
from the issuance (or extension, modification or amendment) of any Letter of
Credit in an aggregate amount no greater than the amount set forth opposite such
Lender's name on the Commitment Schedule under the heading "Commitment" or, if
such Lender has entered into one or more Lender Assignments, set forth for such
Lender in the Register maintained by the Administrative Agent pursuant to
Section 11.07(h), in each case as such amount may be modified from time to time
pursuant to Section 2.03. "COMMITMENTS" means the total of the Lenders'
Commitments hereunder. As of the Closing Date the aggregate of all of the
Lenders' Commitments equals $300,000,000.

          "COMMITMENT FEE MARGIN" means a per annum rate equal to 0.50%.

          "COMMITMENT SCHEDULE" means the Schedule identifying each Lender's
Commitment as of the Closing Date attached hereto and identified as such.


                                       5

<PAGE>

          "COMMITMENT TERMINATION DATE" means the earlier of (i) the Maturity
Date and (ii) the date of termination or reduction in whole of the Commitments
pursuant to Section 2.03 or 9.02.

          "COMMUNICATIONS" is defined in Section 11.14.

          "COMPANY INTEREST EXPENSE" means at any date, the total interest
expense in respect of Debt of the Company for the four calendar quarters
immediately preceding such date, including, without duplication, (i) interest
expense attributable to capital leases, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) cash and noncash payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under interest rate swap, "cap",
"collar" or other hedging agreements (including amortization of discount) and
(vii) interest expense in respect of obligations of Persons deemed to be Debt of
the Company under clause (ix) of the definition of Debt, provided, however that
Company Interest Expense shall exclude (1) any costs (including, without
limitation, any prepayment or option premium or expenses incurred in connection
with the Company's (i) reset put securities due July 1, 2003 or (ii) debt
securities due January 15, 2005) otherwise included in interest expense
recognized on early retirement of debt and (2) any interest or dividends paid on
Hybrid Preferred Securities.

          "CONFIDENTIAL INFORMATION" has the meaning assigned to that term in
Section 11.08.

          "CONSOLIDATED DEBT" means, without duplication, as determined on a
consolidated basis in accordance with GAAP, at any date of determination, the
sum of the aggregate Debt of the Company plus the aggregate debt (as such term
is construed in accordance with GAAP) of the Consolidated Subsidiaries;
provided, however, that:

          (a) Consolidated Debt shall not include any Support Obligation
     described in clause (iv) or (v) of the definition thereof if such Support
     Obligation or the primary obligation so supported is not fixed or
     conclusively determined or is not otherwise reasonably quantifiable as of
     the date of determination;

          (b) Consolidated Debt shall not include (i) any Junior Subordinated
     Debt owned by any Hybrid Preferred Securities Subsidiary or (ii) 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 Lenders and Issuing Banks hereunder and under the other Loan Documents
     pursuant to terms of subordination substantially similar to those set forth
     in Exhibit H, or pursuant to other terms and conditions satisfactory to the
     Required Lenders;

          (c) Consolidated Debt shall not include any debt issued by the Company
     that shall be (i) subordinated to the Obligations of the Loan Parties on
     terms acceptable to the Administrative Agent and (ii) required to be
     converted only into non-redeemable common stock of the Company;

          (d) with respect to any Support Obligations provided by the Company in
     connection with a purchase or sale by CMS ERM or its Subsidiaries of
     natural gas,


                                       6

<PAGE>

     natural gas liquids, gas condensates, electricity, oil, propane, coal, any
     other commodity, weather derivatives or any derivative instrument with
     respect to any commodity with any other Person (a "COUNTERPARTY"),
     Consolidated Debt shall include only the excess, if any, of (A) the
     aggregate amount of any Support Obligations provided by the Company in
     respect of CMS ERM's or any of its Subsidiary's obligations under any such
     purchase or sale transaction (a "COVERING TRANSACTION") entered into by CMS
     ERM or any of its Subsidiaries in connection with such purchase or sale
     over (B) the aggregate amount of (i) any Support Obligations provided by
     the direct or indirect parent company of such Counterparty (the
     "COUNTERPARTY GUARANTOR") and (ii) any irrevocable letter of credit
     provided by any financial institution for the account of such Counterparty
     or Counterparty Guarantor, in each case for the benefit of CMS ERM or any
     of its Subsidiaries in support of such Counterparty's payment obligations
     to CMS ERM or such Subsidiary arising from such purchase or sale, provided,
     that (x) the senior, unsecured, non-credit enhanced indebtedness of such
     Counterparty Guarantor or such financial institution (as the case may be)
     is rated BBB- (or its equivalent) or higher by any two of S&P, Fitch and
     Moody's, provided, that in the event that such Counterparty Guarantor has
     no such rated indebtedness, Dun & Bradstreet Inc. has rated such
     Counterparty Guarantor at least investment grade, (y) no default by such
     Counterparty Guarantor in respect of any such Support Obligations provided
     by such Counterparty Guarantor has occurred and is continuing and (z) such
     Counterparty Guarantor is not the Company or any Affiliate of the Company
     or any of its Subsidiaries;

          (e) Consolidated Debt shall not include any Project Finance Debt of
     the Company or any Consolidated Subsidiary; and

          (f) Consolidated Debt shall not include the principal amount of any
     Securitized Bonds.

          "CONSOLIDATED EBITDA" means, with reference to any period, the pretax
operating income of the Company and its Subsidiaries ("PRETAX OPERATING INCOME")
for such period plus, to the extent deducted in determining Pretax Operating
Income (without duplication), (i) depreciation, depletion and amortization, and
(ii) any non-cash write-offs and write-downs contained in the Company's Pretax
Operating Income, including, without limitation, write-offs or write-downs
related to the sale of assets, impairment of assets and loss on contracts, in
each case in accordance with GAAP consistently applied, all calculated for the
Company and its Subsidiaries on a consolidated basis for such period; provided,
however, that Consolidated EBITDA shall not include any operating income
attributable to that portion of the revenues of Consumers dedicated to the
repayment of the Securitized Bonds.

          "CONSOLIDATED SUBSIDIARY" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.

          "CONSUMERS" means Consumers Energy Company, a Michigan corporation,
all of whose common stock is on the Closing Date owned by the Company.


                                       7

<PAGE>

          "CONSUMERS CREDIT FACILITY" means, collectively, Consumer's existing
(i) $140,000,000 term loan facility and (ii) $500,000,000 revolving loan
facility, as in effect on the date hereof.

          "CONSUMERS DIVIDEND RESTRICTION" means any restriction enacted or
imposed after October 1, 1992 upon the ability of Consumers to pay cash
dividends to the Company in respect of Consumers' capital stock, whether such
restriction is imposed by statute, regulation, decisions or rulings by the
Michigan Public Service Commission or the Federal Energy Regulatory Commission
(or any successor agency or agencies), final judgments of any court of competent
jurisdiction, indentures, agreements, contracts or restrictions to which
Consumers is a party or by which it is bound or otherwise; provided, that no
restriction on such dividends existing on October 1, 1992 shall be a Consumers
Dividend Restriction at any time; provided, further, that any such restriction
enacted or imposed by the Michigan Public Service Commission limiting such
dividends to an amount not less than $190,000,000 during any twelvemonth period
shall not be a Consumers Dividend Restriction at any time.

          "CONTINUING DIRECTOR" means, as of any date of determination, any
member of the board of directors of the Company who (a) was a member of such
board of directors on the Closing Date, or (b) was nominated for election or
elected to such board of directors with the approval of the Continuing Directors
who were members of such board of directors at the time of such nomination or
election; provided that an individual who is so elected or nominated in
connection with a merger, consolidation, acquisition or similar transaction
shall not be a Continuing Director unless such individual was a Continuing
Director prior thereto.

          "CONVERSION", "CONVERT" or "CONVERTED" refers to a conversion of Loans
of one Type into Loans of another Type, or to the selection of a new, or the
renewal of the same, Interest Period for Loans, as the case may be, pursuant to
Section 3.02 or 3.03.

          "DEBT" means, for any Person, without duplication, any and all
indebtedness, liabilities and other monetary obligations of such Person (whether
for principal, interest, fees, costs, expenses or otherwise, and whether
contingent or otherwise) (i) for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments, (ii) to pay the deferred
purchase price of property or services (except trade accounts payable arising in
the ordinary course of business which are not overdue), (iii) as lessee under
leases which shall have been or should be, in accordance with GAAP, recorded as
capital leases, (iv) under reimbursement or similar agreements with respect to
letters of credit issued thereunder (except reimbursement obligations and
letters of credit that are cash collateralized), (v) under any interest rate
swap, "cap", "collar" or other hedging agreements; provided, however, for
purposes of the calculation of Debt for this clause (v) 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, (vi) to pay rent
or other amounts under leases entered into in connection with sale and leaseback
transactions involving assets of such Person being sold in connection therewith,
(vii) arising from any accumulated funding deficiency (as defined in Section
412(a) of the Internal Revenue Code of 1986, as amended) for a Plan, (viii)
arising in connection with any withdrawal liability under ERISA to any
Multiemployer Plan and (ix) arising from (A) direct or indirect guaranties in
respect of, and obligations to purchase or otherwise acquire, or otherwise to
warrant or hold harmless, pursuant to a legally binding agreement, a creditor
against loss in respect of, Debt of


                                       8

<PAGE>

others referred to in clauses (i) through (viii) above and (B) other guaranty or
similar financial obligations in respect of the performance of others, including
Support Obligations. Notwithstanding the foregoing, solely for purposes of the
calculation required under Section 8.01(j)(ii), Debt shall not include any
Junior Subordinated Debt issued by the Company and owned by any Hybrid Preferred
Securities Subsidiary.

          "DEFAULT" means an event that, with the giving of notice or lapse of
time or both, would constitute an Event of Default.

          "DEFAULT RATE" means a rate per annum equal at all times to (i) in the
case of any amount of principal of any Loan that is not paid when due, 2% per
annum above the Applicable Rate required to be paid on such Loan immediately
prior to the date on which such amount became due, and (ii) in the case of any
amount of interest, fees or other amounts payable hereunder that is not paid
when due, 2% per annum above the Applicable Rate for an ABR Loan in effect from
time to time.

          "DISCLOSED MATTERS" is defined in Section 7.01(f).

          "DIVIDEND COVERAGE RATIO" means, at any date, the ratio of (i) Pro
Forma Dividend Amounts to (ii) Company Interest Expense.

          "DOLLAR EQUIVALENT" means, as to Dollars, the amount thereof, and as
to any Alternative Currency, the Dollar equivalent of such Alternative Currency
as determined by the Administrative Agent in accordance with the provisions of
Section 4.07.

          "DOLLARS" and the sign "$" each means the lawful currency of the
United States.

          "ELIGIBLE BANK" means any state or federally chartered bank or any
state-licensed foreign bank branch or agency.

          "ENTERPRISES" means CMS Enterprises Company, a Michigan corporation,
all of whose common stock is on the Closing Date owned by the Company and its
permitted successors.

          "ENTERPRISES CREDIT AGREEMENT" means that certain $150,000,000 Credit
Agreement, dated as of July 12, 2002, by and among Enterprises, as borrower, the
Borrower, the lenders from time to time parties thereto, and Citicorp USA, Inc.,
as administrative agent and as collateral agent, which agreement has been paid
in full and terminated.

          "ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any governmental agency or
authority, relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any
Hazardous Substance or to health and safety matters.

          "ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Company or any of its Subsidiaries directly or
indirectly resulting from or based upon (a)


                                       9

<PAGE>

violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Substances, (c)
exposure to any Hazardous Substances, (d) the release or threatened release of
any Hazardous Substances into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.

          "EQUITY DISTRIBUTIONS" means, for any period, the aggregate amount of
cash received by the Company from its Subsidiaries during such period that are
paid out of proceeds from the sale of common equity of Subsidiaries of the
Company.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

          "ERISA AFFILIATE" means, with respect to any Person, any trade or
business (whether or not incorporated) that is a member of a commonly controlled
trade or business under Sections 414(b), (c), (m) and (o) of the Internal
Revenue Code of 1986, as amended.

          "EURO" means the euro referred to in Council Regulation (EC) No.
1103/97 dated June 17, 1997 passed by the Counsel of the European Union, or if
different, the lawful currency of the member states of the European Union that
participate in the third stage of the Economic and Monetary Union.

          "EURO SUBLIMIT" means $40,000,000.

          "EURODOLLAR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.

          "EURODOLLAR RATE LOAN" means a Loan that bears interest as provided in
Section 3.05(b)(ii).

          "EVENT OF DEFAULT" is defined in Section 9.01.

          "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

          "EXISTING CREDIT AGREEMENT" means that certain $190,000,000 Fourth
Amended and Restated Credit Agreement, dated as of December 8, 2003, among the
Borrowers, the lenders from time to time parties thereto, and CUSA, as
administrative agent and as collateral agent, as the same may have been amended,
restated, supplemented or otherwise modified from time to time.

          "EXTENSION OF CREDIT" means (i) the making of a Borrowing (including
any Conversion), (ii) the issuance of a Letter of Credit, or (iii) the amendment
of any Letter of Credit having the effect of extending the stated termination
date thereof, increasing the LC Outstandings thereunder, or otherwise altering
any of the material terms or conditions thereof.

          "FAIR MARKET VALUE" means, with respect to any asset, the value of the
consideration obtainable in a sale of such asset in the open market, assuming a
sale by a willing


                                       10

<PAGE>

seller to a willing purchaser dealing at arm's length and arranged in an orderly
manner over a reasonable period of time, each having reasonable knowledge of the
nature and characteristics of such asset, neither being under any compulsion to
act, and, if in excess of $50,000,000, as determined in good faith by the Board
of Directors of the Company.

          "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.

          "FEE LETTERS" is defined in Section 2.02(b).

          "FITCH" means Fitch, Inc. or any successor thereto.

          "FOREIGN LENDER" means any Lender that is organized under the laws of
a jurisdiction other than that in which the Borrowers are located. For purposes
of this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.

          "FOREIGN SUBSIDIARY" is defined in Section 8.01(l).

          "GAAP" is defined in Section 1.03.

          "GOVERNMENTAL APPROVAL" means any authorization, consent, approval,
license, permit, certificate, exemption of, or filing or registration with, any
governmental authority or other legal or regulatory body, required in connection
with (i) the execution, delivery, or performance of any Loan Document by any
Loan Party, (ii) the grant and perfection of any Lien in favor of the Collateral
Agent contemplated by the Loan Documents, or (iii) the exercise by any Agent (on
behalf of the Lenders) of any right or remedy provided for under the Loan
Documents.

          "GRANTING LENDER" is defined in Section 11.07(f).

          "GRANTOR(S)" means each Guarantor and each of the following
Subsidiaries of Enterprises: CMS Capital, L.L.C., a Michigan limited liability
company, CMS Electric & Gas, L.L.C. (formerly known as CMS Electric and Gas
Company), a Michigan limited liability company, CMS ERM, CMS International
Ventures, L.L.C., a Michigan limited liability company, Dearborn Industrial
Energy, L.L.C., a Michigan limited liability company, Dearborn Industrial
Generation, L.L.C., a Michigan limited liability company, and CMS Generation
Michigan Power L.L.C., a Michigan limited liability company.

          "GUARANTOR" means CMS Generation, CMS Gas Transmission Company, a
Michigan corporation, and each other Restricted Subsidiary that has delivered,
or shall be obligated to deliver, a guaranty under and pursuant to the terms of
Section 8.01(l).


                                       11

<PAGE>

          "GUARANTY" means that certain Amended and Restated Guaranty (and any
and all supplements thereto) executed from time to time by each Guarantor in
favor of the Collateral Agent for the benefit of itself and the Lenders, in
substantially the form of Exhibit I attached hereto, as amended, restated,
supplemented or otherwise modified from time to time.

          "HAZARDOUS SUBSTANCE" means any waste, substance, or material
identified as hazardous, dangerous or toxic by any office, agency, department,
commission, board, bureau, or instrumentality of the United States or of the
State or locality in which the same is located having or exercising jurisdiction
over such waste, substance or material.

          "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 whollyowned direct or indirect Subsidiary of the Company in
     exchange for Junior Subordinated Debt issued by the Company or such
     wholly-owned direct or indirect Subsidiary, respectively;

          (ii) such preferred securities contain terms providing for the
     deferral of interest payments corresponding to provisions providing for the
     deferral of interest payments on the Junior Subordinated Debt; and

          (iii) the Company or a wholly-owned direct or indirect Subsidiary of
     the Company (as the case may be) makes periodic interest payments on the
     Junior Subordinated Debt, which interest payments are in turn used by the
     Hybrid Preferred Securities Subsidiary to make corresponding payments to
     the holders of the preferred securities.

          "HYBRID PREFERRED SECURITIES SUBSIDIARY" means any Delaware statutory
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 or Consumers) 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.

          "INDEMNIFIED PERSON" is defined in Section 11.04(b).

          "INDENTURE" means that certain Indenture, dated as of September 15,
1992, between the Company and the Trustee, as supplemented by the First
Supplemental Indenture, dated as of October 1, 1992, the Second Supplemental
Indenture, dated as of October 1, 1992, the Third Supplemental Indenture, dated
as of May 6, 1997, the Fourth Supplemental Indenture, dated as of September 26,
1997, the Fifth Supplemental Indenture, dated as of November 4, 1997, the Sixth
Supplemental Indenture, dated as of January 13, 1998, the Seventh Supplemental
Indenture, dated as of January 25, 1999, the Eighth Supplemental Indenture,
dated as of February


                                       12

<PAGE>

3, 1999, the Ninth Supplemental Indenture, dated as of June 22, 1999, the Tenth
Supplemental Indenture, dated as of October 12, 2000, the Eleventh Supplemental
Indenture, dated as of March 29, 2001, and the Twelfth Supplemental Indenture,
dated as of July 2, 2001, as said Indenture may be further amended or otherwise
modified from time to time in accordance with its terms.

          "INDIAN RUPEE" means the lawful currency of India.

          "INDIAN RUPEE SUBLIMIT" means $3,000,000.

          "INTER-BORROWER DEBT" is defined in Section 12.07.

          "INTERCREDITOR AGREEMENT" means that certain Intercreditor and Lien
Subordination Agreement, dated as of January 8, 2003, by and among Citicorp USA,
Inc., as senior collateral agent, American Home Assurance Company, individually
and as junior collateral agent, and St. Paul Fire and Marine Insurance Company,
individually, a copy of which is attached hereto as Exhibit M, as amended,
restated, supplemented or otherwise modified from time to time.

          "INTEREST PERIOD" is defined in Section 3.03.

          "ISSUING BANK" means any Lender designated by the Company in
accordance with Section 4.01(a) as the issuer of a Letter of Credit pursuant to
an Issuing Bank Agreement.

          "ISSUING BANK AGREEMENT" means an agreement between an Issuing Bank
and the applicable Borrower, in form and substance satisfactory to the
Administrative Agent, providing for the issuance of one or more Letters of
Credit, in form and substance satisfactory to the Administrative Agent, in
support of a general corporate activity of such Borrower.

          "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 Lenders
hereunder and under the other Loan Documents pursuant to terms of subordination
substantially similar to those set forth in Exhibit G, or pursuant to other
terms and conditions satisfactory to the Required Lenders.

          "LC PAYMENT NOTICE" is defined in Section 4.04(b).

          "LC OUTSTANDINGS" means, for any Letter of Credit on any date of
determination, the maximum amount available to be drawn under such Letter of
Credit (assuming the satisfaction of all conditions for drawing enumerated
therein) plus any amount which has been drawn on such Letter of Credit which has
neither been reimbursed by a Borrower nor converted into an ABR Loan pursuant to
the terms of Section 4.04.

          "LENDER ASSIGNMENT" is defined in Section 11.07(e).

          "LENDERS" means the Banks listed on the signature pages hereof,
together with their successors and permitted assigns and, if and to the extent
so provided in Section 4.04(c), each Issuing Bank.


                                       13

<PAGE>

          "LETTER OF CREDIT" means (i) a letter of credit issued by an Issuing
Bank pursuant to Section 4.02(a) or (ii) a Transitional Letter of Credit deemed
issued by an Issuing Bank on the Closing Date pursuant to Section 4.02(b), in
each case as such letter of credit may from time to time be amended, modified or
extended in accordance with the terms of this Agreement and the Issuing Bank
Agreement to which it relates.

          "LIBO RATE" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO RATE" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.

          "LIEN" means any lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor) of any kind, or any other type of arrangement intended or having the
effect of conferring upon a creditor a preferential interest upon or with
respect to any of its properties of any character (including capital stock and
other equity interests, intercompany obligations and accounts).

          "LIQUIDITY" means, as of any date, the aggregate of (i) the amount of
Unrestricted Cash held by the Company and its Consolidated Subsidiaries as of
such date and (ii) the unused portion of the Commitments hereunder as of such
date.

          "LOAN" means a loan by a Lender to a Borrower pursuant to Section
2.01, and refers to an ABR Loan or a Eurodollar Rate Loan (each of which shall
be a "TYPE" of Loan). All Loans by a Lender to the same Borrower of the same
Type having the same Interest Period and made or Converted on the same day shall
be deemed to be a single Loan by such Lender until repaid or next Converted.

          "LOAN DOCUMENTS" means this Agreement, any Promissory Notes, the Fee
Letters, the Issuing Bank Agreement(s), the Guaranty, the Pledge Agreements, the
Intercreditor Agreement, the Cash Collateral Agreement and all other agreements,
instruments and documents now or hereafter executed and/or delivered pursuant
hereto or thereto.

          "LOAN PARTY" is defined in Section 6.01(a)(i).

          "MATERIAL ADVERSE CHANGE" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, property, financial condition, results of
operations or prospects of the Company and its


                                       14

<PAGE>

Subsidiaries, considered as a whole, (b) the Borrowers' and the Guarantors'
ability, taken as a whole, to perform their obligations under this Agreement or
any other Loan Document to which it is or will be a party or (c) the validity or
enforceability of any Loan Document or the rights or remedies of any Agent or
the Lenders thereunder; provided that the occurrence of any Restatement Event
shall not constitute a Material Adverse Change.

          "MATURITY DATE" means August 3, 2007.

          "MEASUREMENT QUARTER" is defined in Section 8.01(i).

          "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, assignment or other
disposition of (but not the lease or license of) any property, or with respect
to any sale or issuance of securities or incurrence of Debt, by any Person,
gross cash proceeds received by such Person or any Subsidiary of such Person
from such sale, assignment, disposition, issuance or incurrence (including cash
received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such transaction) after (i)
provision for all income or other taxes measured by or resulting from such
transaction, (ii) payment of all 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 with such
transaction, (iii) all amounts used to repay Debt (and any premium or penalty
thereon) secured by a Lien on any asset disposed of in such sale, assignment or
other disposition or which is or may be required (by the express terms of the
instrument governing such Debt or by applicable law) to be repaid in connection
with such sale, assignment, or other disposition, and (iv) deduction of
appropriate amounts to be provided by such Person or a Subsidiary of such Person
as a reserve, in accordance with GAAP consistently applied, against any
liabilities associated with the assets sold, transferred or disposed of in such
transaction and retained by such Person or a Subsidiary of such Person after
such transaction, provided that "Net Proceeds" shall include on a
dollar-for-dollar basis all amounts remaining in such reserve after such
liability shall have been satisfied in full or terminated; provided, however,
that notwithstanding the foregoing, "Net Proceeds" shall exclude (a) any amounts
received or deemed to be received by the Company for the purchase of the
Company's capital stock in connection with the Company's dividend reinvestment
program and (b) amounts received by the Company or any Subsidiary of the Company
pursuant to any transaction with the Company or any Subsidiary of the Company
otherwise permitted hereunder.

          "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, escrow or
other analogous fund established for the


                                       15

<PAGE>

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.

          "NOTICE OF BORROWING" is defined in Section 3.01(a).

          "NOTICE OF CONVERSION" is defined in Section 3.02.

          "OBLIGATIONS" means all unpaid principal of and accrued and unpaid
interest on the Loans, all LC Outstandings, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Borrowers and
other Loan Parties to any of the Agents, the Arrangers, the Lenders, the Issuing
Banks or any other indemnified party arising under the Loan Documents.

          "OECD" means the Organization for Economic Cooperation and
Development.

          "OF-BALANCE SHEET LIABILITY" of a Person shall mean any of the
following obligations not appearing on such Person's consolidated balance sheet:
(i) all lease obligations, leveraged leases, sale and leasebacks and other
similar lease arrangements of such Person, (ii) any liability under any so
called "synthetic lease" or "tax ownership operating lease" transaction entered
into by such Person, and (iii) any obligation arising with respect to any other
transaction if and to the extent that such obligation is the functional
equivalent of borrowing but that does not constitute a liability on the
consolidated balance sheet of such Person.

          "OTHER TAXES" is defined in Section 5.06(b).

          "OWNERSHIP INTEREST" of the Company in any Consolidated Subsidiary
means, at any date of determination, the percentage determined by dividing (i)
the aggregate amount of Project Finance Equity in such Consolidated Subsidiary
owned or controlled, directly or indirectly, by the Company and any other
Consolidated Subsidiary on such date, by (ii) the aggregate amount of Project
Finance Equity in such Consolidated Subsidiary owned or controlled, directly or
indirectly, by all Persons (including the Company and the Consolidated
Subsidiaries) on such date. Notwithstanding anything to the contrary set forth
above, if the "Ownership Interest," calculated as set forth above, is 50% or
less, such percentage shall be deemed to equal 0%.

          "PARTICIPANT" is defined in Section 11.07(b).

          "PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.

          "PERCENTAGE" means, for any Lender on any date of determination (a)
prior to the Commitment Termination Date, the percentage obtained by dividing
such Lender's Commitment on such day by the total of the Lenders' Commitments on
such date, and multiplying the quotient so obtained by 100%, and (b) from and
after the Commitment Termination Date, the percentage obtained by dividing (i)
the sum of (A) the aggregate outstanding principal amount of such Lender's Loans
on such day plus (B) the Dollar Equivalent of such Lender's obligation to
purchase participations in LC Outstandings on such day by (ii) the Total
Outstandings on such date, and multiplying the quotient so obtained by 100%.


                                       16

<PAGE>

          "PERMITTED INVESTMENTS" means each of the following so long as no such
Permitted Investment shall have a final maturity later than six months from the
date of investment therein:

          (i) direct obligations of the United States, or of any agency thereof,
     or obligations guaranteed as to principal and interest by the United States
     or any agency thereof;

          (ii) certificates of deposit or bankers' acceptances issued, or time
     deposits held, or investment contracts guaranteed, by any Lender, any
     nationally-recognized securities dealer or any other commercial bank, trust
     company, savings and loan association or savings bank organized under the
     laws of the United States, or any State thereof, or of any other country
     which is a member of the OECD, or a political subdivision of any such
     country, and in each case having outstanding unsecured indebtedness that
     (on the date of acquisition thereof) is rated AA- or better by S&P or Aa3
     or better by Moody's (or an equivalent rating by another
     nationally-recognized credit rating agency of similar standing if neither
     of such corporations is then in the business of rating unsecured bank
     indebtedness);

          (iii) obligations with any Lender, any other bank or trust company
     described in clause (ii), above, or any nationally-recognized securities
     dealer, in respect of the repurchase of obligations of the type described
     in clause (i), above, provided that such repurchase obligations shall be
     fully secured by obligations of the type described in said clause (i) and
     the possession of such obligations shall be transferred to, and segregated
     from other obligations owned by, such Lender, such other bank or trust
     company or such securities dealer;

          (iv) commercial paper rated (on the date of acquisition thereof) A-1
     or P-1 or better by S&P or Moody's, respectively (or an equivalent rating
     by another nationally-recognized credit rating agency of similar standing
     if neither of such corporations is then in the business of rating
     commercial paper);

          (v) any eurodollar certificate of deposit issued by any Lender or any
     other commercial bank, trust company, savings and loan association or
     savings bank organized under the laws of the United States, or any State
     thereof, or of any country which is a member of the OECD, or a political
     subdivision of any such country, and in each case having outstanding
     unsecured indebtedness that (on the date of acquisition thereof) is rated
     AA- or better by S&P or Aa3 or better by Moody's (or an equivalent rating
     by another nationally-recognized credit rating agency of similar standing
     if neither of such corporations is then in the business of rating unsecured
     bank indebtedness); and

          (vi) interests in any money market mutual fund which at the date of
     investment in such fund has the highest fund rating by each of Moody's and
     S&P which has issued a rating for such fund (which, for S&P, shall mean a
     rating of AAAm or AAAmg).


                                       17

<PAGE>

          "PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.

          "PLAN" means, with respect to any Person, an "employee benefit plan"
as defined in Section 3(3) of ERISA (other than a Multiemployer Plan) maintained
for employees of such Person or any ERISA Affiliate of such Person that is
subject to Title IV of ERISA and has "unfunded benefit liabilities" as
determined under Section 4001(a)(18) of ERISA.

          "PLAN TERMINATION EVENT" means, (i) with respect to any Plan, a
"reportable event" within the meaning of 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 a
"reportable event" for which the provision for the 30-day notice to the PBGC
under such regulations has been waived), or (ii) the withdrawal by 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 resulting in
liability to the Company or any of its ERISA Affiliates under Section 4063 or
4064 of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or
the termination of a Plan under Section 4041 of ERISA, or (iv) the institution
of proceedings to terminate a Plan by the PBGC, or (v) any other event or
condition which is reasonably likely to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.

          "PLATFORM" is defined in Section 11.14

          "PLEDGE AGREEMENTS" means each of (i) that certain Third Amended and
Restated Pledge and Security Agreement, dated as of December 8, 2003, by and
between the Company and the Collateral Agent, in substantially the form of
Exhibit J attached hereto, and (ii) that certain Pledge and Security Agreement,
dated as of July 12, 2002, by and among Enterprises, the Grantors and the
Collateral Agent in substantially the form of Exhibit K hereto, in each case as
the same may be amended, restated, supplemented or otherwise modified from time
to time.

          "PRIME RATE" means the rate of interest per annum publicly announced
from time to time by Citibank as its base rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.

          "PRO FORMA DIVIDEND AMOUNT" means, from and after any date of any
Consumers Dividend Restriction, the sum of (a) the aggregate amount which
Consumers could have paid to the Company during the four calendar quarters
immediately preceding such date had such Consumers Dividend Restriction been in
effect during such quarters plus (b) cash dividends received by the Company from
any other Subsidiary during such quarters.

          "PROJECT FINANCE DEBT" means Debt of any Person that is non-recourse
to such Person (unless such Person is a special-purpose entity) and each
Affiliate of such Person, other than with respect to the interest of the holder
of such Debt in the collateral, if any, securing such Debt.


                                       18

<PAGE>

          "PROJECT FINANCE EQUITY" means, at any date of determination,
consolidated equity of the common, preference and preferred stockholders of the
Company and the Consolidated Subsidiaries relating to any obligor with respect
to Project Finance Debt.

          "PROMISSORY NOTE" means any promissory note of the Borrowers payable
to the order of a Lender (and, if requested, its registered assigns) issued
pursuant to Section 3.01(c); and "PROMISSORY NOTES" means any or all of the
foregoing.

          "PROSPECTIVE LENDER" is defined in Section 3.04(d).

          "RECIPIENT" is defined in Section 11.08.

          "REGISTER" is defined in Section 11.07(h).

          "RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.

          "REQUEST FOR ISSUANCE" is defined in Section 4.02(a).

          "REQUIRED LENDERS" means, on any date of determination, Lenders that,
collectively, on such date hold (i) more than 50% of the Commitments of all
Lenders or (ii) if the Commitments have been terminated, interests in the Total
Outstandings in excess of 50% of the Total Outstandings. Any determination of
those Lenders constituting the Required Lenders shall be made by the
Administrative Agent and shall be conclusive and binding on all parties absent
manifest error.

          "RESTATEMENT" means the restatement of the financial statements of the
Company or its Subsidiaries for any fiscal quarter of 2001, as well as any
adjustment of previously announced quarterly results, but only if made to
reflect the restatement of such quarters.

          "RESTATEMENT EVENT" means (i) the Restatement, (ii) any lawsuit or
other action previously or hereafter brought against the Company, any of its
Subsidiaries or any of their Affiliates or any present or former officer or
director of the Company, any of its Subsidiaries or any of their Affiliates
involving or arising out of the Restatement, and any settlement thereof, or
other development with respect thereto, or (iii) the occurrence of any default
or event of default under any indenture, instrument or other agreement or
contract, or the exercise of any remedy in respect thereof, that arises directly
or indirectly as a result of any of the matters described in any of the
foregoing clauses (i) or (ii) or this clause (iii); provided, however, that, for
purposes of the definition of "Material Adverse Change", (a) the foregoing
clause (ii) shall be inapplicable if such lawsuit or other action, settlement
(in an amount in the aggregate together with all other settlements of such
lawsuits or actions) or other development described in such clause (ii) could
reasonably be expected, in each case, to result in liability to such Person in
excess of $10,000,000 and (b) the foregoing clause (iii) shall be inapplicable
if any such event described in such clause (iii) would constitute an Event of
Default under Section 9.01(e).

          "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company or
Enterprises (other than Consumers and its Subsidiaries) that, on a consolidated
basis with any of its


                                       19

<PAGE>

Subsidiaries as of any date of determination, accounts for more than 10% of the
consolidated assets of the Company and its Consolidated Subsidiaries.

          "S&P" means Standard & Poor's Ratings Group, a division of The McGraw
Hill Companies, Inc., or any successor thereto.

          "SECURITIZED BONDS" means any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of Consumers
which are payable solely from specialized charges authorized by the utility
commission of the relevant state in connection with the recovery of regulatory
assets, expenditures pursuant to the Clean Air Act, 42 U.S.C. Section 7401 et
seq., or other qualified costs.

          "SOLVENT", when used with respect to any Person, means that at the
time of determination:

          (i) the fair market value of its assets is in excess of the total
     amount of its liabilities (including, without limitation, net contingent
     liabilities); and

          (ii) it is then able and expects to be able to pay its debts
     (including, without limitation, contingent debts and other commitments) as
     they mature; and

          (iii) it has capital sufficient to carry on its business as conducted
     and as proposed to be conducted.

For purposes of this definition, the amount of contingent liabilities at any
time shall be computed as the amount that, in light of all the facts and
circumstances known to such Person at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.

          "SPC" is defined in Section 11.07(f).

          "STATUTORY RESERVE RATE" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurodollar Rate Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.

          "SUBSIDIARY" means, with respect to any Person, any corporation or
unincorporated entity of which more than 50% of the outstanding capital stock
(or comparable interest) having ordinary voting power (irrespective of whether
at the time capital stock (or comparable interest) of any other class or classes
of such corporation or entity shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned by
said Person (whether directly or through one or more other Subsidiaries). In the
case


                                       20

<PAGE>

of an unincorporated entity, a Person shall be deemed to have more than 50% of
interests having ordinary voting power only if such Person's vote in respect of
such interests comprises more than 50% of the total voting power of all such
interests in the unincorporated entity.

          "SUPPORT OBLIGATION" means, for any Person, without duplication, any
financial obligation, contingent or otherwise, of such Person guaranteeing or
otherwise supporting any Debt or other obligation of any other Person in any
manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect (including, but not limited to, letters of credit and
surety bonds in connection therewith), (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Debt, (ii) to purchase property, securities or services for the purpose of
assuring the owner of such Debt of the payment of such Debt, (iii) to maintain
working capital, equity capital, available cash or other financial statement
condition of the primary obligor so as to enable the primary obligor to pay such
Debt, (iv) to provide equity capital under or in respect of equity subscription
arrangements (to the extent that such obligation to provide equity capital does
not otherwise constitute Debt), or (v) to perform, or arrange for the
performance of, any non-monetary obligations or non-funded debt payment
obligations of the primary obligor.

          "TAKORADI PROJECT" means the construction and operation of Takoradi 2,
a power plant currently consisting of two 110 megawatt simple-cycle units built
near Aboadze, Ghana by one or more Subsidiaries of the Company and the
government of Ghana's Volta River Authority.

          "TAX SHARING AGREEMENT" means the Amended and Restated Agreement for
the Allocation of Income Tax Liabilities and Benefits, dated as of January 1,
1994, by and among the Company, each of the members of the Consolidated Group
(as defined therein), and each of the corporations that become members of the
Consolidated Group.

          "TAXES" is defined in Section 5.06(a).

          "TOTAL OUTSTANDINGS" means, as of any date of determination, the sum
of (i) the aggregate principal amount of all Loans outstanding as of such date
plus (ii) the Dollar Equivalent of the aggregate LC Outstandings of all Letters
of Credit outstanding as of such date, after giving effect to all Extensions of
Credit to be made on such date and the application of the proceeds thereof.

          "TRANSITIONAL LETTER OF CREDIT" is defined in Section 4.02(b).

          "TRUSTEE" has the meaning assigned to that term in the Indenture.

          "TYPE" has the meaning assigned to such term (i) in the definition of
"Loan" when used in such context and (ii) in the definition of "Borrowing" when
used in such context.

          "UNRESTRICTED CASH" means cash and Permitted Investments, in each case
not subject to a Lien (including, without limitation, any Lien permitted
hereunder), setoff (other than ordinary course setoff rights of a depository
bank arising under a bank depository agreement for customary fees, charges and
other account-related expenses due to such depository bank thereunder),
counterclaim, recoupment, defense or other right in favor of any Person.


                                       21

<PAGE>

          "USA PATRIOT ACT" means the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, Pub. L. No. 107-56, 115 Stat. 272 (2001), as amended.

     SECTION 1.02. COMPUTATION OF TIME PERIODS; CONSTRUCTION.

          (a) Unless otherwise indicated, each reference in this Agreement to a
specific time of day is a reference to New York City time. In the computation of
periods of time under this Agreement, any period of a specified number of days
or months shall be computed by including the first day or month occurring during
such period and excluding the last such day or month. In the case of a period of
time "from" a specified date "to" or "until" a later specified date, the word
"from" means "from and including" and the words "to" and "until" each means "to
but excluding".

          (b) The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes", and "including" shall be deemed
to be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (ii) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (iii) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.

     SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 7.01(e) ("GAAP"), it being
understood that the financial covenants set forth in Sections 8.01(i) and (j)
shall be calculated exclusive of all debt (i) of any Affiliate of the Borrowers
(other than a Subsidiary) that is (a) consolidated on the financial statements
of the Company solely as a result of the effect and application of Financial
Accounting Standards Board Interpretation No. 46 and of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, as modified by Statement of
Financial Accounting Standards No. 94, and (b) non-recourse to any Borrower or
any Guarantor or (ii) that is re-categorized as debt from certain lease
obligations pursuant to Emerging Issues Task Force ("EITF") Issue No. 01-8, any
subsequent EITF Issue or recommendation or any other interpretation, bulletin or
other similar document by the Financial Accounting Standards Board on or related
to such re-categorization. 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


                                       22

<PAGE>

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 or the results 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
Borrowers' 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 Administrative Agent and
the Required Lenders, 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. Notwithstanding the foregoing, all financial
statements to be delivered by the Company pursuant to Section 8.03 shall be
prepared in accordance with generally accepted accounting principles in effect
at such time.

                                   ARTICLE II
             COMMITMENTS, LOANS, FEES, PREPAYMENTS AND OUTSTANDINGS

     SECTION 2.01. MAKING LOANS. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make revolving loans in Dollars to the
Borrowers and to participate in the issuance of Letters of Credit (and the LC
Outstandings thereunder) denominated in Dollars or any Alternative Currency
during the period from the Closing Date until the Commitment Termination Date in
an aggregate outstanding amount not to exceed on any day such Lender's Available
Commitment (after giving effect to all Extensions of Credit to be made on such
day and the application of the proceeds thereof). Within the limits hereinafter
set forth, the Borrowers may request Extensions of Credit hereunder, prepay
Loans or reduce or cancel Letters of Credit, and use the resulting increase in
the Available Commitments for further Extensions of Credit in accordance with
the terms hereof.

     SECTION 2.02. FEES.

          (a) The Borrowers jointly and severally agree to pay to the
Administrative Agent for the account of each Lender a commitment fee equal to
the product of (i) the average daily amount of such Lender's Available
Commitment from the Closing Date, in the case of each Bank, and from the
effective date specified in the Lender Assignment pursuant to which it became a
Lender, in the case of each other Lender, until the Commitment Termination Date
multiplied by (ii) the Commitment Fee Margin. Such fees shall be payable
quarterly in arrears on the last day of each March, June, September and
December, commencing the first such date to occur following the Closing Date,
and on the Commitment Termination Date.

          (b) In addition to the fees provided for in subsection (a) above, the
Company shall pay to the Administrative Agent and/or the Arrangers, as the case
may be, the fees set forth in (i) that certain letter agreement, dated June 28,
2004, among the Company, the Administrative Agent, the Arrangers and the other
parties thereto and (ii) that certain letter agreement, dated


                                       23

<PAGE>

June 28, 2004, among the Company, the Administrative Agent and the other parties
thereto (collectively, the "FEE LETTERS"), in the amounts and at the times
specified therein.

          (c) The Borrowers agree to pay to the Administrative Agent, for the
account of each Lender, a letter of credit fee on the daily aggregate amount of
the LC Outstandings from the Closing Date, in the case of each Bank, and from
the effective date specified in the Lender Assignment pursuant to which it
became a Lender, in the case of each other Lender, until the Commitment
Termination Date at a rate per annum equal to the Applicable Margin with respect
to Eurodollar Rate Loans, payable quarterly in arrears on the last day of each
March, June, September and December, commencing on the first such date to occur
following the Closing Date, and on the Commitment Termination Date.

     SECTION 2.03. COMMITMENTS; MANDATORY PREPAYMENTS.

          (a) Reduction of Commitments. The Borrowers may (and shall provide
notice thereof to the Administrative Agent not later than 10:00 a.m. (New York
City time) on the date of termination or reduction, and the Administrative Agent
shall promptly distribute copies thereof to the Lenders) terminate in whole or
reduce ratably in part the unused portions of the Commitments; provided that any
such partial reduction shall be in the aggregate amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof.

          (b) Change of Control. Upon the occurrence of a Change of Control the
Commitments shall be reduced to zero, the principal amount outstanding
hereunder, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents shall become and be forthwith due and
payable and all of the LC Obligations shall be cash collateralized in accordance
with the terms of Section 9.02, in each case without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrowers.

          (c) Prepayment upon Issuance or Sale of Consumers Stock. The Company
shall make a mandatory prepayment promptly and in any event within 3 Business
Days after the Company's receipt of any Net Proceeds from the issuance, sale,
assignment or other disposition of any capital stock or other equity interest in
Consumers (other than the issuance of preferred securities of Consumers in
respect of which the Net Proceeds received by Consumers for all such securities
do not exceed $200,000,000 in the aggregate and such Net Proceeds shall not be
distributed to the Company), together with (i) accrued interest to the date of
such prepayment on the principal amount prepaid and (ii) in the case of
Eurodollar Rate Loans, any amount payable to the Lenders pursuant to Section
5.04(b), and the Commitments shall be reduced, pro rata, in an aggregate amount
equal to such Net Proceeds. Nothing in this Section 2.03(c) shall be construed
to constitute the Lenders' consent to any transaction referenced in this clause
(c) which is not expressly permitted by Article VIII. The Company shall give the
Administrative Agent prior written notice or telephonic notice promptly
confirmed in writing (each of which the Administrative Agent shall promptly
transmit to each Lender) of when a prepayment required by this Section 2.03(c)
will be made (which date of prepayment shall be no later than the date on which
such prepayment becomes due and payable pursuant to this Section 2.03(c)). All
such prepayments shall be applied first to repay outstanding ABR Loans, then to
repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which
have earlier expiring Interest


                                       24

<PAGE>

Periods being repaid prior to those which have later expiring Interest Periods
and then as cash collateral pursuant to the Cash Collateral Agreement, to secure
LC Outstandings.

     SECTION 2.04. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made in
this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the Total Outstandings. References to
the unused portion of the Commitments shall refer to the excess, if any, of the
Commitments hereunder over the Total Outstandings; and references to the unused
portion of any Lender's Commitment shall refer to such Lender's Percentage of
the unused Commitments.

                                   ARTICLE III
                                      LOANS

     SECTION 3.01. LOANS.

          (a) A Borrower may request a Borrowing (other than a Conversion) by
delivering a notice (a "NOTICE OF BORROWING") to the Administrative Agent no
later than 12:00 noon (New York City time) on the third Business Day prior to
the proposed Borrowing or, in the case of ABR Loans, no later than 11:00 a.m.
(New York City time) on the date of the proposed Borrowing. The Administrative
Agent shall give each Lender prompt notice of each Notice of Borrowing. Each
Notice of Borrowing shall be in substantially the form of Exhibit A and shall
specify the requested (i) date of such Borrowing, (ii) Type of Loans to be made
in connection with such Borrowing, (iii) Interest Period, if any, for such
Loans, (iv) amount of such Borrowing and (v) identity of the applicable
Borrower. Each proposed Borrowing shall conform to the requirements of Sections
3.03 and 3.04.

          (b) Each Lender shall, before 1:00 p.m. (New York City time) on the
date of such Borrowing, make available for the account of its Applicable Lending
Office to the Administrative Agent at the Administrative Agent's offices at 2
Penns Way, Suite 200, New Castle, DE 19270, in same day funds, such Lender's
Percentage of such Borrowing. After the Administrative Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article VI,
the Administrative Agent will make such funds available to the applicable
Borrower at the Administrative Agent's aforesaid address. Notwithstanding the
foregoing, unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's Percentage of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Percentage available to the Administrative Agent on the date of such Borrowing
in accordance with the first sentence of this subsection (b), and the
Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower on such date a corresponding amount.

          (c) The Extensions of Credit made by each Lender shall be evidenced by
one or more accounts or records maintained by such Lender and by the
Administrative Agent in the ordinary course of business. The accounts or records
maintained by the Administrative Agent and each Lender shall be conclusive
absent manifest error of the amount of the Extensions of Credit made by the
Lenders to the Borrowers and the interest and payments thereon. Any failure to
so record or any error in doing so shall not, however, limit or otherwise affect
the obligation of


                                       25

<PAGE>

the Borrowers hereunder to pay any amount owing with respect to the Obligations.
In the event of any conflict between the accounts and records maintained by any
Lender and the accounts and records of the Administrative Agent in respect of
such matters, the accounts and records of the Administrative Agent shall control
in the absence of manifest error. Any Lender may request that Loans made by it
be evidenced by a Promissory Note. In such event, the Borrowers shall prepare,
execute and deliver to such Lender a Promissory Note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such Promissory Note and interest thereon shall at all times
(including after assignment pursuant to Section 11.07) be represented by one or
more Promissory Notes in such form payable to the order of the payee named
therein, except to the extent that any such Lender subsequently returns any such
Promissory Note for cancellation and requests that such Loans once again be
evidenced as described in the first sentence of this Section 3.01(c).

     SECTION 3.02. CONVERSION OF LOANS. Each Borrower may from time to time
Convert any of its Loans (or portions thereof) of any Type to one or more Loans
of the same or any other Type by delivering a notice of such Conversion (a
"NOTICE OF CONVERSION") to the Administrative Agent (x) no later than 12:00 noon
(New York City time) on the third Business Day prior to the date of any proposed
Conversion into a Eurodollar Rate Loan and (y) no later than 11:00 a.m. (New
York City time) on the date of any proposed Conversion into an ABR Loan. The
Administrative Agent shall give each Lender prompt notice of each Notice of
Conversion. Each Notice of Conversion shall be in substantially the form of
Exhibit B and shall specify (i) the requested date of such Conversion, (ii) the
Type of, and Interest Period, if any, applicable to, the Loans (or portions
thereof) proposed to be Converted, (iii) the requested Type of Loans to which
such Loans (or portions thereof) are proposed to be Converted, (iv) the
requested initial Interest Period, if any, to be applicable to the Loans
resulting from such Conversion, (v) the aggregate amount of Loans (or portions
thereof) proposed to be Converted and (vi) the identity of the applicable
Borrower. Each proposed Conversion shall be subject to the provisions of
Sections 3.03 and 3.04.

     SECTION 3.03. INTEREST PERIODS. The period between the date of each
Eurodollar Rate Loan and the date of payment in full of such Loan shall be
divided into successive periods of months ("INTEREST PERIODS") for purposes of
computing interest applicable thereto. The initial Interest Period for each such
Loan shall begin on the day such Loan is made, and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest Period
for such Loan. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the applicable Borrower may, in accordance with Section 3.01 or 3.02,
select; provided, however, that:

          (i) the Borrowers may not select any Interest Period for a Eurodollar
     Rate Loan that ends after the Maturity Date;

          (ii) whenever the last day of any Interest Period would otherwise
     occur on a day other than a Business Day, the last day of such Interest
     Period shall occur on the next succeeding Business Day, provided that if
     such extension would cause the last day of such Interest Period to occur in
     the next following calendar month, the last day of such Interest Period
     shall occur on the next preceding Business Day; and


                                       26

<PAGE>

          (iii) any Interest Period that commences on the last Business Day of a
     calendar month (or on a day for which there is no numerically corresponding
     day in the last calendar month of such Interest Period) shall end on the
     last Business Day of the last calendar month of such Interest Period.

     SECTION 3.04. OTHER TERMS RELATING TO THE MAKING AND CONVERSION OF LOANS.

          (a) Notwithstanding anything in Section 3.01 or 3.02 to the contrary:

          (i) each Borrowing shall be in an aggregate amount not less than
     $5,000,000, or an integral multiple of $1,000,000 in excess thereof (or
     such lesser amount as shall be equal to the total amount of the Available
     Commitments on such date, after giving effect to all other Extensions of
     Credit to be made on such date), and shall consist of Loans to the same
     Borrower of the same Type, having the same Interest Period and made or
     Converted on the same day by the Lenders ratably according to their
     respective Percentages;

          (ii) at no time shall the number of Borrowings comprising Eurodollar
     Rate Loans outstanding hereunder be greater than ten (10);

          (iii) no Eurodollar Rate Loan may be Converted on a date other than
     the last day of the Interest Period applicable to such Loan unless the
     corresponding amounts, if any, payable to the Lenders pursuant to Section
     5.04(b) are paid contemporaneously with such Conversion;

          (iv) if any Borrower shall either fail to give a timely Notice of
     Conversion pursuant to Section 3.02 in respect of any of its Loans or fail,
     in any Notice of Conversion that has been timely given, to select the
     duration of any Interest Period for any of its Loans to be Converted into
     Eurodollar Rate Loans in accordance with Section 3.03, such Loans shall, on
     the last day of the then existing Interest Period therefor, automatically
     Convert into, or remain as, as the case may be, ABR Loans; and

          (v) if, on the date of any proposed Conversion, any Event of Default
     or Default shall have occurred and be continuing, all Loans then
     outstanding shall, on such date, automatically Convert into, or remain as,
     as the case may be, ABR Loans.

          (b) If any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Applicable Lending
Office to perform its obligations hereunder to make, or to fund or maintain,
Eurodollar Rate Loans hereunder, (i) the obligation of such Lender to make, or
to Convert Loans into, Eurodollar Rate Loans for any Borrowing from such Lender
shall be forthwith suspended until the earlier to occur of the date upon which
(A) such Lender shall cease to be a party hereto and (B) it is no longer
unlawful for such Lender to make, fund or maintain Eurodollar Rate Loans, and
(ii) if the maintenance of Eurodollar Rate Loans then outstanding through the
last day of the Interest Period therefor would cause such Lender to be in
violation of such law, regulation or assertion, the Borrowers shall either
prepay or Convert all Eurodollar Rate Loans from such Lender within five days
after such notice. Promptly upon becoming aware that the


                                       27

<PAGE>

circumstances that caused such Lender to deliver such notice no longer exist,
such Lender shall deliver notice thereof to the Administrative Agent (but the
failure to do so shall impose no liability upon such Lender). Promptly upon
receipt of such notice from such Lender (or upon such Lender's assigning all of
its Commitment, Loans, participation and other rights and obligations hereunder
pursuant to Section 11.07), the Administrative Agent shall deliver notice
thereof to the Borrowers and the Lenders and such suspension shall terminate.

          (c) If the Required Lenders shall, at least one Business Day before
the date of any requested Borrowing, notify the Administrative Agent that the
Adjusted LIBO Rate for Eurodollar Rate Loans to be made in connection with such
Borrowing will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Loans for such
Borrowing, or that they are unable to acquire funding in a reasonable manner so
as to make available Eurodollar Rate Loans in the amount and for the Interest
Period requested, or if the Administrative Agent shall determine that adequate
and reasonable means do not exist to be able to determine the Adjusted LIBO
Rate, then the right of the Borrowers to select Eurodollar Rate Loans for such
Borrowing and any subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrowers and the Lenders that the
circumstances causing such suspension no longer exist, and each Loan to be made
or Converted in connection with such Borrowing shall be an ABR Loan.

          (d) If any Lender shall have delivered a notice to the Administrative
Agent described in Section 3.04(b), and if and so long as such Lender shall not
have withdrawn such notice in accordance with said Section 3.04(b), the
Borrowers or the Administrative Agent may demand that such Lender assign in
accordance with Section 11.07, to one or more Eligible Banks designated by the
Borrowers or the Administrative Agent (each a "PROSPECTIVE LENDER"), all (but
not less than all) of such Lender's Commitment, Loans, participation and other
rights and obligations hereunder; provided, that any such demand by the
Borrowers during the continuance of an Event of Default or Default shall be
ineffective without the consent of the Required Lenders. If, within 30 days
following any such demand by the Administrative Agent or the Borrowers, any such
Prospective Lender so designated shall fail to consummate such assignment on
terms reasonably satisfactory to such Lender, or the Borrowers and the
Administrative Agent shall have failed to designate any such Prospective Lender,
then such demand by the Borrowers or the Administrative Agent shall become
ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfactory
to such Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Prospective Lender (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit F and
(ii) shall tender payment to such Lender in an amount equal to the full
outstanding dollar amount accrued in favor of such Lender hereunder (as computed
in accordance with the records of the Administrative Agent), including, without
limitation, all accrued interest and fees and, to the extent not paid by the
Borrowers, any payments required pursuant to Section 5.04(b).

          (e) Each Notice of Borrowing and Notice of Conversion shall be
irrevocable and binding on the applicable Borrower. In the case of any Borrowing
which the related Notice of Borrowing or Notice of Conversion specifies is to be
comprised of Eurodollar Rate Loans, the applicable Borrower shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill, on or before the date specified in such Notice of


                                       28

<PAGE>

Borrowing or Notice of Conversion for such Borrowing, the applicable conditions
(if any) set forth in this Article III (other than failure pursuant to the
provisions of Section 3.04(b) or (c) hereof) or in Article VI, including any
such loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Loan to be made by such Lender when such Loan, as a
result of such failure, is not made on such date.

     SECTION 3.05. REPAYMENT OF LOANS; INTEREST

          (a) Principal. Each Borrower shall repay the outstanding principal
amount of its Loans on the Maturity Date (or such earlier date as may be
required pursuant to Section 2.03 or 9.02).

          (b) Interest. All Loans shall bear interest on the unpaid principal
amount thereof from the date of such Loan until such principal amount shall be
paid in full, at the Applicable Rate for such Loan (except as otherwise provided
in this subsection (b)), payable as follows:

          (i) ABR Loans. If such Loan is an ABR Loan, interest thereon shall be
     payable quarterly in arrears on the last day of each March, June, September
     and December, on the date of any Conversion of such ABR Loan and on the
     date such ABR Loan shall become due and payable or shall otherwise be paid
     in full; provided that any amount of principal that is not paid when due
     (whether at stated maturity, by acceleration or otherwise) shall bear
     interest, from the date on which such amount is due until such amount is
     paid in full, payable on demand, at a rate per annum equal at all times to
     the Default Rate.

          (ii) Eurodollar Rate Loans. If such Loan is a Eurodollar Rate Loan,
     interest thereon shall be payable on the last day of such Interest Period
     and, if the Interest Period for such Loan has a duration of more than three
     months, on that day of each third month during such Interest Period that
     corresponds to the first day of such Interest Period (or, if any such month
     does not have a corresponding day, then on the last day of such month);
     provided that any amount of principal that is not paid when due (whether at
     stated maturity, by acceleration or otherwise) shall bear interest, from
     the date on which such amount is due until such amount is paid in full,
     payable on demand, at a rate per annum equal at all times to the Default
     Rate.

                                   ARTICLE IV
                                LETTERS OF CREDIT

     SECTION 4.01. ISSUING BANKS. Subject to the terms and conditions hereof,
the Company may from time to time identify and arrange for one or more Lenders
reasonably satisfactory to the Administrative Agent to act as Issuing Banks
hereunder. Any such designation by the Company shall be notified to the
Administrative Agent at least three (3) Business Days prior to the first date
upon which the Company proposes that such Issuing Bank issue its first Letter of
Credit. Nothing contained herein shall be deemed to require any Lender


                                       29

<PAGE>

to agree to act as an Issuing Bank, if it does not so desire. In the event of
any conflict between any Issuing Bank Agreement and this Agreement, the terms of
this Agreement shall control.

     SECTION 4.02. LETTERS OF CREDIT.

          (a) Each Letter of Credit shall be issued (or the stated maturity
thereof extended or terms thereof modified or amended) for the account of the
Company, Enterprises or a Subsidiary of Enterprises (in which case each Borrower
and such Subsidiary shall be coapplicants with respect to such Letter of Credit)
on not less than three (3) Business Days' prior written notice thereof to the
Administrative Agent (which shall promptly distribute copies thereof to the
Lenders) and the relevant Issuing Bank and shall be denominated in Dollars or in
an Alternative Currency. Each such notice (a "REQUEST FOR ISSUANCE") shall be
delivered no later than 12:00 noon (New York City time) on the third Business
Day prior to the proposed date of issuance, extension, modification or amendment
and shall specify (i) the date (which shall be a Business Day) of issuance of
such Letter of Credit (or the date of effectiveness of such extension,
modification or amendment) and the stated expiry date thereof (which shall be no
later than the earlier of the date that is five (5) Business Days (or, in the
case of any commercial Letter of Credit, thirty (30) Business Days) prior to the
Commitment Termination Date and the date which is one year after the requested
date of issuance, provided that any Letter of Credit with a one year tenor may
provide for the renewal thereof for additional periods of up to one year which
shall in no event extend beyond the date which is five (5) Business Days (or, in
the case of any commercial Letter of Credit, thirty (30) Business Days) prior to
the Commitment Termination Date), (ii) the proposed stated amount of such Letter
of Credit (which shall not be less than $100,000 (or the Dollar Equivalent
thereof in an Alternative Currency) unless otherwise agreed by the applicable
Issuing Bank), (iii) the currency in which such Letter of Credit shall be
denominated (which currency shall be Dollars or an Alternate Currency), (iv) the
identity of the applicable Borrower and (v) such other information as shall
demonstrate compliance of such Letter of Credit with the requirements specified
therefor in this Agreement and the relevant Issuing Bank Agreement. Each Request
for Issuance shall be irrevocable unless modified or rescinded by the applicable
Borrower in writing not less than two (2) Business Days prior to the proposed
date of issuance (or effectiveness) specified therein. Not later than 12:00 noon
(New York City time) on the proposed date of issuance (or effectiveness)
specified in such Request for Issuance, and upon fulfillment of the applicable
conditions precedent and the other requirements set forth herein and in the
relevant Issuing Bank Agreement, such Issuing Bank shall issue (or extend, amend
or modify) such Letter of Credit and provide notice and a copy thereof to the
Administrative Agent, which shall promptly furnish copies thereof to the
Lenders.

          (b) Schedule III contains a schedule of certain letters of credit
issued for the account of the Company prior to the Closing Date. Subject to the
satisfaction of the applicable conditions contained in Article VI, from and
after the Closing Date such letters of credit shall be deemed to be Letters of
Credit issued pursuant to this Article IV for all purposes hereunder (each such
Letter of Credit, a "TRANSITIONAL LETTER OF CREDIT"). For purposes of
clarification, each term or provision applicable to the issuance of a Letter of
Credit (including conditions applicable thereto) shall be deemed to include the
deemed issuance of the Transitional Letters of Credit on the Closing Date.


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<PAGE>

          (c) Each Lender severally agrees with each Issuing Bank to participate
in the Extension of Credit resulting from the issuance or deemed issuance (or
extension, modification or amendment) of each Letter of Credit issued or deemed
issued (or extended, amended or modified) pursuant to this Section 4.02 in the
manner and the amount provided in Section 4.04(b), and the issuance or deemed
issuance of such Letter of Credit shall be deemed to be a confirmation by each
Issuing Bank and each Lender of such participation in such amount.

          (d) Notwithstanding anything herein to the contrary, no Issuing Bank
shall have any obligation to, and no Issuing Bank shall, issue, extend, amend or
modify any Letter of Credit if on the date of such issuance, extension,
amendment or modification, before or after giving effect thereto, (i) the Total
Outstandings at such time would exceed the Commitments, (ii) the Dollar
Equivalent of the aggregate LC Outstandings with respect to Letters of Credit
denominated in euros would exceed the Euro Sublimit or (iii) the Dollar
Equivalent of the aggregate LC Outstandings with respect to Letters of Credit
denominated in Indian Rupees would exceed the Indian Rupee Sublimit.

     SECTION 4.03. ISSUING BANK FEES. Each Borrower shall pay directly to each
Issuing Bank such fees and expenses, if any, specified to be paid to such
Issuing Bank pursuant to each Issuing Bank Agreement to which it is a party, at
the times, and in the manner, specified in such Issuing Bank Agreement.

     SECTION 4.04. REIMBURSEMENT TO ISSUING BANKS.

          (a) Each Borrower hereby agrees to pay to the Administrative Agent for
the account of each Issuing Bank, on demand made by such Issuing Bank to the
Borrowers and the Administrative Agent, on and after each date on which such
Issuing Bank shall pay any amount under any Letter of Credit issued by such
Issuing Bank, a sum in Dollars equal to the Dollar Equivalent of the amount so
paid (calculated as of the date of such payment by such Issuing Bank) plus
interest on such Dollar Equivalent of such amount from the date so paid by such
Issuing Bank until repayment to such Issuing Bank in full at a fluctuating
interest rate per annum equal at all times to the Applicable Rate for ABR Loans.

          (b) If any Issuing Bank shall not have been reimbursed in full by the
Borrowers for any payment made by such Issuing Bank under a Letter of Credit
issued by such Issuing Bank on the date of such payment, such Issuing Bank shall
give the Administrative Agent and each Lender prompt notice thereof (an "LC
PAYMENT NOTICE") no later than 12:00 noon (New York City time) on the Business
Day immediately succeeding the date of such payment by such Issuing Bank. Each
Lender severally agrees to purchase from each Issuing Bank a participation in
the reimbursement obligation of the Borrowers to such Issuing Bank under
subsection (a) above, by paying to the Administrative Agent for the account of
such Issuing Bank an amount in Dollars equal to such Lender's Percentage of the
Dollar Equivalent of such unreimbursed amount paid by such Issuing Bank
(calculated as of the date of such payment by such Issuing Bank), plus interest
on such Dollar Equivalent of such amount at a rate per annum equal to the
Federal Funds Effective Rate from the date of such payment by such Issuing Bank
to the date of payment to such Issuing Bank by such Lender. Each such payment by
a Lender shall be made not later than 3:00 p.m. (New York City time) on the
later to occur of (i) the Business Day immediately following the date of such
payment by such Issuing Bank and


                                       31

<PAGE>

(ii) the Business Day on which such Lender shall have received an LC Payment
Notice from such Issuing Bank. Each Lender's obligation to make each such
payment to the Administrative Agent for the account of such Issuing Bank shall
be several and shall not be affected by the occurrence or continuance of any
Default or Event of Default or the failure of any other Lender to make any
payment under this Section 4.04. Each Lender further agrees that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.

          (c) The failure of any Lender to make any payment to the
Administrative Agent for the account of an Issuing Bank in accordance with
subsection (b) above, shall not relieve any other Lender of its obligation to
make payment, but no Lender shall be responsible for the failure of any other
Lender. If any Lender shall fail to make any payment to the Administrative Agent
for the account of an Issuing Bank in accordance with subsection (b) above,
within five (5) Business Days after the LC Payment Notice relating thereto,
then, for so long as such failure shall continue, such Issuing Bank shall be
deemed, for purposes of Section 5.05 and Article IX hereof and the Cash
Collateral Agreement, to be a Lender hereunder owed a Loan in an outstanding
principal amount equal to the amount due and payable by such Lender to the
Administrative Agent for the account of such Issuing Bank pursuant to subsection
(b) above.

          (d) Each participation purchased by a Lender under subsection (b)
above, shall constitute an ABR Loan in the amount in Dollars paid by such Lender
to the Administrative Agent for the account of the applicable Issuing Bank and
shall be deemed made by such Lender to the Borrowers on the date of the related
payment by the relevant Issuing Bank under the applicable Letter of Credit
issued by such Issuing Bank (irrespective of the Borrowers' noncompliance, if
any, with the conditions precedent for Loans hereunder); and all such payments
by the Lenders in respect of any one such payment by such Issuing Bank shall
constitute a single Borrowing hereunder.

     SECTION 4.05. OBLIGATIONS ABSOLUTE. The payment obligations of each Lender
under Section 4.04(b) and of the Borrowers under this Agreement in respect of
any payment under any Letter of Credit and any Loan made under Section 4.04(d)
shall be unconditional and irrevocable, and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances, including the
following circumstances:

          (i) any lack of validity or enforceability of any Loan Document or any
     other agreement or instrument relating thereto or to such Letter of Credit;

          (ii) any amendment or waiver of, or any consent to departure from, all
     or any of the Loan Documents;

          (iii) the existence of any claim, set-off, defense or other right
     which the Borrowers may have at any time against any beneficiary, or any
     transferee, of such Letter of Credit (or any Persons for whom any such
     beneficiary or any such transferee may be acting), any Issuing Bank, or any
     other Person, whether in connection with this Agreement, the transactions
     contemplated herein or by such Letter of Credit, or any unrelated
     transaction;


                                       32

<PAGE>

          (iv) any statement or any other document presented under such Letter
     of Credit proving to be forged, fraudulent, invalid or insufficient in any
     respect or any statement therein being untrue or inaccurate in any respect;

          (v) payment in good faith by any Issuing Bank under a Letter of Credit
     issued by such Issuing Bank against presentation of a draft or certificate
     which does not comply with the terms of such Letter of Credit; or

          (vi) any other circumstance or happening whatsoever, whether or not
     similar to any of the foregoing.

     SECTION 4.06. INDEMNIFICATION; LIABILITY OF ISSUING BANKS AND THE LENDERS.

          (a) In addition to amounts payable as elsewhere provided in this
Agreement, the Borrowers hereby agree to pay and to protect, indemnify, and save
harmless each Indemnified Person from and against any and all liabilities and
costs that any such Indemnified Person may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance, execution and delivery or
transfer of or payment or failure to pay under any Letter of Credit or (ii) the
failure of any Issuing Bank to honor a demand for payment under any Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental authority, in
each case other than to the extent solely as a result of the (x) gross
negligence or willful misconduct of such Indemnified Person as determined by a
court of competent jurisdiction by final and nonappealable judgment or (y) any
Issuing Bank's failure to pay under any Letter of Credit after the presentation
to it of a request strictly complying with the terms and conditions of such
Letter of Credit.

          (b) The Borrowers assume all risks of the acts and omissions of any
beneficiary or transferee of any Letter of Credit. Neither the Issuing Bank that
has issued such Letter of Credit, nor any other Indemnified Person, shall be
liable or responsible for (i) the use that may be made of such Letter of Credit
or any acts or omissions of any beneficiary or transferee thereof in connection
therewith; (ii) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (iii) payment by such
Issuing Bank against presentation of documents that do not comply with the terms
of such Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit; or (iv) any other
circumstances whatsoever in making or failing to make payment under such Letter
of Credit, except that the Borrowers shall have the right to bring suit against
such Issuing Bank, and such Issuing Bank shall be liable to the applicable
Borrower and any Lender, to the extent of any direct, as opposed to
consequential, damages suffered by the applicable Borrower or such Lender which
the applicable Borrower or such Lender proves were caused by such Issuing Bank's
willful misconduct or gross negligence as determined by a court of competent
jurisdiction by final and nonappealable judgment, including such Issuing Bank's
willful failure to make timely payment under such Letter of Credit following the
presentation to it by the beneficiary thereof of a draft and accompanying
certificate(s) which strictly comply with the terms and conditions of such
Letter of Credit. In furtherance and not in limitation of the foregoing, any
Issuing Bank may accept sight drafts and accompanying certificates presented
under any Letter of Credit issued by such Issuing Bank that appear on their face
to be in order,


                                       33

<PAGE>

without responsibility for further investigation, regardless of any notice or
information to the contrary. Notwithstanding the foregoing, no Lender shall be
obligated to indemnify the applicable Borrower for damages caused by any Issuing
Bank's willful misconduct or gross negligence, and the obligation of the
Borrowers to reimburse the Lenders hereunder shall be absolute and
unconditional, notwithstanding the gross negligence or willful misconduct of any
Issuing Bank.

          (c) The Borrowers' other obligations under this Section 4.06 shall
survive the repayment of all amounts owing to the Lenders, the Issuing Banks and
the Agents under the Loan Documents and the termination of the Commitments. If
and to the extent that the obligations of any Borrower under this Section 4.06
are unenforceable for any reason, the Borrowers jointly and severally agree to
make the maximum contribution to the payment and satisfaction thereof which is
permissible under applicable law.

     SECTION 4.07. CURRENCY EQUIVALENTS. The Dollar Equivalent of any amount
denominated in any Alternative Currency shall be determined by the Issuing Bank
in accordance with prevailing exchange rates, as set forth in the applicable
Issuing Bank Agreement, and notice of such amount shall be provided to the
Administrative Agent, in each case on the applicable date. The Dollar Equivalent
of the stated amount of each Letter of Credit outstanding made in an Alternative
Currency and of the amount of each participation purchased by a Lender under
Section 4.04(b) shall be recalculated hereunder on (i) each date that it shall
be necessary to determine the unused portion of each Lender's Commitment, or the
outstanding amount of any or all Loans, LC Outstandings or any Extension of
Credit, or (ii) on any such other date which the Administrative Agent deems such
recalculation necessary or advisable or is otherwise directed to make such
recalculation by the Required Lenders, but in any event at least monthly. The
Administrative Agent agrees to provide notice to the Lenders of the relevant
Dollar Equivalent determined pursuant to each such determination and each such
recalculation as soon as practicable following such determination or
recalculation, as the case may be.

     SECTION 4.08. JUDGEMENT CURRENCY. If for the purposes of obtaining judgment
in any court it is necessary to convert a sum due hereunder or under the
Promissory Notes in any currency (the "ORIGINAL CURRENCY") into another currency
(the "OTHER CURRENCY") the parties hereto agree, to the fullest extent that they
may effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Administrative Agent could
purchase the Original Currency with the Other Currency at the Administrative
Agent's main office in New York, New York on the Business Day immediately
preceding that on which final judgment is given. The obligation of any Borrower
in respect of any sum due in the Original Currency from it to any Lender, any
Issuing Bank, the Collateral Agent or Administrative Agent hereunder or under
any other Loan Document shall, notwithstanding any judgment in any Other
Currency, be discharged only to the extent that on the Business Day following
receipt by such Lender, Issuing Bank, Collateral Agent or the Administrative
Agent (as the case may be) of any sum adjudged to be so due in such Other
Currency such Lender, Issuing Bank, Collateral Agent or Administrative Agent (as
the case may be) may in accordance with normal banking procedures purchase the
Original Currency with such Other Currency; if the amount of the Original
Currency so purchased is less than the sum originally due to such Lender,
Issuing Bank, Collateral Agent or Administrative Agent (as the case may be) in
the Original Currency, the applicable Borrower agrees, as a separate obligation
and notwithstanding


                                       34

<PAGE>

any such judgment, to indemnify such Lender, Issuing Lender, Collateral Agent or
Administrative Agent (as the case may be) against such loss, and if the amount
of the Original Currency so purchased exceeds the sum originally due in the
Original Currency to any Lender, Issuing Lender, Collateral Agent or
Administrative Agent (as the case may be), such Lender, Issuing Lender,
Collateral Agent or Administrative Agent (as the case may be) agrees to remit to
the applicable Borrower such excess.

     SECTION 4.09. CASH COLLATERAL AGREEMENT. Each Borrower agrees that the
Company will, on behalf of itself and Enterprises, maintain pursuant to the Cash
Collateral Agreement a cash collateral account, in the name of the Company but
under the sole dominion and control of the Collateral Agent, for the benefit of
itself, the Administrative Agent, the LC Issuers and the Lenders. Each Borrower
hereby pledges, assigns and grants to the Collateral Agent, for the benefit of
itself, the Administrative Agent, the LC Issuers and the Lenders, a security
interest in all of such Borrower's right, title and interest in and to all funds
which may from time to time be on deposit in such account to secure the prompt
and complete payment and performance of all reimbursement obligations of the
Borrowers now or hereafter existing with respect to LC Obligations.

     SECTION 4.10. COURT ORDER. If at any time any Issuing Bank shall have been
served with or otherwise subjected to a court order, injunction, or other
process or decree issued or granted at the instance of any Borrower restraining
or seeking to restrain such Issuing Bank from paying any amount under any Letter
of Credit issued by it (other than pursuant to any action or proceeding based on
Section 5-109 of the Uniform Commercial Code) and either (i) there has been a
drawing under such Letter of Credit which such Issuing Bank would otherwise be
obligated to pay or (ii) the stated expiration date or any reduction of the
stated amount of such Letter of Credit has occurred but the right of the
beneficiary to draw thereunder has been extended in connection with the pendency
of the related court action or proceeding, the Borrowers shall provide cash
collateral pursuant to the Cash Collateral Agreement in an amount equal to one
hundred five percent (105%) of the Dollar Equivalent of the LC Outstandings at
such time in respect of such Letter of Credit.

                                    ARTICLE V
                   PAYMENTS, COMPUTATIONS AND YIELD PROTECTION

     SECTION 5.01. PAYMENTS AND COMPUTATIONS.

          (a) Each Borrower shall make each payment hereunder and under the
other Loan Documents not later than 2:00 p.m. (New York City time) on the day
when due in Dollars to the Administrative Agent at its offices at 2 Penns Way,
Suite 200, New Castle, DE 19270, in same day funds, except payments to be made
directly to any Issuing Bank as expressly provided herein; any payment received
after 3:00 p.m. (New York City time) shall be deemed to have been received at
the start of business on the next succeeding Business Day, unless the
Administrative Agent shall have received from, or on behalf of, the applicable
Borrower a Federal Reserve reference number with respect to such payment before
4:00 p.m. (New York City time). The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest, fees or other amounts payable to the Lenders, to the
respective Lenders to which the same are payable, for the account of their
respective Applicable


                                       35

<PAGE>

Lending Offices, in each case to be applied in accordance with the terms of this
Agreement. If and to the extent that any distribution of any payment from a
Borrower required to be made to any Lender pursuant to the preceding sentence
shall not be made in full by the Administrative Agent on the date such payment
was received by the Administrative Agent, the Administrative Agent shall pay to
such Lender, upon demand, interest on the unpaid amount of such distribution, at
a rate per annum equal to the Federal Funds Effective Rate, from the date of
such payment by the applicable Borrower to the Administrative Agent to the date
of payment in full by the Administrative Agent to such Lender of such unpaid
amount. Upon the Administrative Agent's acceptance of a Lender Assignment and
recording of the information contained therein in the Register pursuant to
Section 11.07, from and after the effective date specified in such Lender
Assignment, the Administrative Agent shall make all payments hereunder and under
any Promissory Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Lender Assignment shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.

          (b) Each Borrower hereby authorizes the Administrative Agent, each
Lender and each Issuing Bank, if and to the extent payment owed to the
Administrative Agent, such Lender or such Issuing Bank, as the case may be, is
not made when due hereunder (or, in the case of a Lender, under any Promissory
Note held by such Lender), to charge from time to time against any or all of
such Borrower's accounts with the Administrative Agent, such Lender or such
Issuing Bank, as the case may be, any amount so due.

          (c) All computations of interest based on the Alternate Base Rate
(when the Alternate Base Rate is based on the Prime Rate) shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be. All other computations of interest and fees hereunder (including
computations of interest based on the Adjusted LIBO Rate, the CD Rate and the
Federal Funds Effective Rate) shall be made by the Administrative Agent on the
basis of a year of 360 days. In each such case, such computation shall be made
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
such determination by the Administrative Agent or a Lender shall be conclusive
and binding for all purposes, absent manifest error.

          (d) Whenever any payment hereunder or under any other Loan Document
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest and fees
hereunder; provided, however, that if such extension would cause payment of
interest on or principal of Eurodollar Rate Loans to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day and such reduction of time shall in such case be included in the
computation of payment of interest hereunder.

          (e) Unless the Administrative Agent shall have received notice from
the applicable Borrower prior to the date on which any payment is due to the
Lenders hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date, and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the


                                       36

<PAGE>

extent such Borrower shall not have so made such payment in full to the
Administrative Agent, such Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender, together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Effective Rate.

          (f) Any amount payable by any Borrower hereunder or under any of the
Promissory Notes that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall (to the fullest extent permitted by law) bear
interest, from the date when due until paid in full, at a rate per annum equal
at all times to the Default Rate, payable on demand.

          (g) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied, subject to Section 5.07,
(i) first, toward payment of interest and fees then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, toward payment of principal then due
hereunder, ratably among the parties entitled thereto.

     SECTION 5.02. INTEREST RATE DETERMINATION. The Administrative Agent shall
give prompt notice to the Borrowers and the Lenders of the applicable interest
rate determined by the Administrative Agent for purposes of Section 3.05(b)(i)
or (ii).

     SECTION 5.03. PREPAYMENTS. The Borrowers shall have no right to prepay any
principal amount of any Loans other than as follows:

          (a) A Borrower may (and shall provide notice thereof to the
Administrative Agent not later than 10:00 a.m. (New York City time) on the date
of prepayment, and the Administrative Agent shall promptly distribute copies
thereof to the Lenders), and if such notice is given, such Borrower shall,
prepay the outstanding principal amounts of its Loans made as part of the same
Borrowing, in whole or ratably in part; provided, however, that each partial
prepayment shall be in an aggregate principal amount of not less than $5,000,000
or an integral multiple of $1,000,000 in excess thereof (or such lesser amount
as shall be equal to the total amount of Loans outstanding to such Borrower).

          (b) On any date on which (i) any termination or optional or mandatory
reduction of the Commitments shall occur pursuant to Section 2.03(a) or (b),
(ii) the Total Outstandings shall exceed the aggregate amount of the
Commitments, (iii) the aggregate Dollar Equivalent of all LC Outstandings
denominated in euros shall exceed the Euro Sublimit, or (iv) all LC Outstandings
denominated in Indian Rupees shall exceed the Indian Rupee Sublimit, the
Borrowers shall first, pay or prepay the principal outstanding on the Loans
and/or all LC Outstandings that represent amounts that have been drawn under
Letters of Credit but have neither been reimbursed by the Borrowers nor
converted into ABR Loans, second, if all of the Loans and all of such
unreimbursed amounts constituting LC Outstanding shall have been paid in full,
provide cash collateral pursuant to the Cash Collateral Agreement, to secure
remaining LC Outstandings, and third, cause an amount of Letters of Credit to be
cancelled (if necessary after taking into account the payments and provision of
cash collateral in the immediately preceding clauses), in each case, in an
aggregate amount equal to the excess, as applicable, of (A)(i) the


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<PAGE>

Total Outstandings over (ii) the aggregate amount of the sum of the Commitments
(following such termination or reduction, if any) and any cash collateral on
deposit in the Cash Collateral Account or (B)(i)(x) the aggregate Dollar
Equivalent of all LC Outstandings denominated in euro, over (y) the sum of the
Euro Sublimit and, without duplication, such cash collateral or (ii)(x) the
aggregate Dollar Equivalent of all LC Outstandings denominated in Indian Rupees,
over (y) the sum of the Indian Rupee Sublimit and, without duplication, such
cash collateral. Any payments and prepayments required by clause "first" of this
subsection (b) shall be applied to outstanding ABR Loans up to the full amount
thereof before they are applied to outstanding Eurodollar Rate Loans.

          (c) Any prepayment pursuant to this Section 4.03 shall be accompanied
by (i) accrued interest to the date of such prepayment on the principal amount
repaid and (ii) in the case of prepayments of Eurodollar Rate Loans, any amount
payable to the Lenders pursuant to Section 5.04(b). In the event that the
Borrowers request the release of any cash collateral pursuant to the terms of
the Cash Collateral Agreement and on the date of such request or at any time
prior to the time of such release, there has become, or there becomes, due and
payable any prepayment of any Loans under this Agreement, the Borrowers hereby
direct the Administrative Agent to apply the proceeds of such release of cash
collateral to such prepayment of such Loans and agrees that any such request is
a confirmation of such direction.

     SECTION 5.04. YIELD PROTECTION.

          (a) Increased Costs. If, due to either (i) the introduction of or any
change in or in the interpretation of any law or regulation after the Closing
Date, or (ii) the compliance with any guideline or request from any central bank
or other governmental authority (whether or not having the force of law) issued
or made after the Closing Date, there shall be reasonably incurred any increase
in (A) the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Loans, or of participating in the issuance,
maintenance or funding of any Letter of Credit, or (B) the cost to any Issuing
Bank of issuing or maintaining any Letter of Credit, then the Borrowers shall
from time to time, upon demand by such Lender or Issuing Bank, as the case may
be (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender or Issuing Bank, as the case
may be, additional amounts sufficient to compensate such Lender or Issuing Bank,
as the case may be, for such increased cost. A certificate as to the amount of
such increased cost and giving a reasonable explanation thereof, submitted to
the Borrowers and the Administrative Agent by such Lender or such Issuing Bank,
as the case may be, shall constitute such demand and shall be conclusive and
binding for all purposes, absent manifest error.

          (b) Breakage. If, due to any prepayment pursuant to Section 2.03, an
acceleration of maturity of the Loans pursuant to Section 9.02, or any other
reason, any Lender receives payments of principal of any Eurodollar Rate Loan
other than on the last day of the Interest Period relating to such Loan or if
any Borrower shall Convert any Eurodollar Rate Loans on any day other than the
last day of the Interest Period therefor, or if any Borrower shall fail to
prepay a Eurodollar Rate Loan on the date specified in a notice of prepayment,
the Borrowers shall, promptly after demand by such Lender (with a copy of such
demand to the Administrative Agent), pay to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for
additional losses, costs, or expenses (including anticipated lost


                                       38

<PAGE>

profits) that such Lender may reasonably incur as a result of such payment,
Conversion or failure to prepay, including any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund or maintain such Loan. For purposes of this subsection (b),
a certificate setting forth the amount of such additional losses, costs, or
expenses and giving a reasonable explanation thereof, submitted to the Borrowers
and the Administrative Agent by such Lender, shall constitute such demand and
shall be conclusive and binding for all purposes, absent manifest error.

          (c) Capital. If any Lender or Issuing Bank determines that (i)
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or Issuing Bank, whether directly, or indirectly as a
result of commitments of any Person controlling such Lender or Issuing Bank (but
without duplication), and (ii) the amount of such capital is increased by or
based upon (A) the existence of such Lender's or such Issuing Bank's commitment
to lend or issue or participate in any Letter of Credit hereunder, (B) the
participation in or issuance or maintenance of any Letter of Credit or Loan or
(C) other similar such commitments, then, upon demand by such Lender or Issuing
Bank, the Borrowers jointly and severally agree immediately to pay to the
Administrative Agent for the account of such Lender or Issuing Bank from time to
time as specified by such Lender or Issuing Bank additional amounts sufficient
to compensate such Lender or Issuing Bank in the light of such circumstances, to
the extent that such Lender or Issuing Bank reasonably determines such increase
in capital to be allocable to the transactions contemplated hereby. A
certificate as to such amounts and giving a reasonable explanation thereof (to
the extent permitted by law), submitted to the Borrowers and the Administrative
Agent by such Lender or Issuing Bank, shall be conclusive and binding for all
purposes, absent manifest error.

          (d) Notices. Each Lender and Issuing Bank hereby agrees to use its
best efforts to notify the Borrowers of the occurrence of any event referred to
in subsection (a), (b) or (c) of this Section 5.04 promptly after becoming aware
of the occurrence thereof. The failure of any Lender or any Issuing Bank to
provide such notice or to make demand for payment under said subsection shall
not constitute a waiver of such Lender's or such Issuing Bank's (as the case may
be) rights hereunder; provided that, notwithstanding any provision to the
contrary contained in this Section 5.04, the Borrowers shall not be required to
reimburse any Lender or any Issuing Bank for any amounts or costs incurred under
subsection (a), (b) or (c) of this Section 5.04 more than 90 days prior to the
date that such Lender or such Issuing Bank's (as the case may be) notifies the
Borrowers in writing thereof, in each case unless, and to the extent that, any
such amounts or costs so incurred shall relate to the retroactive application of
any event notified to the Borrowers which entitles such Lender or such Issuing
Bank (as the case may be) to such compensation. If any Lender or any Issuing
Bank shall subsequently determine that any amount demanded and collected under
this Section 5.04 was done so in error, such Lender or such Issuing Bank (as the
case may be) will promptly return such amount to the Borrowers.

          (e) Survival of Obligations. Subject to subsection (d) above, the
Borrowers' obligations under this Section 5.04 shall survive the repayment of
all other amounts owing to the Lenders, the Agents and the Issuing Banks under
the Loan Documents and the termination of the Commitments. If and to the extent
that the obligations of the Borrowers under this Section 5.04


                                       39

<PAGE>

are unenforceable for any reason, the Borrowers agree to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.

     SECTION 5.05. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans owing to it (other than pursuant
to Section 5.04 or Section 5.06) in excess of its ratable share of payments
obtained by all the Lenders on account of the Loans of such Lenders, such Lender
shall forthwith purchase from the other Lenders such participation in the Loans
owing to them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrowers agree that any Lender so purchasing a participation
from another Lender pursuant to this Section 5.05 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrowers in the amount of such participation.
Notwithstanding the foregoing, if any Lender shall obtain any such excess
payment involuntarily, such Lender may, in lieu of purchasing participations
from the other Lenders in accordance with this Section 5.05, on the date of
receipt of such excess payment, return such excess payment to the Administrative
Agent for distribution in accordance with Section 5.01(a).

     SECTION 5.06. TAXES.

          (a) All payments by the Borrowers hereunder and under the other Loan
Documents shall be made in accordance with Section 5.01, free and clear of and
without deduction for all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender, each Issuing Bank and each Agent, taxes imposed on its
overall net income, and franchise taxes imposed on it by the jurisdiction under
the laws of which such Lender, Issuing Bank or Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each Lender,
taxes imposed on its overall net income, and franchise taxes imposed on it by
the jurisdiction of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
If any Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any other Loan Document to any Lender,
Issuing Bank or Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 5.06) such Lender,
Issuing Bank or Agent (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.


                                       40

<PAGE>

          (b) In addition, each Borrower jointly and severally agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made hereunder or
under any other Loan Document or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "OTHER TAXES").

          (c) Each Borrower jointly and severally agrees to indemnify each
Lender, Issuing Bank and Agent for the full amount of Taxes and Other Taxes
(including any Taxes and any Other Taxes imposed by any jurisdiction on amounts
payable under this Section 5.06) paid by such Lender, Issuing Bank or Agent (as
the case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days from the date such Lender, Issuing Bank or Agent (as the
case may be) makes written demand therefor; provided, that such Lender, Issuing
Bank or Agent (as the case may be) shall not be entitled to demand payment under
this Section 5.06 for an amount if such demand is not made within one year
following the date upon which such Lender, Issuing Bank or Agent (as the case
may be) shall have been required to pay such amount.

          (d) Within thirty (30) days after the date of any payment of Taxes,
the applicable Borrower will furnish to the Administrative Agent, at its address
referred to in Section 11.02, the original or a certified copy of a receipt
evidencing payment thereof.

          (e) Each Bank represents and warrants that either (i) it is organized
under the laws of a jurisdiction within the United States or (ii) it has
delivered to the Borrowers or the Administrative Agent duly completed copies of
such form or forms prescribed by the United States Internal Revenue Service
indicating that such Bank is entitled to receive payments without deduction or
withholding of any United States federal income taxes, as permitted by the
Internal Revenue Code of 1986, as amended. Each other Lender agrees that, on or
prior to the date upon which it shall become a party hereto, and upon the
reasonable request from time to time of a Borrower or the Administrative Agent,
such Lender will deliver to the Borrowers and the Administrative Agent (to the
extent that it is not prohibited by law from doing so) either (A) a statement
that it is organized under the laws of a jurisdiction within the United States
or (B) duly completed copies of such form or forms as may from time to time be
prescribed by the United States Internal Revenue Service, indicating that such
Lender is entitled to receive payments without deduction or withholding of any
United States federal income taxes, as permitted by the Internal Revenue Code of
1986, as amended. Each Bank that has delivered, and each other Lender that
hereafter delivers, to the Borrowers and the Administrative Agent the form or
forms referred to in the two preceding sentences further undertakes to deliver
to the Borrowers and the Administrative Agent, to the extent that it is not
prohibited by law from doing so, further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect. Each Lender represents and warrants that each such form supplied
by it to the Administrative Agent and the Borrowers pursuant to this subsection
(e), and not superseded by another form supplied by it, is or will be, as the
case may be, complete and accurate.

     SECTION 5.07. APPORTIONMENT OF PAYMENTS.


                                       41

<PAGE>

          (a) Subject to the provisions of Section 2.03, Section 5.03(b) and
Section 5.07(b), all payments of principal and interest in respect of
outstanding Loans, all payments in respect of unpaid reimbursement obligations
under Section 4.04(a), all payments of fees and all other payments in respect of
any other Obligations hereunder, shall be allocated among such of the Lenders
and the Issuing Banks as are entitled thereto, ratably or otherwise as expressly
provided herein. Except as provided in Section 5.07(b) with respect to payments
and proceeds of Collateral received after the occurrence of an Event of Default,
all such payments and any other amounts received by the Administrative Agent
from or for the benefit of any Borrower shall be applied:

          (i) first, to pay principal of and interest on any portion of the
     Loans which the Administrative Agent may have advanced on behalf of any
     Lender other than Citibank for which the Administrative Agent has not then
     been reimbursed by such Lender or any Borrower;

          (ii) second, to pay interest on and then the principal of the Loans
     then due and payable (in the order described hereinbelow);

          (iii) third to pay principal of and interest on all unpaid
     reimbursement obligations under Section 4.04(a);

          (iv) fourth, to the Cash Collateral Account, to secure outstanding
     Letters of Credit to the extent required pursuant to this Agreement;

          (v) fifth, to pay all other Obligations of any Loan Party under any
     Loan Document then due and payable, ratably; and

          (vi) sixth, as the Borrowers so designate.

All such principal and interest payments in respect of the Loans shall be
applied first to repay outstanding ABR Loans and then to repay outstanding
Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier
expiring Interest Periods being repaid prior to those which have later expiring
Interest Periods.

          (b) During the continuance of an Event of Default and after
declaration thereof by written notice from the Administrative Agent to the
Borrowers, the Administrative Agent shall apply all payments in respect of
Loans, unpaid reimbursement obligations under Section 4.04(a) or any other
Obligations, and the Collateral Agent shall deliver all proceeds of Collateral
to the Administrative Agent for application, in the following order:

          (i) first, to pay principal of and interest on any portion of the
     Loans which the Administrative Agent may have advanced on behalf of any
     Lender other than Citibank for which the Administrative Agent has not then
     been reimbursed by such Lender or the Borrowers;

          (ii) second, to pay any fees, expense reimbursements or indemnities
     then due to the Agents under any of the Loan Documents;


                                       42

<PAGE>

          (iii) third, to the ratable payment of any fees, expense
     reimbursements or indemnities then due to the Lenders and the Issuing Banks
     under any of the Loan Documents;

          (iv) fourth, to the ratable payment of interest due in respect of the
     Loans, in accordance with the Lenders' respective Percentages;

          (v) fifth, to the ratable payment or prepayment of principal
     outstanding on all Loans, in accordance with the Lenders' respective
     Percentages;

          (vi) sixth, to pay principal of and interest on all unpaid
     reimbursement obligations under Section 4.04(a);

          (vii) seventh, to the Cash Collateral Account to secure LC Obligations
     in respect of outstanding Letters of Credit, in an amount equal to the Cash
     Collateral Required Amount; and

          (viii) eighth, to the ratable payment of all other Obligations of the
     Loan Parties then outstanding under the Loan Documents.

The order of priority set forth in this Section 5.07(b) and the related
provisions of this Agreement are set forth solely to determine the rights and
priorities of the Agents and the Lenders as among themselves.

     SECTION 5.08. Proceeds of Collateral.  During the continuance of an Event
of Default and after declaration thereof by written notice from the
Administrative Agent to the Borrowers, the Borrowers shall cause all proceeds of
Collateral (other than Collateral in respect of which the Collateral Agent
and/or the Administrative Agent shall have a prior security interest on behalf
of the Lenders hereunder) to be deposited pursuant to arrangements for the
collection of such amounts established by the Borrowers and the Administrative
Agent (or the Collateral Agent, as applicable) for application pursuant to
Section 5.07. All collections of proceeds of Collateral which are received
directly by the Company or any Subsidiary of the Company shall be deemed to have
been received by the Company or such Subsidiary of the Company as the Collateral
Agent's trustee and, during the continuance of an Event of Default and after
declaration thereof by written notice from the Administrative Agent to the
Borrowers, upon the Company's or such Subsidiary's receipt thereof, the
Borrowers shall immediately transfer or cause to be transferred all such amounts
to the Administrative Agent for application pursuant to Section 5.07. All other
proceeds of Collateral received by the Collateral Agent and/or the
Administrative Agent, whether through direct payment or otherwise, will be
deemed received by such Agent, will be the sole property of such Agent, and will
be held by such Agent, for the benefit of the Lenders for application pursuant
to Section 5.07.

                                   ARTICLE VI
                              CONDITIONS PRECEDENT

     SECTION 6.01. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT.
The effectiveness of this Agreement is subject to the fulfillment of the
following conditions precedent:


                                       43

<PAGE>

          (a) The Administrative Agent shall have received, on or before the
Closing Date, the following, in form and substance satisfactory to each Lender
(except where otherwise specified below) and (except for any Promissory Notes)
in sufficient copies for each Lender:

          (i) Certified copies of the resolutions of the Board of Directors, or
     of the Executive Committee of the Board of Directors (or persons performing
     similar functions), of each Borrower, each Guarantor and each other Grantor
     (each a "LOAN PARTY") authorizing each such Loan Party to enter into each
     Loan Document to which it is, or is to be, a party, and of all documents
     evidencing other necessary corporate or other action and Governmental
     Approvals, if any, with respect to each such Loan Document.

          (ii) A certificate of the Secretary or an Assistant Secretary of each
     Loan Party certifying the names, true signatures and incumbency of (A) the
     officers of such Loan Party authorized to sign the Loan Documents to which
     it is, or is to be, a party, and the other documents to be delivered
     hereunder and thereunder and (B) the representatives of such Loan Party
     authorized to sign notices to be provided under the Loan Documents to which
     it is, or is to be, a party, which representatives shall be acceptable to
     the Administrative Agent.

          (iii) Copies of the Certificate of Incorporation and by-laws (or
     comparable constitutive documents) of each Loan Party, together with all
     amendments thereto, certified by the Secretary or an Assistant Secretary of
     each such Loan Party.

          (iv) Good Standing Certificates (or other similar certificate) for
     each of the Loan Parties, issued by the Secretary of State of the
     jurisdiction of organization of each such Loan Party as of a recent date.

          (v) The Guaranty, duly executed by each Guarantor.

          (vi) The Pledge Agreements, duly executed by the Borrowers and each
     Grantor, as applicable.

          (vii) The Cash Collateral Agreement, duly executed by each Borrower.

          (viii) A certified copy of Schedule I hereto, in form and substance
     reasonably satisfactory to the Administrative Agent setting forth:

               (A) all Project Finance Debt of the Company and the Consolidated
          Subsidiaries, as of June 30, 2004; and

               (B) debt (as such term is construed in accordance with GAAP) of
          the Loan Parties as of June 30, 2004.

          (ix) A certificate, executed by a duly authorized officer of the
     Company, certifying that as of June 30, 2004 the Company was in compliance
     with the requirements of Section 4.4 of the AIG Pledge Agreement (which
     certificate shall set forth in reasonable detail the calculations upon
     which the Company determined such compliance).


                                       44

<PAGE>

          (x) Favorable opinions of: (A) Belinda Foxworth, Esq., Deputy General
     Counsel of the Company and counsel for the other Loan Parties, in
     substantially the form of Exhibit C and as to such other matters as the
     Required Lenders, through the Administrative Agent, may reasonably request
     and (B) Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
     Loan Parties, in substantially the form of Exhibit D and as to such other
     matters as the Required Lenders, through the Administrative Agent, may
     reasonably request.

          (xi) Duly executed copies of a Reaffirmation in the form of Attachment
     A attached hereto from each of the Company's Subsidiaries identified
     thereon.

          (b) The following statements shall be true and the Administrative
Agent shall have received a certificate of a duly authorized officer of each
Borrower, dated the Closing Date and in sufficient copies for each Lender
stating that:

          (i) the representations and warranties set forth in Section 7.01 of
     this Agreement are true and correct with respect to such Borrower on and as
     of the Closing Date as though made on and as of such date,

          (ii) no event has occurred and is continuing that constitutes a
     Default or an Event of Default, and

          (iii) all Governmental Approvals necessary in connection with the Loan
     Documents and the transactions contemplated thereby and the continuing
     operations of such Borrower and its Subsidiaries have been obtained and are
     in full force and effect, and all third party approvals necessary or
     advisable in connection with the Loan Documents and the transactions
     contemplated thereby and the continuing operations of such Borrower and its
     Subsidiaries have been obtained and are in full force and effect, other
     than filings necessary to create or perfect security interests in the
     Collateral or as may be required under applicable energy, antitrust or
     securities laws in connection with the exercise of remedies with respect to
     certain Collateral.

          (c) The Administrative Agent shall have received evidence satisfactory
to it that all financing statements relating to the Collateral have been
completed for filing or recording and/or filed, and all certificates
representing capital stock or other ownership interests included in the
Collateral (including, without limitation, certificates, if any, representing
the capital stock or other ownership interests identified on Schedule II hereto)
have been delivered to the Collateral Agent (with duly executed stock powers).

          (d) The Borrowers shall have paid, on or before the Closing Date, all
fees under or referenced in Section 2.02(b) and all expenses referenced in
Section 11.04(a), in each case to the extent due and payable as of the Closing
Date.

          (e) The Administrative Agent shall have received each of the following
on or before the Closing Date, in each case in form and substance satisfactory
to it with sufficient copies for each Lender:


                                       45

<PAGE>

          (i) A certificate, executed by the chief executive officer and the
     chief financial officer of the Company and Consumers, as applicable, in
     favor of the Agents and the Lenders with respect to the financial
     statements described in Sections 7.01(e)(i), (ii), (iii) and (iv)
     certifying that such financial statements have been prepared in accordance
     with GAAP and are true and correct as of the date of such certificate;

          (ii) Copies of the financial statements described in Sections
     7.01(e)(i), (ii), (iii) and (iv); and

          (iii) Copies of the Company's Annual Report on Form 10-K/A for the
     fiscal year ended December 31, 2003.

          (f) The Administrative Agent shall have received evidence satisfactory
to it that on the Closing Date (i) all "Loans" under (and as defined in) the
Existing Credit Agreement and all other amounts due under the Existing Credit
Agreement have been paid in full by the Company and (ii) that certain Credit
Agreement, dated as of May 22, 2003, among the Company, the financial
institutions party thereto, Union Bank of California, N.A., as documentation
agent, and Bank One, NA, as administrative agent, has been or concurrently with
the Closing Date is being terminated and all Liens securing obligations under
such agreement have been or concurrently with the Closing Date are being
released.

     SECTION 6.02. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
obligation of each Lender or Issuing Bank, as the case may be, to make an
Extension of Credit (including the initial Extension of Credit (including the
deemed issuance of the Transitional Letters of Credit), but excluding the
Conversion of a Eurodollar Rate Loan into an ABR Loan) shall be subject to the
further conditions precedent that, on the date of such Extension of Credit and
after giving effect thereto:

          (a) The following statements shall be true (and each of the giving of
the applicable notice or request with respect thereto and the making of such
Extension of Credit without prior correction by the applicable Borrower shall
(to the extent that such correction has been previously consented to by the
Lenders and the Issuing Banks) constitute a representation and warranty by such
Borrower that, on the date of such Extension of Credit, such statements are
true):

          (i) the representations and warranties contained in Section 7.01 of
     this Agreement (other than those contained in subsections (e)(v) and (f)
     thereof) are correct on and as of the date of such Extension of Credit,
     before and after giving effect to such Extension of Credit and to the
     application of the proceeds thereof, as though made on and as of such date;
     and

          (ii) no Default or Event of Default has occurred and is continuing, or
     would result from such Extension of Credit or the application of the
     proceeds thereof.

          (b) The Administrative Agent shall have received such other approvals,
opinions and documents as any Lender or Issuing Bank, through the Administrative
Agent, may reasonably request as to the legality, validity, binding effect or
enforceability of the Loan


                                       46

<PAGE>

Documents or the business, assets, property, financial condition, results of
operations or prospects of the Company and its Consolidated Subsidiaries.

     SECTION 6.03. CONDITIONS PRECEDENT TO CERTAIN EXTENSIONS OF CREDIT. The
obligation of each Lender or Issuing Bank, as the case may be, to make an
Extension of Credit (including the initial Extension of Credit (including the
deemed issuance of the Transitional Letters of Credit)) that would (after giving
effect to all Extensions of Credit on such date and the application of proceeds
thereof) increase the principal amount outstanding hereunder, or to make an
Extension of Credit of the type described in clause (ii) or (iii) of the
definition thereof (except any amendment of a Letter of Credit the sole effects
of which are to extend the stated termination date thereof and/or to make
nonmaterial modifications thereto), shall be subject to the further conditions
precedent that, on the date of such Extension of Credit and after giving effect
thereto:

          (a) the following statements shall be true (and each of the giving of
the applicable notice or request with respect thereto and the making of such
Extension of Credit without prior correction by the applicable Borrower shall
(to the extent that such correction has been previously consented to by the
Lenders) constitute a representation and warranty by such Borrower that, on the
date of such Extension of Credit, such statements are true):

          (i) the representations and warranties contained in subsections (e)(v)
     and (f) of Section 7.01 of this Agreement are correct on and as of the date
     of such Extension of Credit, before and after giving effect to such
     Extension of Credit and to the application of the proceeds thereof, as
     though made on and as of such date; and

          (ii) no Default or Event of Default has occurred and is continuing, or
     would result from such Extension of Credit or the application of the
     proceeds thereof;

          (b) the Administrative Agent shall have received such other approvals,
opinions and documents as any Lender or Issuing Bank, through the Administrative
Agent, may reasonably request.

     SECTION 6.04. RELIANCE ON CERTIFICATES. The Lenders, the Issuing Banks and
each Agent shall be entitled to rely conclusively upon the certificates
delivered from time to time by officers of the Loan Parties as to the names,
incumbency, authority and signatures of the respective persons named therein
until such time as the Administrative Agent may receive a replacement
certificate, in form acceptable to the Administrative Agent, from an officer of
such Person identified to the Administrative Agent as having authority to
deliver such certificate, setting forth the names and true signatures of the
officers and other representatives of such Person thereafter authorized to act
on behalf of such Person.

                                   ARTICLE VII
                         REPRESENTATIONS AND WARRANTIES

     SECTION 7.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each
Borrower represents and warrants as follows:

          (a) Existence and Standing. Each of the Borrowers, Consumers and each
of the Restricted Subsidiaries is duly organized, validly existing and in good
standing under the


                                       47

<PAGE>

laws of the state of its organization and is duly qualified to do business in,
and is in good standing in, all other jurisdictions where the nature of its
business or the nature of property owned or used by it makes such qualification
necessary.

          (b) Authorization; No Conflicts. The execution, delivery and
performance by each Loan Party of each Loan Document to which it is or will be a
party (i) are within such Loan Party's powers, (ii) have been duly authorized by
all necessary corporate or other organizational action or proceedings and (iii)
do not and will not (A) require any consent or approval of the stockholders (or
other applicable holder of equity) of such Loan Party (other than such consents
and approvals which have been obtained and are in full force and effect), (B)
violate any provision of the charter or by-laws (or other comparable
constitutive documents) of such Loan Party or of law, (C) violate any legal
restriction binding on or affecting such Loan Party, (D) result in a breach of,
or constitute a default under, any indenture or loan or credit agreement or any
other agreement, lease or instrument to which such Loan Party is a party or by
which it or its properties may be bound or affected, or (E) result in or require
the creation of any Lien (other than pursuant to the Loan Documents) upon or
with respect to any of its respective properties.

          (c) Government Consent. No Governmental Approval is required, other
than filings necessary to create or perfect security interests in the Collateral
or as may be required under applicable energy, antitrust or securities laws in
connection with the exercise of remedies with respect to certain Collateral.

          (d) Security Interests; Enforceability. Each Loan Document (i) where
applicable, creates valid and, upon filing of the financing statements delivered
on or prior to the Closing Date and described in Section 6.01(c), perfected
security interests in the Collateral covered thereby securing the payment of all
of the Loans and reimbursement obligations purported to be secured thereby,
which security interests shall be first priority perfected security interests,
subject to Liens permitted under Section 8.02(a), and (ii) is the legal, valid
and binding obligation of each Loan Party thereto enforceable against such Loan
Party in accordance with its terms; subject to the qualification, however, that
the enforcement of the rights and remedies herein and therein is subject to
bankruptcy and other similar laws of general application affecting rights and
remedies of creditors and the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).

          (e) Financial Statements; Material Adverse Change. (i) The
consolidated balance sheets of the Company and its Consolidated Subsidiaries as
at December 31, 2002 and December 31, 2003, and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Consolidated Subsidiaries for the fiscal years then ended, included in the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
2003, copies of each of which have been furnished to the Administrative Agent
for distribution to each Lender, 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 generally accepted accounting
principles consistently applied; (ii) the consolidated balance sheets of
Consumers and its consolidated Subsidiaries as at December 31, 2002 and December
31, 2003, and the related consolidated statements of income, retained earnings
and cash flows of Consumers and its consolidated Subsidiaries for the fiscal
years then ended, included in the


                                       48

<PAGE>

Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
2003, copies of each of which have been furnished to the Administrative Agent
for distribution to each Lender, fairly present the financial condition of
Consumers and its consolidated Subsidiaries as at such dates and the results of
operations of Consumers and its consolidated Subsidiaries for the periods ended
on such dates, all in accordance with generally accepted accounting principles
consistently applied; (iii) the consolidated balance sheets of the Company and
its Consolidated Subsidiaries as at March 31, 2004 and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Consolidated Subsidiaries for the fiscal quarter ending on such date, copies of
each of which have been furnished to the Administrative Agent for distribution
to each Lender, fairly present (subject to year-end audit adjustments) the
financial condition of the Company and its Consolidated Subsidiaries as at such
date and the results of the Company and its Consolidated Subsidiaries for such
period, all in accordance with generally accepted accounting principles
consistently applied; (iv) the consolidated balance sheets of Consumers and its
Consolidated Subsidiaries as at March 31, 2004 and the related consolidated
statements of income, retained earnings and cash flows of Consumers and its
Consolidated Subsidiaries for the fiscal quarter ending on such date, copies of
each of which have been furnished to the Administrative Agent for distribution
to each Lender, fairly present (subject to year-end audit adjustments) the
financial condition of Consumers and its Consolidated Subsidiaries as at such
date and the results of Consumers and its Consolidated Subsidiaries for such
period, all in accordance with generally accepted accounting principles
consistently applied; (v) since December 31, 2003, except as disclosed in the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
2003 and the Company's Quarterly Report on Form 10-Q for the quarter ending
March 31, 2004 and Reports on Form 8-K filed with the Securities and Exchange
Commission since December 31, 2003 but prior to the Closing Date, there has been
no Material Adverse Change; and (vi) except as a result of any Restatement Event
(other than the Restatement itself), no Loan Party has any material liabilities
or obligations except as reflected in the foregoing financial statements and in
Schedule I, as evidenced by the Loan Documents and as may be incurred, in
accordance with the terms of this Agreement, in the ordinary course of business
(as presently conducted) following the Closing Date.

          (f) Litigation. Except (i) as disclosed in the Company's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 2003 and the Company's
Quarterly Report on Form 10-Q for the quarter ending March 31, 2004 and Reports
on Form 8-K filed with the Securities and Exchange Commission since December 31,
2003 but prior to the Closing Date, (ii) such other similar actions, suits and
proceedings predicated on the occurrence of the same events giving rise to any
actions, suits and proceedings described in the Reports filed with the
Securities and Exchange Commission set forth in clause (i) above (all such
matters in clauses (i) and (ii) being the "DISCLOSED MATTERS") and (iii) any
Restatement Event, there are no pending or threatened actions, suits,
investigations or proceedings against or, to the knowledge of such Borrower,
affecting the Company or any of its Subsidiaries or the properties of the
Company or any of its Subsidiaries before any court, governmental agency or
arbitrator, that would, if adversely determined, reasonably be expected to
materially adversely affect the financial condition, properties, business or
operations of the Company and its Subsidiaries, considered as a whole, or affect
the legality, validity or enforceability of this Agreement or any other Loan
Document. There have been no material adverse developments with respect to the
Disclosed Matters that have had or could reasonably be expected to result in a
Material Adverse Change.


                                       49

<PAGE>

          (g) Insurance. All insurance required by Section 8.01(b) is in full
force and effect.

          (h) ERISA. No Plan Termination Event has occurred nor is reasonably
expected to occur with respect to any Plan of the Company or any of its ERISA
Affiliates which would result in a material liability to the Company, except as
disclosed and consented to by the Required Lenders in writing from time to time.
Except as disclosed in the Company's Annual Report on Form 10-K/A for the period
ended December 31, 2003, since the date of the most recent Schedule B (Actuarial
Information) to the annual report of the Company (Form 5500 Series), if any,
there has been no material adverse change in the funding status of the Plans
referred therein and no "prohibited transaction " has occurred with respect
thereto which is reasonably expected to result in a material liability to the
Company. Neither the Company nor any of its ERISA Affiliates has incurred nor
reasonably expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan, except as disclosed and consented to by the Required Lenders
in writing from time to time.

          (i) Casualty. No fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the
public enemy or other casualty (except for any such circumstance, if any, which
is covered by insurance which coverage has been confirmed and not disputed by
the relevant insurer) affecting the properties, business or operations of any
Borrower, Consumers or any Restricted Subsidiary has occurred that could
reasonably be expected to have a material adverse effect on the business,
assets, property, financial condition, results of operations or prospects of (A)
the Company and its Subsidiaries, considered as a whole, or (B) Consumers and
its Subsidiaries, considered as a whole.

          (j) 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.

          (k) Legal Constraints on Dividends. No extraordinary judicial,
regulatory or other legal constraints exist which limit or restrict Consumers'
ability to declare or pay cash dividends with respect to its capital stock,
other than (i) pursuant to the Consumers Credit Facility and (ii) any such
restriction enacted or imposed by the Michigan Public Service Commission
limiting such dividends to an amount not less than $190,000,000 during any
twelve-month period.

          (l) Ownership of Certain Subsidiaries. The Company owns (i) not less
than 80% of the outstanding shares of common stock of Enterprises and (ii) not
less than 80% of the outstanding shares of common stock of Consumers.

          (m) Accuracy of Disclosures. The Consolidated 2004-2008 Projections of
Consumers and the Borrowers (the "PROJECTIONS") are based upon assumptions that
the Borrowers believed were reasonable at the time the Projections were
delivered, and all other financial information delivered by the Borrowers to the
Administrative Agent and the Banks on


                                       50

<PAGE>

and after the Closing Date is true and correct in all material respects as at
the dates and for the periods indicated therein.

          (n) Regulation U. (i) No Loan Party is engaged in the business of
extending credit for the purpose of buying or carrying "margin stock" (within
the meaning of Regulation U issued by the Board), (ii) and no proceeds of any
Loan or any drawing under any Letter of Credit 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 and (iii) following application of the proceeds of each
Extension of Credit, not more than 25 percent of the value of the assets of the
Company and its Subsidiaries on a consolidated basis will be margin stock.

          (o) Investment Company Act. No Loan Party is an "investment company"
(within the meaning of the Investment Company Act of 1940, as amended).

          (p) Acquisition of Securities. No proceeds of any Loan or any drawing
under any Letter of Credit will be used to acquire any security in any
transaction without the approval of the board of directors of the Person issuing
such security if (i) the acquisition of such security would cause any Borrower
to own, directly or indirectly, 5.0% or more of any outstanding class of
securities issued by such Person, or (ii) such security is being acquired in
connection with a tender offer.

          (q) PUHCA. No Loan Party is a registered "holding company" or a
"subsidiary" or an "affiliate" of a registered "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, 15
USC 79 et seq.

          (r) Material Adverse Change Information. The Borrowers have not
withheld any fact from the Administrative Agent, the Issuing Banks or the
Lenders in regard to the occurrence of any Material Adverse Change.

          (s) Solvency. After giving effect to the Loans to be made or Letters
of Credit to be issued on the Closing Date or such other date as Loans or
Extensions of Credit requested hereunder are made, and the disbursement of the
proceeds of such Loans or Extensions of Credit pursuant to the applicable
Borrower's instructions, the Company and its Subsidiaries, taken as a whole, are
Solvent.

          (t) Project Finance Debt. Schedule I sets forth as of June 30, 2004
(i) all Project Finance Debt of the Company and the Consolidated Subsidiaries,
and (ii) all debt (as such term is construed in accordance with GAAP) of the
Loan Parties, and, as of the Closing Date, there are no defaults in the payment
of principal or interest on any such Debt and no payments thereunder have been
deferred or extended beyond their stated maturity (except as disclosed on such
Schedule).

          (u) OFAC. None of the Borrowers or any Subsidiary or Affiliate of the
Borrowers is named on the United States Department of the Treasury's Specially
Designated Nationals or Blocked Persons list available through
http://www.treas.gov/offices/eotffc/ofac/ sdn/t11sdn.pdf.

          (v) or as otherwise published from time to time


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<PAGE>

                                  ARTICLE VIII
                           COVENANTS OF THE BORROWERS

     SECTION 8.01. AFFIRMATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, any
Letter of Credit shall remain outstanding or any Lender shall have any
Commitment:

          (a) Payment of Taxes, Etc. Each Borrower shall pay and discharge, and
shall cause each of its Subsidiaries to pay and discharge, before the same shall
become delinquent, all taxes, assessments and governmental charges, royalties or
levies imposed upon it or upon its property except, in the case of taxes, to the
extent such Borrower or any Subsidiary thereof, as the case may be, is
contesting the same in good faith and by appropriate proceedings and has set
aside adequate reserves for the payment thereof in accordance with GAAP.

          (b) Maintenance of Insurance. Each Borrower shall maintain, and shall
cause each of the Restricted Subsidiaries and Consumers to maintain, insurance
covering the Borrowers and each of the Restricted Subsidiaries and Consumers and
their respective properties in effect at all times in such amounts and covering
such risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general geographical area in which the
Borrowers and the Restricted Subsidiaries and Consumers operate, either with
reputable insurance companies or, in whole or in part, by establishing reserves
of one or more insurance funds, either alone or with other corporations or
associations.

          (c) Preservation of Existence, Etc. Except as otherwise permitted by
Section 8.02, each Borrower shall preserve and maintain, and shall cause each of
the Restricted Subsidiaries and, in the case of the Company, Consumers to
preserve and maintain, its corporate or limited liability company existence,
material rights (statutory and otherwise) and franchises, and take such other
action as may be necessary or advisable to preserve and maintain its right to
conduct its business in the states where it shall be conducting its business.

          (d) Compliance with Laws, Etc. Each Borrower shall comply, and shall
cause each of the Restricted Subsidiaries and Consumers to comply, in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including any such laws,
rules, regulations and orders relating to zoning, environmental protection, use
and disposal of Hazardous Substances, land use, construction and building
restrictions, and employee safety and health matters relating to business
operations.

          (e) Inspection Rights. Subject to the requirements of laws or
regulations applicable to such Borrower or its Subsidiaries, as the case may be,
and in effect at the time, at any time and from time to time upon reasonable
notice, each Borrower shall permit (i) each Agent and its agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and the properties of, such Borrower or any of its
Subsidiaries and (ii) each Agent, each of the Issuing Banks, each of the
Lenders, and their respective agents and representatives to discuss the affairs,
finances and accounts of such Borrower and its Subsidiaries with such Borrower
and its Subsidiaries and their respective officers, directors and accountants.
Each such visitation and inspection described in the preceding sentence by or on
behalf of any Lender or Issuing Bank shall, unless occurring at a time when a
Default or Event of


                                       52

<PAGE>

Default shall be continuing, be at such Lender's or Issuing Bank's, as
applicable, expense; all other such inspections and visitations shall be at such
Borrower's expense.

          (f) Keeping of Books. Each Borrower shall keep, and shall cause each
of its Subsidiaries to keep, proper records and books of account, in which full
and correct entries shall be made of all financial transactions of such Borrower
and its Subsidiaries and the assets and business of such Borrower and its
Subsidiaries, in accordance with GAAP.

          (g) Maintenance of Properties, Etc. Each Borrower shall maintain, and
shall cause each of the Restricted Subsidiaries to maintain, in substantial
conformity with all laws and material contractual obligations, good and
marketable title to all of its properties which are used or useful in the
conduct of its business; provided, however, that the foregoing shall not
restrict the sale or transfer of any asset of the Borrowers or any Restricted
Subsidiary to the extent not otherwise prohibited by the terms of this
Agreement. In addition, each Borrower shall preserve, maintain, develop, and
operate, and shall cause each of its Subsidiaries to preserve, maintain, develop
and operate, in substantial conformity with all laws and material contractual
obligations, all of its material properties which are used or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted.

          (h) Use of Proceeds. The Borrowers shall use all Extensions of Credit
for general corporate purposes (subject to the terms and conditions of this
Agreement).

          (i) Consolidated Leverage Ratio. The Company shall maintain, as of the
last day of each fiscal quarter (in each case, the "MEASUREMENT QUARTER"), a
maximum ratio of (i) Consolidated Debt as of such day, to (ii) Consolidated
EBITDA for the immediately preceding four-fiscal-quarter period ending on such
day, of not more than 7.00 to 1.00, commencing with the Measurement Quarter
ending June 30, 2004.

          (j) Cash Coverage Ratio. The Company shall maintain, as of the last
day of each Measurement Quarter, a minimum ratio of (i) the sum of (A) Cash
Dividend Income for the four-fiscal-quarter period ending on such day, plus (B)
the lesser of (x) 25% of the Net Proceeds received by the Company from the sale,
assignment or other disposition (but not the lease or license) of any property,
including without limitation, any sale of capital stock or other equity interest
in any of the Company's direct or indirect Subsidiaries during such period and
(y) $50,000,000 to (ii) an amount equal to (A) interest expense (excluding (1)
all arrangement, underwriting and other similar fees payable in connection with
this Agreement, (2) all arrangement, underwriting and upfront fees paid in
connection with the Borrowers' senior secured credit facility dated December 8,
2003, (3) all interest or dividends paid on Hybrid Preferred Securities and (4)
interest expense payable by the Company in respect of any Debt owing to any
Subsidiary thereof) accrued by the Company in respect of all Debt during such
period, minus (B) cash interest income received by the Company from Persons
other than any Subsidiary of the Company, during such period, minus (C) all
amounts received by the Company from its Subsidiaries and Affiliates during such
period constituting reimbursement of interest expense and commitment, guaranty
and letter of credit charges of the Company to such Subsidiary or Affiliate, of
not less than 1.20 to 1.00, commencing with the Measurement Quarter ending on
June 30, 2004; provided, that the Company shall be deemed not to be in breach of
the foregoing covenant if, during the Measurement Quarter, the Borrowers have
permanently


                                       53

<PAGE>

reduced the principal amount outstanding under this Agreement and the Promissory
Notes, such that the amount determined pursuant to clause (ii) above, when
recalculated on a pro forma basis assuming that the amount of such reduced
principal amount outstanding under this Agreement and the Promissory Notes were
in effect at all times during such four-fiscal-quarter period, would result in
the Company being in compliance with such ratio.

          (k) Further Assurances. The Borrowers shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or that any Lender or any Issuing Bank through the
Administrative Agent may reasonably request in order to give effect to the
transactions contemplated by this Agreement and the other Loan Documents. In
addition, the Borrowers will use all reasonable efforts to duly obtain or make
Governmental Approvals required from time to time on or prior to such date as
the same may become legally required.

          (l) Subsidiary Guarantees. The Borrowers will (i) with respect to each
Person that becomes a Restricted Subsidiary after the Closing Date (other than
(a) any Subsidiary of the Company organized under the laws of a jurisdiction
located other than in the United States (each a "FOREIGN SUBSIDIARY") if the
execution of the Guaranty by such Subsidiary would result in any materially
adverse tax consequences to the Company and (b) CMS ERM), subject to any
limitations under contractual restrictions as in effect as of the Closing Date
or applicable law with respect to each Foreign Subsidiary, cause each such
Restricted Subsidiary to execute the Guaranty pursuant to which it agrees to be
bound by the terms and provisions of the Guaranty, and (ii) cause such Persons
identified in clause (i) above to deliver resolutions, opinions of counsel and
such other constitutive documentation as the Administrative Agent may reasonably
request, all in form and substance reasonably satisfactory to the Administrative
Agent.

          (m) Compliance with Fee Letters. The Borrowers shall comply with all
of their respective obligations under the Fee Letters.

          (n) Payment of Declared Dividend. Each Borrower shall cause each of
its direct Subsidiaries to, and Enterprises shall, pay all dividends within 30
days after declaration thereof.

          (o) Collateral. Each Borrower will cause, and will cause each of the
other Loan Parties to cause, all of such Person's right, title and interest in,
to and under the Collateral owned by it to be subject at all times to first
priority, perfected security interests in favor of the Collateral Agent for the
benefit of the Lenders to secure its respective Obligations, subject in any case
to Liens permitted under Section 8.02(a).

     SECTION 8.02. NEGATIVE COVENANTS. So long as any Loan or any other amount
payable hereunder or under any Promissory Note shall remain unpaid, any Letter
of Credit shall remain outstanding or any Lender shall have any Commitment, each
Borrower agrees that it shall not, without the written consent of the Required
Lenders:

          (a) Liens, Etc. (1) Create, incur, assume or suffer to exist, or
permit any of the Loan Parties to create, incur, assume or suffer to exist, any
Lien upon or with respect to any of its properties of any character (including
capital stock and other ownership interests of the


                                       54

<PAGE>

Borrowers' directly-owned Subsidiaries, intercompany obligations and accounts),
whether now owned or hereafter acquired, or (2) file, or permit any of the other
Loan Parties to file, under the Uniform Commercial Code of any jurisdiction a
financing statement which names either Borrower or any other Loan Party as
debtor (other than financing statements that do not evidence a Lien), or (3)
sign, or permit any of the other Loan Parties to sign, any security agreement or
other document authorizing any secured party thereunder to file any such
financing statement, or (4) assign, or permit any of the other Loan Parties to
assign, accounts, excluding, however, from the operation of the foregoing
restrictions the Liens created under the Loan Documents and the following:

          (i) Liens for taxes, assessments or governmental charges or levies to
     the extent not past due;

          (ii) cash pledges or deposits to secure (A) obligations under
     workmen's compensation laws or similar legislation, (B) public or statutory
     obligations of any of the other Loan Parties, (C) reimbursement obligations
     of Enterprises, CMS Generation or CMS ERM with respect to letters of credit
     issued by Bank of America, N.A. (or any of its affiliates), in connection
     with the settlement of claims related to CMS ERM's energy trading
     operations in an aggregate amount not to exceed $40,000,000, (D) Support
     Obligations of any Borrower or any Loan Party, (E) obligations of
     Enterprises or CMS ERM in respect of hedging arrangements and commodity
     purchases and sales (including any cash margins with respect thereto);
     provided, that with respect to clauses (D) and (E) above the aggregate
     amount of cash pledges or deposits securing such Support Obligations and
     such obligations of Enterprises or CMS ERM shall not exceed $400,000,000 at
     any one time outstanding, and (F) obligations of (x) the Company in respect
     of interest rate swap agreements and (y) any Loan Party in respect of
     foreign exchange swap agreements, provided that the aggregate amount of
     cash pledges or deposits securing such obligations under this clause (F)
     shall not exceed $50,000,000 at any one time outstanding;

          (iii) Liens imposed by law, such as materialmen's, mechanics',
     carriers', workmen's and repairmen's liens and other similar Liens arising
     in the ordinary course of business securing obligations which are not
     overdue or which have been fully bonded and are being contested in good
     faith;

          (iv) Liens securing the obligations under the Loan Documents;

          (v) Liens securing Off-Balance Sheet Liabilities (and all refinancings
     and recharacterizations thereof permitted under Section 8.02(b)(iv)) in an
     aggregate amount not to exceed $775,000,000;

          (vi) purchase money Liens or purchase money security interests upon or
     in property acquired or held by any Borrower or any other Loan Party in the
     ordinary course of business to secure the purchase price of such property
     or to secure indebtedness incurred solely for the purpose of financing the
     acquisition of any such property to be subject to such Liens or security
     interests, or Liens or security interests existing on any such property at
     the time of acquisition, or extensions, renewals or replacements of any of


                                       55

<PAGE>

     the foregoing for the same or a lesser amount, provided that no such Lien
     or security interest shall extend to or cover any property other than the
     property being acquired and no such extension, renewal or replacement shall
     extend to or cover property not theretofore subject to the Lien or security
     interest being extended, renewed or replaced, and provided, further, that
     the aggregate principal amount of the Debt at any one time outstanding
     secured by Liens permitted by this clause (vi) shall not exceed
     $15,000,000;

          (vii) utility easements, building restrictions and such other
     encumbrances or charges against real property as are of a nature generally
     existing with respect to properties of a similar character and which do not
     in any material way affect the marketability of the same or interfere with
     the use thereof in the business of any Borrower or any other Loan Party;

          (viii) Liens existing on any capital asset of any Person at the time
     such Person is merged or consolidated with or into, or otherwise acquired
     by, any Borrower or any other Loan Party and not created in contemplation
     of such event, provided that such Liens do not encumber any other property
     or assets and such merger, consolidation or acquisition is otherwise
     permitted under this Agreement;

          (ix) Liens existing on any capital asset prior to the acquisition
     thereof by any Loan Party and not created in contemplation thereof;
     provided that such Liens do not encumber any other property or assets;

          (x) Liens existing as of the Closing Date;

          (xi) Liens securing Project Finance Debt otherwise permitted under
     this Agreement;

          (xii) Liens arising out of the refinancing, extension, renewal or
     refunding of any Debt secured by any Lien permitted by any of the foregoing
     clauses (v), (viii), (ix), (x) or (xi); provided that (a) such Debt is not
     secured by any additional assets, and (b) the amount of such Debt secured
     by any such Lien is otherwise permitted under this Agreement;

          (xiii) Liens on accounts receivable (other than intercompany
     receivables) and other contract rights of CMS ERM and its Subsidiaries
     arising on or after the Closing Date in favor of any Person (other than an
     Affiliate of the Company or any of its Subsidiaries) that facilitates the
     origination of such accounts receivable or other contract rights;

          (xiv) Liens on accounts receivable (other than intercompany
     receivables) of CMS ERM in favor of Bank of America, N.A. (or any of its
     affiliates) to secure the reimbursement obligations of Enterprises, CMS
     Generation and CMS ERM with respect to letters of credit issued by Bank of
     America, N.A. (or any of its affiliates) in connection with the settlement
     of claims related to CMS ERM's energy trading obligations in an aggregate
     amount not to exceed $40,000,000;


                                       56

<PAGE>

          (xv) subordinated Liens granted pursuant to the terms of the AIG
     Pledge Agreement, which Liens shall be subordinated pursuant to the terms
     of the Intercreditor Agreement, to secure certain surety bond obligations
     as described in the AIG Pledge Agreement; and

          (xvi) subordinated Liens on the capital stock of Enterprises and/or
     Consumers securing Debt incurred by the Company in an aggregate amount not
     to exceed $200,000,000; provided, that (i) such Liens are subordinated in
     priority to the Liens securing the Obligations, (ii) the holders of such
     Debt shall have no rights to direct or otherwise control at any time any
     disposition of Collateral or any proceeds thereof so long as any
     Obligations shall remain outstanding (all of which rights shall be waived
     to the fullest extent permitted by applicable law) pursuant to an
     intercreditor agreement on terms reasonably acceptable to the
     Administrative Agent and (iii) such Debt has terms and conditions
     (including maturity, amortization, interest rates, premiums, fees,
     covenants, subordination, events of default and remedies) that are
     reasonably acceptable to the Administrative Agent.

          (b) Debt. Permit Enterprises or any Subsidiary of Enterprises to
create, incur, assume or suffer to exist any debt (as such term is construed in
accordance with GAAP) other than:

          (i) debt arising by reason of the endorsement of negotiable
     instruments for deposit or collection or similar transactions in the
     ordinary course of Enterprises' or its Subsidiaries' business;

          (ii) in the form of indemnities in respect of unfiled mechanics' liens
     and Liens affecting Enterprises' or its Subsidiaries' properties permitted
     under Section 8.02(a)(iii);

          (iii) debt arising under the Loan Documents;

          (iv) debt constituting Off-Balance Sheet Liabilities (including any
     recharacterization thereof as debt pursuant to any changes in generally
     accepted accounting principles hereafter required or permitted and which
     are adopted by the Company or any of its Subsidiaries with the agreement of
     its independent certified public accountants) to the extent permitted by
     Section 8.02(o), and any extensions, renewals, refundings or replacements
     thereof, provided that any such extension, renewal, refunding or
     replacement is in an aggregate principal amount not greater than the
     principal amount of, is an obligation of the same Person that is the
     obligor in respect of, and has a weighted average life to maturity not less
     than the weighted average life to maturity of, the debt so extended,
     renewed, refunded or replaced;

          (v) other debt of Enterprises and its Subsidiaries outstanding on the
     Closing Date (including the debt of the Loan Parties as of June 30, 2004 as
     set forth on Schedule I), and any extensions, renewals, refundings or
     replacements thereof, provided that any such extension, renewal, refunding
     or replacement is in an aggregate principal amount not greater than the
     principal amount of, is an obligation of the same Person that


                                       57

<PAGE>

     is the obligor in respect of, and has a weighted average life to maturity
     not less than the weighted average life to maturity of, the debt so
     extended, renewed, refunded or replaced;

          (vi) (a) unsecured, subordinated debt owed (i) to the Company by
     Enterprises or CMS Capital, L.L.C. (or any successor by merger to CMS
     Capital, L.L.C.), (ii) to Enterprises or CMS Capital, L.L.C. (or any
     successor by merger to CMS Capital, L.L.C.) and (iii) to any Grantor by any
     Loan Party, and (b) unsecured debt owed to any Subsidiary of Enterprises
     (other than a Grantor) by CMS Capital, L.L.C. (or any successor by merger
     to CMS Capital, L.L.C.), and (c) unsecured debt of any Foreign Subsidiary
     of Enterprises owed to another Foreign Subsidiary of Enterprises provided
     that the proceeds of any repayment of such debt are remitted to a Loan
     Party;

          (vii) Project Finance Debt of any Loan Party or any of its
     Subsidiaries incurred for working capital purposes (including construction
     or other capital expenditures) on or after the Closing Date;

          (viii) capital lease obligations and other Debt secured by purchase
     money Liens to the extent such Liens shall be permitted under Section
     8.02(a)(vi);

          (ix) (a) Project Finance Debt incurred by Takoradi International
     Company in respect of the Takoradi Project (other than Project Finance Debt
     permitted to be incurred pursuant to clause (vii) above) in an aggregate
     principal amount not to exceed $30,000,000; provided, that Takoradi
     International Company shall make a distribution of the Net Proceeds
     therefrom and the Company shall receive not less than its ratable share of
     such Net Proceeds; and

          (x) reimbursement obligations of Enterprises, CMS Generation or CMS
     ERM with respect to letters of credit issued by Bank of America, N.A. (or
     any of its affiliates), in connection with the settlement of claims related
     to CMS ERM's energy trading operations in an aggregate amount not to exceed
     $40,000,000.

          (c) Lease Obligations. Create, incur, assume or suffer to exist, or
permit any of the other Loan Parties to create, incur, assume or suffer to
exist, any obligations as lessee for the rental or hire of real or personal
property of any kind under leases or agreements to lease (other than leases
which constitute Debt) having an original term of one year or more which would
cause the aggregate direct or contingent liabilities of the Borrowers and the
other Loan Parties in respect of all such obligations payable in any period of
12 consecutive calendar months to exceed $50,000,000.

          (d) Investments in Other Persons. Make, or permit any of the other
Loan Parties to make, any loan or advance to any Person, or purchase or
otherwise acquire any capital stock, obligations or other securities of, make
any capital contribution to, or otherwise invest in, any Person, other than (i)
Permitted Investments, (ii) pursuant to the contractual or contingent
obligations of such Borrower or any other Loan Party as in effect as of the
Closing Date and in amounts not to exceed the estimated amounts as set forth on
Schedule I hereto (whether such obligation is conditioned upon a change in the
ratings of the securities issued by such Person or otherwise) and, in each case,
in an amount not to exceed such contractual or contingent


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<PAGE>

obligation as in effect on the Closing Date, (iii) investments, directly or
indirectly, by any Loan Party (x) in the capital of any Subsidiary of the
Company that is a Loan Party and (y) in assets contributed to such Loan Party,
provided that if any such assets constitute Collateral prior to such
contribution, such assets shall remain Collateral after giving effect to such
contribution and prior to such contribution such Borrower shall, and shall cause
each applicable Subsidiary to, execute and deliver to the Administrative Agent
all agreements, instruments and documents as may be necessary or reasonably
requested by the Administrative Agent to perfect its security interest in such
Collateral, (iv) investments in the capital stock or other ownership interests
of any of the Company's Subsidiaries arising from the conversion of intercompany
indebtedness to equity, (v) intercompany loans and advances to the extent the
corresponding debt is permitted under Section 8.02(b)(vi), (vi) investments
constituting non-cash consideration received in connection with the sale of any
asset not otherwise prohibited under this Agreement, (vii) additional loans,
advances, purchases, contributions and other investments in an amount not to
exceed $340,000,000 in the aggregate at any time, (viii) intercompany loans and
advances by the Company to Consumers in an aggregate principal amount not to
exceed $250,000,000 at any time, and (ix) investments by the Company in the
capital stock of Consumers; provided, however, that investments described in
clause (iv) above (solely with respect to investments made in any Subsidiary
that is not a Loan Party) shall not be permitted to be made at a time when
either a Default or an Event of Default shall be continuing or would result
therefrom.

          (e) Restricted Payments. Declare or pay, or permit any other Loan
Party to declare or pay, directly or indirectly, any dividend, payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any share of any class of common stock of the Company or any share of
any class of capital stock or other ownership interests of any of the other Loan
Parties (other than (1) stock splits and dividends payable solely in
nonconvertible equity securities of the Company (other than Redeemable Stock or
Exchangeable Stock (as such terms are defined in the Indenture on the Closing
Date)) and (2) dividends and distributions made to such Borrower or a Loan
Party), or purchase, redeem, retire, or otherwise acquire for value, or permit
any of the other Loan Parties to purchase, redeem, retire, or otherwise acquire
for value, any shares of any class of common stock of the Company or any share
of any class of capital stock or other ownership interests of any of the other
Loan Parties or any warrants, rights, or options to acquire any such shares, now
or hereafter outstanding, or make, or permit any of the other Loan Parties to
make, any distribution of assets to any of its shareholders (other than
distributions to such Borrower or any other Loan Party) (any such dividend,
payment, distribution, purchase, redemption, retirement or acquisition being
hereinafter referred to as a "RESTRICTED PAYMENT") other than (i) pursuant to
the terms of any class of capital stock of the Company issued and outstanding
(and as in effect on) the Closing Date, any purchase or redemption of capital
stock of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, capital stock of the Company (other than
Redeemable Stock or Exchangeable Stock (as such terms are defined in the
Indenture on the Closing Date)); (ii) payments made by such Borrower or any
other Loan Party pursuant to the Tax Sharing Agreement; and (iii) any cash
dividend or cash distribution on common stock of the Company made after January
1, 2005; provided, that the amount of any cash dividend or cash distribution
made pursuant to the preceding clause (iii) shall not exceed, in the aggregate
with each other such cash dividend and cash distribution made during the
previous twelve-month period, (x) if after giving effect to such cash dividend
or cash distribution the Company shall have Liquidity equal to or greater than
$150,000,000, an amount equal to $75,000,000, (y) if


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after giving effect to such cash dividend or cash distribution the Company shall
have Liquidity equal to or greater than $100,000,000 and less than $150,000,000,
an amount equal to $50,000,000 and (z) otherwise, zero.

          (f) Compliance with ERISA. (i) Permit to exist any "accumulated
funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code
of 1986, as amended), (ii) terminate, or permit any ERISA Affiliate to
terminate, any Plan or withdraw from, or permit any ERISA Affiliate to withdraw
from, any Multiemployer Plan, so as to result in any material (in the opinion of
the Required Lenders) liability of such Borrower, any other Loan Party or
Consumers to such Plan, Multiemployer Plan or the PBGC, or (iii) permit to exist
any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any
other event or condition, which presents a material (in the opinion of the
Required Lenders) risk of such a termination by the PBGC of any Plan or
withdrawal from any Multiemployer Plan so as to result in a material liability
to such Borrower, any other Loan Party or Consumers.

          (g) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries to enter into, any transaction with any of its Affiliates unless
such transaction is on terms no less favorable to such Borrower 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 Sections 8.02(b), 8.02(e) or 8.02(h) shall be permitted hereunder.

          (h) Mergers, Etc. Merge with or into or consolidate with or into, or
permit any of the other Loan Parties or Consumers to merge with or into or
consolidate with or into, any other Person, except that (i) (x) any Loan Party
may merge with or into any other Loan Party, (y) any Subsidiary of a Loan Party
that is not a Loan Party may merge into such Loan Party or with or into any
other Subsidiary of any Loan Party, provided that (a) in any such merger with or
into a Borrower, such Borrower (or, in the case of a merger of the Company and
Enterprises, the Company) is the surviving corporation, (b) in any such merger
into a Loan Party under clause (y) above, the Loan Party is the survivor
thereof, (c) no Default or Event of Default shall be continuing or result
therefrom and (d) such Loan Party 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
or any other Loan Document on the date of such transaction, and (ii) any Loan
Party may merge with or into any other Person, provided that (a) (x) such Loan
Party is the survivor thereof, or (y) in the case of any Loan Party that is a
corporation reconstituting itself as limited liability company, such limited
liability company shall be the survivor thereof and shall confirm its
obligations as successor to such Loan Party under the Loan Documents to which
such Loan Party is a party in form and substance reasonably acceptable to the
Administrative Agent (and any Loan Party that shall have pledged the capital
stock of such predecessor Loan Party shall reconfirm the pledge of such
survivor's ownership interests as Collateral under the Loan Documents) and such
survivor shall be thereafter deemed to be a Loan Party hereunder, (b) no Default
or Event of Default shall be continuing or result therefrom, (c) such Loan Party
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 or any other Loan Document on
the date of such transaction, and (d) immediately after giving effect to such
merger, the Net Worth of such Loan Party shall be equal to or greater than the
Net Worth of such Loan Party as of the last day of the fiscal quarter
immediately preceding the date of such merger.


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<PAGE>

          (i) Sales, Etc., of Assets. Sell, lease, transfer, assign, or
otherwise dispose of all or any substantial part of its assets, or permit any of
the other Loan Parties (other than CMS ERM) to sell, lease, transfer, or
otherwise dispose of all or any substantial part of its assets, except to give
effect to a transaction permitted by subsection (h) above or subsection (j)
below, provided, further, that neither such Borrower nor any of the other Loan
Parties (other than CMS ERM) shall sell, assign, transfer, lease, convey or
otherwise dispose of any property, whether now owned or hereafter acquired, or
any income or profits therefrom, or enter into any agreement to do so, except:

          (A) the sale of property for consideration not less than the Fair
     Market Value thereof so long as (i) any non-cash consideration resulting
     from such sale shall be pledged or assigned to the Collateral Agent, for
     the benefit of the Lenders, pursuant to an instrument in form and substance
     reasonably acceptable to the Collateral Agent, (ii) cash consideration
     resulting from such sale shall be (x) in an amount determined by such
     Borrower for any sale the consideration of which is $10,000,000 or less,
     or, together with all other such sales under this clause (x), $25,000,000
     or less, or (y) for all other sales, not less than 90% of the aggregate
     consideration resulting from such sale, and (iii) such Borrower complies
     with the mandatory prepayment provisions set forth in Section 2.03 (c);

          (B) the transfer of property from a Loan Party to any Loan Party;

          (C) the transfer of property constituting an investment otherwise
     permitted under Section 8.02(d);

          (D) the sale of electricity and natural gas and other property in the
     ordinary course of the Company's and its Subsidiaries respective businesses
     consistent with past practice;

          (E) any transfer of an interest in receivables and related security,
     accounts or notes receivable on a limited recourse basis in connection with
     the incurrence of Off-Balance Sheet Liabilities, provided, that such
     transfer qualifies as a legal sale and as a sale under GAAP and the
     incurrence of such Off-Balance Sheet Liabilities is permitted under Section
     8.02(o);

          (F) the transfer of property constituting not more than two percent
     (2%) of the ownership interests held by the Company and its Subsidiaries as
     of the Closing Date in CMS International Ventures, L.L.C. to CMS Energy
     Foundation and/or Consumers Foundation and/or any other third-party
     501(c)(3) charitable organization; and

          (G) the disposition of equipment if such equipment is obsolete or no
     longer useful in the ordinary course of such Borrower's or such
     Subsidiary's business.

          (j) Maintenance of Ownership of Subsidiaries. Sell, transfer, assign
or otherwise dispose of any shares of capital stock or other ownership interests
of any of the Loan Parties or any warrants, rights or options to acquire such
capital stock or other ownership interests, or permit any other Loan Party to
issue, sell, transfer, assign or otherwise dispose of any shares of its capital
stock or other ownership interests or the capital stock or other ownership


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<PAGE>

interests of any of the Loan Parties or any warrants, rights or options to
acquire such capital stock or other ownership interests, or permit any other
Loan Party to issue, sell, transfer, assign or otherwise dispose of any shares
of its capital stock or other ownership interests or the capital stock or other
ownership interests of any other Loan Party or any warrants, rights or options
to acquire such capital stock or other ownership interests, except (i) to give
effect to a transaction permitted by subsection (d), (h) or (i) above, and (ii)
in connection with the foreclosure of any Liens permitted under Section
8.02(a)(iv).

          (k) Amendment of Tax Sharing Agreement. Directly or indirectly, amend,
modify, supplement, waive compliance with, seek a waiver under, or assent to
noncompliance with, any term, provision or condition of the Tax Sharing
Agreement if the effect of such amendment, modification, supplement, waiver or
assent is to (i) reduce materially any amounts otherwise payable to, or increase
materially any amounts otherwise owing or payable by, such Borrower thereunder,
or (ii) change materially the timing of any payments made by or to such Borrower
thereunder.

          (l) Prepayments of Indebtedness. Make or agree to pay or make, or
permit any of the other Loan Parties to make or agree to pay or make, directly
or indirectly, any payment or other distribution (whether in cash, securities or
other property) of or in respect of principal of or interest on any Debt (other
than the obligations of the Loan Parties under the Loan Documents), or any
payment or other distribution (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any Debt
(other than the obligations of the Loan Parties under the Loan Documents), other
than (i) any payments on account of (a) any Debt when and as such payment was
due (including at the maturity thereof if the initial stated maturity thereof is
on or prior to the Maturity Date) pursuant to the mandatory payment provisions
applicable to such Debt at the time it was incurred (including, without
limitation, regularly scheduled payment dates for principal, interest, fees and
other amounts due thereon) or any extension thereof thereafter granted by the
holder of such Debt, (b) refinancings of Debt otherwise permitted under this
Agreement, (c) any Debt owed to the Company or any of its Subsidiaries, (d) Debt
secured by a Lien on assets subject to an asset sale not otherwise prohibited
under this Agreement and (e) the extinguishment of any intercompany Debt in
connection with a dividend or distributions permitted under Section 8.02(e),
(ii) payments constituting the exchange of the Company's common stock (other
than Redeemable Stock or Exchangeable Stock (as such terms are defined in the
Indenture on the Closing Date)) for the Company's outstanding Debt (and any cash
payments made in lieu of the issuance of fractional shares) to the extent such
exchange is permitted under the Exchange Act, and (iii) so long as no Loans or
other Obligations (other than any undrawn Letters of Credit) shall be
outstanding hereunder and the Company shall have Unrestricted Cash in excess of
$100,000,000 after giving effect thereto, any payment in respect of any other
Debt.

          (m) Conduct of Business. Engage, or permit any Restricted Subsidiary
to engage, in any business other than (a) the business engaged in by the Company
and its Subsidiaries on the date hereof, and (b) any business or activities
which are substantially similar, related or incidental thereto.

          (n) Organizational Documents. Amend, modify or otherwise change, or
permit any Restricted Subsidiary to amend, modify or otherwise change any of the
terms or provisions in any of their respective certificate of incorporation and
by-laws (or comparable


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<PAGE>

constitutive documents) as in effect on the Closing Date in any manner adverse
to the interests of the Lenders.

          (o) Off-Balance Sheet Liabilities. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries (other than, in the case of the
Company, Consumers and its Subsidiaries) to create, incur, assume or suffer to
exist, Off-Balance Sheet Liabilities (exclusive of lease obligations otherwise
permitted under Section 8.02(c)) in the aggregate in excess of $775,000,000 at
any time.

     SECTION 8.03. REPORTING OBLIGATIONS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, any
Letter of Credit shall remain outstanding or any Lender shall have any
Commitment, the Company will, unless the Required Lenders shall otherwise
consent in writing, furnish to the Administrative Agent (for delivery to each
Lender), the following:

          (a) as soon as possible and in any event within five days after any
Borrower knows or should have reason to know of the occurrence of each Default
or Event of Default continuing on the date of such statement, a statement of the
chief financial officer or chief accounting officer of the Company setting forth
details of such Default or Event of Default and the action that the Borrowers
propose 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,
commencing with the fiscal quarter ending on June 30, 2004, (i) a consolidated
balance sheet and consolidated statements of income and retained earnings and of
cash flows of the Company and its Subsidiaries as at the end of such quarter and
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter (which requirement shall be deemed satisfied by the
delivery of the Company's quarterly report on Form 10-Q for such quarter), all
in reasonable detail and duly certified (subject to year-end audit adjustments)
by the chief financial officer or chief accounting officer of the Company as
having been prepared in accordance with GAAP, (ii) a consolidated balance sheet
and consolidated statements of income and retained earnings and of cash flows of
Consumers and its Subsidiaries as at the end of such quarter and for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter (which requirement shall be deemed satisfied by the delivery of the
Company's quarterly report on Form 10-Q for such quarter), all in reasonable
detail and duly certified (subject to year-end audit adjustments) by the chief
financial officer or chief accounting officer of Consumers as having been
prepared in accordance with GAAP, (iii) a schedule (substantially in the form of
Exhibit E appropriately completed) of (1) for the periods ending June 30, 2004
and thereafter, the computations used by the Company in determining compliance
with the covenants contained in Sections 8.01(i) and 8.01(j) and the ratio set
forth in Section 9.01(j), (2) all Project Finance Debt of the Company and the
Consolidated Subsidiaries, together with the Company's Ownership Interest in
each such Consolidated Subsidiary and (3) all Support Obligations of the
Borrowers of the types described in clauses (iv) and (v) of the definition of
Support Obligations (whether or not each such Support Obligation or the primary
obligation so supported is fixed, conclusively determined or reasonably
quantifiable), to the extent such Support Obligations have not been previously
disclosed as "Consolidated Debt" pursuant to clause (1) above, and (iv) a
certificate of the chief financial officer or chief accounting officer of the
Company stating that no Default or Event of


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<PAGE>

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 action
that the Borrowers propose to take with respect thereto;

          (c) as soon as available and in any event within 120 days after the
end of each fiscal year of the Company and its Subsidiaries, commencing with the
fiscal year ending on December 31, 2004, a copy of the Annual Report on Form
10-K (or any successor form) for the Company and its Subsidiaries for such year,
including therein (i) a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated statements of
income and retained earnings and of cash flows of the Company and its
Subsidiaries for such fiscal year, accompanied by a report thereon of a
nationally-recognized independent public accounting firm, and (ii) a
consolidated balance sheet of Consumers and its Subsidiaries as of the end of
such fiscal year and consolidated statements of income and retained earnings and
of cash flows of Consumers and its Subsidiaries for such fiscal year,
accompanied by a report thereon of a nationally-recognized independent public
accounting firm, together with (iii) a schedule in form satisfactory to the
Required Lenders of (1) the computations used by such accounting firm in
determining, as of the end of such fiscal year, compliance with the covenants
contained in Sections 8.01(i) and 8.01(j) and the ratio set forth in Section
9.01(j), (2) all Project Finance Debt of the Company and the Consolidated
Subsidiaries, together with the Company's Ownership Interest in each such
Consolidated Subsidiary and (3) all Support Obligations of the Borrowers of the
types described in clauses (iv) and (v) of the definition of Support Obligations
(whether or not each such Support Obligation or the primary obligation so
supported is fixed, conclusively determined or reasonably quantifiable), to the
extent such Support Obligations have not been previously disclosed as
"Consolidated Debt" pursuant to clause (1) above, and (iv) a certificate of the
chief financial officer or chief accounting officer of the Company stating that
no 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 action that the Borrowers propose to take with respect thereto;

          (d) as soon as available and in any event within 60 days after the end
of each of the first three fiscal quarters of each fiscal year of Enterprises,
commencing with the fiscal quarter ending on June 30, 2004, a consolidated
balance sheet and consolidated statements of income and retained earnings and of
cash flows of Enterprises and its Subsidiaries as at the end of such quarter and
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer or chief accounting
officer of Enterprises as having been prepared in accordance with GAAP;

          (e) as soon as available and in any event within 120 days after the
end of each fiscal year of Enterprises and its Subsidiaries, commencing with the
fiscal year ending on December 31, 2004, a consolidated balance sheet of
Enterprises and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of cash flows of
Enterprises and its Subsidiaries for such fiscal year, all in reasonable detail
and duly certified by the chief financial officer or chief accounting officer of
Enterprises as having been prepared in accordance with GAAP;


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<PAGE>

          (f) as soon as possible and in any event (A) within 30 days after the
Company knows or has reason to know that any Plan Termination Event described in
clause (i) of the definition of Plan Termination Event with respect to any Plan
of the Company or any ERISA Affiliate of the Company has occurred and could
reasonably be expected to result in a material liability to the Company and (B)
within 10 days after the Company knows or has reason to know that any other Plan
Termination Event with respect to any Plan of the Company or any ERISA Affiliate
of the Company has occurred and could reasonably be expected to result in a
material liability to the Company, a statement of the chief financial officer or
chief accounting officer of the Company describing such Plan Termination Event
and the action, if any, which the Company proposes to take with respect thereto;

          (g) promptly after receipt thereof by the Company or any of its ERISA
Affiliates from the PBGC, copies of each notice received by the Company or any
such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;

          (h) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Plan
(if any) to which the Company is a contributing employer;

          (i) promptly after receipt thereof by the Company or any of its ERISA
Affiliates from a Multiemployer Plan sponsor, a copy of each notice received by
the Company or any of its ERISA Affiliates concerning the imposition or amount
of withdrawal liability in an aggregate principal amount of at least $250,000
pursuant to Section 4202 of ERISA in respect of which the Company is reasonably
expected to be liable;

          (j) promptly after the Company becomes aware of the occurrence
thereof, notice of all actions, suits, proceedings or other events of the type
described in Section 7.01(f);

          (k) promptly after the sending or filing thereof, notice to the
Administrative Agent and each Lender of any sending or filing of all proxy
statements, financial statements and reports which the Company sends to its
public security holders (if any), all regular, periodic and special reports
which the Company files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange, pursuant to the Exchange Act, and all final prospectuses
with respect to any securities issued or to be issued by the Company or any of
its Subsidiaries;

          (l) as soon as possible and in any event within five 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 business, assets, property, financial condition, results of
operations or prospects of the Company and its Subsidiaries, considered as a
whole, any of which is continuing on the date of such certificate, a certificate
of the 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


                                       65

<PAGE>

          (m) promptly after requested, such other information respecting the
business, properties, condition or operations, financial or otherwise, of the
Company and its Subsidiaries as any Agent or the Required Lenders may from time
to time reasonably request in writing.

The Company shall be deemed to have fulfilled its obligations pursuant to
clauses (b), (c), (d), (e), (j) and (k) above to the extent the Administrative
Agent (and the Lenders, if applicable) receives an electronic copy of the
requisite document or documents in a format reasonably acceptable to the
Administrative Agent, provided that a tangible copy of each requisite document
delivered electronically is made available by the Company promptly upon request
by any Agent or Lender.

                                   ARTICLE IX
                                    DEFAULTS

     SECTION 9.01. EVENTS OF DEFAULT. If any of the following events (each an
"EVENT OF DEFAULT") shall occur and be continuing, the Administrative Agent and
the Lenders shall be entitled to exercise the remedies set forth in Section
9.02:

          (a) The Borrowers shall fail to pay (i) any principal of any Loan when
due, (ii) any reimbursement obligation under Section 4.04(a) within one Business
Day after such amount shall have become due or (iii) any interest, fees or other
Obligations (other than any principal of any Loan or any reimbursement
obligation under Section 4.04(a)) payable hereunder within two Business Days
after such interest, fees or other amounts shall have become due; or

          (b) Any representation or warranty made by or on behalf of any Loan
Party in any Loan Document or certificate or other writing delivered pursuant
thereto shall prove to have been incorrect in any material respect when made or
deemed made; or

          (c) Any Borrower or any of its Subsidiaries shall fail to perform or
observe any term or covenant on its part to be performed or observed contained
in Section 8.01(c), (h), (i), (j), (l) or (n) or in Section 8.02 (and the
Borrowers, each Lender and each Agent hereby agrees that an Event of Default
under this subsection (c) shall be given effect as if the defaulting Subsidiary
were a party to this Agreement); or

          (d) Any Borrower or any of its Subsidiaries shall fail to perform or
observe any other term or covenant on its part to be performed or observed
contained in any Loan Document and any such failure shall remain unremedied,
after written notice thereof shall have been given to the Borrowers by the
Administrative Agent, for a period of 20 Business Days (and the Borrowers, each
Lender and each Agent hereby agrees that an Event of Default under this
subsection (d) shall be given effect as if the defaulting Subsidiary were a
party to this Agreement); or

          (e) Any Borrower, any Restricted Subsidiary or Consumers shall fail to
pay any of its Debt (including any interest or premium thereon but excluding
Debt incurred under this Agreement) aggregating, in the case of the Borrowers
and each Restricted Subsidiary, $10,000,000 or more or, in the case of
Consumers, $25,000,000 or more, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure


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<PAGE>

shall continue after the applicable grace period, if any, specified in any
agreement or instrument relating to such Debt; or any other default under any
agreement or instrument relating to any such Debt (including any "amortization
event" or event of like import in connection with any Off-Balance Sheet
Liabilities), or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is (i) to accelerate, or to permit the
acceleration of, the maturity of such Debt; or any such Debt shall be declared
to be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof; unless in
each such case the obligee under or holder of such Debt shall have waived in
writing such circumstance so that such circumstance is no longer continuing, or
(ii) with respect to any such event occurring in connection with any Off-Balance
Sheet Liabilities aggregating $10,000,000 or more, to terminate the reinvestment
of collections or proceeds of receivables and related security under any
agreements or instruments related thereto (other than a termination resulting
solely from the request of the Company or its Subsidiaries); or

          (f) (i) Any Borrower, any Restricted Subsidiary or Consumers shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make an assignment for the
benefit of creditors; or (ii) any proceeding shall be instituted by or against
any Borrower, any Restricted Subsidiary or Consumers seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of its debts under
any law relating to bankruptcy, insolvency, or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property and, in the case of a proceeding instituted against a Borrower,
either such proceeding shall remain undismissed or unstayed for a period of 60
days or any of the actions sought in such proceeding (including the entry of an
order for relief against a Borrower, a Restricted Subsidiary or Consumers or the
appointment of a receiver, trustee, custodian or other similar official for such
Borrower, such Restricted Subsidiary or Consumers or any of its property) shall
occur; or (iii) any Borrower, any Restricted Subsidiary or Consumers shall take
any corporate or other action to authorize any of the actions set forth above in
this subsection (f); or

          (g) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against any Borrower, any Guarantor or any of
their respective properties and either (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 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; or

          (h) Any material provision of any Loan Document, after execution
hereof or delivery thereof under Article VI, shall for any reason other than the
express terms hereof or thereof cease to be valid and binding on any party
thereto; or any Loan Party shall so assert in writing; or any Guarantor shall
terminate or revoke any of its obligations under the Guaranty; or

          (i) Any "Event of Default" shall occur under and as defined in the AIG
Pledge Agreement, as the same may be amended, restated, supplemented or
otherwise modified from time to time; or


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          (j) There shall be imposed or enacted any Consumers Dividend
Restriction, the result of which is that the Dividend Coverage Ratio shall be
less than 1.15 to 1.0 at any time after the imposition of such Consumers
Dividend Restriction; or

          (k) At any time, for any reason (except to the extent permitted by the
terms of the Loan Documents or due to any failure by the Collateral Agent to
take any action on its part to be performed under applicable law in order to
maintain the perfection or priority of any such Liens), (i) the Liens intended
to be created under any of the Loan Documents with respect to Collateral having
a Fair Market Value of $10,000,000 or more become, or the Company or any of its
Subsidiaries seeks to render such Liens, invalid or unperfected, or (ii) Liens
in favor of the Collateral Agent for the benefit of the Lenders contemplated by
the Loan Documents with respect to Collateral having a Fair Market Value of
$10,000,000 or more shall, at any time, for any reason, be invalidated or
otherwise cease to be in full force and effect, or such Liens shall not have the
priority contemplated by this Agreement or the Loan Documents.

     SECTION 9.02. REMEDIES. If any Event of Default has occurred and is
continuing, then the Administrative Agent or the Collateral Agent, as
applicable, shall at the request, or may with the consent, of the Required
Lenders, upon notice to the Borrowers (i) declare the Commitments and the
obligation of each Lender to make or Convert Loans (other than Loans under
Section 4.04) and of any Issuing Bank to issue Letters of Credit to be
terminated, whereupon the same shall forthwith terminate, (ii) declare the
principal amount outstanding hereunder, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the principal amount outstanding hereunder,
all such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by each Borrower, (iii) make demand on the
Borrowers to pay, and the Borrowers will be obligated to, upon such demand
without any further notice or act, pay to the Administrative Agent the Cash
Collateral Required Amount, which funds shall be deposited to the Cash
Collateral Account as security for the LC Outstandings and (iv) exercise in
respect of any and all Collateral, in addition to the other rights and remedies
provided for herein or otherwise available to the Administrative Agent, the
Collateral Agent or the Lenders, all the rights and remedies of a secured party
on default under the Uniform Commercial Code in effect in the State of New York
and in effect in any other jurisdiction in which Collateral is located at that
time; provided, however, that in the event of an actual or deemed entry of an
order for relief with respect to any Borrower or any Guarantor under the
Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make
or Convert Loans and of any Issuing Bank to issue Letters of Credit shall
automatically be terminated, (B) the principal amount outstanding hereunder, all
such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by each Borrower, and (C) the Administrative
Agent shall make demand on the Borrowers to pay, and the Borrowers shall be
obligated to, upon such demand without any further notice or act, pay to the
Administrative Agent the Cash Collateral Required Amount, which funds shall be
deposited to the Cash Collateral Account as security for the LC Outstandings.
Notwithstanding anything to the contrary contained herein, no notice given or
declaration made by the Administrative Agent pursuant to this Section 9.02 shall
affect (i) the obligation of any Issuing Bank to make any payment under any
Letter of Credit issued by such Issuing Bank in accordance with the terms of
such Letter of Credit or (ii) the participatory interest of each Lender in each
such payment. If at


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any time while any Event of Default is continuing, the Administrative Agent
determines that the Cash Collateral Required Amount is greater than zero, the
Administrative Agent may make demand on the Borrowers to pay, and the Borrowers
will be obligated to, upon such demand without any further notice or act, pay to
the Administrative Agent the Cash Collateral Required Amount, which funds shall
be deposited to the Cash Collateral Account as security for the LC Outstandings.

                                    ARTICLE X
                                   THE AGENTS

     SECTION 10.01. AUTHORIZATION AND ACTION.

          (a) Each of the Lenders and each of the Issuing Banks hereby
irrevocably appoints each Agent (other than the Syndication Agent and the
Documentation Agents) as its agent and authorizes each such Agent to take such
actions on its behalf and to exercise such powers as are delegated to such Agent
by the terms of the Loan Documents, together with such actions and powers as are
reasonably incidental thereto.

          (b) Any Lender or Issuing Bank serving as an Agent hereunder shall
have the same rights and powers in its capacity as a Lender or an Issuing Bank
as any other Lender or Issuing Bank, as applicable, and may exercise the same as
though it were not an Agent, and such Lender or Issuing Bank, as applicable, and
its Affiliates may accept deposits from, lend money to and generally engage in
any kind of business with the Company or any of its Subsidiaries or other
Affiliate thereof as if it were not an Agent hereunder.

          (c) No Agent shall have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (i) no Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default or an Event of Default has occurred and
is continuing, (ii) no Agent shall have any duty to take any discretionary
action or exercise any discretionary powers, except discretionary rights and
powers expressly contemplated by the Loan Documents that such Agent is required
to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 11.01), and (iii) except as expressly set forth in the Loan
Documents, no Agent shall have any duty to disclose, or shall be liable for the
failure to disclose, any information relating to the Company or any of its
Subsidiaries or Affiliates that is communicated to or obtained by the Lender
serving as such Agent or any of its Affiliates in any capacity. No Agent shall
be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
11.01 or any other provision of this Agreement) or in the absence of its own
gross negligence or willful misconduct. Each Agent shall be deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to such Agent by a Borrower or a Lender (in which case such
Agent shall promptly give a copy of such written notice to the Lenders and the
other Agents). No Agent shall be responsible for or have any duty to ascertain
or inquire into (A) any statement, warranty or representation made in or in
connection with any Loan Document, (B) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (C) the
performance or observance of any of the covenants, agreements or other terms


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or conditions set forth in any Loan Document, (D) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (E) the satisfaction of any condition set forth in
Article VI or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to such Agent. Neither the Syndication
Agent nor the Documentation Agents shall have any duties or obligations in such
capacity under any of the Loan Documents.

          (d) Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrowers), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.

          (e) Each Agent may perform any and all its duties and exercise its
rights and powers by or through one or more sub-agents appointed by such Agent.
Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding subsections of this Section 10.01 shall
apply to any such sub-agent and to the Related Parties of each Agent and any
such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as an Agent.

          (f) Subject to the appointment and acceptance of a successor Agent as
provided in this subsection (f), any Agent may resign at any time by notifying
the Lenders, the Issuing Banks and the Borrowers. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrowers, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders and the Issuing Banks, appoint a successor Agent which
shall be a Lender with an office in New York, New York, or an Affiliate of any
such Lender. Upon the acceptance of its appointment as an Agent hereunder by a
successor, such successor shall 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. The fees
payable by the Borrowers to a successor Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrowers and such
successor. After an Agent's resignation hereunder, the provisions of this
Article and Section 11.04 shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while it was acting
as an Agent.

          (g) Each Lender acknowledges that it has independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or


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based upon this Agreement, any other Loan Document or any related agreement or
any document furnished hereunder or thereunder. Each Lender agrees (except as
provided in Section 11.05) that it will not take any legal action, nor institute
any actions or proceedings, against any Borrower or any other obligor hereunder
or with respect to any Collateral, without the prior written consent of the
Required Lenders. Without limiting the generality of the foregoing, no Lender
may accelerate or otherwise enforce its portion of the Loans, or unilaterally
terminate its Commitment except in accordance with Section 9.02.

               (h) Each Lender acknowledges and agrees that neither such Lender,
     nor any of its Affiliates, participants or assignees, may rely on the
     Administrative Agent to carry out such Lender's, Affiliate's, participant's
     or assignee's customer identification program, or other obligations
     required or imposed under or pursuant to the USA Patriot Act or the
     regulations thereunder, including the regulations contained in 31 C.F.R.
     103.121 (as hereafter amended or replaced, the "CIP Regulations "), or any
     other applicable laws, rules, regulations or orders of any governmental
     authority, including any programs involving any of the following items
     relating to or in connection with any of the Borrowers, their Subsidiaries,
     their Affiliates or their agents, the Loan Documents or the transactions
     hereunder or contemplated hereby: (a) any identity verification procedures,
     (b) any recordkeeping, (c) comparisons with government lists, (d) customer
     notices or (e) other procedures required under the CIP Regulations or such
     other laws, rules, regulations or orders.

               (i) Within 10 days after the Closing Date and at such other times
     as are required under the USA Patriot Act, each Lender and each of its
     assignees and participants that are not incorporated under the laws of the
     United States of America or a state thereof (and is not excepted from the
     certification requirement contained in Section 313 of the USA Patriot Act
     and the applicable regulations because it is both (a) an affiliate of a
     depository institution or foreign bank that maintains a physical presence
     in the United States or foreign country, and (b) subject to supervision by
     a banking authority regulating such affiliated depository institution or
     foreign bank) shall deliver to the Administrative Agent the certification,
     or, if applicable, recertification, certifying that such Lender is not a
     "shell" and certifying to other matters as required by Section 313 of the
     USA Patriot Act and the applicable regulations.

     SECTION 10.02. INDEMNIFICATION. The Lenders agree to indemnify each Agent
(to the extent not reimbursed by the Borrowers), ratably according to the
respective Percentages of the Lenders, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by such Agent under
this Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agents and the Arrangers promptly upon demand for its ratable
share of any out-of-pocket expenses (including counsel fees) incurred by the
Agents and the Arrangers in connection with the preparation, syndication,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement to the
extent that the


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Agents and the Arrangers are entitled to reimbursement for such expenses
pursuant to Section 11.04 but are not reimbursed for such expenses by the
Borrowers.

     SECTION 10.03. CONCERNING THE COLLATERAL AND THE LOAN DOCUMENTS.

          (a) Each Lender and Issuing Bank authorizes and directs the Collateral
Agent to enter into the Loan Documents relating to the Collateral for the
benefit of the Lenders and the Issuing Banks. Each Lender and Issuing Bank
agrees that any action taken by any Agent or the Required Lenders (or, where
required by the express terms of this Agreement, a greater proportion of the
Lenders) in accordance with the provisions of this Agreement or the other Loan
Documents, and the exercise by any Agent or the Required Lenders (or, where so
required, such greater proportion) of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Lenders and the Issuing Banks. Without
limiting the generality of the foregoing, the Collateral Agent shall have the
sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Lenders and the Issuing Banks with respect to all
payments and collections arising in connection with this Agreement and the Loan
Documents relating to the Collateral; (ii) execute and deliver each Loan
Document relating to the Collateral and accept delivery of each such agreement
delivered by any Borrower or any other Loan Party a party thereto; (iii) act as
collateral agent for the Lenders and the Issuing Banks for purposes of the
perfection of all Liens created by such agreements and all other purposes stated
therein; provided, however, the Collateral Agent hereby appoints, authorizes and
directs the other Agents, the Lenders and the Issuing Banks to act as collateral
sub-agent for the Collateral Agent, the Lenders and the Issuing Banks for
purposes of the perfection of all Liens with respect to any property of the
Company or any of its Subsidiaries at any time in the possession of such Agent,
such Lender or such Issuing Bank, including, without limitation, deposit
accounts maintained with, and cash held by, such Agent, such Lender or such
Issuing Bank; (iv) manage, supervise and otherwise deal with the Collateral; (v)
take such action as is necessary or desirable to maintain the perfection and
priority of the Liens created or purported to be created by the Loan Documents;
and (vi) except as may be otherwise specifically restricted by the terms of this
Agreement or any other Loan Document, exercise all remedies given to the
Collateral Agent, the Lenders or the Issuing Banks with respect to the
Collateral under the Loan Documents relating thereto, applicable law or
otherwise.

          (b) The Administrative Agent, each Lender and each Issuing Bank hereby
directs, in accordance with the terms of this Agreement, the Collateral Agent to
release any Lien held by the Collateral Agent for the benefit of the Lenders and
the Issuing Banks:

          (i) against all of the Collateral, upon payment in full of the
     Obligations of all of the Loan Parties under the Loan Documents and
     termination of this Agreement;

          (ii) against any part of the Collateral sold or disposed of by the
     Company or any of its Subsidiaries, if such sale or disposition is
     otherwise permitted under this Agreement, as certified to the Collateral
     Agent by the Borrowers, or is otherwise consented to by the Required
     Lenders;

          (iii) against any part of the Collateral consisting of a promissory
     note, upon payment in full of the Debt evidenced thereby;


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          (iv) against any part of the "Collateral" (as defined in the Cash
     Collateral Agreement) to the extent required pursuant to the Cash
     Collateral Agreement; and/or

          (v) against any of the Collateral and any Grantor upon the occurrence
     of any event described in Section 8.10 of the Pledge Agreement described in
     clause (i) of the definition of "Pledge Agreements" or in Section 9.10 of
     the Pledge Agreement described in clause (ii) of the definition of "Pledge
     Agreements".

The Administrative Agent, each Lender and each Issuing Bank hereby directs the
Collateral Agent to execute and deliver or file such termination and partial
release statements and do such other things as are necessary to release Liens to
be released pursuant to this Section 10.03(b) promptly upon the effectiveness of
any such release.

     SECTION 10.04. RELEASE OF GUARANTORS. Upon (x) the liquidation or
dissolution of any Guarantor, or sale of all of the capital stock or other
ownership interests of any Guarantor, or the sale of assets of any Guarantor the
result of which is that such Guarantor no longer qualifies as a Restricted
Subsidiary, in each case which is permitted pursuant to the terms of any Loan
Document or consented to in writing by the Required Lenders or all of the
Lenders, as applicable, and upon at least five (5) Business Days' prior written
request by the Borrowers or (y) the occurrence of any event described in Section
11 of the Guaranty, the Collateral Agent shall (and is hereby irrevocably
authorized by the Lenders to) execute such documents as may be necessary to
evidence the release of the applicable Guarantor from its obligations under the
Guaranty; provided, however, that (i) the Collateral Agent shall not be required
to execute any such document on terms which, in the Collateral Agent's opinion,
would expose the Collateral Agent to liability or create any obligation or
entail any consequence other than the release of such Guarantor without recourse
or warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Loans, any other Guarantor's obligations under the Guaranty, or, if
applicable, any obligations of any Borrower or any Subsidiary of any Borrower in
respect of the proceeds of any such sale retained by any Borrower or any
Subsidiary of any Borrower.

                                   ARTICLE XI
                                  MISCELLANEOUS

     SECTION 11.01. AMENDMENTS, ETC. No amendment or waiver of any provision of
any Loan Document, nor consent to any departure by any Borrower or any other
Loan Party therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following: (i)
waive, modify or eliminate any of the conditions specified in Article VI, (ii)
increase the Commitments of the Lenders that may be maintained hereunder, (iii)
reduce or forgive the principal of, or interest on, any Loan, any Applicable
Margin, any Commitment Fee Margin or any fees or other amounts payable hereunder
(other than fees payable to the Administrative Agent pursuant to Section
2.02(b)), (iv) postpone any date fixed for any payment of principal of, or
interest on, any Loan or any fees or other amounts payable hereunder (other than
fees payable to the Administrative Agent pursuant to Section 2.02(b)) (except
with respect to any modifications of the provisions relating to amounts, timing
or application of prepayments of Loans and other


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Obligations which modification shall require only the approval of the Required
Lenders), (v) change the definition of "Required Lenders" contained in Section
1.01 or change any other provision that specifies the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans or the
number of Lenders which shall be required for the Lenders or any of them to take
any action hereunder, (vi) amend, waive or modify Section 2.03(b) or this
Section 11.01, (vii) release the Collateral Agent's Lien on all of the
Collateral or any portion of the Collateral in excess of $50,000,000 (except as
provided in Section 10.03(b)), (viii) extend the Commitment Termination Date or
the Maturity Date, (ix) amend, waive or modify any provision of Section 5.01(g),
5.05 or 5.07 that provides for or ensures ratable distributions to the Lenders
or (x) amend, waive or modify any provision of Section 4.02 that requires each
Letter of Credit to have a stated expiry date no later than five (5) Business
Days (or, in the case of any commercial Letter of Credit, thirty (30) Business
Days) prior to the Commitment Termination Date; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by each
affected Agent in addition to the Lenders required above to take such action,
affect the rights or duties of any Agent under this Agreement or any other Loan
Document; and provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by each Issuing Bank in addition to the Lenders
required above to take such action, affect the rights or duties of any Issuing
Bank under this Agreement or any other Loan Document. Any request from the
Borrowers for any amendment, waiver or consent under this Section 11.01 shall be
addressed to the Administrative Agent.

     SECTION 11.02. NOTICES, ETC. Subject to Section 11.14, all notices and
other communications provided for hereunder and under the other Loan Documents
shall be in writing and mailed, sent by courier service, telecopied or
delivered, (i) if to either Borrower, at its address at One Energy Plaza,
Jackson, Michigan 49201, Attention: S. Kinnie Smith, Jr., General Counsel, with
a copy to Laura L. Mountcastle, Vice President, Investor Relations and
Treasurer, One Energy Plaza, Jackson, Michigan 49201; (ii) if to any Bank, at
the address set forth on the signature page hereto with respect to such Bank;
(iii) if to any Issuing Bank, at its address specified in the Issuing Bank
Agreement to which it is a party; (iv) if to any Lender other than a Bank, at
its Applicable Lending Office specified in the Lender Assignment pursuant to
which it became a Lender; (v) if to the Administrative Agent with respect to
funding or payment of any amounts hereunder, at its address at 2 Penns Way,
Suite 200, New Castle, DE 19270, Attn: Dawn Conover, Telephone No. (302)
894-6063, Telecopy No. (302) 894-6120; (vi) if to the Administrative Agent for
any other reason or to the Collateral Agent, at its address at 388 Greenwich
Street, New York, New York 10003, Attn: Nick McKee, Telephone No. (212)
816-8592, Telecopy No. (212) 816-8098; or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties. Each such notice or other communication shall be effective (i) if given
by telecopy transmission, when transmitted to the telecopy number specified in
this Section 11.02 and confirmation of receipt is received, (ii) if given by
mail, 5 days 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 at the address specified in this Section 11.02, except that
notices and communications to any Agent pursuant to Article II, III, or X shall
not be effective until received by such Agent.

     SECTION 11.03. NO WAIVER OF REMEDIES. No failure on the part of any
Borrower, any Lender, any Issuing Bank or any Agent to exercise, and no delay in
exercising, any right hereunder or under any other Loan Document shall operate
as a waiver thereof; nor shall any


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single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

     SECTION 11.04. COSTS, EXPENSES AND INDEMNIFICATION.

          (a) The Borrowers jointly and severally agree to (i) reimburse on
demand all reasonable costs and expenses of each Agent and each Arranger
(including reasonable fees and expenses of counsel to the Agents) in connection
with (A) the preparation, syndication, negotiation, execution and delivery of
the Loan Documents and (B) the care and custody of any and all collateral, and
any proposed modification, amendment, or consent relating to any Loan Document,
and (ii) to pay on demand all reasonable costs and expenses of each Agent and,
on and after the date upon which the principal amount outstanding hereunder
becomes or is declared to be due and payable pursuant to Section 9.02 or an
Event of Default specified in Section 9.01(a) shall have occurred and be
continuing, each Lender (including fees and expenses of counsel to the Agents,
special Michigan counsel to the Lenders and, from and after such date, counsel
for each Lender (including the allocated costs and expenses of in-house
counsel)) in connection with the workout, restructuring or enforcement (whether
through negotiations, legal proceedings or otherwise) of this Agreement, the
other Loan Documents and the other documents to be delivered hereunder.

          (b) The Borrowers jointly and severally agree to indemnify each Agent,
each Arranger, each Issuing Bank, each Lender, and each Related Party of any of
the foregoing Persons (each such Person being called an "INDEMNIFIED PERSON")
against, and hold each Indemnified Person harmless from, any and all losses,
claims, damages, liabilities and related expenses, including the reasonable
fees, charges and disbursements of any counsel for any Indemnified Person,
incurred by or asserted against any Indemnified Person arising out of, in
connection with, or as a result of (i) the execution or delivery of any Loan
Document or any other agreement or instrument contemplated hereby or thereby,
the performance by the parties to the Loan Documents of their respective
obligations thereunder or the consummation of the transactions contemplated
hereby or thereby, (ii) any Loan or other Extension of Credit or the use or
proposed use of the proceeds therefrom, (iii) any actual or alleged presence or
release of any Hazardous Substance on or from any property owned or operated by
any Borrower or any of its Subsidiaries, or any Environmental Liability related
in any way to any Borrower or any of its Subsidiaries, (iv) the use of the
Platform as contemplated herein, or (v) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnified Person is a party thereto; provided, that such indemnity shall
not, as to any Indemnified Person, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or willful misconduct of such Indemnified Person. The
Borrower shall pay any civil penalty or fine assessed by the Office of Foreign
Assets Control against any Indemnified Person and all reasonable costs and
expenses (including reasonable fees and expenses of counsel to such Indemnified
Persons) incurred in connection with defense thereof, as a result of acts or
omissions of the Borrowers contrary to the representation made in Section
7.01(u).


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          (c) The Borrowers' other obligations under this Section 11.04 shall
survive the repayment of all amounts owing to the Lenders, the Issuing Banks and
the Agents under the Loan Documents and the termination of the Commitments. If
and to the extent that the obligations of any Borrower under this Section 11.04
are unenforceable for any reason, the Borrowers jointly and severally agree to
make the maximum contribution to the payment and satisfaction thereof which is
permissible under applicable law.

     SECTION 11.05. RIGHT OF SET-OF.

          (a) Upon (i) the occurrence and during the continuance of any Event of
Default and (ii) the making of the request or the granting of the consent
specified by Section 9.02 to authorize the Administrative Agent to declare the
principal amount outstanding hereunder to be due and payable pursuant to the
provisions of Section 9.02, each Lender and Issuing Bank is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or such Issuing Bank, as applicable, to or for the credit or the
account of any Borrower, against any and all of the obligations of such Borrower
now or hereafter existing under this Agreement and the Promissory Notes held by
such Lender or the Issuing Bank Agreement to which such Issuing Bank is a party,
as the case may be, irrespective of whether or not such Lender or such Issuing
Bank, as applicable, shall have made any demand under this Agreement or such
Promissory Notes or such Issuing Bank Agreement, as the case may be, and
although such obligations may be unmatured. Each Lender and Issuing Bank agrees
to notify promptly the applicable Borrower after any such set-off and
application made by such Lender or Issuing Bank, as the case may be, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender and Issuing Bank under this
Section 11.05 are in addition to other rights and remedies (including other
rights of set-off) which such Lender and Issuing Bank may have.

          (b) Each Borrower agrees that it shall have no right of off-set,
deduction or counterclaim in respect of its obligations hereunder, and that the
obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of any Borrower's
rights to any independent claim that such Borrower may have against any Agent or
any Lender for such Agent's or such Lender's, as the case may be, gross
negligence or willful misconduct, but no Lender shall be liable for any such
conduct on the part of any Agent or any other Lender, and no Agent shall be
liable for any such conduct on the part of any Lender or any other Agent.

     SECTION 11.06. BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by the Borrowers and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrowers, the Agents and each Lender and their respective successors and
assigns, except that, other than in connection with Enterprises reconstituting
itself as a limited liability company as permitted under Section 8.02(h),
neither Borrower shall have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lenders.


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     SECTION 11.07. ASSIGNMENTS AND PARTICIPATION.

          (a) Any Lender may sell participations in all or a portion of its
rights and obligations under this Agreement pursuant to subsection (b) below and
any Lender may assign all or any part of its rights and obligations under this
Agreement pursuant to subsection (c) below.

          (b) Any Lender 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 Loan), provided that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of the Loans of
such Lender for all purposes of this Agreement and (iv) the Borrowers shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Each Lender shall retain
the sole right to approve, without the consent of any Participant, any
amendment, modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which would require consent
of all of the Lenders pursuant to the terms of Section 11.01 or of any other
Loan Document. The Borrowers agree that each Participant shall be deemed to have
the right of set-off provided in Section 11.05 in respect of its participating
interest in amounts owing under the Loan Documents to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
the Loan Documents, provided that each Lender shall retain the right of set-off
provided in Section 11.05 with respect to the amount of participating interests
sold to each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of set-off provided in Section 11.05,
agrees to share with each Lender, any amount received pursuant to the exercise
of its right of set-off, such amounts to be shared in accordance with Section
11.05 as if each Participant were a Lender. The Borrowers further agree that
each Participant shall be entitled to the benefits of Sections 5.04 and 5.06 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to Section 11.07(c); provided that (i) a Participant shall
not be entitled to receive any greater payment under Section 5.04 or 5.06 than
the Lender 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
Borrowers, 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 5.06 to the same extent as if it were a Lender.

          (c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, with the consent of the Administrative Agent and
each Issuing Bank (such consent not to be unreasonably withheld or delayed), at
any time assign to any other Lender or to any Eligible Bank all or any part of
its rights and obligations under this Agreement, provided, that the aggregate of
the Commitments and the principal amount the Loans subject to any such
assignment (other than assignments to a Federal Reserve Bank, or to any other
Lender, 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 Lender's obligations pursuant


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thereto) shall be $5,000,000 (or such lesser amount consented to by the
Administrative Agent); provided, that, unless such Lender is assigning all of
its rights and obligations hereunder, after giving effect to such assignment the
assigning Lender shall have Commitments and Loans in the aggregate of not less
than $5,000,000 (unless otherwise consented to by the Administrative Agent).

          (d) Any Lender may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 11.07 disclose to the
purchaser or Participant or proposed purchaser or Participant any information
relating to the Borrowers furnished to such Lender by or on behalf of the
Borrowers, provided that prior to any such disclosure of non-public information,
the purchaser or Participant or proposed purchaser or Participant (which
Participant is not an affiliate of a Lender) 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 Borrowers received
by it from such Lender.

          (e) Assignments under this Section 11.07 shall be made pursuant to an
agreement (a "LENDER ASSIGNMENT") substantially in the form of Exhibit F 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 Administrative 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 Lender of all or a portion of its rights under this Agreement to (i) a
Federal Reserve Bank, (ii) a Lender (iii) an affiliate of the assigning Lender
(which affiliate shall be an Eligible Bank) or (iv) 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 Lender's
obligations pursuant thereto.

          (f) Notwithstanding anything to the contrary contained herein, any
Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Lender
to the Administrative Agent and the Borrowers, the option to provide to the
Borrowers all or any part of any Loan that such Granting Lender is obligated to
make to the Borrowers pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Loan, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Loan, the Granting Lender shall remain obligated to make such Loan
pursuant to the terms hereof, (iii) the Borrowers shall not be required to pay
any amount under Section 5.06 that is greater than the amount which it would
have been required to pay had there been no grant to an SPC and (iv) any SPC (or
assignee of an SPC) will comply, if applicable, with the provisions contained in
Section 5.06. No grant by any Granting Lender to an SPC agreeing to provide a
Loan or the making of such Loan by such SPC shall operate to relieve such
Granting Lender of its liabilities and obligations hereunder, except to the
extent of the making of such Loan by such SPC. The making of a Loan by an SPC
hereunder shall utilize the Commitment of the Granting Lender to the same
extent, and as if, such Loan were made by such Granting Lender. Each party
hereto hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall remain
with the Granting Lender). In addition, each party hereto hereby agrees (which
agreement shall survive the termination of this Agreement) that any SPC may (i)
with notice to, but without the prior written consent of, the Borrowers and the
Administrative Agent and without paying any processing fee therefor, assign all
or a portion


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of its interests in any Loans to the Granting Lender or to any financial
institutions (consented to by the Administrative Agent in its sole discretion)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Loans and (ii) disclose on a confidential
basis any non-public information relating to its Loans to any rating agency,
commercial paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such SPC. This Section 11.07(f) may not be amended
without the written consent of any SPC that holds an option to provide Loans. No
recourse under any obligation, covenant, or agreement of the SPC contained in
this Agreement shall be had against any shareholder, officer, agent or director
of the SPC as such, by the enforcement of any assessment or by any proceeding,
by virtue of any statute or otherwise; it being expressly agreed and understood
that this Agreement is a corporate obligation of the SPC and no personal
liability shall attach to or be incurred by any officer, agent or member of the
SPC as such, or any of them under or by reason of any of the obligations,
covenants or agreements of the SPC contained in this Agreement, or implied
therefrom, and that any and all personal liability for breaches by the SPC of
any such obligations, covenants or agreements, either at law or by statute or
constitution, of every such shareholder, officer, agent or director is hereby
expressly waived by all parties to this Agreement as a condition of and
consideration for the SPC entering into this Agreement; provided, however, that
the foregoing shall not relieve any such person or entity of any liability they
might otherwise have as a result of fraudulent actions or omissions taken by
them. All parties to this Agreement acknowledge and agree that the SPC shall
only be liable for any claims that each of them may have against the SPC only to
the extent of the SPC's assets. The provisions of this clause shall survive the
termination of this Agreement.

          (g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided, that no such pledge or
assignment shall release such Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.

          (h) The Administrative Agent shall maintain at its address referred to
in Section 11.02 a copy of each Lender Assignment delivered to and accepted by
it and a register for the recordation of the names and addresses of the Lenders
and the Commitment of, and principal amount of the Loans owing to, each Lender
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrowers, the Agents, the Issuing Banks and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by any Borrower,
any Issuing Bank or any Lender at any reasonable time and from time to time upon
reasonable prior notice.

     SECTION 11.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrowers
have furnished and will from time to time furnish to the Agents, the Issuing
Banks and the Lenders (each, a "RECIPIENT") written information which is
identified to the Recipient when delivered as confidential (such information,
other than any such information which (i) was publicly available, or otherwise
known to the Recipient, at the time of disclosure, (ii) subsequently becomes
publicly available other than through any act or omission by the Recipient or
(iii) otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in


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violation of his or its obligations to the Borrowers, being hereinafter referred
to as "CONFIDENTIAL INFORMATION"). The Recipient will not knowingly disclose any
such Confidential Information to any third party (other than to those persons
who have a confidential relationship with the Recipient), and will take all
reasonable steps to restrict access to such information in a manner designed to
maintain the confidential nature of such information, in each case until such
time as the same ceases to be Confidential Information or as the Borrowers may
otherwise instruct. It is understood, however, that the foregoing will not
restrict the Recipient's ability to freely exchange such Confidential
Information with its Affiliates, prospective Participants in or assignees of the
Recipient's position herein or direct or indirect counterparties (or their
advisors) to any swap, securitization or derivative transaction relating to the
Obligations, but the Recipient's ability to so exchange Confidential Information
shall be conditioned upon any such Person entering into an agreement as to
confidentiality similar to this Section 11.08. It is further understood that the
foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required (1) by a
regulatory agency, self-regulatory body or otherwise in connection with an
examination of the Recipient's records by appropriate authorities, (2) pursuant
to court order, subpoena or other legal process or in connection with any
proceeding, suit or other action relating to any Loan Document or (3) otherwise,
as required by law; in the event of any required disclosure under clause (2) or
(3), above, the Recipient agrees to use reasonable efforts to inform the
Borrowers as promptly as practicable to the extent not prohibited by law.
Notwithstanding any other provision of this Agreement, each party (and each
Participant pursuant to Section 11.07) (and each employee, representative or
other agent of such party (or Participant)) may disclose to any and all persons,
without limitation of any kind, the U.S. tax treatment and U.S. tax structure of
the transactions contemplated by the Loan Documents and all materials of any
kind (including opinions or other tax analyses) that are provided to such party
relating to such U.S. tax treatment and U.S. tax structure, other than any
information for which nondisclosure is reasonably necessary in order to comply
with applicable securities laws.

     SECTION 11.09. Waiver of Jury Trial. THE BORROWERS, THE AGENTS, THE ISSUING
BANKS AND THE LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT
DELIVERED HEREUNDER OR THEREUNDER.

     SECTION 11.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
AND THE PROMISSORY NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES). THE BORROWERS, THE LENDERS, THE ISSUING BANKS AND
THE AGENTS, EACH (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT SITTING IN NEW YORK CITY IN ANY ACTION ARISING OUT
OF ANY LOAN DOCUMENT, (II) AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED
IN SUCH COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY


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MAIL. A FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT
TO BRING ANY ACTION IN ANY OTHER COURT. EACH BORROWER AGREES THAT THE AGENTS
SHALL HAVE THE RIGHT TO PROCEED AGAINST SUCH BORROWER OR ITS PROPERTY IN A COURT
IN ANY LOCATION TO ENABLE THE AGENTS, THE ISSUING BANKS AND THE LENDERS TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF ANY AGENT, ANY
ISSUING BANK OR ANY LENDER. EACH BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY ANY AGENT, ANY ISSUING
BANK OR ANY LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY
AGENT, ANY ISSUING BANK OR ANY LENDER. EACH BORROWER WAIVES ANY OBJECTION THAT
IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH ANY AGENT, ANY ISSUING BANK OR
ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.

     SECTION 11.11. RELATION OF THE PARTIES; NO BENEFICIARY. No term, provision
or requirement, whether express or implied, of any Loan Document, or actions
taken or to be taken by any party thereunder, shall be construed to create a
partnership, association, or joint venture between such parties or any of them.
No term or provision of this Agreement or any other Loan Document shall be
construed to confer a benefit upon, or grant a right or privilege to, any Person
other than the parties hereto or thereto. Each Borrower hereby acknowledges that
none of the Agents, the Lenders or the Issuing Banks has any fiduciary
relationship with or fiduciary duty to such Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Agents, the Lenders and the Issuing Banks, on the one
hand, and such Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor.

     SECTION 11.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different 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.

     SECTION 11.13. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein and in the certificates pursuant
hereto shall be considered to have been relied upon by the Agents, the Lenders
and the Issuing Banks and shall survive the making by the Lenders and the
Issuing Banks of the Extensions of Credit and the execution and delivery to the
Lenders of any Promissory Notes evidencing the Extensions of Credit and shall
continue in full force and effect so long as any Promissory Note or any amount
due hereunder is outstanding and unpaid, any Letter of Credit remains
outstanding or any Commitment of any Lender has not been terminated.

     SECTION 11.14. PLATFORM.


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          (a) Each Borrower shall use its commercially reasonable best efforts
to transmit to the Administrative Agent all information, documents and other
materials that it is obligated to furnish to the Administrative Agent pursuant
to this Agreement and the other Loan Documents, including, without limitation,
all notices, requests, financial statements, financial and other reports,
certificates and other information materials, but excluding any such
communication that (i) relates to a notice of borrowing or other extension of
credit or a conversion of an existing interest rate on any Loan or Borrowing
(including, without limitation, any Notice of Conversion), (ii) relates to the
payment of any principal or other amount due hereunder prior to the scheduled
date therefor, (iii) provides notice of any Default or Event of Default
hereunder or (iv) is required to be delivered to satisfy any condition precedent
to the effectiveness of this Agreement and/or any Extension of Credit hereunder
(all such non-excluded communications being referred to herein collectively as
"COMMUNICATIONS"), in an electronic/soft medium in a format reasonably
acceptable to the Administrative Agent to oploanswebadmin@citigroup.com (or such
other e-mail address designated by the Administrative Agent from time to time).
In addition, each Borrower shall continue to provide the Communications to the
Administrative Agent in the manner specified in this Agreement but only to the
extent requested by the Administrative Agent. Each Lender, each Issuing Bank and
the Borrowers further agree that the Administrative Agent may make the
Communications available to the Lenders and the Issuing Banks by posting the
Communications on IntraLinks or a substantially similar electronic transmission
system (the "PLATFORM"); provided, however, that upon written notice to the
Administrative Agent and the Company, any Lender or any Issuing Bank (such
lender a "DECLINING LENDER") may decline to receive Communications via the
Platform and shall direct the Company to provide, and the Company shall so
provide, such Communications to such Declining Lender by delivery to such
Declining Lender's address set forth on the signature pages hereto, or as
specified in the Lender Assignment pursuant to which it became a Lender or as
otherwise directed in such notice. Subject to the conditions set forth in the
proviso in the immediately preceding sentence, nothing in this Section 11.14
shall prejudice the right of the Administrative Agent to make the Communications
available to the Lenders in any other manner specified herein.

          (b) Each Lender and Issuing Bank (other than a Declining Lender)
agrees that e-mail notice to it (at the address provided pursuant to the next
sentence and deemed delivered as provided in the next paragraph) specifying that
Communications have been posted to the Platform shall constitute effective
delivery of such Communications to such Lender or such Issuing Bank, as
applicable, for purposes of this Agreement. Each Lender and Issuing Bank (other
than a Declining Lender) agrees (i) to notify the Administrative Agent in
writing (including by electronic communication) from time to time to ensure that
the Administrative Agent has on record an effective e-mail address for such
Lender or such Issuing Bank, as applicable, to which the foregoing notice may be
sent by electronic transmission and (ii) that the foregoing notice may be sent
to such e-mail address.

          (c) Each party hereto (other than a Declining Lender) agrees that any
electronic communication referred to in this Section 11.14 shall be deemed
delivered upon the posting of a record of such communication as "sent" in the
e-mail system of the sending party or, in the case of any such communication to
the Administrative Agent, upon the posting of a record of such communication as
"received" in the e-mail system of the Administrative Agent, provided that if
such communication is not so received by the Administrative Agent during the
normal


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business hours of the Administrative Agent, such communication shall be deemed
delivered at the opening of business on the next business day for the
Administrative Agent.

          (d) Each party hereto acknowledges that the distribution of material
through an electronic medium is not necessarily secure and there are
confidentiality and other risks associated with such distribution.

          (e) EACH PARTY HERETO FURTHER ACKNOWLEDGES AND AGREES THAT:

          (i) NONE OF THE ADMINISTRATIVE AGENT, ITS AFFILIATES NOR ANY OF THEIR
     RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR
     REPRESENTATIVES (COLLECTIVELY, THE "CITIGROUP PARTIES") WARRANTS THE
     ADEQUACY OF THE PLATFORM OR THE ACCURACY OR COMPLETENESS OF ANY
     COMMUNICATIONS, AND EACH CITIGROUP PARTY EXPRESSLY DISCLAIMS LIABILITY FOR
     ERRORS OR OMISSIONS IN ANY COMMUNICATIONS, AND

          (ii) NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY,
     INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR
     A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM
     FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY CITIGROUP PARTY IN
     CONNECTION WITH ANY COMMUNICATIONS OR THE PLATFORM.

          (f) This Section 11.14 shall terminate on the date that neither CUSA
nor any of the Citigroup Parties is the Administrative Agent under this
Agreement.

     SECTION 11.15. USA PATRIOT ACT. Each Lender hereby notifies the Borrowers
that pursuant to requirements of the USA Patriot Act, it is required to obtain,
verify and record information that identifies the Loan Parties, which
information includes the name and address of each Loan Party and other
information that will allow such Lender to identify such Loan Party in
accordance with the USA Patriot Act.

                                   ARTICLE XII
                             CO-BORROWER PROVISIONS

     SECTION 12.01. APPOINTMENT. Each of the Borrowers hereby irrevocably
designates, appoints and authorizes the other Borrower as its agent and
attorney-in-fact to take actions under this Agreement and the other Loan
Documents, together with such powers as are reasonably incidental thereto. The
Agents, the Issuing Banks and the Lenders shall be entitled to rely, and shall
be fully protected in relying, upon any communication from or to any Borrower as
having been delivered by or to all Borrowers. Any action taken by one Borrower
under this Agreement and the other Loan Documents shall be binding upon the
other Borrower. Each Borrower agrees that it is jointly and severally liable to
the Agents, the Issuing Banks and the Lenders for the payment of the Obligations
and that such liability is independent of the Obligations of the other Borrower
and whether such Obligations become unenforceable against the other Borrower.


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     SECTION 12.02. SEPARATE ACTIONS. A separate action or actions may be
brought and prosecuted against any Borrower whether such action is brought
against the other Borrower or whether the other Borrower is joined in such
action or actions. Each Borrower authorizes the Administrative Agent, the
Issuing Banks and the Lenders to release the other Borrower without in any
manner or to any extent affecting the liability of such Borrower hereunder or
under the Loan Documents. Each Borrower waives any defense arising by reason of
any disability or other defense of the other Borrower, or the cessation for any
reason whatsoever of the liability of the other Borrower with respect to any of
the Obligations, or any claim that such Borrower's liability hereunder exceeds
or is more burdensome than the liability of the other Borrower.

     SECTION 12.03. OBLIGATIONS ABSOLUTE AND UNCONDITIONAL. Each Borrower hereby
agrees that its Obligations hereunder and under the Loan Documents shall be
unconditional, irrespective of:

          (a) the validity, enforceability, avoidance or subordination of any of
the Obligations or any of the Loan Documents as to the other Borrower;

          (b) the absence of any attempt by, or on behalf of, any Agent, any
Issuing Bank or any Lender to collect, or to take any other action to enforce,
all or any part of the Obligations whether from or against the other Borrower;

          (c) any borrowing or grant of a security interest by the other
Borrower or any receiver or assignee in relation to the other Borrower following
the occurrence of any event described in Section 9.01(f), pursuant to any
provision of applicable law comparable to Section 364 of the Bankruptcy Code;

          (d) the disallowance, under any provision of applicable law comparable
to Section 502 of the Bankruptcy Code, of all or any portion of the claims
against the other Borrower held by any Lender, any Issuing Bank or any Agent,
for repayment of all or any part of the Obligations;

          (e) the insolvency of the other Borrower; and

          (f) any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of the other Borrower (other than payment in full
in cash of the Obligations and the termination of the Commitments).

     SECTION 12.04. WAIVERS AND ACKNOWLEDGEMENTS.

          (a) Except as otherwise expressly provided under any provision of the
Loan Documents or as required by any mandatory provision of applicable law, each
Borrower hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of receivership, insolvency or bankruptcy of
any Borrower or any other Person, protest or notice with respect to the
Obligations, all setoffs and counterclaims and all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Agreement and the other Loan
Documents, and all other demands whatsoever (and shall not require that the same
be made on the other Borrower as a condition precedent to the other Borrower's
Obligations hereunder), and covenants that this Agreement


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(and the joint and several liability of each Borrower under Section 12.01) will
not be discharged, except by payment in full in cash of the Obligations and the
termination of the Commitments. Each Borrower further waives all notices of the
existence, creation or incurrence of new or additional Debt, arising either from
additional loans extended to the other Borrower or otherwise, and also waives
all notices that the principal amount, or any portion thereof, and/or any
interest on any instrument or document evidencing all or any part of the
Obligations is due, notices of any and all proceedings to collect from the
maker, any endorser or any other guarantor of all or any part of the
Obligations, or from any other Person, and, to the extent permitted by law,
notices of exchange, sale, surrender or other handling of any security or
Collateral given to any Agent, any Issuing Bank or any Lender to secure payment
of all or any part of the Obligations.

          (b) The Agents, the Issuing Banks and/or the Lenders are hereby
authorized, without notice or demand and without affecting the liability of the
Borrowers hereunder, from time to time, (i) to accept partial payments on all or
any part of the Obligations; (ii) to take and hold security or Collateral for
the payment of all or any part of the Obligations, this Agreement, or any other
guaranties of all or any part of the Obligations or other liabilities of the
Borrowers, and (iii) to settle, release, exchange, enforce, waive, compromise or
collect or otherwise liquidate all or any part of the Obligations, this
Agreement, any guaranty of all or any part of the Obligations, and, subject to
the terms of the Pledge Agreements, any security or Collateral for the
Obligations or for any such guaranty, irrespective of the effect on the
contribution or subrogation rights of the Borrowers. Any of the foregoing may be
done in any manner, without affecting or impairing the obligations of each
Borrower hereunder.

     SECTION 12.05. CONTRIBUTION AMONG BORROWERS.

          (a) To the extent that any payment is made on the Obligations by or on
behalf of any Borrower under or pursuant to this Article XII (a "BORROWER
PAYMENT") which, taking into account all other Borrower Payments then previously
or concurrently made by any other Borrower, exceeds the amount which otherwise
would have been paid by or attributable to such Borrower if each Borrower had
paid the aggregate Obligations satisfied by such Borrower Payment in the same
proportion as such Borrower's "Allocable Amount" (as defined below) (as
determined immediately prior to such Borrower Payment) bore to the aggregate
Allocable Amounts of each of the Borrower as determined immediately prior to the
making of such Borrower Payment, then, following payment in full in cash of the
Obligations and the termination or expiration of all Commitments, such Borrower
shall be entitled to receive contribution and indemnification payments from, and
be reimbursed by, the other Borrower for the amount of such excess, pro rata
based upon their respective Allocable Amounts in effect immediately prior to
such Borrower Payment.

          (b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower with respect to the Obligations without rendering
such claim voidable or avoidable under Section 548 of Chapter 11 of the
Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.

          (c) This Section 12.05 is intended only to define the relative rights
of the Borrowers, and nothing set forth in this Section 12.05 is intended to or
shall impair the


                                       85

<PAGE>

obligations of the Borrowers to pay any amounts as and when the same shall
become due and payable in accordance with the terms of this Agreement.

          (d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Borrower to which such
contribution and indemnification is owing.

          (e) The rights of the indemnifying Borrower against the other Borrower
with respect to any payments on the Obligations shall be exercisable upon the
full payment of the Obligations in cash and the termination or expiry of the
Commitments.

     SECTION 12.06. SUBROGATION; REINSTATEMENT. Until the Obligations shall have
been paid in full in cash and the Commitments shall have been terminated, each
Borrower hereby agrees that it (i) shall have no right of subrogation with
respect to such Obligations (under contract, Section 509 of the Bankruptcy Code
or any comparable provision of any other applicable law, or otherwise) or any
other right of indemnity, reimbursement or contribution, and (ii) hereby waives
any right to enforce any remedy which any Agent, any Issuing Bank or any Lender
may now have or may hereafter have against the other Borrower. The provisions of
this Article XII shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations is rescinded or
must otherwise be returned by the Collateral Agent, the Administrative Agent,
any Issuing Bank or any Lender upon the insolvency, bankruptcy or reorganization
of either Borrower or otherwise, all as though such payment had not been made.

     SECTION 12.07. SUBORDINATION. Each Borrower agrees that any and all claims
of such Borrower against the other Borrower, the Guarantors or any endorser or
other guarantor of all or any part of the Obligations, or against any of their
respective properties, shall be subordinated to all of the Obligations;
provided, that, for the avoidance of doubt, so long as no Event of Default shall
be continuing, each Borrower may make loans to and receive payments in the
ordinary course with respect to Inter-Borrower Debt (as hereinafter defined)
from the other Borrower to the extent not prohibited by the terms of this
Agreement and the other Loan Documents. Notwithstanding any right of any
Borrower to ask for, demand, sue for, take or receive any payment from the other
Borrower, all rights and Liens of such Borrower, whether now or hereafter
arising and howsoever existing, in any assets of the other Borrower (whether
constituting part of the Collateral or otherwise) shall be and hereby are
subordinated to the rights of the Agents, the Issuing Banks or the Lenders in
those assets. Such Borrower shall have no right to possession of any such asset
or to foreclose upon any such asset, whether by judicial action or otherwise,
unless and until all of the Obligations shall have been paid in full in cash, no
Letters of Credit remain outstanding and the Commitments shall have been
terminated. If all or any part of the assets of any Borrower, or the proceeds
thereof, are subject to any distribution, division or application to the
creditors of such Borrower, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, or if the business of any Borrower is dissolved or if substantially
all of the assets of any Borrower are sold, then, and in any such event, any
payment or distribution of any kind or character, either in cash, securities or
other property, which shall be payable or deliverable upon or with respect to
any Debt of any Borrower to the other Borrower ("INTER-BORROWER DEBT") shall be
paid or delivered directly to


                                       86

<PAGE>

the Administrative Agent for application to the Obligations, due or to become
due, until such Obligations shall have been paid in full in cash and no Letters
of Credit remain outstanding. Each Borrower irrevocably authorizes and empowers
the Administrative Agent, each of the Issuing Banks and each of the Lenders to
demand, sue for, collect and receive every such payment or distribution and give
acquittance therefor and to make and present for and on behalf of such Borrower
such proofs of claim and take such other action, in the Administrative Agent's,
such Issuing Bank's or such Lender's own name or in the name of such Borrower or
otherwise, as the Administrative Agent, any Issuing Bank or any Lender may deem
reasonably necessary or reasonably advisable for the enforcement of this
Agreement. After the occurrence and during the continuance of a Default or an
Event of Default, each Lender may vote, with respect to the Obligations owed to
it, such proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and apply the same on account of any of the
Obligations. Except as permitted under Sections 8.02(d) and (e), should any
payment, distribution, security or instrument or proceeds thereof be received by
any Borrower upon or with respect to the Inter-Borrower Debt during the
continuance of any Event of Default and prior to the payment in full in cash of
all of the Obligations, the termination or cancellation of each Letter of Credit
and the termination of the Commitments, such Borrower shall receive and hold the
same in trust, as trustee, for the benefit of the Agents, the Issuing Banks and
the Lenders and shall forthwith deliver the same to the Administrative Agent in
precisely the form received (accompanied by the endorsement or assignment of
such Borrower where necessary), for application to the Obligations, due or not
due, and, until so delivered, the same shall be held in trust by such Borrower
as the property of the Agents, the Issuing Banks and the Lenders. After the
occurrence and during the continuance of a Default or an Event of Default, if
any Borrower fails to make any such endorsement or assignment to the Agents, the
Issuing Banks or the Lenders, the Agents, the Issuing Banks or the Lenders (or
any of their respective officers or employees) are hereby irrevocably authorized
to make the same. Each Borrower agrees that until the Obligations have been paid
in full in cash, no Letters of Credit remain outstanding and the Commitments
have been terminated, such Borrower will not assign or transfer to any Person
any claim such Borrower has or may have against any other Borrower (other than
in favor of the Administrative Agent pursuant to the Loan Documents).

                                  ARTICLE XIII
           NO NOVATION; REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS

     SECTION 13.01. NO NOVATION. It is the express intent of the parties hereto
that this Agreement (i) shall re-evidence, in part, the Borrowers' indebtedness
under the Existing Credit Agreement, (ii) is entered into in substitution for,
and not in payment of, the obligations of the Borrowers under the Existing
Credit Agreement, and (iii) is in no way intended to constitute a novation of
any of the Borrowers' indebtedness which was evidenced by the Existing Credit
Agreement or any of the other Loan Documents.

     SECTION 13.02. REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS. Upon the
effectiveness of this Agreement, on and after the date hereof, each reference in
any other Loan Document to the Existing Credit Agreement (including any
reference therein to "the Credit Agreement," "thereunder," "thereof," "therein"
or words of like import referring thereto) shall mean and be a reference to this
Agreement.


                                       87

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                                        CMS ENERGY CORPORATION


                                        By: /s/ Laura L. Mountcastle
                                            ------------------------------------
                                            Name: Laura L. Mountcastle
                                            Title: Vice President and Treasurer


                                        CMS ENTERPRISES COMPANY


                                        By: /s/ Laura L. Mountcastle
                                            ------------------------------------
                                            Name: Laura L. Mountcastle
                                            Title: Vice President and Treasurer

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        CITICORP USA, INC., as Collateral Agent
                                        and as Administrative Agent


                                        By: /s/ Dale R. Goncher
                                            ------------------------------------
                                            Name: Dale R. Goncher
                                            Title: Director


                                        CITIBANK, N.A., as a Lender


                                        By: /s/ Dale R. Goncher
                                            ------------------------------------
                                            Name: Dale R. Goncher
                                            Title: Director

                                        Address: 388 Greenwich St.
                                                 New York, NY 10013
                                        Attn: Nicholas McKee
                                        Telephone: (212) 816-8592
                                        Fax: (212) 816-8098

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                        as Syndication Agent and a Lender


                                        By: /s/ Mark D. Weir
                                            ------------------------------------
                                            Name: Mark D. Weir
                                            Title: Director

                                        Address: 301 S. College Street
                                                 Charlotte, NC 28288-0608
                                        Attn: Mark D. Weir
                                        Telephone: (704) 383-6610
                                        Fax: (704) 383-6647

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        BANK ONE, NA, as a Documentation
                                        Agent and a Lender


                                        By: /s/ Jane Bek Keil
                                            ------------------------------------
                                            Name: Jane Bek Keil
                                            Title: Director

                                        Address: JPMorgan Chase Bank
                                                 270 Park Avenue / 4
                                                 New York, NY 10017
                                        Attn: Thomas L. Casey
                                        Telephone: (212) 270-5305
                                        Fax: (212) 270-3089

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        BARCLAYS BANK PLC, as a Documentation
                                        Agent and a Lender


                                        By: /s/ Sydney G. Dennis
                                            ------------------------------------
                                            Name: Sydney G. Dennis
                                            Title: Director

                                        Address: 200 Park Avenue
                                                 New York, New York 10166
                                        Attn: Sydney G. Dennis
                                        Telephone: (212) 412-2470
                                        Fax: (212) 412-2441

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        UNION BANK OF CALIFORNIA, N.A.,
                                        as a Documentation Agent and a Lender


                                        By: /s/ Robert J. Olson
                                            ------------------------------------
                                            Name: Robert J. Olson
                                            Title: Senior Vice President

                                        Address: 445 S. Figueroa St., 15th Floor
                                                 Los Angeles, CA 90071
                                        Attn: Robert J. Olson
                                        Telephone: (213) 236-7407
                                        Fax: (213) 236-4096

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        BNP PARIBAS, as a Lender


                                        By: /s/ Francis J. DeLaney
                                            ------------------------------------
                                            Name: FRANCIS J. DeLANEY
                                            Title: Managing Director


                                        By: /s/ Timothy F. Vincent
                                            ------------------------------------
                                            Name: TIMOTHY F. VINCENT
                                            Title: Director

                                        Address: 787 Seventh Avenue (31st Floor)
                                                 New York, New York 10019
                                        Attn: Mark Renaud
                                        Telephone: (212) 841-2807
                                        Fax: (212) 841-2052

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        DEUTSCHE BANK TRUST COMPANY AMERICAS,
                                        as a Lender


                                        By: /s/ Marcus M. Tarkington
                                            ------------------------------------
                                            Name: Marcus M. Tarkington
                                            Title: Director

                                                 Deutsche Bank
                                        Address: 60 Wall Street
                                                 NYC 60-4301
                                                 New York, NY 10005
                                        Attn: Marcus Tarkington
                                        Telephone: 212 250-6153
                                        Fax: 212 797-5694

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        MERRILL LYNCH BANK USA, as a Lender


                                        By: /s/ Louis Alder
                                            ------------------------------------
                                            Name: Louis Alder
                                            Title: Director

                                        Address: 15 West South Temple, Ste 300
                                                 Salt Lake City, UT 84101
                                        Attn: Frank Stepan
                                        Telephone: (801) 526-8316
                                        Fax: (801) 531-7470

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        FOOTHILL INCOME TRUST II, L.P., as a
                                        Lender
                                        BY FIT II GP, LLC, Its General Partner


                                        By: /s/ Jeff Nikora
                                            ------------------------------------
                                            Name: Jeff Nikora
                                            Title: Managing Member

                                        Address: 2450 Colorado Ave. #3000 West
                                                 Santa Monica, CA 90404
                                        Attn: Dennis Ascher / Elizabeth Eipe
                                        Telephone: (310) 453-7377 / (310)
                                                   453-7387
                                        Fax: (310) 453-7470 / (310) 453-7472

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        KEYBANK NATIONAL ASSOCIATION, as a
                                        Lender


                                        By: /s/ Sherrie I. Manson
                                            ------------------------------------
                                            Name: Sherrie I. Manson
                                            Title: Vice President

                                        Address: 127 Public Square
                                                 Mailcode: OH-01-27-0623
                                                 Cleveland, Ohio  44114
                                        Attn: Sherrie I. Manson
                                        Telephone: (216) 689-3443
                                        Fax: (216) 689-4981

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                                        COMERICA BANK, as a Lender


                                        By: /s/ Blake W. Arnett
                                            ------------------------------------
                                            Name: Blake W. Arnett
                                            Title: Account Officer

                                        Address: 500 Woodward, Mail Code 3268
                                                 Detroit, MI  48224
                                        Attn: Blake W. Arnett
                                        Telephone: (313) 222-7802
                                        Fax: (313) 222-9514

                                Signature Page to
                   Fifth Amended and Restated Credit Agreement

<PAGE>

                               COMMITMENT SCHEDULE

<TABLE>
<CAPTION>
LENDER                                  Commitment
- ------                                 ------------
<S>                                    <C>
CITIBANK, N.A.                         $ 33,500,000
WACHOVIA BANK, NATIONAL ASSOCIATION    $ 33,500,000
BANK ONE, NA                           $ 33,500,000
BARCLAYS BANK PLC                      $ 33,500,000
UNION BANK OF CALIFORNIA, N.A.         $ 33,500,000
BNP PARIBAS                            $ 28,000,000
DEUTSCHE BANK TRUST COMPANY AMERICAS   $ 28,000,000
MERRILL LYNCH BANK USA                 $ 24,000,000
FOOTHILL INCOME TRUST II, L.P.         $ 20,000,000
KEYBANK NATIONAL ASSOCIATION           $ 20,000,000
COMERICA BANK                          $ 12,500,000
                                       ------------
Total Commitments:                     $300,000,000
                                       ============
</TABLE>

<PAGE>

                                   SCHEDULE II

                           Pledged Ownership Interests

<TABLE>
<CAPTION>
GRANTOR                              PLEDGED SUBSIDIARIES
- -------                              --------------------
<S>                                  <C>
CMS Energy Corporation               CMS Enterprises Company (100%)
                                     Consumers Energy Company (100%)

CMS Enterprises Company              CMS Generation Co. (100%)
                                     CMS Gas Transmission Company (100%)
                                     CMS Capital, L.L.C. (100%)
                                     CMS Energy Resource Management Company (100%)
                                     CMS International Ventures, L.L.C. (40.47%)

CMS International Ventures, L.L.C.   CMS Electric & Gas, L.L.C. (100%)

CMS Generation Co.                   CMS International Ventures, L.L.C. (21.02%)
                                     Dearborn Industrial Energy, L.L.C. (100%)
                                     CMS Generation Michigan Power L.L.C. (100%)

Dearborn Industrial Energy, L.L.C.   Dearborn Industrial Generation, L.L.C. (100%)

CMS Gas Transmission Company         CMS International Ventures, L.L.C. (37.01%)
</TABLE>

<PAGE>

                                                                    ATTACHMENT A

                                  REAFFIRMATION

          Each of the undersigned hereby acknowledges receipt of a copy of the
foregoing Fifth Amended and Restated Credit Agreement dated as of August __,
2004 by and among CMS ENERGY CORPORATION (the "COMPANY") and CMS ENTERPRISES
COMPANY ("ENTERPRISES"), the financial institutions from time to time party
thereto (the "LENDERS"), and CITICORP USA, INC., as administrative agent (in
such capacity, the "ADMINISTRATIVE AGENT") for the Lenders and as collateral
agent (in such capacity, the "Collateral Agent") for the Lenders (as amended,
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"). Capitalized terms used in this Reaffirmation and not defined herein
shall have the meanings given to them in the Credit Agreement.

          As used herein, (i) "ENTERPRISES PLEDGE SUPPLEMENT" means the Pledge
Supplement to the Pledge Agreement (as defined below), dated as of November 1,
2002, made by Enterprises, a Michigan corporation, in favor of the Collateral
Agent (as defined therein); (ii) "CMSGTC PLEDGE SUPPLEMENT" means the Pledge
Supplement to the Pledge Agreement (as defined below), dated as of November 1,
2002, made by CMS Gas Transmission Company, a Michigan corporation ("CMSGTC"),
in favor of the Collateral Agent (as defined therein); (iii) "CMSGC PLEDGE
SUPPLEMENT" means the Pledge Supplement to the Pledge Agreement (as defined
below), dated as of November 1, 2002, made by CMS Generation Co., a Michigan
corporation ("CMSGC"), in favor of the Collateral Agent (as defined therein);
(iv) "CMSIV PLEDGE SUPPLEMENT" means the Pledge Supplement to the Pledge
Agreement (as defined below), dated as of December 8, 2003, made by CMS
International Ventures, L.L.C., a Michigan limited liability company ("CMSIV"),
in favor of the Collateral Agent (as defined therein) and (v) "CMSEG PLEDGE
SUPPLEMENT" means the Pledge Supplement to the Pledge Agreement (as defined
below), dated as of December 8, 2003, made by CMS Electric & Gas, L.L.C.
("CMSEG"), a Michigan limited liability company, in favor of the Collateral
Agent (as defined therein).

          Without in any way establishing a course of dealing by any Agent or
any Lender, the Company:

          (a) reaffirms the grant of a security interest pursuant to that
certain Third Amended and Restated Pledge and Security Agreement, dated as of
December 8, 2003, made by the Company in favor of the Collateral Agent (as
defined therein) on behalf of and for the ratable benefit of the Lenders (the
"SECURITY AGREEMENT") and

          (b) hereby grants a security interest to the Collateral Agent, in all
of the Company's right, title and interest, whether now owned or hereinafter
acquired, in the Collateral (as defined in the Security Agreement) to secure the
Secured Obligations (as defined in the Security Agreement).


                                  Attachment A
                                       1

<PAGE>

          Without in any way establishing a course of dealing by any Agent or
any Lender, each of Enterprises and the other entities that are signatories
hereto (other than the Company):

          (a) reaffirms the grant of a security interest pursuant to that
certain Pledge and Security Agreement, dated as of July 12, 2002, made by
Enterprises and each other Grantor (as defined therein) in favor of the
Collateral Agent (as defined therein) on behalf of and for the ratable benefit
of the Lenders (the "PLEDGE AGREEMENT");

          (b) hereby grants a security interest to the Collateral Agent, in all
of such Grantor's right, title and interest, whether no owner or hereinafter
acquired, in the Collateral (as defined in the Pledge Agreement) to secure the
Obligations (as defined in the Pledge Agreement);

          (c) in the case of Enterprises, hereby grants a security interest to
the Collateral Agent, in all of its right, title and interest, whether no owner
or hereinafter acquired, in the collateral described on Schedule I to the
Enterprises Pledge Supplement;

          (d) in the case of CMSGTC, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSGTC
Pledge Supplement;

          (e) in the case of CMSGC, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSGC
Pledge Supplement;

          (f) in the case of CMSIV, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSIV
Pledge Supplement;

          (g) in the case of CMSEG, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSEG
Pledge Supplement;

          (h) in the case of each Guarantor, reaffirms its unconditional
guaranty of the Obligations pursuant to the Guaranty and

          (i) acknowledges and agrees that each such Loan Document executed by
the undersigned in connection with the Credit Agreement remains in full force
and effect and is hereby reaffirmed, ratified and confirmed. All references to
the Credit Agreement contained in the Security Agreement, the Pledge Agreement
and the Guaranty shall be a reference to the Credit Agreement as the same may
from time to time hereafter be amended, modified or restated.


                                  Attachment A
                                        2

<PAGE>

          THIS REAFFIRMATION SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES).

Dated as of August ___ 2004

CMS ENTERPRISES COMPANY                  CMS ENERGY CORPORATION


By:                                      By:
    ----------------------------------       -----------------------------------
Name:                                    Name:
Title:                                   Title:


CMS GAS TRANSMISSION                     CMS ELECTRIC & GAS, L.L.C.
COMPANY                                  (formerly known as CMS Electric and
                                         Gas Company)

By:
    ----------------------------------   By:
Name:                                        -----------------------------------
Title:                                   Name:
                                         Title:


CMS GENERATION CO.                       CMS CAPITAL, L.L.C.


By:                                      By:
    ----------------------------------       -----------------------------------
Name:                                    Name:
Title:                                   Title:


CMS ENERGY RESOURCE                      CMS INTERNATIOANL VENTURES,
MANAGEMENT COMPANY                       L.L.C.


By:                                      By:
    ----------------------------------       -----------------------------------
Name:                                    Name:
Title:                                   Title:


                                  Attachment A
                                        3

<PAGE>

CMS GENERATION MICHIGAN                  DEARBORN INDUSTRIAL ENERGY,
POWER L.L.C.                             L.L.C.


By:                                      By:
    ----------------------------------       -----------------------------------
Name:                                    Name:
Title:                                   Title:


DEARBORN INDUSTRIAL
GENERATION, L.L.C.


By:                                      By:
    ----------------------------------       -----------------------------------
Name:                                    Name:
Title:                                   Title:


                                  Attachment A
                                        4

<PAGE>

AGREED AND ACKNOWLEDGED as of the date first written above.

CITICORP USA, INC., as Collateral
Agent


By:
    ----------------------------------
    Its:


                                  Attachment A
                                        5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(K)
<SEQUENCE>7
<FILENAME>k91832exv4wxky.txt
<DESCRIPTION>REAFFIRMATION OF GRANT OF A SECURITY INTEREST
<TEXT>
<PAGE>
                                                                    Exhibit 4(k)

                                                                  EXECUTION COPY

                                  REAFFIRMATION

          Each of the undersigned hereby acknowledges receipt of a copy of the
foregoing Fifth Amended and Restated Credit Agreement dated as of August 3, 2004
by and among CMS ENERGY CORPORATION (the "COMPANY") and CMS ENTERPRISES COMPANY
("ENTERPRISES"), the financial institutions from time to time party thereto (the
"LENDERS"), and CITICORP USA, INC., as administrative agent (in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders and as collateral agent (in such
capacity, the "Collateral Agent") for the Lenders (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT").
Capitalized terms used in this Reaffirmation and not defined herein shall have
the meanings given to them in the Credit Agreement.

          As used herein, (i) "ENTERPRISES PLEDGE SUPPLEMENT" means the Pledge
Supplement to the Pledge Agreement (as defined below), dated as of November 1,
2002, made by Enterprises, a Michigan corporation, in favor of the Collateral
Agent (as defined therein); (ii) "CMSGTC PLEDGE SUPPLEMENT" means the Pledge
Supplement to the Pledge Agreement (as defined below), dated as of November 1,
2002, made by CMS Gas Transmission Company, a Michigan corporation ("CMSGTC"),
in favor of the Collateral Agent (as defined therein); (iii) "CMSGC PLEDGE
SUPPLEMENT" means the Pledge Supplement to the Pledge Agreement (as defined
below), dated as of November 1, 2002, made by CMS Generation Co., a Michigan
corporation ("CMSGC"), in favor of the Collateral Agent (as defined therein);
(iv) "CMSIV PLEDGE SUPPLEMENT" means the Pledge Supplement to the Pledge
Agreement (as defined below), dated as of December 8, 2003, made by CMS
International Ventures, L.L.C., a Michigan limited liability company ("CMSIV"),
in favor of the Collateral Agent (as defined therein) and (v) "CMSEG PLEDGE
SUPPLEMENT" means the Pledge Supplement to the Pledge Agreement (as defined
below), dated as of December 8, 2003, made by CMS Electric & Gas, L.L.C.
("CMSEG"), a Michigan limited liability company, in favor of the Collateral
Agent (as defined therein).

          Without in any way establishing a course of dealing by any Agent or
any Lender, the Company:

          (a) reaffirms the grant of a security interest pursuant to that
certain Third Amended and Restated Pledge and Security Agreement, dated as of
December 8, 2003, made by the Company in favor of the Collateral Agent (as
defined therein) on behalf of and for the ratable benefit of the Lenders (the
"SECURITY AGREEMENT") and

          (b) hereby grants a security interest to the Collateral Agent, in all
of the Company's right, title and interest, whether now owned or hereinafter
acquired, in the Collateral (as defined in the Security Agreement) to secure the
Secured Obligations (as defined in the Security Agreement).

<PAGE>

          Without in any way establishing a course of dealing by any Agent or
any Lender, each of Enterprises and the other entities that are signatories
hereto (other than the Company):

          (a) reaffirms the grant of a security interest pursuant to that
certain Pledge and Security Agreement, dated as of July 12, 2002, made by
Enterprises and each other Grantor (as defined therein) in favor of the
Collateral Agent (as defined therein) on behalf of and for the ratable benefit
of the Lenders (the "PLEDGE AGREEMENT");

          (b) hereby grants a security interest to the Collateral Agent, in all
of such Grantor's right, title and interest, whether no owner or hereinafter
acquired, in the Collateral (as defined in the Pledge Agreement) to secure the
Obligations (as defined in the Pledge Agreement);

          (c) in the case of Enterprises, hereby grants a security interest to
the Collateral Agent, in all of its right, title and interest, whether no owner
or hereinafter acquired, in the collateral described on Schedule I to the
Enterprises Pledge Supplement;

          (d) in the case of CMSGTC, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSGTC
Pledge Supplement;

          (e) in the case of CMSGC, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSGC
Pledge Supplement;

          (f) in the case of CMSIV, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSIV
Pledge Supplement;

          (g) in the case of CMSEG, hereby grants a security interest to the
Collateral Agent, in all of its right, title and interest, whether no owner or
hereinafter acquired, in the collateral described on Schedule I to the CMSEG
Pledge Supplement;

          (h) in the case of each Guarantor, reaffirms its unconditional
guaranty of the Obligations pursuant to the Guaranty and

          (i) acknowledges and agrees that each such Loan Document executed by
the undersigned in connection with the Credit Agreement remains in full force
and effect and is hereby reaffirmed, ratified and confirmed. All references to
the Credit Agreement contained in the Security Agreement, the Pledge Agreement
and the Guaranty shall be a reference to the Credit Agreement as the same may
from time to time hereafter be amended, modified or restated.


                                       2

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Reaffirmation to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

CMS ENERGY CORPORATION


By: /s/ Laura L. Mountcastle
    -----------------------------------
    Its: Authorized Representative


CMS ENTERPRISES COMPANY                   CMS GENERATION CO.


By: /s/ Laura L. Mountcastle              By: /s/ Laura L. Mountcastle
    -----------------------------------       ----------------------------------
    Its: Authorized Representative            Its: Authorized Representative


CMS GAS TRANSMISSION COMPANY              CMS CAPITAL, L.L.C.


By: /s/ Laura L. Mountcastle              By: /s/ Laura L. Mountcastle
    -----------------------------------       ----------------------------------
    Its: Authorized Representative            Its: Authorized Representative


CMS ELECTRIC & GAS, L.L.C.                CMS INTERNATIONAL
(formerly known as CMS Electric and       VENTURES, L.L.C.
Gas Company)


By: /s/ Laura L. Mountcastle              By: /s/ Laura L. Mountcastle
    -----------------------------------       ----------------------------------
    Its: Authorized Representative            Its: Authorized Representative


CMS ENERGY RESOURCE                       DEARBORN INDUSTRIAL
MANAGEMENT COMPANY                        GENERATION, L.L.C.


By: /s/ Laura L. Mountcastle              By: /s/ Laura L. Mountcastle
    -----------------------------------       ----------------------------------
    Its: Authorized Representative            Its: Authorized Representative


CMS GENERATION MICHIGAN                   DEARBORN INDUSTRIAL
POWER L.L.C.                              ENERGY, L.L.C.


By: /s/ Laura L. Mountcastle              By: /s/ Laura L. Mountcastle
    -----------------------------------       ----------------------------------
    Its: Authorized Representative            Its: Authorized Representative

                    [SIGNATURE PAGE 1 OF 2 TO REAFFIRMATION]

<PAGE>

AGREED AND ACKNOWLEDGED as of the date first written above.

CITICORP USA, INC., as Collateral
Agent


By: /s/ Dale R. Goncher
    -----------------------------------
    Its:

                    [SIGNATURE PAGE 2 OF 2 TO REAFFIRMATION]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(L)
<SEQUENCE>8
<FILENAME>k91832exv4wxly.txt
<DESCRIPTION>ADMINISTRATIVE AGENT AND CASH COLLATERAL AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4(l)

                                                                  EXECUTION COPY

                            CASH COLLATERAL AGREEMENT

     THIS CASH COLLATERAL AGREEMENT, dated as of August 3, 2004 (this
"AGREEMENT"), made by CMS ENERGY CORPORATION, a Michigan corporation (the
"PLEDGOR"), to CITICORP USA, INC. ("CUSA"), as administrative agent (in such
capacity, the "ADMINISTRATIVE AGENT") for the lenders (the "LENDERS") parties to
the Credit Agreement (as hereinafter defined) and as collateral agent (in such
capacity, the "COLLATERAL AGENT") for the Lenders.

                             PRELIMINARY STATEMENTS

          (1) The Administrative Agent, the Collateral Agent and the Lenders
have entered into that certain Fifth Amended and Restated Credit Agreement,
dated as of August 3, 2004 (said Agreement, as it may hereafter be amended or
otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms
defined therein and not otherwise defined herein being used herein as therein
defined), with the Pledgor and CMS Enterprises Company, a Michigan corporation
("ENTERPRISES" and, collectively with the Pledgor, the "BORROWERS").

          (2) Pursuant to Section 5.03(b) of the Credit Agreement, any
prepayments by the Borrowers required by such subsection are to be applied,
first, to outstanding ABR Loans, second, to outstanding Eurodollar Rate Loans,
and, third, as cash collateral, pursuant to this Agreement, to secure LC
Outstandings.

          (3) The cash collateral referenced in preliminary statement (2),
above, shall be deposited by the Administrative Agent in a special
non-interest-bearing cash collateral account (the "ACCOUNT") with the Collateral
Agent at its office at 388 Greenwich Street, New York, New York 10013, Account
No. 30579578 (or at such other office of the Collateral Agent as the Collateral
Agent may, from time to time, notify the Pledgor and the Administrative Agent),
in the name of the Pledgor but under the sole control and dominion of the
Collateral Agent and subject to the terms of this Agreement and 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 Pledgor hereby agrees with the Collateral Agent and the
Administrative Agent, for their benefit and the ratable benefit of the Lenders
and the LC Issuer, as follows:

          SECTION 1. PLEDGE AND ASSIGNMENT. The Pledgor hereby pledges and
assigns to the Collateral Agent, for its benefit and the ratable benefit of the
Administrative Agent, the Lenders and the LC Issuer, and grants to the
Collateral Agent, for its benefit and the ratable benefit of the Administrative
Agent, the Lenders and the LC Issuer, a security interest in, the following
collateral (collectively, the "COLLATERAL"):

          (i) the Account, all funds held therein and all certificates and
     instruments, if any, from time to time representing or evidencing the
     Account;


                                       1

<PAGE>

          (ii) all Investments (as hereinafter defined) from time to time, and
     all certificates and instruments, if any, from time to time representing or
     evidencing the Investments;

          (iii) all notes, certificates of deposit, deposit accounts, checks and
     other instruments from time to time hereafter delivered to or otherwise
     possessed by the Collateral Agent for or on behalf of the Pledgor in
     substitution for or in addition to any or all of the then existing
     Collateral;

          (iv) all interest, dividends, cash, instruments and other property
     from time to time received, receivable or otherwise distributed in respect
     of or in exchange for any or all of the then existing Collateral; and

          (v) all proceeds of any and all of the foregoing Collateral.

          SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all reimbursement obligations of the Borrowers now or hereafter
existing with respect to LC Outstandings and all obligations of the Pledgor now
or hereafter existing under this Agreement (all such obligations of the
Borrowers being the "SECURED OBLIGATIONS"). Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Secured Obligations and which remain outstanding after
the Commitment Termination Date or otherwise would be owed by the Borrowers to
the Administrative Agent, the Collateral Agent or the Lenders under the Credit
Agreement and the Promissory Notes (if any) but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Borrower.

          SECTION 3. DELIVERY OF COLLATERAL. All certificates or instruments, if
any, representing or evidencing the Collateral shall be delivered to and held by
or on behalf of the Collateral Agent pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Collateral Agent. The Collateral Agent shall have the right,
at any time upon the occurrence and during the continuance of an Event of
Default, in its discretion and without notice to the Pledgor, to transfer to or
to register in the name of the Collateral Agent or any of its nominees any or
all of the Collateral. In addition, the Collateral Agent shall have the right at
any time to exchange certificates or instruments representing or evidencing
Collateral for certificates or instruments of smaller or larger denominations.

          SECTION 4. MAINTAINING THE ACCOUNT. So long as any LC Obligation shall
remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall
have any Commitment:

          (a) The Pledgor will maintain the Account with the Collateral Agent.

          (b) It shall be a term and condition of the Account, notwithstanding
     any term or condition to the contrary in any other agreement relating to
     the Account and except as otherwise provided by the provisions of Sections
     6, 13 and 17, that no amount (including interest on the Account, if any)
     shall be paid or released to or for the account of, or


                                       2

<PAGE>

     withdrawn by or for the account of, the Pledgor or any other Person (other
     than the Administrative Agent or the Collateral Agent) from the Account.

          The Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.

          SECTION 5. INVESTING OF AMOUNTS IN THE ACCOUNT. If requested by the
Pledgor, the Collateral Agent will, subject to the provisions of Section 6 and
Section 13, from time to time (a) invest amounts on deposit in the Account in
such Permitted Investments as the Pledgor may select and the Administrative
Agent may approve and (b) invest interest paid on the Permitted Investments
referred to in clause (a) above, and reinvest other proceeds of any such
Permitted Investments which may mature or be sold, in each case in such
Permitted Investments as the Pledgor may select and the Administrative Agent may
approve (the Permitted Investments referred to in clauses (a) and (b) above,
being collectively "INVESTMENTS"). Interest and proceeds that are not invested
or reinvested in Investments as provided above shall be deposited and held in
the Account.

          SECTION 6. RELEASE OF AMOUNTS. So long as no Event of Default or
Default shall have occurred and be continuing, the Collateral Agent will pay and
release to the Pledgor or at its order, upon the request of the Pledgor, (a)
amounts of credit balance of the Account and of principal of any other
Collateral when matured or sold to the extent that (i) the sum of the credit
balance of the Account plus the aggregate outstanding principal amount of all
other Collateral exceeds (ii) the aggregate Dollar Equivalent of the LC
Outstandings in respect of all Letters of Credit and all other amounts owing by
the Pledgor hereunder, (b) all amounts in the Account if (i) the aggregate of
all of the Commitments shall exceed the Total Outstandings, (ii) the aggregate
Dollar Equivalent of the LC Outstandings in respect of all Letters of Credit
denominated in euro and all other amounts owing by the Pledgor hereunder are
less than $40,000,000 and (iii) the aggregate Dollar Equivalent of the LC
Outstandings in respect of all Letters of Credit denominated in Indian Rupees
and all other amounts owing by the Pledgor hereunder are less than $3,000,000
and (c) all interest and earnings on the Investments deposited and held in the
Account.

          SECTION 7. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants as follows:

          (a) The Pledgor is the legal and beneficial owner of the Collateral
     free and clear of any lien, security interest, option or other charge or
     encumbrance except for the security interest created by this Agreement.

          (b) The pledge and assignment of the Collateral pursuant to this
     Agreement creates a valid and perfected first priority security interest in
     the Collateral, securing the payment of the Secured Obligations.

          (c) No consent of any other Person and no authorization, approval, or
     other action by, and no notice to or filing with, any governmental
     authority or regulatory body is required (i) for the pledge and assignment
     by the Pledgor of the Collateral pursuant to


                                       3

<PAGE>

     this Agreement or for the execution, delivery or performance of this
     Agreement by the Pledgor, (ii) for the perfection or maintenance of the
     security interest created hereby (including the first priority nature of
     such security interest) or (iii) for the exercise by the Collateral Agent
     of its rights and remedies hereunder.

          (d) There are no conditions precedent to the effectiveness of this
     Agreement that have not been satisfied or waived.

          (e) The Pledgor has, independently and without reliance upon the
     Administrative Agent, the Collateral Agent or any Lender and based on such
     documents and information as it has deemed appropriate, made its own credit
     analysis and decision to enter into this Agreement.

          SECTION 8. FURTHER ASSURANCES. The Pledgor agrees that at any time and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Collateral Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral.

          SECTION 9. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will
not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of,
or grant any option with respect to, any of the Collateral, or (ii) create or
permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.

          SECTION 10. COLLATERAL AGENT APPOINTED ATTORNEY-IN -FACT. The Pledgor
hereby appoints the Collateral Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time upon the occurrence and during the continuance
of an Event of Default or Default or otherwise to the extent that the Collateral
Agent shall reasonably deem any action to be necessary in order to maintain its
security interest in the Collateral, in the Collateral Agent's discretion, to
take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any interest payment, dividend or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.

          SECTION 11. COLLATERAL AGENT MAY PERFORM. If the Pledgor fails to
perform any agreement contained herein, the Collateral Agent may itself perform,
or cause performance of, such agreement, and the expenses of the Collateral
Agent incurred in connection therewith shall be payable by the Pledgor under
Section 14.

          SECTION 12. THE COLLATERAL AGENT'S DUTIES. The powers conferred on the
Collateral Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Collateral Agent


                                       4

<PAGE>

shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not the Administrative Agent, the
Collateral Agent or any Lender has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Collateral. The Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords its own
property.

          SECTION 13. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing:

          (a) The Collateral Agent may, and shall at the direction of the
     Administrative Agent, without notice to the Pledgor except as required by
     law and at any time or from time to time, charge, set-off and otherwise
     apply all or any part of the Account against the Secured Obligations or any
     part thereof.

          (b) The Collateral Agent may also exercise in respect of the
     Collateral, in addition to other rights and remedies provided for herein or
     otherwise available to it, all the rights and remedies of a secured party
     on default under the Uniform Commercial Code in effect in the State of New
     York at that time (the "CODE") (whether or not the Code applies to the
     affected Collateral), and may also, without notice except as specified
     below, sell the Collateral or any part thereof in one or more parcels at
     public or private sale, at any of the Collateral Agent's offices or
     elsewhere, for cash, on credit or for future delivery, and upon such other
     terms as the Collateral Agent may deem commercially reasonable. The Pledgor
     agrees that, to the extent notice of sale shall be required by law, at
     least ten days' notice to the Pledgor of the time and place of any public
     sale or the time after which any private sale is to be made shall
     constitute reasonable notification. The Collateral Agent shall not be
     obligated to make any sale of Collateral regardless of notice of sale
     having been given. The Collateral Agent may adjourn any public or private
     sale from time to time by announcement at the time and place fixed
     therefor, and such sale may, without further notice, be made at the time
     and place to which it was so adjourned.

          (c) Any cash held by the Collateral Agent as Collateral and all cash
     proceeds received by the Collateral Agent in respect of any sale of,
     collection from, or other realization upon all or any part of the
     Collateral may, in the discretion of the Administrative Agent, be held by
     the Collateral Agent as collateral for, and/or then or at any time
     thereafter be applied (after payment of any amounts payable to the
     Collateral Agent pursuant to Section 14) in whole or in part by the
     Administrative Agent for its benefit and the ratable benefit of the
     Collateral Agent, the Lenders and the LC Issuer against, all or any part of
     the Secured Obligations in such order as the Administrative Agent shall
     elect. Any surplus of such cash or cash proceeds held by the Collateral
     Agent and remaining after payment in full of all the Secured Obligations
     shall be paid over to the Pledgor or to whomsoever may be lawfully entitled
     to receive such surplus.


                                       5

<PAGE>

          SECTION 14. EXPENSES. The Pledgor will upon demand pay to the
Collateral Agent and the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, which the Collateral Agent or the Administrative
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Administrative Agent, the Collateral Agent or the
Lenders hereunder or (iv) the failure by the Pledgor to perform or observe any
of the provisions hereof.

          SECTION 15. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by the Pledgor herefrom shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent and the Collateral Agent and, in the case of any amendment
hereof, the Pledgor, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

          SECTION 16. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be made and delivered in accordance
with Section 11.02 of the Credit Agreement.

          SECTION 17. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT
AGREEMENT. This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the later of (x)
the payment in full of the Secured Obligations and the expiration or termination
of each Letter of Credit and (y) the expiration or termination of the
Commitments under the Credit Agreement, (ii) be binding upon the Pledgor, its
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the Administrative Agent, the Collateral Agent, the Lenders, the LC Issuer
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Loans owing to it and any Promissory Notes held by it) to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, subject, however, to
the provisions of Article X (concerning the Agents) and Section 11.07 of the
Credit Agreement. Upon the later to occur of (x) the payment in full of the
Secured Obligations and the expiration or termination of each Letter of Credit
and (y) the expiration or termination of the Commitments under the Credit
Agreement, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to the Pledgor. Upon any such termination, the
Collateral Agent will, at the Pledgor's expense, return to the Pledgor such of
the Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof and execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.

          SECTION 18. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A


                                       6

<PAGE>

JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms defined in Article 9 of the Code are used
herein as therein defined.

                  [Remainder of page intentionally left blank.]


                                       7

<PAGE>

          IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.

                                        CMS ENERGY CORPORATION


                                        By: /s/ Laura L. Mountcastle
                                            ------------------------------------
                                        Name: Laura L. Mountcastle
                                        Title: Vice President and Treasurer

ACCEPTED AND AGREED:

CITICORP USA, INC., as Administrative
   Agent and as Collateral Agent


By: /s/ Dale R. Goncher
    ---------------------------------
Name: Dale R. Goncher
Title: Director

                                Signature Page to
                           Cash Collateral Agreement
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(F)
<SEQUENCE>9
<FILENAME>k91832exv10wxfy.txt
<DESCRIPTION>ANNUAL OFFICER INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE>
                                                                   EXHIBIT 10(f)



                            ANNUAL OFFICER INCENTIVE
                  COMPENSATION PLAN FOR CMS ENERGY CORPORATION
                              AND ITS SUBSIDIARIES





Effective January 1, 2004
Approved by Committee on February 27, 2004



                                       1
<PAGE>



                            ANNUAL OFFICER INCENTIVE
            COMPENSATION PLAN FOR OFFICERS OF CMS ENERGY CORPORATION
                              AND ITS SUBSIDIARIES


I.       GENERAL PROVISIONS

         1.1      PURPOSE. The purpose of the Annual Officer Incentive
                  Compensation Plan ("Plan") is to:

                  (a)      Provide an equitable and competitive level of
                           compensation that will permit CMS Energy Corporation
                           ("Company") and its subsidiaries to attract, retain
                           and motivate highly competent Officers.

                  (b)      No payments to Officers in the form of incentive
                           compensation shall be made unless pursuant to a plan
                           approved by the Committee and after express approval
                           of the Committee.

         1.2      EFFECTIVE DATE. The initial effective date of the Plan is
                  January 1, 2004. The Plan as described herein, is amended and
                  restated effective January 1, 2004.

         1.3      DEFINITIONS. As used in this Plan, the following terms have
                  the meaning described below:

                  (a)      "Annual Award" means an annual incentive award
                           granted under the Plan.

                  (b)      "Base Salary" means the base salary on January 1 of a
                           Performance Year, except as impacted by a Change in
                           Status as defined in Article V. Deferred merit
                           increases from the Salaried Employees Merit Program
                           for the year 2004 shall be added to Base Salary being
                           paid in cash for the 2004 and 2004 Performance Years.
                           For purposes of the Plan, an Officer's Base Salary
                           must be subject to annual review and annual approval
                           by the Committee. For any Code Section 162(m)
                           Employee, the Base Salary upon which the Annual Award
                           is based will be the amount in effect on January 1 of
                           the Performance Year.

                  (c)      "CMS Energy" means CMS Energy Corporation.

                  (d)      "Code" means the Internal Revenue Code of 1986, as
                           amended.

                  (e)      "Code Section 162(m)" means the "Million Dollar Cap"
                           that may limit an employer's annual tax compensation
                           deduction for certain compensation of covered
                           employees, unless the compensation is based on
                           specific performance goals that are adopted and
                           administered in accordance with requirements set
                           forth in Code Section 162(m) and regulations
                           thereunder.

                  (f)      "Code Section 162(m) Employee" means an employee
                           whose compensation is subject to the "Million Dollar
                           Cap" under Code Section 162(m). Generally, this is
                           the CEO and the four highest paid executive officers
                           of the Company.

                  (g)      "Committee" means the Committee on Organization and
                           Compensation of the Board of Directors of CMS Energy.

                  (h)      "Common Stock" means the common stock of CMS Energy.

                  (i)      "Company" means CMS Energy Corporation.


                                       2
<PAGE>


                  (j)      "Corporate Free Cash Flow" (CFCF) means CMS
                           Consolidated Cash Flow from operating activities,
                           excluding pension contributions and adjusted for GCR
                           Recovery, plus Cash Flow from Investing Activities.

                  (k)      "Disability" means that a participant has terminated
                           employment with the Company or a Subsidiary and is
                           entitled to disability payments under the Pension
                           Plan.

                  (l)      "Earnings Per Share" (EPS) means the amount of
                           ongoing net income per outstanding CMS Energy Share.

                  (m)      "GCR Recovery" means actual/forecast incremental GCR
                           recovery during January and February calculated as
                           actual/forecast GCR cycle billed sales times above
                           budget GCR factor.

                  (n)      "Leave of Absence" for purposes of this Plan means a
                           leave of absence that has been approved by the Plan
                           Administrator.

                  (o)      "Officer" means an employee of the Company or a
                           Subsidiary in Salary Grade "E-3" or higher.

                  (p)      "Outside Directors" means directors of CMS Energy who
                           are not employed by CMS Energy or a Subsidiary and
                           satisfy the requirements of an "Outside Director"
                           under Code Section 162(m).

                  (q)      "Pension Plan" means the Pension Plan for Employees
                           of Consumers Energy and Other CMS Energy Companies.

                  (r)      "Performance Year" means the calendar year prior to
                           the year in which an Annual Award is made by the
                           Committee.

                  (s)      "Plan" means the Annual Officer Incentive
                           Compensation Plan for Officers of CMS Energy
                           Corporation and Its Subsidiaries, as effective
                           January 1, 2004 and any amendments thereto.

                  (t)      "Plan Administrator" means the Chairman and Chief
                           Executive Officer of CMS Energy, under the general
                           direction of the Outside Directors on the Committee.

                  (u)      "Retirement" means that a Plan participant is no
                           longer an active employee and qualifies for a
                           retirement benefit other than a deferred vested
                           retirement benefit under the Pension Plan.

                  (v)      "Subsidiary" means any direct or indirect subsidiary
                           of the Company.

         1.4      ELIGIBILITY. Officers (salary grade E-3 and above) are
                  eligible for participation in the Plan.

         1.5      ADMINISTRATION OF THE PLAN.

                  (a)      The Plan is administered by the Chairman and Chief
                           Executive Officer of CMS Energy under the general
                           direction of the Outside Directors who are members of
                           the Committee.

                  (b)      The Committee, no later than March 30th of the
                           Performance Year, will approve performance goals for
                           the Performance Year.

                  (c)      The Committee, no later than March 30th of the
                           calendar year following the Performance Year, will
                           review for approval proposed Annual Awards for all
                           Officer

                                       3
<PAGE>

                           participants, as recommended by the Chairman and CEO
                           of the Company. All proposed Annual Awards are
                           subject to approval of the Committee. Before the
                           payment of any Annual Awards, the Committee will
                           certify in writing that the performance goals were in
                           fact satisfied in accordance with Code Section
                           162(m).

                  (d)      The Committee reserves the right to modify the
                           performance goals with respect to unforeseeable
                           circumstances or otherwise exercise discretion with
                           respect to proposed Annual Awards as it deems
                           necessary to maintain the spirit and intent of the
                           Plan, provided that such discretion will be to
                           decrease or eliminate, not increase, Annual Awards in
                           the case of any Code Section 162(m) Employees. The
                           Committee also reserves the right in its discretion
                           to not pay Annual Awards for a Performance Year. All
                           discretionary decisions of the Committee are final.

                  (e)      Only Committee members who are Outside Directors
                           shall participate in the Committee actions with
                           respect to Code Section 162(m) Employees


II.      CORPORATE PERFORMANCE GOALS

         2.1      IN GENERAL. The composite Plan Performance Factor will depend
                  on corporate performance in two areas: (1) the ongoing net
                  income per outstanding CMS Energy share (EPS); and (2) the
                  Corporate Free Cash Flow of CMS Energy (CFCF). There will be
                  no payout under the Plan unless a composite Plan Performance
                  Factor of at least 75% is achieved. Each Component as well as
                  the composite Plan Performance Factor to be used for payouts
                  will be capped at a maximum of 200%. A table containing the
                  composite Plan Performance Factors shall be created by the
                  Committee for each Performance Year. The table for Performance
                  Year 2004 is set forth below.

                  (a)      EPS COMPONENT. EPS performance shall constitute 40%
                           of the composite Plan Performance Factor. The 100%
                           EPS goal for the 2004 performance year is $.85 per
                           share, and the EPS component shall increase or
                           decrease by 25% for each $.05 per share change in
                           performance. (Mathematical extrapolation shall be
                           used for actual results not shown in the table.)
                           There will be no payout under the plan unless at
                           least $.80 per share is achieved (regardless of CFCF
                           performance).

                  (b)      CFCF COMPONENT. CFCF performance shall constitute 60%
                           of composite Plan Performance Factor. The 100% CFCF
                           goal for the 2004 performance year is $ (100)
                           million, and the CFCF component shall increase or
                           decrease by 25% for each $50 million change in
                           performance. (Mathematical extrapolation shall be
                           used for actual results not shown in the table.)


                                       4
<PAGE>


             COMPOSITE PERFORMANCE FACTORS FOR 2004 PERFORMANCE YEAR

<Table>
<Caption>
                CFCF COMPONENT
                  (MILLIONS)          $ (150)    $ (100)      $ (50)       $ 0         $50         $100
           ------------------------   -------    -------      ------       -----      ------      ------
           <S>                         <C>        <C>          <C>          <C>        <C>         <C>
           EPS COMPONENT
           ------------------------   -------    -------      ------       -----      ------      ------
             $ .80
                                        75%         90%         105%        120%        135%        150%
             $ .85
                                        85%        100%         115%        130%        145%        160%
             $ .90
                                        95%        110%         125%        140%        155%        170%
             $ .95
                                       105%        120%         135%        150%        165%        180%
             $1.00
                                       115%        130%         145%        160%        175%        190%
             $1.05
                                       125%        140%         155%        170%        185%        200%
</Table>

         Notes: Mathematical extrapolation shall be used for actual results not
         shown in the table.
         Target Award is Bolded 100% and Maximum Award is Bolded 200%

III.     ANNUAL AWARD FORMULA

         3.1      OFFICERS' ANNUAL AWARDS. Annual Awards for each eligible
                  Officer will be based upon a standard award percentage of the
                  Officer's Base Salary as in effect on January 1 of the
                  Performance Year. The standard award percentages are set forth
                  in the table below. The maximum amount that can be awarded
                  under this Plan for any Code Section 162(m) Employee will not
                  exceed $2.5 Million in any one Performance Year. The total
                  amount of an Officer's Annual Award shall be computed
                  according to the annual award formula set forth in Section
                  3.2.

<TABLE>
<CAPTION>
                                                       SALARY       STANDARD AWARD AS A % OF
                               POSITION                 GRADE             BASE  SALARY
                               --------                 -----       ------------------------
                  <S>                                   <C>         <C>
                  Chairman & CEO                         E-9                   65%
                  President & COO/Vice Chairman          E-8                   60%
                  Executive Vice President               E-7                   55%
                  President, Subsidiary - Sr. VP         E-6                   50%
                  Senior Vice President                  E-5                   45%
                  Vice President                         E-4                   40%
                  Vice President                         E-3                   35%
</TABLE>

         3.2      Annual Awards for Officers will be calculated and made as
                  follows:

                      INDIVIDUAL AWARD = BASE SALARY TIMES
                   STANDARD AWARD % TIMES PERFORMANCE FACTOR %

IV.      PAYMENT OF ANNUAL AWARDS

         4.1      CASH ANNUAL AWARD. All Annual Awards for a Performance Year
                  will be paid in cash no later than March 31st of the calendar
                  year following the Performance Year provided that they first
                  have been reviewed and approved by the Committee, and provided
                  further that the Annual Award for a particular Performance
                  Year has not been deferred voluntarily pursuant to Section
                  4.2. The amounts required by law to be withheld for income and
                  employment taxes will be deducted from the Annual Award
                  payments. All Annual Awards become the


                                       5
<PAGE>

                  obligation of the company on whose payroll the Officer is
                  enrolled at the time the Committee makes the Annual Award. .

         4.2      VOLUNTARY DEFERRED ANNUAL AWARDS.

                  (a)      The payment of all or one-half of a cash Annual Award
                           may be deferred voluntarily at the election of an
                           individual Plan participant. A separate irrevocable
                           election must be made in the calendar year prior to
                           the beginning of the Performance Year. Any Annual
                           Award made by the Committee after termination of
                           employment of an Officer or retirement of an Officer
                           is not eligible for a voluntary deferral and will be
                           paid in full in cash in the year in which the Annual
                           Award is made.

                  (b)      A Voluntary Deferred Annual Award may be paid out in
                           a lump sum or in five or ten annual installments
                           beginning in the first January of the calendar year
                           following retirement or termination of employment. If
                           an Annual Award is paid in annual installments, each
                           year the payment will be a fraction of the balance
                           equal to one over the number of annual installments
                           remaining. In the event of the participant's death,
                           all deferred amounts will be paid in total in January
                           of the calendar year following the year of death.

                  (c)      At the time of electing to voluntarily defer payment,
                           the participant must elect whether the sum deferred
                           will be treated by the Company or Subsidiary, as
                           applicable, in accordance with Paragraph I or
                           Paragraph II below.

                           i.       A Voluntary Deferred Annual Award will be
                                    credited with sums in lieu of interest from
                                    the first day of the month following the
                                    month in which the Annual Award is
                                    determined to the date of payment. The
                                    interest accrual rate will be equivalent to
                                    the U.S. prime rate of interest as reported
                                    in The Wall Street Journal, compounded
                                    quarterly as of the first business day of
                                    January, April, July and October of each
                                    year during the deferral period. The prime
                                    rate in effect on the first business day of
                                    January, April, July and October will be the
                                    prime rate (described above) in effect for
                                    that quarterly period.

                           ii.      A Voluntary Deferred Annual Award will be
                                    treated as if it were invested as an
                                    optional cash payment under the CMS Energy
                                    Stock Purchase Plan including the
                                    accumulation of any dividends. The value of
                                    the deferred sum at the time of payment will
                                    be equal to the number of dollars such an
                                    investment would have been worth as measured
                                    by the purchase price of shares of Common
                                    Stock using the average closing price, as
                                    reported in The Wall Street Journal (NYSE -
                                    composite transactions) for the first five
                                    trading days in the December previous to a
                                    January payout.

                           The amount of any Voluntary Deferred Annual Award is
                           to be satisfied from the general corporate funds of
                           the company on whose payroll the Officer was enrolled
                           prior to the payout beginning and are subject to the
                           claims of general creditors of that company.

         4.3      PAYMENT IN THE EVENT OF DEATH.

                  (a)      A participant may name the beneficiary of his or her
                           choice on a beneficiary form provided by the Company,
                           and the beneficiary shall receive payment in the
                           event that the Participant dies prior to receipt of
                           either a cash Annual Award, a Mandatory Deferred
                           Annual Award or a Voluntary Deferred Annual Award. If
                           a beneficiary is not named, the payment will be made
                           to the first surviving class as follows:

                            1. Widow or Widower
                            2. Children, per capita
                            3. Parents, per capita


                                       6
<PAGE>

                            4. Brothers and Sisters, per capita
                            5. Estate of the Deceased

                  (b)      A participant may change beneficiaries at any time,
                           and the change will be effective as of the date the
                           participant completes and signs the beneficiary form,
                           whether or not the participant is living at the time
                           the request is received by the Company. However, the
                           Company or the applicable Subsidiary will not be
                           liable for any payments made before receipt of a
                           written request.

V.       CHANGE OF STATUS

         Payments in the event of a change in status will not apply if no awards
         are made for the performance year.

         5.1      PRO-RATA ANNUAL AWARDS. A new Officer, whether hired or
                  promoted to the position, or an Officer promoted to a higher
                  salary grade during the Performance Year will receive a pro
                  rata Annual Award based on the percentage of the Performance
                  Year in which the employee is in a particular salary grade. An
                  Officer whose salary grade has been lowered, but whose
                  employment is not terminated, during the Performance Year will
                  receive a pro rata Annual Award based on the percentage of the
                  Performance Year in which the employee is in a particular
                  salary grade.

         5.2      TERMINATION. An Officer whose employment is terminated
                  pursuant to a violation of the Company code of conduct or
                  other corporate policies will not be considered for an Annual
                  Award.

         5.3      RESIGNATION. An Officer who resigns during or after a
                  Performance Year will not be eligible for an Annual Award. If
                  the resignation is due to reasons such as a downsizing or
                  reorganization, or the ill health of the Officer or ill health
                  in the immediate family, the Officer may petition the
                  Committee and may be considered, in the discretion of the
                  Committee, for a pro rata Annual Award. The Committee's
                  decision to approve or deny the request for a pro rata Annual
                  Award shall be final.

         5.4      DEATH, DISABILITY, RETIREMENT, LEAVE OF ABSENCE. An Officer
                  whose status as an active employee is changed during the
                  Performance Year due to death, Disability, Retirement, or
                  Leave of Absence will receive a pro rata Annual Award.


VI.      MISCELLANEOUS

         6.1      IMPACT ON BENEFIT PLANS. Payments made under the Plan will be
                  considered as earnings for the Supplemental Executive
                  Retirement Plan (Salary Grades E-3 through E-9) but not for
                  purposes of the Employees' Savings Plan, Pension Plan, or
                  other employee benefit programs.

         6.2      IMPACT ON EMPLOYMENT. Neither the adoption of the Plan nor the
                  granting of any Annual Award under the Plan will be deemed to
                  create any right in any individual to be retained or continued
                  in the employment of the Company or any corporation within the
                  Company's control group.

         6.3      TERMINATION OR AMENDMENT OF THE PLAN. The Company at any time
                  may, in writing, terminate or amend the Plan.

         6.4      GOVERNING LAW. The Plan will be governed and construed in
                  accordance with the laws of the State of Michigan.


                                       7
<PAGE>

         6.5      DISPUTE RESOLUTION. Any disputes related to the Plan should
                  first be brought to the Plan Administrator. If that does not
                  result in a mutually agreeable resolution, then the dispute
                  shall be subject to final and binding arbitration before a
                  single arbitrator selected by the parties to be conducted in
                  Jackson, Michigan. The arbitration will be conducted and
                  finished within 90 days of the selection of the arbitrator.
                  The parties shall share equally the cost of the arbitrator and
                  of conducting the arbitration proceeding, but each party shall
                  bear the cost of its own legal counsel and experts and other
                  out-of-pocket expenditures.


                                       8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(W)
<SEQUENCE>10
<FILENAME>k91832exv10wxwy.txt
<DESCRIPTION>ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN FOR CMS ENERGY
<TEXT>
<PAGE>
                                                                   EXHIBIT 10(W)



                           ANNUAL MANAGEMENT INCENTIVE
                  COMPENSATION PLAN FOR CMS ENERGY CORPORATION
                              AND ITS SUBSIDIARIES





Effective January 1, 2004
Approved by Committee on February 27, 2004



                                       1
<PAGE>


                           ANNUAL MANAGEMENT INCENTIVE
              COMPENSATION PLAN FOR CMS ENERGY CORPORATION AND ITS
                                  SUBSIDIARIES



I.       GENERAL PROVISIONS

         1.1      PURPOSE. The purpose of the Annual Management Incentive
                  Compensation Plan ("MIC Plan") is to:


                  (a)      Provide an equitable and competitive level of
                           compensation that will permit CMS Energy Corporation
                           ("Company") and its subsidiaries to attract, retain
                           and motivate certain highly competent Management and
                           Professional Employees.

                  (b)      No payments to Management and Professional Employees
                           in the form of incentive compensation shall be made
                           unless pursuant to a plan approved by the Committee
                           and after express approval of the Committee.

         1.2      EFFECTIVE DATE. The initial effective date of the Plan is
                  January 1, 2004. The Plan as described herein, is amended and
                  restated effective January 1, 2004.

         1.3      DEFINITIONS. As used in this MIC Plan, the following terms
                  have the meaning described below:

                  (a)      "Annual Award" means an annual incentive award
                           granted under the MIC Plan.

                  (b)      "CMS Energy" means CMS Energy Corporation.

                  (c)      "Committee" means the Committee on Organization and
                           Compensation of the Board of Directors of CMS Energy.

                  (d)      "Common Stock" means the common stock of CMS Energy.

                  (e)      "Company" means CMS Energy Corporation.

                  (f)      "Corporate Free Cash Flow" (CFCF) means CMS
                           Consolidated Cash Flow from operating activities,
                           excluding pension contributions and adjusted for GCR
                           Recovery, plus Cash Flow from Investing Activities.

                  (g)      "Disability" means that a participant has terminated
                           employment with the Company or a Subsidiary and is
                           entitled to disability payments under the Pension
                           Plan.

                  (h)      "Earnings Per Share" (EPS) means the amount of
                           ongoing net income per outstanding CMS Energy Share.

                  (i)      "GCR Recovery" means actual/forecast incremental GCR
                           recovery during January and February calculated as
                           actual/forecast GCR cycle billed sales times above
                           budget GCR factor.

                  (j)      "Leave of Absence" for purposes of this MIC Plan
                           means a leave of absence that has been approved by
                           the Plan Administrator.


                                       2
<PAGE>

                  (k)      "Management and Professional Employee" means an
                           employee of the Company or a Subsidiary in the salary
                           grades specified in the table contained in Article
                           III of the MIC Plan.

                  (l)      "MIC Plan" means the Annual Management Incentive
                           Compensation Plan for CMS Energy Corporation and Its
                           Subsidiaries, as effective January 1, 2004 and any
                           amendments thereto.

                  (m)      "Outside Directors" means directors of CMS Energy who
                           are not employed by CMS Energy or a Subsidiary and
                           satisfy the requirements of an "Outside Director"
                           under Code Section 162(m).

                  (n)      "Pension Plan" means the Pension Plan for Employees
                           of Consumers Energy and Other CMS Energy Companies.

                  (o)      "Performance Year" means the calendar year prior to
                           the year in which an Annual Award is made by the
                           Committee.

                  (p)      "Plan Administrator" means the Sr. Vice President -
                           Human Resources of CMS Energy, under the general
                           direction of the Outside Directors on the Committee.

                  (q)      "Retirement" means that an MIC Plan participant is no
                           longer an active employee and qualifies for a
                           retirement benefit other than a deferred vested
                           retirement benefit under the Pension Plan.

                  (r)      "Subsidiary" means any direct or indirect subsidiary
                           of the Company.

         1.4      ELIGIBILITY. Certain Management and Professional Employees are
                  eligible for participation in the MIC Plan.


         1.5      ADMINISTRATION OF THE PLAN.

                  (a)      The MIC Plan is administered by the Sr. Vice
                           President - Human Resources of CMS Energy under the
                           general direction of the Outside Directors who are
                           members of the Committee.

                  (b)      The Committee, no later than March 30th of the
                           Performance Year, will approve performance goals for
                           the Performance Year.

                  (c)      The Committee, no later than March 30th of the
                           calendar year following the Performance Year, will
                           review for approval proposed Annual Awards for all
                           MIC Plan participants, as recommended by the Chairman
                           and CEO of the Company. All proposed Annual Awards
                           are subject to approval of the Committee. Before the
                           payment of any Annual Awards, the Committee will
                           certify in writing that the performance goals were in
                           fact satisfied in accordance with Code Section
                           162(m).

                  (d)      The Committee reserves the right to modify the
                           performance goals with respect to unforeseeable
                           circumstances or otherwise exercise discretion with
                           respect to proposed Annual Awards as it deems
                           necessary to maintain the spirit and intent of the
                           MIC Plan. The Committee also reserves the right in
                           its discretion to not pay Annual Awards for a
                           Performance Year. All discretionary decisions of the
                           Committee are final.

                                       3
<PAGE>


II.      CORPORATE PERFORMANCE GOALS

         2.1      IN GENERAL. The composite Plan Performance Factor will depend
                  on corporate performance in two areas: (1) the ongoing net
                  income per outstanding CMS Energy share (EPS); and (2) the
                  Corporate Free Cash Flow of CMS Energy (CFCF). There will be
                  no payout under the Plan unless a composite Plan Performance
                  Factor of at least 75% is achieved. Each Component as well as
                  the composite Plan Performance Factor to be used for payouts
                  will be capped at a maximum of 200%. A table containing the
                  composite Plan Performance Factors shall be created by the
                  Committee for each Performance Year. The table for Performance
                  Year 2004 is set forth below.

                  (a)      EPS COMPONENT. EPS performance shall constitute 40%
                           of the composite Plan Performance Factor. The 100%
                           EPS goal for the 2004 performance year is $.85 per
                           share, and the EPS component shall increase or
                           decrease by 25% for each $.05 per share change in
                           performance. (Mathematical extrapolation shall be
                           used for actual results not shown in the table.)
                           There will be no payout under the plan unless at
                           least $.80 per share is achieved (regardless of CFCF
                           performance).

                  (b)      CFCF COMPONENT. CFCF performance shall constitute 60%
                           of composite Plan Performance Factor. The 100% CFCF
                           goal for the 2004 performance year is $ (100)
                           million, and the CFCF component shall increase or
                           decrease by 25% for each $50 million change in
                           performance. (Mathematical extrapolation shall be
                           used for actual results not shown in the table.)


             COMPOSITE PERFORMANCE FACTORS FOR 2004 PERFORMANCE YEAR

<Table>
<Caption>
              CFCF
           COMPONENT
           (MILLIONS)               $(150)       $(100)       $(50)         $ 0         $50         $100
           ----------               ------       ------       ------       -----        -----      ------
              EPS
           COMPONENT
           ----------               ------       ------       ------       -----        -----      ------
           <S>                      <C>          <C>          <C>          <C>          <C>        <C>

            $ .80                     75%          90%         105%        120%          135%        150%

            $ .85                     85%         100%         115%        130%          145%        160%

            $ .90                     95%         110%         125%        140%          155%        170%

            $ .95                    105%         120%         135%        150%          165%        180%

            $1.00                    115%         130%         145%        160%          175%        190%

            $1.05                    125%         140%         155%        170%          185%        200%
</Table>

         Notes: Mathematical extrapolation shall be used for actual results not
         shown in the table.
         Target Award is Bolded 100% and Maximum Award is Bolded 200%



                                       4
<PAGE>

III.     ANNUAL AWARD FORMULA

         3.1      ANNUAL AWARDS. Annual Awards for each eligible MIC Plan
                  participant will be based upon a standard award as set forth
                  in the table below. The total amount of an MIC participant
                  Annual Award shall be computed according to the annual award
                  formula set forth in Section 3.2.

<TABLE>
<CAPTION>

                                                                SALARY
                                  POSITION                      GRADE            STANDARD AWARD AMOUNT
                                  --------                      -----            ---------------------
                       <S>                                      <C>              <C>
                       Senior Mangers/Directors                 E-2                    $48,700
                       Senior Managers/Directors                E-1/F                  $36,500
                       Managers/Directors                       13                     $29,200
                       Managers/Directors                       12/E                   $21,900
                       Managers/Directors & Equivalent          11                     $16,400
                       Managers/Directors & Equivalent          D                      $12,300
</TABLE>

         3.2      Annual Awards for MIC participants will be calculated and made
                  as follows:

       INDIVIDUAL AWARD = STANDARD AWARD AMOUNT TIMES PERFORMANCE FACTOR %

IV.      PAYMENT OF ANNUAL AWARDS

         4.1      CASH ANNUAL AWARD. All Annual Awards for a Performance Year
                  will be paid in cash no later than March 31st of the calendar
                  year following the Performance Year provided that they first
                  have been reviewed and approved by the Committee, and provided
                  further that the Annual Award for a particular Performance
                  Year has not been deferred voluntarily pursuant to Section
                  4.3. The amounts required by law to be withheld for income and
                  employment taxes will be deducted from the Annual Award
                  payments. All Annual Awards become the obligation of the
                  company on whose payroll the Employee is enrolled at the time
                  the Committee makes the Annual Award.

         4.2      VOLUNTARY DEFERRED ANNUAL AWARD

                  (a)      The payment of all or one-half of a cash Annual Award
                           may be deferred voluntarily at the election of an
                           individual MIC Plan participant. A separate
                           irrevocable election must be made in the calendar
                           year prior to the beginning of the Performance Year.
                           Any Annual Award made by the Committee after
                           termination of employment of a participant or
                           retirement of a participant is not eligible for a
                           voluntary deferral and will be paid in full in cash
                           in the year in which the Annual Award is made.

                  (b)      A Voluntary Deferred Annual Award may be paid out in
                           a lump sum or in five or ten annual installments
                           beginning in the first January of the calendar year
                           following retirement or termination of employment. If
                           an Annual Award is paid in annual installments, each
                           year the payment will be a fraction of the balance
                           equal to one over the number of annual installments
                           remaining. In the event of the participant's death,
                           all deferred amounts will be paid in total in January
                           of the calendar year following the year of death.

                  (c)      At the time of electing to voluntarily defer payment,
                           the participant must elect whether the sum deferred
                           will be treated by the Company or Subsidiary, as
                           applicable, in accordance with Paragraph I or
                           Paragraph II below.

                           i.       A Voluntary Deferred Annual Award will be
                                    credited with sums in lieu of interest from
                                    the first day of the month following the
                                    month in which the Annual Award is
                                    determined to the date of payment. The
                                    interest accrual rate will be equivalent to
                                    the prime rate of interest as reported in
                                    The Wall Street Journal, compounded

                                       5
<PAGE>

                                    quarterly as of the first business day of
                                    January, April, July and October of each
                                    year during the deferral period. The prime
                                    rate in effect on the first business day of
                                    January, April, July and October will be the
                                    prime rate (described above) in effect for
                                    that quarterly period.

                           ii.      A Voluntary Deferred Annual Award will be
                                    treated as if it were invested as an
                                    optional cash payment under the CMS Energy
                                    Stock Purchase Plan including the
                                    accumulation of any dividends. The value of
                                    the deferred sum at the time of payment will
                                    be equal to the number of dollars such an
                                    investment would have been worth as measured
                                    by the purchase price of shares of Common
                                    Stock using the average closing price, as
                                    reported in The Wall Street Journal (NYSE -
                                    composite transactions) for the first five
                                    trading days in the December previous to a
                                    January payout.

                           The amount of any Voluntary Deferred Annual Award is
                           to be satisfied from the general corporate funds of
                           the company on whose payroll the MIC Plan participant
                           was enrolled prior to the payout beginning and are
                           subject to the claims of general creditors of that
                           company.

         4.3      PAYMENT IN THE EVENT OF DEATH.

                  (a)      A participant may name the beneficiary of his or her
                           choice on a beneficiary form provided by the Company,
                           and the beneficiary shall receive payment in the
                           event that the Participant dies prior to receipt of
                           either a cash Annual Award, or a Voluntary Deferred
                           Annual Award. If a beneficiary is not named, the
                           payment will be made to the first surviving class as
                           follows:

                            1. Widow or Widower
                            2. Children, per capita
                            3. Parents, per capita
                            4. Brothers and Sisters, per capita
                            5. Estate of the Deceased

                  (b)      A participant may change beneficiaries at any time,
                           and the change will be effective as of the date the
                           participant completes and signs the beneficiary form,
                           whether or not the participant is living at the time
                           the request is received by the Company. However, the
                           Company or the applicable Subsidiary will not be
                           liable for any payments made before receipt of a
                           written request.

V.       CHANGE OF STATUS

         Payments in the event of a change in status will not apply if no awards
         are made for the performance year.

         5.1      PRO-RATA ANNUAL AWARDS. A new MIC participant, whether hired
                  or promoted to the position, or an MIC employee promoted to a
                  higher salary grade during the Performance Year will receive a
                  pro rata Annual Award based on the percentage of the
                  Performance Year in which the employee is in a particular
                  salary grade. An MIC participant whose salary grade has been
                  lowered, but whose employment is not terminated during the
                  Performance Year will receive a pro rata Annual Award based on
                  the percentage of the Performance Year in which the employee
                  is in a particular salary grade.


                                       6
<PAGE>

         5.2      TERMINATION. An MIC participant whose employment is terminated
                  pursuant to a violation of the Company code of conduct or
                  other corporate policies will not be considered for an Annual
                  Award.

         5.3      RESIGNATION. An MIC participant who resigns during or after a
                  Performance Year will not be eligible for an Annual Award. If
                  the resignation is due to reasons such as a downsizing or
                  reorganization, or the ill health of the employee or ill
                  health in the immediate family, the employee may petition the
                  Committee and may be considered, in the discretion of the
                  Committee, for a pro rata Annual Award. The Committee's
                  decision to approve or deny the request for a pro rata Annual
                  Award shall be final.

         5.4      DEATH, DISABILITY, RETIREMENT, LEAVE OF ABSENCE. An MIC
                  participant whose status as an active employee is changed
                  during the Performance Year due to death, Disability,
                  Retirement, or Leave of Absence will receive a pro rata Annual
                  Award.

VI.      MISCELLANEOUS

         6.1      IMPACT ON BENEFIT PLANS. Payments made under the Plan will be
                  considered as earnings for the Supplemental Executive
                  Retirement Plan (Salary Grades E-1, E-2 and F) but not for
                  purposes of the Employees' Savings Plan, Pension Plan, or
                  other employee benefit programs.

         6.2      IMPACT ON EMPLOYMENT. Neither the adoption of the Plan nor the
                  granting of any Annual Award under the Plan will be deemed to
                  create any right in any individual to be retained or continued
                  in the employment of the Company or any corporation within the
                  Company's control group.

         6.3      TERMINATION OR AMENDMENT OF THE PLAN. The Company at any time
                  may, in writing, terminate or amend the Plan.

         6.4      GOVERNING LAW. The Plan will be governed and construed in
                  accordance with the laws of the State of Michigan.

         6.5      DISPUTE RESOLUTION. Any disputes related to the Plan should
                  first be brought to the Plan Administrator. If that does not
                  result in a mutually agreeable resolution, then the dispute
                  shall be subject to final and binding arbitration before a
                  single arbitrator selected by the parties to be conducted in
                  Jackson, Michigan. The arbitration will be conducted and
                  finished within 90 days of the selection of the arbitrator.
                  The parties shall share equally the cost of the arbitrator and
                  of conducting the arbitration proceeding, but each party shall
                  bear the cost of its own legal counsel and experts and other
                  out-of-pocket expenditures.


                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(X)
<SEQUENCE>11
<FILENAME>k91832exv10wxxy.txt
<DESCRIPTION>ANNUAL EMPLOYEE INCENTIVE COMPENSATION PLAN FOR CMS ENERGY CORP.
<TEXT>
<PAGE>
                                                                   EXHIBIT 10(X)



                            ANNUAL EMPLOYEE INCENTIVE
                  COMPENSATION PLAN FOR CMS ENERGY CORPORATION
                              AND ITS SUBSIDIARIES





Effective January 1, 2004
Approved by Committee on February 27, 2004



                                       1
<PAGE>



                            ANNUAL EMPLOYEE INCENTIVE
              COMPENSATION PLAN FOR CMS ENERGY CORPORATION AND ITS
                                  SUBSIDIARIES



I.       GENERAL PROVISIONS

         1.1      PURPOSE. The purpose of the Annual Employee Incentive
                  Compensation Plan ("EIC Plan") is to:


                  (a)      Provide an equitable and competitive level of
                           compensation that will permit CMS Energy Corporation
                           ("Company") and its subsidiaries to attract, retain
                           and motivate their Employees.

                  (b)      No payments to Employees in the form of incentive
                           compensation shall be made unless pursuant to a plan
                           approved by the Committee and after express approval
                           of the Committee.

         1.2      EFFECTIVE DATE. The initial effective date of the Plan is
                  January 1, 2004. The Plan as described herein, is amended and
                  restated effective January 1, 2004.

         1.3      DEFINITIONS. As used in this EIC Plan, the following terms
                  have the meaning described below:

                  (a)      "Annual Award" means an annual incentive award
                           granted under the EIC Plan.

                  (b)      "CMS Energy" means CMS Energy Corporation.

                  (c)      "Committee" means the Committee on Organization and
                           Compensation of the Board of Directors of CMS Energy.

                  (d)      "Common Stock" means the common stock of CMS Energy.

                  (e)      "Company" means CMS Energy Corporation.

                  (f)      "Corporate Free Cash Flow" (CFCF) means CMS
                           Consolidated Cash Flow from operating activities,
                           excluding pension contributions and adjusted for GCR
                           Recovery, plus Cash Flow from Investing Activities.

                  (g)      "Disability" means that a participant has terminated
                           employment with the Company or a Subsidiary and is
                           entitled to disability payments under the Pension
                           Plan.

                  (h)      "Earnings Per Share" (EPS) means the amount of
                           ongoing net income per outstanding CMS Energy Share.

                  (i)      "EIC Plan" means the Annual Employee Incentive
                           Compensation Plan for CMS Energy Corporation and Its
                           Subsidiaries, as effective January 1, 2004 and any
                           amendments thereto.


                                       2
<PAGE>

                  (j)      "Employee" means a regular fulltime or part time
                           employee of the Company or a Subsidiary in the salary
                           grades specified in the table contained in Article
                           III of the EIC Plan.

                  (k)      "GCR Recovery" means actual/forecast incremental GCR
                           recovery during January and February, calculated as
                           actual/forecast GCR cycle billed sales times above
                           budget GCR factor.

                  (l)      "Leave of Absence" for purposes of this EIC Plan
                           means a leave of absence that has been approved by
                           the Company or a Subsidiary.

                  (m)      "Outside Directors" means directors of CMS Energy who
                           are not employed by CMS Energy or a Subsidiary and
                           satisfy the requirements of an "Outside Director"
                           under Code Section 162(m).

                  (n)      "Pension Plan" means the Pension Plan for Employees
                           of Consumers Energy and Other CMS Energy Companies.

                  (o)      "Performance Year" means the calendar year prior to
                           the year in which an Annual Award is made by the
                           Committee.

                  (p)      "Plan Administrator" means the Sr. Vice President -
                           Human Resources of CMS Energy, under the general
                           direction of the Outside Directors on the Committee.

                  (q)      "Retirement" means that an EIC Plan participant is no
                           longer an active employee and qualifies for a
                           retirement benefit other than a deferred vested
                           retirement benefit under the Pension Plan.

                  (r)      "Subsidiary" means any direct or indirect subsidiary
                           of the Company.

         1.4      ELIGIBILITY. Regular non-union U.S. employees who do not
                  participate in a broad based incentive plan contingent upon
                  objectives and performance unique to the employees'
                  subsidiary, affiliate, site and/or business unit, are eligible
                  for participation in the EIC Plan.


         1.5      ADMINISTRATION OF THE PLAN.

                  (a)      The EIC Plan is administered by the Sr. Vice
                           President - Human Resources of CMS Energy under the
                           general direction of the Outside Directors who are
                           members of the Committee.

                  (b)      The Committee, no later than March 31st of the
                           Performance Year, will approve performance goals for
                           the Performance Year.

                  (c)      The Committee, no later than March 31st of the
                           calendar year following the Performance Year, will
                           review for approval proposed Annual Awards for all
                           EIC Plan participants, as recommended by the Chairman
                           and CEO of the Company. All proposed Annual Awards
                           are subject to approval of the Committee. Before the
                           payment of any Annual Awards, the Committee will
                           certify in writing that the performance goals were in
                           fact satisfied in accordance with Code Section
                           162(m).

                  (d)      The Committee reserves the right to modify the
                           performance goals with respect to unforeseeable
                           circumstances or otherwise exercise discretion with
                           respect to proposed

                                       3
<PAGE>

                           Annual Awards as it deems necessary to maintain the
                           spirit and intent of the EIC Plan. The Committee also
                           reserves the right in its discretion to not pay
                           Annual Awards for a Performance Year. All
                           discretionary decisions of the Committee are final.

II.      CORPORATE PERFORMANCE GOALS

         2.1      IN GENERAL. The composite Plan Performance Factor will depend
                  on corporate performance in two areas: (1) the ongoing net
                  income per outstanding CMS Energy share (EPS); and (2) the
                  Corporate Free Cash Flow of CMS Energy (CFCF). There will be
                  no payout under the Plan unless a composite Plan Performance
                  Factor of at least 75% is achieved. Each Component as well as
                  the composite Plan Performance Factor to be used for payouts
                  will be capped at a maximum of 200%. A table containing the
                  composite Plan Performance Factors shall be created by the
                  Committee for each Performance Year. The table for Performance
                  Year 2004 is set forth below.

                  (a)      EPS COMPONENT. EPS performance shall constitute 40%
                           of the composite Plan Performance Factor. The 100%
                           EPS goal for the 2004 performance year is $.85 per
                           share, and the EPS component shall increase or
                           decrease by 25% for each $.05 per share change in
                           performance. (Mathematical extrapolation shall be
                           used for actual results not shown in the table.)
                           There will be no payout under the plan unless at
                           least $.80 per share is achieved (regardless of CFCF
                           performance).

                  (b)      CFCF COMPONENT. CFCF performance shall constitute 60%
                           of composite Plan Performance Factor. The 100% CFCF
                           goal for the 2004 performance year is $(100) million,
                           and the CFCF component shall increase or decrease by
                           25% for each $50 million change in performance.
                           (Mathematical extrapolation shall be used for actual
                           results not shown in the table.)


             COMPOSITE PERFORMANCE FACTORS FOR 2004 PERFORMANCE YEAR

<Table>
<Caption>
              CFCF
           COMPONENT
           (MILLIONS)               $(150)       $(100)       $(50)         $ 0         $50         $100
           ----------               ------       ------       ------       -----        -----      ------
           EPS
           COMPONENT
           ----------               ------       ------       ------       -----        -----      ------
           <S>                      <C>          <C>          <C>          <C>          <C>        <C>
            $ .80
                                       75%          90%         105%        120%        135%        150%
            $ .85
                                       85%         100%         115%        130%        145%        160%
            $ .90
                                       95%         110%         125%        140%        155%        170%
            $ .95
                                      105%         120%         135%        150%        165%        180%
            $1.00
                                      115%         130%         145%        160%        175%        190%
            $1.05
                                      125%         140%         155%        170%        185%        200%
</Table>

         Notes: Mathematical extrapolation shall be used for actual results not
         shown in the table.
         Target Award is Bolded 100% and Maximum Award is Bolded 200%




                                       4
<PAGE>
III.     ANNUAL AWARD FORMULA

         3.1      ANNUAL AWARDS. Annual Awards for each eligible EIC Plan
                  participant will be based upon a standard award as set forth
                  in the table below. The total amount of an EIC participant
                  Annual Award shall be computed according to the annual award
                  formula set forth in Section 3.2.

<TABLE>
<CAPTION>
                                                                 YEAR           FULLTIME       PART TIME
                                                                  END           STANDARD        STANDARD
                                                                SALARY           AWARD           AWARD
                                              POSITION          GRADE            AMOUNT          AMOUNT
                                              --------          -----           --------       ----------
                       <S>                                      <C>             <C>            <C>
                       Sr. Consultants & Equivalent              8-10/C          $1,000          $   500
                       Consultants & Equivalent                  5-7/B           $  750          $   375
                       Advisors & Equivalent                     1-4/A           $  625          $312.50
                              All Non-exempt Employees          various          $  500          $   250
</TABLE>


         3.2      Annual Awards for EIC participants will be calculated and made
                  as follows:

       INDIVIDUAL AWARD = STANDARD AWARD AMOUNT TIMES PERFORMANCE FACTOR %

IV.      PAYMENT OF ANNUAL AWARDS

         4.1      CASH ANNUAL AWARD. All Annual Awards for a Performance Year
                  will be paid in cash no later than March 31st of the calendar
                  year following the Performance Year provided that they first
                  have been reviewed and approved by the Committee. The amounts
                  required by law to be withheld for income and employment taxes
                  will be deducted from the Annual Award payments. All Annual
                  Awards become the obligation of the company on whose payroll
                  the Employee is enrolled at the time the Committee makes the
                  Annual Award.


         4.2      PAYMENT IN THE EVENT OF DEATH.

                  (a)      A participant may name the beneficiary of his or her
                           choice on a beneficiary form provided by the Company,
                           and the beneficiary shall receive payment in the
                           event that the Participant dies prior to receipt of a
                           cash Annual Award. If a beneficiary is not named, the
                           payment will be made to the first surviving class as
                           follows:

                            1. Widow or Widower
                            2. Children, per capita
                            3. Parents, per capita
                            4. Brothers and Sisters, per capita
                            5. Estate of the Deceased

                  (b)      A participant may change beneficiaries at any time,
                           and the change will be effective as of the date the
                           participant completes and signs the beneficiary form,
                           whether or not the participant is living at the time
                           the request is received by the Company. However, the
                           Company or the applicable Subsidiary will not be
                           liable for any payments made before receipt of a
                           written request.

V.       CHANGE OF STATUS

                  Payments in the event of a change in status will not apply if
                  no awards are made for the performance year.


                                       5
<PAGE>

         5.1      PRO-RATA ANNUAL AWARDS. A new EIC participant, hired during
                  the Performance Year will receive a pro rata Annual Award
                  based on the percentage of the Performance Year in which the
                  employee is employed.

         5.2      TERMINATION. An EIC participant whose employment is terminated
                  pursuant to a violation of the Company code of conduct or
                  other corporate policies will not be considered for an Annual
                  Award.

         5.3      RESIGNATION. An EIC participant who resigns during or after a
                  Performance Year will not be eligible for an Annual Award. If
                  the resignation is due to reasons such as a downsizing or
                  reorganization, or the ill health of the employee or ill
                  health in the immediate family, the employee may petition the
                  Committee and may be considered, in the discretion of the
                  Committee, for a pro rata Annual Award. The Committee's
                  decision to approve or deny the request for a pro rata Annual
                  Award shall be final.

         5.4      DEATH, DISABILITY, RETIREMENT, LEAVE OF ABSENCE. An EIC
                  participant whose status as an active employee is changed
                  during the Performance Year due to death, Disability,
                  Retirement, or Leave of Absence will receive a pro rata Annual
                  Award.

VI.      MISCELLANEOUS

         6.1      IMPACT ON BENEFIT PLANS. Payments made under the Plan will be
                  not be considered as earnings for purposes of the Employees'
                  Savings Plan, Pension Plan, or other employee benefit
                  programs.

         6.2      IMPACT ON EMPLOYMENT. Neither the adoption of the Plan nor the
                  granting of any Annual Award under the Plan will be deemed to
                  create any right in any individual to be retained or continued
                  in the employment of the Company or any corporation within the
                  Company's control group.

         6.3      TERMINATION OR AMENDMENT OF THE PLAN. The Company at any time
                  may, in writing, terminate or amend the Plan.

         6.4      GOVERNING LAW. The Plan will be governed and construed in
                  accordance with the laws of the State of Michigan.

         6.5      DISPUTE RESOLUTION. Any disputes related to the Plan should
                  first be brought to the Plan Administrator. If that does not
                  result in a mutually agreeable resolution, then the dispute
                  shall be subject to final and binding arbitration before a
                  single arbitrator selected by the parties to be conducted in
                  Jackson, Michigan. The arbitration will be conducted and
                  finished within 90 days of the selection of the arbitrator.
                  The parties shall share equally the cost of the arbitrator and
                  of conducting the arbitration proceeding, but each party shall
                  bear the cost of its own legal counsel and experts and other
                  out-of-pocket expenditures.

                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.(A)
<SEQUENCE>12
<FILENAME>k91832exv12wxay.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF CMS ENERGY RATIO OF EARNINGS
<TEXT>
<PAGE>
                                                                 Exhibit (12)(a)

                             CMS ENERGY CORPORATION
      Ratio of Earnings to Fixed Charges and Preferred Securities Dividends
                               and Distributions
                              (Millions of Dollars)

<TABLE>
<CAPTION>
                                                   Years Ended December 31 -
                                             ------------------------------------
                                              2004   2003    2002    2001    2000
                                             -----   ----   -----   -----   -----
                                                      (b)    (c)     (d)     (e)
<S>                                          <C>     <C>    <C>     <C>     <C>
Earnings as defined (a)
Pretax income from continuing operations     $ 137   $ 16   $(433)  $(428)  $  (1)
Exclude equity basis subsidiaries              (88)   (41)    (39)     68    (171)
Fixed charges as defined, adjusted to
   exclude capitalized interest of $(25),
   $9, $16, $35 and $48 million for the
   years ended December 31, 2004, 2003,
   2002, 2001, and 2000, respectively (f)      649    605     518     577     561
                                             -----   ----   -----   -----   -----
Earnings as defined                          $ 698   $580   $  46   $ 217   $ 389
                                             =====   ====   =====   =====   =====
Fixed charges as defined (a)
Interest on long-term debt                   $ 560   $531   $ 404   $ 420   $ 420
Estimated interest portion of lease rental       4      7      10      11      11
Other interest charges                          49     61      34      83      34
Preferred securities dividends and
   distributions                                11     15      86      98     144
                                             -----   ----   -----   -----   -----
Fixed charges as defined                     $ 624   $614   $ 534   $ 612   $ 609
                                             =====   ====   =====   =====   =====
Ratio of earnings to fixed charges and
   preferred securities dividends and
   distributions                              1.12     --      --      --      --
                                             =====   ====   =====   =====   =====
</TABLE>

NOTES:

(a)  Earnings and fixed charges as defined in instructions for Item 503 of
     Regulation S-K.

(b)  For the year ended December 31, 2003, fixed charges exceeded earnings by
     $34 million. Earnings as defined include $95 million of asset impairment
     charges.

(c)  For the year ended December 31, 2002, fixed charges exceeded earnings by
     $488 million. Earnings as defined include $602 million of asset impairments
     charges.

(d)  For the year ended December 31, 2001, fixed charges exceeded earnings by
     $395 million. Earnings as defined include $323 million of asset impairments
     charges.

(e)  For the year ended December 31, 2000, fixed charges exceeded earnings by
     $220 million. Earnings as defined include a $329 million pretax impairment
     loss on the Loy Yang investment.

(f)  Fixed charges, adjusted as defined, excludes $25 million of previously
     capitalized interest that was expensed in the year ended December 31, 2004.
     Capitalized interest includes a $30.8 million reversal of previously
     recorded AFUDC/IDC on capital expenditures covered by Public Act 141.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.(B)
<SEQUENCE>13
<FILENAME>k91832exv12wxby.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF CONSUMER'S RATIO OF EARNINGS
<TEXT>
<PAGE>

                                                                   Exhibit 12(b)

                            CONSUMERS ENERGY COMPANY

       Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
                              (Millions of Dollars)

<TABLE>
<CAPTION>
                                                     Years Ended December 31

                                             2004    2003      2002     2001    2000
                                            -----    -----    -----    -----    -----
<S>                                         <C>      <C>      <C>      <C>      <C>
Earnings as defined (a)
Pretax income from continuing operations    $ 439    $ 333    $ 543    $ 296    $ 421
Exclude equity basis subsidiaries (c)          (1)     (42)     (53)     (38)     (57)
Include equity basis dividends
received (c)                                    -       45       15        8       10
Fixed charges as defined, adjusted to
exclude capitalized interest of $(25),
$9, $12, $6 and $2 for years ended
December 31, 2004, 2003, 2002,
2001, and 2000, respectively. (d)
                                              373      255      225      241      231
                                            -----    -----    -----    -----    -----
Earnings as defined                         $ 811    $ 591    $ 730    $ 507    $ 605
                                            =====    =====    =====    =====    =====

Fixed charges as defined(a)
Interest on long-term debt(b)               $ 328    $ 241    $ 153    $ 151    $ 141
Estimated interest portion of lease
rental                                          4        7       10       11       11
Other interest charges                         13       13       27       41       44
Preferred securities dividends and
distributions(b)                                3        3       47       44       37
                                            -----    -----    -----    -----    -----
Fixed charges as defined                    $ 348    $ 264    $ 237    $ 247    $ 233
                                            =====    =====    =====    =====    =====
Ratio of earnings to fixed charges and
preferred securities dividends and
distributions                                2.33     2.24     3.08     2.05     2.60
                                            ======   =====    =====    =====    =====
</TABLE>

NOTES:

(a) Earnings and fixed charges as defined in instructions for Item 503 of
Regulation S-K.

(b) We determined that we do not hold the controlling interest in our trust
preferred security structures. Accordingly, those securities have been
deconsolidated as of December 31, 2003. Therefore, our trust preferred
securities that were previously included in mezzanine equity, have been
eliminated due to deconsolidation and are reflected in Long-term debt - related
parties.

(c) In 2004, we consolidated the MCV Partnership and the FMLP in accordance with
Revised FASB Interpretation No. 46.

(d) Fixed charges, adjusted as defined, excludes $25 million of previously
capitalized interest that was expensed for the year ended December 31, 2004.
Capitalized interest includes a $30.8 million reversal of previously recorded
AFUDC/IDC on capital expenditures covered by Public Act 141.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-18
<SEQUENCE>14
<FILENAME>k91832exv18.txt
<DESCRIPTION>LETTER FROM ERNST & YOUNG LLP TO THE AUDIT COMMITTEE
<TEXT>
<PAGE>
                                                                      EXHIBIT 18


February 18, 2005

Audit Committee of the Board of Directors
CMS Energy Corporation and Consumers Energy Company

Dear Sirs:

Note 7 to the consolidated financial statements of CMS Energy Corporation (CMS
Energy) and Note 5 to the consolidated financial statements of Consumers Energy
Company (a wholly-owned subsidiary of CMS Energy) (Consumers) included in CMS
Energy's and Consumer's annual reports on Form 10-K for the year ended December
31, 2004 describes a change in the measurement date for its pension and other
postretirement plans from December 31 to November 30. Management believes that
the newly adopted accounting principle is preferable in the circumstances for
various business reasons. In accordance with Management's request, we have
reviewed and discussed with officials of CMS Energy and Consumers the
circumstances and business judgment and planning upon which the decision to make
this change in the method of accounting was based.

With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, based on our review and
discussion and with reliance on management's business judgment, we concur that
the newly adopted method of accounting is preferable in your circumstances.

                                              Very truly yours,

                                          /s/ ERNST & YOUNG LLP

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(A)
<SEQUENCE>15
<FILENAME>k91832exv23wxay.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP FOR CMS ENERGY
<TEXT>
<PAGE>

                                                                 Exhibit (23)(a)

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration
Statements and in the related Prospectuses:

      (1)   Registration Statements (Form S-3 No. 333-51932, No. 333-52560, No.
            333-27849, No. 333-37241, No. 333-74958, No. 333-45556, No.
            333-119255, No. 333-119256) of CMS Energy Corporation;

      (2)   Registration Statement (Form S-4 No. 33-60007) of CMS Energy
            Corporation;

      (3)   Registration Statements (Form S-8 No. 333-32229 and No. 333-58686)
            pertaining to the CMS Energy Corporation Performance Incentive Stock
            Plan and Executive Stock Option Plan, respectively, and

      (4)   Registration Statement (Form S-8 No. 333-76347) pertaining to the
            Employee Savings and Incentive Plan of Consumers Energy Company;

of our reports dated March 7, 2005, with respect to the consolidated financial
statements and schedule of CMS Energy Corporation, CMS Energy Corporation
management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
CMS Energy Corporation, included in this Annual Report (Form 10-K) for the year
ended December 31, 2004.

                                               /s/ Ernst & Young LLP

Detroit, Michigan
March 7, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(B)
<SEQUENCE>16
<FILENAME>k91832exv23wxby.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP FOR CMS ENERGY
<TEXT>
<PAGE>

                                                                 Exhibit (23)(b)

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 333-32229, 333-58686 and 333-76347), S-3 (Nos.
333-51932, 333-52560, 333-27849, 333-37241, 333-74958, 333-45556, 333-119255 and
333-119256) and S-4 (No. 33-60007) of CMS Energy Corporation of our report dated
February 25, 2005 relating to the financial statements, management's assessment
over financial reporting and the effectiveness of internal control over
financial reporting of Midland Cogeneration Venture L.P. which appears in the
CMS Energy Corporation Form 10-K for the year ended December 31, 2004.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
March 7, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(C)
<SEQUENCE>17
<FILENAME>k91832exv23wxcy.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP FOR CMS ENERGY: JORF LASFAR
<TEXT>
<PAGE>
                                                                 Exhibit (23)(c)

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos.333-32229, 333-58686 and No. 333-76347), S-3 (Nos.
333-51932, 333-52560, 333-27849, 333-37241, 333-74958, 333-45556, 333-119256,
333-119255) and S-4 (No. 33-60007, 333-113556) of CMS Energy Corporation of our
report dated February 11, 2005 relating to the financial statements of Jorf
Lasfar Energy Company S.C.A. which appears in the CMS Energy Corporation Form
10-K for the year ended December 31, 2004.


/s/ Price Waterhouse
Casablanca, Morocco
March 9, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(D)
<SEQUENCE>18
<FILENAME>k91832exv23wxdy.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP FOR CONSUMERS
<TEXT>
<PAGE>

                                                                 Exhibit (23)(d)

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration
Statements and in the related Prospectuses:

      (1)   Registration Statement (Form S-3 No. 333-120611) of Consumers Energy
            Company;

      (2)   Registration Statement (Form S-4 No. 333-122429) of Consumers Energy
            Company, and

      (3)   Registration Statement (Form S-8 No. 333-76347) pertaining to
            Employee Savings and Incentive Plan of Consumers Energy Company;

of our reports dated March 7, 2005, with respect to the consolidated financial
statements and schedule of Consumers Energy Company, Consumers Energy Company
management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
Consumers Energy Company, included in this Annual Report (Form 10-K) for the
year ended December 31, 2004.

                                                /s/ Ernst & Young LLP

Detroit, Michigan
March 7, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(E)
<SEQUENCE>19
<FILENAME>k91832exv23wxey.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP FOR CONSUMERS
<TEXT>
<PAGE>

                                                                 Exhibit (23)(e)

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 333-76347), S-3 (No. 333-120611) and S-4 (No.
333-122429) of Consumers Energy Company of our report dated February 25, 2005
relating to the financial statements, management's assessment over financial
reporting and the effectiveness of internal control over financial reporting of
Midland Cogeneration Venture L.P. which appears in the Consumers Energy Company
Form 10-K for the year ended December 31, 2004.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
March 7, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24.(A)
<SEQUENCE>20
<FILENAME>k91832exv24wxay.txt
<DESCRIPTION>POWER OF ATTORNEY FOR CMS ENERGY
<TEXT>
<PAGE>
                                                                   EXHIBIT 24(a)


January 27, 2005



Mr. S. Kinnie Smith, Jr.
Mr. Thomas J. Webb
Mr. Michael D. VanHemert
CMS Energy Corporation
One Energy Plaza
Jackson, MI 49201-2276

CMS Energy Corporation is required to file an Annual Report on Form 10-K for the
year ended December 31, 2004 with the Securities and Exchange Commission within
90 days after the end of the year.

We hereby make, constitute and appoint each of you our true and lawful attorney
for each of us and in each of our names, places and steads to sign and cause to
be filed with the Securities and Exchange Commission said Annual Report with any
necessary exhibits, and any amendments thereto that may be required.

Very truly yours,


/s/ K. Whipple                                    /s/ W. U. Parfet
- -------------------------------                   ------------------------------
Kenneth Whipple                                   William U. Parfet



/s/ Merribel S. Ayres                             /s/ Percy A. Pierre
- -------------------------------                   ------------------------------
Merribel S. Ayres                                 Percy A. Pierre



/s/ Earl D. Holton                                /s/ S. Kinnie Smith Jr.
- -------------------------------                   ------------------------------
Earl D. Holton                                    S. Kinnie Smith, Jr.



/s/ D. W. Joos                                    /s/ Kenneth L. Way
- -------------------------------                   ------------------------------
David W. Joos                                     Kenneth L. Way



/s/ M. T. Monahan                                 /s/ John B. Yasinsky
- -------------------------------                   ------------------------------
Michael T. Monahan                                John B. Yasinsky



/s/ Joseph F. Paquette, Jr.
- -------------------------------
Joseph F. Paquette, Jr.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24.(B)
<SEQUENCE>21
<FILENAME>k91832exv24wxby.txt
<DESCRIPTION>POWER OF ATTORNEY FOR CONSUMERS
<TEXT>
<PAGE>
                                                                   EXHIBIT 24(b)

January 27, 2005



Mr. S. Kinnie Smith, Jr.
Mr. Thomas J. Webb
Mr. Michael D. VanHemert
Consumers Energy Company
One Energy Plaza
Jackson, MI 49201-2276

Consumers Energy Company is required to file an Annual Report on Form 10-K for
the year ended December 31, 2004 with the Securities and Exchange Commission
within 90 days after the end of the year.

We hereby make, constitute and appoint each of you our true and lawful attorney
for each of us and in each of our names, places and steads to sign and cause to
be filed with the Securities and Exchange Commission said Annual Report with any
necessary exhibits, and any amendments thereto that may be required.

Very truly yours,


/s/ K. Whipple                                    /s/ W. U. Parfet
- -------------------------------                   ------------------------------
Kenneth Whipple                                   William U. Parfet



/s/ Merribel S. Ayres                             /s/ Percy A. Pierre
- -------------------------------                   ------------------------------
Merribel S. Ayres                                 Percy A. Pierre



/s/ Earl D. Holton                                /s/ S. Kinnie Smith Jr.
- -------------------------------                   ------------------------------
Earl D. Holton                                    S. Kinnie Smith, Jr.



/s/ D. W. Joos                                    /s/ Kenneth L. Way
- -------------------------------                   ------------------------------
David W. Joos                                     Kenneth L. Way



/s/ M. T. Monahan                                 /s/ John B. Yasinsky
- -------------------------------                   ------------------------------
Michael T. Monahan                                John B. Yasinsky



/s/ Joseph F. Paquette, Jr.
- -------------------------------
Joseph F. Paquette, Jr.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>22
<FILENAME>k91832exv31wxay.txt
<DESCRIPTION>CMS ENERGY'S CERTIFICATION OF CEO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                   Exhibit 31(a)

                         CERTIFICATION OF DAVID W. JOOS

I, David W. Joos, certify that:

      1.    I have reviewed this annual report on Form 10-K 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 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)), and internal
            control over financial reporting (as defined in Exchange Act Rules
            13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or
            caused such internal control over financial reporting to be designed
            under our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

                  c) 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

                  d) 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 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:  March 10, 2005                      By:        /s/ David W. Joos
                                                --------------------------------
                                                         David W. Joos
                                                         President and
                                                    Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>23
<FILENAME>k91832exv31wxby.txt
<DESCRIPTION>CMS ENERGY'S CERTIFICATION OF CFO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                   Exhibit 31(b)

                         CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

      1.    I have reviewed this annual report on Form 10-K 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 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)), and internal
            control over financial reporting (as defined in Exchange Act Rules
            13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or
            caused such internal control over financial reporting to be designed
            under our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

                  c) 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

                  d) 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 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: March 10, 2005                       By        /s/ Thomas J. Webb
                                               ---------------------------------
                                                        Thomas J. Webb
                                                 Executive Vice President and
                                                    Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(C)
<SEQUENCE>24
<FILENAME>k91832exv31wxcy.txt
<DESCRIPTION>CONSUMERS' CERTIFICATION OF CEO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                   Exhibit 31(c)

                         CERTIFICATION OF DAVID W. JOOS

I, David W. Joos, certify that:

      1.    I have reviewed this annual report on Form 10-K 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 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)), and internal
            control over financial reporting (as defined in Exchange Act Rules
            13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or
            caused such internal control over financial reporting to be designed
            under our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

                  c) 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

                  d) 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 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: March 10, 2005                       By:        /s/ David W. Joos
                                                --------------------------------
                                                         David W. Joos
                                                    Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(D)
<SEQUENCE>25
<FILENAME>k91832exv31wxdy.txt
<DESCRIPTION>CONSUMERS' CERTIFICATION OF CFO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                   Exhibit 31(d)

                         CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

      1.    I have reviewed this annual report on Form 10-K of Consumers Energy
            Company;

      2.    Based on my knowledge, this 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 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)), and internal
            control over financial reporting (as defined in Exchange Act Rules
            13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or
            caused such internal control over financial reporting to be designed
            under our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

                  c) 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

                  d) 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 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: March 10, 2005                       By        /s/ Thomas J. Webb
                                               ---------------------------------
                                                        Thomas J. Webb
                                                 Executive Vice President and
                                                    Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(A)
<SEQUENCE>26
<FILENAME>k91832exv32wxay.txt
<DESCRIPTION>CMS ENERGY'S CERTIFICATIONS PURSUANT TO SECTION 906
<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 Annual Report on Form 10-K of CMS Energy Corporation (the
"Company") for the annual period ended December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), David W.
Joos, as President 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/ David W. Joos
- ------------------------------
Name:  David W. Joos
Title: President and
       Chief Executive Officer
Date:  March 10, 2005

   /s/ Thomas J. Webb
- ------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  March 10, 2005

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(B)
<SEQUENCE>27
<FILENAME>k91832exv32wxby.txt
<DESCRIPTION>CONSUMERS' CERTIFICATIONS PURSUANT TO SECTION 906
<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 Annual Report on Form 10-K of Consumers Energy Company
(the "Company") for the annual period ended December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), David W.
Joos, as 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/ David W. Joos
- -------------------------------
Name:  David W. Joos
Title: Chief Executive Officer
Date:  March 10, 2005

   /s/ Thomas J. Webb
- -------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  March 10, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)
<SEQUENCE>28
<FILENAME>k91832exv99wxay.htm
<DESCRIPTION>FINANCIAL STATEMENTS FOR MIDLAND COGENERATION VENTURE
<TEXT>
<HTML>
<HEAD>
<TITLE>exv99wxay</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="right"><FONT size="2"><b>Exhibit 99(a)</b>
</FONT>


<P align="center"><FONT size="2">INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Page Reference</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>in Annual Report</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>on Form 10-K</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Report of Independent Auditors &#150; PricewaterhouseCoopers LLP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Report of Independent Public Accountants &#150; Arthur Andersen, LLP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated Balance Sheets as of December&nbsp;31, 2003 and 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated Statements of Operations for the Years Ended December&nbsp;31, 2003, 2002, and 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated Statements of Partners&#146; Equity for the Years Ended December&nbsp;31, 2003, 2002, and 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated Statements of Cash Flows for the Years Ended December&nbsp;31, 2003, 2002, and 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes to Consolidated Financial Statements</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-1</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center"><FONT size="2">Report of Independent Auditors
</FONT>

<P align="left"><FONT size="2">To the Partners and the Management Committee of<BR>
Midland Cogeneration Venture Limited Partnership:
</FONT>

<P align="left"><FONT size="2">In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, partners&#146; equity and cash flows present
fairly, in all material respects, the financial position of the Midland
Cogeneration Limited Partnership (a Michigan limited partnership) and its
subsidiaries (MCV)&nbsp;at December&nbsp;31, 2003 and 2002, and the results of their
operations and their cash flows for the each of the two years ended December
31, 2003 and 2002 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of MCV&#146;s management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. The
financial statements of MCV for the year ended December&nbsp;31, 2001, were audited
by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in
their report dated January&nbsp;18, 2002.
</FONT>
<P align="left"><FONT size="2">As explained in Note 2 to the financial statements, effective April&nbsp;1, 2002,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting for derivative and hedging activities in accordance with Derivative
Implementation Group (&#147;DIG&#148;) Issue C-16.
</FONT>
<P align="left"><FONT size="2">Detroit, Michigan<BR>
February&nbsp;18, 2004
</FONT>

<P align="center"><FONT size="2">F-2</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center"><FONT size="2"><B>THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR<BR>
ANDERSEN LLP (ANDERSEN). THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN, AND<BR>
ANDERSEN DID NOT CONSENT TO THE INCLUSION OF THIS REPORT INTO THIS FORM 10-K.<BR>
THE FOOTNOTE SHOWN BELOW WAS NOT PART OF ANDERSEN&#146;S REPORT.</B>
</FONT>

<P align="center"><FONT size="2">ARTHUR ANDERSEN LLP
</FONT>

<P align="center"><FONT size="2">REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
</FONT>

<P align="left"><FONT size="2">To the Partners and the Management Committee of the<BR>
Midland Cogeneration Venture Limited Partnership:
</FONT>

<P align="left"><FONT size="2">We have audited the accompanying consolidated balance sheets of the MIDLAND
COGENERATION VENTURE LIMITED PARTNERSHIP (a Michigan limited partnership) and
subsidiaries (MCV)&nbsp;as of December&nbsp;31, 2001 and 2000*, and the related
consolidated statements of operations, partners&#146; equity and cash flows for each
of the three years in the period ended December&nbsp;31, 2001*. These financial
statements are the responsibility of MCV&#146;s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
</FONT>
<P align="left"><FONT size="2">We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
</FONT>
<P align="left"><FONT size="2">In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Midland
Cogeneration Venture Limited Partnership and subsidiaries as of December&nbsp;31,
2001 and 2000*, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December&nbsp;31, 2001*, in
conformity with accounting principles generally accepted in the United States.
</FONT>
<P align="left"><FONT size="2">As explained in Note 2 to the financial statements, effective January&nbsp;1, 2001,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting related to derivatives and hedging activities.
</FONT>
<P align="right"><FONT size="2">Arthur Andersen LLP</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Detroit, Michigan<BR>
January&nbsp;18, 2002</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">*The MCV&#146;s consolidated balance sheets as of December&nbsp;31, 2001 and 2000 and the
consolidated statements of operations, partners&#146; equity and cash flows for the
years ended December&nbsp;31, 1999 and 2000 are not included in this Annual Report
on Form&nbsp;10-K.
</FONT>
<P align="center"><FONT size="2">F-3</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,<BR>
(In Thousands)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ASSETS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CURRENT ASSETS:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">173,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">160,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts and notes receivable &#150; related parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gas inventory</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unamortized property taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Derivative assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86,825</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Broker margin accounts and prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">358,257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PROPERTY, PLANT AND EQUIPMENT</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,463,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,449,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pipeline</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,485,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,470,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(991,556</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(920,614</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,493,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,549,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">OTHER ASSETS:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restricted investment securities held-to-maturity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">139,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Derivative assets non-current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred financing costs, net of accumulated amortization
of $17,285 and $15,930, respectively</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid gas costs, materials and supplies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total other assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">187,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">189,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TOTAL ASSETS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,069,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,098,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">LIABILITIES AND PARTNERS&#146; EQUITY</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CURRENT LIABILITIES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable and accrued liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">57,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">58,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gas supplier funds on deposit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current portion of long-term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">208,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NON-CURRENT LIABILITIES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,018,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,153,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total non-current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,021,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,155,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">COMMITMENTS AND CONTINGENCIES
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TOTAL LIABILITIES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,270,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,363,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PARTNERS&#146; EQUITY</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">799,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">734,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TOTAL LIABILITIES AND PARTNERS&#146; EQUITY</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,069,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,098,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these statements.
</FONT>

<P align="center"><FONT size="2">F-4</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,<BR>
(In Thousands)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">OPERATING REVENUES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capacity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">404,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">404,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">409,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Electric</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Steam</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">584,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">596,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">610,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">OPERATING EXPENSES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fuel costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">254,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">255,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">288,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">89,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">88,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">92,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and single business taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative, selling and general</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,404</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total operating expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">416,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">408,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">452,978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">OPERATING INCOME</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">188,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">157,835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">OTHER INCOME (EXPENSE):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest and other income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(113,247</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(119,783</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(126,296</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total other income (expense), net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(108,147</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(114,228</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(109,571</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect of change in method of
accounting for derivative option contracts
(to April&nbsp;1, 2002) (Note 2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">58,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NET INCOME</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">59,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">132,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">48,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these statements.
</FONT>

<P align="center"><FONT size="2">F-5</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
CONSOLIDATED STATEMENTS OF PARTNERS&#146; EQUITY FOR THE YEARS ENDED DECEMBER 31,<BR>
(In Thousands)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>General</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Limited</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Partners</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Partners</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BALANCE, DECEMBER 31, 2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">448,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">79,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">527,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect of accounting change</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,034</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrealized loss on hedging activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(42,444</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,307</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(48,751</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reclassification adjustments recognized
in net income above</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total other comprehensive income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21,148</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,142</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,290</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BALANCE, DECEMBER 31, 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">468,972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">82,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">551,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">114,947</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">132,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrealized gain on hedging activities
since beginning of period</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reclassification adjustments recognized
in net income above</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total other comprehensive income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">182,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BALANCE, DECEMBER 31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">627,947</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">106,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">734,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrealized gain on hedging activities
since beginning of period</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reclassification adjustments recognized
in net income above</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,153</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,481</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(34,634</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total other comprehensive income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Comprehensive Income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,766</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BALANCE, DECEMBER 31, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">684,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">114,742</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">799,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these statements.
</FONT>

<P align="center"><FONT size="2">F-6</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,<BR>
(In Thousands)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CASH FLOWS FROM OPERATING ACTIVITIES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">59,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">132,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">48,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustments to reconcile net income to net cash provided by
operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect of change in accounting principle</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(58,131</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,211</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in gas inventory</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(732</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">133</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,225</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in unamortized property taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">683</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,730</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in broker margin accounts and prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,778</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,587</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in derivative assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,444</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in prepaid gas costs, materials and supplies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,704</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in accounts payable and accrued liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(712</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,704</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in gas supplier funds on deposit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Decrease in interest payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,377</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,948</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,082</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in other non-current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">227,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">122,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CASH FLOWS FROM INVESTING ACTIVITIES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Plant modifications and purchases of plant equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(33,278</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,529</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,530</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maturity of restricted investment securities held-to-maturity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">601,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">377,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">538,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of restricted investment securities held-to-maturity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(602,279</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(374,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(539,918</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(34,332</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,763</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(32,121</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CASH FLOWS FROM FINANCING ACTIVITIES:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Repayment of financing obligation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93,928</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(182,084</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(155,632</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in financing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93,928</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(182,084</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(155,632</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NET INCREASE (DECREASE)&nbsp;IN CASH AND CASH EQUIVALENTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64,881</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">160,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CASH AND EQUIVALENTS AT END OF PERIOD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">173,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">160,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">141,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these statements.
</FONT>

<P align="center"><FONT size="2">F-7</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">THE PARTNERSHIP AND ASSOCIATED RISKS</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV was organized to construct, own and operate a combined-cycle, gas-fired
cogeneration facility (the &#147;Facility&#148;) located in Midland, Michigan. MCV
was formed on January&nbsp;27, 1987, and the Facility began commercial operation
in 1990.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In 1992, MCV acquired the outstanding common stock of PVCO Corp., a
previously inactive company. MCV and PVCO Corp. entered into a partnership
agreement to form MCV Gas Acquisition General Partnership (&#147;MCV GAGP&#148;) for
the purpose of buying and selling natural gas on the spot market and other
transactions involving natural gas activities. Currently, MCV GAGP is not
actively engaged in any business activity.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Facility has a net electrical generating capacity of approximately 1500
MW and approximately 1.5&nbsp;million pounds of process steam capacity per hour.
MCV has entered into three principal energy sales agreements. MCV has
contracted to (i)&nbsp;supply up to 1240 MW of electric capacity (&#147;Contract
Capacity&#148;) to Consumers Energy Company (&#147;Consumers&#148;) under the Power
Purchase Agreement (&#147;PPA&#148;), for resale to its customers through 2025, (ii)
supply electricity and steam to The Dow Chemical Company (&#147;Dow&#148;) under the
Steam and Electric Power Agreement (&#147;SEPA&#148;) through 2015 and (iii)&nbsp;supply
steam to Dow Corning Corporation (&#147;DCC&#148;) under the Steam Purchase Agreement
(&#147;SPA&#148;) through 2011. From time to time, MCV enters into other sales
agreements for the sale of excess capacity and/or energy available above
MCV&#146;s internal use and obligations under the PPA, SEPA and SPA. Results of
operations are primarily dependent on successfully operating the Facility at
or near contractual capacity levels and on Consumers&#146; ability to perform its
obligations under the PPA. Sales pursuant to the PPA have historically
accounted for over 90% of MCV&#146;s revenues.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The PPA permits Consumers, under certain conditions, to reduce the capacity
and energy charges payable to MCV and/or to receive refunds of capacity and
energy charges paid to MCV if the Michigan Public Service Commission
(&#147;MPSC&#148;) does not permit Consumers to recover from its customers the
capacity and energy charges specified in the PPA (the &#147;regulatory-out&#148;
provision). Until September&nbsp;15, 2007, however, the capacity charge may not
be reduced below an average capacity rate of 3.77 cents per kilowatt-hour
for the available Contract Capacity notwithstanding the &#147;regulatory-out&#148;
provision. Consumers and MCV are required to support and defend the terms
of the PPA.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Facility is a qualifying cogeneration facility (&#147;QF&#148;) originally
certified by the Federal Energy Regulatory Commission (&#147;FERC&#148;) under the
Public Utility Regulatory Policies Act of 1978, as amended (&#147;PURPA&#148;). In
order to maintain QF status, certain operating and efficiency standards must
be maintained on a calendar-year basis and certain ownership limitations
must be met. In the case of a topping-cycle generating plant such as the
Facility, the applicable operating standard requires that the portion of
total energy output that is put to some useful purpose other than
facilitating the production of power (the &#147;Thermal Percentage&#148;) be at least
5%. In addition, the Facility must achieve a PURPA efficiency standard (the
sum of the useful power output plus one-half of the useful thermal energy
output, divided by the energy input (the &#147;Efficiency Percentage&#148;)) of at
least 45%. If the Facility maintains a Thermal Percentage of 15% or higher,
the required Efficiency Percentage is reduced to 42.5%. Since 1990, the
Facility has achieved the applicable Thermal and Efficiency Percentages.
For the twelve months ended December&nbsp;31, 2003, the Facility achieved a
Thermal Percentage of 21.0% and an Efficiency Percentage of 47.4%. The loss
of QF status could, among other things, cause the Facility to lose its
rights under PURPA to sell power to Consumers at Consumers&#146; &#147;avoided cost&#148;
and subject the Facility to additional federal and state regulatory
requirements. MCV believes that the Facility will meet the required Thermal
Percentage and the corresponding Efficiency Percentage in 2003 and beyond,
as well as the PURPA ownership limitations.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Facility is wholly dependent upon natural gas for its fuel supply and a
substantial portion of the Facility&#146;s operating expenses consist of the
costs of natural gas. MCV recognizes that its existing gas contracts are
not sufficient to satisfy the anticipated gas needs over the term of the PPA
and, as such, no assurance can be given
as to the availability or price of natural gas after the expiration of the
existing gas contracts. In addition, to the extent that the costs
associated with production of electricity rise faster than the energy charge
payments, MCV&#146;s financial performance will be negatively affected. The
extent of such impact will depend upon the</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-8</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">amount of the average energy charge payable under the PPA, which is based
upon costs incurred at Consumers&#146; coal-fired plants and upon the amount of
energy scheduled by Consumers for delivery under the PPA. However, given
the unpredictability of these factors, the overall economic impact upon MCV
of changes in energy charges payable under the PPA and in future fuel costs
under new or existing contracts cannot accurately be predicted.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">At both the state and federal level, efforts continue to restructure the
electric industry. A significant issue to MCV is the potential for future
regulatory denial of recovery by Consumers from its customers of above
market PPA costs Consumers pays MCV. At the state level, the MPSC entered a
series of orders from June 1997 through February 1998 (collectively the
&#147;Restructuring Orders&#148;), mandating that utilities &#147;wheel&#148; third-party power
to the utilities&#146; customers, thus permitting customers to choose their power
provider. MCV, as well as others, filed an appeal in the Michigan Court of
Appeals to protect against denial of recovery by Consumers of PPA charges.
The Michigan Court of Appeals found that the Restructuring Orders do not
unequivocally disallow such recovery by Consumers and, therefore, MCV&#146;s
issues were not ripe for appellate review and no actual controversy
regarding recovery of costs could occur until 2008, at the earliest. In
June 2000, the State of Michigan enacted legislation which, among other
things, states that the Restructuring Orders (being voluntarily implemented
by Consumers) are in compliance with the legislation and enforceable by the
MPSC. The legislation provides that the rights of parties to existing
contracts between utilities (like Consumers) and QFs (like MCV), including
the rights to have the PPA charges recovered from customers of the
utilities, are not abrogated or diminished, and permits utilities to
securitize certain stranded costs, including PPA charges.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In 1999, the U.S. District Court granted summary judgment to MCV declaring
that the Restructuring Orders are preempted by federal law to the extent
they prohibit Consumers from recovering from its customers any charge for
avoided costs (or &#147;stranded costs&#148;) to be paid to MCV under PURPA pursuant
to the PPA. In 2001, the United States Court of Appeals (&#147;Appellate Court&#148;)
vacated the U.S. District Court&#146;s 1999 summary judgment and ordered the case
dismissed based upon a finding that no actual case or controversy existed
for adjudication between the parties. The Appellate Court determined that
the parties&#146; dispute is hypothetical at this time and the QFs&#146; (including
MCV) claims are premised on speculation about how an order might be
interpreted by the MPSC, in the future.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV continues to monitor and participate in these industry restructuring
matters as appropriate, and to evaluate potential impacts on both cash flows
and recoverability of the carrying value of property, plant and equipment.
MCV management cannot, at this time, predict the impact or outcome of these
matters.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">SIGNIFICANT ACCOUNTING POLICIES</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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. Following is a discussion of MCV&#146;s significant accounting
policies.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Principles of Consolidation</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The consolidated financial statements include the accounts of MCV and its
wholly owned subsidiaries. All material transactions and balances among
entities, which comprise MCV, have been eliminated in the consolidated
financial statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Revenue Recognition</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV recognizes revenue for the sale of variable energy and fixed energy when
delivered. Capacity and other installment revenues are recognized based on
plant availability or other contractual arrangements.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-9</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Fuel Costs</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV&#146;s fuel costs are those costs associated with securing natural gas,
transportation and storage services necessary to generate electricity and
steam from the Facility. These costs are recognized in the income statement
based upon actual volumes burned to produce the delivered energy. In
addition, MCV engages in certain cost mitigation activities to offset the
fixed charges MCV incurs for these activities. The gains or losses resulting
from these activities have resulted in net gains of approximately $7.7
million, $3.9&nbsp;million and $5.5&nbsp;million for the years ended 2003, 2002 and
2001, respectively. These net gains are reflected as a component of fuel
costs.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In July 2000, in response to rapidly escalating natural gas prices and
since Consumers electric rates were frozen, MCV entered into transactions
with Consumers whereby Consumers agreed to reduce MCV&#146;s dispatch level and
MCV agreed to share with Consumers the savings realized by not having to
generate electricity (&#147;Dispatch Mitigation&#148;). For the years ended 2003,
2002 and 2001, MCV estimates that Dispatch Mitigation resulted in net
savings of approximately $13.0&nbsp;million, $2.5&nbsp;million and $7.6&nbsp;million,
respectively, a portion of which will be realized in reduced maintenance
expenditures in future years.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Subsequently, on January&nbsp;1, 2004, Dispatch Mitigation ceased and Consumers
began dispatching MCV pursuant to the 915 MW Settlement and the 325 MW
Settlement &#147;availability caps&#148; provision (i.e., minimum dispatch of 1100 MW
on- and off-peak (&#147;Forced Dispatch&#148;)). On February&nbsp;12, 2004, MCV and
Consumers entered into a Resource Conservation Agreement (&#147;RCA&#148;) which,
among other things, provides that Consumers will economically dispatch MCV,
if certain conditions are met. Such dispatch is expected to reduce
electric production from what would have occurred under the Forced
Dispatch, as well as decrease gas consumption by MCV. The RCA provides
that Consumers has a right of first refusal to purchase, at market prices,
the gas conserved under the RCA. The RCA further provides for the parties
to enter into another agreement implementing the terms of the RCA including
the sharing of savings realized by not having to generate electricity. The
RCA is subject to MPSC approval and MCV and Consumers must accept the terms
of the MPSC order as a condition precedent to the RCA becoming effective.
The MPSC has not yet acted upon Consumers&#146; application for approval of the
RCA. MCV cannot predict the outcome of the MPSC proceedings necessary to
effectuate the RCA.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Inventory</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV&#146;s inventory of natural gas is stated at the lower of cost or market, and
valued using the last-in, first-out (&#147;LIFO&#148;) method. Inventory includes the
costs of purchased gas, variable transportation and storage. The amount of
reserve to reduce inventories from first-in, first-out (&#147;FIFO&#148;) basis to the
LIFO basis at December&nbsp;31, 2003 and 2002, was $8.4&nbsp;million and $7.4&nbsp;million,
respectively. Inventory cost, determined on a FIFO basis, approximates
current replacement cost.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Materials and Supplies</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Materials and supplies are stated at the lower of cost or market using the
weighted average cost method. The majority of MCV&#146;s materials and supplies
are considered replacement parts for MCV&#146;s Facility.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Depreciation</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Original plant, equipment and pipeline were valued at cost for the
constructed assets and at the asset transfer price for purchased and
contributed assets, and are depreciated using the straight-line method over
an estimated useful life of 35&nbsp;years, which is the term of the PPA, except
for the hot gas path components of the GTGs which are primarily being
depreciated over a 25-year life. Plant construction and additions, since
commercial
operations in 1990, are depreciated using the straight-line method over the
remaining life of the plant which currently is 22&nbsp;years. Major renewals and
replacements, which extend the useful life of plant and equipment</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-10</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">are capitalized, while maintenance and repairs are expensed when incurred.
Major equipment overhauls are capitalized and amortized to the next
equipment overhaul. Personal property is depreciated using the
straight-line method over an estimated useful life of 5 to 15&nbsp;years. The
cost of assets and related accumulated depreciation are removed from the
accounts when sold or retired, and any resulting gain or loss reflected in
operating income.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Federal Income Tax</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV is not subject to Federal or State income taxes. Partnership earnings
are taxed directly to each individual partner.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Statement of Cash Flows</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">All liquid investments purchased with a maturity of three months or less at
time of purchase are considered to be current cash equivalents.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Fair Value of Financial Instruments</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The carrying amounts of cash and cash equivalents and short-term investments
approximate fair value because of the short maturity of these instruments.
MCV&#146;s short-term investments, which are made up of investment securities
held-to-maturity, as of December&nbsp;31, 2003 and December&nbsp;31, 2002 have
original maturity dates of approximately one year or less. The unique
nature of the negotiated financing obligation discussed in Note 6 makes it
unnecessary to estimate the fair value of the Owner Participants&#146; underlying
debt and equity instruments supporting such financing obligation, since SFAS
No.&nbsp;107 &#147;Disclosures about Fair Value of Financial Instruments&#148; does not
require fair value accounting for the lease obligation.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Accounting for Derivative Instruments and Hedging Activities</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Effective January&nbsp;1, 2001, MCV adopted SFAS No.&nbsp;133, &#147;Accounting for
Derivative Instruments and Hedging Activities&#148; which was issued in June 1998
and then amended by SFAS No.&nbsp;137, &#147;Accounting for Derivative Instruments and
Hedging Activities &#150; Deferral of the Effective Date of SFAS No.&nbsp;133,&#148; SFAS
No.&nbsp;138 &#147;Accounting for Certain Derivative Instruments and Certain Hedging
Activities &#150; An amendment of FASB Statement No.&nbsp;133&#148; and SFAS No.&nbsp;149
&#147;Amendment of Statement 133 on Derivative Instruments and Hedging Activity
(collectively referred to as &#147;SFAS No.&nbsp;133&#148;). SFAS No.&nbsp;133 establishes
accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No.&nbsp;133 requires that changes in a
derivative&#146;s fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
in some cases allows a derivative&#146;s gains and losses to offset related
results on the hedged item in the income statement or permits recognition of
the hedge results in other comprehensive income, and requires that a company
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Electric Sales Agreements</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">MCV believes that its electric sales agreements currently do not qualify
as derivatives under SFAS No.&nbsp;133, due to the lack of an active energy
market (as defined by SFAS No.&nbsp;133) in the State of Michigan and the
transportation cost to deliver the power under the contracts to the
closest active energy market at the Cinergy hub in Ohio and as such does
not record the fair value of these contracts on its balance sheet. If an
active energy market emerges, MCV intends to apply the normal purchase,
normal sales exception under SFAS No.&nbsp;133 to its electric sales
agreements, to the extent such exception is applicable.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Forward Foreign Exchange Contracts</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">An amended service agreement was entered into between MCV and Alstom
Power Company (&#147;Alstom&#148;) (the &#147;Amended Service Agreement&#148;), under which
Alstom will provide hot gas path parts for MCV&#146;s twelve</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-11</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">gas turbines. The payments due to Alstom under the Amended Service
Agreement are adjusted annually based on the U.S. dollar to Swiss franc
currency exchange rate.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To manage this currency exchange rate risk and hedge against adverse
currency fluctuations impacting the payments under the Amended Service
Agreement, MCV maintained a foreign currency hedging program whereby MCV
periodically entered into forward purchase contracts for Swiss francs.
Under SFAS No.&nbsp;133, the forward foreign currency exchange contracts
qualified as fair value hedges, since they hedged the identifiable
foreign currency commitment of the Amended Service Agreement. As of
December&nbsp;31, 2003, MCV did not have any such transactions outstanding and
does not anticipate any future transactions since the Alstom Agreement is
expected to be terminated in the near future. As of December&nbsp;31, 2002,
MCV had a forward purchase contract involving Swiss francs in the
notional amount of $5.0&nbsp;million. This hedge was considered highly
effective, therefore, there was no material gain or loss recognized in
earnings during the twelve months ended December&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Natural Gas Supply Contracts</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">MCV management believes that its long-term natural gas contracts which do
not contain volume optionality qualify under SFAS No.&nbsp;133 for the normal
purchases and normal sales exception. Therefore, these contracts are
currently not recognized at fair value on the balance sheet.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The FASB issued DIG Issue C-16, which became effective April&nbsp;1, 2002,
regarding natural gas commodity contracts that combine an option
component and a forward component. This guidance requires either that
the entire contract be accounted for as a derivative or the components of
the contract be separated into two discrete contracts. Under the first
alternative, the entire contract considered together would not qualify
for the normal purchases and sales exception under the revised guidance.
Under the second alternative, the newly established forward contract
could qualify for the normal purchases and sales exception, while the
option contract would be treated as a derivative under SFAS No.&nbsp;133 with
changes in fair value recorded through earnings. At April&nbsp;1, 2002, MCV
had nine long-term gas contracts that contained both an option and
forward component. As such, they were no longer accounted for under the
normal purchases and sales exception and MCV began mark-to-market
accounting of these nine contracts through earnings. Based on the natural
gas prices, at the beginning of April 2002, MCV recorded a $58.1&nbsp;million
gain for the cumulative effect of this accounting change. During the
fourth quarter of 2002, MCV removed the option component from three of
the nine long-term gas contracts, which should reduce some of the
earnings volatility. Since April 2002, MCV has recorded an additional
mark-to-market gain of $16.9&nbsp;million for these gas contracts for a
cumulative mark-to-market gain through December&nbsp;31, 2003 of $75.0
million, which will reverse over the remaining life of these gas
contracts, ranging from 2004 to 2007.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">For the twelve months ended December&nbsp;31, 2003, MCV recorded in &#147;Fuel
costs&#148; a $5.0&nbsp;million net mark-to-market loss in earnings associated with
these contracts. In addition, as of December&nbsp;31, 2003 and December&nbsp;31,
2002, MCV recorded &#147;Derivative assets&#148; in Current Assets in the amount of
$56.9&nbsp;million and $48.9&nbsp;million, respectively, and for the same periods
recorded &#147;Derivative assets&#148; in Other Assets in the amount of $18.1
million and $31.0&nbsp;million, respectively, representing the mark-to-market
gain on these long-term natural gas contracts.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Natural Gas Supply Futures and Options</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To manage market risks associated with the volatility of natural gas
prices, MCV maintains a gas hedging program. MCV enters into natural gas
futures and option contracts in order to hedge against unfavorable
changes in the market price of natural gas in future months when gas is
expected to be needed. These financial instruments are being utilized
principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of
natural gas previously obtained in order to optimize MCV&#146;s existing gas
supply, storage and transportation arrangements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">These financial instruments are derivatives under SFAS No.&nbsp;133 and the
contracts that are utilized to secure the anticipated natural gas
requirements necessary for projected electric and steam sales qualify as
cash flow</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-12</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">hedges under SFAS No.&nbsp;133, since they hedge the price risk associated
with the cost of natural gas. MCV also engages in cost mitigation
activities to offset the fixed charges MCV incurs in operating the
Facility. These cost mitigation activities include the use of futures
and options contracts to purchase and/or sell natural gas to maximize the
use of the transportation and storage contracts when it is determined
that they will not be needed for Facility operation. Although these cost
mitigation activities do serve to offset the fixed monthly charges, these
cost mitigation activities are not considered a normal course of business
for MCV and do not qualify as hedges under SFAS No.&nbsp;133. Therefore, the
resulting mark-to-market gains and losses from cost mitigation activities
are flowed through MCV&#146;s earnings.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Cash is deposited with the broker in a margin account at the time futures
or options contracts are initiated. The change in market value of these
contracts requires adjustment of the margin account balances. The margin
account balance as of December&nbsp;31, 2003 and December&nbsp;31, 2002 was
recorded as a current asset in &#147;Broker margin accounts and prepaid
expenses,&#148; in the amount of $4.1&nbsp;million and $.8&nbsp;million, respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">For the twelve months ended December&nbsp;31, 2003, MCV has recognized in
other comprehensive income, an unrealized $5.0&nbsp;million increase on the
futures contracts, which are hedges of forecasted purchases for plant use
of market priced gas. This resulted in a net $31.3&nbsp;million gain in other
comprehensive income as of December&nbsp;31, 2003. This balance represents
natural gas futures and options with maturities ranging from January 2004
to December 2007, of which $21.8&nbsp;million of this gain is expected to be
reclassified into earnings within the next twelve months. MCV also has
recorded, as of December&nbsp;31, 2003, a $29.9&nbsp;million current derivative
asset in &#147;Derivative assets,&#148; representing the mark-to-market gain on
natural gas futures for anticipated projected electric and steam sales
accounted for as hedges. In addition, for the twelve months ended
December&nbsp;31, 2003, MCV has recorded a net $35.0&nbsp;million gain in earnings
included in fuel costs from hedging activities related to MCV natural gas
requirements for Facility operations and a net $1.0&nbsp;million gain in
earnings from cost mitigation activities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">For the twelve months ended December&nbsp;31, 2002, MCV recognized an
unrealized $50.6&nbsp;million increase in other comprehensive income on the
futures contracts, which are hedges of forecasted purchases for plant use
of market priced gas, resulting in a $26.3&nbsp;million gain balance in other
comprehensive income as of December&nbsp;31, 2002. As of December&nbsp;31, 2002,
MCV had recorded a $24.9&nbsp;million current derivative asset in &#147;Derivative
assets.&#148; For the twelve months ended December&nbsp;31, 2002, MCV had recorded
a net $12.2&nbsp;million loss in earnings from hedging activities related to
MCV natural gas requirements for Facility operations and a net $.4
million gain in earnings from cost mitigation activities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Interest Rate Swaps</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To manage the effects of interest rate volatility on interest income
while maximizing return on permitted investments, MCV established an
interest rate hedging program. The notional amounts of the hedges are
tied directly to MCV&#146;s anticipated cash investments, without physically
exchanging the underlying notional amounts. Cash is deposited with the
broker in a margin account at the time the interest rate swap
transactions are initiated. The change in market value of these
contracts may require further adjustment of the margin account balance.
The margin account balance at December&nbsp;31, 2002, of
approximately $25,000, which was recorded as a current asset in &#147;Broker margin accounts
and prepaid expenses,&#148; was returned to MCV during the month of January
2003 since MCV currently does not have any outstanding interest rate swap
transactions.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As of December&nbsp;31, 2002, MCV had one interest rate swap, with a notional
amount of $20.0&nbsp;million with a period of performance that extended to
December&nbsp;1, 2002, which did not qualify as a hedge under SFAS No.&nbsp;133.
The gains and losses on this swap were recorded currently in earnings.
For the twelve months ended December&nbsp;31, 2002, MCV recorded an immaterial
loss in earnings.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-13</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Reclassification</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Certain prior period amounts have been reclassified to conform to the
current year financial statement presentation.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">New Accounting Standards</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In April 2003, the FASB issued SFAS No.&nbsp;149, &#147;Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.&#148; This SFAS amends SFAS No.
133 for decisions made (1)&nbsp;as part of the Derivative Implementations Group
process that effectively required amendments to SFAS No.&nbsp;133, (2)&nbsp;for other
Financial Accounting Standards Board projects dealing with financial
instruments and (3)&nbsp;for implementation issues raised in relation to the
application of this definition of a derivative. The changes in this SFAS
No.&nbsp;149 improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly, which will result in
more consistent reporting of contracts as either derivatives or hybrid
instruments. This standard is effective for contracts entered into or
modified after June&nbsp;30, 2003, with some exceptions. MCV has adopted this
standard and does not expect the application to materially affect its
financial position or results of operations.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">RESTRICTED INVESTMENT SECURITIES HELD-TO-MATURITY</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Non-current restricted investment securities held-to-maturity have carrying
amounts that approximate fair value because of the short maturity of these
instruments and consist of the following at December&nbsp;31 (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds restricted for rental payments
pursuant to the Overall Lease
Transaction</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">137,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">136,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds restricted for management
non-qualified plans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">139,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">138,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ACCOUNTS PAYABLE AND ACCRUED LIABILITIES</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Accounts payable and accrued liabilities consist of the following at
December&nbsp;31 (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Related parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">7,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">12,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade creditors</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and single business taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">57,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">58,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">GAS SUPPLIER FUNDS ON DEPOSIT</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Pursuant to individual gas contract terms with counterparties, deposit
amounts may be required by one party to
the other based upon the net amount of exposure.  The net amount of exposure will vary with
changes in market prices, credit provisions and various other factors.  Collateral paid or
received will be posted by one party to
</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-14</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the other based upon the net amount of exposure. The net amount of exposure
will vary with changes in market prices, credit provisions and various other
factors. Collateral paid or received will be posted by one party to the
other based on the net amount of the exposure. Interest is earned on funds
on deposit. As of December&nbsp;31, 2003 MCV was not supplying any credit
support in the form of cash or letters of credit. As of December&nbsp;31, 2003
MCV was holding $4.5&nbsp;million of cash on deposit and letters of credit
totaling $116.6&nbsp;million from two gas suppliers as collateral support.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">LONG-TERM DEBT</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Long-term debt consists of the following at December&nbsp;31 (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financing obligation, maturing through
2015, payable in semi-annual installments
of principal and interest, collateralized
by property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,153,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,247,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Less current portion</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(134,576</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93,928</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total long-term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,018,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,153,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Financing Obligation</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In June 1990, MCV obtained permanent financing for the Facility by entering
into sale and leaseback agreements (&#147;Overall Lease Transaction&#148;) with a
lessor group, related to substantially all of MCV&#146;s fixed assets. Proceeds
of the financing were used to retire borrowings outstanding under existing
loan commitments, make a capital distribution to the Partners and retire a
portion of notes issued by MCV to MEC Development Corporation (&#147;MDC&#148;) in
connection with the transfer of certain assets by MDC to MCV. In
accordance with SFAS No.&nbsp;98, &#147;Accounting For Leases,&#148; the sale and
leaseback transaction has been accounted for as a financing arrangement.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The financing obligation utilizes the effective interest rate method, which
is based on the minimum lease payments required through the end of the
basic lease term of 2015 and management&#146;s estimate of additional
anticipated obligations after the end of the basic lease term. The
effective interest rate during the remainder of the basic lease term is
approximately 9.4%.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the terms of the Overall Lease Transaction, MCV sold undivided
interests in all of the fixed assets of the Facility for approximately $2.3
billion, to five separate owner trusts (&#147;Owner Trusts&#148;) established for the
benefit of certain institutional investors (&#147;Owner Participants&#148;). U.S.
Bank National Association (formerly known as State Street Bank and Trust
Company) serves as owner trustee (&#147;Owner Trustee&#148;) under each of the Owner
Trusts, and leases undivided interests in the Facility on behalf of the
Owner Trusts to MCV for an initial term of 25&nbsp;years. CMS Midland Holdings
Company (&#147;CMS Holdings&#148;), currently a wholly owned subsidiary of Consumers,
acquired a 35% indirect equity interest in the Facility through its
purchase of an interest in one of the Owner Trusts.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Overall Lease Transaction requires MCV to achieve certain rent coverage
ratios and other financial tests prior to a distribution to the Partners.
Generally, these financial tests become more restrictive with the passage
of time. Further, MCV is restricted to making permitted investments and
incurring permitted
indebtedness as specified in the Overall Lease Transaction. The Overall
Lease Transaction also requires filing of certain periodic operating and
financial reports, notification to the lessors of events constituting a
material adverse change, significant litigation or governmental
investigation, and change in status as a qualifying facility under FERC
proceedings or court decisions, among others. Notification and approval is
required for plant modification, new business activities, and other
significant changes, as defined. In addition,</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-15</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has agreed to indemnify various parties to the sale and leaseback
transaction against any expenses or environmental claims asserted, or
certain federal and state taxes imposed on the Facility, as defined in the
Overall Lease Transaction.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the terms of the Overall Lease Transaction and refinancing of the
tax-exempt bonds, approximately $25.0&nbsp;million of transaction costs were a
liability of MCV and have been recorded as a deferred cost. Financing
costs incurred with the issuance of debt are deferred and amortized using
the interest method over the remaining portion of the 25-year lease term.
Deferred financing costs of approximately $1.4&nbsp;million, $1.5&nbsp;million and
$1.7&nbsp;million were amortized in the years 2003, 2002 and 2001, respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Interest and fees incurred related to long-term debt arrangements during
2003, 2002 and 2001 were $111.9&nbsp;million, $118.3&nbsp;million and $124.6&nbsp;million,
respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Interest and fees paid during 2003, 2002 and 2001 were $115.4&nbsp;million,
$122.1&nbsp;million and $131.7&nbsp;million, respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Minimum payments due under these long-term debt arrangements over the next
five years are (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="14%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Principal</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Interest</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">134,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">108,233</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">242,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">174,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">92,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">155,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">405,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">469,735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">874,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Revolving Credit Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has also entered into a working capital line (&#147;Working Capital
Facility&#148;), which expires August&nbsp;29, 2004. Under the terms of the existing
agreement, MCV can borrow up to the $50&nbsp;million commitment, in the form of
short-term borrowings or letters of credit collateralized by MCV&#146;s natural
gas inventory and earned receivables. At any given time, borrowings and
letters of credit are limited by the amount of the borrowing base, defined
as 90% of earned receivables and 50% of natural gas inventory, capped at
$15&nbsp;million. During 2003, MCV did not utilize the Working Capital
Facility. At December&nbsp;31, 2003, MCV had no outstanding borrowings or
letters of credit.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Intercreditor Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has also entered into an Intercreditor Agreement with the Owner
Trustee, Working Capital Lender, U.S. Bank National Association as
Collateral Agent (&#147;Collateral Agent&#148;) and the Senior and Subordinated
Indenture Trustees. Under the terms of this agreement, MCV is required to
deposit all revenues derived from the operation of the Facility with the
Collateral Agent for purposes of paying operating expenses and rent. In
addition, these funds are required to pay construction modification costs
and to secure future rent payments. As of December&nbsp;31, 2003, MCV has
deposited $137.3&nbsp;million into the reserve account. The reserve account is
to be maintained at not less than $40&nbsp;million nor more than $137&nbsp;million
(or debt portion of next succeeding basic rent payment, whichever is
greater). Excess funds in the reserve account are periodically transferred
to MCV. This agreement also contains provisions governing the distribution
of revenues and rents due under the
Overall Lease Transaction, and establishes the priority of payment among
the Owner Trusts, creditors of the Owner Trusts, creditors of MCV and the
Partnership.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-16</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(7)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">COMMITMENTS AND OTHER AGREEMENTS</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has entered into numerous commitments and other agreements related to
the Facility. Principal agreements are summarized as follows:</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Power Purchase Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV and Consumers have executed the PPA for the sale to Consumers of a
minimum amount of electricity, subject to the capacity requirements of Dow
and any other permissible electricity purchasers. Consumers has the right
to terminate and/or withhold payment under the PPA if the Facility fails to
achieve certain operating levels or if MCV fails to provide adequate fuel
assurances. In the event of early termination of the PPA, MCV would have a
maximum liability of approximately $270&nbsp;million if the PPA were terminated
in the 12<SUP>th</SUP> through 24<SUP>th</SUP> years. The term of this agreement is 35&nbsp;years
from the commercial operation date and year-to-year thereafter.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Steam and Electric Power Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV and Dow executed the SEPA for the sale to Dow of certain minimum
amounts of steam and electricity for Dow&#146;s facilities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">If the SEPA is terminated, and Consumers does not fulfill MCV&#146;s commitments
as provided in the Backup Steam and Electric Power Agreement, MCV will be
required to pay Dow a termination fee, calculated at that time, ranging
from a minimum of $60&nbsp;million to a maximum of $85&nbsp;million. This agreement
provides for the sale to Dow of steam and electricity produced by the
Facility for terms of 25&nbsp;years and 15&nbsp;years, respectively, commencing on
the commercial operation date and year-to-year thereafter.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Steam Purchase Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV and DCC executed the SPA for the sale to DCC of certain minimum amounts
of steam for use at the DCC Midland site. Steam sales under the SPA
commenced in July 1996. Termination of this agreement, prior to
expiration, requires the terminating party to pay to the other party a
percentage of future revenues, which would have been realized had the
initial term of 15&nbsp;years been fulfilled. The percentage of future revenues
payable is 50% if termination occurs prior to the fifth anniversary of the
commercial operation date and 33-1/3% if termination occurs after the fifth
anniversary of this agreement. The term of this agreement is 15&nbsp;years from
the commercial operation date of steam deliveries under the contract and
year-to-year thereafter.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Gas Supply Agreements</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has entered into gas purchase agreements with various producers for the
supply of natural gas. The current contracted volume totals 227,561 MMBtu
per day annual average for 2004. As of January&nbsp;1, 2004, gas contracts with
U.S. suppliers provide for the purchase of 149,423 MMBtu per day while gas
contracts with Canadian suppliers provide for the purchase of 78,138 MMBtu
per day. Some of these contracts require MCV to pay for a minimum amount
of natural gas per year, whether or not taken. The estimated minimum
commitments under these contracts based on current long term prices for gas
for the years 2004 through 2008 are $267.3&nbsp;million, $338.6&nbsp;million, $344.1
million, $340.4&nbsp;million and $283.9&nbsp;million, respectively. A portion of
these payments may be utilized in future years to offset the cost of
quantities of natural gas taken above the minimum amounts.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Gas Transportation Agreements</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV has entered into firm natural gas transportation agreements with
various pipeline companies. These agreements require MCV to pay certain
reservation charges in order to reserve the transportation capacity.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-17</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV incurred reservation charges in 2003, 2002 and 2001, of $34.8&nbsp;million,
$35.1&nbsp;million and $36.2&nbsp;million, respectively. The estimated minimum
reservation charges required under these agreements for each of the years
2004 through 2008 are $34.9&nbsp;million, $33.8&nbsp;million, $30.0&nbsp;million, $21.6
million and $21.6&nbsp;million, respectively. These projections are based on
current commitments.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Gas Turbine Service Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV entered into a Service Agreement, as amended, with Alstom, which
commenced on January&nbsp;1, 1990 and was set to expire upon the earlier of the
completion of the sixth series of major GTG inspections or December&nbsp;31,
2009. Under the terms of this agreement, Alstom sold MCV an initial
inventory of spare parts for the GTGs and provides qualified service
personnel and supporting staff to assist MCV, to perform scheduled
inspections on the GTGs, and to repair the GTGs at MCV&#146;s request. Upon
termination of the Service Agreement (except for nonperformance by Alstom),
MCV must pay a cancellation payment. MCV and Alstom amended the Service
Agreement, effective December&nbsp;31, 1993, to include the supply of hot gas
path parts. Under the amended Service Agreement, Alstom provides hot gas
path parts for MCV&#146;s twelve gas turbines through the fourth series of major
GTG inspections, which were completed in 2002. In January 1998, MCV and
Alstom amended the length of the amended Service Agreement to extend
through the sixth series of major GTG inspections, which are expected to be
completed by year end 2008, for a lump sum fixed price covering the entire
term of the amended Service Agreement of $266.5&nbsp;million (in 1993 dollars,
which is adjusted based on exchange rates and Swiss inflation indices),
payable on the basis of operating hours as they occur over the same period.
MCV has made payments totaling approximately $200.7&nbsp;million under this
amended Service Agreement through December&nbsp;31, 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV signed a new maintenance service and parts agreement with General
Electric International, Inc. (&#147;GEII&#148;), effective December&nbsp;31, 2002 (&#147;GEII
Agreement&#148;). GEII will provide maintenance services and hot gas path parts
for MCV&#146;s twelve GTG&#146;s. Under terms and conditions similar to the
MCV/Alstom Service Agreement, as described above the GEII Agreement will
cover four rounds of major GTG inspections, which are expected to be
completed by the year 2015, at a savings to MCV as compared to the Service
Agreement with Alstom. The GEII Agreement is expected to replace the
current Alstom Service Agreement commencing July&nbsp;1, 2004. The GEII
Agreement can be terminated by either party for cause or convenience.
Should termination for convenience occur, a buy out amount will be paid by
the terminating party with payments ranging from approximately $19.0
million to $.9&nbsp;million, based upon the number of operating hours utilized
since commencement of the GEII Agreement.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV terminated the Alstom Service Agreement in February 2004, for cause and therefore does not owe the approximately $5.8&nbsp;million termination payment to Alstom. MCV has a claim against Alstom for approximately $3.0&nbsp;million for
adjustments due to reduced equivalent operating hours experienced under the
Service Agreement, that was paid by MCV and a claim against Alstom for one set of hot gas path spare parts (valued within a
range of $3.0&nbsp;million to $7.0&nbsp;million). These matters may be disputed by
Alstom and other disputes may arise. MCV will seek final resolution of all claims that may arise between the parties. At
this time, MCV has not recognized any liability to or receivable from Alstom in connection with these claims or termination.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Steam Turbine Service Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV entered into a nine year Steam Turbine Maintenance Agreement with
General Electric Company effective January&nbsp;1, 1995, which is designed to
improve unit reliability, increase availability and minimize unanticipated
maintenance costs. In addition, this contract includes performance
incentives and penalties,
which are based on the length of each scheduled outage and the number of
forced outages during a calendar year. Effective February&nbsp;1, 2004, MCV and
GE amended this contract to extend its term through August&nbsp;31, 2007. MCV
will continue making monthly payments over the life of the contract, which
will total</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-18</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>


<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">$22.3&nbsp;million (subject to escalation based on defined indices). The
parties have certain termination rights without incurring penalties or
damages for such termination. Upon termination, MCV is only liable
for payment of services rendered or parts provided prior to
termination.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Site Lease</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In December 1987, MCV leased the land on which the Facility is located from
Consumers (&#147;Site Lease&#148;). MCV and Consumers amended and restated the Site
Lease to reflect the creation of five separate undivided interests in the
Site Lease as of June&nbsp;1, 1990. Pursuant to the Overall Lease Transaction,
MCV assigned these undivided interests in the Site Lease to the Owner
Trustees, which in turn subleased the undivided interests back to MCV under
five separate site subleases.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Site Lease is for a term which commenced on December&nbsp;29, 1987, and ends
on December&nbsp;31, 2035, including two renewal options of five years each.
The rental under the Site Lease is $.6&nbsp;million per annum, including the two
five-year renewal terms.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Gas Turbine Generator Compressor Blade Agreement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV entered into an agreement with MTS Machinery Tools &#038; Services AG
(&#147;MTS&#148;), in January 2002. Under this agreement MTS redesigned and will
manufacture and install new design compressor blades for MCV&#146;s twelve
GTG&#146;s, which is expected to increase the overall electrical capacity and
efficiency of each GTG. MCV has purchased three sets of such blades and
has the option to purchase an additional nine sets. The first set of
compressor blades was installed in the second quarter of 2003 for
approximately $4.2&nbsp;million. At this time, an additional two sets have been
ordered at a cost of $4.1&nbsp;million.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(8)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">PROPERTY TAXES</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In 1997, MCV filed a property tax appeal against the City of Midland at the
Michigan Tax Tribunal contesting MCV&#146;s 1997 property taxes. Subsequently,
MCV filed appeals contesting its property taxes for tax years 1998 through
2003 at the Michigan Tax Tribunal. A trial was held for tax years 1997 &#150;
2000. The appeals for tax years 2001-2003 are being held in abeyance. On
January&nbsp;23, 2004, the Michigan Tax Tribunal issued its decision in MCV&#146;s
tax appeal against the City of Midland for tax years 1997 through 2000.
MCV management has estimated that the decision will result in a refund to
MCV for the tax years 1997 through 2000 of approximately $29&nbsp;million in
taxes plus $7&nbsp;million of interest. The decision is subject to
reconsideration at the Tribunal and may be appealed to the Michigan
Appellate Court and Michigan Supreme Court. The City of Midland has filed
a motion for reconsideration at the Michigan Tax Tribunal, asking the
Tribunal to make certain technical corrections, as well as substantive
changes to the decision. MCV has opposed this motion. MCV management
cannot predict the outcome of these further legal proceedings. MCV has not
recognized any of the above stated refunds (net of approximately $15.5
million of deferred expenses) in earnings at this time.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(9)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">RETIREMENT BENEFITS</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Postretirement Health Care Plans</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In 1992, MCV established defined cost postretirement health care plans
(&#147;Plans&#148;) that cover all full-time employees, excluding key management.
The Plans provide health care credits, which can be utilized to purchase
medical plan coverage and pay qualified health care expenses. Participants
become eligible for the
benefits if they retire on or after the attainment of age 65 or upon a
qualified disability retirement, or if they have 10 or more years of
service and retire at age 55 or older. The Plans granted retroactive
benefits for all employees hired prior to January&nbsp;1, 1992. This prior
service cost has been amortized to expense over a five</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-19</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">year period. MCV annually funds the current year service and interest
cost as well as amortization of prior service cost to both qualified and
non-qualified trusts. The MCV accounts for retiree medical benefits in
accordance with SFAS 106, &#147;Employers Accounting for Postretirement Benefits
Other Than Pensions.&#148; This standard required the full accrual of such
costs during the years that the employee renders service to the MCV until
the date of full eligibility. The accumulated benefit obligation of the
Plans were $3.3&nbsp;million at December&nbsp;31, 2003 and $2.7&nbsp;million at December
31, 2002. The measurement date of these Plans was December&nbsp;31, 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;8, 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the &#147;Act&#148;).
The Act expanded Medicare to include, for the first time, coverage for
prescription drugs. At this time, because of various uncertainties related
to this legislation and the appropriate accounting methodology, MCV has
elected to defer financial recognition of this legislation until the FASB
issues final accounting guidance. When issued, that final guidance could
require MCV to change previously reported information. This deferral
election is permitted under SFAS 106-1.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The following table reconciles the change in the Plans&#146; benefit obligation
and change in Plan assets as reflected on the balance sheet as of December
31 (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Change in benefit obligation:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefit obligation at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,741.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2,405.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">212.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">197.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">188.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Actuarial gain (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid during year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefit obligation at end of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,276.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,741.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Change in Plan assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of Plan assets at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,045.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,088.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Actual return on Plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">527.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(270.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employer contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">233.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid during year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of Plan assets at end of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,826.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,045.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unfunded (funded)&nbsp;status</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">449.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">696.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized prior service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(170.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(184.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized net gain (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(278.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(511.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued benefit cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Net periodic postretirement health care cost for years ending December&nbsp;31,
included the following components (in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Components of net periodic benefit cost:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">212.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">197.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">173.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">188.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">142.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expected return on Plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(163.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(171.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of unrecognized net (gain)&nbsp;or loss</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net periodic benefit cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">257.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">233.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">132.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-20</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects
(in thousands):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1-Percentage-Point</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

<TD nowrap align="center" colspan="3"><FONT size="1"><B>1-Percentage-Point</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Increase</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Decrease</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Effect on total of service and interest cost components</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">48.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">41.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Effect on postretirement benefit obligation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">358.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">310.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Assumptions used in accounting for the Post-Retirement Health Care Plan
were as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discount rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.75</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.25</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term rate of return on Plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inflation benefit amount</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1998 through 2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005 and later years</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The long-term rate of return on Plan assets is established based on MCV&#146;s
expectations of asset returns for the investment mix in its Plan (with some
reliance on historical asset returns for the Plans). The expected returns
for various asset categories are blended to derive one long-term
assumption.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Plan Assets. Citizens Bank has been appointed as trustee (&#147;Trustee&#148;) of
the Plan. The Trustee serves as investment consultant, with the
responsibility of providing financial information and general guidance to
the MCV Benefits Committee. The Trustee shall invest the assets of the
Plan in the separate investment options in accordance with instructions
communicated to the Trustee from time to time by the MCV Benefit Committee.
The MCV Benefits Committee has the fiduciary and investment selection
responsibility for the Plan. The MCV Benefits Committee consists of MCV
Officers (excluding the President and Chief Executive Officer).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The MCV has a target allocation of 80% equities and 20% debt instruments.
These investments emphasis total growth return, with a moderate risk level.
The MCV Benefits Committee reviews the performance of the Plan investments
quarterly, based on a long-term investment horizon and applicable
benchmarks, with rebalancing of the investment portfolio, at the discretion
of the MCV Benefits Committee.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV&#146;s Plan&#146;s weighted-average asset allocations, by asset category are as
follows as of December&nbsp;31:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Asset Category:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity securities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Contributions. MCV expects to contribute approximately $.2&nbsp;million to the
Plan in 2004.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Retirement and Savings Plans</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV sponsors a defined contribution retirement plan covering all employees.
Under the terms of the plan, MCV makes contributions to the plan of either
five or ten percent of an employee&#146;s eligible annual compensation dependent
upon the employee&#146;s age. MCV also sponsors a 401(k) savings plan for
employees. Contributions and costs for this plan are based on matching an
employee&#146;s savings up to a maximum level. In</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-21</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">2003, 2002 and 2001, MCV contributed $1.3&nbsp;million, $1.2&nbsp;million and $1.1
million, respectively under these plans.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Supplemental Retirement Benefits</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">MCV provides supplemental retirement, postretirement health care and excess
benefit plans for key management. These plans are not qualified plans
under the Internal Revenue Code; therefore, earnings of the trusts
maintained by MCV to fund these plans are taxable to the Partners and trust
assets are included in the assets of MCV.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-22</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center"><FONT size="2">MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(continued)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(10)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">PARTNERS&#146; EQUITY AND RELATED PARTY TRANSACTIONS</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The following table summarizes the nature and amount of each of MCV&#146;s
Partner&#146;s equity interest, interest in profits and losses of MCV at December
31, 2003, and the nature and amount of related party transactions or
agreements that existed with the Partners or affiliates as of December&nbsp;31,
2003, 2002 and 2001, and for each of the twelve month periods ended December
31 (in thousands).</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Beneficial Owner, Equity Partner,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Type of Partner and Nature of Related Party</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Equity Interest</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Interest</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Related Party Transactions and Agreements</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">CMS Energy Company</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">CMS Midland, Inc.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" nowrap align="left"><FONT size="2">Power purchase agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">513,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">557,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">550,477</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" rowspan="3" valign="top"><FONT size="2">General Partner; wholly-owned subsidiary of Consumers Energy
Company</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under gas transportation agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under spot gas agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under gas supply agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Gas storage agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Land lease/easement agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts receivable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,843</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts payable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">391,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49.0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Sales under spot gas agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">El Paso Corporation</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" rowspan="3"><FONT size="2">Source Midland Limited Partnership
(&#147;SMLP&#148;) General Partner; owned by
subsidiaries of El Paso Corporation<SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchase under gas transportation agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under spot gas agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under gas supply agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Gas agency agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Deferred reservation charges under gas purchase agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts receivable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts payable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Sales under spot gas agreements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">139,421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Partner cash withdrawal (including accrued interest)<SUP>(2)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3" rowspan="2"><FONT size="2">El Paso Midland, Inc. (&#147;El Paso Midland&#148;)
General Partner; wholly-owned subsidiary
of El Paso Corporation<SUP>(1)</SUP>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" valign="top" align="left"><FONT size="2">See related party activity listed under SMLP.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" nowrap><FONT size="2">MEI Limited Partnership (&#147;MEI&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">See related party activity listed under SMLP.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><FONT size="2">A General and Limited Partner;
50% interest owned by El Paso Midland, Inc.
and 50% interest owned by SMLP<SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">General Partnership Interest</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Limited Partnership Interest</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3" nowrap><FONT size="2">Micogen Limited Partnership</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">See related party activity listed under SMLP.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><FONT size="2">(&#147;MLP&#148;) Limited Partner, owned
subsidiaries of El Paso Corporation<SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Total El Paso Corporation</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">334,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43.5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">The Dow Chemical Company</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">The Dow Chemical Company</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" nowrap align="left"><FONT size="2">Steam and electric power agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" valign="top"><FONT size="2">Limited Partner</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Steam purchase agreement - Dow Corning Corp (affiliate)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Purchases under demineralized water supply agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,913</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts receivable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Accounts payable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Standby and backup fees</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">696</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">72,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Sales of gas under tolling agreement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Alanna Corporation</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Alanna Corporation</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" nowrap align="left"><FONT size="2">Note receivable</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><FONT size="2">Limited Partner; wholly-owned subsidiary
of Alanna Holdings Corporation</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(3)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">.00001</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P align="left"><FONT size="2">Footnotes to Partners&#146; Equity and Related Party Transactions
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On January&nbsp;29, 2001, El Paso Corporation (&#147;El Paso&#148;) announced that it
had completed its merger with The Coastal Corporation (&#147;Coastal&#148;).
Coastal was the previous parent company of El Paso Midland (formerly known
as Coastal Midland, Inc.), SMLP, MLP and, through SMLP, MEI. After the
merger, Coastal became a wholly-owned subsidiary of El Paso and has
changed its name to El Paso CGP Company.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(2)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A letter of credit has been issued and recorded as a note receivable from
El Paso Midland, this amount includes their share of cash available, as
well as, cash available to MEI, MLP and SMLP.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(3)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Alanna&#146;s capital stock is pledged to secure MCV&#146;s obligation under the
lease and other overall lease transaction documents.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-23</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<P align="center"><FONT size="2">SUPPLEMENTAL INFORMATION
</FONT>

<P align="left"><FONT size="2">Supplemental information is to be furnished with reports filed pursuant to
Section&nbsp;15 (d)&nbsp;of the Act by registrants, which have not registered securities
pursuant to Section&nbsp;12 of the Act. No such annual report or proxy statement
has been sent to security holders.
</FONT>
<P align="center"><FONT size="2">F-24</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<!-- link1 "SIGNATURES" -->
<P align="center"><FONT size="2">SIGNATURES
</FONT>

<P align="left"><FONT size="2">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" valign="top" align="left"><FONT size="2">MIDLAND COGENERATION VENTURE<BR>
LIMITED PARTNERSHIP</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Date: March&nbsp;1, 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">/s/ James M. Kevra</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">James M. Kevra</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">President and Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="29%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Signature</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Title</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Date</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">/s/ James M. Kevra
<HR size="1" noshade>
James M. Kevra</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
President and Chief Executive Officer<BR>
(Principal Executive Officer)
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">March&nbsp;1, 2004</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">/s/ James M. Rajewski
<HR size="1" noshade>
James M. Rajewski</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Financial Officer,
Vice President and Controller<BR>
(Principal Accounting Officer)
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">March&nbsp;1, 2004</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">/s/ John J. O&#146;Rourke
<HR size="1" noshade>
John J. O&#146;Rourke</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chairman, Management Committee
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">March&nbsp;1, 2004</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">/s/ David W. Joos
<HR size="1" noshade>
David W. Joos</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Member, Management Committee
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">March&nbsp;1, 2004</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-25</FONT>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(B)
<SEQUENCE>29
<FILENAME>k91832exv99wxby.txt
<DESCRIPTION>FINANCIAL STATEMENTS FOR JORF LASFAR
<TEXT>
<PAGE>

                                                                EXHIBIT (99)(b)

                        JORF LASFAR ENERGY COMPANY S.C.A
                                      JLEC

                        CENTRALE THERMIQUE DE JORF LASFAR
                               B P 99 SIDI BOUZID
                                    EL JADIDA
                                     MOROCCO
                              Tel : 212 23 34 53 71
                              Fax : 212 23 34 54 05

                                     US GAAP

                              FINANCIAL STATEMENTS

                                      AS OF

                        DECEMBER 31, 2004, 2003 and 2002

                                     AUDITED

    R.C. n degree 86655 - Patente n degree 35511273 - Identification Fiscale
                           (I.S TVA) n degree 1021595

<PAGE>

JORF LASFAR ENERGY COMPANY

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                  Page(s)
                                                                  -------
<S>                                                               <C>
Balance Sheet

          As of December 31, 2004, 2003, and 2002...............     2

Statement of Income

          For years ending December 31, 2004, 2003, and 2002....     3

Statement of Stockholders' Equity

          For years ending December 31, 2004, 2003, and 2002....     4

Statement of Cash Flows

          For years ending December 31, 2004, 2003, and 2002....     5

Notes to US GAAP Financial Statements...........................     6-26
</TABLE>

<PAGE>

      JORF LASFAR ENERGY COMPANY

BALANCE  SHEET

<TABLE>
<CAPTION>
                                                                Note     December 31, 2004   December 31, 2003   December 31, 2002
                                                                ----     -----------------   -----------------   -----------------
                                                                         (000) U.S. Dollars  (000) U.S. Dollars  (000) U.S. Dollars
<S>                                                          <C>         <C>                 <C>                 <C>
ASSETS

   Current Assets
       Cash................................................     3.1              69,800              65,611              46,683
       Inventories.........................................   2.c & 4            59,318              38,548              40,615
       Account Receivable..................................      5              123,867              85,486              76,175
       Prepayments.........................................      6               23,655              11,582              23,757
       Recoverable VAT.....................................      8                1,540                   0                   0
       Net investment from $ DFL model.....................  2.b & 17.3           9,644              38,461              20,206
       Net investment from Euro DFL model..................  2.b & 17.3          28,264              40,942              31,298
                                                                              ---------           ---------           ---------
             Total current assets..........................                     316,088             280,629             238,734

   Long Term Assets, net
       Restricted Cash.....................................     3.2              22,591              83,049              53,778
       Fixed Assets........................................      7               12,159               9,603               6,554
       Net investment from $ DFL model.....................  2.b & 17.3         656,723             638,004             678,549
       Net investment from Euro DFL model..................  2.b & 17.3         437,791             411,100             374,509
       $ Capacity Charges less than $ DFL model............     13.1                  0                 713                   0
       Euro Capacity Charges less than Euro DFL model......     13.2                  0                   0                   0
       Deferred Tax Asset..................................      2.f              1,556                   0                   0
       Other Long Term Assets..............................        9             16,339              19,058              10,968
                                                                              ---------           ---------           ---------
             Total Long Term Assets........................                   1,147,158           1,161,527           1,124,357

                                                                              ---------           ---------           ---------

             Total assets..................................                   1,463,246           1,442,157           1,363,091

LIABILITIES AND STOCKHOLDERS' EQUITY

   Current Liabilities
       Accounts payable to third parties...................      10              89,031              51,258              38,824
       Accounts payable to related parties.................      11              96,408             176,730             145,065
       VAT  Liability......................................       8                   0               3,972               2,871
       Taxes payable.......................................      12               5,134               7,527               4,866
       Current part of Long-term loans in US Dollars.......      15              25,749              25,749              25,749
       Current part of Long-term loans in Euro.............      15              48,043              44,491              36,855
       Other current liabilities...........................      14               9,363               7,739               7,955
                                                                              ---------           ---------           ---------
             Total current liabilities.....................                     273,727             317,466             262,186

   Non-Current Liabilities
       Long-term loans in US Dollars.......................      15             186,677             212,426             238,174
       Long-term loans in Euro.............................      15             348,314             367,052             340,912
       $ Capacity Charges greater than $ DFL model.........     13.1                 44                   0               2,441
       Euro Capacity Charges greater than Euro DFL model...     13.2                 73                 422                 236
       Deferred Tax Liability..............................      2.f                  0                   0              13,005
       Derivative Instrument Liability.....................      20              23,446              22,050              21,410
       Unfunded Pension Obligations........................     19.1             13,782               9,878               5,693
                                                                              ---------           ---------           ---------
             Total non-current liabilities.................                     572,336             611,828             621,872

   Commitment and Contingencies                                  22

   Stockholders' Equity
       Common Stock .......................................     16.1                 58                  58                  58
       Convertible Stockholders' Securities ...............     16.2            201,425             201,425             201,425
       Preferred Stock ....................................     16.3            185,930             185,930             185,930
       Retained Earnings ..................................     16.4            253,216             147,499             113,031
       Other Comprehensive Income or (Loss ................      20             (23,446)            (22,050)            (21,410)
                                                                              ---------           ---------           ---------
             Total stockholders' equity....................                     617,183             512,862             479,033

                                                                              ---------           ---------           ---------
             Total liabilities and stockholders' equity....                   1,463,246           1,442,157           1,363,091
</TABLE>

The accompanying Notes 1 to 22 are an integral part of these financial
statements.

                                     Page 2
<PAGE>

      JORF LASFAR ENERGY COMPANY

STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                       January 1, 2004     January 1, 2003     January 1, 2002
                                                             to                  to                  to
                                             Note     December 31, 2004   December 31, 2003   December 31, 2002
                                             ----     -----------------   -----------------   -----------------
                                                      (000) U.S. Dollars  (000) U.S. Dollars  (000) U.S. Dollars
<S>                                       <C>         <C>                 <C>                 <C>
REVENUE

   Lease Revenue from $ DFL model .....   2.b.&.17.2          80,476              81,793              88,464
   Lease Revenue from Euro DFL model...   2.b & 17.2         104,078             104,635              95,078
   Energy Payments.....................                      220,211             128,981             130,446
   O&M Revenue.........................                       49,187              45,066              42,930
   Supplemental Capacity Charges.......                        4,173               3,949               4,017
   License Tax Reimbursement...........                        2,864               4,102                   0
   Other...............................                          844                 352               3,337
                                                             -------             -------             -------
        TOTAL REVENUE                                        461,833             368,878             364,272

OPERATING EXPENSES

   Coal Cost...........................                      222,277             129,935             126,957
   Fuel Oil Cost.......................                        1,085               1,280                 910
   O&M Costs...........................                       32,876              33,554              25,057
   Operator's Incentive................                        4,281               2,784               3,721
   Generator Costs.....................                       13,977              11,994              11,397
   License Tax Costs...................                        2,864               4,102                   0
   Amortization of Major Maintenance...       9.1              2,564               1,935               1,128
   Depreciation of Other Assets........                        2,966               2,093               1,624
   Non-Current Pension Expense.........                        2,989               2,902               5,427
                                                             -------             -------             -------
        TOTAL OPERATING EXPENSES                             285,879             190,580             176,222

OPERATING INCOME                                             175,954             178,299             188,050

FINANCIAL ITEMS

   Financial Income....................                        1,786               2,025               1,764
   Exchange Gain (+) or Loss (-).......       2.d              1,867              (8,605)             (1,558)
   Financial Expenses..................       18             (46,893)            (49,425)            (44,834)
                                                             -------             -------             -------
        TOTAL FINANCIAL ITEMS                                (43,239)            (56,005)            (44,628)

INCOME BEFORE TAXES                                          132,715             122,293             143,422

   Income Taxes
        Current .......................       2.e              9,077              15,448               4,226
        Deferred. .....................       2.f             (1,556)            (13,005)              6,908

                                                             -------             -------             -------

NET INCOME                                16.4 & 21          125,194             119,850             132,288
</TABLE>

The accompanying Notes 1 to 22 are an integral part of these financial
statements.

                                     Page 3
<PAGE>

JORF LASFAR ENERGY COMPANY

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                January 1, 2004  January 1, 2003  January 1, 2002
                                                                                       to               to              to
                                                                                  December 31,     December 31,     December 31,
                                                                          Note        2004             2003            2002
                                                                          ----        ----             ----            ----
<S>                                                                       <C>   <C>              <C>              <C>
COMMON STOCK
  At beginning and end of period in number of shares                      16.1          5,500              5,500         5,500
  At beginning and end of period in thousands of USD                      16.1             58                 58            58

                                                                                         (000) U.S. Dollars
CONVERTIBLE STOCKHOLDERS' SECURITIES
  At beginning of period                                                              201,425            201,425       201,425
  Conversion of  Convertible Stockholders' Securities to Preferred Stock                    0                  0             0
  Conversion of Convertible Stockholders' Securities to Common Stock                        0                  0             0
                                                                                      -------            -------       -------
        At end of period                                                  16.2        201,425            201,425       201,425

PREFERRED STOCK
  At beginning of period                                                              185,930            185,930       185,930
  Conversion of  Convertible Stockholders' Securities to Preferred Stock                    0                  0             0
  Conversion of Preferred Stock to Common Stock                                             0                  0             0
                                                                                      -------            -------       -------
        At end of period                                                  16.3        185,930            185,930       185,930

RETAINED EARNINGS (DEFICIT)
      At beginning of period                                                          147,499            113,031       187,672
      Net income                                                                      125,194            119,850       132,288
      Common stock dividend                                                                 0            (64,973)     (184,891)
      Preferred stock dividend                                                         (9,349)            (9,796)       (9,942)
      Convertible stockholders' securities                                            (10,128)           (10,613)      (12,096)
                                                                                      -------            -------       -------

        At end of period                                                  16.4        253,216            147,499       113,031

OTHER COMPREHENSIVE INCOME (LOSS) (a)
  Derivative Instruments
      At beginning of period                                                          (22,050)           (21,410)      (10,665)
      Reclassification of gains (losses) included in net income                         7,675              6,871         5,811
      Unrealized gain (loss) on derivative instruments                                 (9,072)            (7,511)      (16,556)
                                                                                      -------            -------       -------
        At end of period                                                   20         (23,446)           (22,050)      (21,410)
                                                                                      -------            -------       -------
                                                                                      617,183            512,862       479,034
                                                                                      =======            =======       =======

      (a)  Disclosure of Comprehensive Income (Loss)

        Net income                                                                    125,194            119,850       132,288
        Derivative instruments
          Reclassification of gains (losses) in net income                              7,675              6,871         5,811
          Unrealized gain (loss) on derivative instruments                             (9,072)            (7,511)      (16,556)
                                                                                      -------            -------       -------

        Total Comprehensive Income                                                    123,797            119,211       121,543
                                                                                      =======            =======       =======
</TABLE>

The accompanying Notes 1 to 22 are an integral part of these financial
statements.

                                     Page 4
<PAGE>

      JORF LASFAR ENERGY COMPANY

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             January 1, 2004   January 1, 2003   January 1, 2002
                                                                                    to                to               to
                                                                            December 31, 2004 December 31, 2003 December 31, 2002
                                                                                (000) U.S.        (000) U.S.         (000) U.S.
                                                                       Note       Dollars          Dollars            Dollars
                                                                       ----       -------          -------            -------
<S>                                                                    <C>  <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Payments received from ONE.......................................             $ 526,880        $ 426,250          $ 471,044
    Interest received................................................                 1,538            1,870              1,748
    Rebates paid to ONE..............................................               (58,108)          (5,376)           (16,073)
    Corporate Income Tax Payments....................................               (12,795)         (12,826)            (5,150)
    Insurance Payments...............................................                (2,927)          (5,699)            (5,665)
    Payments of Operating Costs......................................              (315,983)        (214,865)          (228,031)
    Cash Effect of Value Added Tax...................................               (12,393)           2,463               (321)
                                                                                  ---------        ---------          ---------
         Net cash provided (+) or used (-) by operating activities...   21          126,211          191,816            217,551

CASH FLOWS USED FOR INVESTING ACTIVITIES
    Net decrease (increase) in restricted cash.......................                60,795          (25,942)           (36,638)
    Acquisition of fixed assets......................................                (6,379)          (2,300)            (3,957)
    Payment of Major Maintenance costs...............................                     0           (6,261)               (93)
                                                                                  ---------        ---------          ---------
         Net cash provided (+) or used (-) by investing activities...                54,416          (34,503)           (40,688)

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from loans..............................................                     0                0                  0
    Proceeds of share capital payments...............................                     0                0                  0
    Repayment of loans...............................................               (69,900)         (65,639)           (57,964)
    Payment of Convertible Securities interest.......................                (9,595)         (11,417)           (12,386)
    Payment of Preferred Stock dividend..............................                (8,857)         (10,539)           (10,181)
    Payment of Common Stock dividend.................................               (89,703)         (54,877)          (121,933)
    Repayment of Stockholders loans..................................                     0                0                  0
    Purchase of Preferred Stock shares...............................                     0                0                  0
    Purchase of Common Stock shares..................................                     0                0                  0
                                                                                  ---------        ---------          ---------
         Net cash provided (+) or used (-) by financing activities...              (178,055)        (142,472)          (202,464)

    Effect of exchange rate changes on cash..........................                 1,617            4,087              5,178

CASH AT BEGINNING OF PERIOD..........................................                65,611           46,683             67,106

NET INCREASE (DECREASE) IN CASH DURING PERIOD........................                 4,188           18,928            (20,422)
                                                                                  ---------        ---------          ---------

CASH AT END OF PERIOD................................................   3.1       $  69,800        $  65,611          $  46,683
                                                                                  =========        =========          =========
SUPPLEMENTAL CASH FLOWS INFORMATION

Cash paid during the year
    Interest                                                                         46,626           49,136             56,054
    Income taxes                                                                     12,795           12,826              5,150
</TABLE>

The accompanying Notes 1 to 22 are an integral part of these financial
statements.

                                     Page 5
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

1. GENERAL

A. BACKGROUND

The power station at Jorf Lasfar is located on the Atlantic coast of Morocco,
adjacent to the Port of Jorf Lasfar, in the Province of El Jadida. This location
is approximately 127 km south--west of Casablanca. Units 1 and 2 of the power
station were constructed by GEC Alstom for the Moroccan Electricity Company,
Office National de l'Electricite ("ONE"), and are now in commercial operation.
Each of these existing Units is 330 MW, fired by coal. In October of 1994, the
ONE issued a public tender for international companies to expand the power
station at Jorf Lasfar. In February of 1995, the ONE selected the "Consortium"
of ABB Energy Ventures and CMS Generation as the preferred bidder and exclusive
partner for negotiation. In April of 1996, the Consortium and the ONE reached
agreement in principle, and initialed the necessary Project Agreements.

B. ESTABLISHMENT

In order to officially conclude and implement these Project Agreements, the
Consortium established the Jorf Lasfar Energy Company (the "Company" or "JLEC")
on January 20, 1997. The Company was established as a limited partnership
("societe en commandite par actions") in accordance with the Laws of the Kingdom
of Morocco, with Commercial Registration Number 86655, Fiscal Identification
Number 1021595, and Patente Number 35511274. In accordance with its charter
documents, the Company's objective and purpose is to construct, operate, manage
and maintain the power station at Jorf Lasfar, including the development,
financing, engineering, design, construction, commissioning, testing, operation
and maintenance of two (2) new coal-fired Units, which are very similar in size
and technology to the existing Units. In order to secure its fuel supply the
Company also operates and maintains the coal-unloading pier in the Port of Jorf
Lasfar. For these activities, the Company received a "right of possession"
("droit de jouissance") for the Site, the existing Units, the new Units and coal
unloading pier. This "right of possession" will continue for the duration of the
Project Agreements, which is anticipated to be 30 years, ending on September 13,
2027.

C. COMPANY LOAN, TRANSFER OF POSSESSION, PROJECT FINANCING AND INITIAL
   DISBURSEMENT

On September 12, 1997, all Project Agreements were signed, the Company Loan
Agreement was executed and the first disbursement of the Company Loan was used
to pay the TPA fee to ONE. As a consequence, JLEC received possession of the
power station at Jorf Lasfar on September 13, 1997, and began to sell its
available capacity and net generation to ONE. All remaining requirements for
project financing were completed in November, and initial disbursement of the
Project Loans occurred on November 25, 1997.

D. CONSTRUCTION, COMMERCIAL OPERATION, PURCHASE OF COMPANY LOAN AND REPAYMENT OF
   PROJECT LOANS

After a period of construction lasting 33 months and 41 months, Unit 3 and 4
began normal commercial operation on June 9, 2000, and February 2, 2001,
respectively. Consequently, the JLEC stockholders purchased 100% of the Company
Loan Notes on December 11, 2000, and JLEC began the repayment of all Project
Loans on May 15, 2001. JLEC is scheduled to complete the repayment of all
Project Loans on February 15, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The Company's financial statements are prepared using the historical cost
convention. The accounting and reporting policies of the Company are in
accordance with the generally accepted accounting principles of Morocco, which
are called "Code General de Normalisation Comptable" or "CGNC". Financial
statements are prepared in accordance with these CGNC standards, and expressed
in Dirhams. In addition to and separately from Moroccan (CGNC) financial
statements in Dirhams, the Company uses the U.S Dollar as functional currency,
and has prepared these financial statements in accordance with generally
accepted accounting principles of the United States.

                                     Page 6

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

B. REVENUE RECOGNITION

On September 12, 1997, the Company and the Office National de L'Electricite
executed a set of contracts related to the power station at Jorf Lasfar. In
accordance with Statement of Financial Accounting Standard (SFAS) No. 13, these
contracts are accounted for as a direct financing lease. Accordingly, JLEC (the
"Lessor") will receive a stream of payments from ONE (the "Lessee") over the
term of the lease. The term of the lease is determined in accordance with SFAS
No. 13 Section (5)(f) which has been superseded by SFAS No. 98 Section 22(a).
The following policies are used to calculate the minimum lease payments and the
unearned income from the lease.

                  MINIMUM LEASE PAYMENTS are determined in accordance with
                  SFAS No. 13 Section 5(j), and are based on the capacity
                  payments that ONE will take to JLEC. These minimum lease
                  payments do not include reimbursable or executory costs
                  such as the reimbursement of coal costs. The sum of
                  these capacity payments equals the gross investment
                  under the lease.

                  This gross investment minus the net investment in the
                  plants is defined to be the UNEARNED INTEREST INCOME.
                  This unearned interest income will be accreted and
                  recognized into earnings as LEASE REVENUE over the lease
                  term using the effective interest method so as to
                  produce a constant periodic rate of return on the net
                  investment.

                  The NET INVESTMENT represents the cost of acquiring and
                  constructing the leased assets. These ACQUISITION AND
                  CONSTRUCTION COSTS include the following items which are
                  capitalized and allocated to Units 1 and 2 and Units 3
                  and 4 based upon appropriate allocation methodologies:

                        TRANSFER OF POSSESSION AGREEMENT (TPA): The TPA
                        payment is included in the cost basis of the
                        leased assets.

                        DIRECT CONSTRUCTION COSTS: All direct costs
                        related to construction are included in the
                        cost basis of the leased assets.

                        CAPITALIZED COSTS: Interest and financing costs
                        incurred during construction are capitalized
                        and included in the cost of the constructed
                        units.

                        PROJECT DEVELOPMENT COSTS AND FEES: These costs
                        and fees are also capitalized and included in
                        the cost basis of the leased assets.

                  FINANCING COSTS: Interest expense is recognized on the
                  effective interest method over the life of the debt.
                  Other financing costs such as commitment fees, guarantee
                  fees, etc. are considered a component of the interest
                  expense of the related debt or financing. As such, they
                  are amortized into expense using the effective interest
                  method over the life of the related debt or financing.

C. INVENTORIES

The Company accounts for inventories by consistently applying the FIFO or
average cost method to each item, and uses the conservatism principle (lesser of
market value or cost) in its procedures for valuing inventories.

                                     Page 7

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

D. FOREIGN CURRENCY TRANSACTIONS

The books and records of the Company for U.S. GAAP are maintained in U.S.
Dollars, which is both the reporting and functional currency. Transactions in
other currencies are translated to U.S. Dollars at the spot rate for current
period expenses and at the settlement rate for non-period transactions. Monetary
assets and monetary liabilities outstanding in other foreign currencies on
balance sheet dates are translated into U.S. Dollars at rates prevailing on such
balance sheet dates. Exchange gains and losses on those foreign currency
operations are included in determining net income for the period in which
exchange rates change.

E. CORPORATE TAX

Current Income tax is determined under Moroccan Income tax rules. In 1997, JLEC
signed a "tax incentive" convention with the Moroccan tax authorities. The main
principles of this convention are summarized below:

- -     Income is subject to corporate tax rate of 35%

- -     Income tax holiday period is ten years

- -     Income tax holiday period starts on the "commercial operation date" for
      each unit

- -     Income tax holiday is 100% during the first five-year period then at 50%
      of the income tax rate during the second five-year period

- -     Income not related to the sale of electricity is subject to a tax rate
      of 35%

The "commercial operation date" for Units 1 and 2, Unit 3 and Unit 4 were
September 13, 1997, June 10, 2000 and February 3, 2001, respectively. On
September 13, 2002, income related to Units 1 and 2 became taxable at 17.5%.
Unit 3 and Unit 4 are still in the 100% tax holiday period.

F. DEFERRED INCOME TAX

Starting September 13, 2002, the JLEC statutory tax rate on Units 1&2 is 17.5%.
JLEC determines and books the current income tax (US$ 9,077,235 for 2004) as
required by the tax laws and regulations of Morocco. Temporary differences
between US GAAP and the CGNC balance sheets may create the need to record
deferred income taxes. The main temporary differences result from the use of the
Direct Financing Lease method under US GAAP, and the differences in the timing
of the deductibility of pension liabilities. In particular, the treatment of Net
Investment and revenue recognition (as disclosed in note 2.b above) under US
GAAP are different from the treatment of these items under the tax laws and
regulations of Morocco. The total of the deferred tax liability is $ 0 ($0 as of
December 31, 2003 and $13,005,298 as of December 31, 2002). The total of the
deferred tax asset amounts to $ 1,555,763 ($0 as of December 31, 2003 and $0 as
of December 31, 2002) related to unfunded pension obligations.

G. OFF BALANCE SHEET COMMITMENTS

The Company discloses all off-balance sheet commitments, if any, on balance
sheet dates.

H.  USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reported period. Actual result could differ from these estimates and
assumptions.

                                     Page 8

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

3. CASH
3.1   Cash

The Company's cash as of December 31, 2004, includes the initial capital
deposits of the Company's stockholders, as explained further in Note 16.1. Such
cash is held in Moroccan Dirhams in accounts at CITIBANK MAGHREB, which is
located at Zenith Millenium Immeuble 1, Lotissement Attaoufik, Sidi Maarouf,
Casablanca Morocco. The remainder of the company's' cash is held by the Offshore
Collateral Agent, Deutsche Bank Trust Company Americas in US$ and Euro, and by
the Onshore Collateral Agent, BMCI - Banque Marocaine pour le Commerce et
l'Industrie in Moroccan Dirhams and US$.

The cash balances includes the following categories :

<TABLE>
<CAPTION>
                                                      12/31/04               12/31/03              12/31/02
                                                        US$                    US$                    US$
                                                    -----------             ----------             ----------
<S>                                                 <C>                     <C>                    <C>
Off-shore Revenue in US$                             19,658,389             24,426,875             22,666,875
Off-shore Revenue in Euro                             6,471,506              6,590,224              5,331,124
                                                     ----------             ----------             ----------
Total Off-Shore Revenue                              26,129,895             31,017,099             27,997,998

On-shore O&M Account - Generator                     12,565,202              6,946,245                793,293
On-shore O&M Account - Operator                       2,468,763              4,279,000              3,258,836
Off-shore O&M Accounts                                    4,742                  4,546                 10,607
                                                     ----------             ----------              ---------
Total O&M Accounts                                   15,038,706             11,229,792              4,062,735

Fuel & Spare Part Accounts                           18,388,897             12,929,694              5,289,381

Off-shore  Debt Service Accrual Accounts in US$       3,641,836              3,734,278              3,843,187
Off-shore  Debt Service Accrual Accounts in Euro      6,489,135              6,637,737              5,433,301
                                                     ----------             ----------              ---------
Total  Debt Service Accrual Accounts                 10,130,971             10,372,015              9,276,488

Distribution Account in US$                              44,489                      0                      0

Stockholder capital deposits                             66,934                 62,863                 56,624
                                                     ----------             ----------             ----------
                    Total                            69,799,893             65,611,462             46,683,227
                                                     ==========             ==========             ==========
</TABLE>

3.2  Restricted Cash
The Reserve Accounts are as follow :

<TABLE>
<S>                                                 <C>                     <C>                    <C>
Major Maintenance Reserve Account in US$  3.4 a       1,410,601              2,500,000              2,500,000
Fixed O&M Reserve Account in US$          3.4 b               0              4,800,000              4,800,000
Debt Service Reserve Account in US$       3.4 c               0             11,200,000             11,730,000
Super Reserve Account in US$              3.4 d      20,913,300             45,600,000             18,100,000
                                                    -----------             ----------             ----------
        Off-shore Reserve Accounts in US$            22,323,901             64,100,000             37,130,000

Fixed O&M Reserve Account in Euro                       267,002                243,656                197,262
Debt Service Reserve Account in Euro      3.4 e               0             18,705,220             16,450,805
                                                    -----------             ----------             ----------
        Off-shore Reserve Accounts in Euro              267,002             18,948,876             16,648,067
                                                    -----------             ----------             ----------
Total Reserve Accounts                               22,590,902             83,048,876             53,778,067
                                                    ===========             ==========             ==========
</TABLE>

3.3  Total Cash

<TABLE>
<S>                                       <C>       <C>                    <C>                    <C>
Cash                                      3.1        69,799,893             65,611,462             46,683,227
Restricted Cash in Reserve Accounts       3.2        22,590,902             83,048,876             53,778,067
                                                    -----------            -----------            -----------
                                                     92,390,795            148,660,339            100,461,294
                                                    ===========            ===========            ===========
</TABLE>

3.4  Letters of Credit

Additional liquidity is available, if needed for debt service, from Sponsor (CMS
and ABB) Letters of Credit in the following accounts :

<TABLE>
<CAPTION>
                                                     12/31/04                12/31/03               12/31/02
                                                    -----------             ----------             ----------
<S>                                       <C>       <C>                     <C>                    <C>
a. Major Maintenance Reserve  Account     US$         6,100,000              2,500,000              2,500,000
b. Fixed O&M Reserve Account              US$         9,600,000              4,800,000              4,800,000
c. Debt Service Reserve Account           US$        21,400,000             11,300,000             11,300,000
d. Super Reserve Account                  US$        79,086,700             39,086,700             47,900,000
e. Debt Service Reserve Account           Euro       28,200,000             15,000,000             15,000,000
</TABLE>

                                     Page 9

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

4. INVENTORIES

The inventories are detailed as follows for the year ending:

<TABLE>
<CAPTION>
                                                      12/31/04               12/31/03               12/31/02
                                                        US$                    US$                    US$
                                                     ----------             ----------             ----------
<S>                                       <C>        <C>                    <C>                    <C>
Stock of Coal                             4.1        41,419,482             24,763,321             22,499,748
Stock of Fuel-oil                         4.2         1,355,124              1,638,256              2,078,600
Stock of Spare Parts                      4.3        15,386,680             10,940,862             15,081,606
Other Stocks (Chemicals, Oils,...)                    1,156,676              1,205,566                954,692
                                                     ----------             ----------             ----------
                                                     59,317,963             38,548,005             40,614,646
                                                     ==========             ==========             ==========
</TABLE>

4.1   The stock of coal represents the value of 338,128 tones existing in the
      coal storage area plus 276,200 tones in transit to Jorf Lasfar, for a
      total inventory of 614,328 tones as of 4.1 December 31, 2004 (582,063
      tones total as of December 31, 2003 and 606,115 tones total as of December
      31, 2002).

4.2   The stock of fuel oil represents 7,654 m3 existing in the fuel tanks as of
      December 31, 2004 (9,471 m3 as of December 31, 2003 and 12,300 m3 as of
      December 31, 2002).

4.3   The stock of Spare Parts represents the value of spare parts as of
      December 31, 2004, that were purchased after the close-out of the Net
      Investment on December 31, 2000.

5.  RECEIVABLES

The "Accounts Receivables" as of December 31, 2004 are detailed as follows :

<TABLE>
<CAPTION>
                                                     12/31/04                12/31/03               12/31/02
                                                       US$                     US$                    US$
                                                    -----------             ----------             ----------
<S>                                       <C>       <C>                     <C>                    <C>
Account Receivable - ONE                  5.1       123,770,898             85,214,510             76,098,673
Account Receivable - Others               5.2            96,570                271,345                 76,097
                                                    -----------             ----------             ----------
                                                    123,867,468             85,485,855             76,174,769
                                                    ===========             ==========             ==========
</TABLE>

5.1   The account receivable - ONE includes November 2004 and December 2004
      invoices

5.2   The other receivables include a) accrued interest earned by investment of
      JLEC's cash balances ($ 96,570).

In addition, JLEC has invoiced AMCI a total of $8,599,483 under Coal Supply
Agreement 720, representing JLEC's excess cost of purchasing 186,244 tons of
coal from a third party after AMCI failed to fulfill its obligation to deliver
187,682 tons of coal to JLEC. AMCI has failed to pay JLEC's invoices when due;
and therefore, JLEC has called on AMCI's performance bond of $1,500,000 and is
seeking the remainder of $7,099,483 from AMCI through an UNCITRAL arbitration
with uncertain outcome.

6. PREPAYMENTS

The "Prepayments" as of  December 31, 2004 are detailed as follows :

<TABLE>
<CAPTION>
                                                     12/31/04                12/31/03               12/31/02
                                                        US$                    US$                    US$
                                                    -----------             ----------             ----------
<S>                                                 <C>                     <C>                    <C>
Prepaid Insurance                                       524,479              3,599,349              3,582,404
Prepayments for Availability Rebate                  15,696,844              3,443,569             13,326,626
Prepayments for Income Tax                            6,754,801              3,929,580              5,194,869
Other Prepayments                                       678,455                609,277              1,653,537
                                                    -----------             ----------             ----------
                                                     23,654,579             11,581,775             23,757,436
                                                    ===========             ==========             ==========
</TABLE>

7. FIXED ASSETS

The "Fixed Assets" are detailed as follows for year ending :

<TABLE>
<CAPTION>
                                                     12/31/04                 12/31/03              12/31/02
                                                        US$                     US$                   US$
                                                    -----------             ----------             ----------
<S>                                                 <C>                     <C>                    <C>
Fixed Asset - Gross                                  16,493,623             11,694,954              7,455,511
Depreciation                                         (4,753,714)            (2,516,437)            (1,884,137)
Construction in Progress                                418,708                424,902                982,455
                                                    -----------             ----------             ----------
                                                     12,158,617              9,603,420              6,553,829
                                                    ===========             ==========             ==========
</TABLE>

8. RECOVERABLE V.A.T

The "Recoverable V.A.T" account represents the net amount of Value Added Tax as
shown below :

<TABLE>
<CAPTION>
                                                     12/31/04                12/31/03               12/31/02
                                                        US$                    US$                    US$
                                                    -----------             ----------             ----------
<S>                                                 <C>                     <C>                    <C>
Value Added Tax received from ONE to be declared    (13,463,427)            (5,179,969)            (4,805,614)
Value Added Tax to be paid & declared                15,003,302              1,207,918              1,934,168
                                                    -----------             ----------             ----------
                                                      1,539,875             -3,972,052             -2,871,446
                                                    ===========             ==========             ==========
</TABLE>

In 2004 the Value Added Tax (VAT) became recoverable and was recorded as an
asset while in 2003 and 2002 the VAT was a liability.

9. OTHER LONG TERM ASSETS

The Other  Long Term Assets are as follows :

<TABLE>
<CAPTION>
                                                                           12/31/04               12/31/03          12/31/02
                                                                             US$                    US$               US$
                                                                          ----------             ----------        -----------
<S>                                                                       <C>                    <C>               <C>
    Long Term Receivables  Loan                                            3,946,932              3,372,930          2,754,540
    Long Term Ash Disposal Site                                              660,624              1,389,307          1,913,308
    Major Maintenance capitalized during prior years                      17,828,927              7,299,779          7,898,850
    Major Maintenance capitalized during current year                              0             10,529,148                  0
    Less :Amortization of Major Maintenance during prior years            (3,533,479)            (1,598,577)          (470,170)
9.1 Less :Amortization of Major Maintenance in current year               (2,564,485)            (1,934,902)        (1,128,407)
                                                                          ----------             ----------        -----------
                                                                          16,338,520             19,057,686         10,968,120
                                                                          ==========             ==========        ===========
</TABLE>

9.1 Capitalized major maintenance costs are amortized over the estimated useful
    life of the investment, which for the turbine overhauls is 7 years
    (84 months) .

                                    Page 10
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

10. ACCOUNTS PAYABLE TO THIRD PARTIES

The "Account Payable to Third Parties" includes the main suppliers of JLEC as of
December 31, 2004 and are detailed as follows :

<TABLE>
<CAPTION>
                                 12/31/04    12/31/03     12/31/02
                                    US$         US$         US$
                                ----------  ----------  -----------
<S>                             <C>         <C>         <C>
Glencore (coal supplier)        22,932,140  20,030,571    2,187,744
BULK (coal supplier)            20,302,750   4,470,349            0
CARGILL (coal supplier)         10,197,420           0            0
BHP Billiton (coal supplier)     2,550,241   2,800,790    4,119,817
Anglo American (coal supplier)           0   6,320,391    2,245,218
RAG Trading (coal supplier)              0           0    4,499,958
Alstom Power                       859,588   1,507,931    2,845,357
ONE - Availability Rebate       15,950,384   7,583,477   16,093,636
ONE - Fixed Rebate               8,687,506           0            0
Other suppliers                  7,550,884   8,544,812    6,832,615
                                ----------  ----------  -----------
            Total               89,030,912  51,258,320   38,824,345
                                ==========  ==========  ===========
</TABLE>

11. RELATED PARTY TRANSACTIONS

During the year 2004, JLEC has booked a number of related parties transactions
as follows :

<TABLE>
<CAPTION>
                         ABB       ABB        ABB         CMS         CMS       CMS
                         EV      OTHERS      MAROC       MOPCO       MOPCO    RD & GEN    Total
Currencies               US$       US$        MAD         MAD         MAD       US$        US$
                       -------  ---------  ---------  ----------  ----------  --------  ---------
<S>                    <C>      <C>        <C>        <C>         <C>         <C>       <C>
Acc. Payable 12/31/03   90,007     36,608          0   4,757,590  29,319,976         0
2004 :
Management Fees                                       32,195,453
Incentive Accrual                                                 42,344,890
Other                  256,323  1,077,929  1,460,976   5,066,894
Total Payments 2004    255,739  1,071,390    599,760  32,250,660  29,320,086         0
Acc. Payable            90,591     43,146    861,216   9,769,277  42,344,781         0
Acc. Pay. in US$        90,591     43,146    104,486   1,185,247   5,137,433         0  6,560,903
</TABLE>

<TABLE>
<CAPTION>
                       Jorf Lasfar  Jorf Lasfar  Jorf Lasfar  Tre Kronor
                       Energiaktie- Power Energy   Handels-   Investment  AB Cythere   AB Cythere
    Common Stock          bolag          AB         bolag        AB           61           63           Total
                       ------------ ------------ -----------  ----------  ----------  -------------  -------------
Currencies                 MAD           MAD         MAD         MAD          MAD          MAD            MAD
                       -----------  ------------ -----------  ----------  ----------  -------------  -------------
<S>                    <C>          <C>          <C>          <C>         <C>         <C>            <C>
Acc. Payable 12/31/03  214,928,711  197,734,415   17,194,297  43,438,991  2,369,384   1,040,159,631  1,515,825,428
Dividend  Payable                0            0            0           0          0               0              0
Total Payments 2004     47,418,800   43,625,296    3,793,504  27,217,328  1,484,582     651,731,281    775,270,790
Acc. Payable           167,509,911  154,109,119   13,400,793  16,221,663    884,802     388,428,350    740,554,638
B/S FX Rate MAD/USD         8.2424       8.2424       8.2424      8.2424     8.2424          8.2424         8.2424
Acc. Pay. in US$        20,322,953   18,697,117    1,625,836   1,968,075    107,348      47,125,637     89,846,967
</TABLE>

<TABLE>
<CAPTION>
                                          Jorf Lasfar  Jorf Lasfar   Jorf Lasfar  Tre Kronor
                                          Energiaktie- Power Energy    Handels-   Investment  AB Cythere  AB Cythere
Preferred Stock & Convertible Securities     bolag          AB          bolag        AB           61          63         Total
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
Currencies                                    MAD           MAD          MAD         MAD          MAD         MAD         MAD
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
<S>                                       <C>          <C>           <C>          <C>         <C>         <C>         <C>
Preferred Stock  Dividend payable                  0             0            0           0     186,316   81,861,977   82,048,293
Convertible Securities Interest payable   42,733,486    39,314,807    3,418,679   3,418,679           0            0   88,885,651
Total Payments 2004                       42,733,486    39,314,807    3,418,679   3,418,679     186,316   81,861,977  170,933,944
Acc. Payable                                       0             0            0           0           0            0            0
B/S FX Rate MAD/USD                           8.2424        8.2424       8.2424      8.2424      8.2424       8.2424       8.2424
Acc. Pay. in US$                                   0             0            0           0           0            0            0
                                          -----------  ------------  -----------  ----------  ----------  ----------  -----------
Total Accounts Payable to Related Partie                                                                               96,407,870
                                                                                                                      -----------
</TABLE>

                                    Page 11
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

11. RELATED PARTY TRANSACTIONS (CONTINUED)

During the year 2003, JLEC has booked a number of related parties transactions
as follows :

<TABLE>
<CAPTION>
                         ABB      ABB     ABB       CMS         CMS        CMS
                         EV     OTHERS   MAROC     MOPCO       MOPCO     RD & GEN    Total
Currencies               US$      US$     MAD       MAD         MAD        US$        US$
                       -------  ------  -------  ----------  ----------  --------  ---------
<S>                    <C>      <C>     <C>      <C>         <C>         <C>       <C>
Acc. Payable 12/31/02  105,764       0  125,880  -1,452,394  46,253,345   82,686
2003 :
Management Fees                                  32,938,795
Incentive Accrual                                            29,320,319
Other                  214,644  90,575  237,916   3,582,315
Total Payments 2003    230,400  53,967  363,796  30,311,126  46,253,688   82,686
Acc. Payable            90,007  36,608        0   4,757,590  29,319,976        0
Acc. Pay. in US$        90,007  36,608        0     542,101   3,340,851        0   4,009,568
</TABLE>

<TABLE>
<CAPTION>
                                Jorf Lasfar  Jorf Lasfar   Jorf Lasfar  Tre Kronor
                                Energiaktie- Power Energy    Handels-   Investment  AB Cythere   AB Cythere
         Common Stock              bolag          AB          bolag        AB           61           63           Total
                                ------------ ------------  -----------  ----------  ----------  -------------  -------------
Currencies                          MAD           MAD          MAD         MAD          MAD          MAD            MAD
                                ------------ ------------  -----------  ----------  ----------  -------------  -------------
<S>                             <C>          <C>           <C>          <C>         <C>         <C>            <C>
Acc. Payable 12/31/02           220,166,565  202,553,239   17,613,325   39,682,115   2,164,464    950,199,532  1,432,379,240
Dividend  Payable Oct 30, 2003  151,250,000  139,150,000   12,100,000   12,100,000     660,000    289,740,000    605,000,000
Total Payments 2003             156,487,853  143,968,825   12,519,028    8,343,124     455,079    199,779,902    521,553,812
Acc. Payable                    214,928,711  197,734,415   17,194,297   43,438,991   2,369,384  1,040,159,631  1,515,825,428
B/S FX Rate MAD/USD                   8.776        8.776        8.776        8.776       8.776          8.776          8.776
Acc. Pay. in US$                 24,489,951   22,530,755    1,959,196    4,949,635     269,978    118,520,502    172,720,019
</TABLE>

<TABLE>
<CAPTION>
                                          Jorf Lasfar   Jorf Lasfar  Jorf Lasfar  Tre Kronor
                                          Energiaktie- Power Energy    Handels-   Investment  AB Cythere  AB Cythere
Preferred Stock & Convertible Securities     bolag          AB          bolag         AB          61          63         Total
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
Currencies                                    MAD           MAD          MAD         MAD          MAD         MAD         MAD
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
<S>                                       <C>          <C>           <C>          <C>         <C>         <C>         <C>
Preferred Stock  Dividend payable                  0             0            0           0    226,840    99,666,957   99,893,797
Convertible Securities Interest payable   52,028,019    47,865,778    4,162,242   4,162,242          0             0  108,218,281
Total Payments 2003                       52,028,019    47,865,778    4,162,242   4,162,242    226,840    99,666,957  208,112,078
Acc. Payable                                       0             0            0           0          0             0            0
B/S FX Rate MAD/USD                            8.776         8.776        8.776       8.776      8.776         8.776        8.776
Acc. Pay. in US$                                   0             0            0           0          0             0            0
                                          -----------  ------------  -----------  ----------  ----------  ----------  -----------
Total Accounts Payable to Related Parties                                                                             176,729,587
                                                                                                                      -----------
</TABLE>

During 2002, related party transactions consisted of the following:

<TABLE>
<CAPTION>
                             ABB      ABB     ABB       CMS         CMS        CMS       Total
                             EV     OTHERS   MAROC     MOPCO       MOPCO     RD & GEN
                           -------  ------  -------  ----------  ----------  --------  ---------
Currencies                   US$      US$     MAD       MAD         MAD        US$        US$
                           -------  ------  -------  ----------  ----------  --------  ---------
<S>                        <C>      <C>     <C>      <C>         <C>         <C>       <C>
Acc. Payable 12/31/01      137,581  36,275   78,576   7,726,314  44,598,493   76,753
Management Fees                                      35,654,033
Incentive Accrual                                                46,253,517
Other                      207,059  26,381  778,086  -6,139,521              114,510
Total Payments 2002        238,876  62,657  730,782  38,693,220  44,598,665  108,577
Acc. Payable 12/31/02      105,764       0  125,880  -1,452,394  46,253,345   82,686
Acc. Pay. in US$ 12/31/02  105,764       0   12,345    -142,433   4,535,976   82,686   4,594,337
</TABLE>

<TABLE>
<CAPTION>
                                Jorf Lasfar  Jorf Lasfar   Jorf Lasfar  Tre Kronor
                                Energiaktie- Power Energy    Handels-   Investment  AB Cythere   AB Cythere
         Common Stock              bolag          AB          bolag         AB          61           63            Total
                                ------------ ------------  -----------  ----------  ----------  -------------  -------------
Currencies                           MAD          MAD          MAD         MAD          MAD          MAD            MAD
                                ------------ ------------  -----------  ----------  ----------  -------------  -------------
<S>                             <C>          <C>           <C>          <C>         <C>         <C>            <C>
Acc. Payable 12/31/01           202,826,993  186,600,834   16,226,160   16,226,160     885,063  388,542,764      811,307,973
Dividend  Payable Oct 29, 2002  495,000,000  455,400,000   39,600,000   39,600,000   2,160,000  948,240,000    1,980,000,000
Total Payments 2002             477,660,429  439,447,594   38,212,834   16,144,045     880,600  386,583,232    1,358,928,734
Acc. Payable 12/31/02           220,166,565  202,553,239   17,613,325   39,682,115   2,164,464  950,199,532    1,432,379,240
B/S FX Rate MAD/USD                  10.197       10.197       10.197       10.197      10.197       10.197           10.197
Acc. Pay. in US$ 12/31/02        21,591,308   19,864,003    1,727,305    3,891,548     212,265   93,184,224      140,470,652
</TABLE>

<TABLE>
<CAPTION>
                                          Jorf Lasfar  Jorf Lasfar   Jorf Lasfar  Tre Kronor
                                          Energiaktie- Power Energy    Handels-   Investment  AB Cythere  AB Cythere
Preferred Stock & Convertible Securities     bolag          AB          bolag        AB           61          63         Total
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
Currencies                                    MAD           MAD          MAD         MAD          MAD         MAD         MAD
                                          ------------ ------------  -----------  ----------  ----------  ----------  -----------
<S>                                       <C>          <C>           <C>          <C>         <C>         <C>         <C>
Preferred Stock  Dividend payable                  0            0            0            0     261,774   115,016,078 115,277,852
Convertible Securities Interest payable   63,882,171   58,771,597    5,110,574    5,110,574      16,749     7,359,167 140,250,832
Total Payments 2002                       63,882,171   58,771,597    5,110,574    5,110,574     278,523   122,375,245 255,528,684
Acc. Payable 12/31/02                              0            0            0            0           0             0           0
B/S FX Rate MAD/USD                           10.197       10.197       10.197       10.197      10.197        10.197      10.197
Acc. Pay. in US$ 12/31/02                          0            0            0            0           0             0           0
                                          -----------  ------------  -----------  ----------  ----------  ----------  -----------
Total Accounts Payable to Related Parties                                                                             145,064,990
                                                                                                                      -----------
</TABLE>

                                    Page 12
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

12.   TAXES PAYABLE :

The "taxes payable"  includes the following items as of  December 31, 2004 :

<TABLE>
<CAPTION>
                                                  12/31/04         12/31/03        12/31/02
                                                     US$             US$              US$
                                                  -----------     -----------     ----------
<S>                                               <C>             <C>             <C>
Value Added Tax on behalf of foreign suppliers        204,712         309,190        299,199
Income Tax 2002                                             0               0      4,226,098
Income Tax 2003                                             0       5,393,931              0
Income Tax 2004                                     4,568,726               0              0
Withholding Tax                                       100,984         260,841        155,281
Payroll Tax                                           259,164         237,358        185,575
Licence Tax                                                 0       1,325,971              0
                                                  -----------     -----------     ----------
         Total                                      5,133,586       7,527,291      4,866,153
                                                  ===========     ===========     ==========
</TABLE>

13.   CAPACITY CHARGES

2004

<TABLE>
<CAPTION>
13.1 $ Capacity Charges greater than $ DFL Model              Actual           DFL model
                                                            -------------     ------------
   in November and December 2004                             $ Capacity        Min Lease
                                                            -------------     ------------
                                                              Charges           Payments       Difference
                                                            -------------     ------------     -----------
                                                               CGNC             US GAAP          US GAAP
                                                            -------------     ------------     -----------
                                                                USD               USD              USD
                                                            -------------     ------------     -----------
<S>                                                         <C>               <C>              <C>
          $ Capacity Charges                                   20,705,351       20,383,548         321,803
          $ O.N.E Rebate                                       (4,302,807)      (4,025,187)       (277,620)
                                                            -------------     ------------     -----------
2004 in USD                                                    16,402,544       16,358,361          44,183

$ Capacity Charges greater than $ DFL Model                                                         44,183
                                                                                               -----------
                                                               Actual          DFL model
                                                            -------------     ------------
13.2 Euro Capacity Charges greater than Euro DFL Model      Euro Capacity      Min Lease
                                                            -------------     ------------
            in November and December 2004                      Charges         Payments        Difference
                                                            -------------     ------------     -----------
                                                                CGNC            US GAAP          US GAAP
                                                            -------------     ------------     -----------
                                                                 Euro             Euro           Euro/USD
                                                            -------------     ------------     -----------
                 Euro Capacity Charges                         20,032,963       19,721,611         311,353
                 Euro O.N.E Rebate                             (3,123,333)      (2,865,480)       (257,853)
                                                            -------------     ------------     -----------
2004 in Euro                                                   16,909,630       16,856,131          53,499

           B/S  FX Rate                                                                        X   1.36428
                                                                                               -----------
Euro Capacity Charges greater than Euro DFL Model in USD                                            72,988
                                                                                               -----------
</TABLE>

<TABLE>
<CAPTION>
2003
13.1 $ Capacity Charges greater than $ DFL Model               Actual          DFL model
                                                            -----------      -----------
                                                             $ Capacity        Min Lease
                                                            -----------      -----------
                                                              Charges          Payments       Difference
                                                            -----------      -----------      ----------
                                                                CGNC           US GAAP          US GAAP
                                                            -----------      -----------      ----------
                                                                 USD             USD              USD
                                                            -----------      -----------      ----------
<S>                                                         <C>              <C>              <C>
                 $ Capacity Charges                         103,690,956      104,516,335        (825,379)
                 $ O.N.E Rebate                              (2,761,910)      (2,874,199)        112,289
                                                            -----------      -----------      ----------
2003 in USD                                                 100,929,046      101,642,136        (713,090)

$ Capacity Charges less than $ DFL Model                                                        (713,090)
                                                                                              ----------
</TABLE>

<TABLE>
<CAPTION>
                                                               Actual          DFL model
                                                            -------------     -----------
13.2 Euro Capacity Charges greater than Euro DFL Model      Euro Capacity     Min Lease
                                                            -------------     -----------
                                                               Charges          Payments        Difference
                                                            -------------     -----------      -----------
                                                                CGNC            US GAAP          US GAAP
                                                            -------------     -----------      -----------
                                                                 Euro             Euro          Euro/USD
                                                            -------------     -----------      -----------
<S>                                                         <C>               <C>              <C>
                 Euro Capacity Charges                       125,149,979      124,917,610         232,369
                 Euro O.N.E Rebate                            (3,333,492)      (3,435,234)        101,742
                                                             -----------      -----------      ----------
2003 in Euro                                                 121,816,487      121,482,376         334,111

           B/S  FX Rate                                                                        X 1.263417
                                                                                               ----------
Euro Capacity Charges greater than Euro DFL Model in USD                                          422,122
</TABLE>

                                    Page 13
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

13.   CAPACITY CHARGES (CONTINUED)

2002

<TABLE>
<CAPTION>
13.1 $ Capacity Charges greater than $ DFL Model               Actual          DFL model
                                                             ----------       -----------
                                                             $ Capacity        Min Lease
                                                             ----------       -----------
                                                              Charges          Payments       Difference
                                                             ----------       -----------     ----------
                                                                CGNC            US GAAP        US GAAP
                                                             ----------       -----------     ----------
                                                                 USD              USD            USD
                                                             ----------       -----------     ----------
<S>                                                         <C>               <C>             <C>
                  $ Capacity Charges                         152,243,461      148,653,918      3,589,543
                  $ O.N.E Rebate                              (7,466,514)      (6,317,791)    (1,148,723)
                                                            ------------      -----------     ----------
2002 in USD                                                  144,776,947      142,336,127      2,440,820

$ Capacity Charges greater than $ DFL Model                                                    2,440,820
                                                                                              ----------
</TABLE>

<TABLE>
<CAPTION>
                                                                Actual          DFL model
                                                            -------------      -----------
13.2 Euro Capacity Charges greater than Euro DFL Model      Euro Capacity       Min Lease
                                                            -------------      -----------
                                                               Charges           Payments       Difference
                                                            -------------      -----------      ----------
                                                                CGNC             US GAAP         US GAAP
                                                            -------------      -----------      ----------
                                                                Euro              Euro           Euro/USD
                                                            -------------      -----------      ----------
<S>                                                         <C>                <C>              <C>
                  Euro Capacity Charges                       131,283,947      130,150,792       1,133,155
                  Euro O.N.E Rebate                            (6,438,591)      (5,531,409)       (907,183)
                                                            -------------      -----------      ----------
2002 in Euro                                                  124,845,355      124,619,384         225,971

           B/S  FX Rate                                                                         X 1.046582
                                                                                                ----------
Euro Capacity Charges greater than Euro DFL Model in USD                                           236,497
</TABLE>

14.   OTHER CURRENT LIABILITIES

The "Other Current Liabilities" as of December 31, 2004 are detailed as follows:

<TABLE>
<CAPTION>
                                                      12/31/04       12/31/03     12/31/02
                                                         US$            US$           US$
                                                      ---------      ---------    ---------
<S>                                                   <C>            <C>          <C>
Accrued Expenses: interest, swaps and fees     14.1   5,726,546      5,904,937    6,072,924
Accrued salaries expense                              2,075,391      1,198,164    1,390,179
Liability for Compensated Absences                      310,222        298,523      307,449
Coal Custom Duty Advances from ONE                      671,924              0            0
Other Liabilities                                       578,504        337,780      184,470
                                                      ---------      ---------    ---------
                                                      9,362,588      7,739,404    7,955,022
                                                      =========      =========    =========
</TABLE>

14.1  The accrued interests and fee expenses are detailed by loans as follows :

<TABLE>
<CAPTION>
                                          12/31/04       12/31/03      12/31/02
                                             US$            US$           US$
                                          ---------      ---------     ---------
<S>                                       <C>            <C>           <C>
OPIC                                        648,818        728,141       807,914
SACE                                      1,597,674      1,586,760     1,522,740
WB                                        1,708,747      1,712,739     1,629,541
US EXIM                                   1,467,777      1,574,138     1,823,435
ERG                                         303,531        303,158       289,295
                                          ---------      ---------     ---------
                                          5,726,547      5,904,937     6,072,924
                                          =========      =========     =========
</TABLE>

                                    Page 14
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

15. LONG TERM LOANS

Long term loans are detailed as follows as of December 31, 2004 :

<TABLE>
<CAPTION>
                                                        Interest                              Reimbursement
              Borrowing                Principal    ----------------     Interest      ---------------------------
    Loan        Date      Currency       Amount     Type      Rate        Payment        Maturity      Periodicity
- -----------   ---------   --------    -----------   -----    -------     ---------     -------------   -----------
<S>           <C>         <C>         <C>           <C>      <C>         <C>           <C>             <C>
US EXIM        9/12/02       US$      161,756,869   Fixed     7.2000%    Quarterly     Feb. 15, 2013    Quarterly
OPIC Note A   11/25/97       US$       41,593,750   Fixed    10.2300%    Quarterly     Feb. 15, 2013    Quarterly
OPIC Note B   02/11/98       US$        9,075,000   Fixed     9.9200%    Quarterly     Feb. 15, 2013    Quarterly
                                      -----------
                                       50,668,750
                                      -----------
             Total L.T  loan in US$   212,425,619
                                      -----------
             Current part in USD       25,748,560
                                      -----------
             Non-Current part in USD  186,677,059
                                      -----------
</TABLE>

<TABLE>
<CAPTION>
                                                           Interest                               Reimbursement
             Borrowing                    Principal     ------------------     Interest    ---------------------------
   Loan        Date      Currency          Amount        Type       Rate        Payment      Maturity      Periodicity
- ----------   ---------   --------        -----------    --------  --------     ---------   -------------   -----------
<S>          <C>         <C>             <C>            <C>       <C>          <C>         <C>             <C>
SACE         11/15/04      Euro          159,945,585     Fixed     5.73000%    Quarterly   Feb. 15, 2013    Quarterly
ERG          11/15/04      Euro           20,554,486    Variable   4.17013%    Quarterly   Feb. 15, 2013    Quarterly
World Bank   11/15/04      Euro          110,023,622    Variable   3.92013%    Quarterly   Feb. 15, 2013    Quarterly
                                         -----------
             Total L.T  loan in Euro     290,523,693
                                         -----------
             B/S FX Rate Euro/USD            1.36429
                                         -----------
             Total L.T  loan in USD      396,357,727
                                         -----------
             Current part in USD          48,043,360
                                         -----------
             Non-Current part in USD     348,314,367
                                         -----------
</TABLE>

Total principal repayments for the next five years are detailed below. Forecasts
of interest payments, interest-rate swap payments and guarantee fees are also
shown below . For further information regarding swaps, see Note 20.

<TABLE>
<CAPTION>
                                                                                              Remaining   Remaining    Remaining
                        Principal     Principal     Principal      Principal    Principal     Interest       Swap      Guarantee
                      Repayment in  Repayment in  Repayment in   Repayment in  Repayment in   Payments     Payments       Fees
                         2005           2006          2007           2008          2009       2005-2013    2005-2013    2005-2013
                      ------------  ------------  ------------   ------------  ------------  -----------   -----------  ----------
<S>                   <C>           <C>           <C>            <C>           <C>           <C>           <C>          <C>
In USD

US EXIM                19,606,893     19,606,893    19,606,893     19,606,893   19,606,893    49,522,500            0          0

OPIC A                  5,041,667      5,041,666     5,041,666      5,041,666    5,041,666    18,079,169            0          0

OPIC B                  1,100,000      1,100,000     1,100,000      1,100,000    1,100,000     3,825,014            0          0
                      ------------  ------------  ------------   ------------  ------------  -----------   -----------  ----------
Total in USD           25,748,560     25,748,559    25,748,559     25,748,559   25,748,559    71,426,684            0          0
                      ------------  ------------  ------------   ------------  ------------  -----------   -----------  ----------
In Euro

SACE                   19,387,344     19,387,344    19,387,344     19,387,344   19,387,344    39,511,596            0          0

ERG                     2,491,452      2,491,452     2,491,452      2,491,452    2,491,452     3,799,644    3,811,035          0

WB                     13,336,197     13,336,197    13,336,197     13,336,197   13,336,197    19,152,073   20,118,202  4,323,243

Total in Euro          35,214,993     35,214,993    35,214,993     35,214,993   35,214,993    62,463,313   23,929,237  4,323,243

B/S FX Rate Euro/USD      1.36429        1.36429       1.36429        1.36429      1.36429       1.36429      1.36429    1.36429
                       ----------     ----------    ----------     ----------   ----------    ----------   ----------  ---------
Total in USD           48,043,360     48,043,360    48,043,360     48,043,360   48,043,360    85,217,892   32,646,350  5,898,145
                       ----------     ----------    ----------     ----------   ----------    ----------   ----------  ---------
</TABLE>

                                    Page 15
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

15.   LONG TERM LOANS (CONTINUED)

Long term loans are detailed as follows as of December 31, 2003 :

<TABLE>
<CAPTION>
                                                            Interest                              Reimbursement
              Borrowing                  Principal      -----------------    Interest       -----------------------------
  Loan          Date       Currency        Amount       Type       Rate       Payment        Maturity        Periodicity
- -----------   ---------    --------     -----------     -----     -------    ----------     -------------    -----------
<S>           <C>          <C>          <C>             <C>       <C>        <C>            <C>              <C>
US EXIM        9/12/02        US$       181,363,762     Fixed      7.2000%    Quarterly     Feb. 15, 2013    Quarterly
OPIC Note A   11/25/97        US$        46,635,417     Fixed     10.2300%    Quarterly     Feb. 15, 2013    Quarterly
OPIC Note B   02/11/98        US$        10,175,000     Fixed      9.9200%    Quarterly     Feb. 15, 2013    Quarterly
                                        -----------
                                         56,810,417
                                        -----------
              Total L.T  loan in US$    238,174,179
                                        -----------
              Current part in USD        25,748,560
                                        -----------
              Non-Current part in USD   212,425,619
                                        -----------
</TABLE>

<TABLE>
<CAPTION>
                                                             Interest                                Reimbursement
              Borrowing                   Principal     -------------------     Interest      ---------------------------
   Loan         Date       Currency         Amount        Type        Rate       Payment        Maturity      Periodicity
- ----------    ---------    --------      -----------    --------    -------     ---------     -------------   -----------
<S>           <C>          <C>           <C>            <C>         <C>         <C>           <C>             <C>
SACE          11/17/03       Euro        179,332,929     Fixed       5.7300%    Quarterly     Feb. 15, 2013    Quarterly
ERG           11/17/03       Euro         23,045,939    Variable    4.16888%    Quarterly     Feb. 15, 2013    Quarterly
World Bank    11/17/03       Euro        123,359,818    Variable     3.9189%    Quarterly     Feb. 15, 2013    Quarterly
                                         -----------
              Total L.T  loan in Euro    325,738,687
                                         -----------
              B/S FX Rate Euro/USD           1.26342
                                         -----------
              Total L.T  loan in USD     411,543,784
                                         -----------
              Current part in USD         44,491,219
                                         -----------
              Non-Current part in USD    367,052,565
                                         -----------
</TABLE>

Long term loans are detailed as follows as of  December 31, 2002 :

<TABLE>
<CAPTION>
                                                               Interest                              Reimbursement
               Borrowing                    Principal      ----------------     Interest      --------------------------
  Loan           Date       Currency         Amount        Type      Rate        Payment        Maturity      Periodicity
- -----------    ---------    --------       -----------     -----   --------     ---------     -------------  -----------
<S>            <C>          <C>            <C>             <C>     <C>          <C>           <C>            <C>
US EXIM         9/12/02       US$          200,971,655     Fixed       7.2%     Quarterly     Feb. 15, 2013    Quarterly
OPIC Note A    11/25/97       US$           51,677,083     Fixed     10.23%     Quarterly     Feb. 15, 2013    Quarterly
OPIC Note B    02/11/98       US$           11,275,000     Fixed      9.92%     Quarterly     Feb. 15, 2013    Quarterly
                                           -----------
                                            62,952,083
                                           -----------
                Total L.T  loan in US$     263,923,738
                                           -----------
                Current part in USD         25,748,560
                                           -----------
                Non-Current part in USD    238,175,178
                                           -----------
</TABLE>

<TABLE>
<CAPTION>
                                                            Interest                              Reimbursement
             Borrowing                   Principal      ----------------      Interest    ----------------------------
  Loan         Date          Currency     Amount        Type        Rate      Payment        Maturity      Periodicity
- ----------   --------        --------   -----------    --------     -----     ---------   -------------   -------------
<S>          <C>             <C>        <C>            <C>          <C>       <C>         <C>             <C>
SACE         11/15/02          Euro     198,720,273     Fixed       5.73%     Quarterly   Feb. 15, 2013    Quarterly
ERG          11/15/02          Euro      25,537,392    Variable     5.14%     Quarterly   Feb. 15, 2013    Quarterly
World Bank   11/15/02          Euro     136,696,015    Variable     4.89%     Quarterly   Feb. 15, 2013    Quarterly
                                        -----------
             Total L.T  loan in Euro    360,953,680
                                        -----------
             B/S FX Rate Euro/USD           1.04658
                                        -----------
             Total L.T  loan in USD     377,767,743
                                        -----------
             Current part in USD         36,855,389
                                        -----------
             Non-Current part in USD    340,912,354
                                        -----------
</TABLE>

                                    Page 16
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES to US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

15. LONG TERM LOANS (CONTINUED)

PLEDGE OF STOCK AND OTHER ASSETS

As security for the repayment of the loans, and the payment of all related
interest, fees and swap obligations, JLEC and its stockholders have entered into
various pledge agreements with Deutsche Bank Trust Company Americas, as Offshore
Collateral Agent, and with Banque Marocaine pour le Commerce et l'Industrie, as
Onshore Collateral Agent, for the benefit of such lenders and other secured
parties. Such security shall continue in effect until the repayment in full of
all outstanding principal amounts and the payment in full of all related
interest, fee and swap obligations, which is scheduled to occur in February of
2013. The principle pledge agreements are:

1. The Stockholder Pledge and Security Agreements, in which each of JLEC's
stockholders pledges all of its shares, claims, rights and interests in JLEC to
the Offshore Collateral Agent.

2. The Security and Assignment Agreement, in which JLEC assigns to the Offshore
Collateral Agent a security interest in all of JLEC's rights, title and interest
in the following collateral, among others:

 a. all of JLEC's contractual rights,

 b. all rents, profits, income and revenues derived by JLEC from its ownership
    of Project,

 c. all cash deposits and other assets in any of JLEC's accounts with financial
    institutions,

 d. all permits, licenses and other governmental authorizations obtained by JLEC
    in connection with its ownership of the Project,

 e. all of JLEC's insurance policies and related claims and proceeds, and

 f. all personal property and inventories of JLEC.

3. The Agreement for Pledge of Shares, in which each of JLEC's stockholders
pledges all of its shares, claims, rights and interests in JLEC to the Onshore
Collateral Agent, and assigns to the Onshore Collateral Agent the direct payment
by JLEC of all dividends and other stockholder distributions if and whenever a
Default has occurred and is continuing.

4. The General Delegation of Contract Claims, in which JLEC assigns to the
Onshore Collateral Agent the direct payment of any and all contract claims due
to JLEC if and whenever a Default has occurred and is continuing.

5. The Pledge over General Operating Accounts, in which JLEC pledges to the
Onshore Collateral Agent any and all monies in JLEC's accounts with the Onshore
Collateral Agent.

6. The Master Agreement for Assignment of Accounts Receivable as Security, in
which JLEC assigns to the Onshore Collateral Agent a security interest in all of
the accounts receivable payable by ONE to JLEC under the Power Purchase
Agreement.

COVENANTS

The covenants on the loans also place restrictions on JLEC's payment of
dividends and other distributions to JLEC's stockholders. Specifically, JLEC may
not:

      1.    Pay any dividends to its stockholders, or

      2.    Make any distribution, payment or delivery of property or cash to
            its stockholders, or

      3.    Redeem, retire, purchase or otherwise acquire any shares of its
            capital stock, or

      4.    Purchase or redeem any subordinated debt

except on quarterly repayment dates and only then after first satisfying all
debt service obligations and satisfying all of the following conditions, among
others:

      a.    No default shall have occurred,

      b.    The cash balance in all JLEC reserve and accrual accounts shall
            equal or exceed required levels,

      c.    JLEC's actual debt service coverage ratios for the current quarter
            and preceding four quarters have all been greater than 1.3, and

      d.    JLEC's forecasted debt service coverage ratios for the next
            succeeding two quarters are greater than 1.3,

JLEC has complied with these covenants since May 2001, when the loans began to
be repaid.

                                     Page 17

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

16. STOCKHOLDERS' EQUITY

The composition of Stockholders' Equity as of December 31, 2004 was :

16.1 COMMON STOCK

<TABLE>
<CAPTION>
                                                                    Common Stock
                                                       ----------------------------------------
                                                         Number      Par value       Par value
                  Stockholders                         of Shares       Dirham        US Dollar
            -----------------------                    ----------    ------------   -----------
<S>                                                    <C>           <C>            <C>
AB Cythere 63, Sweden.............................          2,634         263,400        27,668
Jorf Lasfar Energiaktiebolag, Sweden..............          1,375         137,500        14,443
Jorf Lasfar Power Energy AB, Sweden...............          1,265         126,500        13,288
Tre Kronor Investment  AB, Sweden.................            110          11,000         1,155
Jorf Lasfar Handelsbolag, Sweden..................            110          11,000         1,155
AB Cythere 61, Sweden.............................              6             600            63
                                                       ----------    ------------   -----------
               Total                                        5,500         550,000        57,773
</TABLE>

16.2 CONVERTIBLE STOCKHOLDERS' SECURITIES

On December 11, 2000, the JLEC stockholders purchased 100% of all Company Loan
Notes for $ 387,355,000, and amended the Company Loan Agreement to make such
stockholder securities convertible into Preferred Stock or Common Stock. On
January 1, 2001, the convertible securities (Company Loan Principal) held by AB
Cythere 61and AB Cythere 63 were converted into Preferred Stock as shown below
on Note 16.3 . Such conversions shall be made into a fixed number of JLEC shares
as listed below :

<TABLE>
<CAPTION>
                                                                  Number          Par value      Par value
         Stockholders                                           of Shares          Dirham        US Dollar
       ----------------                                         ----------      -------------   ------------
<S>                                                             <C>             <C>             <C>
AB Cythere 63, Sweden....................................                0                  0              0
Jorf Lasfar Energiaktiebolag, Sweden.....................       10,537,024      1,053,702,400     96,838,750
Jorf Lasfar Power Energy AB, Sweden......................        9,694,062        969,406,200     89,091,650
Tre Kronor Investment  AB, Sweden........................          842,962         84,296,200      7,747,100
Jorf Lasfar Handelsbolag, Sweden.........................          842,962         84,296,200      7,747,100
AB Cythere 61, Sweden....................................                0                  0              0
                                                                ----------      -------------   ------------
              Total                                             21,917,010      2,191,701,000    201,424,600
</TABLE>

Under the terms of the amended Company Loan Agreement summarized below, these
convertible securities constitute an hybrid instrument which are delt with in
accordance with the substance of the transaction, i.e. as a Preferred Stock
equivalent :

(a) Expression of the Loan in MAD

The outstanding USD 201,424,600 principal amount is expressed as MAD
2,191,701,000 for the purpose of computing interest and principal payments due
under this Agreement. However, interest and principal payments will be paid to
the stockholders in USD, provided that the Company is not responsible for any
losses realized by the stockholders resulting from the depreciation of the value
of the MAD relative to the USD.

(b) Repayment or conversion into Stock

Under the terms of the amended Agreement:

- - the Security may only be repaid, in whole or in part, at the Company's option;

- - the part of the Security principal held by other Company Lenders listed above
may be converted into Common Stock at any time, using the same conversion ratio
used for the conversion of the parts of AB Cythere 61 and AB Cythere 63;

- - the shares of Preferred Stock issued to AB Cythere 61 and AB Cythere 63 may be
converted into Common Stock. In this case, all outstanding Security principal
held by other Company Lenders will be mandatorily converted into Common Stock at
the same conversion ratio.

(c) Interest payment and accruals as Retained Earning

In accordance with Amendment N(degree).2, the Company will pay interest on the
unpaid principal amount once per year, at the interest rate per annum equal to
the greater of (1) the Moroccan maximum deductible rate, and (2) 4.00%. The
applicable interest rate for 2004 is 4.00%.

Accruals for such interest payments are reported as part of the Retained Earning
allocation in Note 16.4, and are not expensed.

                                     Page 18

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

16.3 PREFERRED STOCK

In accordance with Section 3.01 par.(b) of the amended Company Loan Agreement
(see npte 16.2 above). the Company has converted on january 1,2001,all
outstanding Company Loan principal held by AB Cythere 61 and AB Cythere 63, at
the conversion ratio of one (1) share of Preffered Stock for each one hundred
(100) MAD of such Company Loan principal converted in to Preffered Stock, as
follows:

<TABLE>
<CAPTION>
                                                                           Preferred Stock
                                                             -----------------------------------------
                                                               Number        Par value     Par value
          Stockholders                                        of Shares        Dirham      US Dollar
         --------------                                      -----------   -------------  ------------
<S>                                                          <C>           <C>            <C>
AB Cythere 63, Sweden..................................       20,185,145   2,018,514,500   185,508,183
Jorf Lasfar Energiaktiebolag, Sweden...................                0               0             0
Jorf Lasfar Power Energy AB, Sweden....................                0               0             0
Tre Kronor Investment  AB, Sweden......................                0               0             0
Jorf Lasfar Handelsbolag, Sweden.......................                0               0             0
AB Cythere 61, Sweden..................................           45,941       4,594,100       422,217
                                                             -----------   -------------  ------------
                Total                                         20,231,086   2,023,108,600   185,930,400
</TABLE>

Such shares are non-participating voting shares of convertible Preferred Stock
of the Company, and:

- - are convertible at any moment into shares of Common Stock;

- - give right to the collection of a minimum priority dividend, at least equal to
  4% of the aggregate par value of the preferred shares,

- - do not participate in the distribution of the remaining balance of Retained
  Earning, which is divided among the shares of Common Stock #REF! as shown in
  Note 16.4.

16.4 RECONCILIATION AND ALLOCATION OF RETAINED EARNINGS 16.4

<TABLE>
<CAPTION>
        2004                                                                        US$
       ------                                                                   -----------
<S>                                                                             <C>
Retained Earnings as of December 31, 2003                                       147,498,955
Retained Earnings increase during 2004                                          125,193,694
Retained Earnings decrease during 2004
              Convertible Securities interest payable as of January 1, 2004     (10,128,034)
                            88,885,651 Dirhams
                                8.7762 Dirhams per US Dollar
              Preferred Stock Dividend payable as of January 1, 2004             (9,348,954)
                            82,048,293 Dirhams
                                8.7762 Dirhams per US Dollar
                                                                                -----------
            Total Retained Earnings                                             253,215,661
</TABLE>

The Retained Earnings are allocated among the stockholders as follows :

<TABLE>
<CAPTION>
                                                                                                Common
                                               Convertible Securities      Preferred Stock       Stock          Total
                                               ----------------------  ----------------------  -----------  -------------
         Stockholders                           Dirhams    US Dollars   Dirhams    US Dollars  US Dollars     US Dollars
         ------------                          ----------  ----------  ----------  ----------  -----------  -------------
<S>                                            <C>         <C>         <C>         <C>         <C>          <C>
AB Cythere 63, Sweden.......................            0           0  82,086,256   9,959,024  111,308,278    121,267,301
Jorf Lasfar Energiaktiebolag, Sweden........   42,850,564   5,198,797           0           0   58,105,118     63,303,915
Jorf Lasfar Power Energy AB, Sweden.........   39,422,519   4,782,893           0           0   53,456,709     58,239,602
Tre Kronor Investment  AB, Sweden...........    3,428,045     415,904           0           0    4,648,409      5,064,313
Jorf Lasfar Handelsbolag, Sweden............    3,428,045     415,904           0           0    4,648,409      5,064,313
AB Cythere 61, Sweden.......................            0           0     186,827      22,667      253,550        276,216
                                               ----------  ----------  ----------  ----------  -----------  -------------
                Total                          89,129,174  10,813,498  82,273,084   9,981,690  232,420,473    253,215,661
</TABLE>

The allocations for Convertible Securities (89,129,174 Dirhams) and Preferred
Stock (82,273,084 Dirhams) are scheduled for payment on May 16, 2005.

                                     Page 19

<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

16.4 RECONCILIATION AND ALLOCATION OF RETAINED EARNINGS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                    US$
                                                                                ------------
<S>                                                                             <C>
2003

  Retained Earnings as of December 31, 2002                                      113,030,506
  Retained Earnings increase during 2003                                         119,850,319
  Retained Earnings decrease during 2003
           Convertible Securities interest payable as of January 1, 2003         (10,612,757)
                       108,218,281 Dirhams
                          10.1970 Dirhams per US Dollar
           Preferred Stock Dividend payable as of January 1, 2003                 (9,796,391)
                       99,893,797 Dirhams
                          10.1970 Dirhams per US Dollar
           Common Stock Dividend payable as of October 30, 2003                  (64,972,722)
                            5,500 Common Stock Shares
                            110,000 Dirhams per share
                       605,000,000 Dirhams
                            9.3116 Dirhams per US Dollar on October 30, 2003
                                                                                ------------
Total Retained Earnings                                                          147,498,955

</TABLE>

The Retained Earnings are a shareholders as follows :

<TABLE>
<CAPTION>
                                                                                               Common
                                           Convertible Securities       Preferred Stock         Stock           Total
                                          -----------------------  ------------------------   -----------    ------------
         Shareholders                       Dirhams    US Dollars    Dirhams     US Dollars   US Dollars      US Dollars
         ------------                     -----------  ----------  ----------    ----------   -----------    ------------
<S>                                       <C>          <C>         <C>           <C>          <C>            <C>
AB Cythere 63, Sweden...................            0           0  81,861,977     9,327,725    61,310,884      70,638,608
Jorf Lasfar Energiaktiebolag, Sweden....   42,733,486   4,869,247           0             0    32,005,492      36,874,739
Jorf Lasfar Power Energy AB, Sweden.....   39,314,807   4,479,707           0             0    29,445,052      33,924,760
Tre Kronor Investment  AB, Sweden.......    3,418,679     389,540           0             0     2,560,439       2,949,979
Jorf Lasfar Handelsbolag, Sweden........    3,418,679     389,540           0             0     2,560,439       2,949,979
AB Cythere 61, Sweden...................            0           0     186,316        21,230       139,660         160,890
                                          -----------  ----------  ----------    ----------   -----------    ------------
            Total                          88,885,652  10,128,034  82,048,293     9,348,954   128,021,967     147,498,955
</TABLE>

<TABLE>
<CAPTION>
                                                                                    US$
                                                                                ------------
<S>                                                                             <C>
2002
  Retained Earnings as of December 31, 2001                                      187,671,644
  Retained Earnings increase during 2002                                         132,287,908
  Retained Earnings decrease during 2002 :
         Convertible Securities interest payable as of January 1, 2002           (12,095,803)
                     140,250,832 Dirhams
                          11.5950 Dirhams per US Dollar
         Preferred Stock Dividend payable as of January 1, 2002                   (9,942,031)
                     115,277,852 Dirhams
                         11.5950 Dirhams per US Dollar
         Common Stock Dividend payable as of October 29, 2002                   (184,891,213)
                           5,500 Common Stock Shares
                         360,000 Dirhams per share
                     1,980,000,000 Dirhams
                         10.7090 Dirhams per US Dollar on October 29, 2002
                                                                                ------------
Total Retained Earnings                                                          113,030,506
</TABLE>

The Retained Earnings are a shareholders as follows :

<TABLE>
<CAPTION>
                                                                                                Common
                                          Convertible Securities       Preferred Stock          Stock           Total
                                          -----------------------  ------------------------   -----------    ------------
         Shareholders                       Dirhams    US Dollars   Dirhams      US Dollars   US Dollars      US Dollars
         ------------                     -----------  ----------  ----------    ----------   -----------    ------------
<S>                                       <C>          <C>         <C>           <C>          <C>            <C>
AB Cythere 63, Sweden..................             0           0  99,666,957     9,774,145    44,357,210      54,131,355
Jorf Lasfar Energiaktiebolag, Sweden...    52,028,019   5,102,287           0             0    23,155,340      28,257,626
Jorf Lasfar Power Energy AB, Sweden....    47,865,778   4,694,104           0             0    21,302,912      25,997,016
Tre Kronor Investment  AB, Sweden......     4,162,242     408,183           0             0     1,852,427       2,260,610
Jorf Lasfar Handelsbolag, Sweden.......     4,162,242     408,183           0             0     1,852,427       2,260,610
AB Cythere 61, Sweden..................             0           0     226,840        22,246       101,041         123,287
                                          -----------  ----------  ----------    ----------   -----------    ------------
           Total                          108,218,281  10,612,757  99,893,797     9,796,391    92,621,358     113,030,506
</TABLE>

                                     Page 20
<PAGE>

JORF  LASFAR  ENERGY  COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

17. DIRECT FINANCING LEASE - (D.F.L)

As explained in Note 2b, JLEC is using the Direct Financing Lease methodology.
Specific accounts were created to reflect this method. These accounts are
detailed below .

Direct Financing Lease - (D.F.L) as of December 31, 2004

17.1 LONG TERM RECEIVABLES AS OF DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                                      US$                  Euro
                                                                 -------------         -------------
                                                                  Units 1 to 4          Units 1 to 4
                                                                 -------------         -------------
<S>                                                   <C>        <C>                   <C>
Total Minimum Lease Payments                          17.4       2,197,963,436         1,152,862,047
Minimum Lease Payments for 2004                                   (113,505,779)         (114,608,487)
                                                                 -------------         -------------
Total of Future Minimum Lease Payments                           2,084,457,657         1,038,253,560
                                                                                           X 1.36428
                                                                 -------------         -------------
Total of Future Minimum Lease Payments in US$         17.3       2,084,457,657         1,416,475,939
                                                                 =============         =============
</TABLE>

The minimum lease payments under the US GAAP model for the next five years are
as follows:

<TABLE>
<CAPTION>
                                                                      US$                  Euro
                                                                --------------       ---------------
Year                                                             Units 1 to 4         Units 1 to 4
- ------                                                          --------------       ---------------
<S>                                                             <C>                   <C>
2005                                                              98,902,331             95,705,089
2006                                                              99,348,712             84,343,267
2007                                                              94,266,264             83,270,646
2008                                                              97,990,818             79,557,495
2009                                                              97,756,285             76,945,799
</TABLE>

17.2 UNEARNED INCOME AS OF DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                                     US$                  Euro
                                                                -------------         --------------
                                                                Units 1 to 4          Units 1 to 4
                                                                -------------         --------------
<S>                                                   <C>       <C>                   <C>
Total Unearned Income                                 17.4      1,498,566,597            780,404,581
                                                                                                                   ------------
Lease Revenue 2004                                                (80,475,863)           (83,762,066)   X 1.24254   104,077,762
                                                                -------------         --------------               ------------
                                                                1,418,090,734            696,642,515
                                                                                           X 1.36428
                                                                -------------         --------------
Total Remaining Unearned Income in US$                17.3      1,418,090,734            950,420,397
                                                                =============         ==============
</TABLE>

The Lease Revenues under the US GAAP model for the next five years are as
follows:

<TABLE>
<CAPTION>
                                                                     US$                  Euro
                                                                 -------------        --------------
Year                                                             Units 1 to 4         Units 1 to 4
- ------                                                           -------------        --------------
<S>                                                              <C>                  <C>
2005                                                              89,258,072            74,987,906
2006                                                              87,703,727            71,512,790
2007                                                              86,501,207            68,270,588
2008                                                              85,143,123            64,820,922
2009                                                              83,150,426            61,693,606
</TABLE>

17.3 NET INVESTMENT IN DIRECT FINANCING LEASES AS OF DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                                     US$                  Euro
                                                                --------------       ---------------
                                                                 Units 1 to 4          Units 1 to 4
                                                                --------------       ---------------
<S>                                                   <C>       <C>                  <C>
Total of Future Minimum Lease Payments in US$         17.1       2,084,457,657         1,416,475,939
Total Remaining Unearned Income in US$                17.2      (1,418,090,734)         (950,420,397)
                                                                --------------       ---------------
Net investment in direct financing leases  in US$                  666,366,923           466,055,542
                                                                ==============       ===============

Current part in US$                                                  9,644,259            28,264,185
Non-Current part in US$                                            656,722,664           437,791,357
</TABLE>

17.4  On November 8, 2004, Amendment No. 2 to the Power Purchase Agreement
      became effective, and JLEC updated our Direct Finance Lease models
      including an extension of such DFL models by 15 years until September 13,
      2027. As a result, starting from January 1, 2004, the total minimum lease
      payments have increased from $1,181,954,019 to $2,197,963,436 and from
      Euro 834,803,410 to Euro 1,152,862,047. Likewise, JLEC's total unearned
      income under the updated and extended DFL models increased from
      $505,489,540 to $1,498,566,597 and from Euro 477,010,214 to Euro
      780,404,581.

                                     Page 21
<PAGE>


JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

Direct Financing Lease - (D.F.L) AS OF DECEMBER 31, 2003

17.1 LONG TERM RECEIVABLES AS OF DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                                                     US$                    Euro
                                                                 -------------         -------------
                                                                 Units 1 to 4          Units 1 to 4
                                                                 -------------         -------------
<S>                                                   <C>        <C>                   <C>
Total Minimum Lease Payments                                     1,283,596,155           956,285,785
Minimum Lease Payments for 2003                                   (101,642,136)         (121,482,375)
                                                                 -------------         -------------
Total of Future Minimum Lease Payments                           1,181,954,019           834,803,410
                                                                                          X 1.263417
                                                                 -------------         -------------
Total of Future Minimum Lease Payments in US$         17.3       1,181,954,019         1,054,704,794
                                                                 =============         =============
</TABLE>

The minimum lease payments under the US GAAP model for the next five years are
as follows:

<TABLE>
<CAPTION>
                                                                     US$                   Euro
                                                                 -------------         ------------
Year                                                             Units 1 to 4          Units 1 to 4
- ----                                                             -------------         ------------
<S>                                                              <C>                   <C>
2004                                                              116,664,592           116,635,941
2005                                                              116,371,118           107,167,144
2006                                                              108,749,430            92,362,540
2007                                                               96,617,923            85,060,254
2008                                                              104,467,842            84,500,888
</TABLE>

17.2 UNEARNED INCOME AS OF DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                                                     US$                 Euro
                                                                  ------------         -------------
                                                                  Units 1 to 4         Units 1 to 4
                                                                  ------------         -------------
<S>                                                   <C>         <C>                  <C>                        <C>
Total Unearned Income                                              587,282,368          568,767,180
                                                                                                                  -----------
Lease Revenue 2003                                                 (81,792,828)         (91,756,966) X 1.14035    104,635,053
                                                                   -----------          -----------               -----------
                                                                   505,489,540          477,010,214
                                                                                         X 1.263417
                                                                   -----------          -----------
Total Remaining Unearned Income in US$                17.3         505,489,540          602,662,799
                                                                   ===========          ===========
</TABLE>

The Lease Revenues under the US GAAP model for the next five years are as
follows:

<TABLE>
<CAPTION>
                                                                       US$                 Euro
                                                                   ------------         ------------
Year                                                               Units 1 to 4         Units 1 to 4
- ----                                                               ------------         ------------
<S>                                                                <C>                  <C>
2004                                                                78,203,985            84,230,456
2005                                                                73,392,008            76,117,547
2006                                                                68,172,214            69,587,224
2007                                                                64,172,868            64,534,124
2008                                                                59,591,568            58,711,491
</TABLE>

17.3 NET INVESTMENT IN DIRECT FINANCING LEASES AS OF DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                                                     US$                   Euro
                                                                 -------------         -------------
                                                                 Units 1 to 4          Units 1 to 4
                                                                 -------------         -------------
<S>                                                   <C>        <C>                   <C>
Total of Future Minimum Lease Payments in US$         17.1       1,181,954,019         1,054,704,794
Total Remaining Unearned Income in US$                17.2        (505,489,540)         (602,662,799)
                                                                 -------------         -------------
Net investment in direct financing leases  in US$                  676,464,479           452,041,995
                                                                 =============         =============
Current part in US$                                                 38,460,607            40,941,639
Non-Current part in US$                                            638,003,872           411,100,356
</TABLE>

                                    Page 22
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

Direct Financing Lease - (D.F.L) as of December 31, 2002

17.1 LONG TERM RECEIVABLES AS OF DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                  US$              Euro
                                                             -------------     -------------
                                                             Units 1 to 4      Units 1 to 4
                                                             -------------     -------------
<S>                                              <C>         <C>               <C>
Total Minimum Lease Payments                                 1,426,008,468     1,081,037,348
Minimum Lease Payments for 2002                               (142,336,127)     (124,619,384)
                                                             -------------     -------------
Total of Future Minimum Lease Payments                       1,283,672,341       956,417,964
                                                             -------------     -------------
                                                                               X    1.046582
                                                             -------------     -------------
Total of Future Minimum Lease Payments in US$    17.3        1,283,672,341     1,000,970,139
                                                             =============     =============
</TABLE>

The minimum lease payments under the US GAAP model for the next five years are
as follows:

<TABLE>
<CAPTION>
                                                                    US$             Euro
Year                                                           Units 1 to 4     Units 1 to 4
- ----                                                           ------------     ------------
<S>                                                            <C>              <C>
2003                                                           101,642,136       121,482,376
2004                                                           116,664,592       116,635,941
2005                                                           116,371,118       107,167,144
2006                                                           106,872,046        90,768,049
2007                                                            96,617,923        85,060,254
</TABLE>

17.2 UNEARNED INCOME AS OF DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                   US$             Euro
                                                              ------------      ------------
                                                              Units 1 to 4      Units 1 to 4
                                                              ------------      ------------
<S>                                       <C>                 <C>               <C>             <C>          <C>
Total Unearned Income                                          673,381,447       668,603,895
Lease Revenue 2002                                             (88,463,713)      (99,930,507)   X 0.95144    95,077,872
                                                              ------------      ------------
                                                               584,917,734       568,673,388
                                                              ------------      ------------
                                                                                  X 1.046582
                                                              ------------      ------------
Total Remaining Unearned Income in US$    17.3                 584,917,734       595,163,517
                                                              ============      ============
</TABLE>

The Lease Revenues under the US GAAP model for the next five years are as
follows:

<TABLE>
<CAPTION>
                                                                    US$              Euro
                                                               ------------      ------------
Year                                                           Units 1 to 4      Units 1 to 4
- ----                                                           ------------      ------------
<C>                                                            <C>               <C>
2003                                                            81,436,213        91,576,926
2004                                                            77,831,811        84,020,822
2005                                                            73,012,360        75,871,769
2006                                                            67,896,425        69,487,000
2007                                                            64,019,517        64,661,480
</TABLE>

17.3 NET INVESTMENT IN DIRECT FINANCING LEASES AS OF DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                   US$              Euro
                                                             -------------     -------------
                                                              Units 1 to 4      Units 1 to 4
                                                             -------------     -------------
<S>                                                  <C>     <C>               <C>
Total of Future Minimum Lease Payments in US$        17.1    1,283,672,341     1,000,970,139
Total Remaining Unearned Income in US$               17.2     (584,917,734)     (595,163,517)
                                                             -------------     -------------

Net investment in direct financing leases in US$               698,754,607       405,806,622
                                                             =============     =============

Current part in US$                                             20,205,960        31,298,090
Non-Current part in US$                                        678,548,647       374,508,532
</TABLE>

                                   Page 23
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

18. FINANCIAL EXPENSES

<TABLE>
<CAPTION>
                                                                              12/31/04       12/31/03       12/31/02
                                                                                 US$           US$            US$
                                                                            ------------   ------------   ------------
<S>                                                                         <C>            <C>            <C>
The Financial Expenses are detailed as follows, for the year ending:

Interest, Fees and Swaps incurred from inception to the year ending:

Up-Front Fees                                                                 25,609,073     25,609,073     25,609,073
Interest Costs                                                               324,780,552    287,290,576    246,526,514
Premiums                                                                      23,808,481     23,808,481     23,808,481
Commitment Fees                                                               19,312,672     19,312,672     19,312,672
Arrangement Fees                                                               2,396,273      2,396,273      2,396,273
Other Fees (acceptance fees, Agent fees...etc)                                10,240,839      9,754,617      9,297,751
Guarantee Fees                                                                22,035,847     20,598,822     19,101,732
Swaps                                                                         44,896,300     37,238,114     30,362,978
                                                                            ------------   ------------   ------------
                                                                             473,080,038    426,008,628    376,415,474
Accrued Interest, Fees, Swaps (see Note 14.1)                                  5,726,546      5,904,937      6,072,924
                                                                            ------------   ------------   ------------
Total Interest, Fees and Swaps                                               478,806,584    431,913,565    382,488,398

Interest, fees and swaps capitalized as part of the project
construction for Units 3&4                                                  (210,949,363)  (210,949,363)  (210,949,363)
                                                                            ------------   ------------   ------------
Interest, fees and swaps expensed - Total                                    267,857,221    220,964,202    171,539,035

Interest, fees and swaps expensed during prior years                        (220,964,202)  (171,539,035)  (126,704,796)
                                                                            ------------   ------------   ------------
Interest, fees and swaps expensed during current year                         46,893,019     49,425,167     44,834,239
                                                                            ============   ============   ============
</TABLE>

19. PENSION PLANS

JLEC contributes to the following pension plans:

19.1 COMMON FUND FOR RETIREMENT (CAISSE COMMUNE DES RETRAITES OR CCR)

As required by PPA Section 23.2.4, most of JLEC's employees (256 employees of
318, or 81%) plus 1 recent retiree and 2 surviving spouses are participants in
the CCR defined benefit pension plan. This plan is funded by employee payroll
deductions equal to 9% of the employee's gross pay, plus JLEC contributions
equal to 18% of the participating employee's gross pay. In 2004, 2003 and
2002, JLEC contributed to the CCR US$ 427,712, US$ 350,071 and US$ 291,036,
respectively. As of December 31, 2004, JLEC is also paying benefits to 1
retiree plus 2 surviving spouses; and during 2004, such payments amount to $
60,017 (USD 33,286 in 2003, and USD 23,783 in 2002).

Benefits provided under this plan include pension and retiree health
insurance. As of December 31, 2004, the benefit obligation totalled US$
19,913,861 (MAD 164,138,005 / 8.2424). The fair value of assets contributed to
the CCR was US$ 6,131,773 (MAD 50,540,529 / 8.2424) as of December 31, 2004.
The net unfunded benefit obligation as of December 31, 2004 reflected in the
accompanying balance sheet was US$ 13,782,087 (MAD 113,597,476 / 8.2424).

The following assumptions were used to perform the actuarial valuations:

<TABLE>
<CAPTION>
                                                2004                2003                2002
                                                -----               -----               -----
<S>                                             <C>                 <C>                 <C>
Discount rate                                   6.00%               6.00%               7.58%
Rate of return on Plan assets                   6.00%               6.00%               7.58%
Rate of compensation increase                   6.50%               6.50%               6.50%
Rate of health care cost increase               6.50%               6.50%               6.50%
</TABLE>

19.2 MOROCCAN RETIREMENT FUND FOR PROFESSIONALS (CAISSE INTERPROFESSIONNELLE
MAROCAINE DE RETRAITES OR CIMR)

Employees of JLEC not covered by CCR participate in a fund to which the
employer contributes an amount equal to 7.08 percent of the employee's gross
pay. This fund is carried in the employee's name, and the pension benefits an
employee will receive depend only on the amount contributed to this account
and the returns earned on investments of those contributions. In 2004, JLEC's
contribution to that fund amounted to USD 173,073 (USD 145,677 in 2003, and
USD 109,147 in 2002).

                                   Page 24
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

      20. DERIVATIVE INSTRUMENT LIABILITY / OTHER COMPREHENSIVE INCOME

      JLEC adopted SFAS N(degree). 133 on January 1, 2001. This standard
      requires JLEC to recognize at fair value on the balance sheet, as assets
      or liabilities, all contracts that meet the definition of a derivative
      instrument. Details of all JLEC derivative instruments (interest rate
      swaps) are provided in the following table as of December 31, 2004, and
      all such swaps qualify with 100% effectiveness as cash flow hedge for
      JLEC's variable interest rate loans. Therefore, in accordance with SFAS
      N(degree). 133, the changes in fair value of these interest rate swaps are
      reflected directly in Stockholders' Equity under "Other Comprehensive
      Income or (Loss)". JLEC determines fair value based upon market price
      estimations provided by the swap providers.

2004

<TABLE>
<CAPTION>
                                 Fixed Rate    Current     Current     Settlement                Forecast of
 Credit        Swap               Paid by    Libor Paid    Notional       and       Termination   Remaining     Valuation
Facility    Providers  Currency    JLEC        to JLEC      Amount    Amortization     Date       Payments       in Euro
- ----------  ---------  --------  ----------  ----------  -----------  ------------  -----------  -------------  ----------
<S>         <C>        <C>       <C>         <C>         <C>          <C>           <C>          <C>            <C>
World Bank     BNP      Euro       6.4115%    2.17025%    36,674,540   Quarterly     2/15/2013    6,705,625      4,867,269
               ABN      Euro       6.4175%    2.17025%    36,674,540   Quarterly     2/15/2013    6,715,112      4,857,758
               CSFB     Euro       6.4060%    2.17025%    36,674,540   Quarterly     2/15/2013    6,696,930      4,681,464
                                                         -----------                             ----------     ----------
                                                         110,023,620                             20,117,667     14,406,491
                                                         -----------                             ----------     ----------

ERG            BNP      Euro       6.4700%    2.17025%     6,851,496   Quarterly     2/15/2013    1,270,016        925,233
               ABN      Euro       6.4750%    2.17025%     6,851,496   Quarterly     2/15/2013    1,271,493        923,161
               CSFB     Euro       6.4680%    2.17025%     6,851,496   Quarterly     2/15/2013    1,269,426        930,588
                                                         -----------                             ----------     ----------
                                                          20,554,488                              3,810,935      2,778,982
                                                         -----------                             ----------     ----------
                                                                                                 Total in Euro  17,185,473
                                                                                                                ----------
                                                                                                 B/S FX rate X     1.36429
                                                                                                 Total in USD   23,445,919
                                                                                                                ==========
</TABLE>

2003

<TABLE>
<CAPTION>
                                 Fixed Rate    Current     Current     Settlement                Forecast of
 Credit        Swap               Paid by    Libor Paid    Notional       and       Termination   Remaining     Valuation
Facility    Providers  Currency    JLEC        to JLEC      Amount    Amortization     Date       Payments       in Euro
- ----------  ---------  --------  ----------  ----------  -----------  ------------  -----------  -----------    ----------
<S>         <C>        <C>       <C>         <C>         <C>          <C>           <C>          <C>            <C>
World Bank     BNP      Euro       6.4115%    2.16888%    41,119,939   Quarterly     2/15/2013    8,400,358      4,942,789
               ABN      Euro       6.4175%    2.16888%    41,119,939   Quarterly     2/15/2013    8,412,238      4,940,969
               CSFB     Euro       6.4060%    2.16888%    41,119,939   Quarterly     2/15/2013    8,389,468      4,733,058
                                                         -----------                             ----------     ----------
                                                         123,359,818                             25,202,063     14,616,816
                                                         -----------                             ----------     ----------

ERG            BNP      Euro       6.4700%    2.16888%     7,681,980   Quarterly     2/15/2013    1,590,984        942,887
               ABN      Euro       6.4750%    2.16888%     7,681,980   Quarterly     2/15/2013    1,592,834        942,179
               CSFB     Euro       6.4680%    2.16888%     7,681,980   Quarterly     2/15/2013    1,590,245        950,471
                                                         -----------                             ----------     ----------
                                                          23,045,940                              4,774,063      2,835,537
                                                         -----------                             ----------     ----------
                                                                                                 Total in Euro  17,452,353
                                                                                                                ----------
                                                                                                 B/S FX rate X     1.26342
                                                                                                 Total in USD   22,049,599
                                                                                                                ==========
</TABLE>

2002

<TABLE>
<CAPTION>
                                 Fixed Rate    Current     Current     Settlement                Forecast of
 Credit        Swap               Paid by    Libor Paid    Notional       and       Termination   Remaining     Valuation
Facility    Providers  Currency    JLEC        to JLEC      Amount    Amortization     Date       Payments       in Euro
- ----------  ---------  --------  ----------  ----------  -----------  ------------  -----------  -----------    ---------
<S>         <C>        <C>       <C>         <C>         <C>          <C>           <C>          <C>            <C>
World Bank     BNP      Euro       6.4115%    3.13725%    45,565,338   Quarterly     2/15/2013    7,947,927      5,729,083
               ABN      Euro       6.4175%    3.13725%    45,565,338   Quarterly     2/15/2013    7,962,491      5,739,581
               CSFB     Euro       6.4060%    3.13725%    45,565,338   Quarterly     2/15/2013    7,934,576      5,719,459
                                                         -----------                             ----------     ----------
                                                         136,696,014                             23,844,995     17,188,122
                                                         -----------                             ----------     ----------

ERG            BNP      Euro       6.4700%    3.13725%     8,512,464   Quarterly     2/15/2013    1,511,371      1,089,437
               ABN      Euro       6.4750%    3.13725%     8,512,464   Quarterly     2/15/2013    1,513,638      1,091,072
               CSFB     Euro       6.4680%    3.13725%     8,512,464   Quarterly     2/15/2013    1,510,464      1,088,783
                                                         -----------                             ----------     ----------
                                                          25,537,392                              4,535,473      3,269,292
                                                         -----------                             ----------     ----------
                                                                                                 Total in Euro  20,457,415
                                                                                                                ----------
                                                                                                 B/S FX rate X    1.04658
                                                                                                 Total in USD   21,410,369
                                                                                                                ==========
</TABLE>

                                    Page 25
<PAGE>

JORF LASFAR ENERGY COMPANY

NOTES TO US GAAP FINANCIAL STATEMENTS DATED DECEMBER 31, 2004

21. CASH FLOWS FOR 2004

Reconciliation of net income to net cash from operating activities under the
Direct Method is as follows :

<TABLE>
<CAPTION>
                                                                             2004           2003            2002
                                                                              US$            US$             US$
                                                                          ------------    ------------    ------------
<S>                                                                       <C>             <C>             <C>
Net Income.............................................................    125,193,694     119,850,319     132,287,908
Adjustment to reconcile Net Income to cash
  provided from operating activities :

    Depreciation and amortization .....................................      5,530,445       4,028,115       2,752,641
    Deferred taxes ....................................................     (1,555,763)    (13,005,297)      6,908,298
    Lease Revenue .....................................................   (184,553,625)   (186,427,881)   (183,541,585)
    Finance tariff cash revenue .......................................    213,372,941     246,405,730     263,559,812
    Changes in operating assets and liabilities:
    Inventories .......................................................    (20,769,958)      2,066,641      (8,855,387)
    Accounts receivable ...............................................    (38,381,613)     (9,311,086)     10,340,353
    Prepayments .......................................................    (12,072,804)     12,175,661     (19,280,513)
    Accounts payable ..................................................     40,323,927      12,470,583       4,060,345
    Unfunded pension obligation .......................................      3,903,961       4,185,183       5,692,943
    Other liabilities .................................................     (6,396,961)     (2,445,519)       (608,934)
    Effect of exchange rate changes ...................................      1,616,716       1,824,028       4,235,487
                                                                           -----------     -----------     -----------
Net cash provided by operating activities .............................    126,210,962     191,816,477     217,551,367
</TABLE>

22. UNCERTAINTIES AS OF DECEMBER 31, 2004

JLEC's corporate tax return, payroll tax and VAT returns for the years 2001 to
2004 are open to audit by the Moroccan Tax Authorities. JLEC is periodically
involved in other legal, tax and other proceedings regarding matters arising in
the ordinary course of business. JLEC believes that the outcome of these matters
will not materially affect its results of operations or liquidity.

                                    Page 26
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(C)
<SEQUENCE>30
<FILENAME>k91832exv99wxcy.txt
<DESCRIPTION>REPRESENTATION REGARDING EMIRATES CMS POWER COMPANY
<TEXT>
<PAGE>
                                                                 Exhibit (99)(c)

Pursuant to Regulation S-X, Rule 3-09, the financial statements for the fiscal
years ended December 31, 2002, 2003 and 2004 for Emirates CMS Power Company,
which is a foreign business, will be filed by June 30, 2005.






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(D)
<SEQUENCE>31
<FILENAME>k91832exv99wxdy.txt
<DESCRIPTION>REPRESENTATION REGARDING SCP INVESTMENTS
<TEXT>
<PAGE>
                                                                 Exhibit (99)(d)

Pursuant to Regulation S-X, Rule 3-09, the financial statements for the fiscal
years ended June 30, 2003, 2004 and 2005 for SCP Investments (1) PTY. LTD.,
which is a foreign business, will be filed by December 31, 2005.



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
