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<SEC-DOCUMENT>0000950124-05-004682.txt : 20050804
<SEC-HEADER>0000950124-05-004682.hdr.sgml : 20050804
<ACCEPTANCE-DATETIME>20050804154401
ACCESSION NUMBER:		0000950124-05-004682
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20050630
FILED AS OF DATE:		20050804
DATE AS OF CHANGE:		20050804

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09513
		FILM NUMBER:		05999363

	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

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05611
		FILM NUMBER:		05999364

	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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>k97012e10vq.txt
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2005
<TEXT>
<PAGE>
================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

                                       OR

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


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

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

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


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

Indicate by check mark whether the Registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act).

CMS ENERGY CORPORATION:  Yes [X]    No [ ]
CONSUMERS ENERGY COMPANY:  Yes [ ]  No |X|


Number of shares outstanding of each of the issuer's classes of common stock at
August 2, 2005:

CMS ENERGY CORPORATION:
   CMS Energy Common Stock, $.01 par value                           219,270,380
CONSUMERS ENERGY COMPANY, $10 par value, privately held by CMS
   Energy Corporation                                                 84,108,789

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

<PAGE>

                             CMS ENERGY CORPORATION
                                       AND
                            CONSUMERS ENERGY COMPANY

                      QUARTERLY REPORTS ON FORM 10-Q TO THE
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                       FOR THE QUARTER ENDED JUNE 30, 2005

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

                                TABLE OF CONTENTS

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

PART I:  FINANCIAL INFORMATION

CMS Energy Corporation
     Management's Discussion and Analysis
          Executive Overview...............................................  CMS - 1
          Forward-Looking Statements and Risk Factors......................  CMS - 2
          Results of Operations............................................  CMS - 4
          Critical Accounting Policies.....................................  CMS - 13
          Capital Resources and Liquidity..................................  CMS - 18
          Outlook..........................................................  CMS - 20
          Implementation of New Accounting Standards.......................  CMS - 28
          New Accounting Standards Not Yet Effective.......................  CMS - 29
     Consolidated Financial Statements
          Consolidated Statements of Income ...............................  CMS - 30
          Consolidated Statements of Cash Flows............................  CMS - 33
          Consolidated Balance Sheets......................................  CMS - 34
          Consolidated Statements of Common Stockholders' Equity...........  CMS - 36
     Condensed Notes to Consolidated Financial Statements:
          1.   Corporate Structure and Accounting Policies.................  CMS - 37
          2.   Asset Sales and Impairment Charges..........................  CMS - 39
          3.   Contingencies...............................................  CMS - 40
          4.   Financings and Capitalization...............................  CMS - 55
          5.   Earnings Per Share..........................................  CMS - 59
          6.   Financial and Derivative Instruments........................  CMS - 60
          7.   Retirement Benefits.........................................  CMS - 66
          8.   Asset Retirements Obligations...............................  CMS - 68
          9.   Equity Method Investments...................................  CMS - 70
         10.   Reportable Segments ........................................  CMS - 71
         11.   Consolidation of Variable Interest Entities.................  CMS - 72
         12.   Implementation of New Accounting Standards..................  CMS - 73
</TABLE>

                                       2
<PAGE>



                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                             <C>
Consumers Energy Company
     Management's Discussion and Analysis
          Executive Overview...................................................  CE - 1
          Forward-Looking Statements and Risk Factors..........................  CE - 2
          Results of Operations................................................  CE - 4
          Critical Accounting Policies.........................................  CE - 9
          Capital Resources and Liquidity......................................  CE - 13
          Outlook..............................................................  CE - 15
          New Accounting Standards Not Yet Effective...........................  CE - 22
     Consolidated Financial Statements
          Consolidated Statements of Income....................................  CE - 24
          Consolidated Statements of Cash Flows................................  CE - 25
          Consolidated Balance Sheets..........................................  CE - 26
          Consolidated Statements of Common Stockholder's Equity...............  CE - 28
     Condensed Notes to Consolidated Financial Statements:
          1.  Corporate Structure and Accounting Policies......................  CE - 29
          2.  Contingencies....................................................  CE - 30
          3.  Financings and Capitalization....................................  CE - 42
          4.  Financial and Derivative Instruments.............................  CE - 45
          5.  Retirement Benefits..............................................  CE - 48
          6.  Asset Retirement Obligations.....................................  CE - 50
          7.  Reportable Segments .............................................  CE - 51
          8.  Consolidation of Variable Interest Entities......................  CE - 52
          9.  New Accounting Standards Not Yet Effective.......................  CE - 53

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

PART II:  OTHER INFORMATION

     Item 1. Legal Proceedings.................................................  CO - 1
     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......  CO - 5
     Item 3. Defaults Upon Senior Securities...................................  CO - 5
     Item 4. Submission of Matters to a Vote of Security Holders...............  CO - 5
     Item 5. Other Information.................................................  CO - 6
     Item 6. Exhibits..........................................................  CO - 6
     Signatures................................................................  CO - 7
</TABLE>



                                       3






<PAGE>


                                    GLOSSARY

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

<TABLE>
<S>                                                 <C>
ALJ................................................ Administrative Law Judge
Alliance RTO....................................... Alliance Regional Transmission Organization
APB................................................ Accounting Principles Board
APB Opinion No. 18................................. APB Opinion No. 18, "The Equity Method of Accounting for
                                                    Investments in Common Stock"
ARO................................................ Asset retirement obligation
Articles........................................... Articles of Incorporation
Attorney General................................... Michigan Attorney General

Bay Harbor......................................... a residential/commercial real estate area located near
                                                    Petoskey, Michigan.  In 2002, CMS Energy sold its interest in
                                                    Bay Harbor.
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

CEO................................................ Chief Executive Officer
CFO................................................ Chief Financial Officer
Clean Air Act...................................... Federal Clean Air Act, as amended
CMS Energy......................................... CMS Energy Corporation, the parent of Consumers and Enterprises
CMS Energy Common Stock 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 subsidiary of Enterprises
CMS Generation..................................... CMS Generation Co., a subsidiary of Enterprises
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
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
</TABLE>



                                       4


<PAGE>

<TABLE>
<S>                                                 <C>
Customer Choice Act................................ Customer Choice and Electricity Reliability Act, a Michigan
                                                    statute enacted in June 2000 that allows all retail customers
                                                    choice of alternative electric suppliers as of January 1,
                                                    2002, provides for full recovery of net stranded costs and
                                                    implementation costs, establishes a five percent reduction in
                                                    residential rates, establishes rate freeze and rate cap, and
                                                    allows for Securitization

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

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
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 Interpretation No. 46......................... FASB Interpretation No. 46, Consolidation of Variable
                                                    Interest Entities
FERC............................................... Federal Energy Regulatory Commission
FMB................................................ First Mortgage Bonds
FMLP............................................... First Midland Limited Partnership, a partnership that holds a
                                                    lessor interest in the MCV facility
FSP................................................ FASB Staff Position
FTR................................................ Financial transmission right

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
GVK................................................ GVK Facility, a 250 MW gas fired power plant located in South
                                                    Central India, in which CMS Generation formerly held a 33
                                                    percent interest
</TABLE>


                                       5

<PAGE>


<TABLE>
<S>                                                 <C>
Health Care Plan................................... The medical, dental, and prescription drug programs offered
                                                    to eligible employees of Consumers and CMS Energy

IRS................................................ Internal Revenue Service

Jorf Lasfar........................................ The 1,356 MW coal-fueled power plant in Morocco, jointly
                                                    owned by CMS Generation and ABB Energy Ventures, Inc.

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

LORB............................................... Limited Obligation Revenue Bonds
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 held a 50 percent ownership interest
Ludington.......................................... Ludington pumped storage plant, jointly owned by Consumers
                                                    and Detroit Edison

mcf................................................ Thousand cubic feet
MCV Facility....................................... A natural gas-fueled, combined-cycle cogeneration facility
                                                    operated by the MCV Partnership
MCV Partnership.................................... Midland Cogeneration Venture Limited Partnership in which
                                                    Consumers has a 49 percent interest through CMS Midland
MCV PPA............................................ The Power Purchase Agreement between Consumers and the MCV
                                                    Partnership with a 35-year term commencing in March 1990, as
                                                    amended, and as interpreted by the Settlement Agreement dated
                                                    as of January 1, 1999 between the MCV Partnership and
                                                    Consumers.

MD&A............................................... Management's Discussion and Analysis
MDEQ............................................... Michigan Department of Environmental Quality
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
MISO............................................... Midwest Independent System Operator
Moody's............................................ Moody's Investors Service, Inc.
MPSC............................................... Michigan Public Service Commission
MSBT............................................... Michigan Single Business Tax
MTH................................................ Michigan Transco Holdings, Limited Partnership
MW................................................. Megawatts

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



                                       6


<PAGE>

<TABLE>
<S>                                                 <C>
OPEB............................................... Postretirement benefit plans other than pensions for retired employees

Palisades.......................................... Palisades nuclear power plant, which is owned by Consumers
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.
PCB................................................ Polychlorinated biphenyl
Pension Plan....................................... The trusteed, non-contributory, defined benefit pension plan
                                                    of Panhandle, Consumers and CMS Energy
Price Anderson Act................................. Price Anderson Act, enacted in 1957 as an amendment to the
                                                    Atomic Energy Act of 1954, as revised and extended over the
                                                    years.  This act stipulates between nuclear licensees and the
                                                    U.S. government the insurance, financial responsibility, and
                                                    legal liability for nuclear accidents.
PSCR............................................... Power supply cost recovery
PURPA.............................................. Public Utility Regulatory Policies Act of 1978

RCP................................................ Resource Conservation Plan
ROA................................................ Retail Open Access
RRP................................................ Renewable Resources Program
RTO................................................ Regional Transmission Organization

S&P................................................ Standard & Poor's Rating Group, a division of the McGraw Hill Companies, Inc.
SEC................................................ U.S. Securities and Exchange Commission
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.S., 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. 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. 98........................................ SFAS No. 98, "Accounting for Leases"
SFAS No. 106....................................... SFAS No. 106, "Employers' Accounting for Postretirement
                                                    Benefits Other Than Pensions"
SFAS No. 115....................................... SFAS No. 115, "Accounting for Certain Investments in Debt and
                                                    Equity Securities"
</TABLE>



                                       7

<PAGE>

<TABLE>
<S>                                                 <C>
SFAS No. 123....................................... SFAS No. 123, "Accounting for Stock-Based Compensation"
SFAS No. 133....................................... SFAS No. 133, "Accounting for Derivative Instruments and
                                                    Hedging Activities, as amended and interpreted"
SFAS No. 143....................................... SFAS No. 143, "Accounting for Asset Retirement Obligations"
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
Special Committee.................................. A special committee of independent directors, established by
                                                    CMS Energy's Board of Directors, to investigate matters
                                                    surrounding round-trip trading
Stranded Costs..................................... Costs incurred by utilities in order to serve their customers
                                                    in a regulated monopoly environment, which may not be
                                                    recoverable in a competitive environment because of customers
                                                    leaving their systems and ceasing to pay for their costs.
                                                    These costs could include owned and purchased generation and
                                                    regulatory assets.
Superfund.......................................... Comprehensive Environmental Response, Compensation and Liability Act

Taweelah........................................... Al Taweelah A2, a power and desalination plant of Emirates
                                                    CMS Power Company, in which CMS Generation holds a 40 percent
                                                    interest
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
</TABLE>



                                       8

<PAGE>







                      (This page intentionally left blank)

                                       9


<PAGE>
                                                          CMS Energy Corporation

                             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. This MD&A has been prepared in accordance with the instructions to Form
10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction
with the MD&A contained in CMS Energy's Form 10-K for the year ended December
31, 2004.

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, electric distribution, 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 retain.
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 us 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. As a result of Michigan's Customer
Choice Act, which allows alternative electric suppliers to sell electric power
directly to our customers, we have lost industrial and commercial customers. As
of July 2005, alternative electric suppliers provide 811 MW, or 11 percent, of
our electric load. Based on current trends, we predict total load loss by the
end of 2005 to be in the range of 900 MW to 950 MW. However, we cannot assure
that the actual load loss will fall within that range.

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. Natural gas prices have increased substantially in recent years.
Because the price the MCV Partnership can charge the utility for energy has not
increased to reflect current natural gas prices, the MCV Partnership's financial
performance has been impacted negatively. In 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


                                      CMS-1
<PAGE>
                                                          CMS Energy Corporation

Facility and thereby improve the financial performance of the MCV Partnership
without increased costs to customers.

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
2005, we retired higher-interest rate debt through the use of proceeds from the
issuance of $150 million of CMS Energy senior notes, $550 million of Consumers'
FMB, and $150 million of Consumers' senior insured quarterly notes. We also
issued 23 million shares of common stock and infused $550 million into Consumers
in 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.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Form 10-Q 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,

      -  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
         including:

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

                                     CMS-2
<PAGE>
                                                          CMS Energy Corporation

          -    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 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 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 adverse impacts of the new Midwest Energy Market upon power
         supply and transmission costs,

      -  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 certain electric energy contracts at CMS ERM as derivatives,

      -  the GAAP requirement that we utilize mark-to-market accounting on
         certain 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,


                                     CMS-3
<PAGE>

                                                          CMS Energy Corporation

      -  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,

      -  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.

For additional information regarding these and other uncertainties, see Note 3,
Contingencies.

RESULTS OF OPERATIONS

CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                      In Millions (except for per share amounts)
- --------------------------------------------------------------------------------
Three months ended June 30                        2005        2004        Change
- --------------------------------------------------------------------------------
<S>                                             <C>         <C>           <C>
Net Income Available to Common Stockholders     $   27      $   16        $   11
Basic Earnings Per Share                        $ 0.12      $ 0.10        $ 0.02
Diluted Earnings Per Share                      $ 0.12      $ 0.10        $ 0.02
- --------------------------------------------------------------------------------

Electric Utility                                $  46       $   27        $   19
Gas Utility                                        (3)           1            (4)
Enterprises                                        29           37            (8)
Corporate Interest and Other                      (45)         (49)            4
- --------------------------------------------------------------------------------
CMS Energy Net Income Available to
Common Stockholders                             $  27       $   16        $   11
================================================================================
</TABLE>

For the three months ended June 30, 2005, our net income available to common
stockholders was $27 million, up from $16 million for the three months ended
June 30, 2004. The increase reflects non-recurring tax benefits associated with
the American Jobs Creation Act of 2004 and an improvement at our electric
utility, primarily due to weather driven higher than normal residential electric
utility sales in June and the collection of an electric surcharge related to the
recovery of costs incurred in the transition to customer choice. Partially
offsetting these increases were the reduction of mark-to-market impacts
associated with gas contracts at the MCV Partnership and changes in
mark-to-market adjustments on interest rate swaps associated with our investment
in Taweelah. Further offsetting the increase was a reduction in net income at
our gas utility, as higher operating and maintenance costs exceeded the benefits
derived from increased deliveries and the increase in revenue resulting from the
MPSC gas rate surcharge authorized in October of 2004.




                                     CMS-4
<PAGE>
                                                          CMS Energy Corporation

Specific changes to net income available to common stockholders for the three
months ended June 30, 2005 versus the same period in 2004 are:

<TABLE>
<CAPTION>

                                                                     In Millions
- --------------------------------------------------------------------------------


<S>     <C>      <C>                                                      <C>
  -     non-recurring income tax benefit recorded at Enterprises
                 resulting from the American Jobs Creation Act of
                 2004,                                                    $  24

  -     increase at our electric utility primarily due to increased
                 deliveries driven by higher than normal electric
                 utility sales in June and the collection of an
                 electric surcharge related to the recovery of
                 security costs, Stranded Costs, and costs incurred in
                 the transition to customer choice, offset partially
                 by increased operating expenses and power supply
                 costs in excess of the amount which we are allowed to
                 recover from our residential customers, whose rates
                 are capped,                                                 19

  -     reduction in corporate and other interest expenses primarily
                 due to lower average debt levels and a 47 basis point
                 reduction in the average rate of interest,                   4

  -     change in mark-to-market valuation adjustments associated with
                 our investment in Taweelah, as losses on interest
                 rate swaps in the current period replaced the gains
                 recorded on these instruments in the same period of
                 2004,                                                      (22)

  -     reduction in income from our ownership interest in the MCV
                 Partnership primarily due to the settlement of
                 certain gas contracts and mark-to-market adjustments
                 on financial hedges and the remaining gas contracts,
                 and                                                        (10)

  -     decrease in net income from our gas utility primarily due to
                 increases in benefit costs and safety, reliability
                 and customer service expenses offset partially by
                 increased deliveries and increased revenue associated
                 with the gas rate surcharge authorized by the MPSC in
                 October of 2004.                                            (4)

- --------------------------------------------------------------------------------
Total Change                                                              $  11
================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                      In Millions (except for per share amounts)
- --------------------------------------------------------------------------------
Six months ended June 30                                  2005     2004   Change
- --------------------------------------------------------------------------------
<S>                                                      <C>      <C>      <C>
Net Income Available to Common Stockholders             $  177   $    7   $  170
Basic Earnings Per Share                                $ 0.86   $ 0.04   $ 0.82
Diluted Earnings Per Share                              $ 0.82   $ 0.04   $ 0.78
- --------------------------------------------------------------------------------
Electric Utility                                        $   79   $   75   $    4
Gas Utility                                                 55       57       (2)
Enterprises                                                134      (23)     157
Corporate Interest and Other                               (91)     (98)       7
Discontinued Operations                                      -       (2)       2
Accounting Changes                                           -       (2)       2
- --------------------------------------------------------------------------------
CMS Energy Net Income Available to
Common Stockholders                                     $  177   $    7   $  170
================================================================================
</TABLE>

For the six months ended June 30, 2005, our net income available to common
stockholders was $177 million, up from $7 million for the six months ended June
30, 2004. The improvement reflects the favorable effect of mark-to-market
adjustments recorded at the MCV Partnership, non-recurring tax benefits from the
American Jobs Creation Act of 2004, reduced corporate interest expense, and the
absence in 2005 of impairment charges recorded in 2004. Also contributing to the
improvement was the positive impact of an increase in the collection of an
electric surcharge related to the recovery of costs incurred in the transition
to customer choice, increased regulatory return on capital expenditures, and
weather driven higher than

                                     CMS-5
<PAGE>
                                                          CMS Energy Corporation

normal residential electric utility sales in June 2005. Partially offsetting
these increases were changes in mark-to-market adjustments on interest rate
swaps associated with our investment in Taweelah and a decrease in net income at
our gas utility due to higher operating, MSBT and depreciation expenses.

Specific changes to net income available to common stockholders for the six
months ended June 30, 2005 versus the same period in 2004 are:

<TABLE>
<CAPTION>
                                                                     In Millions
- --------------------------------------------------------------------------------
<S>     <C>      <C>                                                      <C>
  -     the absence in 2005 of an $81 million after-tax impairment
                 charge related to the sale of our Loy Yang investment
                 that was recorded in 2004,                               $  81

  -     increase in earnings from our ownership interest in the MCV
                 Partnership primarily due to the increase in
                 mark-to-market adjustments of certain long-term gas
                 contracts and financial hedges,                             53

  -     non-recurring income tax benefit recorded at Enterprises
                 resulting from the American Jobs Creation Act of
                 2004,                                                       24

  -     reduction in corporate interest expenses primarily due to lower
                 average debt levels and a 53 basis point reduction in
                 the average rate of interest,                               12

  -     earnings from our investment in Shuweihat, as the business
                 achieved commercial operation in the fourth quarter
                 of 2004,                                                     9

  -     increase in income from our electric utility, primarily due to
                 higher than normal electric utility sales in June
                 2005, the return on capital expenditures in excess of
                 our depreciation base as allowed by the Customer
                 Choice Act, and the collection of an electric
                 surcharge related to the recovery of security costs,
                 Stranded Costs, and costs incurred in the transition
                 to customer choice. These increases were offset
                 partially by increased operating expenses, customers
                 choosing alternative suppliers, and power supply
                 purchase costs exceeding power supply revenue,               4

  -     reduction in other corporate expenses,                                3

  -     the absence in 2005 of a loss related to accounting changes,          2

  -     the absence in 2005 of net losses associated with discontinued
                 operations,                                                  2

  -     change in mark-to-market valuation adjustments associated with
                 our investment in Taweelah, as losses on interest
                 rate swaps in the current period replaced the gains
                 recorded on these instruments in the same period of
                 2004,                                                      (10)

  -     the absence in 2005 of the settlement agreement that DIG and
                 CMS MST entered into with the purchasers of electric
                 power and steam from DIG, and                               (8)

  -     decrease in net income from our gas utility, as increases in
                 operation and maintenance cost, MSBT expense, and
                 depreciation expense outpaced the increase in gas
                 rates authorized by the MPSC in October of 2004.            (2)

- --------------------------------------------------------------------------------
Total Change                                                              $ 170
================================================================================
</TABLE>

                                     CMS-6
<PAGE>

                                                          CMS Energy Corporation

ELECTRIC UTILITY RESULTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                          In Millions
- -----------------------------------------------------------------------------------------------------
June 30                                                                2005       2004         Change
- -----------------------------------------------------------------------------------------------------

<S>                                                                   <C>         <C>            <C>
Three months ended                                                     $ 46       $ 27           $ 19
Six months ended                                                       $ 79       $ 75           $  4
=====================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                         Three Months Ended          Six Months Ended
Reasons for the change:                              June 30, 2005 vs. 2004    June 30, 2005 vs. 2004
- -----------------------------------------------------------------------------------------------------

<S>                                                <C>                        <C>
Electric deliveries                                                   $  34                     $  38
Power supply costs and related revenue                                   (2)                      (11)
Other operating expenses, other income, and non-
  commodity revenue                                                      (8)                      (31)
Regulatory return on capital expenditures                                 6                        13
General taxes                                                            (1)                       (4)
Fixed charges                                                             1                         2
Income taxes                                                            (11)                       (3)
                                                   --------------------------------------------------

Total change                                                          $  19                     $   4
=====================================================================================================
</TABLE>

ELECTRIC DELIVERIES: For the three months ended June 30, 2005, electric
deliveries increased 0.5 billion kWh or 5.1 percent versus the same period in
2004. For the six months ended June 30, 2005, electric deliveries increased 0.1
billion kWh or 0.4 percent versus the same period in 2004. The corresponding
increases in electric delivery revenue for both periods were due to increased
sales to residential customers due to warmer weather and increased surcharge
revenue, offset partially by reduced electric delivery revenue from customers
choosing alternative electric suppliers.

On July 1, 2004, Consumers started collecting a surcharge related to the
recovery of costs incurred in the transition to customer choice. This surcharge
increased electric delivery revenue by $6 million for the three months ended
June 30, 2005 and $11 million for the six months ended June 30, 2005. Surcharge
revenue related to the recovery of security costs and Stranded Costs increased
electric delivery revenue by an additional $3 million for the three months ended
June 30, 2005 and $6 million for the six months ended June 30, 2005.

POWER SUPPLY COSTS AND RELATED REVENUE: Our recovery of power supply costs is
capped for our residential customers. For the three months ended June 30, 2005,
our underrecovery of power costs allocated to these capped customers increased
by $6 million versus the same period in 2004. For the six months ended June 30,
2005, our underrecovery of power costs allocated to these capped customers
increased by $20 million versus the same period in 2004. Power supply-related
costs increased in 2005 primarily due to higher coal costs and higher priced
purchased power to replace the generation loss from outages at our Palisades and
Campbell 3 generating plants.

Partially offsetting these underrecoveries are transmission and nitrogen oxide
allowance expenditures related to our capped customers, which we have deferred
for future recovery. For the three months ended June 30, 2005, we deferred $4
million of these costs. For the six months ended June 30, 2005, we deferred $9
million of these costs.


                                     CMS-7
<PAGE>
                                                          CMS Energy Corporation

OTHER OPERATING EXPENSES, OTHER INCOME, AND NON-COMMODITY REVENUE: For the three
months ended June 30, 2005, other operating expenses increased $14 million,
other income increased $4 million, and non-commodity revenue increased $2
million versus the same period in 2004. For the six months ended June 30, 2005,
other operating expenses increased $39 million, other income increased $4
million, and non-commodity revenue increased $4 million versus the same period
in 2004.

The increase in other operating expenses reflects higher depreciation and
amortization expense, and higher pension and benefit expense. Depreciation and
amortization expense increased due to higher plant in service and greater
amortization of certain regulatory assets. Pension and benefit expense increased
primarily due to changes in actuarial assumptions and the remeasurement of our
pension and OPEB plans to reflect the new collective bargaining agreement
between the Utility Workers Union of America and Consumers. Benefit expense also
reflects the reinstatement of the employer matching contribution to our 401(k)
plan.

In addition, the increase in other operating expenses reflects increased
underrecovery expense related to the MCV PPA, offset partially by our direct
savings from the RCP. In 1992, a liability was established for estimated future
underrecoveries of power supply costs under the MCV PPA. In 2004, a portion of
the cash underrecoveries continued to reduce this liability until its depletion
in December. In 2005, all cash underrecoveries are expensed directly to income.
Partially offsetting this increased operating expense were the savings from the
RCP approved by the MPSC in January 2005.

The RCP allows us to dispatch the MCV Facility on the basis of natural gas
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. The MCV
Facility's fuel cost savings are first used to offset the cost of replacement
power and fund a renewable energy program. Remaining savings are split between
the MCV Partnership and us. Our direct savings are shared 50 percent with
customers in 2005 and 70 percent thereafter.

The cost associated with the MCV PPA cash underrecoveries, net of our direct
savings from the RCP, increased operating expense $2 million for the three
months ended June 30, 2005 and $4 million for the six months ended June 30, 2005
versus the same periods in 2004.

The increase in other income is primarily due to higher interest income on
short-term cash investments, offset partially by expenses associated with the
early retirement of debt in 2005. The increase in non-commodity revenue is
primarily due to higher transmission services revenue.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The return on capital expenditures in
excess of our depreciation base as allowed by the Customer Choice Act increased
income by $6 million for the three months ended June 30, 2005 and $13 million
for the six months ended June 30, 2005 versus the same periods in 2004.

GENERAL TAXES: For the three and six months ended June 30, 2005, general taxes
increased versus the same periods in 2004 primarily due to higher MSBT expense.

FIXED CHARGES: For the three months ended June 30, 2005, fixed charges reflect a
36 basis point reduction in the average rate of interest on our debt and higher
average debt levels versus the same period in 2004. For the six months ended
June 30, 2005, fixed charges reflect a 32 basis point reduction in the average
rate of interest on our debt and higher average debt levels versus the same
period in 2004.

INCOME TAXES: For the three and six months ended June 30, 2005, income taxes
increased versus the same periods in 2004 primarily due to higher earnings by
the electric utility.


                                     CMS-8
<PAGE>
                                                          CMS Energy Corporation

GAS UTILITY RESULTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                      In Millions
- -------------------------------------------------------------------------------------------------
June 30                                                            2005        2004        Change
- -------------------------------------------------------------------------------------------------

<S>                                                                <C>         <C>         <C>
Three months ended                                                 $ (3)       $  1          $ (4)
Six months ended                                                   $ 55        $ 57          $ (2)
=================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Reasons for the change:                              Three Months Ended          Six Months Ended
                                                 June 30, 2005 vs. 2004    June 30, 2005 vs. 2004
- -------------------------------------------------------------------------------------------------
<S>                                               <C>                      <C>
Gas deliveries                                                    $   2                     $  (1)
Gas rate increase                                                     5                        21
Gas wholesale and retail services, other gas
  revenues and other income                                           1                        (1)
Operation and maintenance                                           (12)                      (17)
General taxes and depreciation                                       (2)                       (3)
Fixed charges                                                         -                        (2)
Income taxes                                                          2                         1
                                               --------------------------------------------------

Total change                                                      $  (4)                    $  (2)
=================================================================================================
</TABLE>


GAS DELIVERIES: For the three months ended June 30, 2005, higher gas delivery
revenues reflect increased deliveries to our residential, commercial, and
industrial customers versus the same period in 2004. Gas deliveries, including
miscellaneous transportation to end-use customers, increased 1.4 bcf or 3.1
percent.

For the six months ending June 30, 2005, lower gas delivery revenues reflect
decreased deliveries to our residential and industrial transportation customers.
Gas deliveries, including miscellaneous transportation to end-use customers,
decreased 2.0 bcf or 1.0 percent.

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 annual increase of $58 million
through a two-year surcharge. As a result of these orders, gas revenues
increased $5 million for the three months ended June 30, 2005 and $21 million
for the six months ended June 30, 2005 versus the same periods in 2004.

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUES AND OTHER INCOME: For the
three months ended June 30, 2005, other income increased $1 million primarily
due to higher interest income on short-term cash investments versus the same
period in 2004. For the six months ended June 30, 2005, gas wholesale and retail
services revenue decreased primarily due to decreases in miscellaneous
transportation and storage revenue.

OPERATION AND MAINTENANCE: For the three and six months ended June 30, 2005,
operation and maintenance expenses increased primarily due to increases in
benefit costs and additional safety, reliability, and customer service expense.
Pension and benefit expense increased primarily due to changes in actuarial
assumptions and the remeasurement of our pension and OPEB plans to reflect the
new collective bargaining agreement between the Utility Workers Union of America
and Consumers. Benefit expense also reflects the reinstatement of the employer
matching contribution to our 401(k) plan.


                                     CMS-9
<PAGE>
                                                          CMS Energy Corporation

GENERAL TAXES AND DEPRECIATION: For the three and six months ended June 30,
2005, general tax expense increased primarily due to higher MSBT expense.
Depreciation expense increased due to higher plant in service.

FIXED CHARGES: For the six months ended June 30, 2005, fixed charges reflect a
32 basis point reduction in the average rate of interest on our debt and higher
average debt levels versus the same period in 2004.

INCOME TAXES: For the three and six months ended June 30, 2005, income taxes
decreased primarily due to lower earnings by the gas utility.

ENTERPRISES RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                       In Millions
- --------------------------------------------------------------------------------------------------
June 30                                                           2005        2004         Change
- --------------------------------------------------------------------------------------------------

<S>                                                             <C>          <C>           <C>
Three months ended                                              $   29       $  37         $   (8)
Six months ended                                                $  134       $ (23)        $  157
==================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                     Three Months Ended          Six Months Ended
Reasons for the change:                          June 30, 2005 vs. 2004    June 30, 2005 vs. 2004
- -------------------------------------------------------------------------------------------------

<S>                                             <C>                       <C>
Operating revenues                                              $    39                   $    32
Cost of gas and purchased power                                     (76)                      120
Earnings from equity method investees                               (19)                       (7)
Gain on sale of assets                                                2                         4
Operation and maintenance                                            (5)                       (3)
General taxes, depreciation, and other income                         3                         3
Asset impairment charges                                              -                       136
Fixed charges                                                         5                        12
Minority interest                                                    15                       (87)
Income taxes                                                         28                       (53)
                                                -------------------------------------------------

Total change                                                    $    (8)                  $   157
=================================================================================================
</TABLE>

OPERATING REVENUES AND COST OF GAS AND PURCHASED POWER: For the three months
ended June 30, 2005, operating revenues increased $39 million versus the same
period in 2004 and the related cost of gas and purchased power increased $76
million versus the same period in 2004. These increases were primarily due to
the impact of increased customer demand on deliveries, fuel costs, and purchased
power primarily at our South American subsidiaries and increased wholesale power
and gas sales at CMS ERM. Also contributing to the increase in cost of gas and
purchase power were mark-to-market losses at the MCV Partnership.

For the six months ended June 30, 2005, operating revenues increased $32 million
versus the same period in 2004 due to increased demand at our South American
subsidiaries and an increase in wholesale power and gas sales at CMS ERM.
Related cost of gas and purchased power decreased $120 million versus the same
period in 2004, primarily due to mark-to-market gains at the MCV Partnership.
This decrease was partially offset by increased fuel cost and increased purchase
power associated with higher demand at our South American subsidiaries, and
higher wholesale power and gas costs at CMS ERM.

EARNINGS FROM EQUITY METHOD INVESTEES: Earnings from equity method investees
decreased $19 million for the three months ended June 30, 2005 versus the same
period in 2004. The decrease was primarily due

                                     CMS-10
<PAGE>
                                                          CMS Energy Corporation

to a $22 million change in mark-to-market adjustments associated with our
investment in Taweelah as losses on interest rate swaps in the current period
replaced the gains recorded on these instruments in the same period of 2004.
Also contributing to the decrease was a $3 million reduction in earnings from
our investment in Jorf Lasfar primarily due to higher operating and maintenance
costs, the absence of $3 million of earnings from Goldfields, which we sold in
August of 2004, and $2 million of other decreases in earnings. These decreases
were offset partially by a $7 million increase in earnings from GasAtacama, as
the Argentine Government lifted its natural gas export restrictions in the third
quarter of 2004 and $4 million of earnings from Shuweihat, which achieved
commercial operation in the fourth quarter of 2004.

Earnings from equity method investees decreased $7 million for the six months
ended June 30, 2005 versus the same period in 2004. The decrease was primarily
due to a $10 million change in mark-to-market adjustments associated with our
investment in Taweelah as losses on interest rate swaps in the current period
replaced the gains recorded on these instruments in the same period of 2004.
Also contributing to the decrease was the absence of $6 million in earnings from
Goldfields, which we sold in August of 2004, $5 million in lower earnings at
Neyveli primarily due to costs associated with refinancing, and $3 million of
other decreases in earnings. These decreases were offset partially by $9 million
in earnings from Shuweihat, which achieved commercial operation in the fourth
quarter of 2004 and an $8 million increase in earnings from GasAtacama, as the
Argentine Government lifted its natural gas export restrictions in the third
quarter of 2004.

GAIN ON SALE OF ASSETS: For the three months ended June 30, 2005, gains on asset
sales were $2 million due to the gain on the sale of our investment in the SLAP
Fund in 2005. There were no significant gains or losses on asset sales during
this period in 2004.

For the six months ended June 30, 2005, gains on asset sales increased $4
million versus the same period in 2004. This is due to a $3 million gain on the
sale of GVK and a $2 million gain on the sale of the SLAP Fund in 2005 versus a
$1 million gain on the sale of the Bluewater Pipeline in 2004.

OPERATION AND MAINTENANCE: For the three months ended June 30, 2005, operation
and maintenance expenses increased $5 million versus the same period in 2004.
The increase was primarily due to maintenance expense on a turbine shaft at
T.E.S. Filer City Station Limited Partnership and profit sharing payments made
to union employees at our CPEE subsidiary.

For the six months ended June 30, 2005, operation and maintenance expenses
increased $3 million versus the same period in 2004. The increase was primarily
due to costs related to higher electrical production and higher professional
fees at our South American subsidiaries, offset partially by lower legal fees in
connection with an arbitration in Argentina.


GENERAL TAXES, DEPRECIATION AND OTHER INCOME: For the three months ended June
30, 2005, the net of general tax expense, depreciation and other income
increased operating income primarily as a result of net positive foreign
exchange activity.

For the six months ended June 30, 2005, the net of general tax expense,
depreciation and other income increased operating income primarily as a result
of the reversal of a contingent liability at our gas storage facility at Leonard
Field and net positive foreign exchange activity.

ASSET IMPAIRMENT CHARGES: For the six months ended June 30, 2005, asset
impairment charges decreased $136 million versus the same period in 2004. The
decrease relates to the absence, in 2005, of the Loy Yang impairment recorded in
2004.

FIXED CHARGES: For the three and six months ended June 30, 2005, fixed charges
decreased versus the same



                                     CMS-11
<PAGE>
                                                          CMS Energy Corporation

periods in 2004 primarily due to lower expenses at the MCV Partnership.

MINORITY INTEREST: For the three months ended June 30, 2005, earnings attributed
to minority interest owners in our subsidiaries decreased versus the same
periods in 2004, primarily due to the impact of mark-to-market losses at the MCV
Partnership.

For the six months ended June 30, 2005, earnings attributed to minority interest
owners in our subsidiaries increased versus the same periods in 2004, primarily
due to the impact of mark-to-market gains at the MCV Partnership.

INCOME TAXES: For the three months ended June 30, 2005, income tax expense
decreased versus the same period in 2004. The decrease was due to non-recurring
income tax benefits related to the American Jobs Creation Act of 2004.

For the six months ended June 30, 2005, income tax expense increased versus the
same period in 2004. The increase was due to higher earnings in 2005, and the
absence of tax benefits recorded in 2004 related to the Loy Yang impairment.
This increase was offset partially by non-recurring income tax benefits related
to the American Jobs Creation Act of 2004.


CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   In Millions
- ------------------------------------------------------------------------------
June 30                                          2005         2004      Change
- ------------------------------------------------------------------------------
<S>                                              <C>          <C>       <C>
Three months ended                              $ (45)       $ (49)        $ 4
Six months ended                                $ (91)       $ (98)        $ 7
==============================================================================
</TABLE>

For the three months ended June 30, 2005, corporate interest and other net
expenses were $45 million, a decrease of $4 million versus the same period in
2004. The decrease reflects a $4 million reduction in corporate interest
primarily due to lower average debt levels and a 47 basis point reduction in the
average rate of interest.

For the six months ended June 30, 2005, corporate interest and other net
expenses were $91 million, a decrease of $7 million versus the same period in
2004. The decrease reflects a $12 million reduction in corporate interest
primarily due to lower average debt levels and a 53 basis point reduction in the
average rate of interest as well as a $4 million reduction in other interest
expenses allocated from the utilities. These decreases were offset partially by
a $1 million increase in other expenses and the absence in 2005 of an $8 million
benefit from the reversal of a currency translation adjustment related to the
sale of Loy Yang that was recorded in 2004.

DISCONTINUED OPERATIONS: For the three and six months ended June 30, 2005, we
had no activity from operations accounted for as discontinued. For the six
months ended June 30, 2004, our net loss from Discontinued Operations was $2
million.

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 of our benefit plans.




                                     CMS-12
<PAGE>
                                                          CMS Energy Corporation
CRITICAL 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.

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 the history and 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 liabilities, 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, and 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 provided adequately 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.

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. There have been no material changes to the accounting for
financial instruments since the year ended December 31, 2004. For details on
financial instruments, see Note 6, Financial and Derivative Instruments.

DERIVATIVE INSTRUMENTS: We use SFAS No. 133 to account for derivatives. Except
as noted within this section, there have been no material changes to the
accounting for derivative instruments since the year ended December 31, 2004.

The MISO began operating the Midwest Energy Market on April 1, 2005. The Midwest
Energy Market provides day-ahead and real-time energy market information and
centralized generation dispatch for market participants. At this time, we
believe that the commencement of this market does not constitute the development
of an active energy market in Michigan. However, as we gain additional
experience with the Midwest Energy Market, we will continue to evaluate whether
or not the activity level within this market leads to the conclusion that an
active energy market exists. If an active market develops in the future, certain
of our electric purchases and sales contracts may qualify as derivatives.
However, we believe that we will be able to apply the normal purchases and sales
exception to the majority of these contracts (including the MCV PPA), which
would not require us to mark these contracts to market.

Also as part of the Midwest Energy Market, FTRs were established. FTRs are
financial instruments


                                     CMS-13
<PAGE>
                                                          CMS Energy Corporation

established to manage price risk relating to electricity transmission
congestion. An FTR entitles the holder to receive compensation (or remit
payment) for certain congestion-related transmission charges that arise when the
transmission grid is congested. We presently hold FTRs for certain areas on the
transmission grid within the MISO's market area. FTRs are derivative instruments
and are required to be recognized on our Consolidated Balance Sheets as assets
or liabilities at their fair values, with any subsequent changes in fair value
recognized in earnings. As of June 30, 2005, we recorded an asset of $1 million
associated with the fair value of FTRs on our Consolidated Balance Sheets.

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 our
Consolidated Balance Sheets. Due to the implementation of the RCP in January
2005, the MCV Partnership 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
are accounted for as derivatives, with changes in fair value recorded in
earnings each quarter. Additionally, the financial hedges associated with these
contracts no longer qualify as cash flow hedges. Thus, as of January 2005, any
changes in the fair value of these financial hedges are recorded in earnings
each quarter. The MCV Partnership expects future earnings volatility on both the
gas fuel derivative contracts and the related financial hedges, since gains and
losses will be recorded each quarter. For the six months ended June 30, 2005, we
recorded a $170 million gain associated with the increase in fair value of these
instruments on our Consolidated Statements of Income, resulting in a cumulative
mark-to-market gain through June 30, 2005 of $226 million. The majority of this
mark-to-market gain is expected to reverse through earnings during 2005 and 2006
as the gas is purchased and the financial hedges settle, with the remainder
reversing between 2007 and 2011.

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 June 30, 2005,
we assumed market-based interest rates ranging between 3.34 percent and 4.22
percent (depending on the term of the contract) and monthly volatility rates
ranging between 25 percent and 42 percent to calculate the fair value of the gas
fuel contracts held by the MCV Partnership. Also, at June 30, 2005, we assumed a
market-based interest rate of 3.00 percent and monthly volatility rates ranging
between 35 percent and 39 percent to calculate the fair value of our gas
options.

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. There have been no material changes to the accounting for CMS ERM's
contracts since the year ended December 31, 2004.

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 at June 30, 2005:



                                     CMS-14
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                                                               In Millions
- ----------------------------------------------------------------------------------------------------------
                                                                                Non-
                                                                             Trading    Trading      Total
- ----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>        <C>         <C>
Fair value of contracts outstanding at December 31, 2004                      $ (199)     $ 201       $  2
Fair value of new contracts when entered into during the period (a)                -          2          2
Changes in fair value attributable to changes in valuation techniques
and assumptions                                                                    -          -          -
Contracts realized or otherwise settled during the period                         31        (35)        (4)
Other changes in fair value (b)                                                 (105)       116         11
- ----------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at June 30, 2005                          $ (273)     $ 284       $ 11
==========================================================================================================
</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 June 30, 2005                                                   In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                Total                     Maturity   (in years)
Source of Fair Value                       Fair Value     Less than 1       1 to 3      4 to 5      Greater than 5
- ------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>              <C>          <C>        <C>
Prices actively quoted                         $    -           $   -       $    -       $   -                $  -
Prices obtained from external
   sources or based on models and
   other valuation methods                       (273)            (73)        (130)        (61)                 (9)
- ------------------------------------------------------------------------------------------------------------------
Total                                          $ (273)          $ (73)      $ (130)      $ (61)               $ (9)
==================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Fair Value of Trading Contracts at June 30, 2005                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                Total                    Maturity     (in years)
Source of Fair Value                         Fair Value     Less than 1      1 to 3      4 to 5     Greater than 5
- ------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>              <C>         <C>        <C>
Prices actively quoted                            $ (44)           $ (7)      $ (27)      $ (10)              $  -
Prices obtained from external
   sources or based on models and
   other valuation methods                          328              92         158          69                  9
- ------------------------------------------------------------------------------------------------------------------
Total                                             $ 284            $ 85       $ 131       $  59               $  9
==================================================================================================================
</TABLE>

MARKET RISK INFORMATION: The following is an update of our risk sensitivities
since the year ended December 31, 2004. These 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 SENSITIVITY ANALYSIS (assuming a 10 percent adverse change in
market interest rates):

<TABLE>
<CAPTION>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                                           June 30, 2005         December 31, 2004
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>
Variable-rate financing - before-tax annual earnings exposure                      $   1                     $   2
Fixed-rate financing - potential loss in fair value (a)                              216                       216
==================================================================================================================
</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


                                     CMS-15
<PAGE>
                                                          CMS Energy Corporation

be included in the sensitivity analysis, but can have an impact on financial
results.

COMMODITY PRICE RISK SENSITIVITY ANALYSIS (assuming a 10 percent adverse change
in market prices):


<TABLE>
<CAPTION>
                                                                    In Millions
- -------------------------------------------------------------------------------
                                              June 30, 2005   December 31, 2004
- -------------------------------------------------------------------------------
<S>                                           <C>             <C>
Potential REDUCTION in fair value:
Gas supply option contracts                            $  -                $  1
FTRs                                                      -                   -
CMS ERM electric and gas forward contracts               12                  10
Derivative contracts associated with the MCV
 Partnership:
  Gas fuel contracts (a)                                 38                  17
  Gas fuel futures and swaps                             47                  41
===============================================================================
</TABLE>

(a) The increased potential reduction in fair value for the MCV Partnership's
gas fuel contracts is due to an increased number of contracts accounted for as
derivatives. This is a result of the implementation of the RCP, at which time
the MCV Partnership determined that a significant portion of its gas fuel
contracts no longer qualify as normal purchases and must now be accounted for as
derivatives.

TRADING ACTIVITY COMMODITY PRICE RISK SENSITIVITY ANALYSIS (assuming a 10
percent adverse change in market prices):


<TABLE>
<CAPTION>
                                                                    In Millions
- -------------------------------------------------------------------------------
                                         June 30, 2005        December 31, 2004
- -------------------------------------------------------------------------------
<S>                                      <C>                  <C>
Potential REDUCTION in fair value:
  Electricity-related option contracts            $  -                      $ -
  Gas-related option contracts                       1                        3
  Gas-related swaps and futures                     13                        7
===============================================================================
</TABLE>

INVESTMENT SECURITIES PRICE RISK SENSITIVITY ANALYSIS (assuming a 10 percent
adverse change in market prices):


<TABLE>
<CAPTION>
                                                                    In Millions
- -------------------------------------------------------------------------------
                                             June 30, 2005    December 31, 2004
- -------------------------------------------------------------------------------
<S>                                          <C>             <C>
Potential REDUCTION in fair value of
  available-for-sale equity securities
  (primarily SERP investments)                         $ 5                  $ 5
===============================================================================
</TABLE>

Consumers maintains trust funds, as required by the NRC, which may only be used
to fund certain costs of nuclear plant decommissioning. These funds are 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-16
<PAGE>
                                                          CMS Energy Corporation

INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY

Argentina: As part of its energy privatization incentives, Argentina directed
CMS Gas Transmission to calculate tariffs in U.S. dollars then convert them to
pesos at the prevailing exchange rate, and to adjust tariffs every six months to
reflect changes in inflation. Starting in early 2000, Argentina suspended the
inflation adjustments.

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 Government of Argentina to renegotiate such
tariffs.

CMS Gas Transmission began arbitration with the International Centre for the
Settlement of Investment Disputes (ICSID) in mid-2001, citing breaches by
Argentina under the Argentine - U.S. Bilateral Investment Treaty. In May 2005,
an ICSID tribunal concluded, among other things, that Argentina's economic
emergency did not excuse Argentina from liability. The ICSID tribunal found in
favor of CMS Gas Transmission, and awarded damages of U.S. $133 million, plus
interest.

Under the rules of the ICSID Convention, either party may seek an annulment of
the award from a newly constituted tribunal. Argentina has indicated its intent
to seek such an annulment.

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. On September 1, 2005, we will implement the Defined Company
Contribution Plan.

The Defined Company Contribution Plan will provide an employer cash contribution
of 5 percent of base pay to the existing Employees' Savings Plan. No employee
contribution is required to receive the plan's employer contribution. All
employees hired on and after September 1, 2005 will participate in this plan as
part of their retirement benefit program. Cash balance pension plan participants
will also participate in the Defined Company Contribution Plan on September 1,
2005. Additional pay credits under the cash balance pension plan will be
discontinued as of that date. We use SFAS No. 87 to account for pension costs.

401(k): We resumed the employer's match on our 401(k) Savings Plan on January 1,
2005. The plan provides for an employer match of 50 percent on eligible
contributions up to the first six percent of an employee's wages. Effective
September 1, 2005, employees enrolled in the company's 401(k) Savings Plan will
have the employer match increased from 50 percent to 60 percent.

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




                                     CMS-17

<PAGE>
                                                          CMS Energy Corporation

    -    anticipated health care costs.

Any change in these assumptions can change significantly 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>
                                                                  In Millions
- -----------------------------------------------------------------------------
Expected Costs           Pension Cost        OPEB Cost          Contributions
- -----------------------------------------------------------------------------
<S>                      <C>                 <C>                <C>
2006                            $  95             $ 38                  $  82
2007                              104               34                    184
2008                               99               30                    112
=============================================================================
</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.

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

OTHER

Other accounting policies that are important to an understanding of our results
of operations and financial condition include:

     -    accounting for long-lived assets and equity method investments,

     -    accounting for the effects of industry regulation,

     -    accounting for asset retirement obligations, and

     -    accounting for nuclear decommissioning costs.

There have been no material changes to these accounting policies since they the
year ended December 31, 2004.

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 require additional liquidity due to the timing of the cost
recoveries as gas prices increase. 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 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 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.




                                     CMS-18
<PAGE>
                                                          CMS Energy Corporation

CASH POSITION, INVESTING, AND FINANCING

Our operating, investing, and financing activities meet consolidated cash needs.
At June 30, 2005, $1.080 billion consolidated cash was on hand, which includes
$67 million of restricted cash and $214 million from the entities consolidated
pursuant to FASB Interpretation No. 46. For additional details, see Note 11,
Consolidation of Variable Interest Entities.

Our primary ongoing source of cash is dividends and other distributions from our
subsidiaries. For the six months ended June 30, 2005, Consumers paid $167
million in common stock dividends to CMS Energy.

SUMMARY OF CASH FLOWS:


<TABLE>
<CAPTION>
                                                                    In Millions
- -------------------------------------------------------------------------------
Six months ended June 30                                          2005     2004
- -------------------------------------------------------------------------------
<S>                                                             <C>     <C>
Net cash provided by (used in):
   Operating activities                                         $  506   $  478
   Investing activities                                           (136)    (403)
                                                                ---------------
Net cash provided by operating and investing activities            370       75
   Financing activities                                            (27)    (276)
Effect of exchange rates on cash                                     1       (1)
                                                                ---------------
Net increase (decrease) in cash and cash equivalents            $  344   $ (202)
===============================================================================
</TABLE>

OPERATING ACTIVITIES: For the six months ended June 30, 2005, net cash provided
by operating activities increased $28 million versus the same period in 2004 due
to decreases in inventory from lower volumes of gas purchased and other timing
differences.

INVESTING ACTIVITIES: For the six months ended June 30, 2005, net cash used in
investing activities decreased $267 million primarily due to a net increase in
short-term investment proceeds of $301 million, offset by an increase in capital
expenditures of $43 million.

FINANCING ACTIVITIES: For the six months ended June 30, 2005, net cash used in
financing activities decreased $249 million primarily due to net proceeds from
the issuance of common stock of $283 million, offset by a decrease of $34
million in net proceeds from borrowings.

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

OBLIGATIONS AND COMMITMENTS

REVOLVING CREDIT FACILITIES: For details on revolving credit facilities, see
Note 4, Financings and Capitalization.

OFF-BALANCE SHEET ARRANGEMENTS: There have been no material changes in
off-balance sheet arrangements since the year ended December 31, 2004. For
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."

DIVIDEND RESTRICTIONS: For details on dividend restrictions, see Note 4,
Financings and Capitalization.

OTHER: CMS ERM is a party to a certain gas supply contract whose performance is
backed by a bond issued by American Home Assurance Co. (AHA), a subsidiary of
American International Group, Inc. (AIG), as a jointly liable surety. AHA
currently has a surety obligation of $130 million pursuant to this contract.
This amount amortizes monthly. The gas supply contract requires that the surety
maintain


                                     CMS-19
<PAGE>
                                                          CMS Energy Corporation

minimum credit ratings of AA- or better from S&P and Aa3 or better from Moody's.
On March 30, 2005, the credit ratings of AIG and AHA were downgraded by S&P from
AAA to AA+ with negative watch. On June 3, 2005, S&P downgraded AIG further from
AA+ to AA. On March 31, 2005, Moody's lowered its long-term senior debt ratings
on AIG and AHA from Aaa to Aa1. On May 2, 2005, Moody's again lowered their
long-term senior debt ratings on AIG and AHA from Aa1 to Aa2 and placed their
ratings on review for possible further downgrade. On May 31, 2005, Moody's
confirmed the Aa2 rating for AIG and revised its outlook to stable. AHA remained
under review for possible downgrade. We cannot predict whether these ratings
will further decline; however, we have several alternatives in the event that
AHA no longer meets the minimum rating requirements. These alternatives include
obtaining a letter of credit under our existing revolving credit agreement,
seeking an alternative letter of credit arrangement or posting available cash as
collateral. These alternatives may have a negative impact on our liquidity.

BOND REPURCHASE: In July and through August 4, 2005, we have purchased in the
open market $73 million principal amount of our 9.875 percent senior notes due
2007.

OUTLOOK

CORPORATE OUTLOOK

During 2005, we will continue 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 retain. The percentage of our future earnings relating to our
larger equity method investments may increase and our total future earnings may
depend more significantly upon the performance of those investments. For
additional details, see Note 9, 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 us 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 2005, we project electric deliveries to grow approximately three
percent. This short-term outlook for 2005 assumes a stronger economy than in
2004 and normal weather conditions during the remainder of 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 or contraction of manufacturing facilities.

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 establish a reserve margin target to address various scenarios and
contingencies so that the probability of interrupting service to retail
customers because of a supply shortage is no greater than an industry-recognized
standard. However, even with the reserve margin target, additional spot
purchases during periods when electric prices are high may be required. 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
100 percent from our electric generating plants and long-term


                                     CMS-20
<PAGE>
                                                          CMS Energy Corporation

power purchase contracts, and approximately 11 percent from short-term
contracts, options for physical deliveries, and other agreements. We have
purchased capacity and energy contracts covering the estimated reserve margin
requirements for 2005 and covering partially the estimated reserve margin
requirements for 2006 through 2007. As a result, we have recognized an asset of
$12 million for unexpired capacity and energy contracts at June 30, 2005.

COAL DELIVERY DISRUPTIONS: In May 2005, western coal rail carriers experienced
derailments and significant service disruptions due to heavy snow and rain
conditions. These disruptions affected all shippers of western coal from Wyoming
mines as well as coal producers from May 2005 through June 2005. We received
notification that, under contractual Force Majeure provisions, the coal tonnage
not delivered during this period will not be made up. According to recent
announcements, rail repairs will extend through November 2005. Although we
expect some impact on coal shipments during the repair period, and as a result
our coal inventories may drop below historical levels this winter, based on our
current delivery experience, projections, and inventory, we believe we will have
adequate coal supply to allow for normal dispatch of our coal-fired generating
units. However, we are unable to predict other potential industry-wide
shortages, which could affect the ability of our suppliers to deliver on their
commitments.

TRANSMISSION MARKET DEVELOPMENT: The MISO began operating the Midwest Energy
Market on April 1, 2005. The Midwest Energy Market includes a day-ahead and
real-time energy market and centralized generation dispatch for market
participants. We are a participant in this energy market. The intention of these
changes is to meet load requirements in the region reliably and efficiently, to
improve management of congestion on the grid, and to centralize dispatch of
generation throughout the region. The MISO is now responsible for the
reliability and economic dispatch in the entire MISO area, which covers parts of
15 states and Manitoba, including our service territory. We are presently
evaluating what financial impact, if any, these changes are having on our
operations.

RENEWABLE RESOURCES PROGRAM: In January 2005, in collaboration with the MPSC, we
established a renewable resources program. Under the RRP, we will purchase
energy from approved renewable sources, which include solar, wind, geothermal,
biomass, and hydroelectric. Customers will be able to participate in the RRP in
accordance with tariffs approved by the MPSC. The MPSC has authorized recovery
of costs for the RRP by establishing a fund that consists of an annual
contribution from savings generated by the RCP, a surcharge imposed by the MPSC,
and contributions from customers. In February 2005, the Attorney General filed
appeals of the MPSC orders providing funding for the RRP in the Michigan Court
of Appeals. In March 2005, we issued a request for proposal for long-term
renewable energy supply contracts. We are in negotiations with certain
respondents to this request.

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 load migration to alternative electric suppliers,
increased system maintenance and improvement costs, Clean Air Act-related
expenditures, and employee pension costs. In April 2005, we filed updated debt
and equity information in this case.

In June 2005, the MPSC Staff filed its position in this case, recommending a
base rate increase of $98 million. The MPSC Staff also recommended an 11.25
percent return on equity to establish rates and recognized all of our projected
equity investment (infusions and retained earnings) in 2006. We expect a final
order from the MPSC 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,

                                     CMS-21
<PAGE>
                                                          CMS Energy Corporation

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 under discussion in a few municipalities in our service
territory. If incurred, we would seek recovery of these costs from our customers
located in the municipality affected, subject to MPSC approval. This case has
potentially broad ramifications for the electric utility industry in Michigan.
In a similar matter, in May 2005, we filed a request with the MPSC that asks the
MPSC to rule that the City of East Grand Rapids, Michigan must pay for the
relocation of electric utility facilities required by an ordinance adopted by
the city. At this time, we cannot predict the outcome of these matters.

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.

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 Nitrogen
Oxide State Implementation Plan requires significant reductions in nitrogen
oxide emissions. To comply with the regulations, we expect to incur capital
expenditures totaling $815 million. The key assumptions 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 8.3 percent. As of June 2005, we have incurred
$563 million in capital expenditures to comply with these regulations and
anticipate that the remaining $252 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, of which 90 percent have been
purchased. The cost of the allowances is estimated to average $8 million per
year for 2005-2006. The estimated costs are based on the average cost of the
purchased, allocated, and swapped allowances. The need for allowances will
decrease after year 2006 with the installation of selective catalytic 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 recently adopted a Clean Air Interstate Rule that requires additional
coal-fired electric plant emission controls for nitrogen oxides and sulfur
dioxide. The rule involves a two-phase program to reduce emissions of sulfur
dioxide by 71 percent and nitrogen oxides by 63 percent by 2015. The final rule
will require that we run our Selective Catalytic Reduction units year round
beginning in 2009 and may require that we purchase additional nitrogen oxide
credits beginning in 2009. In addition to the selective catalytic reduction
control technology installed to meet the Nitrogen Oxide State Implementation
Plan, our current plan includes installation of flue gas desulfurization
scrubbers. The scrubbers are to be installed by 2014 to meet the phase I
reduction requirements of the Clean Air Interstate Rule at a cost near that of
the Nitrogen Oxide State Implementation Plan.




                                     CMS-22
<PAGE>
                                                          CMS Energy Corporation

In March 2005, the EPA issued the Clean Air Mercury Rule, which requires initial
reductions of mercury emissions from coal-fired electric power plants by 2010
and further reductions by 2018. While the industry has not reached a consensus
on the technical methods for curtailing mercury emissions, our capital and
operating costs for mercury emissions reductions are expected to be
significantly less than what is required for nitrogen oxide compliance.

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 sector. 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
uncertain 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 2007. We are currently performing the required studies 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: 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 July 2005, alternative electric suppliers
are providing 811 MW of generation supply to ROA customers. This amount
represents a decrease of 5 percent compared to July 2004, and 11 percent of our
total distribution load. Several customers notified us of their intent to return
to our service after a notification period that ended in June 2005 and July
2005. Customers representing 106 MW returned to our service during this period.
Based on this and other current trends, we predict that total load loss by the
end of 2005 will be in the range of 900 MW to 950 MW. However, we cannot assure
that the actual load loss will fall within that range.

Implementation Costs: In June 2005, the MPSC issued an order that authorizes us
to recover implementation costs incurred during 2002 and 2003 totaling $6
million, plus the cost of money through the period of collection.

We are also pursuing authorization at the FERC for the MISO to reimburse us for
Alliance RTO development costs. Included in this amount is $2 million that the
MPSC did not approve as part of our 2002 implementation costs application. The
FERC denied our request for reimbursement and we are appealing the FERC ruling
at the United States Court of Appeals for the District of Columbia. We cannot
predict the amount, if any, the FERC will approve as recoverable.




                                     CMS-23
<PAGE>
                                                          CMS Energy Corporation

Section 10d(4) Regulatory Assets: 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. 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
in Section 10d(4) costs, which includes the cost of money through the period of
collection. In June 2005, the ALJ issued a proposal for decision recommending
the MPSC approve recovery of the same Section 10d(4) costs recommended by the
MPSC Staff. However, we may have the opportunity to recover certain costs
included in our application alternatively in other cases pending before the
MPSC. We cannot predict the amount, if any, the MPSC will approve as
recoverable.

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."

OTHER ELECTRIC UTILITY BUSINESS UNCERTAINTIES

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. 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 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 MCV PPA, thereby limiting our capacity and fixed energy payments to the
MCV Partnership to the amounts that we collect 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 15, 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 MCV 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. Natural gas prices have
increased substantially in recent years. NYMEX forward natural gas prices
through 2010 recently were approximately $2 per mcf higher than they were at
year-end 2004. Because the price the MCV Partnership can charge us for energy
has not increased to reflect current natural gas prices, the MCV Partnership's
financial performance has been impacted negatively. If forward gas prices for
2010 and beyond do not decline to the $4 to $6 per mcf range currently
anticipated by various government and private natural gas price forecasts, and
remain in that range for the remaining life of the MCV PPA, the economics of
operating the MCV Facility would be adverse enough to require the MCV
Partnership to recognize a substantial impairment of its property, plant and
equipment, which are included in our Consolidated Balance Sheets. However,
forecasting future natural gas prices is extremely difficult and there are
currently differing views among forecasters as to whether such prices will
increase, decrease or remain at current levels over any period of time. At
present, some of the forecasts indicate natural gas prices in excess of the $4
to $6 per mcf range during the years after 2010. At June 30, 2005, the net book
value of the MCV Partnership's property, plant




                                     CMS-24
<PAGE>
                                                          CMS Energy Corporation

and equipment was $1.396 billion. Several other factors could alter
significantly the MCV Partnership's future impairment analyses including, but
not limited to, energy payments to the MCV Partnership, which are based on the
cost of coal burned at our coal plants, and any reduction in payments to the MCV
Partnership subsequent to September 15, 2007 due to underrecovery of contract
costs by Consumers from its customers as a result of past or future actions by
the MPSC. Any such impairment would be required to be recognized in the period
when management's analysis of the factors described above meets the accounting
standards for impairment recognition. We will continue to monitor the current
and long-term trends in natural gas prices and their effect on the economics of
operating the MCV Facility.

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

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 by early 2007. We expect a 30-acre area containing
eight casks loaded with spent nuclear fuel and other high-level radioactive
waste material to be returned to a natural state within two years from the date
the DOE begins removing the spent nuclear fuel from Big Rock.

Palisades: In March 2005, the NRC completed its end-of-cycle plant performance
assessment of Palisades, which covered the calendar year 2004. The NRC
determined that Palisades was operated in a manner that preserved public health
and safety and met all of the NRC's specific "cornerstone objectives." As of
June 2005, 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 September 2006.

The amount of spent nuclear fuel at Palisades exceeds the plant's temporary
onsite wet storage pool capacity. We are using dry casks for temporary onsite
dry storage to supplement the wet storage pool capacity. As of June 2005, 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."

Palisades' current license from the NRC expires in 2011. In March 2005, NMC,
which operates the Palisades plant, applied for a 20-year license renewal for
the plant on behalf of Consumers. The NRC typically takes 22-30 months to review
a license renewal application. A decision is expected in 2007.

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

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.
In March 2005, an MPSC ALJ recommended that the complaint be dismissed.
Exceptions to

                                     CMS-25
<PAGE>
                                                          CMS Energy Corporation

this proposal for decision have been filed, and the matter is now before the
MPSC for a decision. 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,

    -    the price of competing energy sources or fuels,

    -    gas consumption per customer, and

    -    changes 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. We started construction
of the pipeline in June 2005 and it is expected to be completed and in service
by November 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. On July 8, 2005, the
Administrative Law Judge hearing the case issued a proposal for decision
supporting the project as filed.

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.

GAS ENVIRONMENTAL ESTIMATES: We expect to incur investigation and remedial
action costs at a number of sites, including 23 former manufactured gas plant
sites. For additional details, see Note 3, Contingencies, "Consumers' Gas
Utility Contingencies - Gas Environmental Matters."

GAS TITLE TRACKING FEES AND SERVICES: There has been no material change in the
Gas Title Tracking Fees and Services matter since the year ended December 31,
2004.

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. For additional details on gas cost recovery, see Note
3, Contingencies, "Consumers' Gas Utility Rate Matters -- Gas Cost Recovery."

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.

                                     CMS-26
<PAGE>
                                                          CMS Energy Corporation

In October and December 2004, the MPSC issued Opinions and Orders in our gas
depreciation case, which reaffirmed the previously ordered $34 million reduction
in our depreciation expense. The October 2004 order also required 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.

The MPSC has directed us to file our next gas depreciation case within 90 days
after the latter of:

    -   the removal cost study filing or

    -   the MPSC issuance of a final order in the pending case related to ARO
        accounting.

The MPSC order on the pending case related to ARO accounting is expected in the
first quarter of 2006. We proposed to incorporate the results of the gas
depreciation case into gas general rates using a surcharge mechanism if the
depreciation case order was not issued concurrently with a gas general rate case
order.

2005 GAS RATE CASE: In July 2005, we filed an application with the MPSC seeking
a 12 percent authorized return on equity along with a $132 million annual
increase in our gas delivery and transportation rates. The primary reasons for
the request are recovery of new investments, carrying costs on natural gas
inventory related to higher gas prices, system maintenance, employee benefits,
and low-income assistance. If approved, the request would add approximately 5
percent to the typical residential customer's average monthly bill. The increase
would also affect commercial and industrial customers. As part of this filing,
we also requested interim rate relief of $75 million.

OTHER CONSUMERS' OUTLOOK

COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees are
represented by the Utility Workers Union of America. 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 expired on June 1, 2005. In
April 2005, a new Operating, Maintenance, and Construction Agreement was reached
between the Utility Workers Union of America and Consumers. The Union membership
voted to ratify this agreement. The collective bargaining agreement with the
Union for our call center employees expired on August l, 2005. In July 2005,
Consumers and the Union reached and ratified a new collective bargaining
agreement for our call center employees.

ENTERPRISES OUTLOOK

We plan to continue restructuring our Enterprises 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 not consistent with this focus.

SENECA operates an electric utility on Margarita Island, Venezuela under a
Concession Agreement with the Venezuelan Ministry of Energy and Mines, now the
Ministry of Energy and Petroleum (MEP). The Concession Agreement provides for
semi-annual customer tariff adjustments for the effects of inflation and foreign
exchange variations. The last tariff adjustment occurred in December 2003. It
was less than the amount required by the Concession Agreement and no tariff
increases have been granted since then. In July 2003, the MEP approved a fuel
subsidy for SENECA to offset partially the effects of its lower tariff revenues.
The fuel subsidy expired on December 31, 2004. SENECA has sent several letters
to the MEP indicating that the economic circumstances that required the
implementation of the fuel subsidy persist. In the letters, SENECA has informed
the MEP that, unless it objects, SENECA will continue to apply the fuel subsidy
as a credit against a portion of its fuel bills from its fuel supplier,
Deltaven, a governmental body




                                     CMS-27
<PAGE>
                                                          CMS Energy Corporation

regulated by the MEP. SENECA has not received any response to the letters from
the MEP; therefore, SENECA is taking the fuel subsidy as a credit against
billings from Deltaven. We are informed that the government is considering
whether to grant financial relief to SENECA pursuant to its Concession Agreement
obligations. The outcome is uncertain since all alternatives are still being
explored. If timely financial relief is not approved, the liquidity of SENECA
and the value of our investment in SENECA would be impacted adversely.

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 taxes or 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,

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

    -   impact of indemnity and environmental remediation obligations at Bay
        Harbor.

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.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

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 (calendar year 2005 for
CMS Energy). In June 2005, we decided on a plan to repatriate $79 million of
foreign earnings during the remainder of 2005. Historically, we recorded
deferred taxes on these earnings. Since this planned repatriation is expected to
qualify for the tax benefit, we reversed $24 million of our deferred tax
liability. This adjustment was recorded as a component of income from continuing
operations in the second quarter of 2005.

We may repatriate additional amounts that may qualify for the repatriation tax
benefit during the remainder of 2005. If successful, our current estimate is
that additional amounts could range between $50 million and $150 million. The
amount of additional repatriation remains uncertain because it is based on
future foreign



                                     CMS-28
<PAGE>
                                                          CMS Energy Corporation

subsidiary operations, cash flows, financings, and repatriation limitations.
This potential additional repatriation could reduce our recorded deferred tax
liability by $15 million to $45 million. We expect to be in a position to
finalize our assessment regarding any potential repatriation, which may be
higher or lower, in the fourth quarter of 2005.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS NO. 123R, SHARE-BASED PAYMENT: This Statement requires companies to use the
fair value of employee stock options and similar awards at the grant date to
value the awards. Companies must expense this amount over the vesting period of
the awards. This 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.

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 cash inflows from financing
activities rather than as a reduction of taxes paid in operating activities.
Excess tax benefits are recorded as adjustments to additional paid-in capital.

This Statement is effective for us as of the beginning of 2006. We adopted the
fair value method of accounting for share-based awards effective December 2002.
Therefore, we do not expect this statement to have a significant impact on our
results of operations when it becomes effective.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarifies the term "conditional asset
retirement obligation" as used in SFAS No. 143. The term refers to a legal
obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be
within the control of the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. The fair value of a
liability for the conditional asset retirement obligation should be recognized
when incurred. This Interpretation also clarifies when an entity would have
sufficient information to estimate reasonably the fair value of an asset
retirement obligation. For us, this Interpretation is effective no later than
December 31, 2005. We are in the process of determining the impact this
Interpretation will have on our financial statements upon adoption.






                                     CMS-29
<PAGE>
                                 CMS ENERGY CORPORATION
                            CONSOLIDATED STATEMENTS OF INCOME
                                       (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                THREE MONTHS ENDED              SIX MONTHS ENDED
JUNE 30                                                                         2005          2004           2005           2004
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                            In Millions, Except Per Share Amounts

<S>                                                                        <C>             <C>            <C>            <C>
OPERATING REVENUE                                                          $   1,241       $ 1,093        $ 3,086        $ 2,847

EARNINGS FROM EQUITY METHOD INVESTEES                                             21            41             52             60

OPERATING EXPENSES
     Fuel for electric generation                                                178           184            355            362
     Fuel costs mark-to-market at MCV                                             39             -           (170)            (6)
     Purchased and interchange power                                             113            80            208            157
     Cost of gas sold                                                            334           263          1,173          1,024
     Other operating expenses                                                    257           224            491            442
     Maintenance                                                                  58            65            116            122
     Depreciation, depletion and amortization                                    122           108            278            252
     General taxes                                                                66            62            141            136
     Asset impairment charges                                                      -             -              -            125
                                                                           -----------------------------------------------------
                                                                               1,167           986          2,592          2,614
- --------------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                                  95           148            546            293

OTHER INCOME (DEDUCTIONS)
     Accretion expense                                                            (5)           (6)           (10)           (12)
     Gain on asset sales, net                                                      2             1              5              3
     Interest and dividends                                                       15             7             25             14
     Regulatory return on capital expenditures                                    15             9             31             18
     Foreign currency losses, net                                                 (3)           (3)            (4)            (6)
     Other income                                                                 10             6             18              9
     Other expense                                                                (5)           (2)           (12)            (4)
                                                                           -----------------------------------------------------

                                                                                  29            12             53             22
- --------------------------------------------------------------------------------------------------------------------------------

FIXED CHARGES
     Interest on long-term debt                                                  121           126            243            256
     Interest on long-term debt - related parties                                  6            14             16             29
     Other interest                                                                6             7             10             12
     Capitalized interest                                                         (1)           (1)            (2)            (3)
     Preferred dividends of subsidiaries                                           1             1              2              2
                                                                           -----------------------------------------------------

                                                                                 133           147            269            296
- --------------------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE MINORITY INTERESTS                                           (9)           13            330             19

MINORITY INTERESTS                                                               (14)            1             99             12
                                                                           -----------------------------------------------------

INCOME BEFORE INCOME TAXES                                                         5            12            231              7

INCOME TAX EXPENSE (BENEFIT)                                                     (25)           (7)            49            (10)
                                                                           -----------------------------------------------------

INCOME FROM CONTINUING OPERATIONS                                                 30            19            182             17

LOSS FROM DISCONTINUED OPERATIONS, NET OF
    $- AND $1 TAX BENEFIT IN 2004                                                  -             -              -             (2)
                                                                           -----------------------------------------------------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING                          30            19            182             15

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
    RETIREMENT BENEFITS, NET OF $1 TAX BENEFIT IN 2004                             -             -              -             (2)
                                                                           -----------------------------------------------------

NET INCOME                                                                        30            19            182             13
PREFERRED DIVIDENDS                                                                3             3              5              6
                                                                           -----------------------------------------------------

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS                                $      27       $    16        $   177        $     7
================================================================================================================================
</TABLE>


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


                                     CMS-30

<PAGE>
<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED            SIX MONTHS ENDED
JUNE 30                                                                        2005           2004          2005          2004
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                         In Millions, Except Per Share Amounts
<S>                                                                       <C>               <C>           <C>          <C>
CMS ENERGY
              NET INCOME
                     Net Income Available to Common Stockholders          $      27         $   16        $  177       $     7
                                                                          ====================================================

              BASIC EARNINGS PER AVERAGE COMMON SHARE
                     Income from Continuing Operations                    $    0.12         $ 0.10        $ 0.86       $  0.06
                     Loss from Discontinued Operations                            -              -             -         (0.01)
                     Loss from Changes in Accounting                              -              -             -         (0.01)
                                                                          ----------------------------------------------------
                     Net Income Attributable to Common Stock              $    0.12         $ 0.10        $ 0.86       $  0.04
                                                                          ====================================================

              DILUTED EARNINGS PER AVERAGE COMMON SHARE
                     Income from Continuing Operations                    $    0.12         $ 0.10        $ 0.82       $  0.06
                     Loss from Discontinued Operations                            -              -             -         (0.01)
                     Loss from Changes in Accounting                              -              -             -         (0.01)
                                                                          ----------------------------------------------------
                     Net Income Attributable to Common Stock              $    0.12         $ 0.10        $ 0.82       $  0.04
                                                                          ====================================================

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



        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                     CMS-31


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                                     CMS-32
<PAGE>

                             CMS ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                                SIX MONTHS ENDED
JUNE 30                                                                                                      2005           2004
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     In Millions
<S>                                                                                                   <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                                          $       182       $     13
    Adjustments to reconcile net income to net cash
      provided by operating activities
        Depreciation, depletion and amortization (includes nuclear
          decommissioning of $3 per period)                                                                   278            252
        Regulatory return on capital expenditures                                                             (31)           (18)
        Minority interest                                                                                      99             12
        Fuel costs mark-to-market at MCV                                                                     (170)            (6)
        Asset impairment charges                                                                                -            125
        Capital lease and debt discount amortization                                                           21             14
        Accretion expense                                                                                      10             12
        Distributions from related parties less than earnings                                                 (16)           (44)
        Gain on the sale of assets                                                                             (5)            (3)
        Cumulative effect of accounting changes                                                                 -              2
        Changes in other assets and liabilities:
           Increase in accounts receivable and accrued revenues                                               (78)          (112)
           Decrease in inventories                                                                            112             81
           Increase in accounts payable                                                                        29             61
           Increase (decrease) in accrued expenses                                                            (50)             5
           Deferred income taxes and investment tax credit                                                     58             44
           Decrease in other current and non-current assets                                                    11             37
           Increase in other current and non-current liabilities                                               56              3
                                                                                                      --------------------------

          Net cash provided by operating activities                                                   $       506       $    478
- --------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                                   $      (280)      $   (237)
  Cost to retire property                                                                                     (44)           (37)
  Restricted cash                                                                                             (20)           (12)
  Investments in nuclear decommissioning trust funds                                                           (3)            (3)
  Proceeds from nuclear decommissioning trust funds                                                            24             23
  Proceeds from short-term investments                                                                        295          1,072
  Purchase of short-term investments                                                                         (186)        (1,264)
  Maturity of MCV restricted investment securities held-to-maturity                                           222            300
  Purchase of MCV restricted investment securities held-to-maturity                                          (223)          (300)
  Proceeds from sale of assets                                                                                 59             66
  Other investing                                                                                              20            (11)
                                                                                                      --------------------------

          Net cash used in investing activities                                                       $      (136)      $   (403)
- --------------------------------------------------------------------------------------------------------------------------------


CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes, bonds, and other long-term debt                                                $       900       $      9
  Issuance of common stock                                                                                    283              -
  Retirement of bonds and other long-term debt                                                             (1,169)          (274)
  Payment of preferred stock dividends                                                                         (6)            (6)
  Payment of capital lease obligations                                                                         (5)            (5)
  Debt issuance costs and financing fees                                                                      (30)             -
                                                                                                      --------------------------

          Net cash used in financing activities                                                       $       (27)      $   (276)
- --------------------------------------------------------------------------------------------------------------------------------


EFFECT OF EXCHANGE RATES ON CASH                                                                                1             (1)
- --------------------------------------------------------------------------------------------------------------------------------


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                  $       344       $   (202)

CASH AND CASH EQUIVALENTS FROM EFFECT OF REVISED FASB
  INTERPRETATION NO. 46 CONSOLIDATION                                                                           -            174

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                669            532
                                                                                                      --------------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                              $     1,013       $    504
================================================================================================================================
</TABLE>




                                     CMS-33
<PAGE>
                                   CMS ENERGY CORPORATION
                                CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
                                                                                      JUNE 30
                                                                                         2005     DECEMBER 31
                                                                                   (UNAUDITED)           2004
- -------------------------------------------------------------------------------------------------------------
                                                                                                  In Millions

<S>                                                                             <C>               <C>
PLANT AND PROPERTY (AT COST)
   Electric utility                                                             $       8,044     $     7,967
   Gas utility                                                                          3,028           2,995
   Enterprises                                                                          3,360           3,517
   Other                                                                                   27              28
                                                                                -----------------------------
                                                                                       14,459          14,507
   Less accumulated depreciation, depletion and amortization                            6,115           6,135
                                                                                -----------------------------
                                                                                        8,344           8,372
   Construction work-in-progress                                                          490             370
                                                                                -----------------------------
                                                                                        8,834           8,742
- -------------------------------------------------------------------------------------------------------------


INVESTMENTS
   Enterprises                                                                            698             729
   Other                                                                                   13              23
                                                                                -----------------------------
                                                                                          711             752
- -------------------------------------------------------------------------------------------------------------


CURRENT ASSETS
   Cash and cash equivalents at cost, which approximates market                         1,013             669
   Restricted cash                                                                         67              56
   Short-term investments at cost, which approximates market                                -             109
   Accounts receivable, notes receivable and accrued revenue, less
     allowances of $32 and $38, respectively                                              601             528
   Accounts receivable and notes receivable - related parties                              47              53
   Inventories at average cost
      Gas in underground storage                                                          738             856
      Materials and supplies                                                               89              90
      Generating plant fuel stock                                                          91              84
   Price risk management assets                                                           131              91
   Regulatory assets - postretirement benefits                                             19              19
   Derivative instruments                                                                 241              96
   Deferred property taxes                                                                139             167
   Prepayments and other                                                                  117             181
                                                                                -----------------------------
                                                                                        3,293           2,999
- -------------------------------------------------------------------------------------------------------------


NON-CURRENT ASSETS
   Regulatory Assets
      Securitized costs                                                                   583             604
      Additional minimum pension                                                          466             372
      Postretirement benefits                                                             128             139
      Abandoned Midland Project                                                            10              10
      Other                                                                               636             552
   Price risk management assets                                                           283             214
   Nuclear decommissioning trust funds                                                    555             575
   Goodwill                                                                                27              23
   Notes receivable - related parties                                                     205             217
   Notes receivable                                                                       168             178
   Other                                                                                  562             495
                                                                                -----------------------------
                                                                                        3,623           3,379
- -------------------------------------------------------------------------------------------------------------


TOTAL ASSETS                                                                    $      16,461     $    15,872
=============================================================================================================
</TABLE>


                                     CMS-34

<PAGE>



STOCKHOLDERS' INVESTMENT AND LIABILITIES

<TABLE>
<CAPTION>
                                                                                      JUNE 30
                                                                                         2005      DECEMBER 31
                                                                                   (UNAUDITED)            2004
- --------------------------------------------------------------------------------------------------------------
                                                                                                   In Millions
<S>                                                                             <C>                <C>
CAPITALIZATION
   Common stockholders' equity
      Common stock, authorized 350.0 shares; outstanding 219.2 shares and
         195.0 shares, respectively                                             $           2      $         2
      Other paid-in capital                                                             4,422            4,140
      Accumulated other comprehensive loss                                               (333)            (336)
      Retained deficit                                                                 (1,557)          (1,734)
                                                                                ------------------------------
                                                                                        2,534            2,072

   Preferred stock of subsidiary                                                           44               44
   Preferred stock                                                                        261              261

   Long-term debt                                                                       6,516            6,444
   Long-term debt - related parties                                                       307              504
   Non-current portion of capital and finance lease obligations                           315              315
                                                                                ------------------------------
                                                                                        9,977            9,640
- --------------------------------------------------------------------------------------------------------------

MINORITY INTERESTS                                                                        844              733
- --------------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
   Current portion of long-term debt, capital and finance leases                          343              296
   Current portion of long-term debt - related parties                                      -              180
   Accounts payable                                                                       412              391
   Accounts payable - related parties                                                       -                1
   Accrued interest                                                                       159              145
   Accrued taxes                                                                          256              312
   Price risk management liabilities                                                      118               90
   Current portion of gas supply contract obligations                                      34               32
   Deferred income taxes                                                                   33               19
   Other                                                                                  266              289
                                                                                ------------------------------
                                                                                        1,621            1,755
- --------------------------------------------------------------------------------------------------------------

NON-CURRENT LIABILITIES
   Regulatory Liabilities
      Regulatory liabilities for cost of removal                                        1,084            1,044
      Income taxes, net                                                                   365              357
      Other regulatory liabilities                                                        173              173
   Postretirement benefits                                                                440              275
   Deferred income taxes                                                                  713              671
   Deferred investment tax credit                                                          77               79
   Asset retirement obligation                                                            434              439
   Price risk management liabilities                                                      285              213
   Gas supply contract obligations                                                        156              176
   Other                                                                                  292              317
                                                                                ------------------------------
                                                                                        4,019            3,744
- --------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 6)

TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES                                  $      16,461      $    15,872
==============================================================================================================
</TABLE>



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


                                     CMS-35


<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED          SIX MONTHS ENDED
JUNE 30                                                                                  2005        2004          2005        2004
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                              In Millions               In Millions
<S>                                                                                  <C>          <C>           <C>         <C>
COMMON STOCK
   At beginning and end of period                                                    $      2    $      2      $      2    $      2
- -----------------------------------------------------------------------------------------------------------------------------------

OTHER PAID-IN CAPITAL
   At beginning of period                                                               4,147       3,846         4,140       3,846
   Common stock reacquired                                                                  -          (1)            -          (1)
   Common stock issued                                                                    275           3           281           3
   Common stock reissued                                                                    -           -             1           -
                                                                                     ----------------------------------------------
      At end of period                                                                  4,422       3,848         4,422       3,848
- -----------------------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
   Minimum Pension Liability
      At beginning of period                                                              (17)          -           (17)          -
      Minimum pension liability adjustments (a)                                            (9)          -            (9)          -
                                                                                     ----------------------------------------------
         At end of period                                                                 (26)          -           (26)          -
                                                                                     ----------------------------------------------

   Investments
      At beginning of period                                                                8           9             9           8
      Unrealized gain (loss) on investments (a)                                             -          (1)           (1)          -
                                                                                     ----------------------------------------------
         At end of period                                                                   8           8             8           8
                                                                                     ----------------------------------------------

   Derivative Instruments
      At beginning of period                                                                1         (13)           (9)         (8)
      Unrealized gain (loss) on derivative instruments (a)                                 (6)         22            12          19
      Reclassification adjustments included in net income (a)                               2          (3)           (6)         (5)
                                                                                     ----------------------------------------------
         At end of period                                                                  (3)          6            (3)          6
                                                                                     ----------------------------------------------

   Foreign Currency Translation
      At beginning of period                                                             (315)       (313)         (319)       (419)
      Loy Yang sale                                                                         -           -             -         110
      Other foreign currency translations (a)                                               3         (14)            7         (18)
                                                                                     ----------------------------------------------
         At end of period                                                                (312)       (327)         (312)       (327)
                                                                                     ----------------------------------------------

      At end of period                                                                   (333)       (313)         (333)       (313)
- -----------------------------------------------------------------------------------------------------------------------------------

RETAINED DEFICIT
   At beginning of period                                                              (1,584)     (1,853)       (1,734)     (1,844)
   Net income (a)                                                                          30          19           182          13
   Preferred stock dividends declared                                                      (3)         (3)           (5)         (6)
                                                                                     ----------------------------------------------
      At end of period                                                                 (1,557)     (1,837)       (1,557)     (1,837)
                                                                                     ----------------------------------------------

TOTAL COMMON STOCKHOLDERS' EQUITY                                                    $  2,534    $  1,700      $  2,534    $  1,700
===================================================================================================================================

(A)  DISCLOSURE OF OTHER COMPREHENSIVE INCOME:
         Minimum Pension Liability
            Minimum pension liability adjustments, net of tax benefit of
               $(5), $-, $(5) and $-, respectively                                   $     (9)   $     -       $     (9)   $      -
         Investments
            Unrealized gain (loss) on investments, net of tax of
               $-, $-, $- and $-, respectively                                              -          (1)           (1)          -
         Derivative Instruments
            Unrealized gain (loss) on derivative instruments, net of tax
               of $4, $2, $13 and $7, respectively                                         (6)         22            12          19
            Reclassification adjustments included in net income, net of tax benefit
               of $-, $(2), $(6) and $(3), respectively                                     2          (3)           (6)         (5)
         Foreign currency translation, net                                                  3         (14)            7          92
         Net income                                                                        30          19           182          13
                                                                                     ----------------------------------------------

       Total Other Comprehensive Income                                              $     20    $     23      $    185    $    119
                                                                                     ==============================================
</TABLE>


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


                                     CMS-36


<PAGE>
                                                          CMS Energy Corporation


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

These interim Consolidated Financial Statements have been prepared by CMS Energy
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. Certain prior year amounts have been reclassified to
conform to the presentation in the current year. In management's opinion, the
unaudited information contained in this report reflects all adjustments of a
normal recurring nature necessary to assure the fair presentation of financial
position, results of operations and cash flows for the periods presented. The
Condensed Notes to Consolidated Financial Statements and the related
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained in CMS Energy's Form 10-K for the year ended December 31, 2004. Due to
the seasonal nature of CMS Energy's operations, the results as presented for
this interim period are not necessarily indicative of results to be achieved for
the fiscal year.

1: CORPORATE STRUCTURE AND 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, electric
distribution, 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 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. 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. We eliminate intercompany transactions and
balances.

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.

INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY: 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


                                     CMS-37

<PAGE>



                                                          CMS Energy Corporation

or losses that result from this process are shown in the stockholders' equity
section on our Consolidated Balance Sheets. 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.

Argentina: At June 30, 2005, 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 2.895
pesos per U.S. dollar was $262 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.

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 $16.461
billion at June 30, 2005, 58 percent represent long-lived assets and equity
method investments that are subject to this type of analysis.

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

<Table>
<Caption>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended               Six Months Ended
                                                              ----------------------------------------------------
June 30                                                           2005         2004         2005              2004
- ------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>          <C>              <C>
Other income
     Interest and dividends - related parties                     $  3         $  1         $  5              $  2
     Electric restructuring return                                   3            1            4                 3
     Return on stranded costs                                        1            -            2                 -
     Return on security costs                                        1            1            1                 1
     Nitrogen oxide allowance sales                                  1            -            1                 -
     Investment sale gain                                            -            1            -                 1
     Reversal of contingent liability                                -            -            3                 -
     All other                                                       1            2            2                 2
- ------------------------------------------------------------------------------------------------------------------

Total other income                                                $ 10         $  6         $ 18              $  9
==================================================================================================================
</Table>

<Table>
<Caption>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended               Six Months Ended
                                                              ----------------------------------------------------
June 30                                                           2005         2004         2005              2004
- ------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>          <C>               <C>
Other expense
     Investment write-down                                       $   -        $   -        $  (1)             $  -
     Loss on SERP investment                                        (1)          (1)          (1)               (1)
     Loss on reacquired debt                                        (1)           -           (6)                -
     Plant maintenance shut-down                                    (2)           -           (2)                -
     Civic and political expenditures                                -            -           (1)               (1)
     All other                                                      (1)          (1)          (1)               (2)
- ------------------------------------------------------------------------------------------------------------------

Total other expense                                              $  (5)       $  (2)       $ (12)             $ (4)
==================================================================================================================
</Table>



                                     CMS-38
<PAGE>


                                                          CMS Energy Corporation


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

2: ASSET SALES AND IMPAIRMENT CHARGES

ASSET SALES

Gross cash proceeds received from the sale of assets totaled $59 million for the
six months ended June 30, 2005 and $66 million for the six months ended June 30,
2004. The impacts of these sales are included in Gain on assets sales, net on
our Consolidated Statements of Income.

For the six months ended June 30, 2005, we sold the following assets:

<Table>
<Caption>
                                                                                                  In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                                     Pretax         After-tax
Date sold           Business/Project                                                   Gain              Gain
- --------------------------------------------------------------------------------------------------------------
<S>                 <C>                                                               <C>            <C>
February            GVK                                                                $  3              $  2
April               Scudder Latin American Power Fund                                     2                 1
April               Gas turbine and auxiliary equipment                                   -                 -
- --------------------------------------------------------------------------------------------------------------
                    Total gain on asset sales                                          $  5              $  3
==============================================================================================================
</Table>

For the six months ended June 30, 2004, we sold the following assets:

<Table>
<Caption>
                                                                                                  In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                                     Pretax         After-tax
Date sold           Business/Project                                                   Gain              Gain
- --------------------------------------------------------------------------------------------------------------
<S>                 <C>                                                               <C>            <C>
February            Bluewater Pipeline                                                 $  1              $  1
April               Loy Yang                                                              -                 -
May                 American Gas Index fund                                               1                 1
Various             Other                                                                 1                 -
- --------------------------------------------------------------------------------------------------------------
                    Total gain on asset sales                                          $  3              $  2
==============================================================================================================
</Table>

Although much of our asset sales program is complete, we still may sell certain
remaining businesses that are not strategic to us.

ASSET IMPAIRMENT CHARGES

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. There were no asset impairments recorded for the six months
ended June 30, 2005.

In the first quarter of 2004, an impairment charge of $125 million ($81 million,
net of tax) was recorded to recognize the reduction in fair value as a result of
the sale of Loy Yang. The impairment included a cumulative net foreign currency
translation loss of approximately $110 million. The sale of Loy Yang was
completed in April 2004.

                                     CMS-39

<PAGE>

                                                          CMS Energy Corporation

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, 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 nor
denied the order's findings. The settlement resolved the SEC investigation
involving CMS Energy and CMS MST. Also in March 2004, the SEC filed an action
against three former employees related to round-trip trading by CMS MST. One of
the individuals has settled with the SEC. CMS Energy is currently advancing
legal defense costs for the remaining two individuals, in accordance with
existing indemnification policies.

SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
complaints were filed against CMS Energy, Consumers, and certain officers and
directors of CMS Energy and its affiliates, including but not limited to
Consumers which, while established, operated and regulated as a separate legal
entity and publicly traded company, shares a parallel Board of Directors with
CMS Energy. 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 running from May 2000 through March 2003. The cases were consolidated
into a single lawsuit. The consolidated lawsuit 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. In January 2005, a motion was granted dismissing Consumers
and three of the individual defendants, but the court denied the motions to
dismiss for CMS Energy and the 13 remaining individual defendants. Plaintiffs
filed a motion for class certification on April 15, 2005 and an amended motion
for class certification on June 20, 2005. CMS Energy and the individual
defendants will defend themselves vigorously in this litigation but cannot
predict its outcome.

PROPOSED SETTLEMENT OF 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 was 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.


                                     CMS-40

<PAGE>


                                                          CMS Energy Corporation

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.

On July 7, 2005, CMS Energy filed with the court a Stipulation of Settlement
that was signed by all parties as well as the special litigation committee.
Under the terms of the settlement, CMS Energy will receive $12 million under its
directors and officers liability insurance program, $7 million of which will be
used to pay costs associated with the securities class action lawsuits. CMS
Energy may use the remaining $5 million to pay attorneys' fees and expenses
arising out of the derivative proceeding. The terms of the settlement are
subject to court approval and the hearing for final approval is scheduled for
August 26, 2005. The impact of this settlement is not material to our June 30,
2005 consolidated financial statements.

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, 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. In March 2004, the judge granted in part, but denied in
part, CMS Energy's motion to dismiss the complaint. The judge has conditionally
granted plaintiffs' motion for class certification. A trial date has not been
set, but is expected to be no earlier than mid-2006. CMS Energy and Consumers
will defend themselves vigorously in this litigation but cannot predict its
outcome.

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 Commodity Futures Trading Commission 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 developed on the
site of a discontinued cement plant 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
(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 interest 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


                                     CMS-41

<PAGE>



noncompliance (NON), after finding high pH-seep water in Lake Michigan adjacent
to the property. The MDEQ also found higher than acceptable levels of heavy
metals, including mercury, in the seep water.

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 Order on Consent (AOC) to address problems
at Bay Harbor.

In February 2005, the EPA executed an AOC, upon the consent of CMS Land Company
and CMS Capital, LLC, subsidiaries of Enterprises. 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 "removal action work 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. CMS Energy has submitted a draft removal action work plan,
which is under review by the EPA.

In June and July 2005, the EPA approved the removal action work plan insofar as
it provided for fencing of affected beachfront areas and the installation of an
underground leachate collection system, among other elements. The EPA's
approvals also specify that a backup "containment and isolation system,"
involving dams or barriers, could be required in certain areas if the collection
system is ineffective. The EPA approved the balance of the work plan on July 28,
2005. CMS Energy continues to have discussions with the EPA over the
implementation of the work plan.

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. Several landowners have threatened litigation in the event
their demands are not met. 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 has entered into negotiations with several
landowners at Bay Harbor for access as necessary to implement remediation
measures, and will defend vigorously any property damage and personal injury
claims or lawsuits.

Based on initial 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
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.

                                     CMS-42

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                                                          CMS Energy Corporation

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: Compliance with the federal Clean Air Act and resulting regulations
has been, and will continue to be, a significant focus for us. The Nitrogen
Oxide State Implementation Plan requires significant reductions in nitrogen
oxide emissions. To comply with the regulations, we expect to incur capital
expenditures totaling $815 million. The key assumptions 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 8.3 percent. As of June 2005, we have incurred
$563 million in capital expenditures to comply with these regulations and
anticipate that the remaining $252 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, of which 90 percent have been
purchased. The cost of the allowances is estimated to average $8 million per
year for 2005-2006. The estimated costs are based on the average cost of the
purchased, allocated, and swapped allowances. The need for allowances will
decrease after year 2006 with the installation of selective catalytic 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 recently adopted a Clean Air Interstate Rule that requires additional
coal-fired electric plant emission controls for nitrogen oxides and sulfur
dioxide. The rule involves a two-phase program to reduce emissions of sulfur
dioxide by 71 percent and nitrogen oxides by 63 percent by 2015. The final rule
will require that we run our Selective Catalytic Reduction units year round
beginning in 2009 and may require that we purchase additional nitrogen oxide
credits beginning in 2009. In addition to the selective catalytic reduction
control technology installed to meet the Nitrogen Oxide State Implementation
Plan, our current plan includes installation of flue gas desulfurization
scrubbers. The scrubbers are to be installed by 2014 to meet the phase I
reduction requirements of the Clean Air Interstate Rule at a cost near that of
the Nitrogen Oxide State Implementation Plan.

In March 2005, the EPA issued the Clean Air Mercury Rule, which requires initial
reductions of mercury emissions from coal-fired electric power plants by 2010
and further reductions by 2018. While the industry has not reached a consensus
on the technical methods for curtailing mercury emissions, our capital and
operating costs for mercury emissions reductions are expected to be
significantly less than what is required for nitrogen oxide compliance.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seeking 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


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                                                          CMS Energy Corporation

fines. Additionally, the viability of certain plants remaining in operation
could be called into question.

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. At June 30, 2005, 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.

MCV Environmental Issue: On July 12, 2004, the MDEQ, Air Control Division,
issued the MCV Partnership a Letter of Violation asserting that the MCV Facility
violated its Air Use Permit to Install (PTI) by exceeding the carbon monoxide
emission limit on the Unit 14 GTG duct burner and failing to maintain certain
records in the required format. On July 13, 2004, the MDEQ, Water Division,
issued the MCV Facility a Notice Letter asserting the MCV Facility violated its
National Pollutant Discharge Elimination System (NPDES) Permit by discharging
heated process wastewater into the storm water system, failure to document
inspections, and other minor infractions (alleged NPDES violations).

The MCV Partnership has declared five of the six duct burners in the MCV
Facility as unavailable for operational use (which reduces the generation
capability of the MCV Facility by approximately 100 MW), is assessing the duct
burner issue and has begun other corrective action to address the MDEQ's
assertions. The one available duct burner was tested in April 2005 and its
emissions met permitted levels due to the unique configuration of that
particular unit. The MCV Partnership disagrees with certain of the MDEQ's
assertions. The MCV Partnership filed responses to these MDEQ letters in July
and August 2004. On December 13, 2004, the MDEQ informed the MCV Partnership
that it was pursuing an escalated enforcement action against the MCV Partnership
regarding the alleged violations of the MCV Facility's PTI. The MDEQ also stated
that the alleged violations are deemed federally significant and, as such,
placed the MCV Partnership on the EPA's High Priority Violators List (HPVL). The
MDEQ and the MCV Partnership are pursuing voluntary settlement of this matter,
which will satisfy state and federal requirements and remove the MCV Partnership
from the HPVL. Any such settlement is likely to involve a fine, but at this
time, the MDEQ has not stated what, if any, fine they will seek to impose. At
this time, the MCV Partnership management cannot predict the financial impact or
outcome of these issues, however, the MCV Partnership believes it has resolved
all issues associated with the alleged NPDES violations and does not expect any
further MDEQ actions on this NPDES matter.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities, which
sell 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.

                                     CMS-44

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                                                          CMS Energy Corporation

The eight plaintiff qualifying facilities have appealed the dismissal of the
circuit court case to the Michigan Court of Appeals. The qualifying facilities
have also appealed the February 2005 MPSC order in the 2004 PSCR plan case to
the Michigan Court of Appeals, and have initiated separate legal actions in
federal district court and at the FERC concerning the energy charge calculation
issue. In June 2005, the FERC issued a notice of intent not to act on this
issue. We cannot predict the outcome of these appeals or the remaining legal
action.

CONSUMERS' ELECTRIC UTILITY RESTRUCTURING MATTERS

ELECTRIC ROA: We cannot predict the total amount of electric supply load that
may be lost to alternative electric suppliers. As of July 2005, alternative
electric suppliers are providing 811 MW of generation supply to ROA customers.
This amount represents a decrease of 5 percent compared to July 2004, and 11
percent of our total distribution load.

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           Requested
Proceeding            Filed           Covered         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, plus
                                                                            the cost of money through the period of
                                                                            collection.

Implementation        1999-2004       1997-2003       $91 million (b)       The MPSC allowed $68 million for
Costs                                                                       the years 1997-2001, plus the cost of
                                                                            money through the period of collection.
                                                                            The MPSC allowed $6 million for the years
                                                                            2002-2003, plus the cost of money through
                                                                            the period of collection.

Section 10d(4)        2004            2000-2005       $628 million          Application 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.


                                     CMS-45

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                                                          CMS Energy Corporation

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, we accrue and defer for recovery a
portion of our Section 10d(4) Regulatory Assets. In March 2005, the MPSC Staff
filed testimony recommending the MPSC approve recovery of approximately $323
million in Section 10d(4) costs, which includes the cost of money through the
period of collection. In June 2005, the ALJ issued a Proposal for Decision
recommending that the MPSC approve recovery of the same Section 10d(4) costs
recommended by the MPSC Staff. However, we may have the opportunity to recover
certain costs included in our application alternatively in other cases pending
before the MPSC. We cannot predict the amount, if any, the MPSC will approve as
recoverable. At June 30, 2005, total recorded Section 10d(4) Regulatory Assets
were $179 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 load migration to alternative electric suppliers,
increased system maintenance and improvement costs, Clean Air Act-related
expenditures, and employee pension costs. In April 2005, we filed updated debt
and equity information in this case.

In June 2005, the MPSC Staff filed its position in this case, recommending a
base rate increase of $98 million. The MPSC Staff also recommended an 11.25
percent return on equity to establish rates and recognized all of our projected
equity investment (infusions and retained earnings) in 2006. We expect a final
order from the MPSC 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


                                     CMS-46

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                                                          CMS Energy Corporation

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 covering the estimated reserve margin requirements for 2005
and covering partially the estimated reserve margin requirements for 2006
through 2007. As a result, we have recognized an asset of $12 million for
unexpired capacity and energy contracts at June 30, 2005. As of July 2005, we
expect the total premium cost of electric capacity and energy contracts for 2005
to be approximately $8 million.

PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs that we actually incur. 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 power supply costs from commercial and industrial customers and,
subject to the overall rate caps, from other customers. In January 2005, we
self-implemented the proposed 2005 PSCR charge. In June 2005, the MPSC issued an
order that approves our 2005 PSCR plan. The revenues from the PSCR charges are
subject to reconciliation after review of actual costs for reasonableness and
prudence. In March 2005, we submitted our 2004 PSCR reconciliation filing to the
MPSC. 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. 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 11, Consolidation of Variable Interest Entities.
Our consolidated retained earnings include undistributed earnings from the MCV
Partnership of $292 million at June 30, 2005 and $246 million at June 30, 2004.

The cost that we incur under the MCV 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>

Of the 2005 estimate, we expensed $29 million for the six months ended June 30,
2005.

After September 15, 2007, we expect to claim relief under the regulatory out
provision in the MCV PPA, thereby limiting our capacity and fixed energy
payments to the MCV Partnership to the amount that we collect from our
customers. The MCV Partnership has indicated that it may take issue with our
exercise of the regulatory out clause after September 15, 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 MCV 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. Natural gas prices have
increased substantially in recent years. NYMEX forward natural gas prices
through 2010 recently were approximately $2 per mcf higher than they were at
year-end 2004. Because the price the MCV


                                     CMS-47

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                                                          CMS Energy Corporation

Partnership can charge us for energy has not increased to reflect current
natural gas prices, the MCV Partnership's financial performance has been
impacted negatively. If forward gas prices for 2010 and beyond do not decline to
the $4 to $6 per mcf range currently anticipated by various government and
private natural gas price forecasts, and remain in that range for the remaining
life of the MCV PPA, the economics of operating the MCV Facility would be
adverse enough to require the MCV Partnership to recognize a substantial
impairment of its property, plant and equipment, which are included in our
Consolidated Balance Sheets. However, forecasting future natural gas prices is
extremely difficult and there are currently differing views among forecasters as
to whether such prices will increase, decrease or remain at current levels over
any period of time. At present, some of the forecasts indicate natural gas
prices in excess of the $4 to $6 per mcf range during the years after 2010. At
June 30, 2005, the net book value of the MCV Partnership's property, plant and
equipment was $1.396 billion. Several other factors could alter significantly
the MCV Partnership's future impairment analyses including, but not limited to,
energy payments to the MCV Partnership, which are based on the cost of coal
burned at our coal plants, and any reduction in payments to the MCV Partnership
subsequent to September 15, 2007 due to underrecovery of contract costs by
Consumers from its customers as a result of past or future actions by the MPSC.
Any such impairment would be required to be recognized in the period when
management's analysis of the factors described above meets the accounting
standards for impairment recognition. We will continue to monitor the current
and long-term trends in natural gas prices and their effect on the economics of
operating the MCV Facility.

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
reduces the MCV Facility's annual production of electricity and, as a result,
reduces 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 are first used to offset fully
the cost of replacement power. Second, $5 million annually, funded jointly by
Consumers and the MCV Partnership, are contributed to our RRP. Remaining savings
are split between the MCV Partnership and Consumers. Consumers' direct savings
are shared 50 percent with its customers in 2005 and 70 percent in 2006 and
beyond. Consumers' direct savings from the RCP, after allocating a portion to
customers, are 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
MCV PPA. However, either party may terminate that agreement under certain
conditions. In February 2005, a group of intervenors in the RCP case filed for
rehearing of the MPSC order. The Attorney General also filed an appeal with the
Michigan Court of Appeals. We cannot predict the outcome of these matters.

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 decision was 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 estimates that the 1997 through 2004 tax year cases
will result in a refund to the MCV Partnership of approximately $77 million
inclusive of interest. The MCV Partnership cannot predict the outcome of these
proceedings; therefore, this refund has not been recognized in earnings.

                                     CMS-48

<PAGE>


                                                          CMS Energy Corporation

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
decommissioning, 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 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, in 2007, of radiological decommissioning work, seek recovery
of such expenditures at the MPSC. We cannot predict how the MPSC will rule on
our request.

Palisades: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept spent fuel on schedule, we concluded, based on the costs
estimates filed in March 2004, that the existing surcharge for Palisades needed
to be increased to $25 million annually, beginning January 1, 2006, and
continuing 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 would 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 involved in the proceeding. 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 contested
settlement, but cannot predict the outcome.

In March 2005, NMC, which operates the Palisades plant, applied for a 20-year
license renewal for the plant on behalf of Consumers. The NRC typically takes
22-30 months to review a license renewal application. A decision is expected in
2007. At this time, we cannot determine what impact this will have on
decommissioning costs or the adequacy of funding.

NUCLEAR MATTERS: 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. At June 30, 2005, we have recorded a liability
to the DOE of $143 million, including interest, which is payable prior to 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.

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


                                     CMS-49

<PAGE>


                                                          CMS Energy Corporation

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. On April 29, 2005, the court ruled on various cross-motions for
summary judgment previously filed by the DOE and us. The court denied the DOE's
motions to dismiss Counts I and II of the complaint and its motion seeking
recovery of a one-time fee that is due to be paid by us prior to delivery of the
spent nuclear fuel. The court, however, granted the DOE's motion to recoup the
one-time fee against any award of damages to us. The court further granted our
motion for summary judgment on liability and our motion to dismiss the DOE's
affirmative defense alleging our failure to satisfy a condition precedent. We
filed a motion for reconsideration of the portion of the Court's order dealing
with recoupment, which the Court denied. In a related case, a judge in one of
many spent nuclear fuel cases now pending in the United States Court of Claims
issued a decision and order suggesting that the standard contract between the
utilities and the DOE should be held void because of mutual mistake and
impossibility of performance and that restitution of all waste fees paid by
utilities should be made from the Nuclear Waste Fund. The judge ordered the
utility in that case and the DOE to file briefs addressing the court's views and
invited any interested party to file an amicus brief. We have filed an amicus
brief opposing holding the standard contract void. If our litigation against the
DOE is successful, we plan to use any 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 energy 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. This requirement will end December
31, 2007.

                                     CMS-50

<PAGE>

                                                          CMS Energy Corporation

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 remediation
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. In 2003, we estimated our remaining
costs to be between $37 million and $90 million, based on 2003 discounted 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. We have expended $12 million on these sites since the 2003
estimates were made. At June 30, 2005, we have a liability of $36 million, net
of $46 million of expenditures incurred to date, and a regulatory asset of $63
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.

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 the proceedings follow the table.

<Table>
<Caption>
Gas Cost Recovery Reconciliation
- ------------------------------------------------------------------------------------------------------------------
                                                      Net Over
GCR Year          Date Filed       Order Date         Recovery                        Status
- ------------------------------------------------------------------------------------------------------------------
<S>               <C>              <C>                <C>               <C>
2003-2004         June 2004        February 2005      $31 million       The net overrecovery includes $1 million
                                                                        and $5 million GCR net overrecoveries from
                                                                        prior GCR years and interest accrued
                                                                        through March 2004

2004-2005         June 2005        Pending            $2 million
==================================================================================================================
</TABLE>

Net overrecoveries 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 overrecovery,
plus $3 million interest, using a roll-in refund methodology. The roll-in
methodology incorporates a GCR over/underrecovery in the next GCR plan year.

                                     CMS-51

<PAGE>

                                                          CMS Energy Corporation

GCR 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. Actual gas costs and revenues are subject to an
annual reconciliation proceeding, which was filed in June 2005. We proposed to
refund to our customers $2 million using a roll-in methodology. The $2 million
reflects an underrecovery of $1 million, offset by interest owed to customers of
$3 million. The roll-in methodology incorporates a GCR over/underrecovery in the
next GCR plan year.

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. The current ceiling price for 2005 is $7.61 per mcf. Actual gas
costs and revenues will be subject to an annual reconciliation proceeding.

In June 2005, four of the five parties filed a settlement agreement; the fifth
party filed a statement of non-objection. The settlement agreement includes a
GCR ceiling price adjustment contingent upon future events.

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, which reaffirmed the previously ordered $34 million reduction
in our depreciation expense. The October 2004 order also required 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.

The MPSC has directed us to file our next gas depreciation case within 90 days
after the latter of:

     -    the removal cost study filing or

     -    the MPSC issuance of a final order in the pending case related to
          ARO accounting.

The MPSC order on the pending case related to ARO accounting is expected in the
first quarter of 2006. We proposed to incorporate the results of the gas
depreciation case into gas general rates using a surcharge mechanism if the
depreciation case order was not issued concurrently with a gas general rate case
order.

                                     CMS-52

<PAGE>

                                                          CMS Energy Corporation

2005 GAS RATE CASE: In July 2005, we filed an application with the MPSC seeking
a 12 percent authorized return on equity along with a $132 million annual
increase in our gas delivery and transportation rates. The primary reasons for
the request are recovery of new investments, carrying costs on natural gas
inventory related to higher gas prices, system maintenance, employee benefits,
and low-income assistance. If approved, the request would add approximately 5
percent to the typical residential customer's average monthly bill. The increase
would also affect commercial and industrial customers. As part of this filing,
we also requested interim rate relief of $75 million.

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 Energy 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.
CMS Energy cannot predict the outcome of this matter.

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 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 appealed this judgment. The court of appeals heard arguments
on May 19, 2005 and issued an opinion on May 26, 2005 remanding the case to the
trial court for a new trial on damages. Enterprises has an indemnity obligation
with regard to losses to Terra that might result from this litigation.

                                     CMS-53

<PAGE>

                                                          CMS Energy Corporation

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 Overseas Private Investment Corporation
(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 estimates 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 arbitration on the matter, to be administered by the International
Chamber of Commerce.

IRS RULING: On August 2, 2005, the IRS issued Revenue Ruling 2005-53 and
regulations to provide guidance with respect to the use of the "simplified
service cost" method of tax accounting. We use this tax accounting method,
generally allowed by the IRS under Section 263A of the Internal Revenue Code,
with respect to the allocation of certain corporate overheads to the tax basis
of self-constructed utility assets. We are studying the IRS guidance to
determine its effect on us. We cannot predict the impact of this ruling on
future earnings, cash flows, or our present NOL carryforwards.

OTHER: CMS Generation does not currently expect to incur material 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 future results of
operations.


                                     CMS-54
<PAGE>
                                                          CMS Energy Corporation

4: FINANCINGS AND CAPITALIZATION

Long-term debt is summarized as follows:

<Table>
<Caption>
                                                                    In Millions
- -------------------------------------------------------------------------------
                                              June 30, 2005   December 31, 2004
- -------------------------------------------------------------------------------
CMS ENERGY CORPORATION
<S>                                           <C>             <C>
    Senior notes                                    $ 2,325             $ 2,175
    Other long-term debt                                  4                 225
                                                    -------             -------
         Total - CMS Energy Corporation               2,329               2,400
                                                    -------             -------
CONSUMERS ENERGY COMPANY
    First mortgage bonds                              3,000               2,300
    Senior notes, bank debt and other                   938               1,436
    Securitization bonds                                384                 398
                                                    -------             -------
         Total - Consumers Energy Company             4,322               4,134
                                                    -------             -------
OTHER SUBSIDIARIES                                      200                 208
                                                    -------             -------
TOTAL PRINCIPAL AMOUNTS OUTSTANDING                   6,851               6,742
    Current amounts                                    (314)               (267)
    Net unamortized discount                            (21)                (31)
- -------------------------------------------------------------------------------
Total Long-term debt                                $ 6,516             $ 6,444
===============================================================================
</TABLE>


FINANCINGS: The following is a summary of significant long-term debt issuances
and retirements during the six months ended June 30, 2005:

<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
                                            Principal    Interest Rate      Issue/Retirement
                                          (In millions)       (%)                 Date              Maturity Date
- ------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>               <C>                      <C>
DEBT ISSUANCES:
CMS ENERGY
 Senior notes                               $   150           6.30            January 2005          February 2012
CONSUMERS
 FMB                                            250           5.15            January 2005          February 2017
 FMB                                            300           5.65             March 2005             April 2020
 FMB insured quarterly notes                    150           5.65             April 2005             April 2035
 LORB                                            35         Variable           April 2005             April 2035
- ------------------------------------------------------------------------------------------------------------------
         Total                              $   885
==================================================================================================================
DEBT RETIREMENTS:
CMS ENERGY
 General term notes                         $   220         Various       January and February         Various
                                                                                  2005
CONSUMERS
 Long-term bank debt                             60         Variable          January 2005          November 2006
 Long-term debt - related parties               180           9.25            January 2005          December 2029
 Long-term debt - related parties                73           8.36            February 2005         December 2015
 Long-term debt - related parties               124           8.20            February 2005         September 2027
 Senior notes                                   332           6.25          April and May 2005      September 2006
 Senior insured quarterly notes                 141           6.50              May 2005             October 2028
- ------------------------------------------------------------------------------------------------------------------
         Total                              $ 1,130
==================================================================================================================
</TABLE>

                                     CMS-55

<PAGE>

                                                          CMS Energy Corporation

CAPITALIZATION: In April 2005, we issued 23 million shares of our common stock
at a price of $12.25 per share. We realized net proceeds of $272 million.

REGULATORY AUTHORIZATION FOR FINANCINGS: In April 2005, the FERC issued an
authorization to permit Consumers to issue up to an additional $1.0 billion
($2.0 billion in total) of long-term securities for refinancing or refunding
purposes, and up to an additional $1.0 billion ($2.5 billion in total) of
long-term securities for general corporate purposes during the period ending
June 30, 2006.

Combined with remaining availability from previously issued FERC authorizations,
Consumers can now issue up to:

     -    $1.001 billion of long-term securities for refinancing or refunding
          purposes,

     -    $1.209 billion of long-term securities for general corporate purposes,
          and

     -    $1.935 billion of long-term FMB to be issued solely as collateral for
          other long-term securities.

REVOLVING CREDIT FACILITIES: The following secured revolving credit facilities
with banks are available at June 30, 2005:

<Table>
<Caption>
                                                                                                           In Millions
- ----------------------------------------------------------------------------------------------------------------------
                                                                                       Outstanding
                                                      Amount of       Amount           Letters-of-          Amount
          Company               Expiration Date       Facility       Borrowed             Credit           Available
- ----------------------------------------------------------------------------------------------------------------------
<S>                             <C>                   <C>            <C>               <C>                 <C>
CMS Energy                        May 18, 2010         $  300         $    -             $  102             $  198
Consumers                         May 18, 2010            500              -                 31                469
MCV Partnership                 August 27, 2005            50              -                  3                 47
======================================================================================================================
</TABLE>

CMS Energy and Consumers amended their credit facilities in May 2005. The
amendments extended the terms of the agreements to 2010, reduced certain fees
and interest margins, and reduced CMS Energy's restriction on payment of common
stock dividends.

CAPITAL AND FINANCE LEASE OBLIGATIONS: Our capital leases are comprised mainly
of leased service vehicles and office furniture. At June 30, 2005, capital lease
obligations totaled $54 million. 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. At June 30, 2005,
finance lease obligations totaled $290 million, which represents the third-party
portion of the MCV Partnership's finance lease obligation.

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. The special purpose entity sold no receivables as of June 30, 2005
and $304 million as of December 31, 2004. Consumers continues 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 no right to any receivables not sold. Consumers has not recorded a gain or
loss on the receivables sold or retained interest in the receivables sold.

                                     CMS-56

<PAGE>


                                                          CMS Energy Corporation

Certain cash flows under our accounts receivable sales program are shown in the
following table:

<Table>
<Caption>
                                                                                                  In Millions
- -------------------------------------------------------------------------------------------------------------
Six months ended June 30                                                                  2005           2004
- -------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
Net cash flow as a result of accounts receivable financing                            $  (304)       $  (297)
Collections from customers                                                            $ 2,787        $ 2,645
=============================================================================================================
</TABLE>

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 $150 million, dependent on the aggregate amounts of
unrestricted cash and unused commitments under the facility.

Under the provisions of its articles of incorporation, at June 30, 2005,
Consumers had $479 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. For the six
months ended June 30, 2005, we received $167 million of common stock dividends
from Consumers.

FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS: The
Interpretation requires the guarantor, upon issuance of a guarantee, to
recognize a liability for the fair value of the obligation it undertakes 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 corporations under common control, although
disclosure of these guarantees is required. The disclosure requirements in this
Interpretation are effective for interim and annual financial statements issued
after December 15, 2002.

The following table describes our guarantees at June 30, 2005:

<Table>
<Caption>
                                                                                                               In Millions
- --------------------------------------------------------------------------------------------------------------------------
                                                    Issue     Expiration        Maximum          Carrying      Recourse
Guarantee Description                               Date         Date          Obligation         Amount     Provision (b)
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>            <C>             <C>           <C>
Indemnifications from asset sales and
   other agreements(a)                             Various      Various          $ 1,192             $ 1           $ -
Standby letters of credit                          Various      Various               65               -             -
Surety bonds and other indemnifications            Various      Various               25               -             -
Other guarantees                                   Various      Various              225               -             -
Subsidiary guarantee of parent debt                May 2005     May 2010             102               -             -
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) Recourse provision indicates the approximate recovery from third parties
including assets held as collateral.

                                     CMS-57

<PAGE>

                                                          CMS Energy Corporation

The following table provides additional information regarding our guarantees:

<Table>
<Caption>
                                                                                  Events That Would Require
Guarantee Description                     How Guarantee Arose                     Performance
- -----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                     <C>
Indemnifications from asset sales and     Stock and asset sales agreements        Findings of misrepresentation,
other agreements                                                                  breach of warranties, and other
                                                                                  specific events or circumstances
- -----------------------------------------------------------------------------------------------------------------------
Standby letters of credit                 Normal operations of coal power         Noncompliance with environmental
                                          plants                                  regulations and inadequate response
                                                                                  to demands for corrective action
                                          Natural gas transportation              Nonperformance
                                          Self-insurance requirement              Nonperformance
                                          Nuclear plant closure                   Nonperformance
- -----------------------------------------------------------------------------------------------------------------------
Surety bonds and other indemnifications   Normal operating activity, permits      Nonperformance
                                          and license
- -----------------------------------------------------------------------------------------------------------------------
Other guarantees                          Normal operating activity               Nonperformance or non-payment by a
                                                                                  subsidiary under a related contract
- -----------------------------------------------------------------------------------------------------------------------
Subsidiary guarantee of parent's debt     Loan agreement                          Non-payment by CMS Energy and CMS
                                                                                  Enterprises of obligations under the
                                                                                  loan agreement
- -----------------------------------------------------------------------------------------------------------------------
Nuclear insurance retrospective premiums  Normal operations of nuclear plants     Call by NEIL and Price-Anderson Act
                                                                                  for nuclear incident
=======================================================================================================================
</TABLE>

In the ordinary course of business, we enter into agreements containing tax and
other indemnification provisions in connection with a variety of transactions
including transactions for the sale of subsidiaries and assets, equipment
leasing, and financing agreements. While we cannot estimate our maximum exposure
under these indemnities, we consider the probability of liability remote.

We have guaranteed payment of obligations through indemnities, surety bonds, and
other guarantees of unconsolidated affiliates and related parties of $417
million at June 30, 2005. We monitor 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: In June 2005, the $11.87 trigger price
contingency was met for our $250 million 4.50 percent contingently convertible
preferred stock and the $12.81 trigger price contingency was met for our $150
million 3.375 percent contingently convertible senior notes. The contingency was
met since the price of our common stock remained at or above the applicable
trigger price for 20 of 30 consecutive trading days ended on the last trading
day of the calendar quarter. As a result, these securities are convertible at
the option of the security holders, with the principal or par amount payable in
cash, for the three months ended September 30, 2005. Once the 3.375 percent
contingently convertible senior notes became convertible, they held the
characteristics of a current liability. Therefore, in June 2005, we reclassified
the 3.375 percent contingently convertible senior notes from Long-term debt to
Current portion of long-term debt, where they will remain during the period that
they are outstanding and convertible. As of July 2005, none of the security
holders have notified us of their intention to convert these securities.

                                     CMS-58

<PAGE>


                                                          CMS Energy Corporation

5: EARNINGS PER SHARE

The following tables present the basic and diluted earnings per share
computations:

<Table>
<Caption>
                                                         In Millions, Except Per Share Amounts
- ----------------------------------------------------------------------------------------------
Three Months Ended June 30                                      2005                 2004
- ----------------------------------------------------------------------------------------------
<S>                                                      <C>                  <C>
EARNINGS AVAILABLE TO COMMON STOCK
  Income from Continuing Operations                        $      30             $     19
  Less Preferred Dividends                                        (3)                  (3)
                                                           -----------------------------------
  Income from Continuing Operations
          Available to Common Stock - Basic and Diluted    $      27             $     16
                                                           ===================================
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
    Average Shares - Basic                                     217.9                161.2
    Add dilutive impact of Contingently
            Convertible Securities                              10.2 (a)              2.5 (a)
    Add dilutive Stock Options and Warrants                      0.8 (b)              0.5 (b)
                                                           -----------------------------------
    Average Shares - Diluted                                   228.9                164.2
                                                           ===================================

EARNINGS PER AVERAGE COMMON SHARE
  AVAILABLE TO COMMON STOCK
        Basic                                              $    0.12             $   0.10
        Diluted                                            $    0.12             $   0.10
==============================================================================================
</TABLE>


<Table>
<Caption>
                                                         In Millions, Except Per Share Amounts
- ----------------------------------------------------------------------------------------------
Six Months Ended June 30                                        2005                 2004
- ----------------------------------------------------------------------------------------------
<S>                                                      <C>                  <C>
EARNINGS AVAILABLE TO COMMON STOCK
  Income from Continuing Operations                        $     182             $     17
  Less Preferred Dividends                                        (5)                  (6)
                                                           -----------------------------------
  Income from Continuing Operations
          Available to Common Stock - Basic and Diluted    $     177             $     11
                                                           ===================================
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
    Average Shares - Basic                                     206.7                161.2
    Add dilutive impact of Contingently
            Convertible Securities                               8.2 (a)                - (c)
    Add dilutive Stock Options and Warrants                      0.8 (b)              0.5 (b)
                                                           -----------------------------------
    Average Shares - Diluted                                   215.7                161.7
                                                           ===================================

EARNINGS PER AVERAGE COMMON SHARE
  AVAILABLE TO COMMON STOCK
        Basic                                              $    0.86             $   0.06
        Diluted                                            $    0.82             $   0.06
==============================================================================================
</TABLE>

                                     CMS-59

<PAGE>

                                                          CMS Energy Corporation

(a) Our contingently convertible securities dilute EPS to the extent that the
conversion value, which is based on the average market price of our common
stock, exceeds the principal or par value.

(b) Since the exercise price was greater than the average market price of our
common stock, there was no impact to diluted EPS for options and warrants to
purchase 3.4 million shares of common stock for the three months ended June 30,
2005, and 5.4 million shares of common stock for the three months ended June 30,
2004. There was also no impact to diluted EPS for options and warrants to
purchase 3.5 million shares of common stock for the six months ended June 30,
2005, and 5.1 million shares of common stock for the six months ended June 30,
2004.

(c) Since the conversion price was greater than the average market price of our
common stock, there was no impact to diluted EPS from our contingently
convertible securities for the six months ended June 30, 2004.

Due to antidilution, the following impacts from our 7.75 percent convertible
subordinated debentures were not reflected in diluted EPS:


    -  an additional 4.2 million shares of common stock for the three and six
       months ended June 30, 2004 and the three and six months ended June 30,
       2005,

    -  a $2 million reduction of interest expense, net of tax, for the three
       months ended June 30, 2005 and the three months ended June 30, 2004, and

    -  a $4 million reduction of interest expense, net of tax, for the six
       months ended June 30, 2005 and the six months ended June 30, 2004.

We can revoke the conversion rights if certain conditions are met.

In April 2005, we issued 23 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.


                                     CMS-60

<PAGE>

                                                          CMS Energy Corporation

The cost and fair value of our long-term financial instruments are as follows:

<Table>
<Caption>
                                                                                                           In Millions
- ----------------------------------------------------------------------------------------------------------------------
                                                      June 30, 2005                       December 31, 2004
- ----------------------------------------------------------------------------------------------------------------------
                                                           Fair       Unrealized                  Fair    Unrealized
                                                Cost      Value      Gain (Loss)       Cost      Value    Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>         <C>             <C>        <C>       <C>
Long-term debt,                              $ 6,830    $ 7,287          $ (457)    $ 6,711    $ 7,052        $ (341)
    including current amounts
Long-term debt - related parties                 307        286              21         684        653            31
Available-for-sale securities:
  SERP:
      Equity securities                           34         47              13          33         47            14
      Debt securities                             19         19               -          20         20             -
  Nuclear decommissioning investments:
      Equity securities                          132        246             114         136        262           126
      Debt securities                            284        294              10         291        302            11
======================================================================================================================
</TABLE>

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 in Other Comprehensive Income if the derivative qualifies for cash flow
hedge accounting treatment and in earnings if the derivative does not qualify
for such 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

                                     CMS-61

<PAGE>

                                                          CMS Energy Corporation

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. Our coal purchase
contracts are not accounted for as derivatives due to the lack of an active
market for the coal that we purchase. Similarly, certain of our electric
capacity and energy contracts are not accounted for as derivatives due to the
lack of an active energy market in 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. If active markets for
these commodities develop in the future, we may be required to account for these
contracts as derivatives. For our coal purchase contracts, the resulting
mark-to-market impact on earnings could be material to our financial statements.
For our electric capacity and energy contracts, we believe that we will be able
to apply the normal purchases and sales exception to the majority of these
contracts (including the MCV PPA), which would not require us to mark these
contracts to market.

The MISO began operating the Midwest Energy Market on April 1, 2005. The Midwest
Energy Market provides day-ahead and real-time energy market information and
centralized generation dispatch for market participants. At this time, we
believe that the commencement of this market does not constitute the development
of an active energy market in Michigan. However, as we gain additional
experience with the Midwest Energy Market, we will continue to evaluate whether
or not the activity level within this market leads to the conclusion that an
active energy market exists.

Also as part of the Midwest Energy Market, FTRs were established. FTRs are
financial instruments established to manage price risk relating to electricity
transmission congestion. An FTR entitles the holder to receive compensation (or
remit payment) for certain congestion-related transmission charges that arise
when the transmission grid is congested. We presently hold FTRs for certain
areas on the transmission grid within the MISO's market area. FTRs are
derivative instruments and are required to be recognized on our Consolidated
Balance Sheets as assets or liabilities at their fair values, with any
subsequent changes in fair value recognized in earnings. As of June 30, 2005, we
recorded an asset of $1 million associated with the fair value of FTRs on our
Consolidated Balance Sheets.


                                     CMS-62

<PAGE>


                                                          CMS Energy Corporation

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>
                                                                                                                 In Millions
- -----------------------------------------------------------------------------------------------------------------------------
                                                           June 30, 2005                        December 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------
                                                                Fair      Unrealized                  Fair       Unrealized
Derivative Instruments                               Cost      Value     Gain (Loss)       Cost      Value       Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>       <C>               <C>       <C>         <C>
Non-trading:
  Gas contracts                                    $   -     $    -          $    -      $   2     $    -            $   (2)
  Interest rate risk contracts                         -          -               -          -         (1)               (1)
  FTRs                                                 -          1               1          -          -                 -
  Derivative contracts associated with the
  MCV Partnership:
      Gas fuel contracts                               -        181             181          -         56                56
      Gas fuel futures and swaps                       -        145             145          -         64                64
CMS ERM contracts:
  Non-trading electric / gas contracts                 -       (273)           (273)         -       (199)             (199)
  Trading electric / gas contracts                     -        284             284         (4)       201               205
Derivative contracts associated with equity
investments in:
  Shuweihat                                            -        (32)            (32)         -        (25)              (25)
  Taweelah                                           (35)       (25)             10        (35)       (24)               11
  Jorf Lasfar                                          -        (11)            (11)         -        (11)              (11)
=============================================================================================================================
</TABLE>

The fair value of our non-trading gas contracts, interest rate risk contracts,
FTRs, and the derivative contracts associated with 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 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 June 30, 2005, we had purchased a fixed-priced
gas supply call option and had sold a fixed-priced gas supply put option. We
held no fixed-priced weather-based gas supply call 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 Other Comprehensive Income 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.

                                     CMS-63

<PAGE>


                                                          CMS Energy Corporation

The following table reflects the outstanding floating-to-fixed interest rates
swaps:

<Table>
<Caption>
                                                                                                     In Millions
- -----------------------------------------------------------------------------------------------------------------
Floating to Fixed                                                           Notional      Maturity         Fair
Interest Rate Swaps                                                          Amount          Date         Value
- -----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>              <C>
June 30, 2005                                                                    $ 24    2005-2006         $  -
December 31, 2004                                                                  25    2005-2006           (1)
=================================================================================================================
</TABLE>

Notional amounts reflect the principal amount of variable debt being fixed but
do not represent the principal 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 7.3 percent at June 30, 2005
and 7.4 percent at December 31, 2004.

There was no ineffectiveness associated with any of the interest rate swaps that
qualified for hedge accounting treatment. At June 30, 2005, 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 June 30, 2005 and December 31, 2004, 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 Other
Comprehensive Income.

DERIVATIVE CONTRACTS ASSOCIATED WITH 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 gas contracts qualify as normal purchases under SFAS
No. 133, and therefore, these contracts were not recognized at fair value on our
Consolidated Balance Sheets at June 30, 2005.

The MCV Partnership also held certain long-term gas contracts that did not
qualify as normal purchases at June 30, 2005, because these contracts contained
volume optionality. In addition, due to the implementation of the RCP in January
2005, the MCV Partnership 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, all of these
contracts are accounted for as derivatives, with changes in fair value recorded
in earnings each quarter. Additionally, the financial hedges associated with
these contracts no longer qualify as cash flow hedges. Thus, as of January 2005,
any changes in the fair value of these financial hedges are recorded in earnings
each quarter. The MCV Partnership expects future earnings volatility on both the
gas fuel derivative contracts and the related financial hedges, since gains and
losses will be recorded each quarter. For the six months ended June 30, 2005, we
recorded a $170 million gain associated with the increase in fair value of these
instruments in Fuel costs mark-to-market at MCV on our Consolidated Statements
of Income, resulting in a cumulative mark-to-market gain through June 30, 2005
of $226 million. This cumulative amount consists of a $181 million gain related
to gas fuel derivative contracts. The remaining gain of $45 million relates to
the financial hedges associated with these contracts, which is included in the
Gas


                                     CMS-64

<PAGE>

                                                          CMS Energy Corporation

fuel futures and swaps amount in the Derivative Instruments table above. The
majority of this mark-to-market gain is expected to reverse through earnings
during 2005 and 2006 as the gas is purchased and the financial hedges settle,
with the remainder reversing between 2007 and 2011. For further details on the
RCP, see Note 3, Contingencies, "Other Consumers' Electric Utility Contingencies
- - The Midland Cogeneration Venture."

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 June 30, 2005, 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 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.

There was no ineffectiveness associated with any of the gas contracts that
qualified for hedge accounting treatment. At June 30, 2005, we have recorded a
cumulative net gain of $32 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 July 2005
to December 2009, of which $6 million of this gain is expected to be
reclassified as an increase to earnings during the next 12 months as the
contracts settle, offsetting the costs of gas purchases. In addition, for the
six months ended June 30, 2005, we recorded a net gain of $22 million in
earnings from hedging activities related to natural gas requirements for the MCV
Facility operations.

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 in 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).

                                     CMS-65
<PAGE>


                                                          CMS Energy Corporation

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 June 30, 2005 and
December 31, 2004, 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 June 30, 2005, the total foreign currency translation
adjustment was a net loss of $312 million, which included a net hedging loss of
$26 million, net of tax, related to settled contracts.

At June 30, 2005, both Shuweihat and Taweelah, two of our equity method
investees, held foreign exchange contracts that hedged the foreign currency risk
associated with payments to be made under operating and maintenance service
agreements. The contract held by Shuweihat qualified as a cash flow hedge, and
therefore, we record our proportionate share of the change in fair value of the
contract in Other Comprehensive Income. The contract held by Taweelah did not
qualify as a cash flow hedge. As such, we record our proportionate share of the
change in the fair value of this 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,

    -  a defined company contribution plan for employees hired on or after
       September 1, 2005,

    -  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 current employees,
the employees of our subsidiaries, and Panhandle, a former subsidiary. The
Pension Plan's assets are not distinguishable by company.

On September 1, 2005, we will implement the Defined Company Contribution Plan.
The Defined Company Contribution Plan will provide an employer contribution of 5
percent of base pay to the existing Employees' Savings Plan. No employee
contribution is required to receive the plan's employer contribution. All
employees hired on and after September 1, 2005 will participate in this plan as
part of their retirement benefit program. Cash balance pension plan participants
will also participate in the Defined Company Contribution Plan on September 1,
2005. Additional pay credits under the cash balance pension plan will be
discontinued as of that date.

OPEB: 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


                                     CMS-66

<PAGE>

                                                          CMS Energy Corporation

for anticipated recovery in utility rates. 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 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.

Costs: The following table recaps the costs incurred in our retirement benefits
plans:

<Table>
<Caption>
                                                                                               In Millions
- -----------------------------------------------------------------------------------------------------------
                                                                                    Pension
                                                                   Three Months Ended     Six Months Ended
                                                                     2005        2004      2005       2004
- ----------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>        <C>        <C>
Service cost                                                        $  15       $   9     $  25      $  19
Interest expense                                                       30          18        49         36
Expected return on plan assets                                        (38)        (27)      (63)       (54)
Amortization of:
  Net loss                                                              7           4        14          7
  Prior service cost                                                    3           2         4          3
                                                                   ---------------------------------------
Net periodic pension and postretirement benefit cost                $  17       $   6     $  29      $  11
==========================================================================================================
</TABLE>


<Table>
<Caption>
                                                                                               In Millions
- -----------------------------------------------------------------------------------------------------------
                                                                                     OPEB
                                                                   Three Months Ended     Six Months Ended
                                                                     2005        2004      2005       2004
- -----------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>        <C>        <C>
Service cost                                                        $   5       $   5     $  11      $  10
Interest expense                                                       16          14        32         29
Expected return on plan assets                                        (14)        (12)      (28)       (24)
Amortization of:
  Net loss                                                              5           3         9          5
  Prior service cost                                                   (2)         (2)       (4)        (5)
                                                                   ----------------------------------------
Net periodic pension and postretirement benefit cost                $  10       $   8     $  20      $  15
===========================================================================================================
</TABLE>

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
MCV Partnership's net periodic postretirement health care cost for the six
months ended June 30, 2005 was less than $1 million.

We remeasured our Pension and OPEB obligations as of April 30, 2005 to
incorporate the effects of the collective bargaining agreement reached between
the Utility Workers Union of America and Consumers. The Pension plan
remeasurement increased our accumulated benefit obligation (ABO) by $127
million. Net periodic pension cost increased $4 million for the six months ended
June 30, 2005, with an expected total increase in net periodic pension costs of
$14 million for 2005.

The Pension plan remeasurement resulted in an unfunded accumulated benefit
obligation of $208 million. The unfunded accumulated benefit obligation is the
amount by which the ABO exceeds the fair value of the plan assets. SFAS No. 87
states that the pension liability shown on the balance sheet must be at least


                                     CMS-67

<PAGE>

                                                          CMS Energy Corporation

equal to the unfunded accumulated benefit obligation. As such, we increased our
additional minimum liability by $145 million to $564 million at June 30, 2005.
Consistent with MPSC guidance, Consumers recognized the cost of its minimum
pension liability adjustment as a regulatory asset. This adjustment increased
our regulatory assets by $94 million and intangible assets by $38 million and
reduced accumulated other comprehensive income by $9 million (net of income
taxes).

The OPEB plan remeasurement increased our accumulated postretirement benefit
obligation by $50 million, with an expected total increase in benefit costs of
$3 million for 2005.

8: ASSET RETIREMENT OBLIGATIONS

SFAS NO. 143: This standard 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.

The following tables describe our assets that have legal obligations to be
removed at the end of their useful life:

<Table>
<Caption>
June 30, 2005                                                                                             In Millions
- ---------------------------------------------------------------------------------------------------------------------
                                                    In Service                                                  Trust
ARO Description                                     Date          Long Lived Assets                              Fund
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>                                           <C>
Palisades-decommission plant site                   1972          Palisades nuclear plant                       $ 529
Big Rock-decommission plant site                    1962          Big Rock nuclear plant                           26
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>

                                     CMS-68

<PAGE>

                                                          CMS Energy Corporation

<Table>
<Caption>
                                                                                                                   In Millions
- ------------------------------------------------------------------------------------------------------------------------------
                                                       ARO                                                                 ARO
                                                 Liability                                            Cash flow      Liability
ARO Description                                   12/31/04   Incurred      Settled      Accretion     Revisions        6/30/05
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>           <C>          <C>           <C>            <C>
Palisades-decommission                               $ 350        $  -      $    -           $ 12          $  -         $ 362
Big Rock-decommission                                   30           -        (25)              7             -            12
JHCampbell intake line                                   -           -           -              -             -             -
Coal ash disposal areas                                 54           -         (1)              2             -            55
Wells at gas storage fields                              1           -           -              -             -             1
Indoor gas services relocations                          1           -           -              -             -             1
Natural gas-fired power plant                            1           -           -              -             -             1
Close gas treating plant and gas wells                   2           -           -              -             -             2
                                              --------------------------------------------------------------------------------

Total                                                $ 439        $  -      $ (26)           $ 21          $  -         $ 434
==============================================================================================================================
</TABLE>

On October 14, 2004, the MPSC issued a generic proceeding to review SFAS No.
143, FERC Order No. 631, Accounting, Financial Reporting, and Rate Filing
Requirements for Asset Retirement Obligations, and their accounting and
ratemaking issues. Utilities responded to the Order in March 2005; MPSC Staff
and intervenor filed responses in May 2005. We consider the proceeding a
clarification of accounting and reporting issues that relate to all Michigan
utilities.


                                     CMS-69

<PAGE>

                                                          CMS Energy Corporation

9: 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 $14 million for the
three months ended June 30, 2005 and $38 million for the three months ended June
30, 2004 and $16 million for the six months ended June 30, 2005 and $44 million
for the six months ended June 30, 2004.

The most significant of these investments are:

    -  our 50 percent interest in Jorf Lasfar, and

    -  our 40 percent interest in Taweelah.

Summarized financial information for these equity method investments is as
follows:

Income Statement Data
<Table>
<Caption>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
JORF LASFAR                                                   Three Months Ended                   Six Months Ended
- -------------------------------------------------------------------------------------------------------------------
June 30                                                     2005            2004                2005           2004
- -------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>                   <C>              <C>
Operating revenue                                          $ 129           $ 102              $  259         $  212
Operating expenses                                           (90)            (56)               (173)          (121)
                                                         ----------------------------------------------------------
Operating income                                              39              46                  86             91
Other expense, net                                           (14)            (14)                (28)           (29)
                                                         ----------------------------------------------------------
Net income                                                 $  25           $  32              $   58         $   62
===================================================================================================================
</Table>

Income Statement Data
<Table>
<Caption>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
TAWEELAH                                                      Three Months Ended                   Six Months Ended
- -------------------------------------------------------------------------------------------------------------------
June 30                                                     2005            2004               2005            2004
- -------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>                  <C>             <C>
Operating revenue                                          $  26           $  26              $  50           $  48
Operating expenses                                           (15)            (12)               (19)            (22)
                                                         ----------------------------------------------------------
Operating income                                              11              14                 31              26
Other income (expense), net                                  (23)             33                (24)              8
                                                         ----------------------------------------------------------
Net income (loss)                                          $ (12)          $  47              $   7           $  34
===================================================================================================================
</Table>


                                     CMS-70

<PAGE>

                                                          CMS Energy Corporation

10: REPORTABLE SEGMENTS

Our reportable segments consist of 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 three reportable
segments: electric utility, gas utility, and enterprises.

The "Other" segment includes corporate interest and other, discontinued
operations, and the cumulative effect of accounting changes. The following table
shows our financial information by reportable segment:

<Table>
<Caption>
                                                                                                            In Millions
- -----------------------------------------------------------------------------------------------------------------------
                                                                         Three Months Ended            Six Months Ended
- -----------------------------------------------------------------------------------------------------------------------
June 30                                                                  2005          2004          2005          2004
- -----------------------------------------------------------------------------------------------------------------------
Operating Revenue
<S>                                                                  <C>           <C>           <C>           <C>
     Electric utility                                                $    644      $    611       $ 1,272      $  1,241
     Gas utility                                                          355           300         1,347         1,205
     Enterprises                                                          242           182           467           401
- -----------------------------------------------------------------------------------------------------------------------

Total Operating Revenue                                              $  1,241      $  1,093       $ 3,086      $  2,847
=======================================================================================================================

Net Income Available to Common Stockholders
     Electric utility                                                $     46      $     27       $    79      $     75
     Gas utility                                                           (3)            1            55            57
     Enterprises                                                           29            37           134           (23)
     Other                                                                (45)          (49)          (91)         (102)
- -----------------------------------------------------------------------------------------------------------------------

Total Net Income Available to Common Stockholders                    $     27      $     16       $   177      $      7
=======================================================================================================================
</Table>


<Table>
<Caption>
                                                                                                            In Millions
- -----------------------------------------------------------------------------------------------------------------------
                                                                              June 30, 2005           December 31, 2004
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                     <C>
Assets
     Electric utility (a)                                                          $  7,646                    $  7,289
     Gas utility (a)                                                                  3,209                       3,187
     Enterprises                                                                      5,084                       4,980
     Other                                                                              522                         416
- -----------------------------------------------------------------------------------------------------------------------

Total Assets                                                                       $ 16,461                    $ 15,872
=======================================================================================================================
</TABLE>

(a) Amounts include a portion of our other common assets attributable to both
the electric and gas utility businesses.

                                     CMS-71

<PAGE>

                                                          CMS Energy Corporation

11: CONSOLIDATION OF VARIABLE INTEREST ENTITIES

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.
Therefore, we consolidated these partnerships into our consolidated financial
statements for all periods presented. These partnerships have third-party
obligations totaling $586 million at June 30, 2005. Property, plant, and
equipment serving as collateral for these obligations has a carrying value of
$1.396 billion at June 30, 2005. The creditors of these partnerships do not have
recourse to the general credit of CMS Energy.

We are the primary beneficiary of three other 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 for all periods presented. These partnerships have third-party
obligations totaling $111 million at June 30, 2005. Property, plant, and
equipment serving as collateral for these obligations has a carrying value of
$165 million at June 30, 2005. 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.

Additionally, we hold interests in variable interest entities in which we are
not the primary beneficiary. The following chart details our involvement in
these entities at June 30, 2005:

<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------
                                                                        Investment       Operating           Total
Name (Ownership      Nature of the                     Involvement      Balance          Agreement with      Generating
Interest)            Entity            Country         Date             (In Millions)    CMS Energy          Capacity
- -------------------------------------------------------------------------------------------------------------------------
<S>                  <C>               <C>             <C>              <C>              <C>              <C>
Taweelah (40%)       Generator         United Arab          1999             $  68               Yes              777 MW
                                       Emirates

Jubail
(25%)                Generator         Saudi Arabia         2001             $   -               Yes              250 MW

                                       United Arab
Shuweihat (20%)      Generator         Emirates             2001             $  40               Yes            1,500 MW
- -------------------------------------------------------------------------------------------------------------------------
Total                                                                        $ 108                              2,527 MW
=========================================================================================================================
</TABLE>

Our maximum exposure to loss through our interests in these variable interest
entities is limited to our investment balance of $108 million, and letters of
credit, guarantees, and indemnities relating to Taweelah and Shuweihat totaling
$86 million.


                                     CMS-72

<PAGE>

                                                          CMS Energy Corporation

12:  IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

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 (calendar year 2005 for
CMS Energy). In June 2005, we decided on a plan to repatriate $79 million of
foreign earnings during the remainder of 2005. Historically, we recorded
deferred taxes on these earnings. Since this planned repatriation is expected to
qualify for the tax benefit, we reversed $24 million of our deferred tax
liability. This adjustment was recorded as a component of income from continuing
operations in the second quarter of 2005.

We may repatriate additional amounts that may qualify for the repatriation tax
benefit during the remainder of 2005. If successful, our current estimate is
that additional amounts could range between $50 million and $150 million. The
amount of additional repatriation remains uncertain because it is based on
future foreign subsidiary operations, cash flows, financings, and repatriation
limitations. This potential additional repatriation could reduce our recorded
deferred tax liability by $15 million to $45 million. We expect to be in a
position to finalize our assessment regarding any potential repatriation, which
may be higher or lower, in the fourth quarter of 2005.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS NO. 123R, SHARE-BASED PAYMENT: This Statement requires companies to use the
fair value of employee stock options and similar awards at the grant date to
value the awards. Companies must expense this amount over the vesting period of
the awards. This 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.

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 cash inflows from financing
activities rather than as a reduction of taxes paid in operating activities.
Excess tax benefits are recorded as adjustments to additional paid-in capital.

This Statement is effective for us as of the beginning of 2006. We adopted the
fair value method of accounting for share-based awards effective December 2002.
Therefore, we do not expect this statement to have a significant impact on our
results of operations when it becomes effective.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarifies the term "conditional asset
retirement obligation" as used in SFAS No. 143. The term refers to a legal
obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be
within the control of the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. The fair value of a
liability for the conditional asset retirement obligation should be recognized
when incurred. This Interpretation also clarifies when an entity would have
sufficient information to estimate reasonably the fair value of an asset
retirement obligation. For us, this Interpretation is effective no later than
December 31, 2005. We are in the process of determining the impact this
Interpretation will have on our financial statements upon adoption.

                                     CMS-73

<PAGE>


                                                          CMS Energy Corporation








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                                     CMS-74
<PAGE>
                                                        Consumers Energy Company


                            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." This MD&A has been prepared in accordance with the instructions to Form
10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction
with the MD&A contained in Consumers Energy's Form 10-K for the year ended
December 31, 2004.

EXECUTIVE OVERVIEW

Consumers, a subsidiary of CMS Energy, a holding company, is a combination
electric and gas utility company serving 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 our strategy to improve credit ratings, grow earnings, and
position us to make new investments.

Despite strong financial and operational performance, we face important
challenges in the future. As a result of Michigan's Customer Choice Act, which
allows alternative electric suppliers to sell electric power directly to our
customers, we have lost industrial and commercial load. As of July 2005,
alternative electric suppliers provide 811 MW, or 11 percent, of our electric
load. Based on current trends, we predict total load loss by the end of 2005 to
be in the range of 900 MW to 950 MW. However, we cannot assure that the actual
load loss will fall within that range.

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. Natural gas prices have increased substantially in recent years. Because
the price the MCV Partnership can charge us for energy has not increased to
reflect current natural gas prices, the MCV Partnership's financial performance
has been impacted negatively. In 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.





                                      CE-1
<PAGE>


                                                        Consumers Energy Company


We are focused on growing the equity base of our company and refinancing our
debt to reduce interest rate costs. In 2005, we retired higher-interest rate
debt through the use of proceeds from the issuance of $550 million of FMB and
$150 million of senior insured quarterly notes. We also received cash
contributions from CMS Energy of $550 million in 2005. These 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.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Form 10-Q 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 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



                                      CE-2
<PAGE>

                                                        Consumers Energy Company

            -     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 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 adverse impacts of the new Midwest Energy Market upon
            power supply and transmission costs,

      -     the GAAP requirement that we utilize mark-to-market accounting on
            certain 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,



                                      CE-3
<PAGE>

                                                        Consumers Energy Company



      -     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.

For additional information regarding these and other uncertainties, see Note 2,
Contingencies.

RESULTS OF OPERATIONS

NET INCOME AVAILABLE TO COMMON STOCKHOLDER

<TABLE>
<CAPTION>

                                                                     In Millions
- --------------------------------------------------------------------------------
June 30                                                 2005    2004    Change
- --------------------------------------------------------------------------------
<S>                                                    <C>     <C>      <C>
Net income available to common stockholder
    Electric                                           $  46    $ 27      $ 19
    Gas                                                   (3)      1        (4)
    Other (Includes MCV Partnership interest)            (11)     (5)       (6)
- --------------------------------------------------------------------------------
Three months ended                                     $  32    $ 23      $  9
================================================================================
</TABLE>


For the three months ended June 30, 2005, our net income available to the common
stockholder increased $9 million versus the same period in 2004. The $9 million
increase in net income available to the common stockholder reflects:

      -     a $22 million increase in electric delivery revenue due to warmer
            weather and increased surcharge revenue,

      -     a $4 million increase in electric utility earnings due to the return
            on capital expenditures in excess of our depreciation base as
            allowed by the Customer Choice Act, and

      -     a $5 million increase in gas delivery revenue due to higher
            deliveries and the MPSC's October 2004 final gas rate order.

These increases in net income available to the common stockholder were offset
partially by reductions to net income available to the common stockholder from:

      -     a $15 million increase in operating expenses due primarily to higher
            depreciation and amortization expense, higher pension and benefit
            expense, and higher underrecovery expense related to the MCV PPA,
            offset partially by our direct savings from the RCP, and

      -     a $10 million decrease in earnings from our ownership interest in
            the MCV Partnership primarily due to the decrease in fair value of
            certain long-term gas contracts and financial hedges.



                                      CE-4
<PAGE>


                                                        Consumers Energy Company

<TABLE>
<CAPTION>
                                                                     In Millions
- --------------------------------------------------------------------------------
June 30                                                 2005    2004    Change
- --------------------------------------------------------------------------------
<S>                                                    <C>     <C>      <C>
Net income available to common stockholder
    Electric                                           $  79   $  75      $  4
    Gas                                                   55      57        (2)
    Other (Includes MCV Partnership interest)             55      (5)       60
- --------------------------------------------------------------------------------
Six months ended                                       $ 189   $ 127      $ 62
================================================================================
</TABLE>


For the six months ended June 30, 2005, our net income available to the common
stockholder increased $62 million versus the same period in 2004. The $62
million increase in net income available to the common stockholder reflects:

      -     a $53 million increase in earnings from our ownership interest in
            the MCV Partnership primarily due to the increase in fair value of
            certain long-term gas contracts and financial hedges (the MPSC's
            approval of the RCP resulted in the MCV Partnership recognizing the
            increase in the fair value of additional gas contracts beginning
            January 2005),

      -     a $25 million increase in electric delivery revenue due to warmer
            weather and increased surcharge revenue,

      -     a $14 million increase in gas delivery revenue due to the MPSC's
            October 2004 final gas rate order, and

      -     an $8 million increase in electric utility earnings due to the
            return on capital expenditures in excess of our depreciation base as
            allowed by the Customer Choice Act.

These increases in net income available to the common stockholder were offset
partially by reductions to net income available to the common stockholder from:

      -     a $30 million increase in operating expenses due primarily to higher
            depreciation and amortization expense, higher pension and benefit
            expense, and higher underrecovery expense related to the MCV PPA,
            offset partially by our direct savings from the RCP, and

      -     a $7 million underrecovery of power supply revenue primarily due to
            non-recoverable power supply costs related to capped customers.

For additional details, see "Electric Utility Results of Operations," "Gas
Utility Results of Operations," and "Other Results of Operations" within this
section and Note 2, Contingencies. For additional details regarding the fair
value of certain of the MCV Partnership's long-term gas contracts, see the
"Critical Accounting Policies-Accounting for Financial and Derivative
Instruments and Market Risk Information-Derivative Instruments" section within
this MD&A.



                                      CE-5
<PAGE>

                                                        Consumers Energy Company

ELECTRIC UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
June 30                                                                       2005           2004            Change
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>             <C>             <C>
Three months ended                                                           $ 46            $ 27             $ 19
Six months ended                                                             $ 79            $ 75             $  4
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                               Three Months Ended                 Six Months Ended
Reasons for the change:                                    June 30, 2005 vs. 2004           June 30, 2005 vs. 2004
- -------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                               <C>
Electric deliveries                                                         $  34                            $  38
Power supply costs and related revenue                                         (2)                             (11)
Other  operating  expenses,  other  income,  and non-
  commodity revenue                                                            (8)                             (31)
Regulatory return on capital expenditures                                       6                               13
General taxes                                                                  (1)                              (4)
Fixed charges                                                                   1                                2
Income taxes                                                                  (11)                              (3)
                                                          ---------------------------------------------------------
Total change                                                                $  19                            $   4
===================================================================================================================
</TABLE>


ELECTRIC DELIVERIES: For the three months ended June 30, 2005, electric
deliveries increased 0.5 billion kWh or 5.1 percent versus the same period in
2004. For the six months ended June 30, 2005, electric deliveries increased 0.1
billion kWh or 0.4 percent versus the same period in 2004. The corresponding
increases in electric delivery revenue for both periods were due to increased
sales to residential customers due to warmer weather and increased surcharge
revenue, offset partially by reduced electric delivery revenue from customers
choosing alternative electric suppliers.

On July 1, 2004, Consumers started collecting a surcharge related to the
recovery of costs incurred in the transition to customer choice. This surcharge
increased electric delivery revenue by $6 million for the three months ended
June 30, 2005 and $11 million for the six months ended June 30, 2005. Surcharge
revenue related to the recovery of security costs and Stranded Costs increased
electric delivery revenue by an additional $3 million for the three months ended
June 30, 2005 and $6 million for the six months ended June 30, 2005.

POWER SUPPLY COSTS AND RELATED REVENUE: Our recovery of power supply costs is
capped for our residential customers. For the three months ended June 30, 2005,
our underrecovery of power costs allocated to these capped customers increased
by $6 million versus the same period in 2004. For the six months ended June 30,
2005, our underrecovery of power costs allocated to these capped customers
increased by $20 million versus the same period in 2004. Power supply-related
costs increased in 2005 primarily due to higher coal costs and higher priced
purchased power to replace the generation loss from outages at our Palisades and
Campbell 3 generating plants.

Partially offsetting these underrecoveries are transmission and nitrogen oxide
allowance expenditures related to our capped customers, which we have deferred
for future recovery. For the three months ended June 30, 2005, we deferred $4
million of these costs. For the six months ended June 30, 2005, we deferred $9
million of these costs.



                                      CE-6
<PAGE>

                                                        Consumers Energy Company


OTHER OPERATING EXPENSES, OTHER INCOME, AND NON-COMMODITY REVENUE: For the three
months ended June 30, 2005, other operating expenses increased $14 million,
other income increased $4 million, and non-commodity revenue increased $2
million versus the same period in 2004. For the six months ended June 30, 2005,
other operating expenses increased $39 million, other income increased $4
million, and non-commodity revenue increased $4 million versus the same period
in 2004.

The increase in other operating expenses reflects higher depreciation and
amortization expense, and higher pension and benefit expense. Depreciation and
amortization expense increased due to higher plant in service and greater
amortization of certain regulatory assets. Pension and benefit expense increased
primarily due to changes in actuarial assumptions and the remeasurement of our
pension and OPEB plans to reflect the new collective bargaining agreement
between the Utility Workers Union of America and Consumers. Benefit expense also
reflects the reinstatement of the employer matching contribution to our 401(k)
plan.

In addition, the increase in other operating expenses reflects increased
underrecovery expense related to the MCV PPA, offset partially by our direct
savings from the RCP. In 1992, a liability was established for estimated future
underrecoveries of power supply costs under the MCV PPA. In 2004, a portion of
the cash underrecoveries continued to reduce this liability until its depletion
in December. In 2005, all cash underrecoveries are expensed directly to income.
Partially offsetting this increased operating expense were the savings from the
RCP approved by the MPSC in January 2005.

The RCP allows us to dispatch the MCV Facility on the basis of natural gas
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. The MCV
Facility's fuel cost savings are first used to offset the cost of replacement
power and fund a renewable energy program. Remaining savings are split between
the MCV Partnership and us. Our direct savings are shared 50 percent with
customers in 2005 and 70 percent thereafter.

The cost associated with the MCV PPA cash underrecoveries, net of our direct
savings from the RCP, increased operating expense $2 million for the three
months ended June 30, 2005 and $4 million for the six months ended June 30, 2005
versus the same periods in 2004.

The increase in other income is primarily due to higher interest income on
short-term cash investments, offset partially by expenses associated with the
early retirement of debt in 2005. The increase in non-commodity revenue is
primarily due to higher transmission services revenue.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The return on capital expenditures in
excess of our depreciation base as allowed by the Customer Choice Act increased
income by $6 million for the three months ended June 30, 2005 and $13 million
for the six months ended June 30, 2005 versus the same periods in 2004.

GENERAL TAXES: For the three and six months ended June 30, 2005, general taxes
increased versus the same periods in 2004 primarily due to higher MSBT expense.

FIXED CHARGES: For the three months ended June 30, 2005, fixed charges reflect a
36 basis point reduction in the average rate of interest on our debt and higher
average debt levels versus the same period in 2004. For the six months ended
June 30, 2005, fixed charges reflect a 32 basis point reduction in the average
rate of interest on our debt and higher average debt levels versus the same
period in 2004.


                                      CE-7
<PAGE>


                                                        Consumers Energy Company


INCOME TAXES: For the three and six months ended June 30, 2005, income taxes
increased versus the same periods in 2004 primarily due to higher earnings by
the electric utility.

GAS UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
June 30                                                                          2005         2004           Change
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>            <C>
Three months ended                                                               $ (3)        $  1            $ (4)
Six months ended                                                                 $ 55         $ 57            $ (2)
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Reasons for the change:                                             Three Months Ended             Six Months Ended
                                                                June 30, 2005 vs. 2004       June 30, 2005 vs. 2004
- -------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                          <C>
Gas deliveries                                                                  $   2                        $  (1)
Gas rate increase                                                                   5                           21
Gas wholesale and retail services, other gas
  revenues and other income                                                         1                           (1)
Operation and maintenance                                                         (12)                         (17)
General taxes and depreciation                                                     (2)                          (3)
Fixed charges                                                                       -                           (2)
Income taxes                                                                        2                            1
                                                          ---------------------------------------------------------
  Total change                                                                  $  (4)                       $  (2)
===================================================================================================================
</TABLE>

GAS DELIVERIES: For the three months ended June 30, 2005, higher gas delivery
revenues reflect increased deliveries to our residential, commercial, and
industrial customers versus the same period in 2004. Gas deliveries, including
miscellaneous transportation to end-use customers, increased 1.4 bcf or 3.1
percent.

For the six months ending June 30, 2005, lower gas delivery revenues reflect
decreased deliveries to our residential and industrial transportation customers.
Gas deliveries, including miscellaneous transportation to end-use customers,
decreased 2.0 bcf or 1.0 percent.

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 annual increase of $58 million
through a two-year surcharge. As a result of these orders, gas revenues
increased $5 million for the three months ended June 30, 2005 and $21 million
for the six months ended June 30, 2005 versus the same periods in 2004.

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUES AND OTHER INCOME: For the
three months ended June 30, 2005, other income increased $1 million primarily
due to higher interest income on short-term cash investments versus the same
period in 2004. For the six months ended June 30, 2005, gas wholesale and retail
services revenue decreased primarily due to decreases in miscellaneous
transportation and storage revenue.

OPERATION AND MAINTENANCE: For the three and six months ended June 30, 2005,
operation and maintenance expenses increased primarily due to increases in
benefit costs and additional safety, reliability, and customer service expense.
Pension and benefit expense increased primarily due to changes in actuarial
assumptions and the remeasurement of our pension and OPEB plans to reflect the
new collective bargaining agreement between the Utility Workers Union of America
and Consumers. Benefit expense


                                      CE-8
<PAGE>

                                                        Consumers Energy Company

also reflects the reinstatement of the employer matching contribution to our
401(k) plan.

GENERAL TAXES AND DEPRECIATION: For the three and six months ended June 30,
2005, general tax expense increased primarily due to higher MSBT expense.
Depreciation expense increased due to higher plant in service.

FIXED CHARGES: For the six months ended June 30, 2005, fixed charges reflect a
32 basis point reduction in the average rate of interest on our debt and higher
average debt levels versus the same period in 2004.

INCOME TAXES: For the three and six months ended June 30, 2005, income taxes
decreased primarily due to lower earnings by the gas utility.

OTHER RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                                In Millions
- ------------------------------------------------------------------------------------------------------------
June 30                                                                       2005         2004      Change
- ------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>         <C>
Three months ended                                                           $ (11)       $ (5)        $ (6)
Six months ended                                                             $  55        $ (5)        $ 60
============================================================================================================
</TABLE>

For the three months ended June 30, 2005, other operations reduced net income by
$11 million, a decrease of $6 million versus the same period in 2004. The change
reflects a $10 million decrease in earnings from our ownership interest in the
MCV Partnership, primarily due to a decrease in the fair value of certain
long-term gas contracts and related financial hedges. The reduction in earnings
at the MCV Partnership was offset partially by a $4 million reduction in other
expenses.

For the six months ended June 30, 2005, other operations increased net income by
$55 million, an increase of $60 million versus the same period in 2004. The
change reflects a $53 million increase in earnings from our ownership interest
in the MCV Partnership, primarily due to an increase in the fair value of
certain long-term gas contracts and related financial hedges. Also contributing
to the increase in earnings was a $7 million reduction in other expenses.

CRITICAL 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.

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 the history and specifics of each
matter. The most significant of these contingencies are our electric and gas
environmental liabilities, and the potential underrecoveries from our




                                      CE-9

<PAGE>
                                                        Consumers Energy Company

power purchase contract with the MCV Partnership, all of which are discussed in
the "Outlook" section included in this MD&A.

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. There have been no material changes to the accounting for
financial instruments since the year ended December 31, 2004. For details on
financial instruments, see Note 4, Financial and Derivative Instruments.

DERIVATIVE INSTRUMENTS: We use SFAS No. 133 to account for derivatives. Except
as noted within this section, there have been no material changes to the
accounting for derivative instruments since the year ended December 31, 2004.

The MISO began operating the Midwest Energy Market on April 1, 2005. The Midwest
Energy Market provides day-ahead and real-time energy market information and
centralized generation dispatch for market participants. At this time, we
believe that the commencement of this market does not constitute the development
of an active energy market in Michigan. However, as we gain additional
experience with the Midwest Energy Market, we will continue to evaluate whether
or not the activity level within this market leads to the conclusion that an
active energy market exists. If an active market develops in the future, certain
of our electric purchases and sales contracts may qualify as derivatives.
However, we believe that we will be able to apply the normal purchases
and sales exception, which would not require us to mark these contracts to
market.

Also as part of the Midwest Energy Market, FTRs were established. FTRs are
financial instruments established to manage price risk relating to electricity
transmission congestion. An FTR entitles the holder to receive compensation (or
remit payment) for certain congestion-related transmission charges that arise
when the transmission grid is congested. We presently hold FTRs for certain
areas on the transmission grid within the MISO's market area. FTRs are
derivative instruments and are required to be recognized on our Consolidated
Balance Sheets as assets or liabilities at their fair values, with any
subsequent changes in fair value recognized in earnings. As of June 30, 2005, we
recorded an asset of $1 million associated with the fair value of FTRs on our
Consolidated Balance Sheets.

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 our
Consolidated Balance Sheets. Due to the implementation of the RCP in January
2005, the MCV Partnership 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
are accounted for as derivatives, with changes in fair value recorded in
earnings each quarter. Additionally, the financial hedges associated with these
contracts no longer qualify as cash flow hedges. Thus, as of January 2005, any
changes in the fair value of these financial hedges are recorded in earnings
each quarter. The MCV Partnership expects future earnings volatility on both the
gas fuel derivative contracts and the related financial hedges, since gains and
losses will be recorded each quarter. For the six months ended June 30, 2005, we
recorded a $170 million gain associated with the increase in fair value of these
instruments on our Consolidated Statements of Income, resulting in a cumulative
mark-to-market gain through June 30, 2005 of $226 million. The majority of this
mark-to-market gain is expected to reverse through earnings during 2005 and 2006
as the gas is purchased and the financial hedges settle, with the remainder
reversing between 2007 and 2011.


                                     CE-10
<PAGE>
                                                        Consumers Energy Company

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 June 30, 2005,
we assumed market-based interest rates ranging between 3.34 percent and 4.22
percent (depending on the term of the contract) and monthly volatility rates
ranging between 25 percent and 42 percent to calculate the fair value of the gas
fuel contracts held by the MCV Partnership. Also, at June 30, 2005, we assumed a
market-based interest rate of 3.00 percent and monthly volatility rates ranging
between 35 percent and 39 percent to calculate the fair value of our gas
options.

MARKET RISK INFORMATION: The following is an update of our risk sensitivities
since the year ended December 31, 2004. These 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 SENSITIVITY ANALYSIS (assuming a 10 percent adverse change in
market interest rates):

<TABLE>
<CAPTION>
                                                                                          In Millions
- -----------------------------------------------------------------------------------------------------
                                                                     June 30, 2005  December 31, 2004
- -----------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
Variable-rate financing - before-tax annual earnings exposure                $   1              $   2
Fixed-rate financing - potential loss in fair value (a)                        145                138
=====================================================================================================
</TABLE>

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

COMMODITY PRICE RISK SENSITIVITY ANALYSIS (assuming a 10 percent adverse change
in market prices):


<TABLE>
<CAPTION>
                                                                                          In Millions
- -----------------------------------------------------------------------------------------------------
                                                                     June 30, 2005  December 31, 2004
- -----------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>
Potential REDUCTION in fair value:
Gas supply option contracts                                                   $  -               $  1
FTRs                                                                             -                  -
Derivative contracts associated with the MCV Partnership:
  Gas fuel contracts (a)                                                        38                 17
  Gas fuel futures and swaps                                                    47                 41
=====================================================================================================
</TABLE>

(a) The increased potential reduction in fair value for the MCV Partnership's
gas fuel contracts is due to an increased number of contracts accounted for as
derivatives. This is a result of the implementation of the RCP, at which time
the MCV Partnership determined that a significant portion of its gas fuel
contracts no longer qualify as normal purchases and must now be accounted for as
derivatives.




                                      CE-11
<PAGE>
                                                        Consumers Energy Company

INVESTMENT SECURITIES PRICE RISK SENSITIVITY ANALYSIS (assuming a 10 percent
adverse change in market prices):

<TABLE>
<CAPTION>
                                                                                      In Millions
- -------------------------------------------------------------------------------------------------
                                                                June 30, 2005   December 31, 2004
- -------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>
Potential REDUCTION in fair value of available-for-sale equity
  securities (SERP investments and investments in CMS Energy
  common stock)                                                           $ 6                 $ 5
=================================================================================================
</TABLE>

We maintain trust funds, as required by the NRC, which may only be used to fund
certain costs of nuclear plant decommissioning. These funds are 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. On September 1, 2005, we will implement the Defined Company
Contribution Plan.

The Defined Company Contribution Plan will provide an employer contribution of 5
percent of base pay to the existing Employees' Savings Plan. No employee
contribution is required to receive the plan's employer cash contribution. All
employees hired on and after September 1, 2005 will participate in this plan as
part of their retirement benefit program. Cash balance pension plan participants
will also participate in the Defined Company Contribution Plan on September 1,
2005. Additional pay credits under the cash balance pension plan will be
discontinued as of that date. We use SFAS No. 87 to account for pension costs.

401(k): We resumed the employer's match on our 401(k) Savings Plan on January 1,
2005. The plan provides for an employer match of 50 percent on eligible
contributions up to the first six percent of an employee's wages. Effective
September 1, 2005, employees enrolled in the company's 401(k) Savings Plan will
have the employer match increased from 50 percent to 60 percent.

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


                                      CE-12
<PAGE>
                                                        Consumers Energy Company

    -    anticipated health care costs.

Any change in these assumptions can change significantly 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>
                                                                    In Millions
- -------------------------------------------------------------------------------
Expected Costs                 Pension Cost       OPEB Cost     Contributions
- -------------------------------------------------------------------------------
<S>                            <C>                <C>           <C>
2006                                   $ 88            $ 38             $  81
2007                                     97              34               176
2008                                     92              30               109
===============================================================================
</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.

For additional details on postretirement benefits, see Note 5, Retirement
Benefits.

OTHER

Other accounting policies that are important to an understanding of our results
of operations and financial condition include:

    -   accounting for the effects of industry regulation,

    -   accounting for asset retirement obligations,

    -   accounting for nuclear decommissioning costs, and

    -   accounting for related party transactions.

There have been no material changes to these accounting policies since the year
ended December 31, 2004.

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 require additional liquidity due to the timing of the cost
recoveries as gas prices increase. 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 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.


                                     CE-13
<PAGE>
                                                        Consumers Energy Company

CASH POSITION, INVESTING, AND FINANCING

Our operating, investing, and financing activities meet consolidated cash needs.
At June 30, 2005, $667 million consolidated cash was on hand, which includes $54
million of restricted cash and $209 million from the entities consolidated
pursuant to FASB Interpretation No. 46. For additional details, see Note 8,
Consolidation of Variable Interest Entities.

SUMMARY OF CASH FLOWS:


<TABLE>
<CAPTION>
                                                                   In Millions
- ------------------------------------------------------------------------------
Six Months Ended June 30                                          2005    2004
- ------------------------------------------------------------------------------
<S>                                                           <C>     <C>
Net cash provided by (used in):
   Operating activities                                         $  590  $  561
   Investing activities                                           (310)   (251)
                                                              ----------------
Net cash provided by operating and investing activities            280     310
   Financing activities                                            162    (125)
                                                              ----------------
Net Increase in Cash and Cash Equivalents                       $  442  $  185
==============================================================================
</TABLE>

OPERATING ACTIVITIES: For the six months ended June 30, 2005, net cash provided
by operating activities increased $29 million versus the same period in 2004 due
to decreases in inventory from lower volumes of gas purchased and other timing
differences.

INVESTING ACTIVITIES: For the six months ended June 30, 2005, net cash used in
investing activities increased $59 million versus the same period in 2004 due to
an increase in capital expenditures of $38 million and an increase in restricted
cash on hand of $31 million.

FINANCING ACTIVITIES: For the six months ended June 30, 2005, net cash provided
by financing activities increased $287 million versus the same period in 2004
due to a $550 million stockholder's contribution from the parent, offset by a
decrease in net proceeds from borrowings of $201 million and an increase in
common stock dividends of $62 million.

For additional details on long-term debt activity, see Note 3, Financings and
Capitalization.

OBLIGATIONS AND COMMITMENTS

REVOLVING CREDIT FACILITIES: For details on revolving credit facilities, see
Note 3, Financings and Capitalization.

OFF-BALANCE SHEET ARRANGEMENTS: There have been no material changes in
off-balance sheet arrangements since the year ended December 31, 2004. For
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."

DIVIDEND RESTRICTIONS: For details on dividend restrictions, see Note 3,
Financings and Capitalization.




                                     CE-14
<PAGE>
                                                        Consumers Energy Company

OUTLOOK

ELECTRIC BUSINESS OUTLOOK

GROWTH: In 2005, we project electric deliveries to grow approximately three
percent. This short-term outlook for 2005 assumes a stronger economy than in
2004 and normal weather conditions during the remainder of 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 or contraction of manufacturing facilities.

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 establish a reserve margin target to address various scenarios and
contingencies so that the probability of interrupting service to retail
customers because of a supply shortage is no greater than an industry-recognized
standard. However, even with the reserve margin target, additional spot
purchases during periods when electric prices are high may be required. 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
100 percent from our electric generating plants and long-term power purchase
contracts, and approximately 11 percent from short-term contracts, options for
physical deliveries, and other agreements. We have purchased capacity and energy
contracts covering the estimated reserve margin requirements for 2005 and
covering partially the estimated reserve margin requirements for 2006 through
2007. As a result, we have recognized an asset of $12 million for unexpired
capacity and energy contracts at June 30, 2005.

COAL DELIVERY DISRUPTIONS: In May 2005, western coal rail carriers experienced
derailments and significant service disruptions due to heavy snow and rain
conditions. These disruptions affected all shippers of western coal from Wyoming
mines as well as coal producers from May 2005 through June 2005. We received
notification that, under contractual Force Majeure provisions, the coal tonnage
not delivered during this period will not be made up. According to recent
announcements, rail repairs will extend through November 2005. Although we
expect some impact on coal shipments during the repair period, and as a result
our coal inventories may drop below historical levels this winter, based on our
current delivery experience, projections, and inventory, we believe we will have
adequate coal supply to allow for normal dispatch of our coal-fired generating
units. However, we are unable to predict other potential industry-wide
shortages, which could affect the ability of our suppliers to deliver on their
commitments.

TRANSMISSION MARKET DEVELOPMENT: The MISO began operating the Midwest Energy
Market on April 1, 2005. The Midwest Energy Market includes a day-ahead and
real-time energy market and centralized generation dispatch for market
participants. We are a participant in this energy market. The intention of these
changes is to meet load requirements in the region reliably and efficiently, to
improve management of congestion on the grid, and to centralize dispatch of
generation throughout the region. The MISO is now responsible for the
reliability and economic dispatch in the entire MISO area, which covers parts of
15 states and Manitoba, including our service territory. We are presently
evaluating what financial impact, if any, these changes are having on our
operations.


                                     CE-15
<PAGE>
                                                        Consumers Energy Company

RENEWABLE RESOURCES PROGRAM: In January 2005, in collaboration with the MPSC, we
established a renewable resources program. Under the RRP, we will purchase
energy from approved renewable sources, which include solar, wind, geothermal,
biomass, and hydroelectric. Customers will be able to participate in the RRP in
accordance with tariffs approved by the MPSC. The MPSC has authorized recovery
of costs for the RRP by establishing a fund that consists of an annual
contribution from savings generated by the RCP, a surcharge imposed by the MPSC,
and contributions from customers. In February 2005, the Attorney General filed
appeals of the MPSC orders providing funding for the RRP in the Michigan Court
of Appeals. In March 2005, we issued a request for proposal for long-term
renewable energy supply contracts. We are in negotiations with certain
respondents to this request.

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 load migration to alternative electric suppliers,
increased system maintenance and improvement costs, Clean Air Act-related
expenditures, and employee pension costs. In April 2005, we filed updated debt
and equity information in this case.

In June 2005, the MPSC Staff filed its position in this case, recommending a
base rate increase of $98 million. The MPSC Staff also recommended an 11.25
percent return on equity to establish rates and recognized all of our projected
equity investment (infusions and retained earnings) in 2006. We expect a final
order from the MPSC 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 under
discussion in a few municipalities in our service territory. If incurred, we
would seek recovery of these costs from our customers located in the
municipality affected, subject to MPSC approval. This case has potentially broad
ramifications for the electric utility industry in Michigan. In a similar
matter, in May 2005, we filed a request with the MPSC that asks the MPSC to rule
that the City of East Grand Rapids, Michigan must pay for the relocation of
electric utility facilities required by an ordinance adopted by the city. At
this time, we cannot predict the outcome of these matters.

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.

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 Nitrogen
Oxide State Implementation Plan requires significant reductions in nitrogen
oxide emissions. To comply with the regulations, we expect to incur capital
expenditures totaling $815 million. The key assumptions in the capital
expenditure estimate include:

                                     CE-16
<PAGE>
                                                        Consumers Energy Company

    -   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 8.3 percent. As of June 2005, we have incurred
$563 million in capital expenditures to comply with these regulations and
anticipate that the remaining $252 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, of which 90 percent have been
purchased. The cost of the allowances is estimated to average $8 million per
year for 2005-2006. The estimated costs are based on the average cost of the
purchased, allocated, and swapped allowances. The need for allowances will
decrease after year 2006 with the installation of selective catalytic 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 recently adopted a Clean Air Interstate Rule that requires additional
coal-fired electric plant emission controls for nitrogen oxides and sulfur
dioxide. The rule involves a two-phase program to reduce emissions of sulfur
dioxide by 71 percent and nitrogen oxides by 63 percent by 2015. The final rule
will require that we run our Selective Catalytic Reduction units year round
beginning in 2009 and may require that we purchase additional nitrogen oxide
credits beginning in 2009. In addition to the selective catalytic reduction
control technology installed to meet the Nitrogen Oxide State Implementation
Plan, our current plan includes installation of flue gas desulfurization
scrubbers. The scrubbers are to be installed by 2014 to meet the phase I
reduction requirements of the Clean Air Interstate Rule at a cost near that of
the Nitrogen Oxide State Implementation Plan.

In March 2005, the EPA issued the Clean Air Mercury Rule, which requires initial
reductions of mercury emissions from coal-fired electric power plants by 2010
and further reductions by 2018. While the industry has not reached a consensus
on the technical methods for curtailing mercury emissions, our capital and
operating costs for mercury emissions reductions are expected to be
significantly less than what is required for nitrogen oxide compliance.

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 sector. 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
uncertain 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.


                                     CE-17
<PAGE>
                                                        Consumers Energy Company

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 2007. We are currently performing the required studies 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: 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 July 2005, alternative electric suppliers
are providing 811 MW of generation supply to ROA customers. This amount
represents a decrease of 5 percent compared to July 2004, and 11 percent of our
total distribution load. Several customers notified us of their intent to return
to our service after a notification period that ended in June 2005 and July
2005. Customers representing 106 MW returned to our service during this period.
Based on this and other current trends, we predict that total load loss by the
end of 2005 will be in the range of 900 MW to 950 MW. However, we cannot assure
that the actual load loss will fall within that range.

Implementation Costs: In June 2005, the MPSC issued an order that authorizes us
to recover implementation costs incurred during 2002 and 2003 totaling $6
million, plus the cost of money through the period of collection.

We are also pursuing authorization at the FERC for the MISO to reimburse us for
Alliance RTO development costs. Included in this amount is $2 million that the
MPSC did not approve as part of our 2002 implementation costs application. The
FERC denied our request for reimbursement and we are appealing the FERC ruling
at the United States Court of Appeals for the District of Columbia. We cannot
predict the amount, if any, the FERC will approve as recoverable.

Section 10d(4) Regulatory Assets: 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. 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
in Section 10d(4) costs, which includes the cost of money through the period of
collection. In June 2005, the ALJ issued a proposal for decision recommending
the MPSC approve recovery of the same Section 10d(4) costs recommended by the
MPSC Staff. However, we may have the opportunity to recover certain costs
included in our application alternatively in other cases pending before the
MPSC. We cannot predict the amount, if any, the MPSC will approve as
recoverable.

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."

OTHER ELECTRIC BUSINESS UNCERTAINTIES

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. 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 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





                                     CE-18
<PAGE>
                                                        Consumers Energy Company

$150 million from 2005 through 2007. After September 15, 2007, we expect to
claim relief under the regulatory out provision in the MCV PPA, thereby limiting
our capacity and fixed energy payments to the MCV Partnership to the amounts
that we collect 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 15, 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 MCV 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. Natural gas prices have
increased substantially in recent years. NYMEX forward natural gas prices
through 2010 recently were approximately $2 per mcf higher than they were at
year-end 2004. Because the price the MCV Partnership can charge us for energy
has not increased to reflect current natural gas prices, the MCV Partnership's
financial performance has been impacted negatively. If forward gas prices for
2010 and beyond do not decline to the $4 to $6 per mcf range currently
anticipated by various government and private natural gas price forecasts, and
remain in that range for the remaining life of the MCV PPA, the economics of
operating the MCV Facility would be adverse enough to require the MCV
Partnership to recognize a substantial impairment of its property, plant and
equipment, which are included in our Consolidated Balance Sheets. However,
forecasting future natural gas prices is extremely difficult and there are
currently differing views among forecasters as to whether such prices will
increase, decrease or remain at current levels over any period of time. At
present, some of the forecasts indicate natural gas prices in excess of the $4
to $6 per mcf range during the years after 2010. At June 30, 2005, the net book
value of the MCV Partnership's property, plant and equipment was $1.396 billion.
Several other factors could alter significantly the MCV Partnership's future
impairment analyses including, but not limited to, energy payments to the MCV
Partnership, which are based on the cost of coal burned at our coal plants, and
any reduction in payments to the MCV Partnership subsequent to September 15,
2007 due to underrecovery of contract costs by Consumers from its customers as a
result of past or future actions by the MPSC. Any such impairment would be
required to be recognized in the period when management's analysis of the
factors described above meets the accounting standards for impairment
recognition. We will continue to monitor the current and long-term trends in
natural gas prices and their effect on the economics of operating the MCV
Facility.

For additional details on the MCV Partnership, see Note 2, Contingencies, "Other
Electric Contingencies - The Midland Cogeneration Venture."

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 by early 2007. We expect a 30-acre area containing
eight casks loaded with spent nuclear fuel and other high-level radioactive
waste material to be returned to a natural state within two years from the date
the DOE begins removing the spent nuclear fuel from Big Rock.

Palisades: In March 2005, the NRC completed its end-of-cycle plant performance
assessment of Palisades, which covered the calendar year 2004. The NRC
determined that Palisades was operated in a



                                     CE-19
<PAGE>
                                                        Consumers Energy Company

manner that preserved public health and safety and met all of the NRC's specific
"cornerstone objectives." As of June 2005, 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
September 2006.

The amount of spent nuclear fuel at Palisades exceeds the plant's temporary
onsite wet storage pool capacity. We are using dry casks for temporary onsite
dry storage to supplement the wet storage pool capacity. As of June 2005, 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."

Palisades' current license from the NRC expires in 2011. In March 2005, NMC,
which operates the Palisades plant, applied for a 20-year license renewal for
the plant on behalf of Consumers. The NRC typically takes 22-30 months to review
a license renewal application. A decision is expected in 2007.

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

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.
In March 2005, an MPSC ALJ recommended that the complaint be dismissed.
Exceptions to this proposal for decision have been filed, and the matter is now
before the MPSC for a decision. We are unable to predict the outcome of this
matter.

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,

    -    the price of competing energy sources or fuels,

    -    gas consumption per customer, and

    -    changes 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




                                     CE-20
<PAGE>
                                                        Consumers Energy Company

necessary to meet estimated peak load beginning in the winter of 2005 through
2006. We started construction of the pipeline in June 2005 and it is expected to
be completed and in service by November 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. On July 8, 2005, the
Administrative Law Judge hearing the case issued a proposal for decision
supporting the project as filed.

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.

GAS ENVIRONMENTAL ESTIMATES: We expect to incur investigation and remedial
action costs at a number of sites, including 23 former manufactured gas plant
sites. For additional details, see Note 2, Contingencies, "Gas Contingencies -
Gas Environmental Matters."

GAS TITLE TRACKING FEES AND SERVICES: There has been no material change in the
Gas Title Tracking Fees and Services matter since the year ended December 31,
2004.

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. For additional details on gas cost recovery, see Note
2, Contingencies, "Gas Rate Matters - Gas Cost Recovery."

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, which reaffirmed the previously ordered $34 million reduction
in our depreciation expense. The October 2004 order also required 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.

The MPSC has directed us to file our next gas depreciation case within 90 days
after the latter of:

    -   the removal cost study filing or

    -   the MPSC issuance of a final order in the pending case related to ARO
        accounting.

The MPSC order on the pending case related to ARO accounting is expected in the
first quarter of 2006. We proposed to incorporate the results of the gas
depreciation case into gas general rates using a surcharge mechanism if the
depreciation case order was not issued concurrently with a gas general rate case
order.



                                     CE-21
<PAGE>
                                                        Consumers Energy Company

2005 GAS RATE CASE: In July 2005, we filed an application with the MPSC seeking
a 12 percent authorized return on equity along with a $132 million annual
increase in our gas delivery and transportation rates. The primary reasons for
the request are recovery of new investments, carrying costs on natural gas
inventory related to higher gas prices, system maintenance, employee benefits,
and low-income assistance. If approved, the request would add approximately 5
percent to the typical residential customer's average monthly bill. The increase
would also affect commercial and industrial customers. As part of this filing,
we also requested interim rate relief of $75 million.

OTHER OUTLOOK

COLLECTIVE BARGAINING AGREEMENTS: Approximately 46 percent of our employees are
represented by the Utility Workers Union of America. 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 expired on June 1, 2005. In
April 2005, a new Operating, Maintenance, and Construction Agreement was reached
between the Utility Workers Union of America and Consumers. The Union membership
voted to ratify this agreement. The collective bargaining agreement with the
Union for our call center employees expired on August l, 2005. In July 2005,
Consumers and the Union reached and ratified a new collective bargaining
agreement for our call center employees.

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 a class action lawsuit alleging ERISA violations. For
additional details regarding these investigations and litigation, see Note 2,
Contingencies.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS NO. 123R, SHARE-BASED PAYMENT: This Statement requires companies to use the
fair value of employee stock options and similar awards at the grant date to
value the awards. Companies must expense this amount over the vesting period of
the awards. This 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.

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 cash inflows from financing
activities rather than as a reduction of taxes paid in operating activities.
Excess tax benefits are recorded as adjustments to additional paid-in capital.

This Statement is effective for us as of the beginning of 2006. We adopted the
fair value method of accounting for share-based awards effective December 2002.
Therefore, we do not expect this statement to have a significant impact on our
results of operations when it becomes effective.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarifies the term "conditional asset
retirement obligation" as used in SFAS No. 143. The term refers to a legal
obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be
within the control of the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably



                                     CE-22
<PAGE>
                                                        Consumers Energy Company

estimated. The fair value of a liability for the conditional asset retirement
obligation should be recognized when incurred. This Interpretation also
clarifies when an entity would have sufficient information to estimate
reasonably the fair value of an asset retirement obligation. For us, this
Interpretation is effective no later than December 31, 2005. We are in the
process of determining the impact this Interpretation will have on our financial
statements upon adoption.



                                     CE-23
<PAGE>

                            CONSUMERS ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED       SIX MONTHS ENDED
JUNE 30                                                                                        2005     2004      2005         2004
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        In Millions
<S>                                                                                         <C>        <C>      <C>          <C>
OPERATING REVENUE                                                                           $ 1,016    $ 923   $ 2,648      $ 2,470

OPERATING EXPENSES
   Fuel for electric generation                                                                 157      170       311          330
   Fuel costs mark-to-market at MCV                                                              39        -      (170)          (6)
   Purchased and interchange power                                                               63       50       127          100
   Purchased power - related parties                                                             14       15        31           31
   Cost of gas sold                                                                             242      195       982          858
   Cost of gas sold - related parties                                                             -        -         -            1
   Other operating expenses                                                                     201      177       389          348
   Maintenance                                                                                   50       57       102          107
   Depreciation, depletion and amortization                                                     111       98       256          231
   General taxes                                                                                 53       50       118          112
                                                                                      ---------------------------------------------
                                                                                                930      812     2,146        2,112
- ------------------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                                                 86      111       502          358

OTHER INCOME (DEDUCTIONS)
   Accretion expense                                                                             (1)      (1)       (1)          (2)
   Interest and dividends                                                                        10        4        15            7
   Regulatory return on capital expenditures                                                     15        9        31           18
   Other income                                                                                   6        2        10            4
   Other expense                                                                                 (2)      (1)       (8)          (2)
                                                                                      ---------------------------------------------
                                                                                                 28       13        47           25
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
   Interest on long-term debt                                                                    75       72       147          145
   Interest on long-term debt - related parties                                                   2       11         9           22
   Other interest                                                                                 2        4         4            7
   Capitalized interest                                                                          (1)      (1)       (2)          (3)
                                                                                      ---------------------------------------------
                                                                                                 78       86       158          171
- -----------------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS                                                36       38       391          212

MINORITY INTERESTS                                                                              (14)       1        97           11
                                                                                      ---------------------------------------------

INCOME BEFORE INCOME TAXES                                                                       50       37       294          201

INCOME TAX EXPENSE                                                                               17       13       104           72
                                                                                      ---------------------------------------------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                33       24       190          129

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR RETIREMENT BENEFITS,
   NET OF $- TAX BENEFIT IN 2004                                                                  -        -         -           (1)
                                                                                      ---------------------------------------------

NET INCOME                                                                                       33       24       190          128
PREFERRED STOCK DIVIDENDS                                                                         1        1         1            1
                                                                                      ---------------------------------------------

NET INCOME AVAILABLE TO COMMON STOCKHOLDER                                                  $    32    $  23   $   189      $   127
===================================================================================================================================
</TABLE>

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


                                     CE-24
<PAGE>

                            CONSUMERS ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                           SIX MONTHS ENDED
JUNE 30                                                                              2005              2004
- -----------------------------------------------------------------------------------------------------------
                                                                                                In Millions
<S>                                                                               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                        $  190            $  128
    Adjustments to reconcile net income to net cash
      provided by operating activities
        Depreciation, depletion and amortization (includes nuclear
          decommissioning of $3 per period)                                           256               231
        Regulatory return on capital expenditures                                     (31)              (18)
        Minority interest                                                              97                11
        Fuel costs mark-to-market at MCV                                             (170)               (6)
        Capital lease and other amortization                                           17                13
        Cumulative effect of change in accounting                                       -                 1
        Changes in assets and liabilities:
            Increase in accounts receivable and accrued revenue                       (94)             (112)
            Decrease in inventories                                                   107                75
            Increase in accounts payable                                               41                44
            Increase (decrease) in accrued expenses                                   (26)               16
            Deferred income taxes and investment tax credit                            78                72
            Decrease in other current and non-current assets                          125                79
            Increase in other current and non-current liabilities                       -                27
                                                                                   ------------------------

        Net cash provided by operating activities                                  $  590            $  561
- -----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                $ (270)           $ (232)
  Cost to retire property                                                             (44)              (37)
  Restricted cash on hand                                                             (33)               (2)
  Investments in nuclear decommissioning trust funds                                   (3)               (3)
  Proceeds from nuclear decommissioning trust funds                                    24                23
  Proceeds from short-term investments                                                145                 -
  Purchase of short-term investments                                                 (141)                -
  Maturity of MCV restricted investment securities held-to-maturity                   222               300
  Purchase of MCV restricted investment securities held-to-maturity                  (223)             (300)
  Cash proceeds from sale of assets                                                     1                 -
  Other investing                                                                      12                 -
                                                                                   ------------------------

        Net cash used in investing activities                                      $ (310)           $ (251)
- -----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of long-term debt                                         $  735            $    -
  Retirement of long-term debt                                                       (925)              (14)
  Payment of common stock dividends                                                  (167)             (105)
  Payment of preferred stock dividends                                                 (1)               (1)
  Payment of capital and finance lease obligations                                     (5)               (5)
  Stockholder's contribution                                                          550                 -
  Debt issuance costs and financing fees                                              (25)                -
                                                                                   ------------------------

        Net cash provided by (used in) financing activities                        $  162            $ (125)
- -----------------------------------------------------------------------------------------------------------

Net Increase in Cash and Cash Equivalents                                          $  442            $  185

Cash and Cash Equivalents from Effect of Revised FASB
   Interpretation No. 46 Consolidation                                                  -               174

Cash and Cash Equivalents, Beginning of Period                                        171                46
                                                                                   ------------------------

Cash and Cash Equivalents, End of Period                                           $  613            $  405
===========================================================================================================

</Table>



                                     CE-25
<PAGE>


                            CONSUMERS ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

ASSETS                                                                                  JUNE 30
                                                                                           2005    DECEMBER 31
                                                                                    (UNAUDITED)           2004
- --------------------------------------------------------------------------------------------------------------
                                                                                                   In Millions
<S>                                                                                 <C>            <C>
PLANT AND PROPERTY (AT COST)
   Electric                                                                         $     8,044    $     7,967
   Gas                                                                                    3,028          2,995
   Other                                                                                  2,521          2,523
                                                                                    --------------------------
                                                                                         13,593         13,485
   Less accumulated depreciation, depletion and amortization                              5,804          5,665
                                                                                    --------------------------
                                                                                          7,789          7,820
   Construction work-in-progress                                                            476            353
                                                                                    --------------------------
                                                                                          8,265          8,173
- --------------------------------------------------------------------------------------------------------------

INVESTMENTS
   Stock of affiliates                                                                       34             25
   Other                                                                                      7             19
                                                                                    --------------------------
                                                                                             41             44
- --------------------------------------------------------------------------------------------------------------

CURRENT ASSETS
   Cash and cash equivalents at cost, which approximates market                             613            171
   Short-term investments at cost, which approximates market                                  -              4
   Restricted cash                                                                           54             21
   Accounts receivable, notes receivable and accrued revenue, less allowances
     of $10 and $10, respectively                                                           469            374
   Accounts receivable - related parties                                                     11             18
   Inventories at average cost
     Gas in underground storage                                                             737            855
     Materials and supplies                                                                  71             67
     Generating plant fuel stock                                                             73             66
   Deferred property taxes                                                                  139            165
   Regulatory assets - postretirement benefits                                               19             19
   Derivative instruments                                                                   241             96
   Other                                                                                     43             95
                                                                                    --------------------------
                                                                                          2,470          1,951
- --------------------------------------------------------------------------------------------------------------

NON-CURRENT ASSETS
   Regulatory Assets
     Securitized costs                                                                      583            604
     Additional minimum pension                                                             466            372
     Postretirement benefits                                                                128            139
     Abandoned Midland Project                                                               10             10
     Other                                                                                  636            552
   Nuclear decommissioning trust funds                                                      555            575
   Other                                                                                    430            391
                                                                                    --------------------------
                                                                                          2,808          2,643
                                                                                    --------------------------

TOTAL ASSETS                                                                        $    13,584    $    12,811
==============================================================================================================

</Table>


                                     CE-26
<PAGE>


STOCKHOLDER'S EQUITY AND LIABILITIES

<TABLE>
<CAPTION>
                                                                              JUNE 30
                                                                                 2005      DECEMBER 31
                                                                          (UNAUDITED)             2004
- ------------------------------------------------------------------------------------------------------
                                                                                           In Millions
<S>                                                                        <C>             <C>
CAPITALIZATION
   Common stockholder's equity
   Common stock, authorized 125.0 shares; outstanding
     84.1 shares for all periods                                          $       841      $       841
   Paid-in capital                                                              1,482              932
   Accumulated other comprehensive income                                          48               31
   Retained earnings since December 31, 1992                                      630              608
                                                                          ----------------------------
                                                                                3,001            2,412

   Preferred stock                                                                 44               44

   Long-term debt                                                               4,196            4,000
   Long-term debt - related parties                                               129              326
   Non-current portion of capital leases and finance lease
     obligations                                                                  315              315
                                                                          ----------------------------
                                                                                7,685            7,097
- ------------------------------------------------------------------------------------------------------

MINORITY INTERESTS                                                                773              657
- ------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
   Current portion of long-term debt, capital leases and
     finance leases                                                               147              147
   Current portion of long-term debt - related parties                              -              180
   Accounts payable                                                               312              267
   Accounts payable - related parties                                              10               14
   Accrued interest                                                                95               83
   Accrued taxes                                                                  224              254
   Deferred income taxes                                                           33               20
   Other                                                                          213              238
                                                                          ----------------------------
                                                                                1,034            1,203
- ------------------------------------------------------------------------------------------------------

NON-CURRENT LIABILITIES
   Deferred income taxes                                                        1,418            1,350
   Regulatory Liabilities
     Regulatory liabilities for cost of removal                                 1,084            1,044
     Income taxes, net                                                            365              357
     Other                                                                        173              173
   Postretirement benefits                                                        353              207
   Asset retirement obligations                                                   431              436
   Deferred investment tax credit                                                  77               79
   Other                                                                          191              208
                                                                          ----------------------------
                                                                                4,092            3,854
- ------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 2, 3, and 4)

TOTAL STOCKHOLDER'S EQUITY AND LIABILITIES                                $    13,584      $    12,811
======================================================================================================
</TABLE>

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


                                     CE-27
<PAGE>

                            CONSUMERS ENERGY COMPANY
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED       SIX MONTHS ENDED
JUNE 30                                                                                  2005        2004        2005       2004
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     In Millions
<S>                                                                                  <C>          <C>         <C>        <C>
COMMON STOCK
   At beginning and end of period (a)                                                $    841     $   841     $   841    $   841
- --------------------------------------------------------------------------------------------------------------------------------

OTHER PAID-IN CAPITAL
   At beginning of period                                                               1,132         682         932        682
   Stockholder's contribution                                                             350           -         550          -
                                                                                     -------------------------------------------
     At end of period                                                                   1,482         682       1,482        682
                                                                                     -------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
   Minimum Pension Liability
   At beginning of period                                                                  (1)          -          (1)         -
   Minimum pension liability adjustment (b)                                                (1)          -          (1)         -
                                                                                     -------------------------------------------
     At end of period                                                                      (2)          -          (2)         -
                                                                                     -------------------------------------------

   Investments
     At beginning of period                                                                15          10          12          9
     Unrealized gain on investments (b)                                                     3           -           6          1
                                                                                     -------------------------------------------
     At end of period                                                                      18          10          18         10
                                                                                     -------------------------------------------

   Derivative Instruments
     At beginning of period                                                                26          15          20          8
     Unrealized gain on derivative instruments (b)                                          7           4          23         13
     Reclassification adjustments included in net income (b)                               (1)         (3)        (11)        (5)
                                                                                     -------------------------------------------
     At end of period                                                                      32          16          32         16
- --------------------------------------------------------------------------------------------------------------------------------

Total Accumulated Other Comprehensive Income                                               48          26          48         26
- --------------------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS
   At beginning of period                                                                 647         547         608        521
   Net income                                                                              33          24         190        128
   Cash dividends declared - Common Stock                                                 (49)        (27)       (167)      (105)
   Cash dividends declared - Preferred Stock                                               (1)         (1)         (1)        (1)
                                                                                     -------------------------------------------
      At end of period                                                                    630         543         630        543
- --------------------------------------------------------------------------------------------------------------------------------

TOTAL COMMON STOCKHOLDER'S EQUITY                                                    $  3,001     $ 2,092     $ 3,001    $ 2,092
================================================================================================================================

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

(b)  Disclosure of Other Comprehensive Income:
        Minimum Pension Liability
          Minimum pension liability adjustment, net of tax of
             $-, $-, $-, and $-, respectively                                        $     (1)    $     -     $    (1)   $     -
        Investments
          Unrealized gain on investments, net of tax of
             $1, $-, $3, and $-, respectively                                               3           -           6          1
        Derivative Instruments
          Unrealized gain on derivative instruments, net of tax of
             $3, $3, $12, and $7, respectively                                              7           4          23         13
          Reclassification adjustments included in net income, net of tax of
             $(1), $(2), $(6), and $(3), respectively                                      (1)         (3)        (11)        (5)
     Net income                                                                            33          24         190        128
                                                                                     -------------------------------------------

     Total Other Comprehensive Income                                                $     41     $    25     $   207    $   137
                                                                                     ===========================================
</TABLE>


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


                                     CE-28





<PAGE>

                                                        Consumers Energy Company

                            CONSUMERS ENERGY COMPANY
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

These interim Consolidated Financial Statements have been prepared by Consumers
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. Certain prior year amounts have been reclassified to
conform to the presentation in the current year. In management's opinion, the
unaudited information contained in this report reflects all adjustments of a
normal recurring nature necessary to assure the fair presentation of financial
position, results of operations and cash flows for the periods presented. The
Condensed Notes to Consolidated Financial Statements and the related
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained in the Consumers' Form 10-K for the year ended December 31, 2004. Due
to the seasonal nature of Consumers' operations, the results as presented for
this interim period are not necessarily indicative of results to be achieved for
the fiscal year.

1:   CORPORATE STRUCTURE AND ACCOUNTING POLICIES

CORPORATE STRUCTURE: Consumers, a subsidiary of CMS Energy, a holding company,
is a combination electric and gas utility company serving 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. 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. We eliminate intercompany transactions and balances.

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.



                                     CE-29
<PAGE>

                                                        Consumers Energy Company


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

<Table>
<Caption>
                                                                                                   In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended           Six Months Ended
- --------------------------------------------------------------------------------------------------------------
June 30                                                          2005          2004         2005          2004
- --------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>         <C>
Other income
   Electric restructuring return                                  $ 3           $ 1         $  4          $  3
   Return on stranded costs                                         1             -            2             -
   Return on security costs                                         1             1            1             1
   Nitrogen oxide allowance sales                                   1             -            1             -
   Gain on stock                                                    -             -            1             -
   All other                                                        -             -            1             -
- --------------------------------------------------------------------------------------------------------------

Total other income                                                $ 6           $ 2         $ 10          $  4
==============================================================================================================
</Table>


<Table>
<Caption>
                                                                                                   In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended           Six Months Ended
- --------------------------------------------------------------------------------------------------------------
June 30                                                          2005          2004         2005          2004
- --------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>         <C>
Other expense
     Loss on reacquired debt                                     $ (1)         $  -         $ (6)        $   -
     Civic and political expenditures                               -             -           (1)           (1)
     All Other                                                     (1)           (1)          (1)           (1)
- --------------------------------------------------------------------------------------------------------------

Total other expense                                              $ (2)         $ (1)        $ (8)        $  (2)
==============================================================================================================
 </Table>


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

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, 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 nor
denied the order's findings. The settlement resolved the SEC investigation
involving CMS Energy and CMS MST. Also in March 2004,


                                     CE-30
<PAGE>

                                                        Consumers Energy Company

the SEC filed an action against three former employees related to round-trip
trading by CMS MST. One of the individuals has settled with the SEC. CMS Energy
is currently advancing legal defense costs for the remaining two individuals, in
accordance with existing indemnification policies.

SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
complaints were filed against CMS Energy, Consumers, and certain officers and
directors of CMS Energy and its affiliates, including but not limited to
Consumers which, while established, operated and regulated as a separate legal
entity and publicly traded company, shares a parallel Board of Directors with
CMS Energy. 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 running from May 2000 through March 2003. The cases were consolidated
into a single lawsuit. The consolidated lawsuit 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. In January 2005, a motion was granted dismissing Consumers
and three of the individual defendants, but the court denied the motions to
dismiss for CMS Energy and the 13 remaining individual defendants. Plaintiffs
filed a motion for class certification on April 15, 2005 and an amended motion
for class certification on June 20, 2005. CMS Energy and the individual
defendants will defend themselves vigorously in this litigation but cannot
predict its outcome.

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, 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. In March 2004, the judge granted in part, but denied in
part, CMS Energy's motion to dismiss the complaint. The judge has conditionally
granted plaintiffs' motion for class certification. A trial date has not been
set, but is expected to be no earlier than mid 2006. CMS Energy and Consumers
will defend themselves vigorously in this litigation but cannot predict its
outcome.

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: Compliance with the federal Clean Air Act and resulting regulations
has been, and will continue to be, a significant focus for us. The Nitrogen
Oxide State Implementation Plan requires significant reductions in nitrogen
oxide emissions. To comply with the regulations, we expect to incur capital
expenditures totaling $815 million. The key assumptions 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.


                                     CE-31
<PAGE>

                                                        Consumers Energy Company


Our current capital cost estimates include an escalation rate of 2.6 percent and
an AFUDC capitalization rate of 8.3 percent. As of June 2005, we have incurred
$563 million in capital expenditures to comply with these regulations and
anticipate that the remaining $252 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, of which 90 percent have been
purchased. The cost of the allowances is estimated to average $8 million per
year for 2005-2006. The estimated costs are based on the average cost of the
purchased, allocated, and swapped allowances. The need for allowances will
decrease after year 2006 with the installation of selective catalytic 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 recently adopted a Clean Air Interstate Rule that requires additional
coal-fired electric plant emission controls for nitrogen oxides and sulfur
dioxide. The rule involves a two-phase program to reduce emissions of sulfur
dioxide by 71 percent and nitrogen oxides by 63 percent by 2015. The final rule
will require that we run our Selective Catalytic Reduction units year round
beginning in 2009 and may require that we purchase additional nitrogen oxide
credits beginning in 2009. In addition to the selective catalytic reduction
control technology installed to meet the Nitrogen Oxide State Implementation
Plan, our current plan includes installation of flue gas desulfurization
scrubbers. The scrubbers are to be installed by 2014 to meet the phase I
reduction requirements of the Clean Air Interstate Rule at a cost near that of
the Nitrogen Oxide State Implementation Plan.

In March 2005, the EPA issued the Clean Air Mercury Rule, which requires initial
reductions of mercury emissions from coal-fired electric power plants by 2010
and further reductions by 2018. While the industry has not reached a consensus
on the technical methods for curtailing mercury emissions, our capital and
operating costs for mercury emissions reductions are expected to be
significantly less than what is required for nitrogen oxide compliance.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seeking 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.

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. At June 30, 2005, 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



                                     CE-32
<PAGE>

                                                        Consumers Energy Company


part of the PCB material. We have proposed a plan to deal with the remaining
materials and are awaiting a response from the EPA.

MCV Environmental Issue: On July 12, 2004, the MDEQ, Air Control Division,
issued the MCV Partnership a Letter of Violation asserting that the MCV Facility
violated its Air Use Permit to Install (PTI) by exceeding the carbon monoxide
emission limit on the Unit 14 GTG duct burner and failing to maintain certain
records in the required format. On July 13, 2004, the MDEQ, Water Division,
issued the MCV Facility a Notice Letter asserting the MCV Facility violated its
National Pollutant Discharge Elimination System (NPDES) Permit by discharging
heated process wastewater into the storm water system, failure to document
inspections, and other minor infractions (alleged NPDES violations).

The MCV Partnership has declared five of the six duct burners in the MCV
Facility as unavailable for operational use (which reduces the generation
capability of the MCV Facility by approximately 100 MW), is assessing the duct
burner issue and has begun other corrective action to address the MDEQ's
assertions. The one available duct burner was tested in April 2005 and its
emissions met permitted levels due to the unique configuration of that
particular unit. The MCV Partnership disagrees with certain of the MDEQ's
assertions. The MCV Partnership filed responses to these MDEQ letters in July
and August 2004. On December 13, 2004, the MDEQ informed the MCV Partnership
that it was pursuing an escalated enforcement action against the MCV Partnership
regarding the alleged violations of the MCV Facility's PTI. The MDEQ also stated
that the alleged violations are deemed federally significant and, as such,
placed the MCV Partnership on the EPA's High Priority Violators List (HPVL). The
MDEQ and the MCV Partnership are pursuing voluntary settlement of this matter,
which will satisfy state and federal requirements and remove the MCV Partnership
from the HPVL. Any such settlement is likely to involve a fine, but at this
time, the MDEQ has not stated what, if any, fine they will seek to impose. At
this time, the MCV Partnership management cannot predict the financial impact or
outcome of these issues, however, the MCV Partnership believes it has resolved
all issues associated with the alleged NPDES violations and does not expect any
further MDEQ actions on this NPDES matter.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities, which
sell 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. The qualifying facilities
have also appealed the February 2005 MPSC order in the 2004 PSCR plan case to
the Michigan Court of Appeals, and have initiated separate legal actions in
federal district court and at the FERC concerning the energy charge calculation
issue. In June 2005, the FERC issued a notice of intent not to act on this
issue. We cannot predict the outcome of these appeals or the remaining legal
action.

ELECTRIC RESTRUCTURING MATTERS

ELECTRIC ROA: We cannot predict the total amount of electric supply load that
may be lost to alternative electric suppliers. As of July 2005, alternative
electric suppliers are providing 811 MW of generation supply to ROA customers.
This amount represents a decrease of 5 percent compared to July 2004, and 11
percent of our total distribution load.



                                     CE-33
<PAGE>

                                                        Consumers Energy Company


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           Requested
Proceeding            Filed           Covered         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, plus the cost of
                                                                            money through the period of
                                                                            collection.

Implementation        1999-2004       1997-2003       $91 million (b)       The MPSC allowed $68 million for the
Costs                                                                       years 1997-2001, plus the cost of
                                                                            money through the period of collection.
                                                                            The MPSC allowed $6 million for the
                                                                            years 2002-2003, plus the cost of money
                                                                            through the period of collection.

Section 10d(4)        2004            2000-2005       $628 million          Application filed with the MPSC in
Regulatory Assets                                                           October 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.




                                     CE-34
<PAGE>

                                                        Consumers Energy Company

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

As allowed by the Customer Choice Act, we accrue and defer for recovery a
portion of our Section 10d(4) Regulatory Assets. In March 2005, the MPSC Staff
filed testimony recommending the MPSC approve recovery of approximately $323
million in Section 10d(4) costs, which includes the cost of money through the
period of collection. In June 2005, the ALJ issued a Proposal for Decision
recommending that the MPSC approve recovery of the same Section 10d(4) costs
recommended by the MPSC Staff. However, we may have the opportunity to recover
certain costs included in our application alternatively in other cases pending
before the MPSC. We cannot predict the amount, if any, the MPSC will approve as
recoverable. At June 30, 2005, total recorded Section 10d(4) Regulatory Assets
were $179 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 load migration to alternative electric suppliers,
increased system maintenance and improvement costs, Clean Air Act-related
expenditures, and employee pension costs. In April 2005, we filed updated debt
and equity information in this case.

In June 2005, the MPSC Staff filed its position in this case, recommending a
base rate increase of $98 million. The MPSC Staff also recommended an 11.25
percent return on equity to establish rates and recognized all of our projected
equity investment (infusions and retained earnings) in 2006. We expect a final
order from the MPSC 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 covering the estimated
reserve margin requirements for 2005 and covering partially the estimated
reserve margin requirements for 2006 through 2007. As a result, we have
recognized an asset of $12 million for unexpired capacity and energy contracts
at June 30, 2005. As of July 2005, we expect the total premium cost of electric
capacity and energy contracts for 2005 to be approximately $8 million.

PSCR: The PSCR process assures recovery of all reasonable and prudent power
supply costs that we actually incur. 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 power supply costs from commercial and industrial customers and,
subject to the overall rate caps, from other customers. In January 2005, we
self-implemented the proposed 2005 PSCR charge. In June 2005, the MPSC issued an
order that approves our 2005 PSCR plan. The revenues from the PSCR charges are
subject to reconciliation after review of actual costs for reasonableness and
prudence. In March 2005, we submitted our 2004 PSCR reconciliation filing to the
MPSC. We cannot predict the outcome of these PSCR proceedings.



                                     CE-35
<PAGE>


                                                        Consumers Energy Company

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. 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 8, Consolidation of Variable Interest Entities. Our
consolidated retained earnings include undistributed earnings from the MCV
Partnership of $292 million at June 30, 2005 and $246 million at June 30, 2004.

The cost that we incur under the MCV 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>

Of the 2005 estimate, we expensed $29 million for the six months ended June 30,
2005.

After September 15, 2007, we expect to claim relief under the regulatory out
provision in the MCV PPA, thereby limiting our capacity and fixed energy
payments to the MCV Partnership to the amount that we collect from our
customers. The MCV Partnership has indicated that it may take issue with our
exercise of the regulatory out clause after September 15, 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 MCV 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. Natural gas prices have
increased substantially in recent years. NYMEX forward natural gas prices
through 2010 recently were approximately $2 per mcf higher than they were at
year-end 2004. Because the price the MCV Partnership can charge us for energy
has not increased to reflect current natural gas prices, the MCV Partnership's
financial performance has been impacted negatively. If forward gas prices for
2010 and beyond do not decline to the $4 to $6 per mcf range currently
anticipated by various government and private natural gas price forecasts, and
remain in that range for the remaining life of the MCV PPA, the economics of
operating the MCV Facility would be adverse enough to require the MCV
Partnership to recognize a substantial impairment of its property, plant and
equipment, which are included in our Consolidated Balance Sheets. However,
forecasting future natural gas prices is extremely difficult and there are
currently differing views among forecasters as to whether such prices will
increase, decrease or remain at current levels over any period of time. At
present, some of the forecasts indicate natural gas prices in excess of the $4
to $6 per mcf range during the years after 2010. At June 30, 2005, the net book
value of the MCV Partnership's property, plant and equipment was $1.396 billion.
Several other factors could alter significantly the MCV Partnership's future
impairment analyses including, but not limited to, energy payments to the MCV
Partnership, which are based on the cost of coal burned at our



                                     CE-36
<PAGE>

                                                        Consumers Energy Company

coal plants, and any reduction in payments to the MCV Partnership subsequent to
September 15, 2007 due to underrecovery of contract costs by Consumers from its
customers as a result of past or future actions by the MPSC. Any such impairment
would be required to be recognized in the period when management's analysis of
the factors described above meets the accounting standards for impairment
recognition. We will continue to monitor the current and long-term trends in
natural gas prices and their effect on the economics of operating the MCV
Facility.

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
reduces the MCV Facility's annual production of electricity and, as a result,
reduces 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 are first used to offset fully
the cost of replacement power. Second, $5 million annually, funded jointly by
Consumers and the MCV Partnership, are contributed to our RRP. Remaining savings
are split between the MCV Partnership and Consumers. Consumers' direct savings
are shared 50 percent with its customers in 2005 and 70 percent in 2006 and
beyond. Consumers' direct savings from the RCP, after allocating a portion to
customers, are 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
MCV PPA. However, either party may terminate that agreement under certain
conditions. In February 2005, a group of intervenors in the RCP case filed for
rehearing of the MPSC order. The Attorney General also filed an appeal with the
Michigan Court of Appeals. We cannot predict the outcome of these matters.

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 decision was 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 estimates that the 1997 through 2004 tax year cases
will result in a refund to the MCV Partnership of approximately $77 million
inclusive of interest. The MCV Partnership cannot predict the outcome of these
proceedings; therefore, this refund has not been recognized in 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
decommissioning, 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



                                     CE-37
<PAGE>

                                                        Consumers Energy Company

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 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, in 2007, of radiological decommissioning work, seek recovery
of such expenditures at the MPSC. We cannot predict how the MPSC will rule on
our request.

Palisades: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept spent fuel on schedule, we concluded, based on the costs
estimates filed in March 2004, that the existing surcharge for Palisades needed
to be increased to $25 million annually, beginning January 1, 2006, and
continuing 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 would 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 involved in the proceeding. 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 contested
settlement, but cannot predict the outcome.

In March 2005, NMC, which operates the Palisades plant, applied for a 20-year
license renewal for the plant on behalf of Consumers. The NRC typically takes
22-30 months to review a license renewal application. A decision is expected in
2007. At this time, we cannot determine what impact this will have on
decommissioning costs or the adequacy of funding.

NUCLEAR MATTERS: 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. At June 30, 2005, we have recorded a liability
to the DOE of $143 million, including interest, which is payable prior to 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.

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. On April 29, 2005, the court ruled on various cross-motions for
summary judgment previously filed by the DOE and us. The court denied the DOE's
motions to dismiss Counts I and II of the complaint and its motion seeking
recovery of a one-time fee that is due to be paid by us prior to delivery of the
spent nuclear fuel. The court, however, granted the DOE's motion to recoup the
one-time fee against any award of damages to us. The court further granted our
motion for summary judgment on liability and our motion to dismiss the DOE's
affirmative defense alleging our failure to satisfy a



                                     CE-38
<PAGE>

                                                        Consumers Energy Company


condition precedent. We filed a motion for reconsideration of the portion of the
Court's order dealing with recoupment, which the Court denied. In a related
case, a judge in one of many spent nuclear fuel cases now pending in the United
States Court of Claims issued a decision and order suggesting that the standard
contract between the utilities and the DOE should be held void because of mutual
mistake and impossibility of performance and that restitution of all waste fees
paid by utilities should be made from the Nuclear Waste Fund. The judge ordered
the utility in that case and the DOE to file briefs addressing the court's views
and invited any interested party to file an amicus brief. We have filed an
amicus brief opposing holding the standard contract void. If our litigation
against the DOE is successful, we plan to use any 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 energy 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. This requirement will end December
31, 2007.

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 remediation
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




                                     CE-39
<PAGE>

                                                        Consumers Energy Company


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. In 2003, we estimated our remaining
costs to be between $37 million and $90 million, based on 2003 discounted 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. We have expended $12 million on these sites since the 2003
estimates were made. At June 30, 2005, we have a liability of $36 million, net
of $46 million of expenditures incurred to date, and a regulatory asset of $63
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.

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 the proceedings follow the table.

<TABLE>
<CAPTION>
Gas Cost Recovery Reconciliation
- ------------------------------------------------------------------------------------------------------------------
                                                        Net Over
GCR Year          Date Filed         Order Date         Recovery                        Status
- ------------------------------------------------------------------------------------------------------------------
<S>               <C>              <C>                <C>               <C>
2003-2004         June 2004        February 2005      $31 million       The net overrecovery includes $1 million
                                                                        and $5 million GCR net overrecoveries from
                                                                        prior GCR years and interest accrued
                                                                        through March 2004

2004-2005         June 2005        Pending            $2 million
==================================================================================================================
</TABLE>

Net overrecoveries 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 overrecovery,
plus $3 million interest, using a roll-in refund methodology. The roll-in
methodology incorporates a GCR over/underrecovery in the next GCR plan year.

GCR 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. Actual gas costs and revenues are subject to an
annual reconciliation proceeding, which was filed in June 2005. We proposed to
refund to our customers $2 million using a roll-in methodology. The $2 million
reflects an underrecovery of $1 million, offset by interest owed to customers of
$3 million. The roll-in methodology incorporates a GCR over/underrecovery in the
next GCR plan year.


                                     CE-40
<PAGE>

                                                        Consumers Energy Company


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. The current ceiling price for 2005 is $7.61 per mcf. Actual gas
costs and revenues will be subject to an annual reconciliation proceeding.

In June 2005, four of the five parties filed a settlement agreement; the fifth
party filed a statement of non-objection. The settlement agreement includes a
GCR ceiling price adjustment contingent upon future events.

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, which reaffirmed the previously ordered $34 million reduction
in our depreciation expense. The October 2004 order also required 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.

The MPSC has directed us to file our next gas depreciation case within 90 days
after the latter of:

      -     the removal cost study filing or

      -     the MPSC issuance of a final order in the pending case related to
            ARO accounting.

The MPSC order on the pending case related to ARO accounting is expected in the
first quarter of 2006. We proposed to incorporate the results of the gas
depreciation case into gas general rates using a surcharge mechanism if the
depreciation case order was not issued concurrently with a gas general rate case
order.

2005 GAS RATE CASE: In July 2005, we filed an application with the MPSC seeking
a 12 percent authorized return on equity along with a $132 million annual
increase in our gas delivery and transportation rates. The primary reasons for
the request are recovery of new investments, carrying costs on natural gas
inventory related to higher gas prices, system maintenance, employee benefits,
and low-income assistance. If approved, the request would add approximately 5
percent to the typical residential customer's average monthly bill. The increase
would also affect commercial and industrial customers. As part of this filing,
we also requested interim rate relief of $75 million.



                                     CE-41
<PAGE>

                                                        Consumers Energy Company

OTHER CONTINGENCIES

IRS RULING:  On August 2, 2005, the IRS issued Revenue Ruling 2005-53 and
regulations to provide guidance with respect to the use of the "simplified
service cost" method of tax accounting. We use this tax accounting method,
generally allowed by the IRS under Section 263A of the Internal Revenue Code,
with respect to the allocation of certain corporate overheads to the tax basis
of self-constructed utility assets. We are studying the IRS guidance to
determine its effect on us. We cannot predict the impact of this ruling on
future earnings, cash flows, or our present NOL carryforwards.

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.

3:   FINANCINGS AND CAPITALIZATION

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                                     June 30, 2005               December 31, 2004
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                         <C>
First mortgage bonds                                                       $ 3,000                         $ 2,300
Senior notes, bank debt and other                                              938                           1,436
Securitization bonds                                                           384                             398
                                                                     -------------               -----------------
  Principal amounts outstanding                                              4,322                           4,134
    Current amounts                                                           (118)                           (118)
    Net unamortized discount                                                    (8)                            (16)
- ------------------------------------------------------------------------------------------------------------------
Total Long-term debt                                                       $ 4,196                         $ 4,000
==================================================================================================================
</TABLE>


FINANCINGS: The following is a summary of significant long-term debt issuances
and retirements during the six months ended June 30, 2005:

<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
                                            Principal    Interest Rate
                                          (In millions)       (%)        Issue/Retirement Date      Maturity Date
- ------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>             <C>                       <C>
DEBT ISSUANCES
FMB                                          $ 250           5.15             January 2005          February 2017
FMB                                            300           5.65              March 2005             April 2020
FMB insured quarterly notes                    150           5.65              April 2005             April 2035
LORB                                            35         Variable            April 2005             April 2035
- ------------------------------------------------------------------------------------------------------------------
         Total                               $ 735
==================================================================================================================
DEBT RETIREMENTS
Long-term bank debt                          $  60         Variable           January 2005          November 2006
Long-term debt - related parties               180           9.25             January 2005          December 2029
Long-term debt - related parties                73           8.36            February 2005          December 2015
Long-term debt - related parties               124           8.20            February 2005          September 2027
Senior notes                                   332           6.25          April and May 2005       September 2006
Senior insured quarterly notes                 141           6.50               May 2005             October 2028
- ------------------------------------------------------------------------------------------------------------------
         Total                               $ 910
==================================================================================================================
</TABLE>

In April 2005, we received a $350 million capital contribution from our parent
company, CMS Energy.

REGULATORY AUTHORIZATION FOR FINANCINGS: In April 2005, the FERC issued an
authorization to permit us to issue up to an additional $1.0 billion ($2.0
billion in total) of long-term securities for refinancing or



                                     CE-42
<PAGE>
                                                        Consumers Energy Company


refunding purposes, and up to an additional $1.0 billion ($2.5 billion in total)
of long-term securities for general corporate purposes during the period ending
June 30, 2006.

Combined with remaining availability from previously issued FERC authorizations,
we can now issue up to:

- - $1.001 billion of long-term securities for refinancing or refunding purposes,

- - $1.209 billion of long-term securities for general corporate purposes, and

- - $1.935 billion of long-term FMB to be issued solely as collateral for other
  long-term securities.

REVOLVING CREDIT FACILITIES: The following secured revolving credit facilities
with banks are available at June 30, 2005:

<TABLE>
<CAPTION>
                                                                                        In Millions
- ---------------------------------------------------------------------------------------------------
                                                                         Outstanding
                                           Amount of        Amount       Letters-of-         Amount
     Company           Expiration Date      Facility      Borrowed           Credit       Available
- ---------------------------------------------------------------------------------------------------
<S>                   <C>                 <C>            <C>            <C>              <C>
Consumers               May 18, 2010           $ 500           $ -              $ 31          $ 469
MCV Partnership        August 27, 2005            50             -                 3             47
- ---------------------------------------------------------------------------------------------------
</TABLE>


We amended our credit facility in May 2005. The amendment extended the term of
the agreement to 2010 and reduced certain fees and interest margins.

CAPITAL AND FINANCE LEASE OBLIGATIONS: Our capital leases are comprised mainly
of leased service vehicles and office furniture. At June 30, 2005, capital lease
obligations totaled $54 million. 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. At June 30, 2005,
finance lease obligations totaled $290 million, which represents the third-party
portion of the MCV Partnership's finance lease obligation.

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. The special purpose entity sold no receivables as of June 30, 2005
and $304 million as of December 31, 2004. 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 no
right to any receivables not sold. We have not recorded a gain or loss on the
receivables sold or retained interest in the receivables sold.

Certain cash flows under our accounts receivable sales program are shown in the
following table:

<Table>
<Caption>
                                                                                                 In Millions
- ------------------------------------------------------------------------------------------------------------
Six months ended June 30                                                                 2005           2004
- ------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
Net cash flow as a result of accounts receivable financing                            $  (304)       $  (297)
Collections from customers                                                            $ 2,787        $ 2,645
============================================================================================================
</TABLE>



                                     CE-43
<PAGE>

                                                        Consumers Energy Company

DIVIDEND RESTRICTIONS: Under the provisions of our articles of incorporation, at
June 30, 2005, we had $479 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. For the six
months ended June 30, 2005, we paid $167 million in common stock dividends to
CMS Energy.

FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS: The
Interpretation requires the guarantor, upon issuance of a guarantee, to
recognize a liability for the fair value of the obligation it undertakes 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 corporations under common control, although
disclosure of these guarantees is required. The disclosure requirements in this
Interpretation are effective for interim and annual financial statements issued
after December 15, 2002.

The following table describes our guarantees at June 30, 2005:

<Table>
<Caption>
                                                                                                            In Millions
- -----------------------------------------------------------------------------------------------------------------------
                                                   Issue        Expiration       Maximum      Carrying         Recourse
Guarantee Description                              Date         Date           Obligation       Amount    Provision (a)
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>            <C>           <C>
Standby letters of credit                          Various      Various             $  31          $ -              $ -
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>
                                                                                    Events That Would Require
Guarantee Description                     How Guarantee Arose                       Performance
- -----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                        <C>
Standby letters of credit                 Normal operations of coal power plants    Noncompliance with environmental
                                                                                    regulations and inadequate response
                                                                                    to demands for corrective action
                                          Natural gas transportation                Nonperformance
                                          Self-insurance requirement                Nonperformance
                                          Nuclear plant closure                     Nonperformance
- -----------------------------------------------------------------------------------------------------------------------
Surety bonds                              Normal operating activity, permits and    Nonperformance
                                          license
- -----------------------------------------------------------------------------------------------------------------------
Nuclear insurance retrospective premiums  Normal operations of nuclear plants       Call by NEIL and Price-Anderson Act
                                                                                    for nuclear incident
=======================================================================================================================
</TABLE>

In the ordinary course of business, we enter into agreements containing
indemnification provisions in connection with a variety of transactions
including financing agreements. While we cannot estimate our maximum exposure
under these indemnities, we consider the probability of liability remote.



                                     CE-44
<PAGE>

                                                        Consumers Energy Company

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>
                                                                                                          In Millions
- ---------------------------------------------------------------------------------------------------------------------
                                                        June 30, 2005                       December 31, 2004
- ---------------------------------------------------------------------------------------------------------------------
                                                Cost      Fair         Unrealized                Fair      Unrealized
                                                         Value         Gain (Loss)    Cost      Value      Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>             <C>         <C>        <C>        <C>
Long-term debt,
    including current amounts                $ 4,314    $ 4,476         $ (162)     $ 4,118    $ 4,232        $  (114)
Long-term debt - related parties                 129        134             (5)         506        518            (12)
Available-for-sale securities:
Common stock of CMS Energy                        10         34             24           10         25             15

SERP:
    Equity securities                             15         21              6           15         21              6
    Debt securities                                9          9              -            9          9              -
Nuclear decommissioning investments:
    Equity securities                            132        246            114          136        262            126
    Debt securities                              284        294             10          291        302             11
=====================================================================================================================
</TABLE>

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



                                     CE-45
<PAGE>

                                                        Consumers Energy Company

losses) are reported in Other Comprehensive Income if the derivative qualifies
for cash flow hedge accounting treatment and in earnings if the derivative does
not qualify for such 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. Our coal purchase
contracts are not accounted for as derivatives due to the lack of an active
market for the coal that we purchase. Similarly, our electric capacity and
energy contracts are not accounted for as derivatives due to the lack of an
active energy market in 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. If active markets for these
commodities develop in the future, we may be required to account for these
contracts as derivatives. For our coal purchase contracts, the resulting
mark-to-market impact on earnings could be material to our financial statements.
For our electric capacity and energy contracts, we believe that we will
be able to apply the normal purchases and sales exception, which would not
require us to mark these contracts to market.

The MISO began operating the Midwest Energy Market on April 1, 2005. The Midwest
Energy Market provides day-ahead and real-time energy market information and
centralized generation dispatch for market participants. At this time, we
believe that the commencement of this market does not constitute the development
of an active energy market in Michigan. However, as we gain additional
experience with the Midwest Energy Market, we will continue to evaluate whether
or not the activity level within this market leads to the conclusion that an
active energy market exists.

Also as part of the Midwest Energy Market, FTRs were established. FTRs are
financial instruments established to manage price risk relating to electricity
transmission congestion. An FTR entitles the holder to receive compensation (or
remit payment) for certain congestion-related transmission charges that arise
when the transmission grid is congested. We presently hold FTRs for certain
areas on the transmission grid within the MISO's market area. FTRs are
derivative instruments and are required to be recognized on our Consolidated
Balance Sheets as assets or liabilities at their fair values, with any
subsequent changes in fair value recognized in earnings. As of June 30, 2005, we
recorded an asset of $1 million associated with the fair value of FTRs on our
Consolidated Balance Sheets.



                                     CE-46
<PAGE>

                                                        Consumers Energy Company

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>
                                                                                                         In Millions
- --------------------------------------------------------------------------------------------------------------------
                                                             June 30, 2005                    December 31, 2004
- --------------------------------------------------------------------------------------------------------------------
                                                    Cost       Fair     Unrealized     Cost      Fair     Unrealized
Derivative Instruments                                        Value           Gain              Value     Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>           <C>       <C>       <C>
Gas contracts                                        $ -      $   -          $   -      $ 2      $  -           $ (2)
FTRs                                                   -          1              1        -         -              -
Derivative contracts associated with the MCV
Partnership:
    Gas fuel contracts                                 -        181            181        -        56             56
    Gas fuel futures and swaps                         -        145            145        -        64             64
====================================================================================================================
</TABLE>

The fair value of our derivative contracts is included in Derivative
instruments, Other assets, or Other liabilities 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 June 30, 2005, we had purchased a fixed-priced
gas supply call option and had sold a fixed-priced gas supply put option. We
held no fixed-priced weather-based gas supply call options.

DERIVATIVE CONTRACTS ASSOCIATED WITH 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 gas contracts qualify as normal purchases under SFAS
No. 133, and therefore, these contracts were not recognized at fair value on our
Consolidated Balance Sheets at June 30, 2005.

The MCV Partnership also held certain long-term gas contracts that did not
qualify as normal purchases at June 30, 2005, because these contracts contained
volume optionality. In addition, due to the implementation of the RCP in January
2005, the MCV Partnership 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, all of these
contracts are accounted for as derivatives, with changes in fair value recorded
in earnings each quarter. Additionally, the financial hedges associated with
these contracts no longer qualify as cash flow hedges. Thus, as of January 2005,
any changes in the fair value of these financial hedges are recorded in earnings
each quarter. The MCV Partnership expects future earnings volatility on both the
gas fuel derivative contracts and the related financial hedges, since gains and
losses will be recorded each quarter. For the six months ended June 30, 2005, we
recorded a $170 million gain associated with the increase in fair value of these
instruments in Fuel costs mark-to-market at MCV on our Consolidated Statements
of Income, resulting in a cumulative mark-to-market gain through June 30, 2005
of $226 million. This cumulative amount consists of a $181 million gain related
to gas fuel derivative contracts. The remaining gain of $45 million relates to
the financial hedges associated with these contracts, which is included in the
Gas fuel futures and swaps amount in the Derivative Instruments table above. The
majority of this mark-to-market gain is expected to reverse through earnings
during 2005 and 2006 as the gas is purchased and


                                     CE-47
<PAGE>

                                                        Consumers Energy Company


the financial hedges settle, with the remainder reversing between 2007 and 2011.
For further details on the RCP, see Note 2, Contingencies, "Other Electric
Contingencies - The Midland Cogeneration Venture."

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 June 30, 2005, 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 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.

There was no ineffectiveness associated with any of the gas contracts that
qualified for hedge accounting treatment. At June 30, 2005, we have recorded a
cumulative net gain of $32 million, net of tax, in Accumulated other
comprehensive income 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 July 2005
to December 2009, of which $6 million of this gain is expected to be
reclassified as an increase to earnings during the next 12 months as the
contracts settle, offsetting the costs of gas purchases. In addition, for the
six months ended June 30, 2005, we recorded a net gain of $22 million in
earnings from hedging activities related to natural gas requirements for the MCV
Facility operations.

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,

      -     a defined company contribution plan for employees hired on or after
            September 1, 2005,

      -     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 current employees, our
non-utility affiliates, and Panhandle, a former affiliate. The Pension Plan's
assets are not distinguishable by company.



                                     CE-48
<PAGE>

                                                        Consumers Energy Company


On September 1, 2005, we will implement the Defined Company Contribution Plan.
The Defined Company Contribution Plan will provide an employer cash contribution
of 5 percent of base pay to the existing Employees' Savings Plan. No employee
contribution is required to receive the plan's employer contribution. All
employees hired on and after September 1, 2005 will participate in this plan as
part of their retirement benefit program. Cash balance pension plan participants
will also participate in the Defined Company Contribution Plan on September 1,
2005. Additional pay credits under the cash balance pension plan will be
discontinued as of that date.

OPEB: 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.
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 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.

Costs: The following table recaps the costs incurred in our retirement benefits
plans:

<Table>
<Caption>
                                                                                              In Millions
- ---------------------------------------------------------------------------------------------------------
                                                                                 Pension
                                                                  Three Months Ended     Six Months Ended
                                                                    2005       2004       2005       2004
- ---------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>       <C>        <C>
Service cost                                                       $  14      $   9      $  23      $  19
Interest expense                                                      27         18         45         36
Expected return on plan assets                                       (35)       (27)       (58)       (54)
Amortization of:
  Net loss                                                             7          4         14          7
  Prior service cost                                                   2          2          3          3
                                                                -----------------------------------------
Net periodic pension and postretirement benefit cost               $  15      $   6       $ 27      $  11
=========================================================================================================
</TABLE>

<Table>
<Caption>
                                                                                               In Millions
- ----------------------------------------------------------------------------------------------------------
                                                                                   OPEB
                                                                  Three Months Ended      Six Months Ended
                                                                    2005       2004       2005        2004
- ----------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>       <C>         <C>
Service cost                                                       $   5      $   4      $  10       $   9
Interest expense                                                      15         14         30          27
Expected return on plan assets                                       (13)       (11)       (26)        (23)
Amortization of:
  Net loss                                                             5          3         10           6
  Prior service cost                                                  (2)        (2)        (4)         (4)
                                                                ------------------------------------------
Net periodic pension and postretirement benefit cost               $  10      $   8      $  20       $  15
==========================================================================================================
</TABLE>

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
MCV Partnership's net periodic postretirement health care cost for the six
months ended June 30, 2005 was less than $1 million.



                                     CE-49
<PAGE>
                                                        Consumers Energy Company


We remeasured our Pension and OPEB obligations as of April 30, 2005 to
incorporate the effects of the collective bargaining agreement reached between
the Utility Workers Union of America and Consumers. The Pension plan
remeasurement increased our accumulated benefit obligation (ABO) by $127
million. Net periodic pension cost increased by $3 million for the six months
ended June 30, 2005, with an expected total increase in net periodic pension
cost of $12 million for 2005.

The Pension plan remeasurement resulted in an unfunded accumulated benefit
obligation of $208 million. The unfunded accumulated benefit obligation is the
amount by which the ABO exceeds the fair value of the plan assets. SFAS No. 87
states that the pension liability shown on the balance sheet must be at least
equal to the unfunded accumulated benefit obligation. As such, we increased our
additional minimum liability by $129 million to $521 million at June 30, 2005.
Consistent with MPSC guidance, we recognized the cost of our minimum pension
liability adjustment as a regulatory asset. This adjustment increased our
regulatory assets by $94 million and intangible assets by $35 million.

The OPEB plan remeasurement increased our accumulated postretirement benefit
obligation by $41 million, with an expected total increase in benefit costs of
$2 million for 2005.

6:   ASSET RETIREMENT OBLIGATIONS

SFAS NO. 143: This standard 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-50
<PAGE>

                                                        Consumers Energy Company

The following tables describe our assets that have legal obligations to be
removed at the end of their useful life:

<Table>
<Caption>
June 30, 2005                                                                                             In Millions
- ---------------------------------------------------------------------------------------------------------------------
                                                   In Service                                                   Trust
ARO Description                                          Date       Long Lived Assets                            Fund
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                         <C>
Palisades - decommission plant site                      1972       Palisades nuclear plant                     $ 529
Big Rock - decommission plant site                       1962       Big Rock nuclear plant                         26
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>
                                                                                                           In Millions
- ----------------------------------------------------------------------------------------------------------------------
                                               ARO                                                                 ARO
                                         Liability                                             Cash flow     Liability
ARO Description                           12/31/04    Incurred       Settled     Accretion     Revisions       6/30/05
- ----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>           <C>          <C>           <C>          <C>
Palisades - decommission                     $ 350        $  -        $   -           $ 12          $  -         $ 362
Big Rock - decommission                         30           -          (25)             7             -            12
JHCampbell intake line                           -           -            -              -             -             -
Coal ash disposal areas                         54           -           (1)             2             -            55
Wells at gas storage fields                      1           -            -              -             -             1
Indoor gas services relocations                  1           -            -              -             -             1
                                       -------------------------------------------------------------------------------

Total                                        $ 436        $  -        $ (26)          $ 21          $  -         $ 431
======================================================================================================================
</TABLE>

On October 14, 2004, the MPSC issued a generic proceeding to review SFAS No.
143, FERC Order No. 631, Accounting, Financial Reporting, and Rate Filing
Requirements for Asset Retirement Obligations, and their accounting and
ratemaking issues. Utilities responded to the Order in March 2005; MPSC Staff
and intervenor filed responses in May 2005. We consider the proceeding a
clarification of accounting and reporting issues that relate to all Michigan
utilities.

7:   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.


                                     CE-51
<PAGE>

                                                        Consumers Energy Company

The following table shows our financial information by reportable segment:

<Table>
<Caption>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended             Six Months Ended
- ----------------------------------------------------------------------------------------------------------------
June 30                                                          2005          2004          2005           2004
- ----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>          <C>            <C>
Operating revenue
     Electric                                                 $   649        $  612       $ 1,277        $ 1,243
     Gas                                                          355           300         1,347          1,205
     Other                                                         12            11            24             22
- ----------------------------------------------------------------------------------------------------------------

Total Operating Revenue                                       $ 1,016        $  923       $ 2,648        $ 2,470
================================================================================================================
Net income available to common stockholder
     Electric                                                 $    46        $   27       $    79        $    75
     Gas                                                           (3)            1            55             57
     Other                                                        (11)           (5)           55             (5)
- ----------------------------------------------------------------------------------------------------------------

Total Net Income Available to Common
  Stockholder                                                 $    32        $   23       $   189        $   127
================================================================================================================
</TABLE>

<Table>
<Caption>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
                                                                      June 30, 2005            December 31, 2004
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                      <C>
Assets
     Electric (a)                                                          $  7,646                     $  7,289
     Gas (a)                                                                  3,209                        3,187
     Other                                                                    2,729                        2,335
- ----------------------------------------------------------------------------------------------------------------

Total Assets                                                               $ 13,584                     $ 12,811
================================================================================================================
</TABLE>

(a) Amounts include a portion of our other common assets attributable to both
the electric and gas utility businesses.

8:   CONSOLIDATION OF VARIABLE INTEREST ENTITIES

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.
Therefore, we consolidated these partnerships into our consolidated financial
statements for all periods presented. These partnerships have third-party
obligations totaling $586 million at June 30, 2005. Property, plant, and
equipment serving as collateral for these obligations has a carrying value of
$1.396 billion at June 30, 2005. The creditors of these partnerships do not have
recourse to the general credit of Consumers.



                                     CE-52
<PAGE>

                                                        Consumers Energy Company


9:   NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS NO. 123R, SHARE-BASED PAYMENT: This Statement requires companies to use the
fair value of employee stock options and similar awards at the grant date to
value the awards. Companies must expense this amount over the vesting period of
the awards. This 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.

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 cash inflows from financing
activities rather than as a reduction of taxes paid in operating activities.
Excess tax benefits are recorded as an adjustment to additional paid-in capital.

This Statement is effective for us as of the beginning of 2006. We adopted the
fair value method of accounting for share-based awards effective December 2002.
Therefore, we do not expect this statement to have a significant impact on our
results of operations when it becomes effective.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarifies the term "conditional asset
retirement obligation" as used in SFAS No. 143. The term refers to a legal
obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be
within the control of the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. The fair value of a
liability for the conditional asset retirement obligation should be recognized
when incurred. This Interpretation also clarifies when an entity would have
sufficient information to estimate reasonably the fair value of an asset
retirement obligation. For us, this Interpretation is effective no later than
December 31, 2005. We are in the process of determining the impact this
Interpretation will have on our financial statements upon adoption.



                                     CE-53




<PAGE>
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CMS ENERGY

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CMS Energy Corporation's Management's Discussion and Analysis, which is
incorporated by reference herein.

CONSUMERS

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: Consumers Energy Company's Management's Discussion and Analysis, which is
incorporated by reference herein.

ITEM 4.   CONTROLS AND PROCEDURES

CMS ENERGY

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

Internal Control Over Financial Reporting: There have not been any changes in
CMS Energy's internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.

CONSUMERS

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

Internal Control Over Financial Reporting: There have not been any changes in
Consumers' internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

The discussion below is limited to an update of developments that have occurred
in various judicial and administrative proceedings, many of which are more fully
described in CMS Energy's and Consumers' Forms 10-K for the year ended December
31, 2004. Reference is also made to the Condensed Notes to the Consolidated
Financial Statements, in particular, Note 3, Contingencies, for CMS Energy and
Note 2, Contingencies, for Consumers, included herein for additional information
regarding various pending administrative and judicial proceedings involving
rate, operating, regulatory and environmental matters.




                                      CO-1
<PAGE>

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 officials or relatives of 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. CMS Energy has provided responsive documents
to the SEC and will continue to provide such documents as it reviews its
electronic records in further response to the SEC's request. On August 1, 2005,
CMS Energy and several other companies who have conducted business in Equatorial
Guinea received subpoenas from the SEC to provide documents regarding payments
made to officials or relatives of officials of the government of Equatorial
Guinea. CMS Energy will provide responsive documents in connection with the
subpoena.

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 was 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.

On July 7, 2005, CMS Energy filed with the court a Stipulation of Settlement
that was signed by all parties as well as the special litigation committee.
Under the terms of the settlement, CMS Energy will receive $12 million under its
directors and officers liability insurance program, $7 million of which will be
used to pay costs associated with the securities class action lawsuits. CMS
Energy may use the remaining $5 million to pay attorneys' fees and expenses
arising out of the derivative proceeding. The terms of the settlement are
subject to court approval and the hearing for final approval is scheduled for
August 26, 2005.

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 Cornerstone complaint was subsequently consolidated with two
similar complaints filed by other plaintiffs. 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 of CMS Field Services to Cantera Gas Company. CMS
Energy is required to indemnify Cantera Natural Gas, LLC with respect to this
action.)



                                      CO-2
<PAGE>

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 (including CMS Energy).
The complaint alleged defendants entered into a price-fixing scheme by engaging
in activities to manipulate the price of natural gas in California. The
complaint alleged 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 sought 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 Multidistrict Litigation (MDL) Panel
ordered the transfer of 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 remained in
Nevada federal district court, and defendants, with CMS Energy joining, filed a
motion to dismiss. The court issued an order granting the motion to dismiss on
April 8, 2005 and entered a judgment in favor of the defendants on April 11,
2005. Texas-Ohio has appealed the dismissal to the Ninth Circuit Court of
Appeals.

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 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.)

The Fairhaven, Utility Savings and Abelman Art Glass cases have been transferred
to the MDL proceeding, where the Texas-Ohio case was pending. Pursuant to
stipulation by the parties and court order, defendants were not required to
respond to the Fairhaven, Utility Savings and Abelman Art Glass complaints until
the court ruled on defendants' motion to dismiss in the Texas-Ohio case.
Plaintiffs subsequently filed a consolidated class action complaint alleging
violations of federal and California antitrust laws. Defendants filed a motion
to dismiss, arguing that the consolidated complaint should be dismissed for the
same reasons as the Texas-Ohio case.

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 one complaint.

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 24 state court
complaints involving price reporting were coordinated as Natural Gas Antitrust
Cases V. Plaintiffs



                                      CO-3
<PAGE>
in Natural Gas Antitrust Cases V were ordered to file a consolidated complaint,
but a consolidated complaint was filed only for the two putative class action
lawsuits. On April 8, 2005, defendants filed a demurrer to the master class
action complaint and the individual complaints and on May 13, 2005, plaintiffs
filed a memorandum of points and authorities in opposition to defendants'
federal preemption demurrer and motion to strike. Pursuant to a ruling dated
June 29, 2005, the demurrer was overruled and the motion to strike was denied.

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. On March 7, 2005, defendants removed the case to the United
States District Court for the Western District of Tennessee, Western Division,
and they filed a motion on May 20, 2005 to transfer the case to the MDL
proceeding in Nevada. On April 6, 2005, plaintiffs filed a motion to remand the
case back to the Chancery Court in Tennessee. Defendants filed a motion to stay
proceedings pending resolution of the motion to remand and plaintiffs have filed
a response, objecting to defendants' motion. The parties are considering further
extending the time to answer or otherwise respond to the complaint until after
the motion to remand is decided.

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

CMS ENERGY AND CONSUMERS

SECURITIES CLASS ACTION LAWSUITS

Beginning on May 17, 2002, a number of complaints were filed against CMS Energy,
Consumers, and certain officers and directors of CMS Energy and its affiliates,
including but not limited to Consumers which, while established, operated and
regulated as a separate legal entity and publicly traded company, shares a
parallel Board of Directors with CMS Energy. 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 running from May 2000
through March 2003. The cases were consolidated into a single lawsuit. The
consolidated lawsuit 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. In January 2005, a motion was
granted dismissing Consumers and three of the individual defendants, but the
court denied the motions to dismiss for CMS Energy and the 13 remaining
individual defendants. Plaintiffs filed a motion for class certification on
April 15, 2005 and an amended motion for class certification on June 20, 2005.
CMS Energy and the individual defendants will defend themselves vigorously in
this litigation but cannot predict its outcome.

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, 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



                                      CO-4
<PAGE>

CMS Energy Common Stock held in the Plan. Plaintiffs also seek other equitable
relief and legal fees. In March 2004, the judge granted in part, but denied in
part, CMS Energy's motion to dismiss the complaint. The judge has conditionally
granted plaintiffs' motion for class certification. A trial date has not been
set, but is expected to be no earlier than mid-2006. CMS Energy and Consumers
will defend themselves vigorously in this litigation but cannot predict its
outcome.

ENVIRONMENTAL MATTERS

CMS Energy, Consumers and their subsidiaries and affiliates are subject to
various federal, state and local laws and regulations relating to the
environment. Several of these companies have been named parties to various
actions involving environmental issues. Based on their present knowledge and
subject to future legal and factual developments, CMS Energy and Consumers
believe that it is unlikely that these actions, individually or in total, will
have a material adverse effect on their financial condition. See CMS Energy's
and Consumers' MANAGEMENT'S DISCUSSION AND ANALYSIS and CMS Energy's and
Consumers' CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

At the CMS Energy Annual Meeting of Shareholders held on May 20, 2005, the CMS
Energy shareholders voted upon two proposals, as follows:

    -   Ratification of the appointment of Ernst & Young LLP as the independent
        registered public accounting firm to audit CMS Energy's financial
        statements for the year ending December 31, 2005, with a vote of
        170,359,235 shares in favor, 835,976 against and 1,476,040 abstentions;
        and

    -   Election of twelve members to the Board of Directors. The votes for
        individual nominees were as follows:

CMS ENERGY

<TABLE>
<CAPTION>
   Number of Votes:                 For         Withheld           Total
   --------------------------------------------------------------------------
<S>                           <C>              <C>               <C>

   Merribel S. Ayres          167,079,391      5,609,800         172,689,191
   Richard M. Gabrys          167,147,454      5,541,737         172,689,191
   Earl D. Holton             166,459,567      6,229,624         172,689,191
   David W. Joos              166,523,599      6,165,592         172,689,191
   Philip R. Lochner, Jr.     166,821,472      5,867,719         172,689,191
   Michael T. Monahan         167,130,271      5,558,920         172,689,191
   Joseph F. Paquette, Jr.    167,011,549      5,677,642         172,689,191
   Percy A. Pierre            164,425,375      8,263,816         172,689,191
   S. Kinnie Smith, Jr.       166,376,003      6,313,188         172,689,191
</TABLE>



                                CO-5
<PAGE>
<TABLE>
<CAPTION>


   Number of Votes:                 For         Withheld           Total
   --------------------------------------------------------------------------

<S>                           <C>              <C>               <C>
   Kenneth L. Way             167,016,414      5,672,777         172,689,191
   Kenneth Whipple            166,473,648      6,215,543         172,689,191
   John B. Yasinsky           164,430,059      8,259,132         172,689,191
</TABLE>

CONSUMERS

Consumers did not solicit proxies for the matters submitted to votes at the
contemporaneous May 20, 2005 Consumers' Annual Meeting of Shareholders. All
84,108,789 shares of Consumers Common Stock were voted in favor of electing the
above-named individuals as directors of Consumers and in favor of the remaining
proposals for Consumers. None of the 441,599 shares of Consumers Preferred Stock
were voted at the Annual Meeting.

ITEM 5.  OTHER INFORMATION

A shareholder who wishes to submit a proposal for consideration at the CMS
Energy 2006 Annual Meeting pursuant to the applicable rules of the SEC must send
the proposal to reach CMS Energy's Corporate Secretary on or before December 19,
2005. In any event if CMS Energy has not received written notice of any matter
to be proposed at that meeting by March 4, 2006, the holders of proxies may use
their discretionary voting authority on such matter. The proposals should be
addressed to: Corporate Secretary, CMS Energy Corporation, One Energy Plaza,
Jackson, MI 49201.

ITEM 6.  EXHIBITS

(4)(a)            $300 million Sixth Amended and Restated Credit Agreement dated
                  as of May 18, 2005 among CMS Energy Corporation, CMS
                  Enterprises, and the Administrative Agent and Collateral
                  Agent, as defined therein (Previously filed as Exhibit (4)(i)
                  to Form S-3 filed by CMS Energy on June 6, 2005, and
                  incorporated by reference herein)

(4)(b)            $500 million Third Amended and Restated Credit Agreement
                  dated as of May 18, 2005 among Consumers Energy Company and
                  the Banks, the Administrative Agent, the Syndication Agent and
                  the Co-Documentation Agents, all as defined therein

(31)(a)           CMS Energy Corporation's certification of the CEO pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

(31)(b)           CMS Energy Corporation's certification of the CFO pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

(31)(c)           Consumers Energy Company's certification of the CEO pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002

(31)(d)           Consumers Energy Company's certification of the CFO pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002

(32)(a)           CMS Energy Corporation's certifications pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002

(32)(b)           Consumers Energy Company's certifications pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002


                                      CO-6
<PAGE>
                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.



                                                 CMS ENERGY CORPORATION
                                                       (Registrant)



Dated:  August 4, 2005                  By:          /s/ Thomas J. Webb
                                           -----------------------------------
                                                       Thomas J. Webb
                                                Executive Vice President and
                                                  Chief Financial Officer



                                                CONSUMERS ENERGY COMPANY
                                                        (Registrant)



Dated:  August 4, 2005                  By:       /s/ Thomas J. Webb
                                           -----------------------------------
                                                    Thomas J. Webb
                                             Executive Vice President and
                                               Chief Financial Officer





                                      CO-7
<PAGE>
                        CMS ENERGY AND CONSUMERS EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION

<S>            <C>
(4)(b)         $500 million Third Amended and Restated Credit Agreement dated
               as of May 18, 2005 among Consumers Energy Company and the Banks,
               the Administrative Agent, the Syndication Agent and the
               Co-Documentation Agents, all as defined therein

(31)(a)        CMS Energy Corporation's certification of the CEO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(b)        CMS Energy Corporation's certification of the CFO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(c)        Consumers Energy Company's certification of the CEO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(d)        Consumers Energy Company's certification of the CFO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(32)(a)        CMS Energy Corporation's certifications pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

(32)(b)        Consumers Energy Company's certifications pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(B)
<SEQUENCE>2
<FILENAME>k97012exv4wxby.txt
<DESCRIPTION>$500 MILLION THIRD AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                  Exhibit (4)(b)
================================================================================

                                  $500,000,000

                   THIRD AMENDED AND RESTATED CREDIT AGREEMENT

                            Dated as of May 18, 2005

                                      among

                            CONSUMERS ENERGY COMPANY,
                                as the Borrower,

                    THE FINANCIAL INSTITUTIONS NAMED HEREIN,
                                  as the Banks,

                           JPMORGAN CHASE BANK, N.A.,
                            as Administrative Agent,

                               BARCLAYS BANK PLC,
                              as Syndication Agent,

                                       and

                                 CITIBANK, N.A.,
                         UNION BANK OF CALIFORNIA, N.A.
                                       and
                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                           as Co-Documentation Agents

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

                          J.P. MORGAN SECURITIES, INC.
                                       and
                                BARCLAYS CAPITAL
                    Co-Lead Arrangers and Joint Book Runners

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                               PAGE
<S>                                                                            <C>
ARTICLE I             DEFINITIONS...........................................     1

1.1      Definitions........................................................     1

1.2      Interpretation.....................................................    12

1.3      Accounting Terms...................................................    12

ARTICLE II            THE ADVANCES..........................................    13

2.1      Commitment.........................................................    13

2.2      Repayment..........................................................    13

2.3      Ratable Loans......................................................    13

2.4      Types of Advances..................................................    13

2.5      Fees and Changes in Commitments....................................    13

2.6      Minimum Amount of Advances.........................................    15

2.7      Optional Principal Payments........................................    15

2.8      Method of Selecting Types and Interest Periods for New Advances....    15

2.9      Conversion and Continuation of Outstanding Advances................    15

2.10     Interest Rates, Interest Payment Dates.............................    16

2.11     Rate after Maturity................................................    17

2.12     Method of Payment..................................................    17

2.13     Bonds; Record-keeping; Telephonic Notices..........................    17

2.14     Lending Installations..............................................    18

2.15     Non-Receipt of Funds by the Agent..................................    18

ARTICLE III           LETTER OF CREDIT FACILITY.............................    18

3.1      Issuance...........................................................    18

3.2      Participations.....................................................    19

3.3      Notice.............................................................    19

3.4      LC Fees............................................................    19

3.5      Administration; Reimbursement by Banks.............................    20

3.6      Reimbursement by Company...........................................    20

3.7      Obligations Absolute...............................................    21

3.8      Actions of LC Issuer...............................................    21
</TABLE>

                                      -i-

<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                               PAGE
<S>                                                                            <C>
3.9      Indemnification....................................................    21

3.10     Banks' Indemnification.............................................    22

3.11     Rights as a Bank...................................................    22

ARTICLE IV            CHANGE IN CIRCUMSTANCES...............................    22

4.1      Yield Protection...................................................    22

4.2      Replacement Bank...................................................    24

4.3      Availability of Eurodollar Rate Loans..............................    24

4.4      Funding Indemnification............................................    24

4.5      Taxes..............................................................    25

4.6      Bank Certificates, Survival of Indemnity...........................    26

ARTICLE V             REPRESENTATIONS AND WARRANTIES........................    27

5.1      Incorporation and Good Standing....................................    27

5.2      Corporate Power and Authority: No Conflicts........................    27

5.3      Governmental Approvals.............................................    27

5.4      Legally Enforceable Agreements.....................................    27

5.5      Financial Statements...............................................    27

5.6      Litigation.........................................................    28

5.7      Margin Stock.......................................................    28

5.8      ERISA..............................................................    28

5.9      Insurance..........................................................    28

5.10     Taxes..............................................................    28

5.11     Investment Company Act.............................................    28

5.12     Public Utility Holding Company Act.................................    28

5.13     Bonds..............................................................    28

5.14     Disclosure.........................................................    29

5.15     OFAC...............................................................    29

ARTICLE VI            AFFIRMATIVE COVENANTS.................................    29

6.1      Payment of Taxes, Etc..............................................    29

6.2      Maintenance of Insurance...........................................    29
</TABLE>

                                      -ii-

<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                               PAGE
<S>                                                                            <C>
6.3      Preservation of Corporate Existence, Etc...........................    29

6.4      Compliance with Laws, Etc..........................................    29

6.5      Visitation Rights..................................................    29

6.6      Keeping of Books...................................................    30

6.7      Reporting Requirements.............................................    30

6.8      Use of Proceeds....................................................    31

6.9      Maintenance of Properties, Etc.....................................    31

6.10     Bonds..............................................................    32

ARTICLE VII           NEGATIVE COVENANTS....................................    32

7.1      Liens..............................................................    32

7.2      Sale of Assets.....................................................    33

7.3      Mergers, Etc.......................................................    33

7.4      Compliance with ERISA..............................................    34

7.5      Change in Nature of Business.......................................    34

7.6      Restricted Payments................................................    34

7.7      Off-Balance Sheet Liabilities......................................    34

7.8      Transactions with Affiliates.......................................    34

ARTICLE VIII          FINANCIAL COVENANTS...................................    34

8.1      Debt to Capital Ratio..............................................    34

8.2      Interest Coverage Ratio............................................    34

ARTICLE IX            EVENTS OF DEFAULT.....................................    35

9.1      Events of Default..................................................    35

9.2      Remedies...........................................................    36

ARTICLE X             WAIVERS, AMENDMENTS AND REMEDIES......................    37

10.1     Amendments.........................................................    37

10.2     Preservation of Rights.............................................    38

ARTICLE XI            CONDITIONS PRECEDENT..................................    38

11.1     Initial Credit Extension...........................................    38

11.2     Each Credit Extension..............................................    39
</TABLE>

                                     -iii-

<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                               PAGE
<S>                                                                            <C>
ARTICLE XII           GENERAL PROVISIONS....................................    40

12.1     Successors and Assigns.............................................    40

12.2     Survival of Representations........................................    42

12.3     Governmental Regulation............................................    42

12.4     Taxes..............................................................    42

12.5     Choice of Law......................................................    42

12.6     Headings...........................................................    42

12.7     Entire Agreement...................................................    42

12.8     Expenses; Indemnification..........................................    42

12.9     Severability of Provisions.........................................    43

12.10    Setoff.............................................................    43

12.11    Ratable Payments...................................................    43

12.12    Nonliability.......................................................    44

12.13    Other Agents.......................................................    44

12.14    USA Patriot Act....................................................    44

ARTICLE XIII          THE AGENT.............................................    44

13.1     Appointment........................................................    44

13.2     Powers.............................................................    45

13.3     General Immunity...................................................    45

13.4     No Responsibility for Loans, Recitals, Etc.........................    45

13.5     Action on Instructions of Banks....................................    45

13.6     Employment of Agents and Counsel...................................    45

13.7     Reliance on Documents; Counsel.....................................    45

13.8     Agent's Reimbursement and Indemnification..........................    46

13.9     Rights as a Bank...................................................    46

13.10    Bank Credit Decision...............................................    46

13.11    Successor Agent....................................................    47

13.12    Agent and Arranger Fees............................................    47

ARTICLE XIV           NOTICES...............................................    47
</TABLE>

                                      -iv-

<PAGE>

                                TABLE OF CONTENTS
                                  (continued)
<TABLE>
<CAPTION>
                                                                               PAGE
<S>                                                                            <C>
14.1     Giving Notice......................................................    47

14.2     Change of Address..................................................    48

ARTICLE XV            TERMINATION OF PRIOR AGREEMENT........................    48

ARTICLE XVI           COUNTERPARTS..........................................    48

ARTICLE XVII          RELEASE OF BONDS......................................    48
</TABLE>

                                      -v-

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S>           <C>
Schedule 1    Pricing Schedule
Schedule 2    Commitment Schedule
Schedule 3    Existing Facility LC Schedule
</TABLE>

<TABLE>
<CAPTION>
EXHIBITS
- --------
<S>           <C>
Exhibit A     Form of Supplemental Indenture
Exhibit B-1   Required Opinions from Robert S. Shrosbree, Esq.
Exhibit B-2   Required Opinion from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C     Form of Compliance Certificate
Exhibit D     Form of Assignment and Assumption Agreement
Exhibit E     Terms of Subordination (Junior Subordinated Debt)
Exhibit F     Terms of Subordination (Guaranty of Hybrid Preferred Securities)
Exhibit G     Form of Bond Delivery Agreement
Exhibit H     Form of Increase Request
</TABLE>

                                      -vi-

<PAGE>

                   THIRD AMENDED AND RESTATED CREDIT AGREEMENT

      This Third Amended and Restated Credit Agreement, dated as of May 18,
2005, is among Consumers Energy Company, a Michigan corporation (the "Company"),
the financial institutions listed on the signature pages hereof (together with
their respective successors and assigns, the "Banks") and JPMorgan Chase Bank,
N.A., a national banking association, as Agent and as LC Issuer.

                              W I T N E S S E T H:

      WHEREAS, the Company has requested, and the Banks have agreed to enter
into, a credit facility in an aggregate amount of $500,000,000;

      NOW THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

      1.1 Definitions. As used in this Agreement:

      "Accounting Changes" - see Section 1.3.

      "Administrative Questionnaire" means an administrative questionnaire,
substantially in the form supplied by the Agent, completed by a Bank and
furnished to the Agent in connection with this Agreement.

      "Advance" means a group of Loans made by the Banks hereunder of the same
Type, made, converted or continued on the same day and, in the case of
Eurodollar Rate Loans, having the same Interest Period.

      "Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling (including 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 JPMorgan Chase Bank, N.A. in its capacity as administrative
agent for the Banks pursuant to Article XIII, and not in its individual capacity
as a Bank, and any successor Agent appointed pursuant to Article XIII.

      "Aggregate Commitment" means the aggregate amount of the Commitments of
all Banks.

      "Aggregate Outstanding Credit Exposure" means, at any time, the aggregate
of the Outstanding Credit Exposure of all the Banks.

<PAGE>

      "Agreement" means this Third Amended and Restated Credit Agreement, as
amended from time to time.

      "Alternate Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds
Effective Rate for such day plus 1/2% per annum.

      "Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in Schedule 1.

      "Arrangers" - see Section 13.12.

      "Assignment Agreement" - see Section 12.1(e).

      "Available Aggregate Commitment" means, at any time, the Available
Commitment then in effect minus the Aggregate Outstanding Credit Exposure at
such time.

      "Available Commitment" means, at any time, the lesser of (i) the Aggregate
Commitment and (ii) the face amount of the Bonds.

      "Banks" - see the preamble.

      "Base Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the per annum interest rate determined by the offered
rate per annum at which deposits in U.S. dollars, for a period equal or
comparable to such Interest Period, appears on page 3750 (or any successor page)
of the Dow Jones Market Service as of 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, or in the event such offered
rate is not available from the Dow Jones Market Service page, the rate offered
on deposits in U.S. dollars, for a period equal or comparable to such Interest
Period, by JPMorgan's London Office to prime banks in the London interbank
market at approximately 11:00 a.m. (London time), two Business Days prior to the
first day of such Interest Period, and in an amount substantially equal to the
amount of JPMorgan's relevant Eurodollar Rate Loan for such Interest Period.

      "Bond Delivery Agreement" means a bond delivery agreement whereby the
Agent (x) acknowledges delivery of the Bonds and (y) agrees to hold the Bonds
for the benefit of the Banks and to distribute all payments made by the Company
on account thereof to the Banks, substantially in the form of Exhibit G.

      "Bonds" means a series of interest-bearing First Mortgage Bonds created
under the Supplemental Indenture issued in favor of, and in form and substance
satisfactory to, the Agent.

      "Borrowing Date" means a date on which a Credit Extension is made
hereunder.

      "Borrowing Notice" - see Section 2.8.

                                       2

<PAGE>

      "Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in New York, New York for the conduct of
substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in New York, New York for the conduct of substantially all of their
commercial lending activities and interbank wire transfers can be made on the
Fedwire system.

      "Capital Lease" means any lease which has been or would be capitalized on
the books of the lessee in accordance with GAAP.

      "CMS" means CMS Energy Corporation, a Michigan corporation.

      "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

      "Collateral Shortfall Amount" - see Section 9.2.

      "Commitment" means, for each Bank, the obligation of such Bank to make
Loans to, and participate in Facility LCs issued upon the application of, the
Company in an aggregate amount not exceeding the amount set forth on Schedule 2
or as set forth in any Assignment Agreement that has become effective pursuant
to Section 12.1, as such amount may be modified from time to time.

      "Commitment Fee" - see Section 2.5.

      "Commitment Fee Rate" means, at any time, the percentage rate per annum at
which Commitment Fees are accruing on the Unused Commitment as set forth in
Schedule 1.

      "Company" - see the preamble.

      "Consolidated EBIT" means, for any period, Consolidated Net Income for
such period plus (i) to the extent deducted from revenues in determining such
Consolidated Net Income (without duplication), (a) Consolidated Interest Expense
plus interest and dividends on Hybrid Preferred Securities and on securities of
the type described in clause (iv) of the definition of Total Consolidated Debt
(but only, in the case of securities of the type described in such clause (iv),
to the extent such securities have been deemed to be equity), (b) expense for
taxes paid or accrued, and (c) any non-cash write-offs and write-downs contained
in the Company's Consolidated Net Income, including write-offs or write-downs
related to the sale of assets, impairment of assets and loss on contracts minus
(ii) to the extent included in such Consolidated Net Income, extraordinary gains
realized other than in the ordinary course of business, all calculated for the
Company and its Subsidiaries on a consolidated basis in accordance with GAAP.

      "Consolidated Interest Expense" means, with respect to any period, an
amount equal to interest expense on Debt, including payments in the nature of
interest under Capital Leases but excluding (a) interest and dividends paid on
Hybrid Preferred Securities and on securities of the type described in clause
(iv) of the definition of Total Consolidated Debt (but only, in the case of

                                       3

<PAGE>

securities of the type described in such clause (iv), to the extent such
securities have been deemed to be equity), all calculated for the Company and
its Subsidiaries on a consolidated basis in accordance with GAAP (except as
otherwise provided above).

      "Consolidated Net Income" means, for any period, the net income (or loss)
of the Company and its Subsidiaries calculated on a consolidated basis for such
period.

      "Consolidated Subsidiary" means any Subsidiary the accounts of which are
or are required to be consolidated with the accounts of the Company in
accordance with GAAP.

      "Credit Documents" means this Agreement, the Facility LC Applications, the
Supplemental Indenture, any promissory note issued pursuant to Section 2.13 and
the Bonds.

      "Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.

      "Debt" means, with respect to any Person, and without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all liabilities arising from any accumulated funding deficiency
(as defined in Section 412(a) of the Code) for a Plan, (d) all liabilities
arising in connection with any withdrawal liability under ERISA to any
Multiemployer Plan, (e) all obligations of such Person arising under acceptance
facilities, (f) all obligations of such Person as lessee under Capital Leases,
(g) all obligations of such Person arising under any interest rate swap, "cap",
"collar" or other hedging agreement; provided that for purposes of the
calculation of Debt for this clause (g) only, the actual amount of Debt of such
Person shall be determined on a net basis to the extent such agreements permit
such amounts to be calculated on a net basis, and (h) all guaranties,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations of such Person to assure a creditor against loss
(whether by the purchase of goods or services, the provision of funds for
payment, the supply of funds to invest in any Person or otherwise) in respect of
indebtedness or obligations of any other Person of the kinds referred to in
clauses (a) through (g) above.

      "Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.

      "Designated Officer" means the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.

      "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.

                                       4

<PAGE>

      "Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Substance, (c)
exposure to any Hazardous Substance, (d) the release or threatened release of
any Hazardous Substance 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.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

      "ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

      "Eurodollar Advance" means an Advance consisting of Eurodollar Rate Loans.

      "Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, an interest rate per annum equal to the sum of (i) the
quotient obtained by dividing (a) the Base Eurodollar Rate applicable to such
Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to such Interest Period, plus (ii) the Applicable Margin.

      "Eurodollar Rate Loan" means a Loan which bears interest by reference to
the Eurodollar Rate.

      "Event of Default" means an event described in Article IX.

      "Excluded Taxes" means, in the case of each Bank, the LC Issuer or
applicable Lending Installation and the Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it, by (i) the jurisdiction under the
laws of which such Bank, the LC Issuer or the Agent is incorporated or organized
or (ii) the jurisdiction in which the Agent's, the LC Issuer's or such Bank's
principal executive office or such Bank's or the LC Issuer's applicable Lending
Installation is located.

      "Existing Facility LC" means each letter of credit issued under the Prior
Agreement that is listed on Schedule 3.

      "Facility LC" - see Section 3.1. The term "Facility LC" includes each
Existing Facility LC.

      "Facility LC Application" - see Section 3.3.

      "Facility LC Collateral Account" means a special, interest-bearing account
maintained (pursuant to arrangements satisfactory to the Agent) at the Agent's
office at the address specified

                                       5

<PAGE>

pursuant to Article XII, which account shall be in the name of the Company but
under the sole dominium and control of the Agent, for the benefit of the Banks.

      "Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 11:00 a.m. (New
York time) on such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by the Agent in its sole
discretion.

      "Fee Letter" means the fee letter referred to in Section 13.12.

      "First Mortgage Bonds" means bonds issued by the Company pursuant to the
Indenture.

      "Floating Rate" means a rate per annum equal to (i) the Alternate Base
Rate plus (ii) the Applicable Margin, changing when and as the Alternate Base
Rate or the Applicable Margin changes.

      "Floating Rate Advance" means an Advance consisting of Floating Rate
Loans.

      "Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.

      "FMB Release Date" means the date on which the Bonds are released pursuant
to Article XVII.

      "FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.

      "GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date hereof, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
5.5 (except, for purposes of the financial statements required to be delivered
pursuant to Sections 6.7(b) and (c), for changes concurred in by the Company's
independent public accountants).

      "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 wholly-owned direct or indirect Subsidiary of the Company in
      exchange for Junior Subordinated

                                       6

<PAGE>

      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 such 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 such
      Junior Subordinated Debt, which interest payments are in turn used by the
      Hybrid Preferred Securities Subsidiary to make corresponding payments to
      the holders of the preferred securities.

      "Hybrid Preferred Securities Subsidiary" means any Delaware business trust
(or similar entity) (i) all of the common equity interest of which is owned
(either directly or indirectly through one or more wholly-owned Subsidiaries of
the Company) at all times by the Company or a wholly-owned direct or indirect
Subsidiary of the Company, (ii) that has been formed for the purpose of issuing
Hybrid Preferred Securities and (iii) substantially all of the assets of which
consist at all times solely of Junior Subordinated Debt issued by the Company or
a wholly-owned direct or indirect Subsidiary of the Company (as the case may be)
and payments made from time to time on such Junior Subordinated Debt.

      "Indenture" means the Indenture, dated as of September 1, 1945, as
supplemented and amended from time to time, from the Company to JPMorgan Chase
Bank, N.A. (formerly known as JPMorgan Chase Bank), as successor Trustee.

      "Initial Borrowing Date" means May 18, 2005.

      "Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three or six months, or such shorter period agreed to by the Company
and the Banks, commencing on a Business Day selected by the Company pursuant to
this Agreement. Such Interest Period shall end on the day which corresponds
numerically to such date one, two, three or six months thereafter (or such
shorter period agreed to by the Company and the Banks); provided that if there
is no such numerically corresponding day in such next, second, third or sixth
succeeding month (or such shorter period, as applicable), such Interest Period
shall end on the last Business Day of such next, second, third or sixth
succeeding month (or such shorter period, as applicable). If an Interest Period
would otherwise end on a day which is not a Business Day, such Interest Period
shall end on the next succeeding Business Day; provided that if said next
succeeding Business Day falls in a new calendar month, such Interest Period
shall end on the immediately preceding Business Day. The Company may not select
any Interest Period that ends after the scheduled Termination Date.

      "JPMorgan" means JPMorgan Chase Bank, N.A., in its individual capacity,
and its successors and assigns.

                                       7

<PAGE>

      "Junior Subordinated Debt" means any unsecured Debt of the Company or a
Subsidiary of the Company that is (i) issued in exchange for the proceeds of
Hybrid Preferred Securities and (ii) subordinated to the rights of the Banks
hereunder and under the other Credit Documents pursuant to terms of
subordination substantially similar to those set forth in Exhibit E, or pursuant
to other terms and conditions satisfactory to the Majority Banks.

      "LC Fee" - see Section 3.4.

      "LC Issuer" means JPMorgan (or any subsidiary or affiliate of JPMorgan
designated by JPMorgan) in its capacity as issuer of Facility LCs hereunder.

      "LC Obligations" means, at any time, the sum, without duplication, of (i)
the aggregate undrawn stated amount under all Facility LCs outstanding at such
time plus (ii) the aggregate unpaid amount at such time of all Reimbursement
Obligations.

      "LC Payment Date" - see Section 3.5.

      "Lending Installation" means any office, branch, subsidiary or affiliate
of a Bank.

      "Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.

      "Loan" - see Section 2.1.

      "Majority Banks" means, as of any date of determination, Banks in the
aggregate having more than 50% of the Aggregate Commitment as of such date or,
if the Aggregate Commitment has been terminated, Banks in the aggregate holding
more than 50% of the aggregate unpaid principal amount of the Aggregate
Outstanding Credit Exposure as of such date.

      "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 financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole, (b) the Company's ability to
perform its obligations under any Credit Document or (c) the validity or
enforceability of any Credit Document or the rights or remedies of the Agent or
the Banks thereunder.

      "Modify" and "Modification" - see Section 3.1.

      "Moody's" means Moody's Investors Service, Inc. or any successor thereto.

      "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.

      "Net Proceeds" means, with respect to any sale or issuance of securities
or incurrence of Debt by any Person, the excess of (i) the gross cash proceeds
received by or on behalf of such Person in respect of such sale, issuance or
incurrence (as the case may be) over (ii) customary

                                       8

<PAGE>

underwriting commissions, auditing and legal fees, printing costs, rating agency
fees and other customary and reasonable fees and expenses incurred by such
Person in connection therewith.

      "Net Worth" means, with respect to any Person, the excess of such Person's
total assets over its total liabilities, total assets and total liabilities each
to be determined in accordance with GAAP consistently applied, excluding from
the determination of total assets (i) goodwill, organizational expenses,
research and development expenses, trademarks, trade names, copyrights, patents,
patent applications, licenses and rights in any thereof, and other similar
intangibles, (ii) cash held in a sinking or other analogous fund established for
the purpose of redemption, retirement or prepayment of capital stock or Debt,
and (iii) any item not included in clause (i) or (ii) above, that is treated as
an intangible asset in conformity with GAAP.

      "Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all Reimbursement Obligations, all accrued and unpaid
fees and all other obligations of the Company to the Banks or to any Bank, the
LC Issuer or the Agent arising under the Credit Documents.

      "Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheet of such Person, but excluding from this clause
(iv) Operating Leases.

      "Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.

      "Other Taxes" - see Section 4.5(b).

      "Outstanding Credit Exposure" means, as to any Bank at any time, the sum
of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.

      "Payment Date" means the second Business Day of each calendar quarter
occurring after the Initial Borrowing Date.

      "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

      "Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.

      "Plan" means any employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Company or any ERISA Affiliate and covered by
Title IV of ERISA.

                                       9

<PAGE>

      "Plan Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), (b) the withdrawal of the Company or any ERISA Affiliate from a
Plan during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate a Plan by the PBGC or
to appoint a trustee to administer any Plan.

      "Prime Rate" means a rate per annum equal to the prime rate of interest
announced from time to time by JPMorgan or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

      "Prior Agreement" means the Second Amended and Restated Credit Agreement
dated as of August 3, 2004 among the Company, various financial institutions and
JPMorgan (then known as Bank One, NA), as Agent, as amended.

      "Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.

      "Pro Rata Share" means, with respect to a Bank, a portion equal to a
fraction the numerator of which is such Bank's Commitment and the denominator of
which is the Aggregate Commitment.

      "Regulation D" means Regulation D of the FRB from time to time in effect
and shall include any successor or other regulation or official interpretation
of the FRB relating to reserve requirements applicable to member banks of the
Federal Reserve System.

      "Regulation U" means Regulation U of the FRB from time to time in effect
and shall include any successor or other regulation or official interpretation
of the FRB relating to the extension of credit by banks, non-banks and
non-broker-dealers for the purpose of purchasing or carrying margin stocks.

      "Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Company then outstanding under Article III to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.

      "Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.

      "Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.

      "S&P" means Standard and Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., or any successor thereto.

                                       10

<PAGE>

      "SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.

      "Securitized Bonds" means nonrecourse bonds or similar asset-backed
securities issued by a special-purpose Subsidiary of the Company which are
payable solely from specialized charges authorized by the utility commission of
the relevant state in connection with the recovery of (x) stranded regulatory
costs, (y) stranded clean air and pension costs and (z) other "Qualified Costs"
(as defined in M.C.L. ss.460.10h(g)) authorized to be securitized by the
Michigan Public Service Commission.

      "Senior Debt" means the First Mortgage Bonds.

      "Single Employer Plan" means a Plan maintained by the Company or any ERISA
Affiliate for employees of the Company or any ERISA Affiliate.

      "Subsidiary" means, as to any Person, any corporation or other entity of
which at least a majority of the securities or other ownership interests having
ordinary voting power (absolutely or contingently) for the election of directors
or other Persons performing similar functions are at the time owned directly or
indirectly by such Person.

      "Supplemental Indenture" means a supplemental indenture substantially in
the form of Exhibit A.

      "Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

      "Termination Date" means the earlier of (i) May 18, 2010 and (ii) the date
on which the Commitments are terminated.

      "Total Consolidated Capitalization" means, at any date of determination,
without duplication, the sum of (a) Total Consolidated Debt plus all amounts
excluded from Total Consolidated Debt pursuant to clauses (ii), (iii) and (iv)
of the proviso to the definition of such term (but only, in the case of
securities of the type described in such clause (iv), to the extent such
securities have been deemed to be equity), (b) equity of the common stockholders
of the Company, (c) equity of the preference stockholders of the Company and (d)
equity of the preferred stockholders of the Company, in each case determined at
such date.

      "Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Credit
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid

                                       11

<PAGE>

Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).

      "Type" - see Section 2.4.

      "Unused Commitment" means, at any time, the Aggregate Commitment then in
effect minus the Aggregate Outstanding Credit Exposure at such time.

      "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.

      "Utilization Fee Rate" means, at any time, the percentage rate per annum
at which utilization fees are accruing at such time as set forth in Schedule 1.

      1.2 Interpretation.

      (a) The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.

      (b) The words "include," "includes" and "including" shall be deemed to be
followed by the phrase "without limitation."

      (c) Unless otherwise specified, each reference to an Article, Section,
Exhibit and Schedule means an Article or Section of or an Exhibit or Schedule to
this Agreement.

      1.3 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP; provided that the financial
covenants set forth in Sections 8.1 and 8.2 shall be calculated exclusive of all
Debt of any Affiliate of the Company (including Midland Cogeneration Venture
Limited Partnership and First Midland Limited Partnership) that (a) is (i)
consolidated on the financial statements of the Company solely as a result of
the effect and application of Financial Accounting Standards Board No. 46 and of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, as
modified by Statement of Financial Accounting Standards No. 94, and (ii)
non-recourse to the Company or any of its Affiliates (other than the primary
obligor of such Debt and any of its Subsidiaries); or (b) is re-categorized as
such from certain lease obligations pursuant to Emerging Issues Task Force
("EITF") Issue 01-8, any subsequent EITF Issue or recommendation or 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 Liabilities, including the
application of Financial Accounting Standards Board Interpretation Nos. 45 and
46 and Financial Accounting Standards Board Statement No. 150, in each case with
the agreement of its independent certified public accountants, and such changes
result in a change in the method of calculation of any of the

                                       12

<PAGE>

financial covenants, tests, restrictions or standards herein or in the related
definitions or terms used therein ("Accounting Changes"), the parties hereto
agree, at the Company's request, to enter into negotiations, in good faith, in
order to amend such provisions in a credit neutral manner so as to reflect
equitably such changes with the desired result that the criteria for evaluating
the Company's and its Subsidiaries' financial condition shall be the same after
such changes as if such changes had not been made; provided that, until such
provisions are amended in a manner reasonably satisfactory to the Majority
Banks, no Accounting Change shall be given effect in such calculations. In the
event such amendment is entered into, all references in this Agreement to GAAP
shall mean generally accepted accounting principles as of the date of such
amendment.

                                   ARTICLE II
                                  THE ADVANCES

      2.1 Commitment. From and including the Initial Borrowing Date and prior to
the Termination Date, each Bank severally agrees, on the terms and conditions
set forth in this Agreement, (a) to make loans to the Company from time to time
(the "Loans"), and (b) to participate in Facility LCs issued upon the request of
the Company from time to time; provided that, after giving effect to the making
of each such Loan and the issuance of each such Facility LC, such Bank's
Outstanding Credit Exposure shall not exceed its Commitment. In no event may the
Aggregate Outstanding Credit Exposure exceed the Available Commitment. Subject
to the terms and conditions of this Agreement, the Company may borrow, repay and
reborrow at any time prior to the Termination Date. The Commitments shall expire
on the Termination Date.

      2.2 Repayment. The Aggregate Outstanding Credit Exposure and all other
unpaid obligations of the Company hereunder shall be paid in full on the
Termination Date.

      2.3 Ratable Loans. Each Advance shall consist of Loans made by the several
Banks ratably according to their Pro Rata Shares.

      2.4 Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances (each a "Type" of Advance), or a combination thereof, as
selected by the Company in accordance with Sections 2.8 and 2.9.

      2.5 Fees and Changes in Commitments.

      (a) The Company agrees to pay to the Agent for the account of each Bank
according to its Pro Rata Share (i) a commitment fee (the "Commitment Fee") at
the Commitment Fee Rate on the daily Unused Commitment from the Initial
Borrowing Date to but not including the date on which this Agreement is
terminated in full and all of the Obligations hereunder have been paid in full
and (ii) a utilization fee at the Utilization Fee Rate on such Bank's
Outstanding Credit Exposure for any date on which the Aggregate Outstanding
Credit Exposure exceeds 50% of the Aggregate Commitment. The fees payable
pursuant to this clause (a) shall be payable quarterly in arrears on each
Payment Date (for the quarter then most recently ended) and on the Termination
Date (for the period then ended for which such fee has not previously been paid)
and shall be calculated for actual days elapsed on the basis of a 360 day year.

                                       13

<PAGE>

      (b) The Company may permanently reduce the Aggregate Commitment in whole,
or in part ratably among the Banks in the minimum amount of $10,000,000 (and in
multiples of $1,000,000 if in excess thereof), upon at least five Business Days'
written notice to the Agent, which notice shall specify the amount of any such
reduction; provided that the Aggregate Commitment may not be reduced below the
Aggregate Outstanding Credit Exposure. All accrued Commitment Fees shall be
payable on the effective date of any termination of the obligation of the Banks
to make Credit Extensions hereunder. Upon any permanent reduction in the
Aggregate Commitment pursuant to the terms of this Section 2.5(b), the Agent
shall, upon request of the Company, promptly surrender to or upon the order of
the Company one or more Bonds specified by the Company; provided that the
Company remains in compliance with Section 6.10.

      (c) The Company may, from time to time, by means of a letter delivered to
the Agent substantially in the form of Exhibit H, request that the Aggregate
Commitment be increased by up to $250,000,000 (in the aggregate during the term
of this Agreement) by (i) increasing the Commitment of one or more Banks which
have agreed to such increase in writing pursuant to the procedures described
below (it being understood that no Bank has any obligation to agree to such
increase) and/or (ii) adding one or more commercial banks or other Persons as a
party hereto (each an "Additional Bank") with a Commitment in an amount agreed
to by any such Additional Bank; provided that no Additional Bank shall be added
as a party hereto without the written consent of the Agent and the LC Issuer
(which consents shall not be unreasonably withheld) or if a Default or an Event
of Default exists. Any increase in the Aggregate Commitment pursuant to this
clause (c) shall be effective three Business Days (or such other reasonable
period of time as may be specified by the Agent) after the date on which the
Agent has received (A) the applicable increase letter in the form of Annex 1 to
Exhibit H (in the case of an increase in the Commitment of an existing Bank) or
assumption letter in the form of Annex 2 to Exhibit H (in the case of the
addition of a commercial bank or other Person as a new Bank), in each case
signed by all applicable parties; and (b) if the requested increase is to occur
before the FMB Release Date and, after giving effect to such increase, the
Aggregate Commitment would exceed the face amount of all Bonds, additional Bonds
in an amount not less than such excess together with such certificates, opinions
of counsel and other documents as the Agent may reasonably request in connection
with the issuance and delivery of such Bonds.. The Agent shall promptly notify
the Company and the Banks of any increase in the amount of the Aggregate
Commitment pursuant to this clause (c) and of the Pro Rata Share of each Bank
after giving effect thereto. The parties hereto agree that, notwithstanding any
other provision of this Agreement, the Agent, the Company, each Additional Bank
and each increasing Bank, as applicable, may make arrangements satisfactory to
such parties to cause an Additional Bank or an increasing Bank to temporarily
hold risk participations in the outstanding Loans of the other Banks (rather
than fund its Percentage of all outstanding Loans concurrently with the
applicable increase) with a view toward minimizing breakage costs and transfers
of funds in connection with any increase in the Aggregate Commitment. The
Company acknowledges that if, as a result of an increase in the Aggregate
Commitment that is not pro rata among the existing Banks, any Eurodollar Rate
Loan is prepaid or converted (in whole or in part) on a day other than the last
day of an Interest Period therefor, then such prepayment or conversion shall be
subject to the provisions of Section 4.4.

                                       14

<PAGE>

      2.6 Minimum Amount of Advances. Each Advance shall be in the minimum
amount of $10,000,000 (and in integral multiples of $1,000,000 if in excess
thereof); provided that any Floating Rate Advance may be in the amount of the
Available Aggregate Commitment (rounded down, if necessary, to an integral
multiple of $1,000,000).

      2.7 Optional Principal Payments. The Company may from time to time prepay,
without penalty or premium, all outstanding Floating Rate Advances or, in a
minimum aggregate amount of $10,000,000 or a higher integral multiple of
$1,000,000, any portion of the outstanding Floating Rate Advances upon one
Business Day's prior notice to the Agent. The Company may from time to time pay,
subject to the payment of any funding indemnification amounts required by
Section 4.4 but without penalty or premium, all outstanding Eurodollar Advances
or, in a minimum aggregate amount of $10,000,000 or a higher integral multiple
of $1,000,000, any portion of any outstanding Eurodollar Advance upon three
Business Days' prior notice to the Agent; provided that if after giving effect
to any such prepayment the principal amount of any Eurodollar Advance is less
than $10,000,000, such Eurodollar Advance shall automatically convert into a
Floating Rate Advance.

      2.8 Method of Selecting Types and Interest Periods for New Advances. The
Company shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable thereto from time to time. The Company
shall give the Agent irrevocable notice (a "Borrowing Notice") not later than
12:00 noon (New York time) on the Borrowing Date of each Floating Rate Advance
and not later than 12:00 noon (New York time) three Business Days before the
Borrowing Date for each Eurodollar Advance, specifying:

            (i) the Borrowing Date, which shall be a Business Day;

            (ii) the aggregate amount of such Advance;

            (iii) the Type of Advance selected; and

            (iv) in the case of each Eurodollar Advance, the initial Interest
      Period applicable thereto.

Promptly after receipt thereof, the Agent will notify each Bank of the contents
of each Borrowing Notice. Not later than 2:00 p.m. (New York time) on each
Borrowing Date, each Bank shall make available its Loan in funds immediately
available in New York to the Agent at its address specified pursuant to Section
14. To the extent funds are received from the Banks, the Agent will make such
funds available to the Company at the Agent's aforesaid address. No Bank's
obligation to make any Loan shall be affected by any other Bank's failure to
make any Loan.

      2.9 Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances pursuant to this Section
2.9 or are repaid in accordance with Section 2.2 or 2.7. Each Eurodollar Advance
shall continue as a Eurodollar Advance until the end of the then applicable
Interest Period therefor, at which time such Eurodollar Advance shall

                                       15

<PAGE>

be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.2 or 2.7 or (y)
the Company shall have given the Agent a Conversion/Continuation Notice (as
defined below) requesting that, at the end of such Interest Period, such
Eurodollar Advance continue as a Eurodollar Advance for the same or another
Interest Period. Subject to the terms of Section 2.6, the Company may elect from
time to time to convert all or any part of a Floating Rate Advance into a
Eurodollar Advance. The Company shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
12:00 noon (New York time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:

            (i) the requested date, which shall be a Business Day, of such
      conversion or continuation;

            (ii) the aggregate amount and Type of the Advance which is to be
      converted or continued; and

            (iii) the amount of the Advance which is to be converted into or
      continued as a Eurodollar Advance and the duration of the Interest Period
      applicable thereto;

provided that no Advance may be continued as, or converted into, a Eurodollar
Advance if (x) such continuation or conversion would violate any provision of
this Agreement or (y) a Default or Event of Default exists.

      2.10 Interest Rates, Interest Payment Dates. (a) Subject to Section 2.11,
each Advance shall bear interest as follows:

            (i) at any time such Advance is a Floating Rate Advance, at a rate
      per annum equal to the Floating Rate from time to time in effect; and

            (ii) at any time such Advance is a Eurodollar Advance, at a rate per
      annum equal to the Eurodollar Rate for each applicable Interest Period.

Changes in the rate of interest on that portion or any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Floating Rate.

      (b) Interest accrued on each Floating Rate Advance shall be payable on
each Payment Date and on the Termination Date. Interest accrued on each
Eurodollar Advance shall be payable on the last day of its applicable Interest
Period, on any date on which such Eurodollar Advance is prepaid and on the
Termination Date. Interest accrued on each Eurodollar Advance having an Interest
Period longer than three months shall also be payable on the last day of each
three-month interval during such Interest Period. Interest on Eurodollar
Advances, interest on Floating Rate Advances based on the Federal Funds
Effective Rate and the LC Fee shall be calculated for actual days elapsed on the
basis of a 360-day year. Interest on Floating Rate Advances based on the Prime
Rate shall be calculated for actual days elapsed on the basis of a 365- or
366-day year, as appropriate. Interest on each Advance shall accrue from and
including the date such Advance is made to but excluding the date payment
thereof is received in

                                       16

<PAGE>

accordance with Section 2.12. If any payment of principal of or interest on an
Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day (unless, in the case of a
Eurodollar Advance, such next succeeding Business Day falls in a new calendar
month, in which case such payment shall be due on the immediately preceding
Business Day) and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.

      2.11 Rate after Maturity. Any Advance not paid by the Company at maturity,
whether by acceleration or otherwise, shall bear interest until paid in full at
a rate per annum equal to the higher of (i) the rate otherwise applicable
thereto plus 1% or (ii) the Floating Rate plus 1%.

      2.12 Method of Payment. All payments of principal, interest and fees
hereunder shall be made in immediately available funds to the Agent at its
address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the Agent to the
Company) not later than 1:00 p.m. (New York time) on the date when due and shall
(except in the case of Reimbursement Obligations for which the LC Issuer has not
been fully indemnified by the Banks, or as otherwise specifically required
hereunder) be applied ratably by the Agent among the Banks. Funds received after
such time shall be deemed received on the following Business Day unless the
Agent shall have received from, or on behalf of, the Company a Federal Reserve
reference number with respect to such payment before 4:00 p.m. (New York time)
on the date of such payment. Each payment delivered to the Agent for the account
of any Bank shall be delivered promptly by the Agent in the same type of funds
received by the Agent to such Bank at the address specified for such Bank in its
Administrative Questionnaire or at any Lending Installation specified in a
notice received by the Agent from such Bank. The Agent is hereby authorized to
charge the account of the Company maintained with JPMorgan, if any, for each
payment of principal, interest, Reimbursement Obligations and fees as such
payment becomes due hereunder. Each reference to the Agent in this Section 2.12
shall also be deemed to refer, and shall apply equally, to the LC Issuer, in the
case of payments required to be made by the Company to the LC Issuer pursuant to
Section 3.6.

      2.13 Bonds; Record-keeping; Telephonic Notices.

      (a) The obligation of the Company to repay the Obligations shall be
evidenced by one or more Bonds or, at the request of any Bank following the FMB
Release Date, a promissory note in form and substance reasonably satisfactory to
the Company, the Agent and such Bank.

      (b) Each Bank shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Company to such Bank
resulting from each Loan made by such Bank from time to time, including the
amounts of principal and interest payable and paid to such Bank from time to
time hereunder.

      (c) The Agent shall also maintain accounts in which it will record (i) the
amount of each Loan made hereunder, the Type thereof and, if applicable, the
Interest Period with respect thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Company to each
Bank hereunder, (iii) the original stated amount of each

                                       17
<PAGE>

Facility LC and the amount of LC Obligations outstanding at any time, and (iv)
the amount of any sum received by the Agent hereunder from the Company and each
Bank's share thereof.

      (d) The entries maintained in the accounts maintained pursuant to clauses
(b) and (c) above shall be prima facie evidence of the existence and amounts of
the Obligations therein recorded; provided that the failure of the Agent or any
Bank to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Company to repay the Obligations in accordance with
their terms.

      (e) The Company hereby authorizes the Banks and the Agent to make Advances
based on telephonic notices made by any person or persons the Agent or any Bank
in good faith believes to be acting on behalf of the Company. The Company agrees
to deliver promptly to the Agent a written confirmation of each telephonic
notice signed by a Designated Officer. If the written confirmation differs in
any material respect from the action taken by the Agent and the Banks, the
records of the Agent and the Banks shall govern absent manifest error.

      2.14 Lending Installations. Subject to the provisions of Section 4.6, each
Bank may book its Loans and its participation in any LC Obligations and the LC
Issuer may book the Facility LCs at any Lending Installation selected by such
Bank or the LC Issuer, as the case may be, and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Loans shall be deemed held by the applicable
Bank for the benefit of such Lending Installation. Each Bank may, by written or
facsimile notice to the Company, designate a Lending Installation through which
Loans will be made by it or Facility LCs will be issued by it and for whose
account payments on the Loans or payments with respect to Facility LCs are to be
made.

      2.15 Non-Receipt of Funds by the Agent. Unless a Bank or the Company, as
the case may be, notifies the Agent prior to the date on which it is scheduled
to make payment to the Agent of (i) in the case of a Bank, the proceeds of a
Loan or (ii) in the case of the Company, a payment of principal, interest or
fees to the Agent for the account of the Banks, that it does not intend to make
such payment, the Agent may assume that such payment has been made. The Agent
may, but shall not be obligated to, make the amount of such payment available to
the intended recipient in reliance upon such assumption. If such Bank or the
Company, as the case may be, has not in fact made such payment to the Agent, the
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to (i) in the case of payment by a Bank, the Federal Funds Rate for such
day or (ii) in the case of payment by the Company, the interest rate applicable
to the relevant Loan.

                                  ARTICLE III
                            LETTER OF CREDIT FACILITY

      3.1 Issuance. The LC Issuer hereby agrees, on the terms and conditions set
forth in this Agreement, to issue standby and commercial letters of credit
denominated in U.S. dollars (each, a "Facility LC") and to renew, extend,
increase, decrease or otherwise modify each Facility

                                       18

<PAGE>

LC ("Modify," and each such action a "Modification"), from time to time from and
including the date hereof and prior to the Termination Date upon the request of
the Company; provided that immediately after each such Facility LC is issued or
Modified, (i) the aggregate amount of the outstanding LC Obligations shall not
exceed $100,000,000 and (ii) the Aggregate Outstanding Credit Exposure shall not
exceed the Available Commitment. No Facility LC shall (x) be issued later than
30 days prior to the scheduled Termination Date, (y) have an expiry date later
than the fifth Business Day (or, in the case of a commercial Facility LC, the
30th day) prior to the scheduled Termination Date or (z) provide for time
drafts.

      3.2 Participations. Upon the issuance or Modification by the LC Issuer of
a Facility LC in accordance with this Article III (or, in the case of any
Existing Facility LC, on the Initial Borrowing Date), the LC Issuer shall be
deemed, without further action by any party hereto, to have unconditionally and
irrevocably sold to each Bank, and each Bank shall be deemed, without further
action by any party hereto, to have unconditionally and irrevocably purchased
from the LC Issuer, a participation in such Facility LC (and each Modification
thereof) and the related LC Obligations in proportion to its Pro Rata Share.

      3.3 Notice. Subject to Section 3.1, the Company shall give the LC Issuer
notice prior to 12:00 noon (New York time) at least three Business Days prior to
the proposed date of issuance (other than an Existing Facility LC) or
Modification of each Facility LC, specifying the beneficiary, the proposed date
of issuance (or Modification) and the expiry date of such Facility LC, and
describing the proposed terms of such Facility LC and the nature of the
transactions proposed to be supported thereby. Upon receipt of such notice, the
LC Issuer shall promptly notify the Agent, and the Agent shall promptly notify
each Bank, of the contents thereof and of the amount of such Bank's
participation in such proposed Facility LC. The issuance or Modification by the
LC Issuer of any Facility LC shall, in addition to the conditions precedent set
forth in Article XI (the satisfaction of which the LC Issuer shall have no duty
to ascertain), be subject to the conditions precedent that such Facility LC
shall be satisfactory to the LC Issuer and that the Company shall have executed
and delivered such application agreement and/or such other instruments and
agreements relating to such Facility LC as the LC Issuer shall have reasonably
requested (each, a "Facility LC Application"). In the event of any conflict
between the terms of this Agreement and the terms of any Facility LC
Application, the terms of this Agreement shall control.

      3.4 LC Fees. The Company shall pay to the Agent, for the account of the
Banks ratably in accordance with their respective Pro Rata Shares, a letter of
credit fee (the "LC Fee") at a per annum rate equal to the Applicable Margin for
Eurodollar Rate Loans in effect from time to time on the daily undrawn stated
amount of each Facility LC, such fee to be payable in arrears on each Payment
Date and the Termination Date (and, if applicable, thereafter on demand). The
Company shall also pay to the LC Issuer for its own account (a) a fronting fee
for each Facility LC at the time and in the amount set forth in the Fee Letter
and (b) documentary and processing charges in connection with the issuance or
Modification of and draws under Facility LCs in accordance with the LC Issuer's
standard schedule for such charges as in effect from time to time.

      3.5 Administration; Reimbursement by Banks. Upon receipt from the
beneficiary of any Facility LC of any demand for payment under such Facility LC,
the LC Issuer shall notify

                                       19

<PAGE>

the Agent and the Agent shall promptly notify the Company and each other Bank as
to the amount to be paid by the LC Issuer as a result of such demand and the
proposed payment date (the "LC Payment Date"). The responsibility of the LC
Issuer to the Company and each Bank shall be only to determine that the
documents (including each demand for payment) delivered under each Facility LC
in connection with such presentment shall be in conformity in all material
respects with such Facility LC. The LC Issuer shall endeavor to exercise the
same care in the issuance and administration of the Facility LCs as it does with
respect to letters of credit in which no participations are granted, it being
understood that in the absence of any gross negligence or willful misconduct by
the LC Issuer, each Bank shall be unconditionally and irrevocably liable without
regard to the occurrence of any Default or any condition precedent whatsoever,
to reimburse the LC Issuer on demand for (i) such Bank's Pro Rata Share of the
amount of each payment made by the LC Issuer under each Facility LC to the
extent such amount is not reimbursed by the Company pursuant to Section 3.6
below, plus (ii) interest on the foregoing amount to be reimbursed by such Bank,
for each day from the date of the LC Issuer's demand for such Reimbursement (or,
if such demand is made after 12:00 noon (New York time) on such date, from the
next succeeding Business Day) to the date on which such Bank pays the amount to
be reimbursed by it, at a rate of interest per annum equal to the Federal Funds
Effective Rate for the first three days and, thereafter, at a rate of interest
equal to the rate applicable to Floating Rate Advances.

      3.6 Reimbursement by Company. The Company shall be irrevocably and
unconditionally obligated to reimburse the LC Issuer on the applicable LC
Payment Date for any amounts to be paid by the LC Issuer upon any drawing under
any Facility LC, without presentment, demand, protest or other formalities of
any kind; provided that neither the Company nor any Bank shall hereby be
precluded from asserting any claim for direct (but not consequential) damages
suffered by the Company or such Bank to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of the LC Issuer in
determining whether a request presented under any Facility LC issued by it
complied with the terms of such Facility LC or (ii) the LC Issuer's failure to
pay under any Facility LC issued by it after the presentation to it of a request
strictly complying with the terms and conditions of such Facility LC. All such
amounts paid by the LC Issuer and remaining unpaid by the Company shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to (x) the rate applicable to Floating Rate Advances for such day if such day
falls on or before the applicable LC Payment Date and (y) the sum of 1% plus the
rate applicable to Floating Rate Advances for such day if such day falls after
such LC Payment Date. The LC Issuer will pay to each Bank ratably in accordance
with its Pro Rata Share all amounts received by it from the Company for
application in payment, in whole or in part, of the Reimbursement Obligation in
respect of any Facility LC issued by the LC Issuer, but only to the extent such
Bank has made payment to the LC Issuer in respect of such Facility LC pursuant
to Section 3.5. Subject to the terms and conditions of this Agreement (including
the submission of a Borrowing Notice in compliance with Section 2.8 and the
satisfaction of the applicable conditions precedent set forth in Article XI),
the Company may request an Advance hereunder for the purpose of satisfying any
Reimbursement Obligation.

      3.7 Obligations Absolute. The Company's obligations under this Article III
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff,

                                       20

<PAGE>

counterclaim or defense to payment which the Company may have or have had
against the LC Issuer, any Bank or any beneficiary of a Facility LC. The Company
further agrees with the LC Issuer and the Banks that the LC Issuer and the Banks
shall not be responsible for, and the Company's Reimbursement Obligation in
respect of any Facility LC shall not be affected by, among other things, the
validity or genuineness of documents or of any endorsements thereon, even if
such documents should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among the Company, any of its
affiliates, the beneficiary of any Facility LC or any financing institution or
other party to whom any Facility LC may be transferred or any claims or defenses
whatsoever of the Company or of any of its affiliates against the beneficiary of
any Facility LC or any such transferee. The LC Issuer shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Facility
LC. The Company agrees that any action taken or omitted by the LC Issuer or any
Bank under or in connection with each Facility LC and the related drafts and
documents, if done without gross negligence or willful misconduct, shall be
binding upon the Company and shall not put the LC Issuer or any Bank under any
liability to the Company. Nothing in this Section 3.7 is intended to limit the
right of the Company to make a claim against the LC Issuer for damages as
contemplated by the proviso to the first sentence of Section 3.6.

      3.8 Actions of LC Issuer. The LC Issuer shall be entitled to rely, and
shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Notwithstanding any other provision of this
Article III, the LC Issuer shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and any future holders of a
participation in any Facility LC.

      3.9 Indemnification. The Company hereby agrees to indemnify and hold
harmless each Bank, the LC Issuer and the Agent, and their respective directors,
officers, agents and employees from and against any and all claims and damages,
losses, liabilities, reasonable costs or expenses which such Bank, the LC Issuer
or the Agent may incur (or which may be claimed against such Bank, the LC Issuer
or the Agent by any Person whatsoever) by reason of or in connection with the
issuance, execution and delivery or transfer of or payment or failure to pay
under any Facility LC or any actual or proposed use of any Facility LC,
including any claims, damages, losses, liabilities, costs or expenses which the
LC Issuer may incur by reason of or in connection with (i) the failure of any
other Bank to fulfill or comply with its obligations to the LC Issuer hereunder
(but nothing herein contained shall affect any rights the Company may have
against any defaulting Bank) or (ii) by reason of or on account of the LC Issuer
issuing any

                                       21

<PAGE>

Facility LC which specifies that the term "Beneficiary" included therein
includes any successor by operation of law of the named Beneficiary, but which
Facility LC does not require that any drawing by any such successor Beneficiary
be accompanied by a copy of a legal document, satisfactory to the LC Issuer,
evidencing the appointment of such successor Beneficiary; provided that the
Company shall not be required to indemnify any Bank, the LC Issuer or the Agent
for any claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by (x) the willful misconduct or gross negligence
of the LC Issuer in determining whether a request presented under any Facility
LC complied with the terms of such Facility LC or (y) the LC Issuer's failure to
pay under any Facility LC after the presentation to it of a request strictly
complying with the terms and conditions of such Facility LC. Nothing in this
Section 3.9 is intended to limit the obligations of the Company under any other
provision of this Agreement.

      3.10 Banks' Indemnification. Each Bank shall, ratably in accordance with
its Pro Rata Share, indemnify the LC Issuer, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Company) against any cost, expense (including reasonable counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from such indemnitees' gross negligence or willful misconduct or the LC Issuer's
failure to pay under any Facility LC after the presentation to it of a request
strictly complying with the terms and conditions of the Facility LC) that such
indemnitees may suffer or incur in connection with this Article III or any
action taken or omitted by such indemnitees hereunder.

      3.11 Rights as a Bank. In its capacity as a Bank, the LC Issuer shall have
the same rights and obligations as any other Bank.

                                   ARTICLE IV
                             CHANGE IN CIRCUMSTANCES

      4.1 Yield Protection.

      (a) If any change in law or any governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any
interpretation thereof by any agency or authority having jurisdiction over any
Bank or the LC Issuer,

            (i) subjects any Bank, the LC Issuer or any applicable Lending
      Installation to any increased tax, duty, charge or withholding on or from
      payments due from the Company (excluding taxation measured by or
      attributable to the overall net income of such Bank, the LC Issuer or such
      applicable Lending Installation, whether overall or in any geographic
      area), or changes the rate of taxation of payments to any Bank or the LC
      Issuer in respect of its Credit Extensions (including any participations
      in Facility LCs) or other amounts due it hereunder, or

            (ii) imposes or increases or deems applicable any reserve,
      assessment, insurance charge, special deposit or similar requirement
      against assets of, deposits with or for the account of, or credit extended
      by any Bank, the LC Issuer or any applicable

                                       22

<PAGE>

      Lending Installation (including any reserve costs under Regulation D with
      respect to Eurocurrency liabilities (as defined in Regulation D)), or

            (iii) imposes any other condition the result of which is to increase
      the cost to any Bank, the LC Issuer or any applicable Lending Installation
      of making, funding or maintaining Credit Extensions (including any
      participations in Facility LCs), or reduces any amount receivable by any
      Bank, the LC Issuer or any applicable Lending Installation in connection
      with Credit Extensions (including any participations in Facility LCs) or
      requires any Bank, the LC Issuer or any applicable Lending Installation to
      make any payment calculated by reference to its Outstanding Credit
      Exposure or interest received by it, by an amount deemed material by such
      Bank or the LC Issuer, or

            (iv) affects the amount of capital required or expected to be
      maintained by any Bank, the LC Issuer or any applicable Lending
      Installation or any corporation controlling any Bank or the LC Issuer and
      such Bank or the LC Issuer, as applicable, determines the amount of
      capital required is increased by or based upon the existence of this
      Agreement or its obligation to make Credit Extensions (including any
      participations in Facility LCs) hereunder or of commitments of this type,

then, upon presentation by such Bank or the LC Issuer to the Company of a
certificate (as referred to in the immediately succeeding sentence of this
Section 4.1) setting forth the basis for such determination and the additional
amounts reasonably determined by such Bank or the LC Issuer for the period of up
to 90 days prior to the date on which such certificate is delivered to the
Company and the Agent, to be sufficient to compensate such Bank or the LC
Issuer, as applicable, in light of such circumstances, the Company shall within
30 days of such delivery of such certificate pay to the Agent for the account of
such Bank or the LC Issuer, as applicable, the specified amounts set forth on
such certificate. The affected Bank or the LC Issuer, as applicable, shall
deliver to the Company and the Agent a certificate setting forth the basis of
the claim and specifying in reasonable detail the calculation of such increased
expense, which certificate shall be prima facie evidence as to such increase and
such amounts. An affected Bank or the LC Issuer, as applicable, may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
and the LC Issuer may make such reasonable estimates, assumptions, allocations
and the like that such Bank or the LC Issuer, as applicable, in good faith
determines to be appropriate, and such Bank's or the LC Issuer's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.

      (b)Neither the LC Issuer nor any Bank shall be entitled to demand
compensation or be compensated hereunder to the extent that such compensation
relates to any period of time more than 90 days prior to the date upon which
such Bank or the LC Issuer, as applicable, first notified the Company of the
occurrence of the event entitling such Bank or the LC Issuer, as applicable, to
such compensation (unless, and to the extent, that any such compensation so
demanded shall relate to the retroactive application of any event so notified to
the Company).

      4.2 Replacement Bank

                                       23
<PAGE>

      (a)   If any Bank shall make a demand for payment under Section 4.1, then
within 30 days after such demand, the Company may, with the approval of the
Agent (which approval shall not be unreasonably withheld) and provided that no
Default or Event of Default shall then have occurred and be continuing, demand
that such Bank assign to one or more financial institutions designated by the
Company and approved by the Agent all (but not less than all) of such Bank's
Commitment and Outstanding Credit Exposure within the period ending on the later
of such 30th day and the last day of the longest of the then current Interest
Periods or maturity dates for such Outstanding Credit Exposure. Any such
assignment shall be consummated on terms satisfactory to the assigning Bank;
provided that such Bank's consent to such assignment shall not be unreasonably
withheld.

      (b)   If the Company shall elect to replace a Bank pursuant to clause (a)
above, the Company shall prepay the Outstanding Credit Exposure of such Bank,
and the financial institution or institutions selected by the Company shall
replace such Bank as a Bank hereunder pursuant to an instrument satisfactory to
the Company, the Agent and the Bank being replaced by making Credit Extensions
to the Company in the amount of the Outstanding Credit Exposure of such
assigning Bank and assuming all the same rights and responsibilities hereunder
as such assigning Bank and having the same Commitment as such assigning Bank.

      4.3   Availability of Eurodollar Rate Loans. If

      (a)   any Bank determines that maintenance of a Eurodollar Rate Loan at a
suitable Lending Installation would violate any applicable law, rule, regulation
or directive, whether or not having the force of law, or

      (b)   the Majority Banks determine that (i) deposits of a type and
maturity appropriate to match fund Eurodollar Rate Loans are not available or
(ii) the Base Eurodollar Rate does not accurately reflect the cost of making or
maintaining a Eurodollar Rate Loan,

then the Agent shall suspend the availability of Eurodollar Rate Loans and, in
the case of clause (a), require any outstanding Eurodollar Rate Loans to be
converted to Floating Rate Loans on such date as is required by the applicable
law, rule, regulation or directive.

      4.4   Funding Indemnification. If any payment of a Eurodollar Rate Loan
occurs on a date which is not the last day of an applicable Interest Period,
whether because of prepayment or otherwise, or a Eurodollar Rate Loan is not
made on the date specified by the Company for any reason other than default by
the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including any loss or cost in
liquidating or employing deposits acquired to fund or maintain such Eurodollar
Rate Loan; provided that the Company shall not be liable for any of the
foregoing to the extent they arise because of acceleration by any Bank.

                                       24

<PAGE>

      4.5   Taxes.

      (a)   All payments by the Company to or for the account of any Bank, the
LC Issuer or the Agent hereunder or under any Bond or Facility LC Application
shall be made free and clear of and without deduction for any and all Taxes. If
the Company shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder to any Bank, the LC Issuer or the Agent, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.5) such Bank, the LC Issuer or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such deductions, (iii) the
Company shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.

      (b)   In addition, the Company hereby agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Bond or
Facility LC Application or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Bond or Facility LC Application ("Other
Taxes").

      (c)   The Company hereby agrees to indemnify the Agent, the LC Issuer and
each Bank for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed on amounts payable under this Section 4.5) paid by the
Agent, the LC Issuer or such Bank and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto. Payments due
under this indemnification shall be made within 30 days of the date the Agent,
the LC Issuer or such Bank makes demand therefor pursuant to Section 4.6.

      (d)   Each Bank that is not incorporated under the laws of the United
States of America or a state thereof (each a "Non-U.S. Bank") agrees that it
will, not more than ten Business Days after the date hereof, or, if later, not
more than ten Business Days after becoming a Bank hereunder, (i) deliver to each
of the Company and the Agent two duly completed copies of United States Internal
Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Bank
is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, and (ii) deliver to each
of the Company and the Agent a United States Internal Revenue Form W-8 or W-9,
as the case may be, and certify that it is entitled to an exemption from United
States backup withholding tax. Each Non-U.S. Bank further undertakes to deliver
to each of the Company and the Agent (x) renewals or additional copies of such
form (or any successor form) on or before the date that such form expires or
becomes obsolete, and (y) after the occurrence of any event requiring a change
in the most recent forms so delivered by it, such additional forms or amendments
thereto as may be reasonably requested by the Company or the Agent. All forms or
amendments described in the preceding sentence shall certify that such Bank is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, unless an event
(including any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form or

                                       25

<PAGE>

amendment with respect to it and such Bank advises the Company and the Agent
that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax.

      (e)   For any period during which a Non-U.S. Bank has failed to provide
the Company with an appropriate form pursuant to clause (d), above (unless such
failure is due to a change in treaty, law or regulation, or any change in the
interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Bank shall not be entitled to indemnification under
this Section 4.5 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Bank which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (d) above, the Company shall take such
steps as such Non-U.S. Bank shall reasonably request to assist such Non-U.S.
Bank to recover such Taxes.

      (f)   Any Bank that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Bond
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Company (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.

      (g)   If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered or properly completed, because such Bank failed to notify the
Agent of a change in circumstances which rendered its exemption from withholding
ineffective, or for any other reason), such Bank shall indemnify the Agent fully
for all amounts paid, directly or indirectly, by the Agent as tax, withholding
therefor, or otherwise, including penalties and interest, and including taxes
imposed by any jurisdiction on amounts payable to the Agent under this clause
(g), together with all costs and expenses related thereto (including attorneys
fees and time charges of attorneys for the Agent, which attorneys may be
employees of the Agent). The obligations of the Banks under this clause (g)
shall survive the payment of the Obligations and termination of this Agreement.

      4.6   Bank Certificates, Survival of Indemnity. To the extent reasonably
possible, each Bank shall designate an alternate Lending Installation with
respect to Eurodollar Rate Loans to reduce any liability of the Company to such
Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate Loan
under Section 4.3, so long as such designation is not disadvantageous to such
Bank. A certificate of such Bank as to the amount due under Section 4.1, 4.4 or
4.5 shall be final, conclusive and binding on the Company in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Loan whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in any certificate
shall be payable on demand

                                       26

<PAGE>

after receipt by the Company of such certificate. The obligations of the Company
under Sections 4.1, 4.4 and 4.5 shall survive payment of the Obligations and
termination of this Agreement; provided that no Bank shall be entitled to
compensation to the extent that such compensation relates to any period of time
more than 90 days after the termination of this Agreement.

                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

      The Company hereby represents and warrants that:

      5.1   Incorporation and Good Standing. The Company is duly incorporated,
validly existing and in good standing under the laws of the State of Michigan.

      5.2   Corporate Power and Authority: No Conflicts. The execution, delivery
and performance by the Company of the Credit Documents are within the Company's
corporate powers, have been duly authorized by all necessary corporate action
and do not (i) violate the Company's charter, bylaws or any applicable law, or
(ii) breach or result in an event of default under any indenture or material
agreement, and do not result in or require the creation of any Lien upon or with
respect to any of its properties (except the Lien of the Indenture securing the
Bonds and any Lien in favor of the Agent on the Facility LC Collateral Account
or any funds therein).

      5.3   Governmental Approvals. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the Company
of any Credit Document, except for the authorization to issue, sell or guarantee
secured and/or unsecured short-term debt granted by the Federal Energy
Regulatory Commission, which authorization has been obtained and is in full
force and effect.

      5.4   Legally Enforceable Agreements. Each Credit Document constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).

      5.5   Financial Statements. The audited balance sheet of the Company and
its Consolidated Subsidiaries as at December 31, 2004, and the related
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K (copies of which have been furnished to each Bank),
and the unaudited balance sheet of the Company and its Consolidated Subsidiaries
as at March 31, 2005 (copies of which have been furnished to each Bank) fairly
present the financial condition of the Company and its Consolidated Subsidiaries
as at such dates and the results of operations of the Company and its
Consolidated Subsidiaries for the periods ended on such dates, all in accordance
with GAAP, and since December 31, 2004, there has been no Material Adverse
Change.

                                       27

<PAGE>

      5.6   Litigation. Except (i) to the extent described in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004 and Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005, in each case as filed
with the SEC, and (ii) such other similar actions, suits and proceedings
predicated on the occurrence of the same events giving rise to any actions,
suits and proceedings described in the Reports referred to in the foregoing
clause (i) (all matters described in clauses (i) and (ii) above, the "Disclosed
Matters"), there is no pending or threatened action, suit, investigation or
proceeding against the Company or any of its Consolidated Subsidiaries before
any court, governmental agency or arbitrator, which, if adversely determined,
might reasonably be expected to result in a Material Adverse Change. As of the
Initial Borrowing Date, (a) there is no litigation challenging the validity or
the enforceability of any of the Credit Documents and (b) there have been no
adverse developments with respect to the Disclosed Matters that have resulted,
or could reasonably be expected to result, in a Material Adverse Change.

      5.7   Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U), and no proceeds of any Credit Extension will be used
to buy or carry any margin stock or to extend credit to others for the purpose
of buying or carrying any margin stock.

      5.8   ERISA. No Plan Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any ERISA
Affiliate is an employer under or has any liability with respect to a
Multiemployer Plan.

      5.9   Insurance. All insurance required by Section 6.2 is in full force
and effect.

      5.10  Taxes. The Company and its Subsidiaries have filed all tax returns
(Federal, state and local) required to be filed and paid all taxes shown thereon
to be due, including interest and penalties, or, to the extent the Company or
any of its Subsidiaries is contesting in good faith an assertion of liability
based on such returns, has provided adequate reserves for payment thereof in
accordance with GAAP.

      5.11  Investment Company Act. The Company is not an investment company
(within the meaning of the Investment Company Act of 1940, as amended).

      5.12  Public Utility Holding Company Act. The Company is exempt from the
registration requirements of the Public Utility Holding Company Act of 1935, as
amended, 15 USC 79, et seq.

      5.13  Bonds. The issuance to the Agent of Bonds as evidence of the
Obligations (i) will not violate any provision of the Indenture or any other
agreement or instrument, or any law or regulation, or judicial or regulatory
order, judgment or decree, to which the Company or any of its Subsidiaries is a
party or by which any of the foregoing is bound and (ii) will, prior to the FMB
Release Date, provide the Banks, as beneficial holders of the Bonds through the
Agent, the benefit of the Lien of the Indenture equally and ratably with the
holders of other First Mortgage Bonds.

                                       28

<PAGE>

      5.14  Disclosure. The Company has not withheld any fact from the Agent or
the Banks in regard to the occurrence of a Material Adverse Change; and all
financial information delivered by the Company to the Agent and the Banks on and
after the date of this Agreement is true and correct in all material respects as
at the dates and for the periods indicated therein.

      5.15  OFAC. Neither the Company nor any Subsidiary or Affiliate of the
Company 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 or as otherwise
published from time.

                                   ARTICLE VI

                              AFFIRMATIVE COVENANTS

      So long as any Obligations shall remain unpaid, any Facility LC shall
remain outstanding or any Bank shall have any Commitment under this Agreement,
the Company shall:

      6.1   Payment of Taxes, Etc. Pay and discharge, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property; provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not result in a Material Adverse Change.

      6.2   Maintenance of Insurance. Maintain insurance in such amounts and
covering such risks with respect to its business and properties as is usually
carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.

      6.3   Preservation of Corporate Existence, Etc. Preserve and maintain its
corporate existence, rights and franchises, and qualify and remain qualified as
a foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business and operations or the ownership of its
properties; provided that the Company shall not be required to preserve any such
right or franchise or to remain so qualified unless the failure to do so would
reasonably be expected to result in a Material Adverse Change.

      6.4   Compliance with Laws, Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with which would reasonably be expected to result in a
Material Adverse Change.

      6.5   Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers.

                                       29

<PAGE>

      6.6   Keeping of Books. Keep, and cause each Consolidated Subsidiary to
keep, adequate records and books of account, in which full and correct entries
shall be made of all of its financial transactions and its assets and business
so as to permit the Company and its Consolidated Subsidiaries to present
financial statements in accordance with GAAP.

      6.7   Reporting Requirements. Furnish to the Agent, with sufficient copies
for each of the Banks:

      (a)   as soon as practicable and in any event within five Business Days
after becoming aware of the occurrence of any Default or Event of Default, a
statement of a Designated Officer as to the nature thereof, and as soon as
practicable and in any event within five Business Days thereafter, a statement
of a Designated Officer as to the action which the Company has taken, is taking
or proposes to take with respect thereto;

      (b)   as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its Consolidated
Subsidiaries as at the end of and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, or statements providing
substantially similar information (which requirement shall be deemed satisfied
by the delivery of the Company's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to the absence of
footnotes and to year-end audit adjustments) by a Designated Officer as having
been prepared in accordance with GAAP, together with (i) a certificate of a
Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto, and (ii) a certificate of a Designated Officer, in
substantially the form of Exhibit C hereto, setting forth the Company's
computation of the financial ratios specified in Sections 8.1 and 8.2 as of the
end of the immediately preceding fiscal quarter or year, as the case may be, of
the Company;

      (c)   as soon as available and in any event within 120 days after the end
of each fiscal year of the Company, a copy of the Company's Annual Report on
Form 10-K (or any successor form) for such year, including therein the
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such year and the consolidated statements of income, cash flows
and common stockholder's equity of the Company and its Consolidated Subsidiaries
as at the end of and for such year, or statements providing substantially
similar information, in each case certified by independent public accountants of
recognized national standing selected by the Company (and not objected to by the
Majority Banks), together with a certificate of such accounting firm addressed
to the Banks stating that, in the course of its examination of the consolidated
financial statements of the Company and its Consolidated Subsidiaries, which
examination was conducted by such accounting firm in accordance with GAAP, (1)
such

                                       30

<PAGE>

accounting firm has obtained no knowledge that an Event of Default, insofar as
such Event of Default related to accounting or financial matters, has occurred
and is continuing, or if, in the opinion of such accounting firm, such an Event
of Default has occurred and is continuing, a statement as to the nature thereof,
and (2) such accounting firm has examined a certificate prepared by the Company
setting forth the computations made by the Company in determining, as of the end
of such fiscal year, the ratios specified in Sections 8.1 and 8.2, which
certificate shall be attached to the certificate of such accounting firm, and
such accounting firm confirms that such computations accurately reflect such
ratios;

      (d)   promptly after the sending or filing thereof, copies of all proxy
statements which the Company sends to its stockholders, copies of all regular,
periodic and special reports (other than those which relate solely to employee
benefit plans) which the Company files with the SEC and notice of the sending or
filing of (and, upon the request of the Agent or any Bank, a copy of) any final
prospectus filed with the SEC;

      (e)   as soon as possible and in any event (i) within 30 days after the
Company or any ERISA Affiliate knows or has reason to know that any Plan
Termination Event described in clause (a) of the definition of Plan Termination
Event with respect to any Plan has occurred and (ii) within ten days after the
Company or any ERISA Affiliate knows or has reason to know that any other Plan
Termination Event with respect to any Plan has occurred, a statement of the
Chief Financial Officer of the Company describing such Plan Termination Event
and the action, if any, which the Company or such ERISA Affiliate, as the case
may be, proposes to take with respect thereto;

      (f)   promptly upon becoming aware thereof, notice of any upgrading or
downgrading of the rating of the Senior Debt by Moody's or S&P;

      (g)   as soon as possible and in any event within five days after the
occurrence of any default under any agreement to which the Company or any of its
Subsidiaries is a party, which default would reasonably be expected to result in
a Material Adverse Change, and which is continuing on the date of such
certificate, a certificate of the president or chief financial officer of the
Company setting forth the details of such default and the action which the
Company or any such Subsidiary proposes to take with respect thereto; and

      (h)   promptly, such other information respecting the business, properties
or financial condition of the Company as the Agent or any Bank through the Agent
may from time to time reasonably request.

      6.8   Use of Proceeds. The Company will use the proceeds of the Credit
Extensions for general corporate purposes, working capital and refinancing the
Debt under the Prior Agreement. The Company will not, nor will it permit any
Subsidiary to, use any of the proceeds of the Credit Extensions to purchase or
carry any "margin stock" (as defined in Regulation U).

      6.9   Maintenance of Properties, Etc. The Company shall, and shall cause
each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar

                                       31

<PAGE>

businesses and owning similar properties, and not permit, commit or suffer any
waste or abandonment of any such Property, and from time to time make or cause
to be made all material repairs, renewals and replacements thereof, including
any capital improvements which may be required; provided that such Property may
be altered or renovated in the ordinary course of the Company's or its
Subsidiaries' business; and provided, further, that the foregoing shall not
restrict the sale of any asset of the Company or any Subsidiary to the extent
not prohibited by Section 7.2.

      6.10  Bonds. Beginning on the Initial Borrowing Date and continuing until
the earlier of (i) the FMB Release Date and (ii) the date on which the
Commitments and Facility LCs have terminated and all Obligations have been paid
in full, cause the face amount of all Bonds to at all times be equal to or
greater than the greater of (a) the Aggregate Commitment and (b) the Aggregate
Outstanding Credit Exposure.

                                  ARTICLE VII
                               NEGATIVE COVENANTS

      So long as any Obligations shall remain unpaid, any Facility LC shall
remain outstanding or any Bank shall have any Commitment under this Agreement,
the Company shall not:

      7.1   Liens. Create, incur, assume or suffer to exist any Lien upon or
with respect to any of its properties, now owned or hereafter acquired, except:

      (a)   Liens created pursuant to the Indenture securing the First Mortgage
Bonds and any Lien in favor of the Agent on the Facility LC Collateral Account
or any funds therein;

      (b)   Liens securing pollution control bonds, or bonds issued to refund or
refinance pollution control bonds (including Liens securing obligations
(contingent or otherwise) of the Company under letter of credit agreements or
other reimbursement or similar credit enhancement agreements with respect to
pollution control bonds); provided that the aggregate face amount of any such
bonds so issued shall not exceed the aggregate face amount of such pollution
control bonds, as the case may be, so refunded or refinanced;

      (c)   Liens in (and only in) assets acquired to secure Debt incurred to
finance the acquisition of such assets;

      (d)   Statutory and common law banker's Liens on bank deposits;

      (e)   Liens in respect of accounts receivable sold, transferred or
assigned by the Company;

      (f)   Liens for taxes, assessments or other governmental charges or levies
not at the time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;

                                       32

<PAGE>

      (g)   Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;

      (h)   Liens incurred in the ordinary course of business in connection with
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money) entered into
in the ordinary course of business or to secure obligations on surety or appeal
bonds;

      (i)   Judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered (subject to a customary deductible) by insurance;

      (j)   Zoning restrictions, easements, licenses, covenants, reservations,
utility company rights, restrictions on the use of real property or minor
irregularities of title incident thereto which do not in the aggregate
materially detract from the value of the property or assets of the Company or
materially impair the operation of its business;

      (k)   Liens arising in connection with the financing of the Company's fuel
resources, including nuclear fuel;

      (l)   Liens arising pursuant to M.C.L. 324.20138; provided that the
aggregate amount of all obligations secured by such Liens (excluding any such
Liens of which the Company has no knowledge or which are permitted by clause (f)
above) shall not exceed $20,000,000;

      (m)   Liens arising in connection with Securitized Bonds;

      (n)   Liens on natural gas, oil and mineral, or on stock in trade,
material or supplies manufactured or acquired for the purpose of sale and or
resale in the usual course of business or consumable in the operation of any of
the properties of the Company; provided that such Liens secure obligations not
exceeding $500,000,000 in aggregate principal amount; and

      (o)   Other Liens securing obligations in an aggregate amount not in
excess of $150,000,000.

      7.2   Sale of Assets. Sell, lease, assign, transfer or otherwise dispose
of 25% or more of its assets calculated with reference to total assets as
reflected on the Company's consolidated balance sheet as at December 31, 2004,
during the term of this Agreement.

      7.3   Mergers, Etc. Merge with or into or consolidate with or into any
other Person, except that the Company may merge with any other Person; provided
that, in each case, immediately after giving effect thereto, (a) no event shall
occur and be continuing which constitutes a Default or Event of Default, (b) the
Company is the surviving corporation, (c) the Company shall not be liable with
respect to any Debt or allow its Property to be subject to any Lien which it
could not become liable with respect to or allow its Property to become subject
to

                                       33

<PAGE>

under this Agreement on the date of such transaction and (d) the Company's Net
Worth shall be equal to or greater than its Net Worth immediately prior to such
merger.

      7.4   Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan, which termination will result in any material (in the reasonable
opinion of the Majority Banks) liability of the Company or such ERISA Affiliate
to the PBGC.

      7.5   Change in Nature of Business. Make any material change in the nature
of its business as carried on as of the date hereof.

      7.6   Restricted Payments. (a) Declare or pay any dividends or make any
other distributions on its capital stock (other than dividends payable solely in
such capital stock) or redeem any such capital stock; (b) purchase or otherwise
acquire or retire, or permit any Subsidiary to purchase or otherwise acquire or
retire, any of the Company's capital stock or (c) make, or permit any Subsidiary
to make, any loans or advances to CMS or any Subsidiary thereof (other than the
Company or any Subsidiary thereof); provided that, so long as no Default or
Event of Default exists, the Company may pay dividends in an aggregate amount
not to exceed $300,000,000 during any calendar year.

      7.7   Off-Balance Sheet Liabilities. Create, incur, assume or suffer to
exist, or permit any Subsidiary to create, incur, assume or suffer to exist,
Off-Balance Sheet Liabilities (exclusive of obligations arising in connection
with the Purchase Agreement among the Company, Consumers Receivables Funding II,
LLC, Falcon Asset Securitization Corporation and JPMorgan, dated as of May 22,
2003, as amended, restated or otherwise modified from time to time and any
similar agreement entered into in replacement thereof) in the aggregate in
excess of $250,000,000 at any time.

      7.8   Transactions with Affiliates. Enter into, or permit any Subsidiary
to enter into, any transaction with any of its Affiliates (other than the
Company or any Subsidiary) unless such transaction is on terms no less favorable
to the Company or such Subsidiary than if the transaction had been negotiated in
good faith on an arm's-length basis with a non-Affiliate; provided that any
transaction permitted under Section 7.6 shall be permitted hereunder.

                                  ARTICLE VIII
                               FINANCIAL COVENANTS

      So long as any of the Obligations shall remain unpaid, any Facility LC
shall remain outstanding or any Bank shall have any Commitment under this
Agreement, the Company shall:

      8.1   Debt to Capital Ratio. At all times, maintain a ratio of Total
Consolidated Debt to Total Consolidated Capitalization of not greater than 0.70
to 1.0.

      8.2   Interest Coverage Ratio. Not permit the ratio, determined as of the
end of each of its fiscal quarters for the then most-recently ended four fiscal
quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest Expense to be
less than 2.0 to 1.0.

                                       34

<PAGE>

                                   ARTICLE IX
                                EVENTS OF DEFAULT

      9.1   Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default":

      (a)   The Company shall fail to pay (i) any principal of any Advance when
due and payable, or (ii) any Reimbursement Obligation within one day after the
same becomes due, or (iii) any interest on any Advance or any fee or other
Obligation payable hereunder within five days after such interest or fee or
other Obligation becomes due and payable;

      (b)   Any representation or warranty made by the Company (or any of its
officers) in this Agreement or any other Credit Document or in any certificate,
document, report, financial or other written statement furnished at any time
pursuant to any Credit Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made;

      (c)   The Company shall fail to perform or observe any term, covenant or
agreement contained in Section 6.10, Article VII or Article VIII; or the Company
shall fail to perform or observe any other term, covenant or agreement on its
part to be performed or observed in this Agreement or in any other Credit
Document and such failure shall continue for 30 consecutive days after the
earlier of (i) a Designated Officer obtaining knowledge of such breach and (ii)
written notice thereof by means of facsimile, regular mail or written notice
delivered in person (or telephonic notice thereof confirmed in writing) having
been given to the Company by the Agent or the Majority Banks;

      (d)   The Company shall: (i) fail to pay any Debt (other than the payment
obligations described in clause (a) above) in excess of $50,000,000, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the instrument or
agreement relating to such Debt; or (ii) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Debt, unless
the obligee under or holder of such Debt shall have waived in writing such
circumstance, or such circumstance has been cured, so that such circumstance is
no longer continuing; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), in each case in accordance with the terms of such agreement or
instrument, prior to the stated maturity thereof; or (iv) generally not, or
shall admit in writing its inability to, pay its debts as such debts become due;

      (e)   The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iii) shall have had
any such petition or application filed or any such proceeding shall have been
commenced, against it, in which an

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<PAGE>

adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed for a period of 30
consecutive days or more; or (iv) by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian, receiver or
trustee for all or any substantial part of its property; or (v) shall suffer any
such custodianship, receivership or trusteeship to continue undischarged for a
period of 30 days or more; or (vi) shall take any corporate action to authorize
any of the actions set forth above in this clause (e);

      (f)   One or more judgments, decrees or orders for the payment of money in
excess of $50,000,000 in the aggregate shall be rendered against the Company and
either (i) enforcement proceedings shall have been commenced by any creditor
upon any such judgment or order or (ii) there shall be any period of more than
30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;

      (g)   Any Plan Termination Event with respect to a Plan shall have
occurred, and 30 days after notice thereof shall have been given to the Company
by the Agent, (i) such Plan Termination Event (if correctable) shall not have
been corrected and (ii) the then present value of such Plan's vested benefits
exceeds the then current value of the assets accumulated in such Plan by more
than the amount of $25,000,000 (or in the case of a Plan Termination Event
involving the withdrawal of a "substantial employer" (as defined in Section
4001(A)(2) of ERISA), the withdrawing employer's proportionate share of such
excess shall exceed such amount).

      (h)   Prior to the FMB Release Date, (i) any Bond shall cease to be in
full force and effect (except for Bonds surrendered by the Agent pursuant to
Section 2.5(b); or (ii) the Company shall deny that it has any liability or
obligation under any Bond or purport to revoke, terminate, rescind or redeem any
Bond (other than in accordance with the terms of the Bonds and the Indenture).

      9.2   Remedies.

      (a)   If any Event of Default shall occur and be continuing, the Agent
shall upon the request, or may with the consent, of the Majority Banks, by
notice to the Company, (i) declare the Commitments and the obligation and power
of the LC Issuer to issue Facility LCs to be terminated or suspended, whereupon
the same shall forthwith terminate, and/or (ii) declare the Obligations to be
forthwith due and payable, whereupon the Aggregate Outstanding Credit Exposure
and all other Obligations shall become and be forthwith due and payable, and/or
(iii) in addition to the continuing right to demand payment of all amounts
payable under this Agreement, make demand on the Company to pay, and the Company
will, forthwith upon such demand and without any further notice or act, pay to
the Agent the Collateral Shortfall Amount (as defined below), which funds shall
be deposited in the Facility LC Collateral Account, in each case without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company; provided that in the case of an Event of
Default referred to in Section 9.1(e), the Commitments shall automatically
terminate, the obligation and power of the LC Issuer to issue Facility LCs shall
automatically terminate and the Obligations shall automatically become due and
payable without notice, presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company, and the

                                       36

<PAGE>

Company will be and become thereby unconditionally obligated, without any
further notice, act or demand, to pay to the Agent an amount in immediately
available funds, which funds shall be held in the Facility LC Collateral
Account, equal to the difference of (x) the amount of LC Obligations at such
time, less (y) the amount on deposit in the Facility LC Collateral Account at
such time which is free and clear of all rights and claims of third parties and
has not been applied against the Obligations (such difference, the "Collateral
Shortfall Amount").

      (b)   If at any time while any Event of Default is continuing, the Agent
determines that the Collateral Shortfall Amount at such time is greater than
zero, the Agent may make demand on the Company to pay, and the Company will,
forthwith upon such demand and without any further notice or act, pay to the
Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Facility LC Collateral Account.

      (c)   The Agent may, at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to the payment
of the Obligations and any other amounts as shall from time to time have become
due and payable by the Company to the Banks or the LC Issuer under the Credit
Documents. The Company hereby pledges, assigns and grants to the Agent, on
behalf of and for the ratable benefit of the Banks and the LC Issuer, a security
interest in all of the Company's right, title and interest in and to all funds
which may from time to time be on deposit in the Facility LC Collateral Account
to secure the prompt and complete payment and performance of the Obligations.
The Agent will invest any funds on deposit from time to time in the Facility LC
Collateral Account in certificates of deposit of JPMorgan having a maturity not
exceeding 30 days.

      (d)   At any time while any Event of Default is continuing, neither the
Company nor any Person claiming on behalf of or through the Company shall have
any right to withdraw any of the funds held in the Facility LC Collateral
Account. After all of the Obligations have been indefeasibly paid in full, all
Facility LCs have expired or been terminated and the Aggregate Commitment has
been terminated, any funds remaining in the Facility LC Collateral Account shall
be returned by the Agent to the Company or paid to whomever may be legally
entitled thereto at such time.

                                   ARTICLE X
                        WAIVERS, AMENDMENTS AND REMEDIES

      10.1  Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority Banks)
and the Company may enter into written agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Credit Documents or
changing in any manner the rights of the Banks or the Company hereunder or
waiving any Event of Default hereunder; provided that no such supplemental
agreement shall, without the consent of all of the Banks:

      (a)   Extend the maturity of any Loan or reduce the principal amount
thereof, or extend the expiry date of any Facility LC to a date after the
scheduled Termination Date, or reduce the rate or extend the time of payment of
interest thereon or fees thereon or Reimbursement Obligations related thereto.

                                       37

<PAGE>

      (b)   Modify the percentage specified in the definition of Majority Banks.

      (c)   Extend the Termination Date or increase the amount of the Commitment
of any Bank hereunder or the commitment to issue Facility LCs, or permit the
Company to assign its rights under this Agreement.

      (d)   Amend Section 6.10, this Section 10.1 or Section 12.11.

      (e)   Make any change in an express right in this Agreement of a single
Bank to give its consent, make a request or give a notice.

      (f)   Authorize the Agent to vote in favor of the release of all or
substantially all of the collateral securing the Bonds.

No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer.

      10.2  Preservation of Rights. No delay or omission of the Banks, the LC
Issuer or the Agent to exercise any right under the Credit Documents shall
impair such right or be construed to be a waiver of any Default or Event of
Default or an acquiescence therein, and the making of a Credit Extension
notwithstanding the existence of a Default or Event of Default or the inability
of the Company to satisfy the conditions precedent to such Credit Extension
shall not constitute any waiver or acquiescence. Any single or partial exercise
of any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Credit Documents whatsoever shall be
valid unless in writing signed by the Banks required pursuant to Section 10.1,
and then only to the extent in such writing specifically set forth. All remedies
contained in the Credit Documents or by law afforded shall be cumulative and all
shall be available to the Agent, the LC Issuer and the Banks until the
Obligations have been paid in full.

                                   ARTICLE XI
                              CONDITIONS PRECEDENT

      11.1  Initial Credit Extension. The Banks shall not be required to make
the initial Credit Extension hereunder unless the Company has furnished to the
Agent with sufficient copies for the Banks:

      (a)   Counterparts of this Agreement executed by the Company and the
Banks.

      (b)   Copies of the Restated Articles of Incorporation of the Company,
together with all amendments, certified by the Secretary or an Assistant
Secretary of the Company, and a certificate of good standing, certified by the
appropriate governmental officer in its jurisdiction of incorporation.

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<PAGE>

      (c)   Copies, certified by the Secretary or an Assistant Secretary of the
Company, of its bylaws and of its Board of Directors' resolutions (and
resolutions of other bodies, if any are deemed necessary by counsel for any
Bank) authorizing the execution of the Credit Documents.

      (d)   An incumbency certificate, executed by the Secretary or an Assistant
Secretary of the Company, which shall identify by name and title and bear the
original or facsimile signature of the officers of the Company authorized to
sign the Credit Documents and the officers or other employees authorized to make
borrowings hereunder, upon which certificate the Banks shall be entitled to rely
until informed of any change in writing by the Company.

      (e)   A certificate, signed by a Designated Officer of the Company,
stating that on the date hereof no Default or Event of Default has occurred and
is continuing.

      (f)   Evidence satisfactory to the Agent of the issuance of the Bonds in
the form set forth in the Supplemental Indenture and in an aggregate principal
amount of $500,000,000 pursuant to the Bond Delivery Agreement.

      (g)   Favorable opinions of: (i) Robert S. Shrosbree, Esq., Deputy General
Counsel of CMS, as to the matters set forth in Exhibit B-1 and as to such other
matters as the Agent may reasonably request; and (ii) Miller, Canfield, Paddock
and Stone, P.L.C., as to the matters set forth in Exhibit B-2 and as to such
other matters as the Agent may reasonably request. Such opinions shall be
addressed to the Agent and the Banks and shall be satisfactory in form and
substance to the Agent.

      (h)   Evidence satisfactory to the Agent that the Prior Agreement shall
have been or shall simultaneously on the Initial Borrowing Date be terminated
(except for those provisions that expressly survive the termination thereof) and
all loans outstanding and other amounts owed to the lenders or agents thereunder
(other than contingent obligations with respect to Existing Facility LCs) shall
have been, or shall simultaneously with the initial Credit Extension hereunder
be, paid in full.

      (i)   Evidence, in form and substance satisfactory to the Agent, that the
Company has obtained all governmental approvals, if any, necessary for it to
enter into the Credit Documents.

      (j)   Such other documents as any Bank or its counsel may have reasonably
requested.

It shall be a further condition precedent to the making of the initial Credit
Extension hereunder that the Company shall have paid (i) to the Agent for the
account of the Banks the fees required to be paid on the Initial Borrowing Date
and (ii) to the Agent and each Arranger the fees required to be paid to them
pursuant to the Fee Letter.

      11.2  Each Credit Extension. The Banks shall not be required to make any
Credit Extension if on the applicable Borrowing Date, (i) any Default or Event
of Default exists, (ii) any representation or warranty contained in Article V is
not true and correct as of such Borrowing Date, (iii) prior to the FMB Release
Date, after giving effect to such Credit Extension the Aggregate Outstanding
Credit Exposure would exceed the face amount of all Bonds or (iv) all legal
matters incident to the making of such Credit Extension are not satisfactory to
the Banks

                                       39

<PAGE>

and their counsel; provided that, on any date following the Initial Borrowing
Date on which the ratings of the Senior Debt from Moody's and S&P are Baa2 or
higher and BBB or higher, respectively, the Company shall not be required to
make the representation and warranty (x) regarding no Material Adverse Change
set forth in Section 5.5 or (y) set forth in the first sentence of Section 5.6.
Each Borrowing Notice and each request for issuance of a Facility LC shall
constitute a representation and warranty by the Company that the conditions
contained in clauses (i), (ii) and (iii) above will be satisfied on the relevant
Borrowing Date. For the avoidance of doubt, the conversion or continuation of an
Advance shall not be considered the making of a Credit Extension.

                                  ARTICLE XII
                               GENERAL PROVISIONS

      12.1  Successors and Assigns. (a) The terms and provisions of the Credit
Documents shall be binding upon and inure to the benefit of the Company and the
Banks and their respective successors and assigns, except that the Company shall
not have the right to assign its rights under the Credit Documents. Any Bank may
sell participations in all or a portion of its rights and obligations under this
Agreement pursuant to clause (b) below and any Bank may assign all or any part
of its rights and obligations under this Agreement pursuant to clause (c) below.

      (b)   Any Bank may sell participations to one or more banks or other
entities (each a "Participant") in all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and its Outstanding Credit Exposure); provided that (i) such Bank's obligations
under this Agreement (including its Commitment to the Company hereunder) shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Bank shall
remain the holder of the Outstanding Credit Exposure of such Bank for all
purposes of this Agreement and (iv) the Company shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Each Bank shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Credit Documents other than any amendment,
modification or waiver with respect to any Loan or Commitment in which such
Participant has an interest which would require consent of all of the Banks
pursuant to the terms of Section 10.1 or of any other Credit Document. The
Company agrees that each Participant shall be deemed to have the right of setoff
provided in Section 12.10 in respect of its participating interest in amounts
owing under the Credit Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under the Credit
Documents; provided that each Bank shall retain the right of setoff provided in
Section 12.10 with respect to the amount of participating interests sold to each
Participant. The Banks agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 12.10, agrees
to share with each Bank, any amount received pursuant to the exercise of its
right of setoff, such amounts to be shared in accordance with Section 12.10 as
if each Participant were a Bank. The Company further agrees that each
Participant shall be entitled to the benefits of Sections 4.1, 4.3, 4.4 and 4.5
to the same extent as if it were a Bank and had acquired its interest by
assignment pursuant to Section 12.1(c); provided that (i) a Participant shall
not be entitled to receive any greater payment under Section 4.1, 4.3, 4.4 or
4.5 than the Bank that sold the participating interest to such Participant would
have received had it retained

                                       40

<PAGE>

such interest for its own account, unless the sale of such interest to such
Participant is made with the prior written consent of the Company, and (ii) any
Participant not incorporated under the laws of the United States of America or
any State thereof agrees to comply with the provisions of Section 4.5 to the
same extent as if it were a Bank.

      (c)   Any Bank may, in the ordinary course of its business and in
accordance with applicable law, at any time assign to one or more financial
institutions or other Persons all or any part of its rights and obligations
under this Agreement; provided that (i) unless such assignment is to another
Bank, an affiliate of such assigning Bank or any direct or indirect contractual
counterparty in any swap agreement relating to the Loans to the extent required
in connection with the settlement of such Bank's obligations pursuant thereto,
such Bank has received the Agent's and, so long as no Event of Default exists,
the Company's prior written consent to such assignment, which consent shall not
be unreasonably withheld or delayed, and (ii) the minimum principal amount of
any such assignment (other than assignments to a Federal Reserve Bank, to
another Bank, to an affiliate of such assigning Bank or to any direct or
indirect contractual counterparty in any swap agreement relating to the Loans to
the extent required in connection with the settlement of such Bank's obligations
pursuant thereto) shall be $5,000,000 (or such lesser amount consented to by the
Agent and, so long as no Event of Default shall be continuing, the Company),
which consents shall not be unreasonably withheld or delayed; provided that
after giving effect to such assignment the assigning Bank shall have a
Commitment of not less than $5,000,000 (unless otherwise consented to by the
Agent and, so long as no Event of Default shall be continuing, the Company).
Notwithstanding the foregoing sentence, (x) any Bank may at any time, without
the consent of the Company or the Agent, assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such assignment
shall release the transferor Bank from its obligations hereunder; and (y) no
assignment by a Bank shall release such Bank from its obligations hereunder
unless (I) the Agent and, so long as no Event of Default exists, the Company
have approved such assignment or (II) the creditworthiness of such affiliate (as
determined in accordance with customary standards of the banking industry) is no
less than that of the assigning Bank.

      (d)   Any Bank may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 12.1, disclose to the
purchaser or participant or proposed purchaser or participant any information
relating to the Company furnished to such Bank by or on behalf of the Company;
provided that prior to any such disclosure of non-public information, the
purchaser or participant or proposed purchaser or participant (which purchaser
or participant is not an affiliate of a Bank) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Company received
by it from such Bank.

      (e)   Assignments under this Section 12.1 shall be made pursuant to an
agreement (an "Assignment Agreement") substantially in the form of Exhibit D
hereto or in such other form as may be agreed to by the parties thereto and
shall not be effective until a $3,500 fee has been paid to the Agent by the
assignee, which fee shall cover the cost of processing such assignment; provided
that such fee shall not be incurred in the event of an assignment by any Bank of
all or a portion of its rights under this Agreement to (i) a Federal Reserve
Bank or (ii) a Bank or an affiliate of the assigning Bank or (iii) to any direct
or indirect contractual counterparties in swap

                                       41

<PAGE>

agreements relating to the Loans to the extent required in connection with the
settlement of any Bank's obligations pursuant thereto.

      12.2  Survival of Representations. All representations and warranties of
the Company contained in this Agreement shall survive the making of the Credit
Extensions herein contemplated.

      12.3  Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, neither the LC Issuer nor any Bank shall be obligated
to extend credit to the Company in violation of any limitation or prohibition
provided by any applicable statute or regulation.

      12.4  Taxes. Any taxes (excluding income taxes) payable or ruled payable
by any Federal or State authority in respect of the execution of the Credit
Documents shall be paid by the Company, together with interest and penalties, if
any.

      12.5  Choice of Law. THE CREDIT DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE
OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT AND
THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY
HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION OR ARISING HEREUNDER OR
UNDER ANY CREDIT DOCUMENT.

      12.6  Headings. Section headings in the Credit Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Credit Documents.

      12.7  Entire Agreement. The Credit Documents embody the entire agreement
and understanding between the Company, the LC Issuer, the Agent and the Banks
and supersede all prior agreements and understandings between the Company, the
LC Issuer, the Agent and the Banks relating to the subject matter thereof (other
than those contained in the Fee Letter which shall survive and remain in full
force and effect during the term of this Agreement).

      12.8  Expenses; Indemnification. The Company shall reimburse the Agent and
each Arranger for (a) any reasonable costs, internal charges and out-of-pocket
expenses (including reasonable attorneys' fees and time charges of attorneys for
the Agent) paid or incurred by the Agent or such Arranger in connection with the
preparation, review, execution, delivery, syndication, distribution (including
via the internet), amendment and modification of the Credit Documents and (b)
any reasonable costs, internal charges and out-of-pocket expenses (including

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<PAGE>

reasonable attorneys' fees and time charges of attorneys for the Agent) paid or
incurred by the Agent or such Arranger on its own behalf or on behalf of the LC
Issuer or any Bank and, on or after the date upon which an Event of Default
specified in Section 9.1(a) or 9.1(e) has occurred and is continuing, each Bank,
in connection with the collection and enforcement of the Credit Documents. The
Company further agrees to indemnify the Agent, each Arranger, the LC Issuer,
each Bank and their respective Affiliates, and the directors, officers,
employees and agents of the foregoing (all of the foregoing, the "Indemnified
Persons), against all losses, claims, damages, penalties, judgments, liabilities
and reasonable expenses (including all reasonable expenses of litigation or
preparation therefor whether or not an Indemnified Person is a party thereto)
which any of them may pay or incur arising out of or relating to this Agreement,
the other Credit Documents, the transactions contemplated hereby, the direct or
indirect application or proposed application of the proceeds of any Credit
Extension hereunder, any actual or alleged presence or release of any Hazardous
Substance on or from any property owned or operated by the Company or any
Subsidiary or any Environmental Liability related in any way to the Company or
any Subsidiary; provided that the Company shall not be liable to any Indemnified
Person for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of such Indemnified Person. Without limiting
the foregoing, the Company 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 Person) incurred in connection with defense thereof, as a
result of any breach or inaccuracy of the representation made in Section 5.15.
The obligations of the Company under this Section shall survive the termination
of this Agreement.

      12.9  Severability of Provisions. Any provision in any Credit Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of all Credit Documents are declared to be severable.

      12.10 Setoff. In addition to, and without limitation of, any rights of the
Banks under applicable law, if the Company becomes insolvent, however evidenced,
or any Default or Event of Default occurs, any indebtedness from any Bank or any
of its Affiliates to the Company (including all account balances, whether
provisional or final and whether or not collected or available) may be offset
and applied toward the payment of the Obligations owing to such Bank or such
Affiliate, whether or not the Obligations, or any part hereof, shall then be
due. The Company agrees that any purchaser or participant under Section 12.1
may, to the fullest extent permitted by law, exercise all its rights of payment
with respect to such purchase or participation as if it were the direct creditor
of the Company in the amount of such purchase or participation.

      12.11 Ratable Payments. If any Bank, whether by setoff or otherwise, has
payment made to it upon its Outstanding Credit Exposure in a greater proportion
than that received by any other Bank, such Bank agrees, promptly upon demand, to
purchase a portion of the Aggregate Outstanding Credit Exposure held by the
other Banks so that after such purchase each Bank will hold its Pro Rata Share
of the Aggregate Outstanding Credit Exposure. If any Bank, whether in connection
with setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff,

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<PAGE>

such Bank agrees, promptly upon demand, to take such action necessary such that
all Banks share in the benefits of such collateral ratably in proportion to
their respective Pro Rata Share of the Aggregate Outstanding Credit Exposure. In
case any such payment is disturbed by legal process, or otherwise, appropriate
further adjustments shall be made.

      12.12 Nonliability. The relationship between the Company, on the one hand,
and the Banks, the Arrangers, the LC Issuer and the Agent, on the other hand,
shall be solely that of borrower and lender. None of the Agent, either Arranger,
the LC Issuer or any Bank shall have any fiduciary responsibilities to the
Company. None of the Agent, either Arranger, the LC Issuer or any Bank
undertakes any responsibility to the Company to review or inform the Company of
any matter in connection with any phase of the Company's business or operations.
The Company shall rely entirely upon its own judgment with respect to its
business, and any review, inspection, supervision or information supplied to the
Company by the Banks is for the protection of the Banks and neither the Company
nor any third party is entitled to rely thereon. The Company agrees that none of
the Agent, either Arranger, the LC Issuer or any Bank shall have liability to
the Company (whether sounding in tort, contract or otherwise) for losses
suffered by the Company in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established by
the Credit Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. None of the
Agent, either Arranger, the LC Issuer or any Bank shall have any liability with
respect to, and the Company hereby waives, releases and agrees not to sue for,
any special, indirect, consequential or punitive damages suffered by the Company
in connection with, arising out of, or in any way related to the Credit
Documents or the transactions contemplated thereby.

      12.13 Other Agents. The Banks identified on the signature pages of this
Agreement or otherwise herein, or in any amendment hereof or other document
related hereto, as being the "Syndication Agent" or a Co-Documentation Agent
(the "Other Agents") shall have no rights, powers, obligations, liabilities,
responsibilities or duties under this Agreement other than those applicable to
all Banks as such. Without limiting the foregoing, the Other Agents shall not
have or be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on the Other Agents in
deciding to enter into this Agreement or in taking or refraining from taking any
action hereunder or pursuant hereto.

      12.14 USA Patriot Act. Each Bank hereby notifies the Company that pursuant
to requirements of the USA Patriot Act, such Bank is required to obtain, verify
and record information that identifies the Company, which information includes
the name and address of the Company and other information that will allow such
Bank to identify the Company in accordance with the USA Patriot Act.

                                  ARTICLE XIII
                                    THE AGENT

      13.1  Appointment. JPMorgan Chase Bank, N.A. is hereby appointed Agent
hereunder, and each of the Banks irrevocably authorizes the Agent to act as the
contractual representative on

                                       44

<PAGE>

behalf of such Bank. The Agent agrees to act as such upon the express conditions
contained in this Article XIII. The Agent shall not have a fiduciary
relationship in respect of any Bank by reason of this Agreement.

      13.2  Powers. The Agent shall have and may exercise such powers hereunder
as are specifically delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto. The Agent shall not have any
implied duties to the Banks or any obligation to the Banks to take any action
hereunder except any action specifically provided by this Agreement to be taken
by the Agent.

      13.3  General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.

      13.4  No Responsibility for Loans, Recitals, Etc. The Agent shall not be
responsible to the Banks for any recitals, reports, statements, warranties or
representations herein or in any Credit Document or be bound to ascertain or
inquire as to the performance or observance of any of the terms of this
Agreement.

      13.5  Action on Instructions of Banks. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Credit Document in accordance with written instructions signed by the
Majority Banks (or all of the Banks if required by Section 10.1), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks. The Banks hereby acknowledge that the Agent shall
be under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Credit Document unless
it shall be requested in writing to do so by the Majority Banks. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Credit Document unless it shall first be indemnified to its
satisfaction by the Banks pro rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.

      13.6  Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder by or through employees, agents and attorneys-in-fact
and shall not be answerable to the Banks, except as to money or securities
received by it or its authorized agents, for the default or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. The Agent
shall be entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder.

      13.7  Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any notice, consent, certificate, affidavit, letter, telegram, statement,
paper or document believed by it to be genuine and correct and to have been
signed or sent by the proper person or persons, and, in respect to legal
matters, upon the opinion of counsel selected by the Agent, which counsel may be
employees of the Agent.

                                       45
<PAGE>

      13.8  Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in accordance with their respective
Pro Rata Shares (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Credit Documents,
(ii) for any other expenses reasonably incurred by the Agent on behalf of the
Banks, in connection with the preparation, execution, delivery, administration
and enforcement of the Credit Documents, and for which the Agent is not entitled
to reimbursement by the Company under the Credit Documents, and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement or any other document delivered in connection with
this Agreement or the transactions contemplated hereby or the enforcement of any
of the terms hereof or of any such other documents, and for which the Agent is
not entitled to reimbursement by the Company under the Credit Documents;
provided that no Bank shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the Agent.

      13.9  Rights as a Bank. With respect to its Commitment and any Credit
Extension made by it, the Agent shall have the same rights and powers hereunder
as any Bank and may exercise the same as though it were not the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
JPMorgan in its individual capacity. The Agent may accept deposits from, lend
money to, and generally engage in any kind of banking or trust business with the
Company or any Subsidiary as if it were not the Agent.

      13.10 Bank Credit Decision. (a) Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.

      (b)   Without limiting clause (a) above, each Bank acknowledges and agrees
that neither such Bank nor any of its Affiliates, participants or assignees may
rely on the Agent to carry out such Bank's or other Person'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 amended or replaced, the "CIP
Regulations"), or any other applicable law, rule, regulation or order of any
governmental authority, including any program involving any of the following
items relating to or in connection with the Company or any of its Subsidiaries
or Affiliates or agents, the Credit Documents or the transactions contemplated
hereby: (i) any identity verification procedure; (ii) any recordkeeping; (iii)
any comparison with a government list; (iv) any customer notice or (v) any other
procedure required under the CIP Regulations or such other law, rule, regulation
or order.

      (c)   Within 10 days after the date of this Agreement and at such other
times as are required under the USA Patriot Act, each Bank and each assignee and
participant that is not

                                       46
<PAGE>

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 (i) an
affiliate of a depository institution or foreign bank that maintains a physical
presence in the United States or foreign country and (ii) subject to supervision
by a banking authority regulating such affiliated depository institution or
foreign bank) shall deliver to the Agent a certification, or, if applicable,
recertification, certifying that such Bank is not a "shell" and certifying as to
other matters as required by Section 313 of the USA Patriot Act and the
applicable regulations.

      13.11 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Banks and the Company, and the Agent may be removed at any
time with or without cause by written notice received by the Agent from the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint, on behalf of the Banks, a successor Agent. If no
successor Agent shall have been so appointed by the Majority Banks and shall
have accepted such appointment within thirty days after the retiring Agent's
giving notice of resignation, then the retiring Agent may appoint, on behalf of
the Banks, a successor Agent. Such successor Agent shall be a commercial bank
having capital and retained earnings of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
XIII shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.

      13.12 Agent and Arranger Fees. The Company agrees to pay to the Agent,
J.P. Morgan Securities, Inc. ("JPMSI") and Barclays Capital ("Barclays";
together with JPMSI, the "Arrangers"), for their respective accounts, the fees
agreed to by the Company, the Agent and the Arrangers pursuant to the letter
agreement dated April 7, 2005, or as otherwise agreed from time to time.

                                  ARTICLE XIV
                                     NOTICES

      14.1  Giving Notice. Except as otherwise permitted by Section 2.13 with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Company, the Agent or the LC Issuer, at its address or
facsimile number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or facsimile number set forth in its Administrative
Questionnaire or (z) in the case of any party, at such other address or
facsimile number as such party may hereafter specify for the purpose by notice
to the Agent and the Company in accordance with the provisions of this Section
14.1. Each such notice, request or other communication shall be effective (i) if
given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received, (ii) if given
by mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, or (iii) if given by any other
means, when delivered (or, in the case of electronic transmission, received) at
the

                                       47
<PAGE>

address specified in this Section; provided that notices to the Agent under
Article II shall not be effective until received.

      14.2  Change of Address. The Company, the Agent and any Bank may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.

                                   ARTICLE XV
                         TERMINATION OF PRIOR AGREEMENT

      The Company and the Banks which are parties to the Prior Agreement (which
Banks constitute "Majority Banks" under the Prior Agreement) agree that
notwithstanding any requirement for notice of termination of the Commitments
under Section 2.5(b) of the Prior Agreement), simultaneously with the initial
Credit Extension hereunder, the Prior Agreement shall terminate and be of no
further force or effect (except for any provision thereof which by its terms
survives termination thereof); it being understood that concurrently with such
termination, each Existing Facility LC shall be deemed to be issued hereunder.

                                  ARTICLE XVI
                                  COUNTERPARTS

      This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Company, the Agent, the LC Issuer and
the Banks and each party has notified the Agent by facsimile or telephone that
it has taken such action.

                                  ARTICLE XVII
                                RELEASE OF BONDS

      The Agent will release the Bonds without any further action or consent by
the Banks, and deliver, at the Company's expense, such documents to the Company
or the trustee under the Indenture as the Company may reasonably require to
evidence such release, upon written request by the Company accompanied by a
certificate of a Designated Officer certifying that (a) no Default or Event of
Default exists prior to or after giving effect to such release and (b) the then
current ratings for the Company's senior unsecured long-term debt (without
third-party credit enhancement) are Baa2 or higher in the case of Moody's and
BBB or higher in the case of S&P.

                  [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

                                       48
<PAGE>

      IN WITNESS WHEREOF, the Company, the Banks, the LC Issuer and the Agent
have executed this Agreement as of the date first above written.

                                     CONSUMERS ENERGY COMPANY

                                     By: /s/ Laura L. Mountcastle
                                         ---------------------------------------
                                         Name: Laura L. Mountcastle
                                         Title: Vice President and Treasurer

                                     ADDRESS:

                                     One Energy Plaza
                                     Jackson, MI 49201
                                     Attention: Beverly S. Burger
                                     Facsimile No.: (517) 788-0412
                                     Confirmation (Phone) No: (517) 788-2541
                                     E-Mail Address: bsburger@cmsenergy.com

                                      S-1

<PAGE>

                                     JPMORGAN CHASE BANK, N.A., as
                                     Administrative Agent, as LC Issuer and as a
                                     Bank

                                     By: /s/ Thomas Casey
                                         ---------------------------------------
                                         Name: Thomas Casey
                                         Title: Vice President

                                     ADDRESS:

                                     270 Park Avenue, 4th Floor
                                     New York, NY  10016
                                     Attention: Thomas Casey, Vice President
                                     Facsimile No.: (212) 270-3089
                                     Confirmation (Phone) No.: (212) 270-5305
                                     E-Mail Address: thomas.casey@jpmorgan.com

                                      S-2

<PAGE>

                                     BARCLAYS BANK PLC, as Syndication
                                     Agent and as a Bank

                                     By: /s/ Sydney G. Dennis
                                         ---------------------------------------
                                         Name: Sydney G. Dennis
                                         Title:

                                      S-3

<PAGE>

                                     CITIBANK, N.A., as Co-Documentation Agent
                                     and as a Bank

                                     By: /s/ Amit Vasani
                                         ---------------------------------------
                                         Name: Amit Vasani
                                         Title: Vice President, Global Power
                                                388 Greenwich Street/21st floor
                                                (212) 816-4166

                                      S-4

<PAGE>

                                     UNION BANK OF CALIFORNIA, N.A., as
                                     Co-Documentation Agent and as a Bank

                                     By: /s/ Kevin M. Zitar
                                         ---------------------------------------
                                         Name: Kevin M. Zitar
                                         Title: Vice President

                                      S-5
<PAGE>

                                           WACHOVIA BANK, NATIONAL
                                           ASSOCIATION, as Co-Documentation
                                           Agent and as a Bank

                                           By: /s/ Lawrence N. Gross
                                               -------------------------------
                                               Name: Lawrence N. Gross
                                               Title: Assistant Vice President

                                      S-6
<PAGE>

                                           MERRILL LYNCH BANK USA

                                           By: /s/ Louis Alder
                                               -------------------------------
                                               Name: Louis Alder
                                               Title: Director

                                      S-7
<PAGE>

                                           HSBC BANK USA, NATIONAL ASSOCIATION

                                           By: /s/ Jose M. Aldeanueva
                                               -------------------------------
                                               Name: Jose M. Aldeanueva
                                               Title: Vice President

                                      S-8
<PAGE>

                                           BANK OF AMERICA, N.A.

                                           By: /s/ Michelle A. Schoenfeld
                                               -------------------------------
                                               Name: Michelle A. Schoenfeld
                                               Title: Senior Vice President

                                      S-9
<PAGE>

                                           BNP PARIBAS

                                           By: /s/ Mark A. Renaud
                                               -------------------------------
                                               Name: Mark A. Renaud
                                               Title: Managing Director

                                           By: /s/ Francis J. DeLaney
                                               -------------------------------
                                               Name: Francis J. DeLaney
                                               Title: Managing Director

                                     S-10
<PAGE>

                                           CREDIT SUISSE, Cayman Islands Branch

                                           By: /s/ Thomas R. Cantello
                                               -------------------------------
                                               Name: Thomas R. Cantello
                                               Title: Vice President

                                           By: /s/ Gregory S. Richards
                                               -------------------------------
                                               Name: Gregory S. Richards
                                               Title: Associate

                                     S-11
<PAGE>

                                           DEUTSCHE BANK TRUST COMPANY AMERICAS

                                           By: /s/ Marcus M. Tarkington
                                               -------------------------------
                                               Name: Marcus M. Tarkington
                                               Title: Director

                                           By: /s/ Paul O'Leary
                                               -------------------------------
                                               Name: Paul O'Leary
                                               Title: Vice President

                                     S-12
<PAGE>

                                           FIFTH THIRD BANK

                                           By: /s/ Kevin M. Paul
                                               -------------------------------
                                               Name: Kevin M. Paul
                                               Title: Vice President

                                     S-13
<PAGE>

                                           STANDARD FEDERAL BANK N.A.

                                           By: /s/ Richard C. Northrup, III
                                               -------------------------------
                                               Name: Richard C. Northrup, III
                                               Title: First Vice President

                                     S-14
<PAGE>

                                           SUMITOMO MITSUI BANKING
                                           CORPORATION, NEW YORK BRANCH

                                           By: /s/ William M. Ginn
                                               -------------------------------
                                               Name: William M. Ginn
                                               Title: General Manager

                                     S-15
<PAGE>

                                           WELLS FARGO BANK, NATIONAL
                                           ASSOCIATION

                                           By: /s/ Scott D. Bjelde
                                               -------------------------------
                                               Name: Scott D. Bjelde
                                               Title: Senior Vice President
                                                   Wells Fargo Bank, National
                                                   Association

                                           By: /s/ James D. Heinz
                                               -------------------------------
                                               Name: James D. Heinz
                                               Title: Senior Vice President
                                                   Wells Fargo Bank, National
                                                   Association

                                     S-16
<PAGE>

                                           ALLIED IRISH BANKS, p.l.c.

                                           By: /s/ Robert F. Moyle
                                               -------------------------------
                                               Name: Rob Moyle
                                               Title: Vice President

                                           By: /s/ Mark Connelly
                                               -------------------------------
                                           Name: Mark Connelly
                                           Title: Vice President

                                     S-17
<PAGE>

                                           BANK HAPOALIM B.M.

                                           By: /s/ Marc Bosc
                                               -------------------------------
                                               Name: Marc Bosc
                                               Title: Vice President

                                           By: /s/ Lenroy Hackett
                                               -------------------------------
                                           Name: Lenroy Hackett
                                           Title: First Vice President

                                     S-18
<PAGE>

                                           COMERICA BANK

                                           By: /s/ Blake W. Arnett
                                               -------------------------------
                                               Name: Blake W. Arnett
                                               Title: Account Officer

                                     S-19
<PAGE>

                                           HUNTINGTON NATIONAL BANK

                                           By: /s/ Patrick T. Barbour
                                               -------------------------------
                                               Name: Patrick T. Barbour
                                               Title: Vice President

                                     S-20
<PAGE>

                                           MORGAN STANLEY BANK

                                           By: /s/ Daniel Twenge
                                               -------------------------------
                                               Name: Daniel Twenge
                                               Title: Vice President
                                                      Morgan Stanley Bank

                                     S-21
<PAGE>

                                           THE NORINCHUKIN BANK

                                           By: /s/ Toshifumi Tsukitani
                                               -------------------------------
                                               Name: Toshifumi Tsukitani
                                               Title: General Manager

                                     S-22
<PAGE>

                                           UBS LOAN FINANCE LLC

                                           By: /s/ Wilfred V. Saint
                                               -------------------------------
                                               Name: Wilfred V. Saint
                                               Title: Director
                                                      Banking Products
                                                      Services, US

                                           By: /s/ Joselin Fernandes
                                               -------------------------------
                                           Name: Joselin Fernandes
                                           Title: Associate Director
                                                  Banking Products
                                                  Services, US

                                     S-23
<PAGE>

                                           UFJ BANK LIMITED, NEW YORK BRANCH

                                           By: /s/ John T. Feeney
                                               -------------------------------
                                               Name: John T. Feeney
                                               Title: Vice President

                                     S-24
<PAGE>

                                           GOLDMAN SACHS CREDIT PARTNERS L.P.

                                           By: /s/ William Archer
                                               -------------------------------
                                               Name: William Archer
                                               Title: Authorized Signatory

                                     S-25
<PAGE>

                                    EXHIBIT A

                        [FORM OF SUPPLEMENTAL INDENTURE]

                    ONE HUNDRED THIRD SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                   2005-1 COLLATERAL SERIES (INTEREST BEARING)

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


                            DATED AS OF MAY 18, 2005

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


                            CONSUMERS ENERGY COMPANY

                                       TO

                           JPMORGAN CHASE BANK, N.A.,

                                     TRUSTEE

                                                          Counterpart ____ of 80

<PAGE>

      THIS ONE HUNDRED THIRD SUPPLEMENTAL INDENTURE, dated as of May 18, 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, in the Borough of
Manhattan, The City of New York, New York 10004 (hereinafter sometimes referred
to as the "Trustee"), as Trustee under the Indenture dated as of September 1,
1945 between Consumers Power Company, a Maine corporation (hereinafter sometimes
referred to as the "Maine corporation"), and City Bank Farmers Trust Company
(Citibank, N.A., successor, hereinafter sometimes referred to as the
"Predecessor Trustee"), securing bonds issued and to be issued as provided
therein (hereinafter sometimes referred to as the "Indenture"),

      WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

      WHEREAS at the close of business on January 15, 1963, First National City
Trust Company was merged into First National City Bank; and

      WHEREAS at the close of business on October 31, 1968, First National City
Bank was merged into The City Bank of New York, National Association, the name
of which was thereupon changed to First National City Bank; and

      WHEREAS effective March 1, 1976, the name of First National City Bank was
changed to Citibank, N.A.; and

      WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

      WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

      WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

      WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged with
Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

      WHEREAS, effective November 13, 2004, the name of JPMorgan Chase Bank was
changed to JPMorgan Chase Bank, N.A.; and

<PAGE>

      WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of the Register of Deeds of each county in the State of Michigan in
which this Supplemental Indenture is to be recorded; and

      WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

      WHEREAS the Company and the Maine corporation entered into an Agreement of
Merger and Consolidation, dated as of February 14, 1968, which provided for the
Maine corporation to merge into the Company; and

      WHEREAS the effective date of such Agreement of Merger and Consolidation
was June 6, 1968, upon which date the Maine corporation was merged into the
Company and the name of the Company was changed from "Consumers Power Company of
Michigan" to "Consumers Power Company"; and

      WHEREAS the Company and the Predecessor Trustee entered into a Sixteenth
Supplemental Indenture, dated as of June 4, 1968, which provided, among other
things, for the assumption of the Indenture by the Company; and

      WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

      WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

      WHEREAS effective March 11, 1997, the name of Consumers Power Company was
changed to Consumers Energy Company; and

      WHEREAS, the Company has entered into a Third Amended and Restated Credit
Agreement dated as of May 18, 2005 (as amended or otherwise modified from time
to time, the "Credit Agreement") with various financial institutions and
JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Credit Agreement),
providing for the making of certain financial accommodations thereunder, and
pursuant to such Credit Agreement the Company has agreed to issue to the Agent,
as evidence of and security for the Obligations (as such term is defined in the
Credit Agreement), a new series of bonds under the Indenture; and

                                      A-2
<PAGE>

      WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, 2005-1 Collateral Series (Interest
Bearing), each of which bonds shall also bear the descriptive title "First
Mortgage Bond" (hereinafter provided for and hereinafter sometimes referred to
as the "2005-1 Collateral Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature on the Termination Date (as such term is
defined in the Credit Agreement); and

      WHEREAS, each of the registered bonds without coupons of the 2005-1
Collateral Bonds and the Trustee's Authentication Certificate thereon are to be
substantially in the following form, to wit:

                                      A-3
<PAGE>

                            [FORM OF REGISTERED BOND

                         OF THE 2005-1 COLLATERAL BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                   2005-1 COLLATERAL SERIES (INTEREST BEARING)

      No. 1                                                     $500,000,000

      CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to JPMorgan Chase Bank,
N.A., as administrative agent (in such capacity, the "Agent") for the Banks
under and as defined in the Third Amended and Restated Credit Agreement dated as
of May 18, 2005 among the Company, the Banks and the Agent (as amended or
otherwise modified from time to time, the "Credit Agreement"), or registered
assigns, the principal sum of Five Hundred Million Dollars ($500,000,000) or
such lesser principal amount as shall be equal to the aggregate principal amount
of the Loans (as defined in the Credit Agreement) and Reimbursement Obligations
(as defined in the Credit Agreement) included in the Obligations (as defined in
the Credit Agreement) outstanding on the Termination Date (as defined in the
Credit Agreement) (the "Maturity Date"), but not in excess, however, of the
principal amount of this bond, and to pay interest thereon at the Interest Rate
(as defined below) until the principal hereof is paid or duly made available for
payment on the Maturity Date, or, in the event of redemption of this bond, until
the redemption date, or, in the event of default in the payment of the principal
hereof, until the Company's obligations with respect to the payment of such
principal shall be discharged as provided in the Indenture (as defined on the
reverse hereof). Interest on this bond shall be payable on each Interest Payment
Date (as defined below), commencing on the first Interest Payment Date next
succeeding May 18, 2005. If the Maturity Date falls on a day which is not a
Business Day, as defined below, principal and any interest and/or fees payable
with respect to the Maturity Date will be paid on the immediately preceding
Business Day. The interest payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions, be paid to the
person in whose name this bond (or one or more predecessor bonds) is registered
at the close of business on the Record Date (as defined below); provided,
however, that interest payable on the Maturity Date will be payable to the
person to whom the principal hereof shall be payable. Should the Company default
in the payment of interest ("Defaulted Interest"), the Defaulted Interest shall
be paid to the person in whose name this bond (or one or more predecessor bonds)
is registered on a subsequent record date fixed by the Company, which subsequent
record date shall be fifteen (15) days prior to the payment of such Defaulted
Interest. As used herein, (A) "Business Day" shall mean any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York for
the conduct of substantially all of their commercial lending activities and on
which interbank wire transfers can

                                      A-4
<PAGE>

be made on the Fedwire system; (B) "Interest Payment Date" shall mean each date
on which Obligations constituting interest and/or fees are due and payable from
time to time pursuant to the Credit Agreement; (C) "Interest Rate" shall mean a
rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of Obligations constituting interest and
fees due under the Credit Agreement on the applicable Interest Payment Date; and
(D) "Record Date" with respect to any Interest Payment Date shall mean the day
(whether or not a Business Day) immediately next preceding such Interest Payment
Date.

      Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

      The provisions of this bond are continued on the reverse hereof and such
continued provisions shall for all purposes have the same effect as though fully
set forth at this place.

      This bond shall not be valid or become obligatory for any purpose unless
and until it shall have been authenticated by the execution by the Trustee or
its successor in trust under the Indenture of the certificate hereon.

                                      A-5
<PAGE>

            IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to
be executed in its name by its Chairman of the Board, its President or one of
its Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                           CONSUMERS ENERGY COMPANY

Dated:

                                           By _________________________________
                                           Printed ____________________________
                                           Title ______________________________

Attest: ___________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

      This is one of the bonds, of the series designated therein, described in
the within-mentioned Indenture.

                                           JPMORGAN CHASE BANK, N.A., Trustee

                                           By__________________________________
                                                       Authorized Officer

                                      A-6
<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                   2005-1 COLLATERAL SERIES (INTEREST BEARING)

      This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2005-1 Collateral Series (Interest Bearing) (sometimes herein referred to
as the "2005-1 Collateral Bonds") issued under and in accordance with and
secured by an Indenture dated as of September 1, 1945, given by the Company (or
its predecessor, Consumers Power Company, a Maine corporation) to City Bank
Farmers Trust Company (JPMorgan Chase Bank, 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 2005-1 Collateral Bonds are to be issued and delivered to the Agent in
order to evidence and secure the obligation of the Company under the Credit
Agreement to make payments to the Banks under the Credit Agreement and to
provide the Banks the benefit of the lien of the Indenture with respect to the
2005-1 Collateral Bonds.

      The obligation of the Company to make payments with respect to the
principal of 2005-1 Collateral Bonds shall be fully or partially, as the case
may be, satisfied and discharged to the extent that, at the time that any such
payment shall be due, the then due principal of the Loans and/or the
Reimbursement Obligations included in the Obligations shall have been fully or
partially paid. Satisfaction of any obligation to the extent that payment is
made with respect to the Loans and/or the Reimbursement Obligations means that
if any payment is made on the principal of the Loans and/or the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2005-1 Collateral Bonds shall be deemed discharged in the same amount as the
payment with respect to the Loans and/or the Reimbursement Obligations
discharges the outstanding obligation with respect to such Loans and/or
Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2005-1 Collateral Bonds.

      The obligation of the Company to make payments with respect to the
interest on 2005-1 Collateral Bonds shall be fully or partially, as the case may
be, satisfied and discharged to the extent that, at the time that any such
payment shall be due, the then due interest and/or fees under the Credit
Agreement shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the interest
and/or fees under the Credit Agreement means that if any payment is made on the
interest and/or fees under the Credit Agreement, a

                                      A-7
<PAGE>

corresponding payment obligation with respect to the interest on the 2005-1
Collateral Bonds shall be deemed discharged in the same amount as the payment
with respect to the Loans and/or the Reimbursement Obligations discharges the
outstanding obligation with respect to such Loans and/or Reimbursement
Obligations.

      The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2005-1 Collateral Bonds has not been made, (ii)
that the Company is in arrears as to the payments required to be made by it to
the Agent in connection with the Obligations pursuant to the Credit Agreement,
and (iii) the amount of the arrearage.

      If an Event of Default (as defined in the Credit Agreement) with respect
to the payment of the principal of the Loans and/or the Reimbursement
Obligations shall have occurred, it shall be deemed to be a default for purposes
of Section 11.01 of the Indenture in the payment of the principal of the 2005-1
Collateral Bonds equal to the amount of such unpaid principal or Reimbursement
Obligations (but in no event in excess of the principal amount of the 2005-1
Collateral Bonds). If an Event of Default (as defined in the Credit Agreement)
with respect to the payment of interest on the Loans and/or the Reimbursement
Obligations or any fees shall have occurred, it shall be deemed to be a default
for purposes of Section 11.01 of the Indenture in the payment of the interest on
the 2005-1 Collateral Bonds equal to the amount of such unpaid interest or fees.

      This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

      In case of certain defaults as specified in the Indenture, the principal
of this bond may be declared or may become due and payable on the conditions, at
the time, in the manner and with the effect provided in the Indenture. The
holders of certain specified percentages of the bonds at the time outstanding,
including in certain cases specified percentages of bonds of particular series,
may in certain cases, to the extent and as provided in the Indenture, waive
certain defaults thereunder and the consequences of such defaults.

      The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than seventy-five per centum in
principal amount of the bonds (exclusive of bonds disqualified by reason of the
Company's interest therein) at the time outstanding, including, if more than one
series of bonds shall be at the time outstanding, not less than sixty per centum
in principal amount of each series affected, to effect, by an indenture
supplemental to the Indenture, modifications or alterations of the Indenture and
of the rights and obligations of the Company and the rights of the holders of
the bonds and coupons; provided, however, that no such modification or
alteration shall be made without the written approval or consent of the holder
hereof which will (a) extend the maturity of this bond or reduce the rate or

                                      A-8
<PAGE>

extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.

      The Company reserves the right, without any consent, vote or other action
by holders of the 2005-1 Collateral Bonds or any other series created after the
Sixty-eighth Supplemental Indenture, to amend the Indenture to reduce the
percentage of the principal amount of bonds the holders of which are required to
approve any supplemental indenture (other than any supplemental indenture which
is subject to the proviso contained in the immediately preceding sentence) (a)
from not less than seventy-five per centum (including sixty per centum of each
series affected) to not less than a majority in principal amount of the bonds at
the time outstanding or (b) in case fewer than all series are affected, not less
than a majority in principal amount of the bonds of all affected series, voting
together.

      No recourse shall be had for the payment of the principal of or interest
on this bond, or for any claim based hereon, or otherwise in respect hereof or
of the Indenture, to or against any incorporator, stockholder, director or
officer, past, present or future, as such, of the Company, or of any predecessor
or successor company, either directly or through the Company, or such
predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

      This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

      The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.

                         [END OF FORM OF REGISTERED BOND

                         OF THE 2005-1 COLLATERAL BONDS]

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

                                      A-9
<PAGE>

      AND WHEREAS all acts and things necessary to make the 2005-1 Collateral
Bonds (the "Collateral Bonds"), when duly executed by the Company and
authenticated by the Trustee or its agent and issued as prescribed in the
Indenture, as heretofore supplemented and amended, and this Supplemental
Indenture provided, the valid, binding and legal obligations of the Company, and
to constitute the Indenture, as supplemented and amended as aforesaid, as well
as by this Supplemental Indenture, a valid, binding and legal instrument for the
security thereof, have been done and performed, and the creation, execution and
delivery of this Supplemental Indenture and the creation, execution and issuance
of bonds subject to the terms hereof and of the Indenture, as so supplemented
and amended, have in all respects been duly authorized;

      NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$500,000,000 principal amount of the Collateral Bonds and all other bonds which
shall be issued under the Indenture, as supplemented and amended from time to
time, and for the purpose of securing the faithful performance and observance of
all covenants and conditions therein, and in any indenture supplemental thereto,
set forth, the Company has given, granted, bargained, sold, released,
transferred, assigned, hypothecated, pledged, mortgaged, confirmed, set over,
warranted, alienated and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage,
confirm, set over, warrant, alien and convey unto JPMorgan Chase Bank, 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. TO HAVE AND TO HOLD all said
premises, property, franchises and rights hereby conveyed, assigned, pledged or
mortgaged, or intended so to be, unto the Trustee, its successor or successors
in trust and their assigns forever;

                                     A-10
<PAGE>

      BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.

      AND IT IS EXPRESSLY DECLARED by the Company that all bonds authenticated
and delivered under and secured by the Indenture, as supplemented and amended as
above set forth, are to be issued, authenticated and delivered, and all said
premises, property, franchises and rights hereby and by the Indenture and
indentures supplemental thereto conveyed, assigned, pledged or mortgaged, or
intended so to be, are to be dealt with and disposed of under, upon and subject
to the terms, conditions, stipulations, covenants, agreements, trusts, uses and
purposes expressed in the Indenture, as supplemented and amended as above set
forth, and the parties hereto mutually agree as follows:

      SECTION 1. There is hereby created a series of bonds (the "2005-1
Collateral Bonds") designated as hereinabove provided, which shall also bear the
descriptive title "First Mortgage Bond", and the forms thereof shall be
substantially as hereinbefore set forth (collectively, the "Sample Bond"). The
2005-1 Collateral Bonds shall be issued in the aggregate principal amount of
$500,000,000, shall mature on the Termination Date (as such term is defined in
the Credit Agreement) and shall be issued only as registered bonds without
coupons in denominations of $1,000 and any multiple thereof. The serial numbers
of the Collateral Bonds shall be such as may be approved by any officer of the
Company, the execution thereof by any such officer either manually or by
facsimile signature to be conclusive evidence of such approval. The Collateral
Bonds are to be issued to and registered in the name of the Agent under the
Credit Agreement (as such terms are defined in the Sample Bonds) to evidence and
secure any and all Obligations (as such term is defined in the Credit Agreement)
of the Company under the Credit Agreement.

      The 2005-1 Collateral Bonds shall bear interest as set forth in the Sample
Bond. The principal of and the interest on said bonds shall be payable as set
forth in the Sample Bond.

      The obligation of the Company to make payments with respect to the
principal of 2005-1 Collateral Bonds shall be fully or partially, as the case
may be, satisfied and discharged to the extent that, at the time that any such
payment shall be due, the then due principal of the Loans and/or the
Reimbursement Obligations included in the Obligations shall have been fully or
partially paid. Satisfaction of any obligation to the extent that payment is
made with respect to the Loans and/or the Reimbursement Obligations means that
if any payment is made on the

                                     A-11
<PAGE>

principal of the Loans and/or the Reimbursement Obligations, a corresponding
payment obligation with respect to the principal of the 2005-1 Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
Loans and/or the Reimbursement Obligations discharges the outstanding obligation
with respect to such Loans and/or Reimbursement Obligations. No such payment of
principal shall reduce the principal amount of the 2005-1 Collateral Bonds.

      The obligation of the Company to make payments with respect to interest on
2005-1 Collateral Bonds shall be fully or partially, as the case may be,
satisfied and discharged to the extent that, at the time that any such payment
shall be due, the then due interest and/or fees under the Credit Agreement shall
have been fully or partially paid. Satisfaction of any obligation to the extent
that payment is made with respect to the interest and/or fees under the Credit
Agreement means that if any payment is made on the interest and/or fees under
the Credit Agreement, a corresponding payment obligation with respect to the
interest on the 2005-1 Collateral Bonds shall be deemed discharged in the same
amount as the payment with respect to the interest and/or fees discharges the
outstanding obligation with respect to such interest and/or fees.

      The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the Collateral Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged unless and until the Trustee
shall have received a written notice from the Agent stating (i) that timely
payment of principal and interest on the 2005-1 Collateral Bonds has not been
made, (ii) that the Company is in arrears as to the payments required to be made
by it to the Agent pursuant to the Credit Agreement, and (iii) the amount of the
arrearage.

      The Collateral Bonds shall be exchangeable for other registered bonds of
the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at the Investor Services Department
of the Company, as transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any registration of
transfer or exchange of bonds of said series other than for any tax or taxes or
other governmental charge required to be paid by the Company.

      SECTION 2. The Collateral Bonds are not redeemable by the operation of the
maintenance and replacement provisions of this Indenture or with the proceeds of
released property.

      SECTION 3. Upon the occurrence of an Event of Default under the Credit
Agreement and the acceleration of the Obligations, the Collateral Bonds shall be
redeemable in whole upon receipt by the Trustee of a written demand from the
Agent stating that there has occurred under the Credit Agreement both an Event
of Default and a declaration of acceleration of the Obligations and demanding
redemption of the Collateral Bonds (including a description of the amount of
principal, interest and fees which comprise such Obligations). The Company
waives any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Collateral Bonds by the Agent to the Trustee,
the Collateral Bonds shall be redeemed at a redemption price equal to the
aggregate amount of the Obligations.

                                     A-12
<PAGE>

      SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the Collateral Bonds or of any subsequent series
of bonds issued under the Indenture, to make such amendments to the Indenture,
as supplemented, as shall be necessary in order to amend Section 17.02 to read
as follows:

            SECTION 17.02. With the consent of the holders of not less than a
      majority in principal amount of the bonds at the time outstanding or their
      attorneys-in-fact duly authorized, or, if fewer than all series are
      affected, not less than a majority in principal amount of the bonds at the
      time outstanding of each series the rights of the holders of which are
      affected, voting together, the Company, when authorized by a resolution,
      and the Trustee may from time to time and at any time enter into an
      indenture or indentures supplemental hereto for the purpose of adding any
      provisions to or changing in any manner or eliminating any of the
      provisions of this Indenture or of any supplemental indenture or modifying
      the rights and obligations of the Company and the rights of the holders of
      any of the bonds and coupons; provided, however, that no such supplemental
      indenture shall (1) extend the maturity of any of the bonds or reduce the
      rate or extend the time of payment of interest thereon, or reduce the
      amount of the principal thereof, or reduce any premium payable on the
      redemption thereof, without the consent of the holder of each bond so
      affected, or (2) permit the creation of any lien, not otherwise permitted,
      prior to or on a parity with the lien of this Indenture, without the
      consent of the holders of all the bonds then outstanding, or (3) reduce
      the aforesaid percentage of the principal amount of bonds the holders of
      which are required to approve any such supplemental indenture, without the
      consent of the holders of all the bonds then outstanding. For the purposes
      of this Section, bonds shall be deemed to be affected by a supplemental
      indenture if such supplemental indenture adversely affects or diminishes
      the rights of holders thereof against the Company or against its property.
      The Trustee may in its discretion determine whether or not, in accordance
      with the foregoing, bonds of any particular series would be affected by
      any supplemental indenture and any such determination shall be conclusive
      upon the holders of bonds of such series and all other series. Subject to
      the provisions of Sections 16.02 and 16.03 hereof, the Trustee shall not
      be liable for any determination made in good faith in connection herewith.

            Upon the written request of the Company, accompanied by a resolution
      authorizing the execution of any such supplemental indenture, and upon the
      filing with the Trustee of evidence of the consent of bondholders as
      aforesaid (the instrument or instruments evidencing such consent to be
      dated within one year of such request), the Trustee shall join with the
      Company in the execution of such supplemental indenture unless such
      supplemental indenture affects the Trustee's own rights, duties or
      immunities under this Indenture or otherwise, in which case the Trustee

                                      A-13
<PAGE>

      may in its discretion but shall not be obligated to enter into such
      supplemental indenture.

            It shall not be necessary for the consent of the bondholders under
      this Section to approve the particular form of any proposed supplemental
      indenture, but it shall be sufficient if such consent shall approve the
      substance thereof.

            The Company and the Trustee, if they so elect, and either before or
      after such consent has been obtained, may require the holder of any bond
      consenting to the execution of any such supplemental indenture to submit
      his bond to the Trustee or to ask such bank, banker or trust company as
      may be designated by the Trustee for the purpose, for the notation thereon
      of the fact that the holder of such bond has consented to the execution of
      such supplemental indenture, and in such case such notation, in form
      satisfactory to the Trustee, shall be made upon all bonds so submitted,
      and such bonds bearing such notation shall forthwith be returned to the
      persons entitled thereto.

            Prior to the execution by the Company and the Trustee of any
      supplemental indenture pursuant to the provisions of this Section, the
      Company shall publish a notice, setting forth in general terms the
      substance of such supplemental indenture, at least once in one daily
      newspaper of general circulation in each city in which the principal of
      any of the bonds shall be payable, or, if all bonds outstanding shall be
      registered bonds without coupons or coupon bonds registered as to
      principal, such notice shall be sufficiently given if mailed, first class,
      postage prepaid, and registered if the Company so elects, to each
      registered holder of bonds at the last address of such holder appearing on
      the registry books, such publication or mailing, as the case may be, to be
      made not less than thirty days prior to such execution. Any failure of the
      Company to give such notice, or any defect therein, shall not, however, in
      any way impair or affect the validity of any such supplemental indenture.

      SECTION 5. As supplemented and amended as above set forth, the Indenture
is in all respects ratified and confirmed, and the Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same
instrument.

      SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Credit Agreement), any right or interest to avail himself of
any benefit under any provision of the Indenture, as so supplemented and
amended.

                                      A-14
<PAGE>

      SECTION 7. The Trustee assumes no responsibility for or in respect of the
validity or sufficiency of this Supplemental Indenture or of the Indenture as
hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

      SECTION 8. This Supplemental Indenture may be simultaneously executed in
several counterparts and all such counterparts executed and delivered, each as
an original, shall constitute but one and the same instrument.

      SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York for
the conduct of substantially all of their commercial lending activities and on
which interbank wire transfers can be made on the Fedwire system.

      SECTION 10. This Supplemental Indenture and the Collateral Bonds shall be
governed by and deemed to be a contract under, and construed in accordance with,
the laws of the State of Michigan, and for all purposes shall be construed in
accordance with the laws of such state, except as may otherwise be required by
mandatory provisions of law.

      SECTION 11. Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

      All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                       II.

                           ELECTRIC TRANSMISSION LINES

      All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other

                                      A-15
<PAGE>

property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

      All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards, towers, poles, wires,
insulators, subways, trenches, conduits, manholes, cables, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all real
property, rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation thereof,
through, over, under or upon any private property or any public streets or
highways within as well as without the corporate limits of any municipal
corporation.

                                       IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

      All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

        GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
      STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES

      All the compressor stations, processing plants, desulphurization stations,
metering stations, odorizing stations, regulators and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not

                                      A-16
<PAGE>

heretofore released from the lien of the Indenture, for compressing, processing,
desulphurizing, metering, odorizing and regulating manufactured or natural gas
at any of its plants and elsewhere, together with all buildings, meters and
other appliances and equipment, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in connection
with any of such purposes, with sites to be used for such purposes.

                                       VI.

                               GAS STORAGE FIELDS

      The natural gas rights and interests of the Company, including wells and
well lines (but not including natural gas, oil and minerals), the gas gathering
system, the underground gas storage rights, the underground gas storage wells
and injection and withdrawal system used in connection therewith, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture:
In the Overisel Gas Storage Field, located in the Township of Overisel, Allegan
County, and in the Township of Zeeland, Ottawa County, Michigan; in the
Northville Gas Storage Field located in the Township of Salem, Washtenaw County,
Township of Lyon, Oakland County, and the Townships of Northville and Plymouth
and City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field,
located in the Township of Salem, Allegan County, and in the Township of
Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located in the
Townships of Ray and Armada, Macomb County, Michigan; in the Lenox Gas Storage
Field, located in the Townships of Lenox and Chesterfield, Macomb County,
Michigan; in the Ira Gas Storage Field, located in the Township of Ira, St.
Clair County, Michigan; in the Puttygut Gas Storage Field, located in the
Township of Casco, St. Clair County, Michigan; in the Four Corners Gas Storage
Field, located in the Townships of Casco, China, Cottrellville and Ira, St.
Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

      All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                      A-17
<PAGE>

                                      VIII.

                            GAS DISTRIBUTION SYSTEMS

      All the gas distribution systems of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
tunnels, conduits, gas mains and pipes, service pipes, fittings, gates, valves,
connections, meters and other appliances and equipment, and all other property,
real or personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such distribution systems or any of them or adjacent
thereto; together with all real property, rights of way, easements, permits,
privileges, franchises, grants and rights, for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

      All office, garage, service and other buildings of the Company, wherever
located, in the State of Michigan, constructed or otherwise acquired by it and
not heretofore described in the Indenture or any supplement thereto and not
heretofore released from the lien of the Indenture, together with the land on
which the same are situated and all easements, rights of way and appurtenances
to said lands, together with all furniture and fixtures located in said
buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

      All telephone lines, switchboards, systems and equipment of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, used or available for use in the operation of its properties, and
all other property, real or personal, forming a part of or appertaining to or
used, occupied or enjoyed in connection with such telephone properties or any of
them or adjacent thereto; together with all real estate, rights of way,
easements, permits, privileges, franchises, property, devices or rights related
to the dispatch, transmission, reception or reproduction of messages,
communications, intelligence, signals, light, vision or sound by electricity,
wire or otherwise, including all telephone equipment installed in buildings used
as general and regional offices, substations and generating stations and all
telephone lines erected on towers and poles; and all radio communication
equipment of the Company, together with all property, real or personal (except
any in the Indenture expressly excepted), fixed stations, towers, auxiliary
radio buildings and equipment, and all appurtenances used in connection
therewith, wherever located, in the State of Michigan.

                                       XI.

                                      A-18
<PAGE>

                               OTHER REAL PROPERTY

      All other real property of the Company and all interests therein, of every
nature and description (except any in the Indenture expressly excepted) wherever
located, in the State of Michigan, acquired by it and not heretofore described
in the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture. Such real property includes but is not limited to the
following described property, such property is subject to any interests that
were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

      Certain land in Caledonia Township, Alcona County, Michigan described as:

            The East 330 feet of the South 660 feet of the SW 1/4 of the SW 1/4
      of Section 8, T28N, R8E, except the West 264 feet of the South 330 feet
      thereof; said land being more particularly described as follows: To find
      the place of beginning of this description, commence at the Southwest
      corner of said section, run thence East along the South line of said
      section 1243 feet to the place of beginning of this description, thence
      continuing East along said South line of said section 66 feet to the West
      1/8 line of said section, thence N 02 degrees 09' 30" E along the said
      West 1/8 line of said section 660 feet, thence West 330 feet, thence S 02
      degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees 09'
      30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

      Certain land in Lee Township, Allegan County, Michigan described as:

            The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

      Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

            All that part of the S'ly 1/2 of the former Boyne City-Gaylord and
      Alpena Railroad right of way, being the Southerly 50 feet of a 100 foot
      strip of land formerly occupied by said Railroad, running from the East
      line of Section 31, T31N, R7E, Southwesterly across said Section 31 and
      Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2 of Section
      9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

      Certain land in Mancelona Township, Antrim County, Michigan described as:

                                      A-19
<PAGE>

            The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
      therefrom all mineral, coal, oil and gas and such other rights as were
      reserved unto the State of Michigan in that certain deed running from the
      State of Michigan to August W. Schack and Emma H. Schack, his wife, dated
      April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on page 682
      of Antrim County Records.

                                  ARENAC COUNTY

      Certain land in Standish Township, Arenac County, Michigan described as:

            A parcel of land in the SW 1/4 of the NW 1/4 of Section 12, T18N,
      R4E, described as follows: To find the place of beginning of said parcel
      of land, commence at the Northwest corner of Section 12, T18N, R4E; run
      thence South along the West line of said section, said West line of said
      section being also the center line of East City Limits Road 2642.15 feet
      to the W 1/4 post of said section and the place of beginning of said
      parcel of land; running thence N 88 degrees 26' 00" E along the East and
      West 1/4 line of said section, 660.0 feet; thence North parallel with the
      West line of said section, 310.0 feet; thence S 88 degrees 26' 00" W,
      330.0 feet; thence South parallel with the West line of said section,
      260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the West line of
      said section and the center line of East City Limits Road; thence South
      along the said West line of said section, 50.0 feet to the place of
      beginning.

                                  BARRY COUNTY

      Certain land in Johnstown Township, Barry County, Michigan described as:

            A strip of land 311 feet in width across the SW 1/4 of the NE 1/4 of
      Section 31, T1N, R8W, described as follows: To find the place of beginning
      of this description, commence at the E -1/4 post of said section; run
      thence N 00 degrees 55' 00" E along the East line of said section, 555.84
      feet; thence N 59 degrees 36' 20" W, 1375.64 feet; thence N 88 degrees 30'
      00" W, 130 feet to a point on the East 1/8 line of said section and the
      place of beginning of this description; thence continuing N 88 degrees 30'
      00" W, 1327.46 feet to the North and South 1/4 line of said section;
      thence S 00 degrees 39'35" W along said North and South 1/4 line of said
      section, 311.03 feet to a point, which said point is 952.72 feet distant
      N'ly from the East and West 1/4 line of said section as measured along
      said North and South 1/4 line of said section; thence S 88 degrees 30' 00"
      E, 1326.76 feet to the East 1/8 line of said section; thence N 00 degrees
      47' 20" E along said East 1/8 line of said section, 311.02 feet to the
      place of beginning.

                                      A-20
<PAGE>

                                         BAY COUNTY

      Certain land in Frankenlust Township, Bay County, Michigan described as:

            The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of the SE
      1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

      Certain land in Benzonia Township, Benzie County, Michigan described as:

            A parcel of land in the Northeast 1/4 of Section 7, Township 26
      North, Range 14 West, described as beginning at a point on the East line
      of said Section 7, said point being 320 feet North measured along the East
      line of said section from the East 1/4 post; running thence West 165 feet;
      thence North parallel with the East line of said section 165 feet; thence
      East 165 feet to the East line of said section; thence South 165 feet to
      the place of beginning.

                                  BRANCH COUNTY

      Certain land in Girard Township, Branch County, Michigan described as:

            A parcel of land in the NE 1/4 of Section 23 T5S, R6W, described as
      beginning at a point on the North and South quarter line of said section
      at a point 1278.27 feet distant South of the North quarter post of said
      section, said distance being measured along the North and South quarter
      line of said section, running thence S89 degrees21'E 250 feet, thence
      North along a line parallel with the said North and South quarter line of
      said section 200 feet, thence N89 degrees21'W 250 feet to the North and
      South quarter line of said section, thence South along said North and
      South quarter line of said section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

      Certain land in Convis Township, Calhoun County, Michigan described as:

            A parcel of land in the SE 1/4 of the SE 1/4 of Section 32, T1S,
      R6W, described as follows: To find the place of beginning of this
      description, commence at the Southeast corner of said section; run thence
      North along the East line of said section 1034.32 feet to the place of
      beginning of this description; running thence N 89 degrees 39' 52" W,
      333.0 feet; thence North 290.0 feet to the South 1/8 line of said section;
      thence S 89 degrees 39' 52" E along said South 1/8 line of said section
      333.0 feet to the East line of said section; thence South along said East
      line of said section 290.0 feet to the place of beginning. (Bearings are
      based on the

                                      A-21
<PAGE>

      East line of Section 32, T1S, R6W, from the Southeast corner of said
      section to the Northeast corner of said section assumed as North.)

                                   CASS COUNTY

      Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

            The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S, R13W.

                                CHARLEVOIX COUNTY

      Certain land in South Arm Township, Charlevoix County, Michigan described
as:

            A parcel of land in the SW 1/4 of Section 29, T32N, R7W, described
      as follows: Beginning at the Southwest corner of said section and running
      thence North along the West line of said section 788.25 feet to a point
      which is 528 feet distant South of the South 1/8 line of said section as
      measured along the said West line of said section; thence N 89 degrees 30'
      19" E, parallel with said South 1/8 line of said section 442.1 feet;
      thence South 788.15 feet to the South line of said section; thence S 89
      degrees 29' 30" W, along said South line of said section 442.1 feet to the
      place of beginning.

                                CHEBOYGAN COUNTY

      Certain land in Inverness Township, Cheboygan County, Michigan described
as:

            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:

                                      A-22
<PAGE>

            The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the North
      165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22, T5N,
      R3W.

                                 CRAWFORD COUNTY

      Certain land in Lovells Township, Crawford County, Michigan described as:

            A parcel of land in Section 1, T28N, R1W, described as: Commencing
      at NW corner said section; thence South 89 degrees53'30" East along North
      section line 105.78 feet to point of beginning; thence South 89
      degrees53'30" East along North section line 649.64 feet; thence South 55
      degrees 42'30" East 340.24 feet; thence South 55 degrees 44' 37"" East
      5,061.81 feet to the East section line; thence South 00 degrees 00' 08""
      West along East section line 441.59 feet; thence North 55 degrees 44' 37"
      West 5,310.48 feet; thence North 55 degrees 42'30" West 877.76 feet to
      point of beginning.

                                  EATON COUNTY

      Certain land in Eaton Township, Eaton County, Michigan described as:

            A parcel of land in the SW 1/4 of Section 6, T2N, R4W, described as
      follows: To find the place of beginning of this description commence at
      the Southwest corner of said section; run thence N 89 degrees 51' 30" E
      along the South line of said section 400 feet to the place of beginning of
      this description; thence continuing N 89 degrees 51' 30" E, 500 feet;
      thence N 00 degrees 50' 00" W, 600 feet; thence S 89 degrees 51' 30" W
      parallel with the South line of said section 500 feet; thence S 00 degrees
      50' 00" E, 600 feet to the place of beginning.

                                  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

                                      A-23
<PAGE>

      degrees42'56"W and 50 feet measured S88 degrees14'04"W from the South
      quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a distance
      of 550 feet; thence N01 degrees42'56"W a distance of 500 feet to a point
      on the North line of the South half of the Southwest quarter of said
      Section 8; thence N88 degrees14'04"E along the North line of South half of
      the Southwest quarter of said Section 8 a distance 550 feet to a point on
      the West line of Duffield Road, 100 feet wide (as now established); thence
      S01 degrees42'56"E along the West line of said Duffield Road a distance of
      500 feet to the point of beginning.

                                 GLADWIN COUNTY

      Certain land in Secord Township, Gladwin County, Michigan described as:

            The East 400 feet of the South 450 feet of Section 2, T19N, R1E.

                              GRAND TRAVERSE COUNTY

      Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

            A parcel of land in the Northwest 1/4 of Section 3, T25N, R11W,
      described as follows: Commencing at the Northwest corner of said section,
      running thence S 89 degrees19'15" E along the North line of said section
      and the center line of Clouss Road 225 feet, thence South 400 feet, thence
      N 89 degrees19'15" W 225 feet to the West line of said section and the
      center line of Hannah Road, thence North along the West line of said
      section and the center line of Hannah Road 400 feet to the place of
      beginning for this description.

                                 GRATIOT COUNTY

      Certain land in Fulton Township, Gratiot County, Michigan described as:

            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.

                                      A-24
<PAGE>

                                  HURON COUNTY

      Certain easement rights located across land in Sebewaing Township, Huron
County, Michigan described as:

            The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

      Certain land in Vevay Township, Ingham County, Michigan described as:

            A parcel of land 660 feet wide in the Southwest 1/4 of Section 7
      lying South of the centerline of Sitts Road as extended to the North-South
      1/4 line of said Section 7, T2N, R1W, more particularly described as
      follows: Commence at the Southwest corner of said Section 7, thence North
      along the West line of said Section 2502.71 feet to the centerline of
      Sitts Road; thence South 89 degrees54'45" East along said centerline
      2282.38 feet to the place of beginning of this description; thence
      continuing South 89 degrees54'45" East along said centerline and said
      centerline extended 660.00 feet to the North-South 1/4 line of said
      section; thence South 00 degrees07'20" West 1461.71 feet; thence North 89
      degrees34'58" West 660.00 feet; thence North 00 degrees07'20" East 1457.91
      feet to the centerline of Sitts Road and the place of beginning.

                                  IONIA COUNTY

      Certain land in Sebewa Township, Ionia County, Michigan described as:

            A strip of land 280 feet wide across that part of the SW 1/4 of the
      NE 1/4 of Section 15, T5N, R6W, described as follows:

            To find the place of beginning of this description commence at the E
      1/4 corner of said section; run thence N 00 degrees 05' 38" W along the
      East line of said section, 1218.43 feet; thence S 67 degrees 18' 24" W,
      1424.45 feet to the East 1/8 line of said section and the place of
      beginning of this description; thence continuing S 67 degrees 18' 24" W,
      1426.28 feet to the North and South 1/4 line 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

                                      A-25
<PAGE>

      Certain land in Alabaster Township, Iosco County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 34, T21N, R7E, described
      as follows: To find the place of beginning of this description commence at
      the N 1/4 post of said section; run thence South along the North and South
      1/4 line of said section, 1354.40 feet to the place of beginning of this
      description; thence continuing South along the said North and South 1/4
      line of said section, 165.00 feet to a point on the said North and South
      1/4 line of said section which said point is 1089.00 feet distant North of
      the center of said section; thence West 440.00 feet; thence North 165.00
      feet; thence East 440.00 feet to the said North and South 1/4 line of said
      section and the place of beginning.

                                 ISABELLA COUNTY

      Certain land in Chippewa Township, Isabella County, Michigan described as:

            The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29, T14N,
      R3W.

                                 JACKSON COUNTY

      Certain land in Waterloo Township, Jackson County, Michigan described as:

            A parcel of land in the North fractional part of the N fractional
      1/2 of Section 2, T1S, R2E, described as follows: To find the place of
      beginning of this description commence at the E 1/4 post of said section;
      run thence N 01 degrees 03' 40" E along the East line of said section
      1335.45 feet to the North 1/8 line of said section and the place of
      beginning of this description; thence N 89 degrees 32' 00" W, 2677.7 feet
      to the North and South 1/4 line of said section; thence S 00 degrees 59'
      25" W along the North and South 1/4 line of said section 22.38 feet to the
      North 1/8 line of said section; thence S 89 degrees 59' 10" W along the
      North 1/8 line of said section 2339.4 feet to the center line of State
      Trunkline Highway M-52; thence N 53 degrees 46' 00" W along the center
      line of said State Trunkline Highway 414.22 feet to the West line of said
      section; thence N 00 degrees 55' 10" E along the West line of said section
      74.35 feet; thence S 89 degrees 32' 00" E, 5356.02 feet to the East line
      of said section; thence S 01 degrees 03' 40" W along the East line of said
      section 250 feet to the place of beginning.

                                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

                                      A-26
<PAGE>

      place of beginning of this description, commence at the Northwest corner
      of said section; run thence S 00 degrees 36' 55" W along the West line of
      said section 971.02 feet to the place of beginning of this description;
      thence continuing S 00 degrees 36' 55" W along said West line of said
      section 350.18 feet to the North 1/8 line of said section; thence S 87
      degrees 33' 40" E along the said North 1/8 line of said section 1325.1
      feet to the West 1/8 line of said section; thence N 00 degrees 38' 25" E
      along the said West 1/8 line of said section 350.17 feet; thence N 87
      degrees 33' 40" W, 1325.25 feet to the place of beginning.

                                 KALKASKA COUNTY

      Certain land in Kalkaska Township, Kalkaska County, Michigan described as:

            The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
      therefrom all mineral, coal, oil and gas and such other rights as were
      reserved unto the State of Michigan in that certain deed running from the
      Department of Conservation for the State of Michigan to George Welker and
      Mary Welker, his wife, dated October 9, 1934 and recorded December 28,
      1934 in Liber 39 on page 291 of Kalkaska County Records, and subject to
      easement for pipeline purposes as granted to Michigan Consolidated Gas
      Company by first party herein on April 4, 1963 and recorded June 21, 1963
      in Liber 91 on page 631 of Kalkaska County Records.

                                   KENT COUNTY

      Certain land in Caledonia Township, Kent County, Michigan described as:

            A parcel of land in the Northwest fractional 1/4 of Section 15, T5N,
      R10W, described as follows: To find the place of beginning of this
      description commence at the North 1/4 corner of said section, run thence S
      0 degrees 59' 26" E along the North and South 1/4 line of said section
      2046.25 feet to the place of beginning of this description, thence
      continuing S 0 degrees 59' 26" E along said North and South 1/4 line of
      said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90 feet to a
      point herein designated "Point A" on the East bank of the Thornapple
      River, thence continuing S 88 degrees 53' 30" W to the center thread of
      the Thornapple River, thence NW'ly along the center thread of said
      Thornapple River to a point which said point is S 88 degrees 58' 30" W of
      a point on the East bank of the Thornapple River herein designated "Point
      B", said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
      above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
      B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place of
      beginning. (Bearings are based on the East line of Section 15, T5N, R10W
      between

                                      A-27
<PAGE>

      the East 1/4 corner of said section and the Northeast corner of said
      section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

      Certain land in Pinora and Cherry Valley Townships, Lake County, Michigan
described as:

            A strip of land 50 feet wide East and West along and adjoining the
      West line of highway on the East side of the North 1/2 of Section 13 T18N,
      R12W. Also a strip of land 100 feet wide East and West along and adjoining
      the East line of the highway on the West side of following described land:
      The South 1/2 of NW 1/4, and the South 1/2 of the NW 1/4 of the SW 1/4,
      all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

      Certain land in Hadley Township, Lapeer County, Michigan described as:

            The South 825 feet of the W 1/2 of the SW 1/4 of Section 24, T6N,
      R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

      Certain land in Cleveland Township, Leelanau County, Michigan described
as:

            The North 200 feet of the West 180 feet of the SW 1/4 of the SE 1/4
      of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

      Certain land in Madison Township, Lenawee County, Michigan described as:

            A strip of land 165 feet wide off the West side of the following
      described premises: The E 1/2 of the SE 1/4 of Section 12. The E 1/2 of
      the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13, being all in T7S,
      R3E, excepting therefrom a parcel of land in the E 1/2 of the SE 1/4 of
      Section 12, T7S, R3E, beginning at the Northwest corner of said E 1/2 of
      the SE 1/4 of Section 12, running thence East 4 rods, thence South 6 rods,
      thence West 4 rods, thence North 6 rods to the place of beginning.

                                LIVINGSTON COUNTY

      Certain land in Cohoctah Township, Livingston County, Michigan described
as:

            Parcel 1

                                      A-28
<PAGE>

            The East 390 feet of the East 50 rods of the SW 1/4 of Section 30,
      T4N, R4E.

            Parcel 2

            A parcel of land in the NW 1/4 of Section 31, T4N, R4E, described as
      follows: To find the place of beginning of this description commence at
      the N 1/4 post of said section; run thence N 89 degrees 13' 06" W along
      the North line of said section, 330 feet to the place of beginning of this
      description; running thence S 00 degrees 52' 49" W, 2167.87 feet; thence N
      88 degrees 59' 49" W, 60 feet; thence N 00 degrees 52' 49" E, 2167.66 feet
      to the North line of said section; thence S 89 degrees 13' 06" E along
      said North line of said section, 60 feet to the place of beginning.

                                  MACOMB COUNTY

      Certain land in Macomb Township, Macomb County, Michigan described as:

            A parcel of land commencing on the West line of the E 1/2 of the NW
      1/4 of fractional Section 6, 20 chains South of the NW corner of said E
      1/2 of the NW 1/4 of Section 6; thence South on said West line and the
      East line of A. Henry Kotner's Hayes Road Subdivision #15, according to
      the recorded plat thereof, as recorded in Liber 24 of Plats, on page 7,
      24.36 chains to the East and West 1/4 line of said Section 6; thence East
      on said East and West 1/4 line 8.93 chains; thence North parallel with the
      said West line of the E 1/2 of the NW 1/4 of Section 6, 24.36 chains;
      thence West 8.93 chains to the place of beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

      Certain land in Manistee Township, Manistee County, Michigan described as:

            A parcel of land in the SW 1/4 of Section 20, T22N, R16W, described
      as follows: To find the place of beginning of this description, commence
      at the Southwest corner of said section; run thence East along the South
      line of said section 832.2 feet to the place of beginning of this
      description; thence continuing East along said South line of said section
      132 feet; thence North 198 feet; thence West 132 feet; thence South 198
      feet to the place of beginning, excepting therefrom the South 2 rods
      thereof which was conveyed to Manistee Township for highway purposes by a
      Quitclaim Deed dated June 13, 1919 and recorded July 11, 1919 in Liber 88
      of Deeds on page 638 of Manistee County Records.

                                  MASON COUNTY

      Certain land in Riverton Township, Mason County, Michigan described as:

                                      A-29
<PAGE>

            Parcel 1

            The South 10 acres of the West 20 acres of the S 1/2 of the NE 1/4
      of Section 22, T17N, R17W.

            Parcel 2

            A parcel of land containing 4 acres of the West side of highway,
      said parcel of land being described as commencing 16 rods South of the
      Northwest corner of the NW 1/4 of the SW -1/4 of Section 22, T17N, R17W,
      running thence South 64 rods, thence NE'ly and N'ly and NW'ly along the
      W'ly line of said highway to the place of beginning, together with any and
      all right, title, and interest of Howard C. Wicklund and Katherine E.
      Wicklund in and to that portion of the hereinbefore mentioned highway
      lying adjacent to the E'ly line of said above described land.

                                 MECOSTA COUNTY

      Certain land in Wheatland Township, Mecosta County, Michigan described as:

            A parcel of land in the SW 1/4 of the SW 1/4 of Section 16, T14N,
      R7W, described as beginning at the Southwest corner of said section;
      thence East along the South line of Section 133 feet; thence North
      parallel to the West section line 133 feet; thence West 133 feet to the
      West line of said Section; thence South 133 feet to the place of
      beginning.

                                 MIDLAND COUNTY

      Certain land in Ingersoll Township, Midland County, Michigan described as:

            The West 200 feet of the W 1/2 of the NE 1/4 of Section 4, T13N,
      R2E.

                                MISSAUKEE COUNTY

      Certain land in Norwich Township, Missaukee County, Michigan described as:

            A parcel of land in the NW 1/4 of the NW 1/4 of Section 16, T24N,
      R6W, described as follows: Commencing at the Northwest corner of said
      section, running thence N 89 degrees 01' 45" E along the North line of
      said section 233.00 feet; thence South 233.00 feet; thence S 89 degrees
      01' 45" W, 233.00 feet to the West line of said section; thence North
      along said West line of said section 233.00 feet to the place of
      beginning. (Bearings are based on the West line of Section 16, T24N, R6W,
      between the Southwest and Northwest corners of said section assumed as
      North.)

                                      A-30
<PAGE>

                                  MONROE COUNTY

      Certain land in Whiteford Township, Monroe County, Michigan described as:

            A parcel of land in the SW1/4 of Section 20, T8S, R6E, described as
      follows: To find the place of beginning of this description commence at
      the S 1/4 post of said section; run thence West along the South line of
      said section 1269.89 feet to the place of beginning of this description;
      thence continuing West along said South line of said section 100 feet;
      thence N 00 degrees 50' 35" E, 250 feet; thence East 100 feet; thence S 00
      degrees 50' 35" W parallel with and 16.5 feet distant W'ly of as measured
      perpendicular to the West 1/8 line of said section, as occupied, a
      distance of 250 feet to the place of beginning.

                                 MONTCALM COUNTY

      Certain land in Crystal Township, Montcalm County, Michigan described as:

            The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

      Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

            Lot 14 of Hillman Industrial Park, being a subdivision in the South
      1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to the plat
      thereof recorded in Liber 4 of Plats on Pages 32-34, Montmorency County
      Records.

                                 MUSKEGON COUNTY

      Certain land in Casnovia Township, Muskegon County, Michigan described as:

            The West 433 feet of the North 180 feet of the South 425 feet of the
      SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

      Certain land in Ashland Township, Newaygo County, Michigan described as:

            The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

      Certain land in Wixcom City, Oakland County, Michigan described as:

            The E 75 feet of the N 160 feet of the N 330 feet of the W 526.84
      feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more

                                      A-31
<PAGE>

      particularly described as follows: Commence at the NW corner of said
      Section 8, thence N 87 degrees 14' 29" E along the North line of said
      Section 8 a distance of 451.84 feet to the place of beginning for this
      description; thence continuing N 87 degrees 14' 29" E along said North
      section line a distance of 75.0 feet to the East line of the West 526.84
      feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02 degrees
      37' 09" E along said East line a distance of 160.0 feet; thence S 87
      degrees 14' 29" W a distance of 75.0 feet; thence N 02 degrees 37' 09" W a
      distance of 160.0 feet to the place of beginning.

                                  OCEANA COUNTY

      Certain land in Crystal Township, Oceana County, Michigan described as:

            The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290 feet
      of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

      Certain land in West Branch Township, Ogemaw County, Michigan described
as:

            The South 660 feet of the East 660 feet of the NE 1/4 of the NE 1/4
      of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

      Certain land in Hersey Township, Osceola County, Michigan described as:

            A parcel of land in the North 1/2 of the Northeast 1/4 of Section
      13, T17N, R9W, described as commencing at the Northeast corner of said
      Section; thence West along the North Section line 999 feet to the point of
      beginning of this description; thence S 01 degrees 54' 20" E 1327.12 feet
      to the North 1/8 line; thence S 89 degrees 17' 05" W along the North 1/8
      line 330.89 feet; thence N 01 degrees 54' 20" W 1331.26 feet to the North
      Section line; thence East along the North Section line 331 feet to the
      point of beginning.

                                  OSCODA COUNTY

      Certain land in Comins Township, Oscoda County, Michigan described as:

            The East 400 feet of the South 580 feet of the W 1/2 of the SW 1/4
      of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

      Certain land in Corwith Township, Otsego County, Michigan described as:

                                      A-32
<PAGE>

            Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W, described
      as: Beginning at the N 1/4 corner of said section; running thence S 89
      degrees 04' 06" E along the North line of said section, 330.00 feet;
      thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89 degrees 04' 06" W,
      330.00 feet to the North and South 1/4 line of said section; thence N 00
      degrees 28' 43" W along the said North and South 1/4 line of said section,
      400.00 feet to the point of beginning; subject to the use of the N'ly
      33.00 feet thereof for highway purposes.

                                  OTTAWA COUNTY

      Certain land in Robinson Township, Ottawa County, Michigan described as:

            The North 660 feet of the West 660 feet of the NE 1/4 of the NW 1/4
      of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

      Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

            Part of the South half of the Northeast quarter, Section 24, T34N,
      R5E, and part of the Northwest quarter, Section 19, T34N, R6E, more fully
      described as: Commencing at the East -1/4 corner of said Section 24;
      thence N 00 degrees15'47" E, 507.42 feet, along the East line of said
      Section 24 to the point of beginning; thence S 88 degrees15'36" W, 400.00
      feet, parallel with the North 1/8 line of said Section 24; thence N 00
      degrees15'47" E, 800.00 feet, parallel with said East line of Section 24;
      thence N 88 degrees15'36"E, 800.00 feet, along said North 1/8 line of
      Section 24 and said line extended; thence S 00 degrees15'47" W, 800.00
      feet, parallel with said East line of Section 24; thence S 88
      degrees15'36" W, 400.00 feet, parallel with said North 1/8 line of Section
      24 to the point of beginning.

            Together with a 33 foot easement along the West 33 feet of the
      Northwest quarter lying North of the North 1/8 line of Section 24, Belknap
      Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

      Certain land in Gerrish Township, Roscommon County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 19, T24N, R3W, described
      as follows: To find the place of beginning of this description commence at
      the Northwest corner of said section, run thence East along the North line
      of said section 1,163.2 feet to the place of beginning of this description
      (said point also being the place of intersection of the West 1/8

                                      A-33
<PAGE>

      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.

                                      A-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

                                      A-35
<PAGE>

      degrees22' 20" W, 660 feet; thence S 86 degrees 36' 57" W, 660.91 feet to
      the place of beginning.

                                  WAYNE COUNTY

      Certain land in Livonia City, Wayne County, Michigan described as:

            Commencing at the Southeast corner of Section 6, T1S, R9E; thence
      North along the East line of Section 6 a distance of 253 feet to the point
      of beginning; thence continuing North along the East line of Section 6 a
      distance of 50 feet; thence Westerly parallel to the South line of Section
      6, a distance of 215 feet; thence Southerly parallel to the East line of
      Section 6 a distance of 50 feet; thence easterly parallel with the South
      line of Section 6 a distance of 215 feet to the point of beginning.

                                 WEXFORD COUNTY

      Certain land in Selma Township, Wexford County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 7, T22N, R10W, described
      as beginning on the North line of said section at a point 200 feet East of
      the West line of said section, running thence East along said North
      section line 450 feet, 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.

                                      A-36
<PAGE>

                                        CONSUMERS ENERGY COMPANY

(SEAL)                                  By    ________________________________
                                        Name  ________________________________
Attest:                                 Title ________________________________

_________________________________
Joyce H. Norkey
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

_________________________________
Kimberly C. Wilson

_________________________________
Sammie B. Dalton

STATE OF MICHIGAN       )
                         ss.
COUNTY OF JACKSON       )

      The foregoing instrument was acknowledged before me this ____ day of May,
2005, by __________________________________, ________________________ of
CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

                                         ______________________________________
                                         Margaret Hillman, Notary Public
[SEAL]                                   Jackson County, Michigan
                                         My Commission Expires: ______________

                                      S-1
<PAGE>

                                       JPMORGAN CHASE BANK, N.A., AS TRUSTEE

(SEAL)                                 By ___________________________________
                                          L. O'Brien
Attest:                                   Vice President

_________________________________
Trust Officer

Signed, sealed and delivered
by JPMORGAN CHASE BANK, N.A.
in the presence of

_________________________________

_________________________________

STATE OF NEW YORK      )
                        ss.
COUNTY OF NEW YORK     )

            The foregoing instrument was acknowledged before me this ____ day of
May, 2005, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, N.A., a
national banking association, on behalf of the bank, as trustee.

                                       ______________________________________
                                                            Notary Public

[Seal]                                 New York County, New York
                                       My Commission Expires:

Prepared by:                           When recorded, return to:
Kimberly C. Wilson                     Consumers Energy Company
One Energy Plaza                       Business Services Real Estate Dept.
Jackson, MI  49201                     Attn:  Nancy Fisher EP7-439
                                       One Energy Plaza
                                       Jackson, MI  49201

                                      S-2
<PAGE>

                                   EXHIBIT B-1

                             REQUIRED OPINIONS FROM

                            ROBERT S. SHROSBREE, ESQ.


1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Michigan.

2. The execution and delivery of the Credit Documents by the Company and the
performance by the Company of the Obligations have been duly authorized by all
necessary corporate action and proceedings on the part of the Company and will
not:

            (a) contravene the Company's Restated Articles of Incorporation, as
      amended, or bylaws;

            (b) contravene any law or any contractual restriction imposed by any
      indenture or any other agreement or instrument evidencing or governing
      indebtedness for borrowed money of the Company (including but not limited
      to the Company Indentures (as defined below)); or

            (c) result in or require the creation of any Lien upon or with
      respect to any of the Company's properties except the lien of the
      Indenture securing the Bonds and any Lien in favor of the Agent on the
      Facility LC Collateral Account or any funds therein.

            As used in this paragraph 2, "Company Indentures" means,
collectively, (i) the Indenture dated as of January 1, 1996, as supplemented and
amended from time to time, between the Company (formerly known as Consumers
Power Company) and The Bank of New York, as Trustee, and (ii) the Indenture
dated as of February 1, 1998, as supplemented and amended from time to time,
between the Company and JPMorgan Chase Bank (formerly known as The Chase
Manhattan Bank), as Trustee.

3. The Credit Documents have been duly executed and delivered by the Company.

4. To the best of my knowledge, there is no pending or threatened action or
proceeding against the Company or any of its Consolidated Subsidiaries before
any court, governmental agency or arbitrator (except (i) to the extent described
in the Company's annual report on Form 10-K for the year ended December 31,
2004, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, in
each case as filed with the SEC, and (ii) such other similar actions, suits and
proceedings predicated on the occurrence of the same events giving rise to any
actions, suits and proceedings described in the reports referred to in clause
(i) of this paragraph 4) which might reasonably be expected to materially
adversely affect the financial condition or results of operations of the Company
and its Consolidated Subsidiaries, taken as a whole, or that would materially
adversely affect the Company's ability to perform its obligations under any
Credit Document. To the best of my knowledge, there is no litigation challenging
the validity or the enforceability of any of the Credit Documents.

                                     B-1-1
<PAGE>

5. No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Company of any Credit Document,
except for the authorization to issue, sell or guarantee secured and/or
unsecured long-term debt granted by the Federal Energy Regulatory Commission
(hereinafter the "FERC") in Docket No. ES04-32-000 as amended by the FERC in
Docket No. ES04-32-001 (hereinafter the "FERC Order"). The FERC Order is in full
force and effect as of the date hereof.

6. The Bonds, assuming due authentication in accordance with the terms of the
Indenture, are in due and proper form and, when delivered to the Agent pursuant
to the Bond Delivery Agreement, will evidence and secure the Obligations owing
under the Agreement and will be valid and enforceable obligations of the Company
in accordance with their terms, secured by the lien of the Indenture on an equal
and ratable basis with all other bonds issued thereunder and otherwise entitled
to the benefits provided by the Indenture.

7. The Indenture has been qualified under the Trust Indenture Act of 1939, as
amended, and the execution and delivery of the Supplemental Indenture will not
cause the Indenture to not be so qualified.

8. The Company is not an "investment company" or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.

9. The Company (i) is a "public utility" and a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended (the "Holding Company Act"), and (ii) is
currently exempt from all provisions of the Holding Company Act, except Section
9(a)(2) thereof.

10. In a properly presented case, a Michigan court or a federal court applying
Michigan choice of law rules should give effect to the choice of law provisions
of the Agreement and should hold that the Agreement is to be governed by the
laws of the State of New York rather than the laws of the State of Michigan,
except in the case of those provisions set forth in the Agreement the
enforcement of which would contravene a fundamental policy of the State of
Michigan. In the course of our review of the Agreement, nothing has come to my
attention to indicate that any of such provisions would do so. Notwithstanding
the foregoing, even if a Michigan court or a federal court holds that the
Agreement is to be governed by the laws of the State of Michigan, the Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
under Michigan law (including usury provisions) against the Company in
accordance with its terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).

                                     B-1-2
<PAGE>

                                   EXHIBIT B-2

                              REQUIRED OPINION FROM

                   MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.

      1. The Bonds, assuming due authentication in accordance with the terms of
the Indenture, are in due and proper form and, when delivered to the Agent
pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.

                                      B-3-1
<PAGE>

                                    EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

      I, _________________, ______________ of Consumers Energy Company, a
Michigan corporation (the "Company"), DO HEREBY CERTIFY in connection with the
Third Amended and Restated Credit Agreement dated as of May 18, 2005 (the
"Credit Agreement"; the terms defined therein being used herein as so defined)
among the Company, various financial institutions and JPMorgan Chase Bank, N.A.,
as Agent, that:

I.    Section 8.1 of the Credit Agreement provides that the Company shall: "At
      all times, maintain a ratio of Total Consolidated Debt to Total
      Consolidated Capitalization of not greater than 0.70 to 1.0."

      The following calculations are made in accordance with the definitions of
      Total Consolidated Debt and Total Consolidated Capitalization in the
      Credit Agreement and are correct and accurate as of _____________, ___:

A.    Total Consolidated Debt

      (a)   Indebtedness for borrowed money                        $

plus  (b)   Indebtedness for deferred purchase price of
            property/services

plus  (c)   Liabilities for accumulated funding deficiencies

plus  (d)   Liabilities in connection with withdrawal liability
            under ERISA

plus  (e)   Obligations under acceptance facilities

plus  (f)   Obligations under Capital Leases

plus  (g)   Obligations under interest rate swap, "cap",
            "collar" or other hedging agreement

plus  (h)   Guaranties, endorsements and
            other contingent obligations

minus (i)   Principal amount of any Securitized Bonds

minus (j)   Junior Subordinated Debt owned by any Hybrid
            Preferred Securities Subsidiary

minus (k)   Subordinated guaranties by the Company of

                                      C-1
<PAGE>

            payments with respect to Hybrid Preferred Securities

minus (l)   Agreed upon percentage of Net Proceeds from issuance
            of hybrid debt/equity securities (other than Junior
            Subordinated Debt and Hybrid Preferred Securities)

                                                      TOTAL        $
B.    Total Consolidated Capitalization:

      (a)   Total Consolidated Debt                                $

plus  (b)   The sum of Items A(j) through
            A(l) above

plus  (c)   Equity of common stockholders

plus  (d)   Equity of preference stockholders                      ________

plus  (e)   Equity of preferred stockholders                       _________

                                           TOTAL                   $
C.     Debt to Capital Ratio                                       _____ to 1.00
      (total of A divided by total of B)

II.   Section 8.2 of the Credit Agreement provides that the Company shall: "Not
      permit the ratio, determined as of the end of each of its fiscal quarters
      for the then most-recently ended four fiscal quarters, of (i) Consolidated
      EBIT to (ii) cash Consolidated Interest Expense to be less than 2.0 to
      1.0"

      The following calculations are made in accordance with the definitions of
Consolidated EBIT and Consolidated Interest Expense in the Credit Agreement and
are correct and accurate as of _____________, ___:


A.    Consolidated EBIT

      (a)   Consolidated Net Income                                $

plus  (b)   Consolidated Interest Expense                          $

plus  (c)   Interest and dividends on Hybrid Preferred
            Securities and on securities of the type described in
            Item A(l) above (but only to the extent securities of
            the type described in

                                      C-2
<PAGE>

            Item A(l) are deemed equity)

plus  (d)   Expense for taxes paid or accrued                      $

plus  (e)   Non-cash write-offs and write-downs                    $
            contained in the Company's
            Consolidated Net Income, including
            write-offs or write-downs related to
            the sale of assets, impairment of
            assets and loss on contracts

minus (f)   Extraordinary gains realized other than in the         $
            ordinary course of business

                                                      TOTAL        $

B.          Consolidated Interest Expense                          $

C.          Interest Coverage Ratio                                ____ to 1.00
            (total of A divided by total of B)

            IN WITNESS WHEREOF, I have signed this Certificate this ___ day of
            _________, ___.

                                      C-3
<PAGE>

                                    EXHIBIT D

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

      This Assignment and Assumption (the "Assignment and Assumption") is dated
as of the Effective Date set forth below and is entered into by and between
[Insert name of Assignor] (the "Assignor") and [Insert name of Assignee] (the
"Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Third Amended and Restated Credit Agreement
identified below (as amended, the "Credit Agreement"), receipt of a copy of
which is hereby acknowledged by the Assignee. The Terms and Conditions set forth
in Annex 1 attached hereto are hereby agreed to and incorporated herein by
reference and made a part of this Assignment and Assumption as if set forth
herein in full.

      For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Agent as contemplated below, the interest in and to all of the Assignor's
rights and obligations in its capacity as a Bank under the Credit Agreement and
any other documents or instruments delivered pursuant thereto that represents
the amount and percentage interest identified below of all of the Assignor's
outstanding rights and obligations under the respective facilities identified
below (including any letters of credit, guaranties and swingline loans included
in such facilities and, to the extent permitted to be assigned under applicable
law, all claims (including contract claims, tort claims, malpractice claims,
statutory claims and all other claims at law or in equity), suits, causes of
action and any other right of the Assignor against any Person whether known or
unknown arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby) (the "Assigned Interest"). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.

1.    Assignor: _________________________________________________

2.    Assignee: __________________________________________________ [and is an
affiliate of Assignor]

3.    Borrower: Consumers Energy Company

4.    Agent: JPMorgan Chase Bank, N.A., as the Agent under the Credit Agreement.

                                       D-1
<PAGE>

5.    Credit Agreement: The Third Amended and Restated Credit Agreement dated as
of May 18, 2005 among Consumers Energy Company, the Banks party thereto, and
JPMorgan Chase Bank, N.A., as Agent.

6.    Assigned Interest:

<TABLE>
<CAPTION>
                                Aggregate Amount of         Amount of Commitment/             Percentage Assigned of
                                Commitment/ Outstanding     Outstanding Credit Exposure       Commitment/ Outstanding Credit
                                Credit Exposure for all     Assigned*                         Exposure(1)
Facility Assigned               Banks*
- ------------------------------- --------------------------- --------------------------------- ---------------------------------
<S>                             <C>                         <C>                               <C>
- ------------                    $                           $                                 -------%

- ------------                    $                           $                                 -------%

- ------------                    $                           $                                 -------%
</TABLE>

7.    Trade Date:______________________________________ 2

Effective Date: ____________________, 20__ TO BE INSERTED BY AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT.]

- ------------------------------
* Amount to be adjusted by the counterparties to take into account any payments
or prepayments made between the Trade Date and the Effective Date.


1  Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
   of all Banks thereunder.

2  Insert if satisfaction of minimum amounts is to be determined as of the
   Trade Date.

                                       D-2
<PAGE>

   The terms set forth in this Assignment and Assumption are hereby agreed to:

                              ASSIGNOR

                              [NAME OF ASSIGNOR]

                              By:_____________________________________________
                                          Title:

                              ASSIGNEE

                              [NAME OF ASSIGNEE]

                               By:_____________________________________________
                                          Title:

[Consented to and](3) Accepted:

JPMORGAN CHASE BANK, N.A., as Agent

By:_____________________________________________
Title:

[Consented to:](4)

[NAME OF RELEVANT PARTY]

By:_____________________________________________
Title:

- -------------------------
3 To be added only if the consent of the Agent is required by the terms of
  the Credit Agreement.

4 To be added only if the consent of the Company and/or other parties (e.g.
  LC Issuer) is required by the terms of the Credit Agreement.

                                      D-3
<PAGE>

                                     ANNEX 1
                            TERMS AND CONDITIONS FOR
                            ASSIGNMENT AND ASSUMPTION

            1. Representations and Warranties.

            1.1 Assignor. The Assignor represents and warrants that (i) it is
the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby. Neither the Assignor nor any of its officers,
directors, employees, agents or attorneys shall be responsible for (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Credit Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency, perfection, priority,
collectibility, or value of the Credit Documents or any collateral thereunder,
(iii) the financial condition of the Company, any of its Subsidiaries or
Affiliates or any other Person obligated in respect of any Credit Document, (iv)
the performance or observance by the Company, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under any
Credit Document, (v) inspecting any of the property, books or records of the
Company, or any guarantor, or (vi) any mistake, error of judgment, or action
taken or omitted to be taken in connection with the Credit Extensions or the
Credit Documents.

            1.2. Assignee. The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Bank under the Credit Agreement, (ii) from
and after the Effective Date, it shall be bound by the provisions of the Credit
Agreement as a Bank thereunder and, to the extent of the Assigned Interest,
shall have the obligations of a Bank thereunder, (iii) agrees that its payment
instructions and notice instructions are as set forth in Schedule 1 to this
Assignment and Assumption, (iv) confirms that none of the funds, monies, assets
or other consideration being used to make the purchase and assumption hereunder
are "plan assets" as defined under ERISA and that its rights, benefits and
interests in and under the Credit Documents will not be "plan assets" under
ERISA, (v) agrees to indemnify and hold the Assignor harmless against all
losses, costs and expenses (including reasonable attorneys' fees) and
liabilities incurred by the Assignor in connection with or arising in any manner
from the Assignee's non-performance of the obligations assumed under this
Assignment and Assumption, (vi) it has received a copy of the Credit Agreement,
together with copies of financial statements and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase the
Assigned Interest on the basis of which it has made such analysis and decision
independently and without reliance on the Agent or any other Bank, and (vii)
attached as Schedule 1 to this Assignment and Assumption is any documentation
required to be delivered by the Assignee with respect to its tax status pursuant
to the terms of the Credit Agreement, duly completed and executed by the
Assignee and (b) agrees that (i) it will, independently and without reliance on
the Agent, the Assignor or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Documents, and
(ii) it will

                                     Annex 1

<PAGE>

perform in accordance with their terms all of the obligations which by the terms
of the Credit Documents are required to be performed by it as a Bank.

            2. Payments. The Assignee shall pay the Assignor, on the Effective
Date, the amount agreed to by the Assignor and the Assignee. From and after the
Effective Date, the Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, Reimbursement Obligations,
fees and other amounts) to the Assignor for amounts which have accrued to but
excluding the Effective Date and to the Assignee for amounts which have accrued
from and after the Effective Date.

            3. General Provisions. This Assignment and Assumption shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the law
of the State of New York.

                                     Annex 1

<PAGE>

                          ADMINISTRATIVE QUESTIONNAIRE

     (Schedule to be supplied by Closing Unit or Trading Documentation Unit)

   [(For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
      (For Forms after Primary Syndication call Jim Bartz at 312-732-1242)]

<PAGE>

              US AND NON-US TAX INFORMATION REPORTING REQUIREMENTS

     (Schedule to be supplied by Closing Unit or Trading Documentation Unit)

   [(For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
      (For Forms after Primary Syndication call Jim Bartz at 312-732-1242)]

<PAGE>

                                    EXHIBIT E

                             TERMS OF SUBORDINATION

                           [JUNIOR SUBORDINATED DEBT]

                                  ARTICLE ____
                                  SUBORDINATION

      Section 1. Applicability of Article; Securities Subordinated to Senior
Indebtedness.

      (a) This Article ____ shall apply only to the Securities of any series
which, pursuant to Section ___, are expressly made subject to this Article. Such
Securities are referred to in this Article ____ as "Subordinated Securities."

      (b) The Issuer covenants and agrees, and each Holder of Subordinated
Securities by his acceptance thereof likewise covenants and agrees, that the
indebtedness represented by the Subordinated Securities and the payment of the
principal and interest, if any, on the Subordinated Securities is subordinated
and subject in right, to the extent and in the manner provided in this Article,
to the prior payment in full of all Senior Indebtedness.

      "Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date hereof or thereafter
incurred, created or assumed: (i) indebtedness of the Issuer for money borrowed
by the Issuer (including purchase money obligations) or evidenced by debentures
(other than the Subordinated Securities), notes, bankers' acceptances or other
corporate debt securities, or similar instruments issued by the Issuer; (ii) all
capital lease obligations of the Issuer; (iii) all obligations of the Issuer
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Issuer and all obligations of the Issuer under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) obligations with respect to letters of
credit; (v) all indebtedness of others of the type referred to in the preceding
clauses (i) through (iv) assumed by or guaranteed in any manner by the Issuer or
in effect guaranteed by the Issuer; (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of the Issuer (whether or not such obligation is assumed by
the Issuer), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Subordinated Notes, as the case may be,
including all other debt securities and guaranties in respect of those debt
securities, issued to any other trusts, partnerships or other entities
affiliated with the Issuer which act as a financing vehicle of the Issuer in
connection with the issuance of preferred securities by such entity or other
securities which rank pari passu with, or junior to, the Preferred Securities,
and (2) any indebtedness between or among the Issuer and its affiliates; and/or
(vii) renewals, extensions or refundings of any of the indebtedness referred to
in the preceding clauses unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same or the assumption or guarantee of the same, or
pursuant to which the same is outstanding, such

                                       E-1
<PAGE>

indebtedness or such renewal, extension or refunding thereof is not superior in
right of payment to the Subordinated Securities.

      This Article shall constitute a continuing obligation to all Persons who,
in reliance upon such provisions become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions.

      Section 2. Issuer Not to Make Payments with Respect to Subordinated
Securities in Certain Circumstances.

      (a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium and interest
thereon shall first be paid in full, or such payment duly provided for in cash
in a manner satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of the principal of, or interest on, Subordinated
Securities or to acquire any Subordinated Securities or on account of any
sinking fund provisions of any Subordinated Securities (except payments made in
capital stock of the Issuer or in warrants, rights or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before the maturity of such Senior
Indebtedness, and payments made through the exchange of other debt obligations
of the Issuer for such Subordinated Securities in accordance with the terms of
such Subordinated Securities, provided that such debt obligations are
subordinated to Senior Indebtedness at least to the extent that the Subordinated
Securities for which they are exchanged are so subordinated pursuant to this
Article ____).

      (b) Upon the happening and during the continuation of any default in
payment of the principal of, or interest on, any Senior Indebtedness when the
same becomes due and payable or in the event any judicial proceeding shall be
pending with respect to any such default, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by the Issuer with respect to the principal of, or interest on,
Subordinated Securities or to acquire any Subordinated Securities or on account
of any sinking fund provisions of Subordinated Securities (except payments made
in capital stock of the Issuer or in warrants, rights, or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before such default and notice thereof, and
payments made through the exchange of other debt obligations of the Issuer for
such Subordinated Securities in accordance with the terms of such Subordinated
Securities, provided that such debt obligations are subordinated to Senior
Indebtedness at least to the extent that the Subordinated Securities for which
they are exchanged are so subordinated pursuant to this Article ____).

      (c) In the event that, notwithstanding the provisions of this Section
___.2, the Issuer shall make any payment to the Trustee on account of the
principal of or interest on Subordinated Securities, or on account of any
sinking fund provisions of such Securities, after the maturity of any Senior
Indebtedness as described in Section ___.2(a) above or after the happening of a
default in payment of the principal of or interest on any Senior Indebtedness as
described in Section ___.2(b) above, then, unless and until all Senior
Indebtedness which shall have matured,

                                      E-2
<PAGE>

and all premium and interest thereon, shall have been paid in full (or the
declaration of acceleration thereof shall have been rescinded or annulled), or
such default shall have been cured or waived or shall have ceased to exist, such
payment (subject to the provisions of Sections ___.6 and ___.7) shall be held by
the Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of such Senior Indebtedness (pro rata as to each of
such holders on the basis of the respective amounts of Senior Indebtedness held
by them) or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of all such Senior Indebtedness remaining unpaid to the extent necessary to pay
the same in full in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
The Issuer shall give prompt written notice to the Trustee of any default in the
payment of principal of or interest on any Senior Indebtedness.

      Section 3. Subordinated Securities Subordinated to Prior Payment of All
Senior Indebtedness on Dissolution, Liquidation or Reorganization of Issuer.
Upon any distribution of assets of the Issuer in any dissolution, winding up,
liquidation or reorganization of the Issuer (whether voluntary or involuntary,
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):

      (a) the holders of all Senior Indebtedness shall first be entitled to
receive payments in full of the principal thereof and premium and interest due
thereon, or provision shall be made for such payment, before the Holders of
Subordinated Securities are entitled to receive any payment on account of the
principal of or interest on such Securities;

      (b) any payment or distribution of assets of the Issuer of any kind or
character, whether in cash, property or securities (other than securities of the
Issuer as reorganized or readjusted or securities of the Issuer or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in this Article ____
with respect to Subordinated Securities, to the payment in full without
diminution or modification by such plan of all Senior Indebtedness), to which
the Holders of Subordinated Securities or the Trustee on behalf of the Holders
of Subordinated Securities would be entitled except for the provisions of this
Article ____ shall be paid or delivered by the liquidating trustee or agent or
other person making such payment or distribution directly to the holders of
Senior Indebtedness or their representative, or to the trustee under any
indenture under which Senior Indebtedness may have been issued (pro rata as to
each such holder, representative or trustee on the basis of the respective
amounts of unpaid Senior Indebtedness held or represented by each), to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution or
provision thereof to the holders of such Senior Indebtedness; and

      (c) in the event that notwithstanding the foregoing provisions of this
Section ___.3, any payment or distribution of assets of the Issuer of any kind
or character, whether in cash, property or securities (other than securities of
the Issuer as reorganized or readjusted or securities of the Issuer or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in this Article ____
with

                                      E-3
<PAGE>

respect to Subordinated Securities, to the payment in full without diminution or
modification by such plan of all Senior Indebtedness), shall be received by the
Trustee or the Holders of the Subordinated Securities on account of principal of
or interest on the Subordinated Securities before all Senior Indebtedness is
paid in full, or effective provision made for its payment, such payment or
distribution (subject to the provisions of Section ___.6 and ___.7) shall be
received and held in trust for and shall be paid over to the holders of the
Senior Indebtedness remaining unpaid or unprovided for or their representative,
or to the trustee under any indenture under which such Senior Indebtedness may
have been issued (pro rata as provided in clause (b) above), for application to
the payment of such Senior Indebtedness until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness.

      The Issuer shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Issuer.

      The consolidation of the Issuer with, or the merger of the Issuer into,
another corporation or the liquidation or dissolution of the Issuer following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided for
in Article ____ hereof shall not be deemed a dissolution, winding up,
liquidation or reorganization for the purposes of this Section ___.3 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated such in Article ____.

      Section 4. Holders of Subordinated Securities to be Subrogated to Right of
Holders of Senior Indebtedness. Subject to the payment in full of all Senior
Indebtedness, the Holders of Subordinated Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Issuer applicable to the Senior Indebtedness
until all amounts owing on Subordinated Securities shall be paid in full, and
for the purposes of such subrogation no payments or distributions to the holders
of the Senior Indebtedness by or on behalf of the Issuer or by or on behalf of
the Holders of Subordinated Securities by virtue of this Article ____ which
otherwise would have been made to the Holders of Subordinated Securities shall,
as between the Issuer, its creditors other than holders of Senior Indebtedness
and the Holders of Subordinated Securities, be deemed to be payment by the
Issuer to or on account of the Senior Indebtedness, it being understood that the
provisions of this Article ____ are and are intended solely for the purpose of
defining the relative rights of the Holders of the Subordinated Securities, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.

      Section 5. Obligation of the Issuer Unconditional. Nothing contained in
this Article ____ or elsewhere in this Indenture or in any Subordinated Security
is intended to or shall impair, as among the Issuer, its creditors other than
holders of Senior Indebtedness and the Holders of Subordinated Securities, the
obligation of the Issuer, which is absolute and unconditional, to pay to the
Holders of Subordinated Securities the principal of, and interest on,
Subordinated Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of Subordinated Securities and creditors of the Issuer
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Subordinated Security from

                                      E-4
<PAGE>

exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article ____ of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Issuer received upon the exercise of any such remedy. Upon any payment or
distribution of assets of the Issuer referred to in this Article ____, the
Trustee and Holders of Subordinated Securities shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or, subject to the provisions of Section ___ and ___, a certificate of the
receiver, trustee in bankruptcy, liquidating trustee or agent or other Person
making such payment or distribution to the Trustee or the Holders of
Subordinated Securities, for the purposes of ascertaining the Persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Issuer, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article ____.

      Nothing contained in this Article ____ or elsewhere in this Indenture or
in any Subordinated Security is intended to or shall affect the obligation of
the Issuer to make, or prevent the Issuer from making, at any time except during
the pendency of any dissolution, winding up, liquidation or reorganization
proceeding, and, except as provided in subsections (a) and (b) of Section ___.2,
payments at any time of the principal of, or interest on, Subordinated
Securities.

      Section 6. Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice. The Issuer shall give prompt written notice to the Trustee of any
fact known to the Issuer which would prohibit the making of any payment or
distribution to or by the Trustee in respect of the Subordinated Securities.
Notwithstanding the provisions of this Article ____ or any provision of this
Indenture, the Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment or
distribution to or by the Trustee, unless at least two Business Days prior to
the making of any such payment, the Trustee shall have received written notice
thereof from the Issuer or from one or more holders of Senior Indebtedness or
from any representative thereof or from any trustee therefor, together with
proof satisfactory to the Trustee of such holding of Senior Indebtedness or of
the authority of such representative or trustee; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections ___
and ___, shall be entitled to assume conclusively that no such facts exist. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a
representative or trustee on behalf of the holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a representative of or
trustee on behalf of any such holder). In the event that the Trustee determines,
in good faith, that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payments or
distribution pursuant of this Article ____, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, as to the extent to which
such Person is entitled to participate in such payment or distribution, and as
to other facts pertinent to the rights of such Person under this Article ____,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment. The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness

                                      E-5
<PAGE>

and nothing in this Article ____ shall apply to claims of, or payments to, the
Trustee under or pursuant to Section ___.

      Section 7. Application by Trustee of Monies or Government Obligations
Deposited with It. Money or Government Obligations deposited in trust with the
Trustee pursuant to and in accordance with Section ____ shall be for the sole
benefit of Securityholders and, to the extent allocated for the payment of
Subordinated Securities, shall not be subject to the subordination provisions of
this Article ____, if the same are deposited in trust prior to the happening of
any event specified in Section ___.2. Otherwise, any deposit of monies or
Government Obligations by the Issuer with the Trustee or any paying agent
(whether or not in trust) for the payment of the principal of, or interest on,
any Subordinated Securities shall be subject to the provisions of Section ___.1,
___.2 and ___.3 except that, if prior to the date on which by the terms of this
Indenture any such monies may become payable for any purposes (including,
without limitation, the payment of the principal of, or the interest, if any, on
any Subordinated Security) the Trustee shall not have received with respect to
such monies the notice provided for in Section ___.6, then the Trustee or the
paying agent shall have full power and authority to receive such monies and
Government Obligations and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such date. This Section ___.7 shall be construed
solely for the benefit of the Trustee and paying agent and, as to the first
sentence hereof, the Securityholders, and shall not otherwise effect the rights
of holders of Senior Indebtedness.

      Section 8. Subordination Rights Not Impaired by Acts or Omissions of
Issuer or Holders of Senior Indebtedness. No rights of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Issuer or by any act or failure to act, in good faith, by
any such holders or by any noncompliance by the Issuer with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with.

      Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness of the Issuer may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Subordinated Securities, without incurring responsibility to the Holders of the
Subordinated Securities and without impairing or releasing the subordination
provided in this Article ____ or the obligations hereunder of the Holders of the
Subordinated Securities to the holders of such Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Indebtedness;
(iii) release any Person liable in any manner for the collection for such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Issuer, as the case may be, and any other Person.

      Section 9. Securityholders Authorize Trustee to Effectuate Subordination
of Securities. Each Holder of Subordinated Securities by his acceptance thereof
authorizes and expressly

                                      E-6
<PAGE>

directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article ____ and
appoints the Trustee his attorney-in-fact for such purpose, including in the
event of any dissolution, winding up, liquidation or reorganization of the
Issuer (whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise) the immediate filing of a
claim for the unpaid balance of his Subordinated Securities in the form required
in said proceedings and causing said claim to be approved. If the Trustee does
not file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or claims,
then the holders of Senior Indebtedness have the right to file and are hereby
authorized to file an appropriate claim for and on behalf of the Holders of said
Securities.

      Section 10. Right of Trustee to Hold Senior Indebtedness. The Trustee in
its individual capacity shall be entitled to all of the rights set forth in this
Article ____ in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.

      With respect to the holders of Senior Indebtedness of the Issuer, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article ____, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Sections ___.2 and ___.3, the Trustee shall not be
liable to any holder of such Senior Indebtedness if it shall pay over or deliver
to Holders of Subordinated Securities, the Issuer or any other Person money or
assets to which any holder of such Senior Indebtedness shall be entitled by
virtue of this Article ____ or otherwise.

      Section 11. Article ____ Not to Prevent Events of Defaults. The failure to
make a payment on account of principal or interest by reason of any provision in
this Article ____ shall not be construed as preventing the occurrence of an
Event of Default under Section ____.

                                       E-7
<PAGE>

                                    EXHIBIT F

                             TERMS OF SUBORDINATION

                    [GUARANTY OF HYBRID PREFERRED SECURITIES]

      SECTION ___. This Guarantee will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all other
liabilities of the Guarantor and pari passu with any guarantee now or hereafter
entered into by the Guarantor in respect of the securities representing common
beneficial interests in the assets of the Issuer or of any preferred or
preference stock of any affiliate of the Guarantor.

                                       F-1
<PAGE>

                                    EXHIBIT G

                         FORM OF BOND DELIVERY AGREEMENT

                             BOND DELIVERY AGREEMENT

                            CONSUMERS ENERGY COMPANY

                                       TO

                       JPMORGAN CHASE BANK, N.A., AS AGENT

                            Dated as of May 18, 2005

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

                                   Relating to
                              First Mortgage Bonds,

                   2005-1 Collateral Series (Interest Bearing)

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

                                      G-1
<PAGE>

      THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of May 18, 2005,
is between Consumers Energy Company (the "Company"), and JPMorgan Chase Bank,
N.A., as administrative agent (the "Agent") under the Third Amended and Restated
Credit Agreement (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement") dated as of May 18, 2005 among the Company, the
financial institutions parties thereto (the "Banks"), and the Agent. Capitalized
terms used but not otherwise defined herein have the respective meanings
assigned to such terms in the Credit Agreement.

      Whereas, the Company has entered into the Credit Agreement and may from
time to time make borrowings thereunder in accordance with the provisions
thereof;

      Whereas, the Company has established its First Mortgage Bonds, 2005-1
Collateral Series (Interest Bearing) in the aggregate principal amount of
$500,000,000 (the "Bonds"), to be issued under and in accordance with the One
Hundred Third Supplemental Indenture dated as of May 18, 2005 (the "Supplemental
Indenture") to the Indenture of the Company to JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank) dated as of September 1, 1945 (as amended and
supplemented, the "Indenture"); and

      Whereas, the Company proposes to issue and deliver to the Agent, for the
benefit of the Banks, the Bonds in order to provide the Bonds as evidence of
(and the benefit of the lien of the Indenture with respect to the Bonds for) the
Obligations of the Company arising under the Credit Agreement.

      Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:

                                    ARTICLE I

                                    THE BONDS

Section 1.1 Delivery of Bonds.

      In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Credit Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $500,000,000, maturing on the earlier
of (a) May 18, 2010 or such later date as may be fixed as the "Termination Date"
under and as defined in the Credit Agreement and (b) the "FMB Release Date" (as
defined in the Credit Agreement) and bearing interest as provided in the
Supplemental Indenture. The obligation of the Company to pay the principal of
and interest on the Bonds shall be deemed to have been satisfied and discharged
in full or in part, as the case may be, to the extent of payment by the Company
of the Obligations, all as set forth in the Bonds and in Section 1 of the
Supplemental Indenture.

      The Bonds are registered in the name of the Agent and shall be owned and
held by the Agent, subject to the provisions of this Agreement, for the benefit
of the Banks, and the

                                       G-2
<PAGE>

Company shall have no interest therein. The Agent shall be entitled to exercise
all rights of bondholders under the Indenture with respect to the Bonds.

      The Agent hereby acknowledges receipt of the Bonds.

Section 1.2  Payments on the Bonds.

      Any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments of the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the Credit Agreement
applicable to payments received by the Agent in respect of the Obligations (and
the Company hereby consents to such distributions).

                                   ARTICLE II

                    NO TRANSFER OF BONDS; SURRENDER OF BONDS

Section 2.1 No Transfer of the Bonds.

      The Agent shall not sell, assign or otherwise transfer any Bonds delivered
to it under this Agreement except to a successor administrative agent under the
Credit Agreement. The Company may take such actions as it shall deem necessary,
desirable or appropriate to effect compliance with such restrictions on
transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.

Section 2.2  Surrender of Bonds.

      (a) The Agent shall forthwith surrender to or upon the order of the
Company all Bonds held by it at the first time at which the Commitments shall
have been terminated and all Obligations shall have been paid in full.

      (b) Upon any permanent reduction in the Aggregate Commitment pursuant to
the terms of the Credit Agreement, the Agent shall forthwith surrender to or
upon the order of the Company Bonds in an aggregate principal amount equal to
the excess of the aggregate principal amount of Bonds held by the Agent over the
Aggregate Commitment.

                                   ARTICLE III

                                  GOVERNING LAW

      This Agreement shall construed in accordance with and governed by the
internal laws (without regard to the conflict of laws provisions) of the State
of New York, but giving effect to Federal laws applicable to national banks.

                            [SIGNATURE PAGE FOLLOWS]

                                      G-3
<PAGE>

      IN WITNESS WHEREOF, the Company and the Agent have caused this Agreement
to be executed and delivered as of the date first above written.

CONSUMERS ENERGY COMPANY

________________________________________

Name:
Title:

JPMORGAN CHASE BANK, N.A., as Agent

________________________________________

Name:
Title:

                                       G-4
<PAGE>

                                    EXHIBIT H
                                     FORM OF
                                INCREASE REQUEST

                        _________________________, 20___

JPMorgan Chase Bank, N.A., as Agent
under the Credit Agreement referred to below

Ladies/Gentlemen:

      Please refer to the Third Amended and Restated Credit Agreement dated as
of May 18, 2005 among Consumers Energy Company (the "Company"), various
financial institutions and JPMorgan Chase Bank, N.A., as Agent (as amended,
modified, extended or restated from time to time, the "Credit Agreement").
Capitalized terms used but not defined herein have the respective meanings set
forth in the Credit Agreement.

      In accordance with Section 2.5(c) of the Credit Agreement, the Company
hereby requests an increase in the Aggregate Commitment from $__________ to
$__________. Such increase shall be made by [increasing the Commitment of
____________ from $________ to $________] [adding _____________ as a Bank under
the Credit Agreement with a Commitment of $____________] as set forth in the
letter attached hereto. Such increase shall be effective three Business Days
after the date that the Agent accepts the letter attached hereto or such other
date as is agreed among the Company, the Agent and the [increasing] [new] Bank.

                                                     Very truly yours,

                                                     CONSUMERS ENERGY COMPANY

                                                     By: _______________________
                                                     Name: _____________________
                                                     Title: ____________________

                                       H-1
<PAGE>

                              ANNEX I TO EXHIBIT H

                                     [Date]

JPMorgan Chase Bank, N.A., as Agent
under the Credit Agreement referred to below

Ladies/Gentlemen:

         Please refer to the letter dated __________, 20__ from Consumers Energy
Company (the "Company") requesting an increase in the Aggregate Commitment from
$__________ to $__________ pursuant to Section 2.5(c) of the Credit Agreement
dated as of May 18, 2005 among the Company, various financial institutions and
JPMorgan Chase Bank, N.A., as Agent (as amended, modified, extended or restated
from time to time, the "Credit Agreement"). Capitalized terms used but not
defined herein have the respective meanings set forth in the Credit Agreement.

         The undersigned hereby confirms that it has agreed to increase its
Commitment under the Credit Agreement from $__________ to $__________ effective
on the date which is three Business Days after the acceptance hereof by the
Agent or on such other date as may be agreed among the Company, the Agent and
the undersigned.

                                            Very truly yours,

                                            [NAME OF INCREASING BANK]

                                            By:________________________
                                            Title:_____________________

Accepted as of

__________, _____

JPMORGAN CHASE BANK, N.A., as Agent

By: ______________________________
Name: ____________________________
Title: ___________________________

                                       H-2
<PAGE>

                              ANNEX II TO EXHIBIT H

                                     [Date]

JPMorgan Chase Bank, N.A., as Agent
under the Credit Agreement referred to below

Ladies/Gentlemen:

      Please refer to the letter dated __________, 20___ from Consumers Energy
Company (the "Company") requesting an increase in the Aggregate Commitment from
$__________ to $__________ pursuant to Section 2.5(c) of the Credit Agreement
dated as of May 18, 2005 among the Company, various financial institutions and
JPMorgan Chase Bank, N.A., as Agent (as amended, modified, extended or restated
from time to time, the "Credit Agreement"). Capitalized terms used but not
defined herein have the respective meanings set forth in the Credit Agreement.

      The undersigned hereby confirms that it has agreed to become a Bank under
the Credit Agreement with a Commitment of $__________ effective on the date
which is three Business Days after the acceptance hereof, and consent hereto, by
the Agent or on such other date as may be agreed among the Company, the Agent
and the undersigned.

      The undersigned (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements delivered by the Company pursuant to the Credit
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit and legal analysis and decision to become a Bank under
the Credit Agreement; and (b) agrees that it will, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit and legal decisions in taking or not taking action under the Credit
Agreement.

      The undersigned represents and warrants that (i) it is duly organized and
existing and it has full power and authority to take, and has taken, all action
necessary to execute and deliver this letter and to become a Bank under the
Credit Agreement; and (ii) no notices to, or consents, authorizations or
approvals of, any Person are required (other than any already given or obtained)
for its due execution and delivery of this letter and the performance of its
obligations as a Bank under the Credit Agreement.

      The undersigned agrees to execute and deliver such other instruments, and
take such other actions, as the Agent may reasonably request in connection with
the transactions contemplated by this letter.

                                       H-3
<PAGE>

The following administrative details apply to the undersigned:

(A) Notice Address:

Legal name: __________________________
Address:  _____________________________

_____________________________
_____________________________
Attention:  ___________________________
Telephone:  (___) _____________________
Facsimile:  (___) _____________________

(B) Payment Instructions:

Account No.:  _________________________
At:          __________________________

_____________________________
_____________________________
Reference:  ___________________________
Attention:  ___________________________

      The undersigned acknowledges and agrees that, on the date on which the
undersigned becomes a Bank under the Credit Agreement as set forth in the second
paragraph hereof, the undersigned will be bound by the terms of the Credit
Agreement as fully and to the same extent as if the undersigned were an original
Bank under the Credit Agreement.

                                                     Very truly yours,

                                                     [NAME OF NEW BANK]

                                                     By:________________________
                                                     Title:_____________________

Accepted and consented to as of
______________, 20___

JPMORGAN CHASE BANK, N.A., as Agent

By: _____________________________
Name: ___________________________
Title: __________________________

                                       H-4
<PAGE>

                                   SCHEDULE 1

                                PRICING SCHEDULE

      The Applicable Margin shall be determined pursuant to the table below
based on the lower of the S&P Rating and the Moody's Rating.

<TABLE>
<CAPTION>
                                                                                                          S&P Rating
                                                                                                         lower than BB
                        S&P Rating of   S&P Rating of    S&P Rating of   S&P Rating of   S&P Rating of    or Moody's
                       BBB+ or Moody's  BBB or Moody's  BBB- or Moody's  BB+ or Moody's  BB or Moody's   Rating lower
       Ratings         Rating of Baa1   Rating of Baa2  Rating of Baa3   Rating of Ba1   Rating of Ba2     than Ba2
- ---------------------  ---------------  --------------  ---------------  --------------  -------------   -------------
<S>                    <C>              <C>             <C>              <C>             <C>             <C>
Commitment Fee Rate        0.125%           0.150%          0.175%          0.200%           0.225%          0.350%

Eurodollar Rate
  +/LC Fee Rate            0.500%           0.625%          0.750%          1.000%           1.125%          2.250%

Alternate Base Rate +      0.000%           0.000%          0.000%          0.000%           0.125%          1.250%

Utilization Fee
  Rate (>50%)              0.125%           0.125%          0.125%          0.125%           0.125%          0.125%
</TABLE>

      For purposes of the forgoing table:

      "Moody's Rating" means (a) at any time prior to the FMB Release Date, the
rating issued by Moody's and then in effect with respect to the Senior Debt, and
(b) at any time thereafter, the rating issued by Moody's and then in effect with
respect to the Company's senior unsecured long-term debt (without credit
enhancement) or, if such rating is not available, the rating level immediately
below the higher of the most recent ratings issued by S&P and Moody's with
respect to the Senior Debt.

      "S&P Rating" means (a) at any time prior to the FMB Release Date, the
rating issued by S&P and then in effect with respect to the Senior Debt, and (b)
at any time thereafter, the rating issued by S&P and then in effect with respect
to the Company's senior unsecured long-term debt (without credit enhancement)
or, if such rating is not available, the rating level immediately below the
higher of the most recent ratings issued by S&P and Moody's with respect to the
Senior Debt.

      If the Company does not have an S&P Rating and does not have a Moody's
Rating, then the pricing in the last column of the above table shall apply.

                                       H-i
<PAGE>

                                   SCHEDULE 2

                               COMMITMENT SCHEDULE

<TABLE>
<CAPTION>
                        BANK                                        COMMITMENT
- ----------------------------------------------------               ------------
<S>                                                                <C>
JPMorgan Chase Bank, N.A.                                          $ 30,000,000
Barclays Bank PLC                                                  $ 30,000,000
Citibank, N.A.                                                     $ 30,000,000
Union Bank of California, N.A.                                     $ 30,000,000
Wachovia Bank, National Association                                $ 30,000,000
Merrill Lynch Bank USA                                             $ 30,000,000
HSBC Bank USA, National Association                                $ 25,000,000
Bank of America, N.A.                                              $ 20,000,000
BNP Paribas                                                        $ 20,000,000
Credit Suisse, Cayman Islands Branch                               $ 20,000,000
Deutsche Bank Trust Company Americas                               $ 20,000,000
Fifth Third Bank                                                   $ 20,000,000
Standard Federal Bank N.A.                                         $ 20,000,000
Sumitomo Mitsui Banking Corporation, New York Branch               $ 20,000,000
Wells Fargo Bank, National Association                             $ 20,000,000
Allied Irish Banks, p.l.c.                                         $ 15,000,000
Bank Hapoalim B.M.                                                 $ 15,000,000
Comerica Bank                                                      $ 15,000,000
Huntington National Bank                                           $ 15,000,000
Morgan Stanley Bank                                                $ 15,000,000
The Norinchukin Bank                                               $ 15,000,000
UBS Loan Finance LLC                                               $ 15,000,000
UFJ Bank Limited, New York Branch                                  $ 15,000,000
Goldman Sachs Credit Partners L.P.                                 $ 15,000,000
                                                                   ------------
AGGREGATE COMMITMENT                                               $500,000,000
                                                                   ============
</TABLE>

                                      H-ii
<PAGE>

                                   SCHEDULE 3

                          EXISTING FACILITY LC SCHEDULE

<TABLE>
<CAPTION>
                                                                      FORECASTED
                                                          EXPIRATION  TERMINATION     AMOUNT
ENTITY / PROJECT           BENEFICIARY                      DATE         DATE      OUTSTANDING
- ----------------  --------------------------------------  ----------  -----------  -----------
<S>               <C>                                     <C>         <C>          <C>
Consumers Energy  Michigan Dept of Environmental Quality    05/19/06   12/31/2019  $   500,000
Consumers Energy  Michigan Dept of Environmental Quality    05/19/06   12/31/2035  $ 1,000,000
Consumers Energy  Michigan Dept of Environmental Quality    05/19/06  121/31/2035  $ 1,000,000
Consumers Energy  Michigan Dept of Environmental Quality    05/19/06   12/31/2048  $ 1,000,000
Consumers Energy  Michigan Dept of Environmental Quality    05/19/06   12/31/2034  $ 1,000,000
Consumers Energy  City of Sterling Heights, Michigan        05/19/06    5/19/2007  $    10,000
Consumers Energy  Charter Township of Oakland               05/19/06    5/19/2007  $    25,463
Consumers Energy  Michigan Bureau of Workers                05/19/06   12/31/2035  $ 2,000,000
Consumers Energy  Vector Pipeline LP                       9/30/2005    9/30/2005  $ 3,102,500
Consumers Energy  BP Canada Energy Company                10/31/2005   10/31/2005  $ 5,000,000
Consumers Energy  Total Gas & Power North America Inc.     4/30/2006    4/30/2006  $15,000,000
Consumers Energy  Michigan Dept of Environmental Quality   4/26/2006    5/31/2005  $ 1,040,620
Consumers Energy  Michigan Dept of Environmental Quality   5/13/2005   12/31/2009  $   205,620
Consumers Energy  Michigan Dept of Environmental Quality   5/13/2005   12/31/2035  $    47,880
Consumers Energy  Michigan Dept of Environmental Quality   5/13/2005   12/31/2007  $ 1,363,800
Consumers Energy  Michigan Dept of Environmental Quality   5/13/2005   12/31/2035  $    90,000
                                                                                   -----------
                                                                        TOTAL      $32,385,883
                                                                                   ===========
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>3
<FILENAME>k97012exv31wxay.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATION OF THE CEO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(a)

                         CERTIFICATION OF DAVID W. JOOS


I, David W. Joos, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
           Corporation;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer 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:  August 4, 2005              By:         /s/ David W. Joos
                                       ----------------------------------
                                                  David W. Joos
                                                  President and
                                            Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>4
<FILENAME>k97012exv31wxby.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATION OF THE CFO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(b)

                         CERTIFICATION OF THOMAS J. WEBB


I, Thomas J. Webb, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
           Corporation;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer 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:  August 4, 2005            By          /s/ Thomas J. Webb
                                    -------------------------------------------
                                                Thomas J. Webb
                                         Executive Vice President and
                                           Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(C)
<SEQUENCE>5
<FILENAME>k97012exv31wxcy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATION OF THE CEO TO SECTION 302
<TEXT>
<PAGE>

                                                                 Exhibit (31)(c)

                         CERTIFICATION OF DAVID W. JOOS


I, David W. Joos, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of Consumers
           Energy Company;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer 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:  August 4, 2005               By:       /s/ David W. Joos
                                        ---------------------------------
                                                 David W. Joos
                                           Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(D)
<SEQUENCE>6
<FILENAME>k97012exv31wxdy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATION OF THE CFO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(d)

                         CERTIFICATION OF THOMAS J. WEBB


I, Thomas J. Webb, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of Consumers
           Energy Company;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer 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:  August 4, 2005                By        /s/ Thomas J. Webb
                                        -----------------------------------
                                                  Thomas J. Webb
                                           Executive Vice President and
                                             Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(A)
<SEQUENCE>7
<FILENAME>k97012exv32wxay.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATION PUSUANT 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 Quarterly Report on Form 10-Q of CMS Energy Corporation
(the "Company") for the quarterly period ended June 30, 2005 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:  August 4, 2005




/s/ Thomas J. Webb
- ------------------------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  August 4, 2005




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(B)
<SEQUENCE>8
<FILENAME>k97012exv32wxby.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATION PUSUANT 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 Quarterly Report on Form 10-Q of Consumers Energy Company
(the "Company") for the quarterly period ended June 30, 2005 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:  August 4, 2005




/s/ Thomas J. Webb
- ------------------------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  August 4, 2005


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
