-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 BHMpWQYcGoGaxv717GeVNMn4smEiuqGGYGseedJbrLTwN48BM1IAkOK8wcPu9ma3
 ZB7p3ZYa20HE0AL2upBfqA==

<SEC-DOCUMENT>0000950124-06-002450.txt : 20060503
<SEC-HEADER>0000950124-06-002450.hdr.sgml : 20060503
<ACCEPTANCE-DATETIME>20060503171252
ACCESSION NUMBER:		0000950124-06-002450
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20060331
FILED AS OF DATE:		20060503
DATE AS OF CHANGE:		20060503

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:		06804825

	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:		06804826

	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>k04805e10vq.txt
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 2006
<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 MARCH 31, 2006

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

        For the transition period from  _____________ to _________

<TABLE>
<CAPTION>
Commission       Registrant; State of Incorporation;       IRS Employer
File Number         Address; and Telephone Number        Identification No.
- -----------  ------------------------------------------  ------------------
<S>          <C>                                         <C>
 1-9513               CMS ENERGY CORPORATION                 38-2726431
                     (A Michigan Corporation)
             One Energy Plaza, Jackson, Michigan 49201
                              (517) 788-0550

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

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 Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

CMS ENERGY CORPORATION: Large accelerated filer [X] Accelerated filer [ ]
Non-Accelerated filer [ ]

CONSUMERS ENERGY COMPANY: Large accelerated filer [ ] Accelerated filer [ ]
Non-Accelerated filer [X]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

CMS ENERGY CORPORATION: Yes [ ] No [X]

CONSUMERS ENERGY COMPANY: Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock at April 28, 2006:

CMS ENERGY CORPORATION:

<TABLE>
<S>                                                           <C>
CMS Energy Common Stock, $.01 par value                       221,147,846
CONSUMERS ENERGY COMPANY, $10 par value, privately
  held by CMS Energy Corporation                               84,108,789
</TABLE>

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

<PAGE>

                             CMS ENERGY CORPORATION
                                       AND
                            CONSUMERS ENERGY COMPANY

                      QUARTERLY REPORTS ON FORM 10-Q TO THE
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                      FOR THE QUARTER ENDED MARCH 31, 2006

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................................................................................................             3

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 - 5
           Critical Accounting Policies.................................................................      CMS - 10
           Capital Resources and Liquidity..............................................................      CMS - 14
           Outlook......................................................................................      CMS - 16
           Implementation of New Accounting Standards...................................................      CMS - 23
      Consolidated Financial Statements
           Consolidated Statements of Income ...........................................................      CMS - 24
           Consolidated Statements of Cash Flows........................................................      CMS - 27
           Consolidated Balance Sheets..................................................................      CMS - 28
           Consolidated Statements of Common Stockholders' Equity.......................................      CMS - 30
      Condensed Notes to Consolidated Financial Statements (Unaudited):
           1.   Corporate Structure and Accounting Policies.............................................      CMS - 31
           2.   Contingencies...........................................................................      CMS - 33
           3.   Financings and Capitalization...........................................................      CMS - 48
           4.   Earnings Per Share......................................................................      CMS - 50
           5.   Financial and Derivative Instruments....................................................      CMS - 51
           6.   Retirement Benefits.....................................................................      CMS - 57
           7.   Asset Retirement Obligations............................................................      CMS - 58
           8.   Executive Incentive Compensation........................................................      CMS - 60
           9.   Equity Method Investments...............................................................      CMS - 62
          10.   Reportable Segments.....................................................................      CMS - 63
</TABLE>

                                        1
<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 - 8
           Capital Resources and Liquidity..............................................................       CE - 11
           Outlook......................................................................................       CE - 13
           Implementation of New Accounting Standards...................................................       CE - 19
      Consolidated Financial Statements
           Consolidated Statements of Income............................................................       CE - 20
           Consolidated Statements of Cash Flows........................................................       CE - 21
           Consolidated Balance Sheets..................................................................       CE - 22
           Consolidated Statements of Common Stockholder's Equity.......................................       CE - 24
      Condensed Notes to Consolidated Financial Statements (Unaudited):
           1.  Corporate Structure and Accounting Policies..............................................       CE - 27
           2.  Contingencies............................................................................       CE - 28
           3.  Financings and Capitalization............................................................       CE - 39
           4.  Financial and Derivative Instruments.....................................................       CE - 40
           5.  Retirement Benefits......................................................................       CE - 45
           6.  Asset Retirement Obligations.............................................................       CE - 47
           7.  Executive Incentive Compensation.........................................................       CE - 48
           8.  Reportable Segments......................................................................       CE - 50

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

PART II:  OTHER INFORMATION

      Item 1.    Legal Proceedings......................................................................        CO - 2
      Item 1A.   Risk Factors.............................................................................      CO - 5
      Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds............................        CO - 7
      Item 3.    Defaults Upon Senior Securities........................................................        CO - 7
      Item 4.    Submission of Matters to a Vote of Security Holders....................................        CO - 7
      Item 5.    Other Information......................................................................        CO - 7
      Item 6.    Exhibits...............................................................................        CO - 7
      Signatures........................................................................................        CO - 8
</TABLE>

                                        2
<PAGE>

                                    GLOSSARY

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

<TABLE>
<S>                                   <C>
AFUDC..............................   Allowance for Funds Used During Construction

ALJ................................   Administrative Law Judge

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

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................................   One billion cubic feet of gas

Big Rock...........................   Big Rock Point nuclear power plant, owned by Consumers

Board of Directors.................   Board of Directors of CMS Energy

CEO................................   Chief Executive Officer

CFO................................   Chief Financial Officer

CFTC...............................   Commodity Futures Trading Commission

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 Inc., 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 International Ventures.........   CMS International Ventures, LLC, a subsidiary of Enterprises

CMS Midland........................   CMS Midland Inc., a subsidiary of Consumers that has a 49 percent
                                      ownership interest in the MCV Partnership

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

Consumers..........................   Consumers Energy Company, a subsidiary of CMS Energy

CPEE...............................   Companhia Paulista de Energia Eletrica, a subsidiary of Enterprises
</TABLE>

                                        3
<PAGE>

<TABLE>
<S>                                   <C>
Customer Choice Act................   Customer Choice and Electricity Reliability Act, a Michigan statute
                                      enacted in June 2000

DCCP...............................   Defined Company Contribution Plan

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

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

Exchange Act.......................   Securities Exchange Act of 1934, as amended

FASB...............................   Financial Accounting Standards Board

FASB Interpretation No. 46(R)......   Revised FASB Interpretation No. 46, Consolidation of Variable Interest
                                      Entities

FERC...............................   Federal Energy Regulatory Commission

FIN 47.............................   FASB Interpretation No. 47, Accounting for Conditional Asset Retirement
                                      Obligations

FMB................................   First Mortgage Bonds

FMLP...............................   First Midland Limited Partnership, a partnership that holds a lessor
                                      interest in the MCV Facility and an indirect subsidiary of Consumers

FTR................................   Financial transmission right

GAAP...............................   Generally Accepted Accounting Principles

GasAtacama.........................   An integrated natural gas pipeline and electric generating plant 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

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

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.

Jubail.............................   A 240 MW natural gas cogeneration power plant located in Saudi Arabia,
                                      in which CMS Generation owns a 25 percent interest
</TABLE>

                                        4
<PAGE>

<TABLE>
<S>                                   <C>
kWh................................   Kilowatt-hour (a unit of power equal to one thousand watt hours)

Ludington..........................   Ludington pumped storage plant, jointly owned by Consumers and Detroit
                                      Edison

mcf................................   One thousand cubic feet of gas

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

METC...............................   Michigan Electric Transmission Company, LLC

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 Transmission System Operator, Inc.

MPSC...............................   Michigan Public Service Commission

MW.................................   Megawatt (a unit of power equal to one million watts)

NEIL...............................   Nuclear Electric Insurance Limited, an industry mutual insurance company
                                      owned by member utility companies

Neyveli............................   CMS Generation Neyveli Ltd, a 250 MW lignite-fired power station located
                                      in Neyveli, Tamil Nadu, India, in which CMS International Ventures holds
                                      a 50 percent interest

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

OPEB...............................   Postretirement benefit plans other than pensions for retired employees

Palisades..........................   Palisades nuclear power plant, which is owned by Consumers
</TABLE>

                                        5
<PAGE>

<TABLE>
<S>                                   <C>
Panhandle..........................   Panhandle Eastern Pipe Line Company, including its subsidiaries
                                      Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings.
                                      Panhandle was a wholly owned subsidiary of CMS Gas Transmission.  The
                                      sale of this subsidiary closed in June 2003.

PCB................................   Polychlorinated biphenyl

Pension Plan.......................   The trusteed, non-contributory, defined benefit pension plan of
                                      Panhandle, Consumers and CMS Energy

PJM RTO............................   Pennsylvania-Jersey-Maryland Regional Transmission Organization

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

SAB No. 107........................   Staff Accounting Bulletin No. 107, Share-Based Payment

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. 88........................   SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
                                      Defined Benefit Pension Plans and for Termination Benefits"

SFAS No. 98........................   SFAS No. 98, "Accounting for Leases"

SFAS No. 106.......................   SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
                                      Than Pensions"

SFAS No. 115.......................   SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
                                      Securities"

SFAS No. 123(R)....................   SFAS No. 123 (revised 2004), "Share-Based Payment"

SFAS No. 132(R)....................   SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
                                      Other Postretirement Benefits"

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
</TABLE>

                                        6
<PAGE>

<TABLE>
<S>                                   <C>
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

Takoradi...........................   A 200 MW open-cycle combustion turbine crude oil power plant located in
                                      Ghana, in which CMS Generation owns a 90 percent interest

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

Trunkline..........................   CMS Trunkline Gas Company, LLC, formerly a subsidiary of CMS Panhandle
                                      Holdings, LLC
</TABLE>

                                        7
<PAGE>

                      (This page intentionally left blank)

                                        8
<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, 2005.

EXECUTIVE OVERVIEW

CMS Energy is an energy company operating 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.

We earn our revenue and generate cash from operations by providing electric and
natural gas utility services, electric power generation, gas distribution,
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,

      -     energy commodity prices,

      -     interest rates, and

      -     our debt credit rating.

During the past two years, our business strategy has involved improving our
balance sheet and maintaining focus on our core strength: utility operations 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. Although most of our asset sales program is complete, we
still may sell certain remaining businesses or assets as opportunities arise.

We are working to reduce Parent debt. In the first quarter of 2006, we retired
$74 million of CMS Energy senior notes. We also have invested $200 million in
Consumers and Consumers extinguished, through a legal defeasance, $129 million
of 9 percent related party notes.

Working capital and cash flow continue to be a challenge for us. Natural gas
prices continue to be volatile and much higher than in recent years. Although
our natural gas purchases are recoverable from our utility customers, higher
priced natural gas stored as inventory requires additional liquidity due to the
lag in cost recovery.

In addition to causing working capital issues for us, historically high natural
gas prices caused the MCV Partnership to reevaluate the economics of operating
the MCV Facility and to record an impairment charge in 2005. While we have fully
impaired our ownership interest in the MCV Partnership, continued high gas
prices could result in an impairment of our ownership interest in the FMLP.

                                      CMS-1
<PAGE>

                                                          CMS Energy Corporation

Due to the impairment of the MCV Facility and operating losses from
mark-to-market adjustments on derivative instruments, the equity held by
Consumers and the minority interest owners in the MCV Partnership has decreased
significantly and is now negative. As the MCV Partnership recognizes future
losses, we will assume an additional 7 percent of the MCV Partnership's negative
equity, which is a portion of the limited partners' negative equity, in addition
to our proportionate share. Since projected future gas prices continue to
threaten the viability of the MCV Facility, we are evaluating various
alternatives in order to develop a new long-term strategy with respect to the
MCV Facility. The MCV Partnership is working aggressively to reduce costs,
improve operations, and enhance cash flows.

Going forward, our strategy will continue to focus on:

      -     managing cash flow issues,

      -     reducing parent company debt,

      -     maintaining and growing earnings, and

      -     positioning us to make investments that complement our strengths.

As we execute our strategy, we will need to overcome a sluggish Michigan economy
that has been further hampered by recent negative developments in Michigan's
automotive industry and limited growth in the non-automotive sectors of our
economy.

These negative effects will be offset somewhat by the reduction we are
experiencing in ROA load in our service territory. At March 31, 2006,
alternative electric suppliers were providing 348 MW of generation service to
ROA customers. This is 4 percent of our total distribution load and represents a
decrease of 61 percent compared to March 31, 2005. It is, however, difficult to
predict future ROA customer trends.

Finally, successful execution of our strategy will require continuing earnings
and cash flow contributions from our Enterprises businesses.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-Q and other written and oral statements that we make contain
forward-looking statements as defined in Rule 3b-6 under the Securities Exchange
Act of 1934, as amended, Rule 175 under the Securities 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,
            including 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,

                                      CMS-2
<PAGE>

                                                          CMS Energy Corporation

      -     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, including but not
            limited to Bay Harbor,

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

                  -     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,

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

                  -     adequate and timely recovery of higher MISO energy
                        costs, and

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

      -     the impact of adverse natural gas prices on the MCV Partnership and
            FMLP investments, the impact of losses at FMLP, regulatory
            decisions that limit recovery capacity and fixed energy payments,
            and our ability to develop a new long-term strategy with respect to
            the MCV Facility,

      -     if Consumers is successful in exercising the regulatory out clause
            of the MCV PPA, the negative impact on the MCV Partnership's
            financial performance, as well as a triggering of the MCV
            Partnership's ability to terminate the MCV PPA, and the effects on
            our ability to purchase capacity to serve our customers and recover
            the cost of these purchases,

      -     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 availability of capacity and 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,

      -     our ability to collect accounts receivable from our gas customers
            due to high natural gas prices,

      -     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 as derivatives,

                                      CMS-3
<PAGE>

                                                          CMS Energy Corporation

      -     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,

      -     the effect on our electric utility of the direct and indirect
            impacts of the continued economic downturn experienced by our
            automotive and automotive parts manufacturing customers,

      -     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,

      -     changes in available gas supplies or Argentine government
            regulations that could restrict natural gas exports to our
            GasAtacama electric generating plant and the operating and financial
            effects of the restrictions,

      -     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,

      -     changes in tax laws or new IRS interpretations of existing tax laws,

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

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

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

      -     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 the
"Outlook" section included in this MD&A, Note 2, Contingencies, and Part II,
Item 1A. Risk Factors.

                                      CMS-4
<PAGE>

                                                          CMS Energy Corporation

RESULTS OF OPERATIONS

CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              In Millions (except for
                                                                 per share amounts)
                                                             ---------------------------
Three months ended March 31                                   2006      2005     Change
- ---------------------------                                  -------   ------   --------
<S>                                                          <C>       <C>      <C>
Net Income (Loss) Available to Common Stockholders           $  (27)   $  150   $   (177)
Basic Earnings (Loss) Per Share                              $(0.12)   $ 0.77   $  (0.89)
Diluted Earnings (Loss) Per Share                            $(0.12)   $ 0.74   $  (0.86)
                                                             ------    ------   --------
Electric Utility                                             $   29    $   33   $     (4)
Gas Utility                                                      37        58        (21)
Enterprises (Includes MCV Partnership and FMLP interests)       (49)      105       (154)
Corporate Interest and Other                                    (45)      (46)         1
Discontinued Operations                                           1         -          1
                                                             ------    ------   --------
Net Income (Loss) Available to Common Stockholders           $  (27)   $  150   $   (177)
                                                             ======    ======   ========
</TABLE>

For the three months ended March 31, 2006, net loss available to common
stockholders was $27 million compared to net income of $150 million for 2005.
The decrease reflects mark-to-market losses in 2006 on certain long-term gas
contracts and associated financial hedges at the MCV Partnership compared to
mark-to-market gains in 2005. Further contributing to the decrease were
mark-to-market losses at CMS ERM and a reduction in net income from our gas
utility primarily due to lower, weather-driven sales.

Specific changes to net income (loss) available to common stockholders for the
three months ended March 31, 2006 versus 2005 are:

<TABLE>
<CAPTION>
                                                                                                In Millions
                                                                                                -----------
<S>                                                                                             <C>
- -     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 financial hedges,                                                             $ (125)

- -     decrease in net income from CMS ERM primarily due to mark-to-market losses
      recorded in 2006 versus gains recorded in 2005,                                                (24)

- -     decrease in net income from our gas utility primarily due to a reduction
      in deliveries resulting from warmer weather in 2006,                                           (21)

- -     decrease in net income from other Enterprises' subsidiaries due to an
      increase in operating and maintenance expense and higher interest expense,                      (5)

- -     decrease in net income from our electric utility primarily due to
      increased operating expenses and a reduction in income from the regulatory
      return on capital expenditures, offset partially by an increase in revenue
      from an electric rate order,                                                                    (4)

- -     decrease in corporate interest and other expenses, and                                           1

- -     gains related to discontinued operations.                                                        1
                                                                                                  ------
Total Change                                                                                      $ (177)
                                                                                                  ======
</TABLE>

                                      CMS-5
<PAGE>

                                                          CMS Energy Corporation

ELECTRIC UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                                                ------------------------
March 31                                                                         2006    2005    Change
- --------                                                                        ------  ------  --------
<S>                                                                             <C>     <C>     <C>
Three months ended                                                              $   29  $   33  $    (4)
Reasons for the change:

Electric deliveries                                                                             $    59
Power supply costs and related revenue                                                                9
Other operating expenses, other income and non-commodity revenue                                    (59)
Regulatory return on capital expenditures                                                           (13)
Interest charges                                                                                      1
Income taxes                                                                                         (1)
                                                                                                -------
Total change                                                                                    $    (4)
                                                                                                =======
</TABLE>

ELECTRIC DELIVERIES: Electric deliveries decreased 0.1 billion kWh or 1.6
percent in the first quarter of 2006 versus 2005 primarily due to warmer
weather. Despite lower electric deliveries, electric delivery revenue increased
primarily due to an electric rate order, increased surcharge revenue, and the
return to full-service rates of customers previously using an alternative energy
supplier.

In December 2005, the MPSC issued an order authorizing an annual rate increase
of $86 million for service rendered on and after January 11, 2006. As a result
of this order, electric delivery revenues increased $20 million in the first
quarter of 2006 versus 2005.

Effective January 1, 2006, we started collecting a surcharge that the MPSC
authorized under Section 10d(4) of the Customer Choice Act. This surcharge
increased electric delivery revenue by $11 million in the first quarter of 2006
versus 2005. In addition, on January 1, 2006, we began recovering customer
choice transition costs from our residential customers, thereby increasing
electric delivery revenue by another $3 million in 2006 versus 2005.

The Customer Choice Act allows all of our electric customers to buy electric
generation service from us or from an alternative electric supplier. At March
31, 2006, alternative electric suppliers were providing 348 MW of generation
service to ROA customers. This amount represents a decrease of 61 percent
compared to March 31, 2005. The return of former ROA customers to full-service
rates increased electric revenues $13 million in the first quarter of 2006
versus 2005.

POWER SUPPLY COSTS AND RELATED REVENUE: In 2005, power supply costs exceeded
power supply revenue due to rate caps for our residential customers. Our
inability to recover fully these power supply costs resulted in a $9 million
reduction to electric pretax income. Rate caps for our residential customers
expired on December 31, 2005. The absence of rate caps allows us to record power
supply revenue to offset fully our power supply costs in 2006.

OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: In the first
quarter of 2006, other operating expenses increased $62 million, other income
increased $5 million, and non-commodity revenue decreased $2 million versus
2005.

                                      CMS-6
<PAGE>

                                                          CMS Energy Corporation

The increase in other operating expenses reflects higher operating and
maintenance expense, customer service expense, depreciation and amortization
expense, and pension and benefit expense. Operating and maintenance expense
increased primarily due to costs related to a planned refueling outage at our
Palisades nuclear plant, and higher overhead line maintenance and $7 million of
storm restoration costs. Higher customer service expense reflects contributions,
which started in January 2006 pursuant to a December 2005 MPSC order, to a fund
that provides energy assistance to low-income customers. Depreciation and
amortization expense increased due to higher plant in service and greater
amortization of certain regulatory assets. Pension and benefit expense reflects
changes in actuarial assumptions and the latest collective bargaining agreement
between the Utility Workers Union of America and Consumers.

The increase in other income is primarily due to the absence, in 2006, of
expenses recorded in 2005 associated with the early retirement of debt. The
decrease in non-commodity revenue is primarily due to lower revenue from
services provided to METC in 2006 versus 2005.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The $13 million decrease is due to
lower income associated with recording a return on capital expenditures in
excess of our depreciation base as allowed by the Customer Choice Act. In
December 2005, the MPSC issued an order that authorized us to recover $333
million of Section 10d(4) costs. The order authorized recovery of a lower level
of costs versus the level used to record 2005 income.

INTEREST CHARGES: In the first quarter of 2006 versus 2005, interest charges
decreased due to lower average debt levels and a 13 basis point reduction in the
average interest rate.

INCOME TAXES: In the first quarter of 2006, income taxes increased versus 2005
primarily due to the adjustment of certain deferred tax balances.

GAS UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  In Millions
                                                                           ------------------
March 31                                                                   2006  2005  Change
- --------                                                                   ----  ----  ------
<S>                                                                        <C>   <C>   <C>
Three months ended                                                         $ 37  $ 58  $ (21)
Reasons for the change:
Gas deliveries                                                                         $ (31)
Gas wholesale and retail services, other gas revenue and other income                      5
Operation and maintenance                                                                 (3)
Depreciation and other deductions                                                         (3)
Income taxes                                                                              11
                                                                                       -----
Total change                                                                           $ (21)
                                                                                       =====
</TABLE>

GAS DELIVERIES: In the first quarter of 2006 versus 2005, gas deliveries,
including miscellaneous transportation to end-use customers, decreased 21.9 bcf
or 15.1 percent. The decrease in gas deliveries is primarily due to warmer
weather in the first quarter of 2006 versus 2005 and increased conservation
efforts in response to higher gas prices. Average temperatures in the first
quarter of 2006 were 16.7 percent warmer than the same period last year.

                                      CMS-7
<PAGE>


                                                          CMS Energy Corporation

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUE AND OTHER INCOME: In the
first quarter of 2006 versus 2005, the $5 million increase is related primarily
to increased gas wholesale and retail services revenue.

OPERATION AND MAINTENANCE: In the first quarter of 2006, operation and
maintenance expenses increased versus 2005 primarily due to higher pension and
benefit expense and customer service expense. Pension and benefit expense
reflects changes in actuarial assumptions and the latest collective bargaining
agreement between the Utility Workers Union of America and Consumers. Customer
service expense increased primarily due to higher uncollectible accounts
expense.

DEPRECIATION AND OTHER DEDUCTIONS: In the first quarter of 2006, depreciation
expense increased versus 2005 primarily due to higher plant in service.

INCOME TAXES: In the first quarter of 2006, income taxes decreased versus 2005
primarily due to lower earnings by the gas utility.

ENTERPRISES RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            In Millions
                                                             --------------------------
March 31                                                      2006     2005     Change
- --------                                                     ------   ------   --------
<S>                                                          <C>      <C>      <C>
Three months ended                                           $ (49)   $  105   $  (154)
Reasons for the change:
Operating revenues                                                             $    37
Cost of gas and purchased power                                                   (102)
Fuel costs mark-to-market at MCV                                                  (365)
Earnings from equity method investees                                                5
Gain on sale of assets                                                              (3)
Operation and maintenance                                                          (17)
General taxes, depreciation, and other income                                       32
Fixed charges                                                                      (11)
Minority interest                                                                  181
Income taxes                                                                        89
                                                                               -------
Total change                                                                   $  (154)
                                                                               =======
</TABLE>

OPERATING REVENUES: For the three months ended March 31, 2006, operating
revenues increased primarily due to the impact of increased customer demand on
deliveries and increased third-party gas sales. These increases were offset
partially by mark-to-market losses on gas contracts at CMS ERM.

COST OF GAS AND PURCHASED POWER: For the three months ended March 31, 2006, the
cost of gas and purchased power decreased operating earnings. The decrease is
due to higher gas prices and an increase in fuel purchases in order to meet
customer demand.

                                      CMS-8
<PAGE>

                                                          CMS Energy Corporation

FUEL COSTS MARK-TO-MARKET AT MCV: For the three months ended March 31, 2006, the
fuel costs mark-to-market adjustments of certain long-term gas contracts and
financial hedges at the MCV Partnership decreased operating earnings due to
slightly decreased gas prices, compared to mark-to-market gains in 2005. The
2005 gains were primarily due to the marking-to-market of certain long term gas
contracts and financial hedges at the MCV Partnership that, as a result of the
implementation of the RCP, no longer qualified as normal purchases or cash flow
hedges.

EARNINGS FROM EQUITY METHOD INVESTEES: Equity earnings for the three months
ended March 31, 2006 increased by $5 million versus 2005. Contributing to the
increase was $4 million from Neyveli, which recorded lower earnings in 2005 due
to a penalty on coal purchase commitments and a forced outage, $3 million from
GasAtacama due to a renegotiated power contract, and $2 million in earnings and
mark-to-market gains at Jubail, which achieved commercial operations in
September 2005. These increases were offset by lower earnings at Jorf Lasfar
primarily due to a scheduled outage, higher deferred tax expenses, and lower
fuel cost recoveries.

GAIN ON SALE OF ASSETS: For the three months ended March 31, 2006, there were no
gains or losses on asset sales versus a $3 million gain in 2005 from the sale of
our interest in GVK in India.

OPERATION AND MAINTENANCE: For the three months ended March 31, 2006, operation
and maintenance expenses increased versus 2005. The increase in 2006 was
primarily due to increased operating costs at CPEE and Takoradi, as well as
higher development costs.

GENERAL TAXES, DEPRECIATION, AND OTHER INCOME: For the three months ended March
31, 2006, the net of general tax expense, depreciation, and other income
increased operating income compared to 2005. This is primarily due to lower
depreciation expense at the MCV Partnership resulting from the impairment of
property, plant, and equipment and lower accretion expense related to prepaid
gas contracts at CMS ERM.

FIXED CHARGES: For the three months ended March 31, 2006, fixed charges
increased versus 2005 due to higher interest expense resulting from an increase
in subsidiary debt and interest rates, offset partially by lower expenses at the
MCV Partnership.

MINORITY INTEREST: For the three months ended March 31, 2006, minority owners of
our subsidiaries shared a portion of the losses at our subsidiaries. The
allocation of these losses to minority owners decreased our net loss in 2006. In
2005, minority owners shared in the profits of our subsidiaries and the amount
of income attributed to them reduced our net income. The losses in 2006 and
gains in 2005 were primarily due to activities at the MCV Partnership.

INCOME TAXES: For the three months ended March 31, 2006, income tax expense
decreased versus 2005. The decrease was due to lower earnings in 2006, primarily
due to mark-to-market losses in 2006 versus gains in 2005.

CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 In Millions
                                                    ------------------------
March 31                                             2006     2005    Change
- --------                                            ------   ------   ------
<S>                                                 <C>      <C>      <C>
Three months ended                                  $ (45)    $(46)   $    1
</TABLE>

For the three months ended March 31, 2006, corporate interest and other net
expenses was $45 million, a decrease of $1 million versus 2005. The decrease
reflects a reduction in interest expense due to lower debt levels, lower other
expenses allocated from the utility and the absence of additional tax expense
recorded in

                                      CMS-9
<PAGE>

                                                          CMS Energy Corporation

2005. These decreases were offset partially by premiums paid for the repurchase
of a portion of CMS Energy's 9.875 percent senior notes and higher legal fees.

DISCONTINUED OPERATIONS: For the three months ended March 31, 2006, net income
from Discontinued Operations was $1 million. Income from 2006 primarily reflects
the expiration of a tax contingency. There was no income or loss from
discontinued operations for the three months ended March 31, 2005.

CRITICAL ACCOUNTING POLICIES

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

USE OF ESTIMATES AND ASSUMPTIONS

In preparing our financial statements, we use estimates and assumptions that may
affect reported amounts and disclosures. We use accounting estimates 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.

CONTINGENCIES: We are involved in various regulatory and legal proceedings that
arise in the ordinary course of our business. We record a liability for
contingencies based upon our assessment that a 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 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. For additional details on accounting for financial
instruments, see Note 5, Financial and Derivative Instruments.

DERIVATIVE INSTRUMENTS: We use the criteria in SFAS No. 133 to determine if
certain contracts must be accounted for as derivative instruments. Except as
noted within this section, there have been no material changes to the accounting
for derivative instruments since the year ended December 31, 2005. For
additional details on accounting for derivatives, see Note 5, Financial and
Derivative Instruments.

                                     CMS-10
<PAGE>

                                                          CMS Energy Corporation

To determine the fair value of our derivatives, we use information from external
sources (i.e., quoted market prices and third-party valuations), if available.
For certain contracts, this information is not available and we use mathematical
valuation models to value our derivatives. These models require various inputs
and assumptions, including commodity market prices and volatilities, as well as
interest rates and contract maturity dates. Changes in forward prices or
volatilities could significantly change the calculated fair value of our
derivative contracts. The cash returns we actually realize on these contracts
may vary, either positively or negatively, from the results that we estimate
using these models. As part of valuing our derivatives at market, we maintain
reserves, if necessary, for credit risks arising from the financial condition of
counterparties.

The following table summarizes the interest rate and volatility rate assumptions
we used to value these contracts at March 31, 2006:

<TABLE>
<CAPTION>
                                                             Interest Rates (%)      Volatility Rates (%)
                                                             ------------------      --------------------
<S>                                                          <C>                     <C>
Long-term gas contracts associated with the MCV
     Partnership                                                 4.83 - 5.34              28 -  50
Gas-related option contracts                                        4.70                  46 -  47
Electricity-related option contracts                                4.70                  79 - 119
</TABLE>

Establishment of the Midwest Energy Market: In 2005, the MISO began operating
the Midwest Energy Market. As a result, the MISO now centrally dispatches
electricity and transmission service throughout much of the Midwest and provides
day-ahead and real-time energy market information. At this time, we believe that
the establishment of this market does not represent the development of an active
energy market in Michigan, as defined by SFAS No. 133. However, as the Midwest
Energy Market matures, we will continue to monitor its activity level and
evaluate whether or not an active energy market may exist in Michigan. If an
active market develops in the future, some 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 of SFAS No. 133 to these
contracts and, therefore, will not be required to mark these contracts to
market.

Implementation of the RCP: As a result of implementing the RCP in 2005, a
significant portion of the MCV Partnership's long-term gas contracts no longer
qualify as normal purchases because the gas will not be used to generate
electricity or steam. Accordingly, these contracts are accounted for as
derivatives, with changes in fair value recorded in earnings each quarter.
Additionally, certain of the MCV Partnership's natural gas futures and swap
contracts, which are used to hedge variable-priced long-term gas contracts, no
longer qualify for cash flow hedge accounting and we record any changes in their
fair value in earnings each quarter. As a result of recording the changes in
fair value of these long-term gas contracts and the related futures and swaps to
earnings, the MCV Partnership has recognized a $156 million loss for the three
months ended March 31, 2006. This loss is before consideration of tax effects
and minority interest and is included in the total Fuel costs mark-to-market at
MCV on our Consolidated Statements of Income (Loss). Because of the volatility
of the natural gas market, the MCV Partnership expects future earnings
volatility on both its long-term gas contracts and its futures, options, and
swap contracts, since gains and losses will be recorded each quarter.

We have recorded derivative assets totaling $100 million associated with the
fair value of these contracts on our Consolidated Balance Sheets at March 31,
2006. We expect almost all of these assets, which represent cumulative net
mark-to-market gains, to reverse as losses through earnings during 2006 and 2007
as the gas is purchased and the futures, options, and swaps settle, with the
remainder reversing between 2008 and 2011. Due to the impairment of the MCV
Facility and subsequent losses, the value of the equity held by all of the
owners of the MCV Partnership has decreased significantly and is now negative.
Since we are one of the general partners of the MCV Partnership, we have
recognized a portion of the limited partners' negative

                                     CMS-11
<PAGE>

                                                          CMS Energy Corporation

equity. As the MCV Partnership recognizes future losses from the reversal of
these derivative assets, we will continue to assume a portion of the limited
partners' share of those losses, in addition to our proportionate share.

CMS ERM CONTRACTS: CMS ERM enters into and owns energy contracts as a part of
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, 2005.

We include the fair value of the derivative contracts held by CMS ERM 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 March 31, 2006:

<TABLE>
<CAPTION>
                                                                                         In Millions
                                                                       -----------------------------
                                                                        Non-
                                                                       Trading     Trading     Total
                                                                       -------     -------     -----
<S>                                                                    <C>         <C>         <C>
Fair value of contracts outstanding at December 31, 2005               $   (63)    $   100     $  37
Fair value of new contracts when entered into during the period (a)          -           -         -
Contracts realized or otherwise settled during the period                    6         (13)       (7)
Other changes in fair value (b)                                             (5)        (25)      (30)
                                                                       -------     -------     -----
Fair value of contracts outstanding at March 31, 2006                  $   (62)    $    62     $   -
                                                                       =======     =======     =====
</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 present value and credit reserves.

<TABLE>
<CAPTION>
Fair Value of Non-Trading Contracts at March 31, 2006                                    In Millions
- ----------------------------------------------------------------------------------------------------
                                                                      Maturity (in years)
                                                Total    -------------------------------------------
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                       (62)        (11)        (18)   (31)        (2)
                                               -----       -----      ------   ----       ----
Total                                          $ (62)      $ (11)     $  (18)  $(31)      $ (2)
                                               =====       =====      ======   ====       ====
</TABLE>

<TABLE>
<CAPTION>
Fair Value of Trading Contracts at March 31, 2006                                        In Millions
- ----------------------------------------------------------------------------------------------------
                                                                      Maturity (in years)
                                               Total     -------------------------------------------
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                         $ (55)      $  (13)    $  (42)  $  -       $  -
Prices obtained from external
   sources or based on models and
   other valuation methods                       117           29         55     31          2
                                               -----       ------     ------   ----       ----
Total                                          $  62       $   16     $   13   $ 31       $  2
                                               =====       ======     ======   ====       ====
</TABLE>

MARKET RISK INFORMATION: The following is an update of our risk sensitivities
since December 31, 2005. These sensitivities indicate the potential loss in fair
value, cash flows, or future earnings from our financial instruments, including
our derivative contracts, assuming a hypothetical adverse change in market rates
or prices of 10 percent. Changes in excess of the amounts shown in the
sensitivity analyses could occur if changes in market rates or prices exceed the
10 percent shift used for the analyses.

                                     CMS-12
<PAGE>

                                                          CMS Energy Corporation

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

<TABLE>
<CAPTION>
                                                                                            In Millions
                                                                     ----------------------------------
                                                                     March 31, 2006   December 31, 2005
                                                                     --------------   -----------------
<S>                                                                  <C>              <C>
Variable-rate financing - before-tax annual earnings exposure             $  2               $  4
Fixed-rate financing - potential REDUCTION in fair value (a)               220                223
</TABLE>

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

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

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

<TABLE>
<CAPTION>
                                                                                              In Millions
                                                                      -----------------------------------
                                                                      March 31, 2006    December 31, 2005
                                                                      --------------    -----------------
<S>                                                                   <C>               <C>
Potential REDUCTION in fair value:
 Non-trading contracts
    Gas supply option contracts                                             $  -               $  1
    CMS ERM gas forward contracts                                              1                  -
    Derivative contracts associated with the MCV Partnership:
         Long-term gas contracts                                              26                 39
         Gas futures, options, and swaps                                      41                 48

 Trading contracts
    Electricity-related option contracts                                       1                  2
    Electricity-related swaps                                                 11                 13
    Gas-related option contracts                                               1                  1
    Gas-related swaps and futures                                              3                  4
</TABLE>

Investment Securities Price Risk Sensitivity Analysis (assuming an adverse
change in market prices of 10 percent):

<TABLE>
<CAPTION>
                                                                                                 In Millions
                                                                          ----------------------------------
                                                                          March 31, 2006   December 31, 2005
                                                                          ---------------  -----------------
<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, for the purpose of
funding certain costs of nuclear plant decommissioning. At March 31, 2006 and
December 31, 2005, these funds were invested primarily in equity securities,
fixed-rate, fixed-income debt securities, and cash and cash equivalents, and are
recorded at fair value on our Consolidated Balance Sheets. These 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 our earnings or cash flows.

For additional details on market risk and derivative activities, see Note 5,
Financial and Derivative Instruments.

                                     CMS-13
<PAGE>

                                                          CMS Energy Corporation

OTHER

Other accounting policies 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 pension and OPEB,

      -     accounting for asset retirement obligations, and

      -     accounting for nuclear decommissioning costs.

These accounting policies were disclosed in our 2005 Form 10-K and there have
been no material changes.

CAPITAL RESOURCES AND LIQUIDITY

Factors affecting our liquidity and capital requirements are:

      -     results of operations,

      -     capital expenditures,

      -     energy commodity costs,

      -     contractual obligations,

      -     regulatory decisions,

      -     debt maturities,

      -     credit ratings,

      -     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. Although our prudent natural gas
purchases are recoverable from our customers, the amount paid for natural gas
stored as inventory requires additional liquidity due to the timing of the cost
recoveries. We have credit agreements with our commodity suppliers and those
agreements contain terms that have resulted in margin calls. Additional margin
calls or other credit support may be required if agency ratings are lowered or
if market conditions remain unfavorable relative to our obligations to those
parties.

Our current financial plan includes controlling operating expenses and capital
expenditures and evaluating market conditions for financing opportunities. Due
to the adverse impact of the MCV Partnership asset impairment charge recorded in
2005, Consumers' ability to issue FMB as primary obligations or as collateral
for financing is expected to be limited to $298 million through September 30,
2006. After September 30, 2006, Consumers' ability to issue FMB in excess of
$298 million is based on achieving a two-times FMB interest coverage ratio.

We believe the following items will be sufficient to meet our liquidity needs:

      -     our current level of cash and revolving credit facilities,

      -     our ability to access junior secured and unsecured borrowing
            capacity in the capital markets, and

      -     our anticipated cash flows from operating and investing activities.

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-14
<PAGE>

                                                          CMS Energy Corporation

CASH POSITION, INVESTING, AND FINANCING

Our operating, investing, and financing activities meet consolidated cash needs.
At March 31, 2006, $824 million consolidated cash was on hand, which includes
$66 million of restricted cash and $242 million from entities consolidated
pursuant to FASB Interpretation No. 46(R).

Our primary ongoing source of cash is dividends and other distributions from our
subsidiaries. For the three months ended March 31, 2006, Consumers paid $40
million in common stock dividends to CMS Energy.

SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS:

<TABLE>
<CAPTION>
                                                             In Millions
                                                           ---------------
Three months ended March 31                                 2006      2005
- ---------------------------                                -----     -----
<S>                                                        <C>       <C>
Net cash provided by (used in):
   Operating activities                                    $ 173     $ 262
   Investing activities                                      (42)       (8)
                                                           -----     -----
Net cash provided by operating and investing activities      131       254
   Financing activities                                     (221)       17
Effect of exchange rates on cash                               1         -
                                                           -----     -----
Net Increase (Decrease) in Cash and Cash Equivalents       $ (89)    $ 271
                                                           =====     =====
</TABLE>

OPERATING ACTIVITIES: For the three months ended March 31, 2006, net cash
provided by operating activities was $173 million, a decrease of $89 million
versus 2005. This was due to the timing of payments for higher priced gas used
during the heating season and other timing differences.

INVESTING ACTIVITIES: For the three months ended March 31, 2006, net cash used
in investing activities was $42 million, an increase of $34 million versus 2005.
This was primarily due to the absence of short-term investment proceeds of $109
million and the absence of proceeds from asset sales of $21 million in 2006,
offset by a release of restricted cash of $128 million in February 2006, which
we used to extinguish long-term debt-related parties.

FINANCING ACTIVITIES: For the three months ended March 31, 2006, net cash used
in financing activities was $221 million, an increase of $238 million versus
2005. This was primarily due to a decrease in proceeds from debt issuances of
$691 million, offset by fewer debt retirements of $452 million.

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

OBLIGATIONS AND COMMITMENTS

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

OFF-BALANCE SHEET ARRANGEMENTS: CMS Energy and certain of its subsidiaries enter
into various arrangements in the normal course of business to facilitate
commercial transactions with third parties. These arrangements include
indemnifications, letters of credit, surety bonds, and financial and performance
guarantees. For details on guarantee arrangements, see Note 2, Contingencies,
"Other Contingencies - FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others."

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

                                     CMS-15
<PAGE>

                                                          CMS Energy Corporation

SALE OF ACCOUNTS RECEIVABLE: For details on the sale of accounts receivable, see
Note 3, Financings and Capitalization.

OUTLOOK

CORPORATE OUTLOOK

Over the next few years, our business strategy will focus on reducing parent
company debt, growing earnings, and positioning us to make new investments that
complement our strengths.

ELECTRIC UTILITY BUSINESS OUTLOOK

GROWTH: Summer 2005 temperatures were higher than historical averages, leading
to increased demand from electric customers. In 2006, we project electric
deliveries will decline less than one percent from 2005 levels. This short-term
outlook assumes a stabilizing economy and normal weather conditions throughout
the remainder of the year.

Over the next five years, we expect electric deliveries to grow at an average
rate of about one and one-half percent per year. However, such growth is
dependent on a modestly growing customer base and a stabilizing Michigan
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.

ELECTRIC RESERVE MARGIN: We are planning for a reserve margin of approximately
11 percent for summer 2006, or supply resources equal to 111 percent of
projected firm summer peak load. Of the 2006 supply resources target of 111
percent, we expect to meet approximately 97 percent from our electric generating
plants and long-term power purchase contracts, and approximately 14 percent from
other contractual arrangements. Through a combination of owned capacity and
purchases, we have supply resources in place to cover approximately 110 percent
of the projected firm summer peak load for 2006. We have purchased capacity and
energy contracts covering partially the estimated reserve margin requirements
for 2007 through 2010. As a result, we have recognized an asset of $72 million
for unexpired capacity and energy contracts at March 31, 2006.

ELECTRIC TRANSMISSION EXPENSES: The METC, which provides electric transmission
service to us, increased substantially the transmission rates it charges us in
2006. The increased rates are subject to refund and to reduction based on the
outcome of hearings at the FERC scheduled for September 2006. We are attempting
to recover these costs through our 2006 PSCR plan case. In December 2005, the
MPSC issued an order that temporarily excluded a portion of the increased costs
from our 2006 PSCR charge. In April 2006, the MPSC Staff filed briefs in the
2006 PSCR case recommending that the MPSC approve recovery of all filed costs,
including those temporarily excluded in the December 2005 order. The PSCR
process allows recovery of all reasonable and prudent power supply costs.
However, we cannot predict when full recovery of these transmission costs will
commence. To the extent that we incur and are unable to collect these increased
costs in a timely manner, our cash flows from electric utility operations will
be affected negatively. For additional details, see Note 2, Contingencies,
"Consumers' Electric Utility Rate Matters - Power Supply Costs."

INDUSTRIAL REVENUE OUTLOOK: Our electric utility customer base includes a mix of
residential, commercial, and diversified industrial customers, the largest
segment of which is the automotive industry. In November

                                     CMS-16
<PAGE>

                                                          CMS Energy Corporation

2005, General Motors Corporation, a large industrial customer of Consumers,
announced plans to reduce certain manufacturing operations in Michigan. However,
since the targeted operations are outside of our service territory, we do not
anticipate a significant impact on electric utility revenue. In March 2006,
Delphi Corporation, also a large industrial customer of Consumers, announced
plans to sell or close all but one of their manufacturing operations in Michigan
as part of their bankruptcy restructuring. Our electric utility operations are
not dependent upon a single customer, or even a few customers, and customers in
the automotive sector constitute 4 percent of our total electric revenue. In
addition, returning industrial customers will benefit our electric utility
revenue. However, we cannot predict the impact of these restructuring plans or
possible future actions by other industrial customers.

THE ELECTRIC CAPACITY NEED FORUM: In January 2006, the MPSC Staff issued a
report on future electric capacity in the state of Michigan. The report
indicated that existing generation resources are adequate in the short term, but
could be insufficient to maintain reliability standards by 2009. The report also
indicated that new coal-fired baseload generation may be needed by 2011. The
MPSC Staff recommended an approval and bid process for new power plants. To
address revenue stability risks, the Staff also recommended a special
reliability charge a utility would assess on all electric distribution
customers. In April 2006, the governor of Michigan issued an executive directive
calling for the development of a comprehensive energy plan for the state of
Michigan. The directive calls for the Chairman of the MPSC, working in
cooperation with representatives from the public and private sectors, to make
recommendations on Michigan's energy policy by the end of 2006. We will continue
to participate as the MPSC addresses future electric capacity needs.

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 $819 million. As of March 2006, we incurred $616 million
in capital expenditures to comply with the federal Clean Air Act and resulting
regulations and anticipate that the remaining $203 million of capital
expenditures will be made in 2006 through 2011. In addition to modifying
coal-fired electric generating plants, our compliance plan includes the use of
nitrogen oxide emission allowances until all of the control equipment is
operational in 2011. The nitrogen oxide emission allowance annual expense is
projected to be $6 million per year, which we expect to recover from our
customers through the PSCR process. The allowances and their costs are accounted
for as inventory. The allowance inventory is expensed at the rolling average
cost as the coal-fired electric generating plants emit nitrogen oxide.

In March 2005, the EPA adopted the Clean Air Interstate Rule that requires
additional coal-fired electric generating plant emission controls for nitrogen
oxides and sulfur dioxide. The rule involves a two-phase program to reduce
emissions of nitrogen oxides by 63 percent and sulfur dioxide by 71 percent from
2003 levels by 2015. We plan to meet this rule by year round operations of our
selective catalytic control technology units to meet nitrogen oxide targets and
installation of flue gas desulfurization scrubbers at an estimated cost of $960
million.

                                     CMS-17
<PAGE>

                                                          CMS Energy Corporation

Also in March 2005, the EPA issued the Clean Air Mercury Rule, which requires
initial reductions of mercury emissions from coal-fired electric generating
plants by 2010 and further reductions by 2018. The Clean Air Mercury Rule
establishes a cap-and-trade system for mercury emissions that is similar to the
system used in the Clean Air Interstate Rule. The industry has not reached a
consensus on the technical methods for curtailing mercury emissions. However, we
anticipate our capital and operating costs for mercury emissions reductions
required by the Clean Air Mercury Rule to be significantly less than what was
required for selective catalytic reduction technology used for nitrogen oxide
compliance.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan adopts the Federal Clean
Air Mercury Rule through its first phase, which ends in 2010. After the year
2010, the mercury emissions reduction standards outlined in the governor's plan
become more stringent than those included in the Federal Clean Air Mercury Rule.
If implemented as proposed, we anticipate the costs to comply with the
governor's plan will exceed Federal Clean Air Mercury Rule compliance costs. We
will work with the MDEQ on the details of these rules.

Several legislative proposals have been introduced in the United States Congress
that would require reductions in emissions of greenhouse gases. We cannot
predict whether any federal mandatory greenhouse gas emission reduction rules
ultimately will be enacted, or the specific requirements of any of these rules
and their effect on our operations and financial results.

To the extent that greenhouse gas emission reduction rules come into effect, the
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
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 electric generating plant
cooling water intake systems. The 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 performing the required studies to determine
the most cost-effective solutions for compliance.

For additional details on electric environmental matters, see Note 2,
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. At March 31, 2006, alternative electric suppliers
were providing 348 MW of generation service to ROA customers. This is 4 percent
of our total distribution load and represents a decrease of 61 percent compared
to March 31, 2005. It is difficult to predict future ROA customer trends.

Section 10d(4) Regulatory Assets: In December 2005, the MPSC issued an order
that authorized us to recover $333 million in Section 10d(4) costs. Instead of
collecting these costs evenly over five years, the order instructed us to
collect 10 percent of the regulatory asset total in the first year, 15 percent
in the second year, and 25 percent in the third, fourth, and fifth years. In
January 2006, we filed a petition for rehearing with the MPSC that disputed the
aspect of the order dealing with the timing of our collection of these costs. In
April 2006, the MPSC issued an order that denied our petition for rehearing.

Through and Out Rates: In December 2004, we began paying a transitional charge
pursuant to a FERC order eliminating regional "through and out" rates. Although
the transitional charge ended in March 2006, there are hearings scheduled for
May 2006 at the FERC to discuss these charges. These hearings could result in
refunds or additional transitional charges to us. In April 2006, we filed an
agreement with the FERC between the PJM RTO transmission owners and Consumers
concerning these transitional charges. If approved by the FERC, the agreement
would resolve all issues regarding transitional charges for Consumers and
eliminate the potential for refunds or additional transitional charges to
Consumers. We cannot predict the outcome of this matter.

For additional details and material changes relating to the restructuring of the
electric utility industry and

                                     CMS-18
<PAGE>

                                                          CMS Energy Corporation

electric rate matters, see Note 2, 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.

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 and throughout 2005. In 2005, the MCV Partnership reevaluated the
economics of operating the MCV Facility and recorded an impairment charge. If
natural gas prices remain at present levels or increase, the operations of the
MCV Facility would be adversely affected and could result in the MCV Partnership
failing to meet its obligations under the sale and leaseback transactions and
other contracts. We are evaluating various alternatives in order to develop a
new long-term strategy with respect to the MCV Facility.

Further, the cost that we incur under the MCV PPA exceeds the recovery amount
allowed by the MPSC. As a result, we estimate cash underrecoveries of capacity
and fixed energy payments of $55 million in 2006 and $39 million in 2007.
However, Consumers' direct savings from the RCP, after allocating a portion to
customers, are used to offset a portion of our capacity and fixed energy
underrecoveries expense. 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 the MCV Partnership's financial performance, 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. If we are successful in exercising the regulatory out
clause, the MCV Partnership has the right to terminate the MCV PPA. The MPSC's
future actions on the capacity and fixed energy payments recoverable from
customers subsequent to September 15, 2007 may affect negatively the financial
performance of the MCV Partnership. If the MCV Partnership terminates the MCV
PPA, we would be required to replace the lost capacity to maintain an adequate
electric reserve margin. This could involve entering into a new PPA and / or
entering into electric capacity contracts on the open market. We cannot predict
our ability to enter into such contracts at a reasonable price. We are also
unable to predict regulatory approval of the terms and conditions of such
contracts, or that the MPSC would allow full recovery of our incurred costs.

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

NUCLEAR MATTERS: Big Rock: Decommissioning of the site is nearing completion.
Demolition of the last remaining plant structure, the containment building, and
removal of remaining underground utilities and temporary office structures is
expected to be completed by the summer of 2006. Final radiological surveys will
then be completed to ensure that the site meets all requirements for free,
unrestricted release in accordance with the NRC approved License Termination
Plan (LTP) for the project. We anticipate NRC

                                     CMS-19
<PAGE>

                                                          CMS Energy Corporation

approval to return approximately 475 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 another area of approximately 105 acres
encompassing the Big Rock Independent Spent Fuel Storage Installation (ISFSI),
where eight casks loaded with spent fuel and other high-level radioactive
material are stored, to be returned to a natural state within approximately two
years from the date the DOE finishes removing the spent fuel from Big Rock also
in accordance with the LTP.

Palisades: 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 March
2006, we have loaded 29 dry casks with spent nuclear fuel.

Palisades' current license from the NRC expires in 2011. In March 2005, the NMC,
which operates the Palisades plant, applied for a 20-year license renewal for
the plant on behalf of Consumers. We expect a decision from the NRC on the
license renewal application in 2007.

In December 2005, we announced plans to sell the Palisades nuclear plant and
enter into a long-term power purchase agreement with the new owner. Subject to
review of the terms that are realized through a bidding process, we believe a
sale is the best option for our company, as it will reduce risk and improve cash
flow while retaining the benefits of the plant for customers. The Palisades sale
will use a competitive bid process, providing interested companies certain
options to bid on the plant, as well as the related decommissioning liabilities
and trust funds assets, and spent nuclear fuel at Palisades and Big Rock. Any
sale will be subject to various approvals, including regulatory approvals of a
long-term contract for us to purchase power from the plant, and various other
contingencies. We expect to complete the sale in 2007.

For additional details on nuclear plant decommissioning at Big Rock and
Palisades, see Note 2, Contingencies, "Other Consumers' Electric Utility
Contingencies - Nuclear Plant Decommissioning."

GAS UTILITY BUSINESS OUTLOOK

GROWTH: In 2006, we project gas deliveries will decline by four percent, on a
weather-adjusted basis, from 2005 levels due to increased conservation and
overall economic conditions in the State of Michigan. Over the next five years,
we expect gas deliveries to be relatively flat. Actual gas deliveries in future
periods may be affected by:

      -     fluctuations in weather patterns,

      -     use by independent power producers,

      -     competition in sales and delivery,

      -     changes in gas commodity prices,

      -     Michigan economic conditions,

      -     the price of competing energy sources or fuels, and

      -     gas consumption per customer.

GAS UTILITY BUSINESS UNCERTAINTIES

Several gas business trends or uncertainties may affect our future financial
results and financial condition. 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, "Consumers' Gas
Utility Contingencies - Gas Environmental Matters."

                                     CMS-20
<PAGE>

                                                          CMS Energy Corporation

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, policies, and practices for
prudency in annual plan and reconciliation proceedings. For additional details
on gas cost recovery, see Note 2, Contingencies, "Consumers' Gas Utility Rate
Matters - Gas Cost Recovery."

2001 GAS DEPRECIATION 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,

      -     required us to undertake a study to determine why our plant removal
            costs are in excess of other regulated Michigan natural gas
            utilities, and

      -     required us to file a study report with the MPSC Staff on or before
            December 31, 2005.

We filed the study report with the MPSC Staff on December 29, 2005.

We are also required to file our next gas depreciation case within 90 days after
the MPSC issuance of a final order in the pending case related to ARO
accounting. We cannot predict when the MPSC will issue a final order in the ARO
accounting case.

If the depreciation case order is issued after the gas general rate case order,
we proposed to incorporate its results into the gas general rates using a
surcharge mechanism.

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. As part of this filing,
we also requested interim rate relief of $75 million.

The MPSC Staff and intervenors filed interim rate relief testimony on October
31, 2005. In its testimony, the MPSC Staff recommended granting interim rate
relief of $38 million.

In February 2006, the MPSC Staff recommended granting final rate relief of $62
million. The MPSC Staff proposed that $17 million of this amount be contributed
to a low income energy efficiency fund. The MPSC Staff also recommended reducing
our return on common equity to 11.15 percent, from our current 11.4 percent.

In March 2006, the MPSC Staff revised its recommended final rate relief to $71
million. As of April 2006, the MPSC has not acted on our interim or final rate
relief requests.

In April 2006, we revised our request for final rate relief downward to $118
million.

ENTERPRISES OUTLOOK

We are evaluating new development opportunities outside of our current asset
base to determine whether they fit within our business strategy. These and other
investment opportunities for Enterprises will be considered for risk, rate of
return, and consistency with our business strategy. Meanwhile, we plan to
continue restructuring our Enterprises business with the objective of narrowing
the focus of our operations to primarily North America and the Middle East/North
Africa. We will continue to sell designated assets and investments that are not
consistent with this focus. The percentage of our future earnings relating to
our equity method investments may increase and our total future earnings may
depend more significantly upon the performance of those investments. For
summarized financial information of our equity method investments, see Note 9,
Equity Method Investments.

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

                                     CMS-21
<PAGE>

                                                          CMS Energy Corporation

            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 electric generating plant, and

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

GASATACAMA: On March 24, 2004, the Argentine government authorized the
restriction of exports of natural gas to Chile, giving priority to domestic
demand in Argentina. This restriction could have a detrimental effect on
GasAtacama's earnings since GasAtacama's gas-fired electric generating plant is
located in Chile and uses Argentine gas for fuel. From April through December
2004, Bolivia agreed to export 4 million cubic meters of gas per day to
Argentina, which allowed Argentina to minimize its curtailments to Chile.
Argentina and Bolivia extended the term of that agreement through December 31,
2006. With the Bolivian gas supply, Argentina relaxed its export restrictions to
GasAtacama, currently allowing GasAtacama to receive approximately 50 percent of
its contracted gas quantities at its electric generating plant. On May 1, 2006,
the Bolivian government announced its intention to nationalize the natural gas
industry. At this point in time, it is not possible to predict the outcome of
these events and their effect on the earnings of GasAtacama. At March 31, 2006,
the value of our investment in GasAtacama was $378 million.

SENECA: SENECA operates an electric utility on Margarita Island, Venezuela under
a Concession Agreement with the Venezuelan 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. In 2003, the MEP-approved a
fuel subsidy to offset partially the lower tariff revenue. This fuel subsidy
expired on December 31, 2004. SENECA has informed the MEP that it 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 regulated by the MEP. SENECA
has not received any response from the MEP. Deltaven has continued to deliver
fuel without interruption. We are informed that the MEP is examining our
financial relief proposal. 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.

OTHER OUTLOOK

MCV PARTNERSHIP NEGATIVE EQUITY: Due to the impairment of the MCV Facility and
operating losses from mark-to-market adjustments on derivative instruments, the
value of the equity held by Consumers and by all of the owners of the MCV
Partnership has decreased significantly and is now negative. Since Consumers is
one of the general partners of the MCV Partnership, we have recognized a portion
of the limited partners' negative equity. As the MCV Partnership recognizes
future losses, we will continue to assume a portion of the limited partners'
share of those losses, in addition to our proportionate share.

                                     CMS-22
<PAGE>

                                                          CMS Energy Corporation

LITIGATION AND REGULATORY INVESTIGATION: We are the subject of an investigation
by the DOJ regarding round-trip trading transactions by CMS MST. Also, we are
named as a party in various litigation matters including, but not limited to,
securities class action lawsuits, a class action lawsuit alleging ERISA
violations, and several lawsuits regarding alleged false natural gas price
reporting and price manipulation. Additionally, the SEC is investigating the
actions of former CMS Energy subsidiaries in relation to Equatorial Guinea. For
additional details regarding these and other matters, see Note 2, Contingencies
and Part II, Item 1. Legal Proceedings.

PENSION REFORM: Both branches of Congress passed legislation aimed at reforming
pension plans. The U.S. Senate passed The Pension Security and Transparency Act
in November 2005 and The House of Representatives passed the Pension Protection
Act of 2005 in December 2005. At the core of both bills are changes in the
calculation of pension plan funding requirements effective for plan years
beginning in 2007, with interest rate relief extended until then, and an
increase in premiums paid to the Pension Benefit Guaranty Corporation (PBGC).
The latter was addressed through the broader budget reconciliation bill, which
raises the PBGC flat-rate premiums from $19 to $30 per participant per year
beginning in 2006. Although the Senate and House bills are similar, they do
contain a number of technical differences, including differences in the time
period allowed for interest rate and asset smoothing, the interest rate used to
calculate lump sum payments, and the criteria used to determine whether a plan
is "at-risk," which requires higher contribution levels. The Senate and the
House plan to work out the differences between the two bills in a joint
conference. The timing, however, of a final pension reform bill is unknown.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS NO. 123(R) AND SAB NO. 107, SHARE-BASED PAYMENT: SFAS No. 123(R) requires
companies to use the fair value of employee stock options and similar awards at
the grant date to value the awards. SFAS No. 123(R) was effective for us on
January 1, 2006. We elected to adopt the modified prospective method recognition
provisions of this Statement instead of retrospective restatement. We adopted
the fair value method of accounting for share-based awards effective December
2002. Therefore, SFAS No. 123(R) did not have a significant impact on our
results of operations when it became effective. We applied the additional
guidance provided by SAB No. 107 upon implementation of SFAS No. 123(R). For
additional details, see Note 8, Executive Incentive Compensation.

PROPOSED ACCOUNTING STANDARD

On March 31, 2006, the FASB released an Exposure Draft of a proposed SFAS
entitled "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans." The proposed SFAS would amend SFAS Nos. 87, 88, 106, and
132(R) and is expected to be effective for us on December 31, 2006. The most
significant requirement stated in the proposed SFAS is the balance sheet
recognition of the underfunded portion of our defined benefit postretirement
plans at the date of adoption. We expect that Consumers will be allowed to apply
SFAS No. 71 and recognize the underfunded portion as a regulatory asset. If we
determine that SFAS No. 71 does not apply our equity could be reduced
significantly. We are in the process of determining the impact of this proposed
SFAS on our financial statements.


                                     CMS-23
<PAGE>

                             CMS ENERGY CORPORATION
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                                       ------------------
MARCH 31                                                                                 2006      2005
- --------                                                                                -------   -------
                                                                             In Millions, Except Per Share Amounts
<S>                                                                          <C>                  <C>
OPERATING REVENUE                                                                       $ 2,032   $ 1,845

EARNINGS FROM EQUITY METHOD INVESTEES                                                        36        31

OPERATING EXPENSES
     Fuel for electric generation                                                           225       177
     Fuel costs mark-to-market at MCV                                                       156      (209)
     Purchased and interchange power                                                        150        95
     Cost of gas sold                                                                       946       839
     Other operating expenses                                                               279       234
     Maintenance                                                                             80        58
     Depreciation, depletion and amortization                                               162       156
     General taxes                                                                           78        75
                                                                                        -------   -------
                                                                                          2,076     1,425
                                                                                        -------   -------

OPERATING INCOME (LOSS)                                                                      (8)      451

OTHER INCOME (DEDUCTIONS)
     Accretion expense                                                                       (2)       (5)
     Gain on asset sales, net                                                                 -         3
     Interest and dividends                                                                  17        10
     Regulatory return on capital expenditures                                                3        16
     Foreign currency losses, net                                                             -        (1)
     Other income                                                                             7         8
     Other expense                                                                           (9)       (7)
                                                                                        -------   -------

                                                                                             16        24
                                                                                        -------   -------

FIXED CHARGES
     Interest on long-term debt                                                             119       122
     Interest on long-term debt - related parties                                             4        10
     Other interest                                                                           7         4
     Capitalized interest                                                                    (2)       (1)
     Preferred dividends of subsidiaries                                                      1         1
                                                                                        -------   -------

                                                                                            129       136
                                                                                        -------   -------

INCOME (LOSS) BEFORE MINORITY INTERESTS                                                    (121)      339

MINORITY INTERESTS (OBLIGATIONS), NET                                                       (68)      113
                                                                                        -------   -------

INCOME (LOSS) BEFORE INCOME TAXES                                                           (53)      226

INCOME TAX EXPENSE (BENEFIT)                                                                (28)       74
                                                                                        -------   -------

INCOME (LOSS) FROM CONTINUING OPERATIONS                                                    (25)      152

INCOME FROM DISCONTINUED OPERATIONS, NET OF
    $1 TAX EXPENSE IN 2006                                                                    1         -
                                                                                        -------   -------

NET INCOME (LOSS)                                                                           (24)      152
PREFERRED DIVIDENDS                                                                           3         2
                                                                                        -------   -------

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS                                      $   (27)  $   150
                                                                                        =======   =======
</TABLE>

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

                                     CMS-24
<PAGE>

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED
                                                                          ------------------
MARCH 31                                                                  2006           2005
- --------                                                                -------        -------
                                                                In Millions, Except Per Share Amounts
<S>                                                             <C>                    <C>
CMS ENERGY

  NET INCOME (LOSS)
       Net Income (Loss) Available to Common Stockholders               $   (27)       $   150
                                                                        =======        =======

  BASIC EARNINGS (LOSS) PER AVERAGE COMMON SHARE
       Income (Loss) from Continuing Operations                         $ (0.13)       $  0.77
       Gain from Discontinued Operations                                   0.01              -
                                                                        -------        -------
       Net Income (Loss) Attributable to Common Stock                   $ (0.12)       $  0.77
                                                                        =======        =======

  DILUTED EARNINGS (LOSS) PER AVERAGE COMMON SHARE
       Income (Loss) from Continuing Operations                         $ (0.13)       $  0.74
       Gain from Discontinued Operations                                   0.01              -
                                                                        -------        -------
       Net Income (Loss) Attributable to Common Stock                   $ (0.12)       $  0.74
                                                                        =======        =======

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

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-25
<PAGE>

                                                          CMS Energy Corporation

                      (This page intentionally left blank)

                                     CMS-26
<PAGE>

                             CMS ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                             ------------------
MARCH 31                                                                     2006          2005
- --------                                                                     -----         -----
                                                                                 In Millions
<S>                                                                          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                                          $ (24)        $ 152
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities
        Depreciation, depletion and amortization (includes nuclear             162           156
          decommissioning of $1 per period)
        Deferred income taxes and investment tax credit                        (29)           68
        Minority interests (obligations), net                                  (68)          113
        Fuel costs mark-to-market at MCV                                       156          (209)
        Regulatory return on capital expenditures                               (3)          (16)
        Capital lease and other amortization                                    11            10
        Accretion expense                                                        2             5
        Distributions from related parties less than earnings                  (15)           (2)
        Gain on the sale of assets                                               -            (3)
        Changes in other assets and liabilities:
           Increase in accounts receivable and accrued revenues               (202)         (317)
           Decrease in inventories                                             377           418
           Decrease in accounts payable                                       (111)          (25)
           Decrease in accrued expenses                                        (63)          (79)
           Decrease in MCV gas supplier funds on deposit                       (90)          (15)
           Decrease (increase) in other current and non-current assets          96           (29)
           Increase (decrease) in other current and non-current liabilities    (26)           35
                                                                             -----         -----
          Net cash provided by operating activities                          $ 173         $ 262
                                                                             -----         -----

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)          $(129)        $(149)
  Cost to retire property                                                      (25)          (27)
  Restricted cash and restricted short-term investments                        127            11
  Investment in Electric Restructuring Implementation Plan                       -            (1)
  Investments in nuclear decommissioning trust funds                           (17)           (1)
  Proceeds from nuclear decommissioning trust funds                              4             7
  Proceeds from short-term investments                                           -           295
  Purchase of short-term investments                                             -          (186)
  Maturity of MCV restricted investment securities held-to-maturity             28           126
  Purchase of MCV restricted investment securities held-to-maturity            (26)         (126)
  Proceeds from sale of assets                                                   -            21
  Other investing                                                               (4)           22
                                                                             -----         -----
          Net cash used in investing activities                              $ (42)        $  (8)
                                                                             -----         -----

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes, bonds, and other long-term debt                       $  13         $ 704
  Issuance of common stock                                                       6             6
  Retirement of bonds and other long-term debt                                (226)         (678)
  Payment of preferred stock dividends                                          (3)           (2)
  Payment of capital lease and financial lease obligations                      (3)           (3)
  Debt issuance costs, financing fees, and other                                (8)          (10)
                                                                             -----         -----
          Net cash provided by (used in) financing activities                $(221)        $  17
                                                                             -----         -----
EFFECT OF EXCHANGE RATES ON CASH                                                 1             -
                                                                             -----         -----

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         $ (89)        $ 271
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                 847           669
                                                                             -----         -----
CASH AND CASH EQUIVALENTS, END OF PERIOD                                     $ 758         $ 940
                                                                             =====         =====
</TABLE>

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

                                     CMS-27
<PAGE>

                             CMS ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            MARCH 31
                                                                              2006          DECEMBER 31
                                                                           (UNAUDITED)         2005
                                                                           -----------      -----------
                                                                                            In Millions
<S>                                                                        <C>              <C>
ASSETS
PLANT AND PROPERTY (AT COST)
   Electric utility                                                         $   8,266        $   8,204
   Gas utility                                                                  3,165            3,151
   Enterprises                                                                  1,054            1,068
   Other                                                                           31               25
                                                                            ---------        ---------
                                                                               12,516           12,448
   Less accumulated depreciation, depletion and amortization                    5,166            5,123
                                                                            ---------        ---------
                                                                                7,350            7,325
   Construction work-in-progress                                                  548              520
                                                                            ---------        ---------
                                                                                7,898            7,845
                                                                            ---------        ---------

INVESTMENTS
   Enterprises                                                                    746              712
   Other                                                                           10               13
                                                                            ---------        ---------
                                                                                  756              725
                                                                            ---------        ---------

CURRENT ASSETS
   Cash and cash equivalents at cost, which approximates market                   758              847
   Restricted cash and restricted short-term investments                           66              198
   Accounts receivable, notes receivable and accrued revenue, less
     allowances of $32 and $31, respectively                                    1,017              824
   Accounts receivable and notes receivable - related parties                      67               54
   Inventories at average cost
      Gas in underground storage                                                  702            1,069
      Materials and supplies                                                       92               96
      Generating plant fuel stock                                                 104              110
   Price risk management assets                                                    73              113
   Regulatory assets - postretirement benefits                                     19               19
   Derivative instruments                                                         121              242
   Deferred property taxes                                                        166              160
   Prepayments and other                                                          129              167
                                                                            ---------        ---------
                                                                                3,314            3,899
                                                                            ---------        ---------

NON-CURRENT ASSETS
   Regulatory Assets
      Securitized costs                                                           549              560
      Additional minimum pension                                                  399              399
      Postretirement benefits                                                     110              116
      Customer Choice Act                                                         213              222
      Other                                                                       481              484
   Price risk management assets                                                   127              165
   Nuclear decommissioning trust funds                                            576              555
   Goodwill                                                                        30               27
   Notes receivable - related parties                                             186              187
   Notes receivable                                                               195              187
   Other                                                                          716              649
                                                                            ---------        ---------
                                                                                3,582            3,551
                                                                            ---------        ---------
TOTAL ASSETS                                                                $  15,550        $  16,020
                                                                            =========        =========
</TABLE>

                                     CMS-28
<PAGE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES

<TABLE>
<CAPTION>
                                                                                 MARCH 31
                                                                                   2006         DECEMBER 31
                                                                                (UNAUDITED)         2005
                                                                                -----------     -----------
                                                                                                In Millions
<S>                                                                             <C>             <C>
CAPITALIZATION
   Common stockholders' equity
      Common stock, authorized 350.0 shares; outstanding 221.0 shares and
         220.5 shares, respectively                                              $      2         $      2
      Other paid-in capital                                                         4,445            4,436
      Accumulated other comprehensive loss                                           (286)            (288)
      Retained deficit                                                             (1,855)          (1,828)
                                                                                 --------         --------
                                                                                    2,306            2,322

   Preferred stock of subsidiary                                                       44               44
   Preferred stock                                                                    261              261

   Long-term debt                                                                   6,714            6,800
   Long-term debt - related parties                                                   178              178
   Non-current portion of capital and finance lease obligations                       309              308
                                                                                 --------         --------
                                                                                    9,812            9,913
                                                                                 --------         --------
MINORITY INTERESTS                                                                    354              333
                                                                                 --------         --------

CURRENT LIABILITIES
   Current portion of long-term debt, capital and finance leases                      319              316
   Current portion of long-term debt - related parties                                  -              129
   Accounts payable                                                                   398              511
   Accounts payable - related parties                                                   2                1
   Accrued interest                                                                   123              145
   Accrued taxes                                                                      282              331
   Price risk management liabilities                                                   68               80
   Current portion of gas supply contract obligations                                  10               10
   Deferred income taxes                                                               60               55
   MCV gas supplier funds on deposit                                                  103              193
   Other                                                                              261              342
                                                                                 --------         --------
                                                                                    1,626            2,113
                                                                                 --------         --------

NON-CURRENT LIABILITIES
   Regulatory Liabilities
      Regulatory liabilities for cost of removal                                    1,152            1,120
      Income taxes, net                                                               464              455
      Other regulatory liabilities                                                    231              178
   Postretirement benefits                                                            401              382
   Deferred income taxes                                                              253              297
   Deferred investment tax credit                                                      65               67
   Asset retirement obligation                                                        499              496
   Price risk management liabilities                                                  132              161
   Gas supply contract obligations                                                     56               61
   Other                                                                              505              444
                                                                                 --------         --------
                                                                                    3,758            3,661
                                                                                 --------         --------

COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 5)

TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES                                   $ 15,550         $ 16,020
                                                                                 ========         ========
</TABLE>

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

                                     CMS-29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED
MARCH 31                                                                                   2006            2005
- --------                                                                                  -------         -------
                                                                                                             In
                                                                                                          Millions
<S>                                                                                       <C>             <C>
COMMON STOCK
   At beginning and end of period                                                         $     2         $     2
                                                                                          -------         -------

OTHER PAID-IN CAPITAL
   At beginning of period                                                                   4,436           4,140
   Common stock issued                                                                          8               6
   Common stock reissued                                                                        1               1
                                                                                          -------         -------
      At end of period                                                                      4,445           4,147
                                                                                          -------         -------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
   Minimum Pension Liability
      At beginning of period                                                                  (19)            (17)
      Minimum pension liability adjustments (a)                                                 -               -
                                                                                          -------         -------
         At end of period                                                                     (19)            (17)
                                                                                          -------         -------

   Investments
      At beginning of period                                                                    9               9
      Unrealized gain (loss) on investments (a)                                                 2              (1)
                                                                                          -------         -------
         At end of period                                                                      11               8
                                                                                          -------         -------

   Derivative Instruments
      At beginning of period                                                                   35              (9)
      Unrealized gain (loss) on derivative instruments (a)                                     (4)             18
      Reclassification adjustments included in net income (loss) (a)                           (1)             (8)
                                                                                          -------         -------
         At end of period                                                                      30               1
                                                                                          -------         -------

   Foreign Currency Translation
      At beginning of period                                                                 (313)           (319)
      Other foreign currency translations (a)                                                   5               4
                                                                                          -------         -------
         At end of period                                                                    (308)           (315)
                                                                                          -------         -------
      At end of period                                                                       (286)           (323)
                                                                                          -------         -------

RETAINED DEFICIT
   At beginning of period                                                                  (1,828)         (1,734)
   Net income (loss) (a)                                                                      (24)            152
   Preferred stock dividends declared                                                          (3)             (2)
                                                                                          -------         -------
      At end of period                                                                     (1,855)         (1,584)
                                                                                          -------         -------
TOTAL COMMON STOCKHOLDERS' EQUITY                                                         $ 2,306         $ 2,242
                                                                                          =======         =======

(a)  DISCLOSURE OF OTHER COMPREHENSIVE INCOME (LOSS):
         Minimum pension liability adjustments                                            $     -         $     -
         Investments
            Unrealized gain (loss) on investments, net of tax
               of $(1) in 2006 and $- in 2005                                                   2              (1)
         Derivative Instruments
            Unrealized gain (loss) on derivative instruments,
               net of tax of $(5) in 2006 and $9 in 2005                                       (4)             18
            Reclassification adjustments included in net income (loss), net of tax
               of $(1) in 2006 and $(6) in 2005                                                (1)             (8)
         Foreign currency translation, net                                                      5               4
         Net income (loss)                                                                    (24)            152
                                                                                          -------         -------
       Total Other Comprehensive Income (Loss)                                            $   (22)        $   165
                                                                                          =======         =======
</TABLE>

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

                                     CMS-30
<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 consolidated 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 related Notes contained in CMS
Energy's Form 10-K for the year ended December 31, 2005. 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 operating
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 of which we are the primary beneficiary, in
accordance with FASB Interpretation No. 46(R). 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 2, Contingencies.

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

                                     CMS-31
<PAGE>

                                                          CMS Energy Corporation

values of energy trading contracts that qualify as derivatives are recognized as
revenues in the periods in which the changes occur.

ACCOUNTING FOR MISO TRANSACTIONS: CMS ERM accounts for MISO transactions on a
net basis for each of the generating units for which CMS ERM sells power. CMS
ERM allocates other fixed costs associated with MISO settlements back to the
generating units and records billing adjustments when invoices are received.
Consumers accounts for MISO transactions on a net basis for all of its
generating units combined. Consumers records billing adjustments when invoices
are received and also records an expense accrual for future adjustments based on
historical experience.

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. These foreign currency translation adjustments are shown in
the stockholders' equity section on our Consolidated Balance Sheets. 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.

At March 31, 2006, the cumulative Foreign Currency Translation component of
stockholders' equity is $308 million, which primarily represents currency losses
in Argentina and Brazil. The foreign currency loss due to the unfavorable
exchange rate of the Argentine peso using an exchange rate of 3.139 pesos per
U.S. dollar was $265 million, net of tax. The net foreign currency loss due to
the unfavorable exchange rate of the Brazilian real using an exchange rate of
2.205 reals per U.S. dollar was $45 million, net of tax.

LONG-LIVED ASSETS AND EQUITY METHOD INVESTMENTS: Our assessment of the
recoverability of long-lived assets and equity method investments involves
critical accounting estimates. We periodically perform tests of impairment if
certain conditions that are other than temporary exist that may indicate the
carrying value may not be recoverable. Of our total assets, recorded at $15.550
billion at March 31, 2006, 56 percent represent long-lived assets and equity
method investments that are subject to this type of analysis.

In February 2005, we sold our interest in GVK, a 250 MW gas-fired power plant
located in South Central India, for gross cash proceeds of $21 million.

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

<TABLE>
<CAPTION>
                                                                In Millions
                                                       --------------------
Three months ended March 31                             2006          2005
- ---------------------------                            ------        ------
<S>                                                    <C>           <C>
Other income
       Interest and dividends - related parties        $    2        $    2
       Electric restructuring return                        1             1
       Return on stranded and security costs                1             1
       Refund of surety bond premium                        1             -
       Reduction of contingent liability                    -             3
       All other                                            2             1
                                                       ------        ------
Total other income                                     $    7        $    8
                                                       ======        ======
</TABLE>

                                     CMS-32
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                               In Millions
                                                     ---------------------
Three months ended March 31                           2006           2005
- ---------------------------                          ------         ------
<S>                                                  <C>            <C>
Other expense
     Investment write-down                           $    -         $   (1)
     Loss on reacquired and extinguished debt            (5)            (5)
     Civic and political expenditures                    (1)            (1)
     Donations                                           (1)             -
     All other                                           (2)             -
                                                     ------         ------
Total other expense                                  $   (9)        $   (7)
                                                     ======         ======
</TABLE>

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

2: CONTINGENCIES

SEC AND OTHER INVESTIGATIONS: During the period of May 2000 through January
2002, CMS MST engaged in simultaneous, prearranged commodity trading
transactions in which energy commodities were sold and repurchased at the same
price. These so called round-trip trades had no impact on previously reported
consolidated net income, earnings per share, or cash flows but had the effect of
increasing operating revenues and operating expenses by equal amounts.

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. Those individuals filed a motion to dismiss
the SEC action, which was denied.

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. The cases were consolidated into a
single lawsuit, which 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, the court
granted a motion to dismiss Consumers and three of the individual defendants,
but denied the motions to dismiss CMS Energy and the 13 remaining individual
defendants. The court issued an opinion and order dated March 24, 2006, granting
in part and denying in part plaintiffs' amended motion for class certification.
The court conditionally certified a class consisting of "[a]ll persons who
purchased CMS Common Stock during the period of October 25, 2000 through and
including May 17, 2002 and who were damaged thereby." Appeals and motions for
reconsideration of the court's ruling have been lodged by the parties. CMS
Energy and the individual defendants will defend themselves vigorously in this
litigation but cannot predict its outcome.

                                     CMS-33
<PAGE>

                                                          CMS Energy Corporation

ERISA LAWSUITS: CMS Energy is a named defendant, along with Consumers, CMS MST,
and certain named and unnamed officers and directors, in two lawsuits, filed in
July 2002 in United States District Court for the Eastern District of Michigan,
brought as purported class actions on behalf of participants and beneficiaries
of the CMS Employees' Savings Plan (the Plan). 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, as well as other equitable relief and legal fees. On March 1, 2006,
CMS Energy and Consumers reached an agreement, subject to court and independent
fiduciary approval, to settle the lawsuits. The settlement agreement requires a
$28 million cash payment by CMS Energy's primary insurer that will be used to
pay Plan participants and beneficiaries for alleged losses, as well as any legal
fees and expenses. In addition, CMS Energy agreed to certain other steps
regarding administration of the Plan. The court issued an order on March 23,
2006, granting preliminary approval of the settlement and scheduling the
Fairness Hearing for June 15, 2006.

GAS INDEX PRICE REPORTING INVESTIGATION: CMS Energy has notified appropriate
regulatory and governmental agencies that some employees at CMS MST and CMS
Field Services appeared to have provided inaccurate information regarding
natural gas trades to various energy industry publications which compile and
report index prices. CMS Energy is cooperating with an ongoing investigation by
the DOJ regarding this matter. CMS Energy is unable to predict the outcome of
the DOJ investigation and what effect, if any, the investigation will have on
its business. The CFTC filed a civil injunctive action against two former CMS
Field Services employees in Oklahoma federal district court on February 1, 2005.
The action alleges the two engaged in reporting false natural gas trade
information, and the action seeks to enjoin such acts, compel compliance with
the Commodities Exchange Act, and impose monetary penalties. CMS Energy is
currently advancing legal defense costs to the two individuals in accordance
with existing indemnification policies.

BAY HARBOR: As part of the development of Bay Harbor by certain subsidiaries of
CMS Energy, which went forward under an agreement with the MDEQ, third parties
constructed a golf course and a park over several abandoned cement kiln dust
(CKD) piles, left over from the former cement plant operation on the Bay Harbor
site. Pursuant to the agreement with the MDEQ, CMS Energy constructed a water
collection system and treatment plant 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.

In September 2004, following an eight month shutdown of the treatment plant, the
MDEQ issued a notice of noncompliance 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.

In February 2005, the EPA executed an Administrative Order on Consent (AOC) to
address problems at Bay Harbor, upon the consent of CMS Land Company (CMS Land),
a subsidiary of Enterprises, and CMS Capital, LLC, a subsidiary of CMS Energy.
Pursuant to the AOC, the EPA approved a final removal action work plan in July
2005. Among other things, the plan calls for the installation of collection
trenches to intercept high pH CKD leachate flow to the lake. Final installation
of the trenches in the western-most section has been delayed because of the
discovery of CKD on the beach. Regarding these areas, CMS Land submitted an
Interim Response Plan on March 21, 2006, which was approved by the EPA on March
30, 2006. In February 2006, CMS Land submitted to the EPA a proposed Remedial
Investigation and Feasibility Study for the East Park CKD pile. The EPA approved
a schedule for near-term activities, which includes consolidating CKD materials
and installing

                                     CMS-34
<PAGE>

                                                          CMS Energy Corporation

collection trenches in the East Park leachate release area. The work plan calls
for completion of the collection trenches in East Park by November 16, 2006.

Several property owners at Bay Harbor made claims for loss or damage to their
property. The owner of one parcel has filed a lawsuit in Emmet County Circuit
Court against CMS Energy and several of its subsidiaries, as well as Bay Harbor
Golf Club Inc., Bay Harbor Company LLC, David C. Johnson, and David V. Johnson,
one of the developers at Bay Harbor. Several of these defendants have demanded
indemnification from CMS Energy and affiliates for the claims made against them
in the lawsuit. CMS Energy is awaiting a decision after a March 28, 2006 hearing
on motions filed by it and other defendants to dismiss various counts of the
complaint. CMS Land has entered into various access, purchase and settlement
agreements with several of the affected landowners at Bay Harbor and continues
negotiations with other landowners for access as necessary to implement
remediation measures. CMS Land completed the purchase of two unimproved lots and
a lot with a house. CMS Energy will defend vigorously any property damage and
personal injury claims or lawsuits.

CMS Energy has recorded a liability of $85 million for its obligations. An
adverse outcome of this matter could, depending on the size of any
indemnification obligation or liability under environmental laws, have a
potentially significant adverse effect on CMS Energy's financial condition and
liquidity and could negatively impact CMS Energy's financial results. CMS Energy
cannot predict the ultimate cost or outcome of this matter.

CONSUMERS' ELECTRIC UTILITY CONTINGENCIES

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

Clean Air: 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 $819 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

      -     an AFUDC capitalization rate.

Our current capital cost estimates include an escalation rate of 2.6 percent and
an AFUDC capitalization rate of 8.4 percent. As of March 2006, we incurred $616
million in capital expenditures to comply with the federal Clean Air Act and
resulting regulations and anticipate that the remaining $203 million of capital
expenditures will be made in 2006 through 2011. These expenditures include
installing selective catalytic control reduction technology at four of our
coal-fired electric generating plants. In addition to modifying coal-fired
electric generating plants, our compliance plan includes the use of nitrogen
oxide emission allowances until all of the control equipment is operational in
2011. The nitrogen oxide emission allowance annual expense is projected to be $6
million per year, which we expect to recover from our customers through the PSCR
process. The projected annual expense is based on market price forecasts and
forecasts of regulatory provisions, known as progressive flow control, that
restrict the usage in any given year of allowances banked from previous years.
The

                                     CMS-35
<PAGE>

                                                          CMS Energy Corporation

allowances and their cost are accounted for as inventory. The allowance
inventory is expensed at the rolling average cost as the coal-fired electric
generating plants emit nitrogen oxide.

In March 2005, the EPA adopted the Clean Air Interstate Rule that requires
additional coal-fired electric generating plant emission controls for nitrogen
oxides and sulfur dioxide. The rule involves a two-phase program to reduce
emissions of nitrogen oxides by 63 percent and sulfur dioxide by 71 percent from
2003 levels by 2015. The final rule will require that we run our selective
catalytic control reduction technology units year round beginning in 2009 and
may require that we purchase additional nitrogen oxide allowances beginning in
2009. The additional nitrogen oxide allowances are estimated to cost $4 million
per year for years 2009 through 2011.

In addition to the selective catalytic control reduction technology installed to
meet the nitrogen oxide standards, 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 an
estimated cost of $960 million. Our capital cost estimates include an escalation
rate of 2.6 percent and an AFUDC capitalization rate of 8.4 percent. We
currently have a surplus of sulfur dioxide allowances, which were granted by the
EPA and are accounted for as inventory. In January 2006, we sold some of our
excess sulfur dioxide allowances for $61 million and recognized the proceeds as
a regulatory liability.

Also in March 2005, the EPA issued the Clean Air Mercury Rule, which requires
initial reductions of mercury emissions from coal-fired electric generating
plants by 2010 and further reductions by 2018. The Clean Air Mercury Rule
establishes a cap-and-trade system for mercury emissions that is similar to the
system used in the Clean Air Interstate Rule. The industry has not reached a
consensus on the technical methods for curtailing mercury emissions. However, we
anticipate our capital and operating costs for mercury emissions reductions
required by the Clean Air Mercury Rule to be significantly less than what was
required for selective catalytic reduction technology used for nitrogen oxide
compliance.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan adopts the Federal Clean
Air Mercury Rule through its first phase, which ends in 2010. After the year
2010, the mercury emissions reduction standards outlined in the governor's plan
become more stringent than those included in the Federal Clean Air Mercury Rule.
If implemented as proposed, we anticipate the costs to comply with the
governor's plan will exceed Federal Clean Air Mercury Rule compliance costs. We
will work with the MDEQ on the details of these rules.

In August 2005, the MDEQ filed a Motion to Intervene in a court challenge to
certain aspects of EPA's Clean Air Mercury Rule, asserting that the rule is
inadequate. In October 2005, the EPA announced it would reconsider certain
aspects of the Clean Air Mercury Rule. During the reconsideration process, the
court challenge to the rule is on hold. We cannot predict the outcome of this
proceeding.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seeking permits to modify the
plant 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 generating plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.

                                     CMS-36
<PAGE>

                                                          CMS Energy Corporation

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 our experience, we
estimate that our share of the total liability for the known Superfund sites
will be between $2 million and $10 million. At March 31, 2006, 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 Ludington. 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 duct burner and failing to maintain certain
records in the required format. 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)
and took 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 configuration of that particular unit. The MCV Partnership
disagrees with certain of the MDEQ's assertions. The MCV Partnership filed a
response in July 2004 to address the Letter of Violation. 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 includes establishing a
higher carbon monoxide emissions limit on the five duct burners currently
unavailable, sufficient to allow the MCV Facility to return those duct burners
to service. The settlement would also satisfy state and federal requirements and
remove the MCV Partnership from the HPVL. Any such settlement may involve a
fine, but at this time, the MDEQ has not stated what, if any, fine they will
seek to impose. At this time, we cannot predict the financial impact or outcome
of this issue.

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, failing to document inspections, and other minor
infractions (alleged NPDES violations). In August 2004, the MCV Partnership
filed a response to the MDEQ letter covering the remediation for each of the
MDEQ's alleged violations. On October 17, 2005, the MDEQ, Water Bureau, issued
the MCV Partnership a Compliance Inspection report, which listed several minor
violations and concerns that needed to be addressed by the MCV Facility. This
report was issued in connection with an inspection of the MCV Facility in
September 2005, which was conducted for compliance and review of the Storm Water
Pollution Prevention Plans (SWPPP). The MCV Partnership submitted its updated
SWPPP on December 1, 2005. The MCV Partnership management believes it has
resolved all issues associated with the Notice Letter and Compliance Inspection
and does not expect any further MDEQ actions on these matters.

                                     CMS-37
<PAGE>

                                                          CMS Energy Corporation

ALLOCATION OF BILLING COSTS: In February 2006, the MPSC issued an order which
determined that we violated the MPSC code of conduct by including a bill insert
advertising an unregulated service. The MPSC issued a penalty of $45,000 and
stated that any subsidy for the use of our billing system arising from past code
of conduct violations will be accounted for in our next electric rate case. We
cannot predict the outcome or the impact on any future electric rate case.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities (the
plaintiffs), which sell power to us, filed a lawsuit in Ingham County Circuit
Court. The lawsuit alleged 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.
The Michigan Court of Appeals upheld this order on the primary jurisdiction
question, but remanded the case back on another issue. 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
plaintiffs have appealed the MPSC order to the Michigan Court of Appeals. The
plaintiffs also filed suit in the United States Court for the Western District
of Michigan, which the judge subsequently dismissed. The plaintiffs have
appealed the dismissal to the United States Court of Appeals. We cannot predict
the outcome of these appeals.

CONSUMERS' ELECTRIC UTILITY RESTRUCTURING MATTERS

ELECTRIC ROA: The Customer Choice Act allows all of our electric customers to
buy electric generation service from us or from an alternative electric
supplier. At March 31, 2006, alternative electric suppliers were providing 348
MW of generation service to ROA customers. This is 4 percent of our total
distribution load and represents a decrease of 61 percent compared to March 31,
2005. It is difficult to predict future ROA customer trends.

STRANDED COSTS: Prior MPSC orders adopted a mechanism pursuant to the Customer
Choice Act to provide recovery of Stranded Costs that occur when customers leave
our system to purchase electricity from alternative suppliers. In November 2005,
we filed an application with the MPSC related to the determination of 2004
Stranded Costs. Applying the Stranded Cost methodology used in prior MPSC
orders, we concluded that we experienced zero Stranded Costs in 2004.

CONSUMERS' ELECTRIC UTILITY RATE MATTERS

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. Through a combination of owned capacity and purchases, we have supply
resources in place to cover approximately 110 percent of the projected firm
summer peak load for 2006. We have purchased capacity and energy contracts
covering partially the estimated reserve margin requirements for 2007 through
2010. As a result, we have recognized an asset of $72 million for unexpired
capacity and energy contracts at March 31, 2006. At April 2006, we expect the
total capacity cost of electric capacity and energy contracts for 2006 to be $18
million.

PSCR: The PSCR process allows recovery of reasonable and prudent power supply
costs. Revenues from the PSCR charges are subject to reconciliation after actual
costs are reviewed for reasonableness and prudence. In September 2005, we
submitted our 2006 PSCR plan filing to the MPSC. In November 2005, we submitted
an amended 2006 PSCR plan to the MPSC to include higher estimates for certain
METC and coal supply costs. In December 2005, the MPSC issued an order that

                                     CMS-38
<PAGE>

                                                          CMS Energy Corporation

temporarily excluded these increased costs from our PSCR charge and further
reduced the charge by one mill per kWh. We implemented the temporary order in
January 2006. If the temporary order remains in effect for the remainder of
2006, it would result in a delay in the recovery of $169 million.

In April 2006, the MPSC Staff filed briefs in the 2006 PSCR plan case
recommending inclusion of all filed costs in the 2006 PSCR charge, including
those temporarily excluded in the December 2005 order. If the MPSC adopts the
Staff's recommendation, our underrecovery of PSCR costs in 2006 would be reduced
to $67 million. These underrecoveries are due to increased bundled sales and
other cost increases beyond those included in the September and November
filings. We expect to recover fully all of our PSCR costs. To the extent that we
incur and are unable to collect these costs in a timely manner, our cash flows
from electric utility operations are affected negatively. In March 2006, we
submitted our 2005 PSCR reconciliation filing to the MPSC. We calculated an
underrecovery of $33 million for commercial and industrial customers, which we
expect to recover fully. 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 FASB Interpretation No. 46(R).

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 and throughout 2005. In 2005, the MCV Partnership reevaluated the
economics of operating the MCV Facility and recorded an impairment charge. If
natural gas prices remain at present levels or increase, the operations of the
MCV Facility would be adversely affected and could result in the MCV Partnership
failing to meet its obligations under the sale and leaseback transactions and
other contracts. Due to the impairment of the MCV Facility and subsequent
losses, the value of the equity held by all of the owners of the MCV Partnership
has decreased significantly and is now negative. Since we are one of the general
partners of the MCV Partnership, we have recognized a portion of the limited
partners' negative equity. At March 31, 2006, the negative minority interest for
the other general partners' share, including their portion of the limited
partners' negative equity, is $96 million and is included in Other Non-current
Assets on our Consolidated Balance Sheets. We are evaluating various
alternatives in order to develop a new long-term strategy with respect to the
MCV Facility.

Further, 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 underrecoveries of $55 million in 2006 and $39 million in 2007. Of the
2006 estimate, we expensed $14 million during the three months ended March 31,
2006. However, Consumers' direct savings from the RCP, after allocating a
portion to customers, are used to offset our capacity and fixed energy
underrecoveries expense. 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 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. If we are successful in exercising the
regulatory out clause, the MCV Partnership has the right to terminate the MCV
PPA. The MPSC's future actions on the capacity and fixed energy payments
recoverable from

                                     CMS-39
<PAGE>

                                                          CMS Energy Corporation

customers subsequent to September 15, 2007 may affect negatively the financial
performance of the MCV Partnership.

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 benefits our ownership interest in the MCV Partnership.

In January 2005, we 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 approving the RCP. 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 City of Midland appealed the
decision to the Michigan Court of Appeals, and the MCV Partnership 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 2005. The
MCV Partnership estimates that the 1997 through 2005 tax year cases will result
in a refund to the MCV Partnership of $87 million, inclusive of interest, if the
decision of the Michigan Tax Tribunal is upheld. In February 2006, the Michigan
Court of Appeals largely affirmed the Michigan Tax Tribunal decision, but
remanded the case back to the Michigan Tax Tribunal to clarify certain aspects
of the Tax Tribunal decision. The remanded proceedings may result in the
determination of a greater refund to the MCV Partnership. In April 2006, the
City of Midland filed an application for Leave to Appeal with the Michigan
Supreme Court. The MCV Partnership filed a response in opposition to that
application. The MCV Partnership cannot predict the outcome of these
proceedings; therefore, this anticipated refund has not been recognized in
earnings.

NUCLEAR PLANT DECOMMISSIONING: The MPSC and the FERC regulate the recovery of
costs to decommission, or remove from service, our Big Rock and Palisades
nuclear plants. 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 in March 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, this estimated cost includes historical expenditures in nominal
dollars and future costs in 2003 dollars, with all Palisades costs given in 2003
dollars. Recently updated cost projections for Big Rock indicate an anticipated
decommissioning cost of $390 million as of March 2006.

Big Rock: In December 2000, funding of the Big Rock trust fund stopped because
the MPSC-authorized decommissioning surcharge collection period expired. In
March 2006, we contributed $16 million to the trust fund from our corporate
funds. 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 $36 million. At this time, we plan to
provide this additional amount from our

                                     CMS-40
<PAGE>

                                                          CMS Energy Corporation

corporate funds, and, subsequent to the completion in 2007 of radiological
decommissioning work, seek recovery of such expenditures, in addition to the
amount we added to the fund, from some alternative source. We cannot predict the
outcome of these efforts.

Palisades: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept spent fuel on schedule, we concluded, based on cost estimates
filed in March 2004, that the existing Palisades' surcharge of $6 million needed
to be increased to $25 million annually, beginning January 2006. A settlement
agreement was approved by the MPSC, providing for the continuation of the
existing $6 million annual decommissioning surcharge through 2011, our current
license expiration date, and for the next periodic review to be filed in March
2007. Amounts collected from electric retail customers and deposited in trusts,
including trust earnings, are credited to a regulatory liability.

In March 2005, the NMC, which operates the Palisades plant, applied for a
20-year license renewal for the plant on behalf of Consumers. We expect a
decision from the NRC on the license renewal application in 2007. At this time,
we cannot determine what impact this will have on decommissioning costs or the
adequacy of funding.

In December 2005, we announced plans to sell Palisades and have begun pursuing
this asset divestiture. As a sale is not probable to occur until a firm purchase
commitment is entered into with a potential buyer, we have not classified the
Palisades assets as held for sale on our Consolidated Balance Sheets.

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 March 31, 2006, our DOE liability is $147
million. This amount includes interest, which is payable upon the first delivery
of spent nuclear fuel to the DOE. The amount of this liability, excluding a
portion of interest, was recovered through electric rates.

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. 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 2002, the site at Yucca Mountain, Nevada was designated for the development
of a repository for the disposal of high-level radioactive waste and spent
nuclear fuel. We expect that the DOE, in due course, will submit a final license
application to the NRC for 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

                                     CMS-41
<PAGE>

                                                          CMS Energy Corporation

insurance company, we could be subject to assessments of up to $28 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. 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 $15
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.

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 2005, we estimated our remaining
costs to be between $29 million and $71 million, based on 2005 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 proceeds derived from a
settlement with insurers and MPSC-approved rates. At March 31, 2006, we have a
liability of $28 million, net of $54 million of expenditures incurred to date,
and a regulatory asset of $60 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, policies, and practices for
prudency in annual plan and reconciliation proceedings.

GCR reconciliation for year 2004-2005: In March 2006, a settlement was reached
and submitted to the MPSC for approval for our 2004-2005 GCR year
reconciliation. The settlement is for a $2 million net overrecovery for the GCR
year; it includes interest through March 2005 and refunds that we

                                     CMS-42
<PAGE>

                                                          CMS Energy Corporation

received from our suppliers that are required to be refunded to our customers.
In April 2006, the MPSC approved the settlement; the settlement amount will be
rolled into the 2005-2006 GCR year.

GCR plan for year 2005-2006: In November 2005, the MPSC issued an order for our
2005-2006 GCR Plan year, which resulted in approval of a settlement agreement
and established a fixed price cap of $10.10 for the December 2005 through March
2006 billing period. We were able to maintain our billing GCR factor below the
authorized level for that period. The order was appealed to the Michigan Court
of Appeals by one intervenor. No action has been taken by the Court of Appeals
on the merits of the appeal and we are unable to predict the outcome.

GCR plan for year 2006-2007: In December 2005, we filed an application with the
MPSC seeking approval of a GCR plan for the 12-month period of April 2006
through March 2007. Our request proposed using a GCR factor consisting of:

      -     a base GCR ceiling factor of $11.10 per mcf, plus

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

Our GCR factor for the billing month of May 2006 is $9.07 per mcf.

2001 GAS DEPRECIATION 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,

      -     required us to undertake a study to determine why our plant removal
            costs are in excess of other regulated Michigan natural gas
            utilities, and

      -     required us to file a study report with the MPSC Staff on or before
            December 31, 2005.

We filed the study report with the MPSC Staff on December 29, 2005.

We are also required to file our next gas depreciation case within 90 days after
the MPSC issuance of a final order in the pending case related to ARO
accounting. We cannot predict when the MPSC will issue a final order in the ARO
accounting case.

If the depreciation case order is issued after the gas general rate case order,
we proposed to incorporate its results into the gas general rates using a
surcharge mechanism.

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. As part of this filing,
we also requested interim rate relief of $75 million.

The MPSC Staff and intervenors filed interim rate relief testimony on October
31, 2005. In its testimony, the MPSC Staff recommended granting interim rate
relief of $38 million.

In February 2006, the MPSC Staff recommended granting final rate relief of $62
million. The MPSC Staff proposed that $17 million of this amount be contributed
to a low income energy efficiency fund. The MPSC Staff also recommended reducing
our return on common equity to 11.15 percent, from our current 11.4 percent.

In March 2006, the MPSC Staff revised its recommended final rate relief to $71
million. As of April 2006, the MPSC has not acted on our interim or final rate
relief requests.

In April 2006, we revised our request for final rate relief downward to $118
million.

                                     CMS-43
<PAGE>

                                                          CMS Energy Corporation

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, Tennessee and
Kansas. In February 2006, CMS MST and CMS Field Services reached an agreement to
settle a similar action that had been filed in New York. The $6.975 million
settlement, to be paid by CMS MST and for which CMS Energy established a reserve
in the fourth quarter of 2005, is subject to court approval. 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, the primary
construction contractor for the DIG facility (DFD), presented DIG with a change
order to their construction contract and filed an action in Michigan state court
against DIG, claiming contractual damages in the amount of $110 million, plus
interest and costs. DFD also filed a construction lien for the $110 million. DIG
is contesting both of the claims made by DFD. In addition to drawing down on
three letters of credit totaling $30 million that it obtained from DFD, DIG 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. The arbitration hearing began October 10,
2005 and is scheduled to continue through mid-2006. 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. Appeals were filed of the original verdict and a subsequent decision of
the court on remand. The court of appeals issued an opinion on May 26, 2005
remanding the case to the trial court for a new trial on damages. At a status
conference on April 10, 2006, the judge set a six-month discovery period and
instructed Terra to file a motion to compel arbitration under the arbitration
provision in the leases at issue. Terra believes there is no basis for such a
motion and has not filed it. No trial date has been set. Enterprises has an
indemnity obligation with regard to losses to Terra that might result from this
litigation.

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

                                     CMS-44
<PAGE>

                                                          CMS Energy Corporation

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. The arbitration hearing was held in July 2005 and a
decision from the arbitration panel is expected in the second quarter of 2006.

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

The ICSID Convention provides that either party may seek annulment of the award
based upon five possible grounds specified in the Convention. Argentina's
Application for Annulment was formally registered by ICSID on September 27, 2005
and will be considered by a newly constituted panel.

On December 28, 2005, certain insurance underwriters paid the sum of $75 million
to CMS Gas Transmission in respect of their insurance obligations resulting from
non-payment of the ICSID award. The payment, plus interest, is subject to
repayment by CMS Gas Transmission in the event that the ICSID award is annulled.
Pending the outcome of the annulment proceedings, CMS Energy recorded the $75
million payment as deferred revenue at December 31, 2005.

IRS RULING AND AUDIT: In August 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. Under the IRS guidance, significant issues
with respect to the application of this method remain unresolved and subject to
dispute. However, the effect of the IRS's position may be to require CMS Energy
either (1) to repay all or a portion of previously received tax benefits, or (2)
to add back to taxable income, half in each of 2005 and 2006, all or a portion
of previously deducted overheads. The IRS is currently auditing CMS Energy and
recently notified us that it intends to propose an adjustment to 2001 taxable
income disallowing our simplified service cost deduction. The impact of this
matter on future earnings, cash flows, or our present NOL carryforwards remains
uncertain, but could be material. CMS Energy cannot predict the outcome of this
matter.

                                     CMS-45
<PAGE>

                                                          CMS Energy Corporation

OTHER: 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.

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 following table describes our guarantees at March 31, 2006:

<TABLE>
<CAPTION>
                                                                                                           In Millions
                                                  --------------------------------------------------------------------
                                                      Issue            Expiration              Maximum        Carrying
Guarantee Description                                 Date                Date               Obligation        Amount
- ---------------------                             ------------         ----------            ----------       --------
<S>                                               <C>                  <C>                   <C>              <C>
Indemnifications from asset sales and
 other agreements (a)                             October 1995         Indefinite               $1,147          $  1
Standby letters of credit and loans (b)           Various              Various through             129             -
                                                                       May 2010
Surety bonds and other indemnifications           Various              Indefinite                   20             -
Other guarantees (c)                              Various              Various through             217             1
                                                                       September 2027
Nuclear insurance retrospective premiums
                                                  Various              Indefinite                  135             -
</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 claims resulting from tax disputes and the 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) Standby letters of credit include letters of credit issued under an amended
credit agreement with Citicorp USA, Inc. The amended credit agreement is
supported by a guaranty issued by certain subsidiaries of CMS Energy. At March
31, 2006, letters of credit issued on behalf of unconsolidated affiliates
totaling $67 million were outstanding.

(c) Maximum obligation includes $85 million related to MCV non-performance
under a steam and electric power agreement with Dow.

                                     CMS-46
<PAGE>

                                                          CMS Energy Corporation

The following table provides additional information regarding our guarantees:

<TABLE>
<CAPTION>
Guarantee Description                     How Guarantee Arose                     Events That Would Require 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
                                                                                  Nonperformance

                                          Natural gas transportation              Nonperformance
                                          Self-insurance requirement              Non-payment by CMS Energy and
Standby letters of credit and loans       Credit Agreement                        Enterprises of obligations under the
                                                                                  credit agreement

Surety bonds and other indemnifications   Normal operating activity, permits      Nonperformance
                                          and licenses

Other guarantees                          Normal operating activity               Nonperformance or non-payment by a
                                                                                  subsidiary under a related contract

                                                                                  MCV Partnership's nonperformance or
                                          Agreement to provide power and steam    non-payment under a related contract
                                          to Dow

                                          Bay Harbor remediation efforts          Partnership's nonperformance
                                                                                  Owners exercising put options
                                                                                  requiring us to purchase property

Nuclear insurance retrospective premiums  Normal operations of nuclear plants     Call by NEIL and Price-Anderson Act
                                                                                  for nuclear incident
</TABLE>

Project Financing: We enter into various project-financing security arrangements
such as equity pledge agreements and share mortgage agreements to provide
financial or performance assurance to third parties on behalf of certain
unconsolidated affiliates. Expiration dates for these agreements vary from March
2015 to June 2020 or terminate upon payment or cancellation of the obligation.
Non-payment or other act of default by an unconsolidated affiliate would trigger
enforcement of the security. If we were required to perform under these
agreements, the maximum amount of our obligation under these agreements would be
equal to the value of the shares relinquished to the guaranteed party at the
time of default.

At March 31, 2006, none of our guarantees contained provisions allowing us to
recover, from third parties, any amount paid under the guarantees. We enter into
agreements containing tax and other indemnification provisions in connection
with a variety of transactions. While we are unable to estimate the maximum
potential obligation related to these indemnities, we consider the likelihood
that we would be required to perform or incur significant losses related to
these indemnities and the guarantees listed in the preceding tables to be
remote.

                                     CMS-47
<PAGE>

                                                          CMS Energy Corporation

3: FINANCINGS AND CAPITALIZATION

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                    In Millions
                                                                        ---------------------------------------
                                                                        March 31, 2006        December 31, 2005
                                                                        --------------        -----------------
<S>                                                                     <C>                   <C>
CMS ENERGY CORPORATION
    Senior notes                                                          $    2,273              $    2,347
    Other long-term debt                                                           2                       2
                                                                          ----------              ----------
         Total - CMS Energy Corporation                                        2,275                   2,349
                                                                          ----------              ----------
CONSUMERS ENERGY COMPANY
    First mortgage bonds                                                       3,175                   3,175
    Senior notes and other                                                       853                     852
    Securitization bonds                                                         362                     369
                                                                          ----------              ----------
         Total - Consumers Energy Company                                      4,390                   4,396
                                                                          ----------              ----------
OTHER SUBSIDIARIES                                                               359                     363
                                                                          ----------              ----------

TOTAL PRINCIPAL AMOUNTS OUTSTANDING                                            7,024                   7,108
    Current amounts                                                             (292)                   (289)
    Net unamortized discount                                                     (18)                    (19)
                                                                          ----------              ----------
Total Long-term debt                                                      $    6,714              $    6,800
                                                                          ==========              ==========
</TABLE>

DEBT RETIREMENTS: The following is a summary of significant long-term debt
retirements during the three months ended March 31, 2006:

<TABLE>
<CAPTION>
                                             Principal      Interest
                                           (in millions)    Rate (%)        Retirement Date         Maturity Date
                                           -------------    ---------       ---------------         -------------
<S>                                        <C>              <C>             <C>                     <C>
CMS ENERGY
 Senior notes                                 $  74          9.875           January through        October 2007
                                                                               March 2006

CONSUMERS
 Long-term debt - related parties               129          9.000           February 2006            June 2031
                                              -----
         TOTAL                                $ 203
                                              =====
</TABLE>

REVOLVING CREDIT FACILITIES: The following secured revolving credit facilities
with banks are available at March 31, 2006:

<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         $    -          $    115         $     185
Consumers                       March 30, 2007           300              -                 -               300
Consumers                        May 18, 2010            500              -                36               464
MCV Partnership                August 26, 2006            50              -                 2                48
</TABLE>

In March 2006, Consumers entered into a short-term secured revolving credit
agreement with banks. This facility provides $300 million of funds for working
capital and other general corporate purposes.

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,

                                     CMS-48
<PAGE>

                                                          CMS Energy Corporation

dependent on the aggregate amounts of unrestricted cash and unused commitments
under the facility.

Under the provisions of its articles of incorporation, at March 31, 2006,
Consumers had $149 million of unrestricted retained earnings available to pay
common stock dividends. Covenants in Consumers' debt facilities cap common stock
dividend payments at $300 million in a calendar year. For the three months ended
March 31, 2006, we received $40 million of common stock dividends from
Consumers. Also, the provisions of the Federal Power Act and the Natural Gas Act
effectively restrict dividends to the amount of Consumers' retained earnings.

CAPITAL AND FINANCE LEASE OBLIGATIONS: Our capital leases are comprised mainly
of leased service vehicles, power purchase agreements and office furniture. At
March 31, 2006, capital lease obligations totaled $57 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 March 31, 2006, finance lease obligations totaled $279
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, Consumers currently sells 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 at March 31,
2006 and $325 million of receivables at December 31, 2005. Consumers continues
to service the receivables sold to the special purpose entity. The purchaser of
the receivables has no recourse against Consumers' other assets for failure of a
debtor to pay when due and no right to any receivables not sold. Consumers has
neither recorded a gain or loss on the receivables sold nor retained interest in
the receivables sold.

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

<TABLE>
<CAPTION>
                                                                                                 In Millions
                                                                                      ----------------------
Three months ended March 31                                                            2006           2005
- ---------------------------                                                           -------        -------
<S>                                                                                   <C>            <C>
Net cash flow as a result of accounts receivable financing                            $  (325)       $  (304)
Collections from customers                                                            $ 1,817        $ 1,592
</TABLE>

CONTINGENTLY CONVERTIBLE SECURITIES: In March 2006, the $11.87 per share trigger
price contingency was met for our $250 million 4.50 percent contingently
convertible preferred stock and the $12.81 per share trigger price contingency
was met for our $150 million 3.375 percent contingently convertible senior
notes. 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, satisfying the contingency. As a result, these securities are
convertible at the option of the security holders for the three months ending
June 30, 2006, with the principal or par amount payable in cash. Because the
3.375 percent contingently convertible senior notes are convertible, they hold
the characteristics of a current liability. Therefore, we classify them as
Current portion of long-term debt, where they will remain during the period that
they are outstanding and convertible. As of April 2006, none of the security
holders have notified us of their intention to convert these securities.

                                     CMS-49
<PAGE>

                                                          CMS Energy Corporation

4: EARNINGS PER SHARE

The following table presents the basic and diluted earnings per share
computations based on Income (Loss) from Continuing Operations:

<TABLE>
<CAPTION>
                                                         In Millions, Except Per Share Amounts
                                                         -------------------------------------
Three Months Ended March 31                                     2006            2005
- ---------------------------                                    -------         -------
<S>                                                      <C>                   <C>
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS
  Income (Loss) from Continuing Operations                     $   (25)        $   152
  Less Preferred Dividends                                          (3)             (2)
                                                               -------         -------
  Income (Loss) from Continuing Operations
         Available to Common Stockholders - Basic              $   (28)        $   150
  Add conversion of Convertible Debentures (net of tax)              -               2
                                                               -------         -------
  Income (Loss) from Continuing Operations
         Available to Common Stockholders - Diluted            $   (28)        $   152
                                                               =======         =======
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
    Weighted Average Shares - Basic                              219.1           195.3
    Add dilutive impact of Contingently
            Convertible Securities                                   -             6.1
    Add conversion of Convertible Debentures                         -             4.2
    Add dilutive Stock Options and Warrants                          -             0.7
                                                               -------         -------
    Weighted Average Shares - Diluted                            219.1           206.3
                                                               =======         =======
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
  AVAILABLE TO COMMON STOCKHOLDERS
        Basic                                                  $ (0.13)        $  0.77
        Diluted                                                $ (0.13)        $  0.74
                                                               =======         =======
</TABLE>

Contingently Convertible Securities: Due to accounting EPS dilution principles,
there was no impact to diluted EPS from our contingently convertible securities
for the three months ended March 31, 2006. Assuming positive income from
continuing operations, 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. Had there been positive
income from continuing operations for the three months ended March 31, 2006, our
contingently convertible securities would have contributed an additional 10.4
million shares to the calculation of diluted EPS. For additional details on our
contingently convertible securities, see Note 3, Financings and Capitalization.

Stock Options and Warrants: Due to accounting EPS dilution principles, there was
no impact to diluted EPS from stock options and warrants for the three months
ended March 31, 2006. Had there been positive income from continuing operations
for the three months ended March 31, 2006, stock options and warrants would have
contributed an additional 0.5 million shares to the calculation of diluted EPS.
Unvested restricted stock would have contributed an additional 0.9 million
shares to the calculation of diluted EPS. At March 31, 2006, the exercise price
was greater than the average market price of our common stock for 1.9 million
stock options. These stock options were excluded from the diluted EPS
calculation, but have the potential to dilute EPS in the future.

                                     CMS-50
<PAGE>

                                                          CMS Energy Corporation

Convertible Debentures: Due to accounting EPS dilution principles, for the three
months ended March 31, 2006, there was no impact to diluted EPS from our 7.75
percent convertible subordinated debentures. Using the if-converted method, the
debentures would have:

      -     increased the numerator of diluted EPS by $2 million from an assumed
            reduction of interest expense, net of tax, and

      -     increased the denominator of diluted EPS by 4.2 million shares.

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

5: 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
                                            -------------------------------------------------------------------------------
                                                        March 31, 2006                            December 31, 2005
                                            ------------------------------------       ------------------------------------
                                                           Fair       Unrealized                      Fair       Unrealized
                                             Cost          Value      Gain (Loss)       Cost          Value      Gain (Loss)
                                            ------        ------      -----------      ------        ------      -----------
<S>                                         <C>           <C>         <C>              <C>           <C>         <C>
Long-term debt,
    including current amounts               $7,006        $7,086        $  (80)        $7,089        $7,315        $ (226)
Long-term debt - related parties,
    including current amounts                  178           145            33            307           280            27
Available-for-sale securities:
SERP:
    Equity securities                           35            51            16             34            49            15
    Debt securities                             17            16            (1)            17            17             -
Nuclear decommissioning investments:
    Equity securities                          136           261           125            134           252           118
    Debt securities                            301           301             -            287           291             4
</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 may use various contracts to manage these
risks, including swaps, options, futures, and forward contracts. We enter into
these risk management contracts 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.

Our intention is that any increases or decreases in the value of these contracts
will be offset by an opposite change in the value of the item at risk. We
classify these contracts as either non-trading or trading.

                                     CMS-51
<PAGE>

                                                          CMS Energy Corporation

The contracts we use to manage market risks may qualify as derivative
instruments that are subject to derivative and hedge accounting under SFAS No.
133. If a contract is a derivative, it is recorded on the balance sheet at its
fair value. We then adjust the resulting asset or liability each quarter to
reflect any change in the market value of the contract, a practice known as
marking the contract to market. If a derivative qualifies for cash flow hedge
accounting treatment, the changes in fair value (gains or losses) are reported
in accumulated other comprehensive income; otherwise, the changes are reported
in earnings.

For a derivative instrument to qualify for hedge accounting:

      -     the relationship between the derivative instrument and the item
            being hedged must be formally documented at inception,

      -     the derivative instrument must be highly effective in offsetting the
            hedged item's cash flows or changes in fair value, and

      -     if hedging a forecasted transaction, the forecasted transaction must
            be probable.

If a derivative qualifies for cash flow hedge accounting treatment and gains or
losses are recorded in accumulated other comprehensive income, those gains or
losses will be reclassified into earnings in the same period or periods the
hedged forecasted transaction affects earnings. If a cash flow hedge is
terminated early because it is determined that the forecasted transaction will
not occur, any gain or loss recorded in accumulated other comprehensive income
at that date is recognized immediately in earnings. If a cash flow hedge is
terminated early for other economic reasons, any gain or loss as of the
termination date is deferred and then reclassified to earnings when the
forecasted transaction affects earnings. The ineffective portion, if any, of all
hedges is recognized in earnings.

To determine the fair value of our derivatives, we use information from external
sources (i.e., quoted market prices and third-party valuations), if available.
For certain contracts, this information is not available and we use mathematical
valuation models to value our derivatives. These models require various inputs
and assumptions, including commodity market prices and volatilities, as well as
interest rates and contract maturity dates. The cash returns we actually realize
on these contracts may vary, either positively or negatively, from the results
that we estimate using these models. As part of valuing our derivatives at
market, we maintain reserves, if necessary, for credit risks arising from the
financial condition of counterparties.

The majority of our commodity purchase and sale contracts are not subject to
derivative accounting under SFAS No. 133 because:

      -     they do not have a notional amount (that is, a number of units
            specified in a derivative instrument, such as MW of electricity or
            bcf of natural gas),

      -     they qualify for the normal purchases and sales exception, or

      -     there is not an active market for the commodity.

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

                                     CMS-52
<PAGE>

                                                          CMS Energy Corporation

In 2005, the MISO began operating the Midwest Energy Market. As a result, the
MISO now centrally dispatches electricity and transmission service throughout
much of the Midwest and provides day-ahead and real-time energy market
information. At this time, we believe that the establishment of this market does
not represent the development of an active energy market in Michigan, as defined
by SFAS No. 133. However, as the Midwest Energy Market matures, we will continue
to monitor its activity level and evaluate whether or not an active energy
market may exist in Michigan.

Derivative accounting is required for certain contracts used to limit our
exposure to interest rate risk, commodity price risk, and foreign exchange risk.
The following table summarizes our derivative instruments:

<TABLE>
<CAPTION>
                                                                                                                       In Millions
                                                    ------------------------------------------------------------------------------
                                                              March 31, 2006                             December 31, 2005
                                                    ------------------------------------      ------------------------------------
                                                                  Fair       Unrealized                     Fair       Unrealized
Derivative Instruments                              Cost          Value      Gain (Loss)      Cost          Value      Gain (Loss)
- ----------------------                              -----         -----      -----------      -----         -----      ----------
<S>                                                 <C>           <C>        <C>              <C>           <C>        <C>
Non-trading:
  Gas supply option contracts                       $   -         $   -      $      -         $   1         $  (1)        $  (2)
  FTRs                                                  -             -             -             -             1             1
Derivative contracts associated with the MCV
  Partnership:
  Long-term gas contracts (a)                           -            93            93             -           205           205
  Gas futures, options, and swaps (a)                   -           144           144             -           223           223
CMS ERM contracts:
  Non-trading electric / gas contracts                  -           (62)          (62)            -           (63)          (63)
  Trading electric / gas contracts (b)                 (2)           62            64            (3)          100           103
Derivative contracts associated with equity
  investments in:
  Shuweihat                                             -           (16)          (16)            -           (20)          (20)
  Taweelah                                            (35)          (12)           23           (35)          (17)           18
  Jorf Lasfar                                           -            (7)           (7)            -            (8)           (8)
  Other                                                 -             2             2             -             1             1
</TABLE>

(a) The fair value of the MCV Partnership's long-term gas contracts and gas
futures, options, and swaps has decreased significantly from December 31, 2005
due to a decrease in natural gas prices since that time.

(b) The fair value of CMS ERM's trading electric and gas contracts has decreased
significantly from December 31, 2005 due to decreases in prices for natural gas
and electricity since that time.

We record the fair value of our gas supply option contracts, FTRs, and the
derivative contracts associated with the MCV Partnership in Derivative
instruments, Other assets, or Other liabilities on our Consolidated Balance
Sheets. We include the fair value of the derivative contracts held by CMS ERM 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 SUPPLY OPTION 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. As part of the GCR process, the mark-

                                     CMS-53
<PAGE>

                                                          CMS Energy Corporation

to-market gains and losses associated with these options are reported directly
in earnings as part of Other income, and then immediately reversed out of
earnings and recorded on the balance sheet as a regulatory asset or liability.

FTRs: With the establishment of the Midwest Energy Market, FTRs were
established. FTRs are financial instruments that manage price risk related to
electricity transmission congestion. An FTR entitles its holder to receive
compensation (or, conversely, to remit payment) for congestion-related
transmission charges. FTRs are marked-to-market each quarter, with changes in
fair value reported to earnings as part of Other income.

DERIVATIVE CONTRACTS ASSOCIATED WITH THE MCV PARTNERSHIP: Long-term gas
contracts: The MCV Partnership uses long-term gas contracts to purchase and
manage the cost of the natural gas it needs to generate electricity and steam.
The MCV Partnership believes that certain of these contracts qualify as normal
purchases under SFAS No. 133. Accordingly, we have not recognized these
contracts at fair value on our Consolidated Balance Sheets at March 31, 2006.

The MCV Partnership also holds certain long-term gas contracts that do not
qualify as normal purchases because these contracts contain volume optionality.
In addition, as a result of implementing the RCP in 2005, a significant portion
of long-term gas contracts no longer qualify as normal purchases, because the
gas will not be used to generate electricity or steam. Accordingly, all of these
contracts are accounted for as derivatives, with changes in fair value recorded
in earnings each quarter. For the three months ended March 31, 2006, we recorded
a $111 million loss, before considering tax effects and minority interest,
associated with the decrease in fair value of these long-term gas contracts.
This loss is included in the total Fuel costs mark-to-market at MCV on our
Consolidated Statements of Income (Loss). Because of the volatility of the
natural gas market, the MCV Partnership expects future earnings volatility on
these contracts, since gains and losses will be recorded each quarter.

We have recorded derivative assets totaling $93 million associated with the fair
value of long-term gas contracts on our Consolidated Balance Sheets at March 31,
2006. We expect almost all of these assets, which represent cumulative net
mark-to-market gains, to reverse as losses through earnings during 2006 and 2007
as the gas is purchased, with the remainder reversing between 2008 and 2011. As
the MCV Partnership recognizes future losses from the reversal of these
derivative assets, we will continue to assume a portion of the limited partners'
share of those losses, in addition to our proportionate share.

For further details on the RCP, see Note 2, Contingencies, "Other Consumers'
Electric Utility Contingencies - The Midland Cogeneration Venture."

Gas Futures, Options, and Swaps: The MCV Partnership enters into natural gas
futures, options, and over-the-counter swap transactions in order to hedge
against unfavorable changes in the market price of natural gas. The MCV
Partnership uses these financial instruments to:

      -     ensure an adequate supply of natural gas for the projected
            generation and sales of electricity and steam, and

      -     manage price risk by fixing the price to be paid for natural gas on
            some of its long-term gas contracts.

At March 31, 2006, the MCV Partnership held natural gas futures, options, and
swaps. We have recorded derivative assets totaling $144 million associated with
the fair value of these contracts on our Consolidated Balance Sheets at March
31, 2006. Certain of these contracts qualify for cash flow hedge accounting and
we record our proportionate share of their mark-to-market gains and losses in

                                     CMS-54
<PAGE>

                                                          CMS Energy Corporation

Accumulated other comprehensive loss. The remaining contracts are not cash flow
hedges and their mark-to-market gains and losses are recorded to earnings.

Those contracts that qualify as cash flow hedges represent $137 million of the
total $144 million of futures, options, and swaps held. We have recorded a
cumulative net gain of $44 million, net of tax and minority interest, in
Accumulated other comprehensive loss at March 31, 2006, representing our
proportionate share of the cash flow hedges held by the MCV Partnership. Of this
balance, we expect to reclassify $16 million, net of tax and minority interest,
as an increase to earnings during the next 12 months as the contracts settle,
offsetting the costs of gas purchases, with the remainder to be realized through
2009. There was no ineffectiveness associated with any of these cash flow
hedges.

The remaining futures, options, and swap contracts, representing $7 million of
the total $144 million, do not qualify as cash flow hedges. Prior to the
implementation of the RCP, the futures and swap contracts were accounted for as
cash flow hedges. Since the RCP was implemented in 2005, these instruments no
longer qualify for cash flow hedge accounting and we record any changes in their
fair value in earnings each quarter. For the three months ended March 31, 2006,
we recorded a $45 million loss, before considering tax effects and minority
interest, associated with the decrease in fair value of these instruments. This
loss is included in the total Fuel costs mark-to-market at MCV on our
Consolidated Statements of Income (Loss). Because of the volatility of the
natural gas market, the MCV Partnership expects future earnings volatility on
these contracts, since gains and losses will be recorded each quarter. We expect
almost all of these futures, options, and swap contracts to be realized during
2006 as the contracts settle, with the remainder to be realized during 2007. For
further details on the RCP, see Note 2, Contingencies, "Other Consumers'
Electric Utility Contingencies - The Midland Cogeneration Venture."

CMS ERM CONTRACTS: CMS ERM enters into and owns energy contracts as a part of
activities considered to be an integral part of CMS Energy's ongoing operations.
CMS ERM holds certain contracts for the future purchase and sale of natural gas
that will result in physical delivery of the commodity at contractual prices.
These forward 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 commodity price risks associated with its
forward purchase and sale contracts and with generation assets owned by CMS
Energy or its subsidiaries. These financial contracts are classified as trading
activities.

In accordance with SFAS No. 133, non-trading and trading contracts that qualify
as derivatives are recorded at fair value on our Consolidated Balance Sheets.
The resulting assets and liabilities are marked to market each quarter, and
changes in fair value are recorded in earnings as a component of Operating
Revenue. For trading contracts, these gains and losses 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 (that is, on an accrual
basis).

DERIVATIVE CONTRACTS ASSOCIATED WITH EQUITY INVESTMENTS: At March 31, 2006, some
of our equity method investees held:

      -     interest rate contracts that hedged the risk associated with
            variable-rate debt, and

      -     foreign exchange contracts that hedged the foreign currency risk
            associated with payments to be made under operating and maintenance
            service agreements.

We record our proportionate share of the change in fair value of these contracts
in Accumulated other comprehensive loss if the contracts qualify for cash flow
hedge accounting; otherwise, we record our

                                     CMS-55
<PAGE>

                                                          CMS Energy Corporation

share in Earnings from Equity Method Investees.

FOREIGN EXCHANGE DERIVATIVES: At times, we use forward exchange and option
contracts to hedge the equity value relating to investments in foreign
operations. These contracts limit the risk from currency exchange rate movements
because gains and losses on such contracts offset losses and gains,
respectively, on the hedged investments. At March 31, 2006, we had no
outstanding foreign exchange contracts. However, the impact of previous 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 hedged investments. At March 31, 2006, our total foreign
currency translation adjustment was a net loss of $308 million, which included a
net hedging loss of $26 million, net of tax, related to settled contracts.

CREDIT RISK: Our swaps, options, and forward contracts contain credit risk,
which is the risk that counterparties will fail to perform their contractual
obligations. We reduce this risk through established credit policies. For each
counterparty, we assess credit quality by using credit ratings, financial
condition, and other available information. We then establish a credit limit for
each counterparty based upon our evaluation of credit quality. We monitor the
degree to which we are exposed to potential loss under each contract and take
remedial action, if necessary.

CMS ERM and the MCV Partnership enter into contracts primarily with companies in
the electric and gas industry. This industry concentration may have an impact on
our exposure to credit risk, either positively or negatively, based on how these
counterparties are affected by similar changes in economic, weather, or other
conditions. CMS ERM and the MCV Partnership typically use industry-standard
agreements that allow for netting positive and negative exposures associated
with the same counterparty, thereby reducing exposure. These contracts also
typically provide for the parties to demand adequate assurance of future
performance when there are reasonable grounds for doing so.

The following table illustrates our exposure to potential losses at March 31,
2006, if each counterparty within this industry concentration failed to perform
its contractual obligations. This table includes contracts accounted for as
financial instruments. It does not include trade accounts receivable, derivative
contracts that qualify for the normal purchases and sales exception under SFAS
No. 133, or other contracts that are not accounted for as derivatives.

<TABLE>
<CAPTION>
                                                                                                      In Millions
                               ----------------------------------------------------------------------------------
                                                                              Net Exposure         Net Exposure
                                  Exposure                                   from Investment      from Investment
                                   Before       Collateral       Net              Grade                Grade
                               Collateral (a)    Held (b)      Exposure         Companies          Companies (%)
                               --------------   ----------     --------      ---------------      ---------------
<S>                            <C>              <C>            <C>           <C>                  <C>
CMS ERM                             $ 88            $  -         $ 88            $ 18 (c)               20
MCV Partnership                      224             104          120             102 (d)               85
</TABLE>

(a) Exposure is reflected net of payables or derivative liabilities if netting
arrangements exist.

(b) Collateral held includes cash and letters of credit received from
counterparties.

(c) The majority of the remaining balance of CMS ERM's net exposure was from a
counterparty whose credit rating fell below investment grade after December 31,
2005.

(d) Approximately half of the remaining balance of the MCV Partnership's net
exposure was from

                                     CMS-56
<PAGE>

                                                          CMS Energy Corporation

independent natural gas producers/suppliers that do not have published credit
ratings.

Based on our credit policies, our current exposures, and our credit reserves, we
do not expect a material adverse effect on our financial position or future
earnings as a result of counterparty nonperformance.

6: 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 between July
            1, 2003 and August 31, 2005,

      -     a DCCP for employees hired on or after September 1, 2005,

      -     benefits to certain management employees under SERP,

      -     a defined contribution 401(k) Savings Plan,

      -     benefits to a select group of management under the EISP, and

      -     health care and life insurance benefits under OPEB.

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

Effective January 11, 2006, the MPSC electric rate order authorized Consumers to
include $33 million of electric pension expense in its electric rates. Due to
the volatility of these particular costs, the order also established a pension
equalization mechanism to track actual costs. If actual pension expenses are
greater than the $33 million included in electric rates, the difference will be
recognized as a regulatory asset for future recovery from customers. If actual
pension expenses are less than the $33 million included in electric rates, the
difference will be recognized as a regulatory liability, and refunded to our
customers. The difference between pension expense allowed in our electric rates
and pension expense under SFAS No. 87 resulted in a $3 million net reduction in
pension expense and establishment of a corresponding regulatory asset for the
three months ending March 31, 2006.

Effective January 11, 2006, the MPSC electric rate order authorized Consumers to
include $28 million of electric OPEB expense in its electric rates. Due to the
volatility of these particular costs, the order also established an OPEB
equalization mechanism to track actual costs. If actual OPEB expenses are
greater than the $28 million included in electric rates, the difference will be
recognized as a regulatory asset for future recovery from our customers. If
actual OPEB expenses are less than the $28 million included in electric rates,
the difference will be recognized as a regulatory liability, and refunded to our
customers. The difference between OPEB expense allowed in our electric rates and
OPEB expense under SFAS No. 106 resulted in less than $1 million net reduction
in OPEB expense and establishment of a corresponding regulatory asset for the
three months ending March 31, 2006.

                                     CMS-57
<PAGE>

                                                          CMS Energy Corporation

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

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                     ---------------------------------------------------
                                                            Pension                        OPEB
                                                     ---------------------         ---------------------
Three Months Ended March 31                           2006           2005           2006           2005
- ---------------------------                          ------         ------         ------         ------
<S>                                                  <C>            <C>            <C>            <C>
Service cost                                         $   12         $   10         $    6         $    6
Interest expense                                         21             19             16             16
Expected return on plan assets                          (22)           (25)           (14)           (14)
Amortization of:
  Net loss                                               11              7              5              4
  Prior service cost                                      2              1             (3)            (2)
                                                     ------         ------         ------         ------
Net periodic cost                                        24             12             10             10
Regulatory adjustment                                    (3)             -              -              -
                                                     ------         ------         ------         ------
Net periodic cost after regulatory adjustment        $   21         $   12         $   10         $   10
                                                     ======         ======         ======         ======
</TABLE>

SERP: On April 1, 2006, we implemented a Defined Contribution Supplemental
Executive Retirement Plan (DC SERP) and froze further new participation in the
defined benefit SERP. The DC SERP plan provides promoted and newly hired
participants benefits ranging from five to 15 percent of total compensation. The
DC SERP plan requires a minimum of five years of participation before vesting;
our contributions to the plan, if any, will be placed in a grantor trust.

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 three
months ended March 31, 2006 and 2005 was less than $1 million.

7: 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.

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 $25 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 or associated obligations related to potential future
abandonment. Also, no liability has been recorded for assets that have
insignificant cumulative disposal costs, such as substation batteries. The
measurement of the ARO

                                     CMS-58
<PAGE>

                                                          CMS Energy Corporation

liabilities for Palisades and Big Rock are based on decommissioning studies that
largely utilize third-party cost estimates.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarified 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. We determined that
abatement of asbestos included in our plant investments qualify as a conditional
ARO, as defined by FASB Interpretation No. 47.

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

<TABLE>
<CAPTION>
March 31, 2006                                                                                                   In Millions
- ----------------------------------------------------------------------------------------------------------------------------
                                                       In Service                                                      Trust
ARO Description                                          Date         Long Lived Assets                                 Fund
- ---------------                                        ----------     -----------------                                -----
<S>                                                    <C>            <C>                                              <C>
Palisades-decommission plant site                      1972           Palisades nuclear plant                           $554
Big Rock-decommission plant site                       1962           Big Rock nuclear plant                              22
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                 -
Asbestos abatement                                     1973           Electric and gas utility plant                       -
Natural gas-fired power plant                          1997           Gas fueled power plant                               -
Close gas treating plant and gas wells                 Various        Gas transmission and storage                         -
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                  In Millions
                                             --------------------------------------------------------------------------------
                                                ARO                                                                    ARO
                                             Liability                                                Cash flow     Liability
ARO Description                              12/31/05      Incurred       Settled      Accretion      Revisions      3/31/06
- ---------------                              ---------     --------       -------      ---------      ---------     ---------
<S>                                          <C>           <C>            <C>          <C>            <C>           <C>
Palisades-decommission                        $  375       $     -        $    -         $    6           $ -        $  381
Big Rock-decommission                             27             -            (4)             1             -            24
JHCampbell intake line                             -             -             -              -             -             -
Coal ash disposal areas                           54             -             -              1             -            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             1             -             -              1             -             2
Asbestos abatement                                36             -            (2)             -             -            34
                                              ------       -------        ------         ------           ---        ------
  Total                                       $  496       $     -        $   (6)        $    9           $ -        $  499
                                              ======       =======        ======         ======           ===        ======
</TABLE>

In October 2004, the MPSC initiated a generic proceeding to review SFAS No. 143,
FERC Order No. 631, Accounting, Financial Reporting, and Rate Filing
Requirements for Asset Retirement Obligations, and related accounting and
ratemaking issues for MPSC-jurisdictional electric and gas utilities. On
December 5, 2005, the ALJ issued a proposal for decision recommending that the
MPSC dismiss the proceeding. In March 2006, the MPSC remanded the case to the
ALJ for findings and recommendations. We consider the proceeding a clarification
of accounting and reporting issues that relate to all Michigan utilities. We
cannot predict the outcome of the proceeding.

                                     CMS-59
<PAGE>

                                                          CMS Energy Corporation

8: EXECUTIVE INCENTIVE COMPENSATION

We provide a Performance Incentive Stock Plan (the Plan) to key employees and
non-employee directors based on their contributions to the successful management
of the company. The Plan has a five-year term, expiring in May 2009.

All grants awarded under the Plan for the three months ended March 31, 2006 and
in 2005 were in the form of restricted stock. Restricted stock awards are
outstanding shares to which the recipient has full voting and dividend rights
and vest 100 percent after three years of continued employment. Restricted stock
awards granted to officers in 2005 and 2004 are also subject to the achievement
of specified levels of total shareholder return, including a comparison to a
peer group of companies. All restricted stock awards are subject to forfeiture
if employment terminates before vesting. However, restricted shares may continue
to vest upon retirement or disability and vest fully if control of CMS Energy
changes, as defined by the Plan.

The Plan also allows for the following types of awards:

      -     stock options,

      -     stock appreciation rights,

      -     phantom shares, and

      -     performance units.

For the three months ended March 31, 2006 and in 2005, we did not grant any of
these types of awards.

Select participants may elect to receive all or a portion of their incentive
payments under the Officer's Incentive Compensation Plan in the form of cash,
shares of restricted common stock, shares of restricted stock units, or any
combination of these. These participants may also receive awards of additional
restricted common stock or restricted stock units, provided the total value of
these additional grants does not exceed $2.5 million for any fiscal year.

Shares awarded or subject to stock options, phantom shares, and performance
units may not exceed 6 million shares from June 2004 through May 2009, nor may
such awards to any participant exceed 250,000 shares in any fiscal year. We may
issue awards of up to 4,943,630 shares of common stock under the Plan at March
31, 2006. Shares for which payment or exercise is in cash, as well as shares or
stock options that are forfeited, may be awarded or granted again under the
Plan.

SFAS NO. 123(R) AND SAB NO. 107, SHARE-BASED PAYMENT: SFAS No. 123(R) was
effective for us on January 1, 2006. SFAS No. 123(R) 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 value over the required service
period of the awards. As a result, future compensation costs for share-based
awards with accelerated service provisions upon retirement will need to be fully
expensed by the period in which the employee becomes eligible to retire. At
January 1, 2006, unrecognized compensation cost for such share-based awards held
by retirement-eligible employees was not material.

We elected to adopt the modified prospective method recognition provisions of
this Statement instead of retrospective restatement. The modified prospective
method applies the recognition provisions to all awards granted or modified
after the adoption date of this Statement. We adopted the fair value method of
accounting for share-based awards effective December 2002. Therefore, SFAS No.
123(R)

                                     CMS-60
<PAGE>

                                                          CMS Energy Corporation

did not have a significant impact on our results of operations when it became
effective.

The SEC issued SAB No. 107 to express the views of the staff regarding the
interaction between SFAS No. 123(R) and certain SEC rules and regulations. Also,
the SEC issued SAB No. 107 to provide the staff's views regarding the valuation
of share-based payments, including assumptions such as expected volatility and
expected term. We applied the additional guidance provided by SAB No. 107 upon
implementation of SFAS No. 123(R) with no impact on our consolidated results of
operations.

The following table summarizes restricted stock activity under the Plan:

<TABLE>
<CAPTION>
                                                          Weighted-
                                                        Average Grant
                                                          Date Fair
Restricted Stock                   Number of Shares         Value
- ----------------                   ----------------     -------------
<S>                                <C>                  <C>
Nonvested at December 31, 2005         1,682,056         $    10.64
  Granted                                  5,500         $    13.21
  Vested (a)                                   -                  -
  Forfeited                              (30,000)        $    10.09
                                       ---------         ----------

Nonvested at March 31, 2006            1,657,556         $    10.66
                                       =========         ==========
</TABLE>

(a) No shares vested during the three months ended March 31, 2006 and 2005.

We calculate the fair value of restricted shares granted based on the price of
our common stock on the grant date and expense the fair value over the required
service period. Total compensation cost recognized in income related to
restricted stock was $1 million for the three months ended March 31, 2006 and
2005. The total related income tax benefit recognized in income was less than $1
million for the three months ended March 31, 2006 and 2005. At March 31, 2006,
there was $11 million of total unrecognized compensation cost related to
restricted stock. We expect to recognize this cost over a weighted-average
period of 2.1 years.

The following table summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
                                                                                          Weighted-
                                                  Options             Weighted-            Average        Aggregate
                                                Outstanding,           Average            Remaining       Intrinsic
                                                Fully Vested,         Exercise           Contractual        Value
Stock Options                                  and Exercisable          Price               Term         (In Millions)
- -------------                                  ---------------        ---------          -----------     -------------
<S>                                            <C>                    <C>                <C>             <C>
Outstanding at December 31, 2005                  3,541,338           $  21.21            5.4 years         $ (24)
  Granted                                                 -                  -
  Exercised                                         (43,000)          $   6.84
  Cancelled or Expired                             (342,640)          $  30.90
                                                  ---------           --------            ---------         -----
Outstanding at March 31, 2006                     3,155,698           $  20.35            5.4 years         $ (23)
                                                  =========           ========            =========         =====
</TABLE>

Stock options give the holder the right to purchase common stock at a price
equal to the fair value of our common stock on the grant date. Stock options are
exercisable upon grant, and expire up to

                                     CMS-61
<PAGE>
\
                                                          CMS Energy Corporation

10 years and one month from the grant date. We issue new shares when
participants exercise stock options. For the three months ended March 31, 2006,
the total intrinsic value of stock options exercised was less than $1 million.
Cash received from exercise of these stock options was less than $1 million.
Since we utilized tax loss carryforwards, we were not able to realize the excess
tax benefits upon exercise of stock options. Therefore, we did not recognize the
related excess tax benefits in equity. No stock options were exercised for the
three months ended March 31, 2005.

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 $15 million for the
three months ended March 31, 2006 and $2 million for the three months ended
March 31, 2005. The most significant of these investments is our 50 percent
interest in Jorf Lasfar.

Summarized financial information for Jorf Lasfar is as follows:

Income Statement Data

<TABLE>
<CAPTION>
                                                                                                       In Millions
Three Months Ended March 31, 2006                                                                      Jorf Lasfar
- ---------------------------------                                                                      -----------
<S>                                                                                                    <C>
Operating revenue                                                                                         $ 118
Operating expenses                                                                                           78
                                                                                                          -----
Operating income                                                                                             40
Other expense, net                                                                                           15
                                                                                                          -----
Net income                                                                                                $  25
                                                                                                          =====
</TABLE>

<TABLE>
<CAPTION>
Three Months Ended March 31, 2005                                                                      Jorf Lasfar
- ---------------------------------                                                                      -----------
<S>                                                                                                    <C>
Operating revenue                                                                                         $ 130
Operating expenses                                                                                           83
                                                                                                          -----
Operating income                                                                                             47
Other expense, net                                                                                           14
                                                                                                          -----
Net income                                                                                                $  33
                                                                                                          =====
</TABLE>

                                     CMS-62
<PAGE>

                                                          CMS Energy Corporation

10: REPORTABLE SEGMENTS

Our reportable segments consist of business units organized and managed by their
products and services. We evaluate performance based upon the net income of each
segment. We operate principally in three reportable segments: electric utility,
gas utility, and enterprises.

The "Other" segment includes corporate interest and other and discontinued
operations. The following tables show our financial information by reportable
segment:

<TABLE>
<CAPTION>
                                                                      In Millions
                                                          -----------------------
Three Months Ended March 31                                2006            2005
- ---------------------------                               -------         -------
<S>                                                       <C>             <C>
Operating Revenues
  Electric utility                                        $   729         $   628
  Gas utility                                               1,041             992
  Enterprises                                                 262             225
                                                          -------         -------
                                                          $ 2,032         $ 1,845
                                                          =======         =======
Net Income (Loss) Available to Common Stockholders
  Electric utility                                        $    29         $    33
  Gas utility                                                  37              58
  Enterprises                                                 (49)            105
  Other                                                       (44)            (46)
                                                          -------         -------
                                                          $   (27)        $   150
                                                          =======         =======
</TABLE>

<TABLE>
<CAPTION>
                                                      March 31, 2006 December 31, 2005
                                                      -------------- -----------------
<S>                                                   <C>            <C>
Total Assets
  Electric utility (a)                                    $ 7,864        $ 7,743
  Gas utility (a)                                           3,193          3,600
  Enterprises                                               3,651          4,130
  Other                                                       842            547
                                                          -------        -------
                                                          $15,550        $16,020
                                                          =======        =======
</TABLE>

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

                                     CMS-63
<PAGE>

                                                          CMS Energy Corporation

                      (This page intentionally left blank)

                                     CMS-64

<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, 2005.

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 and 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 distribution,
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,

      -     energy commodity prices,

      -     interest rates, and

      -     our debt credit rating.

During the past two years, our business strategy has involved improving our
balance sheet and maintaining focus on our core strength: utility operations
and service.

We are focused on growing the equity base of our company and have been
refinancing our debt to reduce interest rate costs. In 2006, we received $200
million of cash contributions from CMS Energy and we extinguished, through a
legal defeasance, $129 million of 9 percent related party notes.

Working capital and cash flow continue to be a challenge for us. Natural gas
prices continue to be volatile and much higher than in recent years. Although
our natural gas purchases are recoverable from our utility customers, higher
priced natural gas stored as inventory requires additional liquidity due to the
lag in cost recovery.

In addition to causing working capital issues for us, historically high natural
gas prices caused the MCV Partnership to reevaluate the economics of operating
the MCV Facility and to record an impairment charge in 2005. While we have fully
impaired our ownership interest in the MCV Partnership, continued high gas
prices could result in an impairment of our ownership interest in the FMLP.

Due to the impairment of the MCV Facility and operating losses from
mark-to-market adjustments on derivative instruments, the equity held by
Consumers and the minority interest owners in the MCV

                                      CE-1
<PAGE>

                                                        Consumers Energy Company

Partnership has decreased significantly and is now negative. As the MCV
Partnership recognizes future losses, we will assume an additional 7 percent of
the MCV Partnership's negative equity, which is a portion of the limited
partners' negative equity, in addition to our proportionate share. Since
projected future gas prices continue to threaten the viability of the MCV
Facility, we are evaluating various alternatives in order to develop a new
long-term strategy with respect to the MCV Facility. The MCV Partnership is
working aggressively to reduce costs, improve operations, and enhance cash
flows.

Going forward, our strategy will continue to focus on:

      -     managing cash flow issues,

      -     maintaining and growing earnings, and

      -     investing in our utility system to enable us to meet our customer
            commitments, comply with increasing environmental performance
            standards, and maintain adequate supply and capacity.

As we execute our strategy, we will need to overcome a sluggish Michigan economy
that has been further hampered by recent negative developments in Michigan's
automotive industry and limited growth in the non-automotive sectors of our
economy.

These negative effects will be offset somewhat by the reduction we are
experiencing in ROA load in our service territory. At March 31, 2006,
alternative electric suppliers were providing 348 MW of generation service to
ROA customers. This is 4 percent of our total distribution load and represents a
decrease of 61 percent compared to March 31, 2005. It is, however, difficult to
predict future ROA customer trends.

FORWARD-LOOKING STATEMENTS AND INFORMATION

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,
            including 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,

                                      CE-2
<PAGE>

                                                        Consumers Energy Company

      -     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 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,

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

                  -     adequate and timely recovery of higher MISO energy
                        costs, and

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

      -     the impact of adverse natural gas prices on the MCV Partnership and
            FMLP investments, the impact of losses at FMLP, regulatory
            decisions that limit recovery of capacity and fixed energy payments,
            and our ability to develop a new long-term strategy with respect to
            the MCV Facility,

      -     if successful in exercising the regulatory out clause of the MCV
            PPA, the negative impact on the MCV Partnership's financial
            performance, as well as a triggering of the MCV Partnership's
            ability to terminate the MCV PPA, and the effects on our ability to
            purchase capacity to serve our customers and recover the cost of
            these purchases,

      -     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 availability of capacity and 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,

      -     our ability to collect accounts receivable from our gas customers
            due to high natural gas prices,

      -     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,

      -     the effect on our electric utility of the direct and indirect
            impacts of the continued economic downturn experienced by our
            automotive and automotive parts manufacturing customers,

      -     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,

                                      CE-3
<PAGE>

                                                        Consumers Energy Company

      -     achievement of capital expenditure and operating expense goals,

      -     changes in financial or regulatory accounting principles or
            policies,

      -     changes in tax laws or new IRS interpretations of existing tax laws,

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

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

      -     other business or investment considerations that may be disclosed
            from time to time in 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 the
"Outlook" section included in this MD&A, Note 2, Contingencies, and Part II,
Item 1A. Risk Factors.

RESULTS OF OPERATIONS

NET INCOME AVAILABLE TO COMMON STOCKHOLDER

<TABLE>
<CAPTION>
                                                                           In Millions
                                                     ---------------------------------
Three months ended March 31                           2006         2005         Change
- ---------------------------                          -----         -----        ------
<S>                                                  <C>           <C>          <C>
    Electric                                         $  29         $  33        $  (4)
    Gas                                                 37            58          (21)
    Other (Includes MCV Partnership interest)          (56)           66         (122)
                                                     -----         -----        -----

Net income available to common stockholder           $  10         $ 157        $(147)
                                                     =====         =====        =====
</TABLE>

For the three months ended March 31, 2006, net income available to our common
stockholder was $10 million, compared to $157 million for the three months ended
March 31, 2005. The decrease reflects mark-to-market losses in 2006 on certain
long-term gas contracts and associated financial hedges at the MCV Partnership
compared to mark-to-market gains in 2005. The decrease also reflects a reduction
in net income from our gas utility due to lower, weather-driven sales, and
higher operating and maintenance costs at our electric utility. Partially
offsetting these losses are higher electric utility revenues primarily due to an
electric rate increase authorized in December 2005.

                                      CE-4
<PAGE>

                                                        Consumers Energy Company

Specific changes to net income available to our common stockholder for 2006
versus 2005 are:

<TABLE>
<CAPTION>
                                                                                                      In Millions
                                                                                                      -----------
<S>                                                                                                   <C>
- -     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 financial hedges,             $  (125)

- -     increase in operating expenses primarily due to higher depreciation and amortization
      expense, higher electric maintenance expense, and higher customer service expense,                    (44)

- -     decrease in gas delivery revenue primarily due to warmer weather,                                     (20)

- -     decrease in return on electric utility capital expenditures in excess of depreciation base
      as allowed by the Customer Choice Act,                                                                 (8)

- -     increase in electric delivery revenue primarily due to the MPSC's December 2005
      electric rate order,                                                                                   38

- -     increase in earnings due to the expiration of rate caps that, in 2005, would not allow us
      to fully recover our power supply costs from our residential customers, and                             6

- -     increase in other income and interest charges.                                                          6
                                                                                                        -------
Total Change                                                                                            $  (147)
                                                                                                        =======
</TABLE>

ELECTRIC UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                          In Millions
                                                                                           --------------------------
March 31                                                                                   2006      2005      Change
- --------                                                                                   ----      ----      ------
<S>                                                                                        <C>       <C>       <C>
Three months ended                                                                          $29       $33      $   (4)

Reasons for the change:

Electric deliveries                                                                                            $   59
Power supply costs and related revenue                                                                              9
Other operating expenses, other income and non-commodity revenue                                                  (59)
Regulatory return on capital expenditures                                                                         (13)
Interest charges                                                                                                    1
Income taxes                                                                                                       (1)
                                                                                                               ------

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

ELECTRIC DELIVERIES: Electric deliveries decreased 0.1 billion kWh or 1.6
percent in the first quarter of 2006 versus 2005 primarily due to warmer
weather. Despite lower electric deliveries, electric delivery revenue increased
primarily due to an electric rate order, increased surcharge revenue, and the
return to full-service rates of customers previously using an alternative energy
supplier.

In December 2005, the MPSC issued an order authorizing an annual rate increase
of $86 million for service rendered on and after January 11, 2006. As a result
of this order, electric delivery revenues increased $20 million in the first
quarter of 2006 versus 2005.

Effective January 1, 2006, we started collecting a surcharge that the MPSC
authorized under Section 10d(4) of the Customer Choice Act. This surcharge
increased electric delivery revenue by $11 million in the first quarter of 2006
versus 2005. In addition, on January 1, 2006, we began recovering customer

                                      CE-5
<PAGE>

                                                        Consumers Energy Company

choice transition costs from our residential customers, thereby increasing
electric delivery revenue by another $3 million in 2006 versus 2005.

The Customer Choice Act allows all of our electric customers to buy electric
generation service from us or from an alternative electric supplier. At March
31, 2006, alternative electric suppliers were providing 348 MW of generation
service to ROA customers. This amount represents a decrease of 61 percent
compared to March 31, 2005. The return of former ROA customers to full-service
rates increased electric revenues $13 million in the first quarter of 2006
versus 2005.

POWER SUPPLY COSTS AND RELATED REVENUE: In 2005, power supply costs exceeded
power supply revenue due to rate caps for our residential customers. Our
inability to recover fully these power supply costs resulted in a $9 million
reduction to electric pretax income. Rate caps for our residential customers
expired on December 31, 2005. The absence of rate caps allows us to record power
supply revenue to offset fully our power supply costs in 2006.

OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: In the first
quarter of 2006, other operating expenses increased $62 million, other income
increased $5 million, and non-commodity revenue decreased $2 million versus
2005.

The increase in other operating expenses reflects higher operating and
maintenance expense, customer service expense, depreciation and amortization
expense, and pension and benefit expense. Operating and maintenance expense
increased primarily due to costs related to a planned refueling outage at our
Palisades nuclear plant, and higher overhead line maintenance and $7 million of
storm restoration costs. Higher customer service expense reflects contributions,
which started in January 2006 pursuant to a December 2005 MPSC order, to a fund
that provides energy assistance to low-income customers. Depreciation and
amortization expense increased due to higher plant in service and greater
amortization of certain regulatory assets. Pension and benefit expense reflects
changes in actuarial assumptions and the latest collective bargaining agreement
between the Utility Workers Union of America and Consumers.

The increase in other income is primarily due to the absence, in 2006, of
expenses recorded in 2005 associated with the early retirement of debt. The
decrease in non-commodity revenue is primarily due to lower revenue from
services provided to METC in 2006 versus 2005.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The $13 million decrease is due to
lower income associated with recording a return on capital expenditures in
excess of our depreciation base as allowed by the Customer Choice Act. In
December 2005, the MPSC issued an order that authorized us to recover $333
million of Section 10d(4) costs. The order authorized recovery of a lower level
of costs versus the level used to record 2005 income.

INTEREST CHARGES: In the first quarter of 2006 versus 2005, interest charges
decreased due to lower average debt levels and a 13 basis point reduction in the
average interest rate.

INCOME TAXES: In the first quarter of 2006, income taxes increased versus 2005
primarily due to the adjustment of certain deferred tax balances.

                                      CE-6
<PAGE>

                                                        Consumers Energy Company

GAS UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                    In Millions
                                                                                      -------------------------
March 31                                                                              2006      2005    Change
- --------                                                                              ----      ----    ------
<S>                                                                                   <C>       <C>     <C>
Three months ended                                                                     $37       $58    $   (21)

Reasons for the change:
Gas deliveries                                                                                          $   (31)
Gas wholesale and retail services, other gas revenue and other income                                         5
Operation and maintenance                                                                                    (3)
Depreciation and other deductions                                                                            (3)
Income taxes                                                                                                 11
                                                                                                        -------
Total change                                                                                            $   (21)
                                                                                                        =======
</TABLE>

GAS DELIVERIES: In the first quarter of 2006 versus 2005, gas deliveries,
including miscellaneous transportation to end-use customers, decreased 21.9 bcf
or 15.1 percent. The decrease in gas deliveries is primarily due to warmer
weather in the first quarter of 2006 versus 2005 and increased conservation
efforts in response to higher gas prices. Average temperatures in the first
quarter of 2006 were 16.7 percent warmer than the same period last year.

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUE AND OTHER INCOME: In the
first quarter of 2006 versus 2005, the $5 million increase is related primarily
to increased gas wholesale and retail services revenue.

OPERATION AND MAINTENANCE: In the first quarter of 2006, operation and
maintenance expenses increased versus 2005 primarily due to higher pension and
benefit expense and customer service expense. Pension and benefit expense
reflects changes in actuarial assumptions and the latest collective bargaining
agreement between the Utility Workers Union of America and Consumers. Customer
service expense increased primarily due to higher uncollectible accounts
expense.

DEPRECIATION AND OTHER DEDUCTIONS: In the first quarter of 2006, depreciation
expense increased versus 2005 primarily due to higher plant in service.

INCOME TAXES: In the first quarter of 2006, income taxes decreased versus 2005
primarily due to lower earnings by the gas utility.

OTHER RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                 In Millions
                                                                              ------------------------------
March 31                                                                      2006         2005      Change
- --------                                                                      ----         ----      -------
<S>                                                                           <C>          <C>       <C>
Three months ended                                                            $(56)        $ 66      $ (122)
</TABLE>

In the first quarter of 2006, other operations net loss was $56 million, a
decrease of $122 million versus 2005. The change is primarily due to a $125
million decrease in earnings from our ownership interest in

                                      CE-7
<PAGE>

                                                        Consumers Energy Company

the MCV Partnership, primarily due to mark-to-market losses in 2006 on certain
long-term gas contracts and associated financial hedges at the MCV Partnership,
compared to mark-to-market gains on these contracts in 2005.

CRITICAL ACCOUNTING POLICIES

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

USE OF ESTIMATES AND ASSUMPTIONS

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

CONTINGENCIES: We are involved in various regulatory and legal proceedings that
arise in the ordinary course of our business. We record a liability for
contingencies based upon our assessment that a 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. Significant contingencies 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. For additional details on accounting for financial
instruments, see Note 4, Financial and Derivative Instruments.

DERIVATIVE INSTRUMENTS: We use the criteria in SFAS No. 133 to determine if
certain contracts must be accounted for as derivative instruments. Except as
noted within this section, there have been no material changes to the accounting
for derivative instruments since the year ended December 31, 2005. For
additional details on accounting for derivatives, see Note 4, Financial and
Derivative Instruments.

To determine the fair value of our derivatives, we use information from external
sources (i.e., quoted market prices and third-party valuations), if available.
For certain contracts, this information is not available and we use mathematical
valuation models to value our derivatives. These models require various inputs
and assumptions, including commodity market prices and volatilities, as well as
interest rates and contract maturity dates. Changes in forward prices or
volatilities could significantly change the calculated fair value of our
derivative contracts. The cash returns we actually realize on these contracts
may vary, either positively or negatively, from the results that we estimate
using these models. As part of valuing our derivatives at market, we maintain
reserves, if necessary, for credit risks arising from the financial condition of
counterparties.

                                      CE-8
<PAGE>

                                                        Consumers Energy Company

The following table summarizes the interest rate and volatility rate assumptions
we used to value these contracts at March 31, 2006:

<TABLE>
<CAPTION>
                                                              Interest Rates (%)     Volatility Rates (%)
                                                              ------------------     --------------------
<S>                                                           <C>                    <C>
Long-term gas contracts associated with the MCV
     Partnership                                                  4.83 - 5.34              28 - 50
</TABLE>

Establishment of the Midwest Energy Market: In 2005, the MISO began operating
the Midwest Energy Market. As a result, the MISO now centrally dispatches
electricity and transmission service throughout much of the Midwest and provides
day-ahead and real-time energy market information. At this time, we believe that
the establishment of this market does not represent the development of an active
energy market in Michigan, as defined by SFAS No. 133. However, as the Midwest
Energy Market matures, we will continue to monitor its activity level and
evaluate whether or not an active energy market may exist in Michigan. If an
active market develops in the future, some 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 of SFAS No. 133 to these
contracts and, therefore, will not be required to mark these contracts to
market.

Implementation of the RCP: As a result of implementing the RCP in 2005, a
significant portion of the MCV Partnership's long-term gas contracts no longer
qualify as normal purchases because the gas will not be used to generate
electricity or steam. Accordingly, these contracts are accounted for as
derivatives, with changes in fair value recorded in earnings each quarter.
Additionally, certain of the MCV Partnership's natural gas futures and swap
contracts, which are used to hedge variable-priced long-term gas contracts, no
longer qualify for cash flow hedge accounting and we record any changes in their
fair value in earnings each quarter. As a result of recording the changes in
fair value of these long-term gas contracts and the related futures and swaps to
earnings, the MCV Partnership has recognized a $156 million loss for the three
months ended March 31, 2006. This loss is before consideration of tax effects
and minority interest and is included in the total Fuel costs mark-to-market at
MCV on our Consolidated Statements of Income. Because of the volatility of the
natural gas market, the MCV Partnership expects future earnings volatility on
both its long-term gas contracts and its futures, options, and swap contracts,
since gains and losses will be recorded each quarter.

We have recorded derivative assets totaling $100 million associated with the
fair value of these contracts on our Consolidated Balance Sheets at March 31,
2006. We expect almost all of these assets, which represent cumulative net
mark-to-market gains, to reverse as losses through earnings during 2006 and 2007
as the gas is purchased and the futures, options, and swaps settle, with the
remainder reversing between 2008 and 2011. Due to the impairment of the MCV
Facility and subsequent losses, the value of the equity held by all of the
owners of the MCV Partnership has decreased significantly and is now negative.
Since we are one of the general partners of the MCV Partnership, we have
recognized a portion of the limited partners' negative equity. As the MCV
Partnership recognizes future losses from the reversal of these derivative
assets, we will continue to assume a portion of the limited partners' share of
those losses, in addition to our proportionate share.

MARKET RISK INFORMATION: The following is an update of our risk sensitivities
since December 31, 2005. These sensitivities indicate the potential loss in fair
value, cash flows, or future earnings from our financial instruments, including
our derivative contracts, assuming a hypothetical adverse change in market rates
or prices of 10 percent. Changes in excess of the amounts shown in the
sensitivity analyses could occur if changes in market rates or prices exceed the
10 percent shift used for the analyses.

                                      CE-9
<PAGE>

                                                        Consumers Energy Company

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

<TABLE>
<CAPTION>
                                                                                                          In Millions
                                                                              ---------------------------------------
                                                                              March 31, 2006        December 31, 2005
                                                                              --------------        -----------------
<S>                                                                           <C>                   <C>
Variable-rate financing - before tax annual earnings exposure                      $   1                  $   3
Fixed-rate financing - potential REDUCTION in fair value (a)                         148                    149
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                                          In Millions
                                                                               --------------------------------------
                                                                               March 31, 2006       December 31, 2005
                                                                               --------------       -----------------
<S>                                                                            <C>                  <C>
Potential REDUCTION in fair value:
 Gas supply option contracts                                                         $  -                   $  1
 Derivative contracts associated with the MCV Partnership:
  Long-term gas contracts                                                              26                     39
  Gas futures, options, and swaps                                                      41                     48
</TABLE>

Investment Securities Price Risk Sensitivity Analysis (assuming an adverse
change in market prices of 10 percent):

<TABLE>
<CAPTION>
                                                                                                           In Millions
                                                                               ---------------------------------------
                                                                               March 31, 2006        December 31, 2005
                                                                               --------------        -----------------
<S>                                                                            <C>                   <C>
Potential REDUCTION in fair value of available-for-sale equity securities
(SERP investments and investments in CMS Energy common stock)                       $ 5                      $ 6
</TABLE>

We maintain trust funds, as required by the NRC, for the purpose of funding
certain costs of nuclear plant decommissioning. At March 31, 2006 and December
31, 2005, these funds were invested primarily in equity securities, fixed-rate,
fixed-income debt securities, and cash and cash equivalents, and are recorded at
fair value on our Consolidated Balance Sheets. These 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 our consolidated earnings or cash flows.

For additional details on market risk and derivative activities, see Note 4,
Financial and Derivative Instruments.

OTHER

Other accounting policies 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 pension and OPEB,

      -     accounting for asset retirement obligations,

                                     CE-10
<PAGE>

                                                        Consumers Energy Company

      -     accounting for nuclear decommissioning costs, and

      -     accounting for related party transactions.

These accounting policies were disclosed in our 2005 Form 10-K and there have
been no material changes.

CAPITAL RESOURCES AND LIQUIDITY

Factors affecting our liquidity and capital requirements are:

      -     results of operations,

      -     capital expenditures,

      -     energy commodity costs,

      -     contractual obligations,

      -     regulatory decisions,

      -     debt maturities,

      -     credit ratings,

      -     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. Although our prudent natural gas
purchases are recoverable from our customers, the amount paid for natural gas
stored as inventory requires additional liquidity due to the timing of the cost
recoveries. We have credit agreements with our commodity suppliers and those
agreements contain terms that have resulted in margin calls. Additional margin
calls or other credit support may be required if agency ratings are lowered or
if market conditions remain unfavorable relative to our obligations to those
parties.

Our current financial plan includes controlling operating expenses and capital
expenditures and evaluating market conditions for financing opportunities. Due
to the adverse impact of the MCV Partnership asset impairment charge recorded in
2005, our ability to issue FMB as primary obligations or as collateral for
financing is expected to be limited to $298 million through September 30, 2006.
After September 30, 2006, our ability to issue FMB in excess of $298 million is
based on achieving a two-times FMB interest coverage ratio.

We believe the following items will be sufficient to meet our liquidity needs:

      -     our current level of cash and revolving credit facilities,

      -     our ability to access junior secured and unsecured borrowing
            capacity in the capital markets, and

      -     our anticipated cash flows from operating and investing activities.

CASH POSITION, INVESTING, AND FINANCING

Our operating, investing, and financing activities meet consolidated cash needs.
At March 31, 2006, $508 million consolidated cash was on hand, which includes
$55 million of restricted cash and $234 million from entities consolidated
pursuant to FASB Interpretation No. 46(R).

                                     CE-11
<PAGE>

                                                        Consumers Energy Company

SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS:

<TABLE>
<CAPTION>
                                                                         In Millions
                                                               ---------------------
Three Months Ended March 31                                     2006           2005
- ---------------------------                                    ------         ------
<S>                                                            <C>            <C>
Net cash provided by (used in):
   Operating activities                                        $   75         $  321
   Investing activities                                           (29)          (152)
                                                               ------         ------
Net cash provided by operating and investing activities            46            169
   Financing activities                                            (9)           178
                                                               ------         ------
Net Increase in Cash and Cash Equivalents                      $   37         $  347
                                                               ======         ======
</TABLE>

OPERATING ACTIVITIES: For the three months ended March 31, 2006, net cash
provided by operating activities was $75 million, a decrease of $246 million
versus 2005. This decrease was due to the timing of payments for higher priced
gas used during the heating season and an income tax payment partially related
to an IRS ruling regarding the "simplified service cost" method of tax
accounting.

INVESTING ACTIVITIES: For the three months ended March 31, 2006, net cash used
in investing activities was $29 million, a decrease of $123 million versus 2005.
This decrease was due to the release of restricted cash in February 2006, which
we used to extinguish long-term debt - related parties.

FINANCING ACTIVITIES: For the three months ended March 31, 2006, net cash used
in financing activities was $9 million, an increase of $187 million versus 2005.
This increase was primarily due to the absence of refinancing activity and the
extinguishment of the current portion of long-term debt - related parties. This
increase was offset by a decrease in payments of common stock dividends of $78
million.

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

OBLIGATIONS AND COMMITMENTS

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

OFF-BALANCE SHEET ARRANGEMENTS: We enter into various arrangements in the normal
course of business to facilitate commercial transactions with third parties.
These arrangements include indemnifications, letters of credit and surety bonds.
For details on guarantee arrangements, see Note 2, Contingencies, "Other
Contingencies -FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others."

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

SALE OF ACCOUNTS RECEIVABLE: For details on the sale of accounts receivable, see
Note 3, Financings and Capitalization.

                                     CE-12
<PAGE>

                                                        Consumers Energy Company

OUTLOOK

ELECTRIC BUSINESS OUTLOOK

GROWTH: Summer 2005 temperatures were higher than historical averages, leading
to increased demand from electric customers. In 2006, we project electric
deliveries will decline less than one percent from 2005 levels. This short-term
outlook assumes a stabilizing economy and normal weather conditions throughout
the remainder of the year.

Over the next five years, we expect electric deliveries to grow at an average
rate of about one and one-half percent per year. However, such growth is
dependent on a modestly growing customer base and a stabilizing Michigan
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 firm 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.

ELECTRIC RESERVE MARGIN: We are planning for a reserve margin of approximately
11 percent for summer 2006, or supply resources equal to 111 percent of
projected firm summer peak load. Of the 2006 supply resources target of 111
percent, we expect to meet approximately 97 percent from our electric generating
plants and long-term power purchase contracts, and approximately 14 percent from
other contractual arrangements. Through a combination of owned capacity and
purchases, we have supply resources in place to cover approximately 110 percent
of the projected firm summer peak load for 2006. We have purchased capacity and
energy contracts covering partially the estimated reserve margin requirements
for 2007 through 2010. As a result, we have recognized an asset of $72 million
for unexpired capacity and energy contracts at March 31, 2006.

ELECTRIC TRANSMISSION EXPENSES: The METC, which provides electric transmission
service to us, increased substantially the transmission rates it charges us in
2006. The increased rates are subject to refund and to reduction based on the
outcome of hearings at the FERC scheduled for September 2006. We are attempting
to recover these costs through our 2006 PSCR plan case. In December 2005, the
MPSC issued an order that temporarily excluded a portion of the increased costs
from our 2006 PSCR charge. In April 2006, the MPSC Staff filed briefs in the
2006 PSCR case recommending that the MPSC approve recovery of all filed costs,
including those temporarily excluded in the December 2005 order. The PSCR
process allows recovery of all reasonable and prudent power supply costs.
However, we cannot predict when full recovery of these transmission costs will
commence. To the extent that we incur and are unable to collect these increased
costs in a timely manner, our cash flows from electric utility operations will
be affected negatively. For additional details, see Note 2, Contingencies,
"Electric Rate Matters - Power Supply Costs."

INDUSTRIAL REVENUE OUTLOOK: Our electric utility customer base includes a mix of
residential, commercial, and diversified industrial customers, the largest
segment of which is the automotive industry. In November 2005, General Motors
Corporation, a large industrial customer of Consumers, announced plans to reduce
certain manufacturing operations in Michigan. However, since the targeted
operations are outside of our service territory, we do not anticipate a
significant impact on electric utility revenue. In March 2006, Delphi
Corporation, also a large industrial customer of Consumers, announced plans to
sell or close all but one of their manufacturing operations in Michigan as part
of their bankruptcy restructuring. Our electric utility operations are not
dependent upon a single customer, or even a few customers, and customers in the
automotive sector constitute 4 percent of our total electric revenue. In
addition, returning industrial customers will benefit our electric utility
revenue. However, we cannot predict the impact of these restructuring plans or
possible future actions by other industrial customers.

                                     CE-13
<PAGE>

                                                        Consumers Energy Company

THE ELECTRIC CAPACITY NEED FORUM: In January 2006, the MPSC Staff issued a
report on future electric capacity in the state of Michigan. The report
indicated that existing generation resources are adequate in the short term, but
could be insufficient to maintain reliability standards by 2009. The report also
indicated that new coal-fired baseload generation may be needed by 2011. The
MPSC Staff recommended an approval and bid process for new power plants. To
address revenue stability risks, the Staff also recommended a special
reliability charge a utility would assess on all electric distribution
customers. In April 2006, the governor of Michigan issued an executive directive
calling for the development of a comprehensive energy plan for the state of
Michigan. The directive calls for the Chairman of the MPSC, working in
cooperation with representatives from the public and private sectors, to make
recommendations on Michigan's energy policy by the end of 2006. We will continue
to participate as the MPSC addresses future electric capacity needs.

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 $819 million. As of March 2006, we incurred $616 million
in capital expenditures to comply with the federal Clean Air Act and resulting
regulations and anticipate that the remaining $203 million of capital
expenditures will be made in 2006 through 2011. In addition to modifying
coal-fired electric generating plants, our compliance plan includes the use of
nitrogen oxide emission allowances until all of the control equipment is
operational in 2011. The nitrogen oxide emission allowance annual expense is
projected to be $6 million per year, which we expect to recover from our
customers through the PSCR process. The allowances and their costs are accounted
for as inventory. The allowance inventory is expensed at the rolling average
cost as the coal-fired electric generating plants emit nitrogen oxide.

In March 2005, the EPA adopted the Clean Air Interstate Rule that requires
additional coal-fired electric generating plant emission controls for nitrogen
oxides and sulfur dioxide. The rule involves a two-phase program to reduce
emissions of nitrogen oxides by 63 percent and sulfur dioxide by 71 percent from
2003 levels by 2015. We plan to meet this rule by year round operations of our
selective catalytic control technology units to meet nitrogen oxide targets and
installation of flue gas desulfurization scrubbers at an estimated cost of $960
million.

Also in March 2005, the EPA issued the Clean Air Mercury Rule, which requires
initial reductions of mercury emissions from coal-fired electric generating
plants by 2010 and further reductions by 2018. The Clean Air Mercury Rule
establishes a cap-and-trade system for mercury emissions that is similar to the
system used in the Clean Air Interstate Rule. The industry has not reached a
consensus on the technical methods for curtailing mercury emissions. However, we
anticipate our capital and operating costs for mercury emissions reductions
required by the Clean Air Mercury Rule to be significantly less than what was
required for selective catalytic reduction technology used for nitrogen oxide
compliance.

                                     CE-14
<PAGE>

                                                        Consumers Energy Company

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan adopts the Federal Clean
Air Mercury Rule through its first phase, which ends in 2010. After the year
2010, the mercury emissions reduction standards outlined in the governor's plan
become more stringent than those included in the Federal Clean Air Mercury Rule.
If implemented as proposed, we anticipate the costs to comply with the
governor's plan will exceed Federal Clean Air Mercury Rule compliance costs. We
will work with the MDEQ on the details of these rules.

Several legislative proposals have been introduced in the United States
Congress that would require reductions in emissions of greenhouse gases. We
cannot predict whether any federal mandatory greenhouse gas emission reduction
rules ultimately will be enacted, or the specific requirements of any of these
rules and their effect on our operations and financial results.

To the extent that greenhouse gas emission reduction rules come into effect,
the 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
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 electric generating plant
cooling water intake systems. The 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 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. At March 31, 2006, alternative electric suppliers
were providing 348 MW of generation service to ROA customers. This is 4 percent
of our total distribution load and represents a decrease of 61 percent compared
to March 31, 2005. It is difficult to predict future ROA customer trends.

Section 10d(4) Regulatory Assets: In December 2005, the MPSC issued an order
that authorized us to recover $333 million in Section 10d(4) costs. Instead of
collecting these costs evenly over five years, the order instructed us to
collect 10 percent of the regulatory asset total in the first year, 15 percent
in the second year, and 25 percent in the third, fourth, and fifth years. In
January 2006, we filed a petition for rehearing with the MPSC that disputed the
aspect of the order dealing with the timing of our collection of these costs. In
April 2006, the MPSC issued an order that denied our petition for rehearing.

Through and Out Rates: In December 2004, we began paying a transitional charge
pursuant to a FERC order eliminating regional "through and out" rates. Although
the transitional charge ended in March 2006, there are hearings scheduled for
May 2006 at the FERC to discuss these charges. These hearings could result in
refunds or additional transitional charges to us. In April 2006, we filed an
agreement with the FERC between the PJM RTO transmission owners and Consumers
concerning these transitional charges. If approved by the FERC, the agreement
would resolve all issues regarding transitional charges for Consumers and
eliminate the potential for refunds or additional transitional charges to
Consumers. We cannot predict the outcome of this matter.

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."

                                     CE-15
<PAGE>

                                                        Consumers Energy Company

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.

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 and throughout 2005. In 2005, the MCV Partnership reevaluated the
economics of operating the MCV Facility and recorded an impairment charge. If
natural gas prices remain at present levels or increase, the operations of the
MCV Facility would be adversely affected and could result in the MCV Partnership
failing to meet its obligations under the sale and leaseback transactions and
other contracts. We are evaluating various alternatives in order to develop a
new long-term strategy with respect to the MCV Facility.

Further, the cost that we incur under the MCV PPA exceeds the recovery amount
allowed by the MPSC. As a result, we estimate cash underrecoveries of capacity
and fixed energy payments of $55 million in 2006 and $39 million in 2007.
However, Consumers' direct savings from the RCP, after allocating a portion to
customers, are used to offset a portion of our capacity and fixed energy
underrecoveries expense. 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 the MCV Partnership's financial performance, 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. If we are successful in exercising the regulatory out
clause, the MCV Partnership has the right to terminate the MCV PPA. The MPSC's
future actions on the capacity and fixed energy payments recoverable from
customers subsequent to September 15, 2007 may affect negatively the financial
performance of the MCV Partnership. If the MCV Partnership terminates the MCV
PPA, we would be required to replace the lost capacity to maintain an adequate
electric reserve margin. This could involve entering into a new PPA and / or
entering into electric capacity contracts on the open market. We cannot predict
our ability to enter into such contracts at a reasonable price. We are also
unable to predict regulatory approval of the terms and conditions of such
contracts, or that the MPSC would allow full recovery of our incurred costs.

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

NUCLEAR MATTERS: Big Rock: Decommissioning of the site is nearing completion.
Demolition of the last remaining plant structure, the containment building, and
removal of remaining underground utilities and temporary office structures is
expected to be completed by the summer of 2006. Final radiological surveys will
then be completed to ensure that the site meets all requirements for free,
unrestricted release in accordance with the NRC approved License Termination
Plan (LTP) for the project. We anticipate NRC approval to return approximately
475 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
another area of approximately 105 acres encompassing the Big Rock Independent
Spent Fuel Storage Installation (ISFSI), where eight

                                     CE-16
<PAGE>

                                                        Consumers Energy Company

casks loaded with spent fuel and other high-level radioactive material are
stored, to be returned to a natural state within approximately two years from
the date the DOE finishes removing the spent fuel from Big Rock also in
accordance with the LTP.

Palisades: 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 March
2006, we have loaded 29 dry casks with spent nuclear fuel.

Palisades' current license from the NRC expires in 2011. In March 2005, the NMC,
which operates the Palisades plant, applied for a 20-year license renewal for
the plant on behalf of Consumers. We expect a decision from the NRC on the
license renewal application in 2007.

In December 2005, we announced plans to sell the Palisades nuclear plant and
enter into a long-term power purchase agreement with the new owner. Subject to
review of the terms that are realized through a bidding process, we believe a
sale is the best option for our company, as it will reduce risk and improve cash
flow while retaining the benefits of the plant for customers. The Palisades sale
will use a competitive bid process, providing interested companies certain
options to bid on the plant, as well as the related decommissioning liabilities
and trust funds assets, and spent nuclear fuel at Palisades and Big Rock. Any
sale will be subject to various approvals, including regulatory approvals of a
long-term contract for us to purchase power from the plant, and various other
contingencies. We expect to complete the sale in 2007.

For additional details on nuclear plant decommissioning at Big Rock and
Palisades, see Note 2, Contingencies, "Other Electric Contingencies - Nuclear
Plant Decommissioning."

GAS BUSINESS OUTLOOK

GROWTH: In 2006, we project gas deliveries will decline by four percent, on a
weather-adjusted basis, from 2005 levels due to increased conservation and
overall economic conditions in the State of Michigan. Over the next five years,
we expect gas deliveries to be relatively flat. Actual gas deliveries in future
periods may be affected by:

      -     fluctuations in weather patterns,

      -     use by independent power producers,

      -     competition in sales and delivery,

      -     changes in gas commodity prices,

      -     Michigan economic conditions,

      -     the price of competing energy sources or fuels, and

      -     gas consumption per customer.

GAS BUSINESS UNCERTAINTIES

Several gas business trends or uncertainties may affect our future financial
results and financial condition. 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 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,

                                     CE-17
<PAGE>

                                                        Consumers Energy Company

policies, and practices for prudency in annual plan and reconciliation
proceedings. For additional details on gas cost recovery, see Note 2,
Contingencies, "Gas Rate Matters - Gas Cost Recovery."

2001 GAS DEPRECIATION 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,

      -     required us to undertake a study to determine why our plant removal
            costs are in excess of other regulated Michigan natural gas
            utilities, and

      -     required us to file a study report with the MPSC Staff on or before
            December 31, 2005.

We filed the study report with the MPSC Staff on December 29, 2005.

We are also required to file our next gas depreciation case within 90 days after
the MPSC issuance of a final order in the pending case related to ARO
accounting. We cannot predict when the MPSC will issue a final order in the ARO
accounting case.

If the depreciation case order is issued after the gas general rate case order,
we proposed to incorporate its results into the gas general rates using a
surcharge mechanism.

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. As part of this filing,
we also requested interim rate relief of $75 million.

The MPSC Staff and intervenors filed interim rate relief testimony on October
31, 2005. In its testimony, the MPSC Staff recommended granting interim rate
relief of $38 million.

In February 2006, the MPSC Staff recommended granting final rate relief of $62
million. The MPSC Staff proposed that $17 million of this amount be contributed
to a low income energy efficiency fund. The MPSC Staff also recommended
reducing our return on common equity to 11.15 percent, from our current 11.4
percent.

In March 2006, the MPSC Staff revised its recommended final rate relief to $71
million. As of April 2006, the MPSC has not acted on our interim or final rate
relief requests.

In April 2006, we revised our request for final rate relief downward to $118
million.

OTHER OUTLOOK

MCV PARTNERSHIP NEGATIVE EQUITY: Due to the impairment of the MCV Facility and
operating losses from mark-to-market adjustments on derivative instruments, the
value of the equity held by Consumers and by all of the owners of the MCV
Partnership has decreased significantly and is now negative. Since Consumers is
one of the general partners of the MCV Partnership, we have recognized a portion
of the limited partners' negative equity. As the MCV Partnership recognizes
future losses, we will continue to assume a portion of the limited partners'
share of those losses, in addition to our proportionate share.

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 this investigation and litigation, see Note 2,
Contingencies.

PENSION REFORM: Both branches of Congress passed legislation aimed at reforming
pension plans. The U.S. Senate passed The Pension Security and Transparency Act
in November 2005 and The House of Representatives passed the Pension Protection
Act of 2005 in December 2005. At the core of both bills are changes in the
calculation of pension plan funding requirements effective for plan years
beginning in 2007, with interest rate relief extended until then, and an
increase in premiums paid to the Pension Benefit

                                     CE-18
<PAGE>

                                                        Consumers Energy Company

Guaranty Corporation (PBGC). The latter was addressed through the broader budget
reconciliation bill, which raises the PBGC flat-rate premiums from $19 to $30
per participant per year beginning in 2006. Although the Senate and House bills
are similar, they do contain a number of technical differences, including
differences in the time period allowed for interest rate and asset smoothing,
the interest rate used to calculate lump sum payments, and the criteria used to
determine whether a plan is "at-risk," which requires higher contribution
levels. The Senate and the House plan to work out the differences between the
two bills in a joint conference. The timing, however, of a final pension reform
bill is unknown.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS NO. 123(R) AND SAB NO. 107, SHARE-BASED PAYMENT: SFAS No. 123(R) requires
companies to use the fair value of employee stock options and similar awards at
the grant date to value the awards. SFAS No. 123(R) was effective for us on
January 1, 2006. We elected to adopt the modified prospective method recognition
provisions of this Statement instead of retrospective restatement. We adopted
the fair value method of accounting for share-based awards effective December
2002. Therefore, SFAS No. 123(R) did not have a significant impact on our
results of operations when it became effective. We applied the additional
guidance provided by SAB No. 107 upon implementation of SFAS No. 123(R). For
additional details, see Note 7, Executive Incentive Compensation.

PROPOSED ACCOUNTING STANDARD

On March 31, 2006, the FASB released an Exposure Draft of a proposed SFAS
entitled "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans."  The proposed SFAS would amend SFAS Nos. 87, 88, 106, and
132(R) and is expected to be effective for us on December 31, 2006. The most
significant requirement stated in the proposed SFAS is the balance sheet
recognition of the underfunded portion of our defined benefit postretirement
plans at the date of adoption. We expect that we will be allowed to apply SFAS
No. 71 and recognize the underfunded portion as a regulatory asset. If we
determine that SFAS No. 71 does not apply, our equity could be reduced
significantly. We are in the process of determining the impact of this proposed
SFAS on our financial statements.

                                     CE-19

<PAGE>

                            CONSUMERS ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              In Millions
                                                                   Three Months Ended
                                                                -------------------------
March 31                                                          2006             2005
- --------                                                        --------         --------
<S>                                                             <C>              <C>
OPERATING REVENUE                                               $  1,782         $  1,632

OPERATING EXPENSES
 Fuel for electric generation                                        172              154
 Fuel costs mark-to-market at MCV                                    156             (209)
 Purchased and interchange power                                     110               64
 Purchased power - related parties                                    18               17
 Cost of gas sold                                                    816              740
 Other operating expenses                                            215              188
 Maintenance                                                          71               52
 Depreciation, depletion, and amortization                           152              145
 General taxes                                                        65               65
                                                                --------         --------
                                                                   1,775            1,216
                                                                --------         --------

OPERATING INCOME                                                       7              416

OTHER INCOME (DEDUCTIONS)
 Interest and dividends                                               10                5
 Regulatory return on capital expenditures                             3               16
 Other income                                                          4                4
 Other expense                                                        (3)              (6)
                                                                --------         --------
                                                                      14               19
                                                                --------         --------
INTEREST CHARGES
 Interest on long-term debt                                           72               72
 Interest on long-term debt - related parties                          1                7
 Other interest                                                        3                2
 Capitalized interest                                                 (2)              (1)
                                                                --------         --------
                                                                      74               80
                                                                --------         --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS             (53)             355

MINORITY INTERESTS (OBLIGATIONS), NET                                (72)             111
                                                                --------         --------

INCOME BEFORE INCOME TAXES                                            19              244

INCOME TAX EXPENSE                                                     9               87
                                                                --------         --------

NET INCOME AVAILABLE TO COMMON STOCKHOLDER                      $     10         $    157
                                                                ========         ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      CE-20
<PAGE>

                            CONSUMERS ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              In Millions
                                                                                     Three Months Ended
                                                                                    ---------------------
March 31                                                                             2006           2005
- --------                                                                            ------         ------
<S>                                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                         $   10         $  157
    Adjustments to reconcile net income to net cash
      provided by operating activities
        Depreciation, depletion, and amortization (includes nuclear
          decommissioning of $1 per year)                                              152            145
        Deferred income taxes and investment tax credit                                (51)            63
        Fuel costs mark-to-market at MCV                                               156           (209)
        Minority interests (obligations), net                                          (72)           111
        Regulatory return on capital expenditures                                       (3)           (16)
        Capital lease and other amortization                                             9              8
        Changes in assets and liabilities:
            Increase in accounts receivable and accrued revenue                       (238)          (325)
            Decrease in inventories                                                    366            401
            Decrease in accounts payable                                               (82)            (8)
            Decrease in accrued expenses                                               (85)           (46)
            Decrease in MCV gas supplier funds on deposit                              (90)           (15)
            Decrease (increase) in other current and non-current assets                 (4)            74
            Increase (decrease) in other current and non-current liabilities             7            (19)
                                                                                    ------         ------
          Net cash provided by operating activities                                     75            321
                                                                                    ------         ------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                   (125)          (145)
  Cost to retire property                                                              (25)           (27)
  Restricted cash and restriced short-term investments                                 128             (1)
  Investments in Electric Restructuring Implementation Plan                              -             (1)
  Investments in nuclear decommissioning trust funds                                   (17)            (1)
  Proceeds from nuclear decommissioning trust funds                                      4              7
  Proceeds from short-term investments                                                   -            145
  Purchase of short-term investments                                                     -           (141)
  Maturity of MCV restricted investment securities held-to-maturity                     28            126
  Purchase of MCV restricted investment securities held-to-maturity                    (26)          (126)
  Other investing                                                                        4             12
                                                                                    ------         ------
          Net cash used in investing activities                                        (29)          (152)
                                                                                    ------         ------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of long term debt                                               -            550
  Retirement of long-term debt                                                        (136)          (444)
  Payment of common stock dividends                                                    (40)          (118)
  Payment of capital and finance lease obligations                                      (3)            (3)
  Stockholder's contribution, net                                                      200            200
  Decrease in notes payable, net                                                       (27)             -
  Debt issuance and financing costs                                                     (3)            (7)
                                                                                    ------         ------
          Net cash provided by (used in) financing activities                           (9)           178
                                                                                    ------         ------

Net Increase in Cash and Cash Equivalents                                               37            347

Cash and Cash Equivalents, Beginning of Period                                         416            171
                                                                                    ------         ------

Cash and Cash Equivalents, End of Period                                            $  453         $  518
                                                                                    ======         ======

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      CE-21
<PAGE>

                               CONSUMERS ENERGY COMPANY
                             CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      In Millions
                                                                      ---------------------------
                                                                         March 31
                                                                             2006     December 31
                                                                      (Unaudited)            2005
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
ASSETS

PLANT AND PROPERTY (AT COST)
  Electric                                                            $   8,266        $   8,204
  Gas                                                                     3,165            3,151
  Other                                                                     227              227
                                                                      ---------        ---------
                                                                         11,658           11,582
  Less accumulated depreciation, depletion, and amortization              4,855            4,804
                                                                      ---------        ---------
                                                                          6,803            6,778
  Construction work-in-progress                                             538              509
                                                                      ---------        ---------
                                                                          7,341            7,287
                                                                      ---------        ---------

INVESTMENTS
  Stock of affiliates                                                        28               33
  Other                                                                       4                7
                                                                      ---------        ---------
                                                                             32               40
                                                                      ---------        ---------

CURRENT ASSETS
  Cash and cash equivalents at cost, which approximates market              453              416
  Restricted cash and restricted short-term investments                      55              183
  Accounts receivable, notes receivable, and accrued revenue,
  less allowances of $14 in 2006 and $13 in 2005                            887              653
  Accounts receivable - related parties                                       8                9
  Inventories at average cost
    Gas in underground storage                                              702            1,068
    Materials and supplies                                                   72               75
    Generating plant fuel stock                                              83               80
  Deferred property taxes                                                   164              159
  Regulatory assets - postretirement benefits                                19               19
  Derivative instruments                                                    121              242
  Prepayments and other                                                      96               70
                                                                      ---------        ---------
                                                                          2,660            2,974
                                                                      ---------        ---------

NON-CURRENT ASSETS
  Regulatory assets
    Securitized costs                                                       549              560
    Additional minimum pension                                              399              399
    Postretirement benefits                                                 110              116
    Customer Choice Act                                                     213              222
    Other                                                                   481              484
  Nuclear decommissioning trust funds                                       576              555
  Other                                                                     582              520
                                                                      ---------        ---------
                                                                          2,910            2,856
                                                                      ---------        ---------
TOTAL ASSETS                                                          $  12,943        $  13,157
                                                                      =========        =========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      CE-22
<PAGE>

STOCKHOLDER'S INVESTMENT AND LIABILITIES

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                                             ---------------------------
                                                                              March 31
                                                                                2006          December 31
                                                                             (Unaudited)         2005
                                                                             -----------      -----------
<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                                                                 1,832            1,632
  Accumulated other comprehensive income                                             58               72
  Retained earnings since December 31, 1992                                         203              233
                                                                              ---------        ---------
                                                                                  2,934            2,778

  Preferred stock                                                                    44               44

  Long-term debt                                                                  4,297            4,303
  Non-current portion of capital leases and finance lease obligations               309              308
                                                                              ---------        ---------
                                                                                  7,584            7,433
                                                                              ---------        ---------
MINORITY INTERESTS                                                                  264              259
                                                                              ---------        ---------
CURRENT LIABILITIES
  Current portion of long-term debt, capital leases and finance leases              112              112
  Current portion of long-term debt - related parties                                 -              129
  Notes payable - related parties                                                     -               27
  Accounts payable                                                                  292              372
  Accounts payable - related parties                                                 23               25
  Accrued interest                                                                   66               82
  Accrued taxes                                                                     322              400
  Deferred income taxes                                                              60               55
  MCV gas supplier funds on deposit                                                 103              193
  Other                                                                             190              251
                                                                              ---------        ---------
                                                                                  1,168            1,646
                                                                              ---------        ---------

NON-CURRENT LIABILITIES
  Deferred income taxes                                                             956            1,027
  Regulatory liabilities
    Regulatory liabilities for cost of removal                                    1,152            1,120
    Income taxes, net                                                               464              455
    Other regulatory liabilities                                                    231              178
  Postretirement benefits                                                           325              308
  Asset retirement obligations                                                      496              494
  Deferred investment tax credit                                                     65               67
  Other                                                                             238              170
                                                                              ---------        ---------
                                                                                  3,927            3,819
                                                                              ---------        ---------
  Commitments and Contingencies (Notes 2, 3, and 4)

TOTAL STOCKHOLDER'S INVESTMENT AND LIABILITIES                                $  12,943        $  13,157
                                                                              =========        =========
</TABLE>

                                      CE-23
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   In Millions
                                                                       Three Months Ended
March 31                                                             2006              2005
- --------                                                           ---------         ---------
<S>                                                                <C>               <C>
COMMON STOCK
  At beginning and end of period (a)                               $     841         $     841
                                                                   ---------         ---------

OTHER PAID-IN CAPITAL
  At beginning of period                                               1,632               932
  Stockholder's contribution                                             200               200
                                                                   ---------         ---------
    At end of period                                                   1,832             1,132
                                                                   ---------         ---------

ACCUMULATED OTHER COMPREHENSIVE INCOME
  Minimum pension liability
    At beginning and end of period                                        (2)               (1)
                                                                   ---------         ---------

  Investments
    At beginning of period                                                18                12
    Unrealized gain (loss) on investments (b)                             (2)                3
                                                                   ---------         ---------
      At end of period                                                    16                15
                                                                   ---------         ---------

  Derivative instruments
    At beginning of period                                                56                20
    Unrealized gain (loss) on derivative instruments (b)                 (10)               16
    Reclassification adjustments included in net income (b)               (2)              (10)
                                                                   ---------         ---------
      At end of period                                                    44                26
                                                                   ---------         ---------
Total Accumulated Other Comprehensive Income                              58                40
                                                                   ---------         ---------

RETAINED EARNINGS
    At beginning of period                                               233               608
    Net income                                                            10               157
    Cash dividends declared - Common Stock                               (40)             (118)
                                                                   ---------         ---------
      At end of period                                                   203               647
                                                                   ---------         ---------

TOTAL COMMON STOCKHOLDER'S EQUITY                                  $   2,934         $   2,660
                                                                   =========         =========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      CE-24
<PAGE>

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

(b)   Disclosure of Other Comprehensive Income:

<TABLE>
<CAPTION>
                                                                                 In Millions
                                                                         -------------------
                                                                         Three Months Ended
March 31                                                                 2006          2005
- --------                                                                 -----         -----
<S>                                                                      <C>           <C>
Investments
  Unrealized gain (loss) on investments, net of tax of
  $(1) in 2006 and $2 in 2005                                            $  (2)        $   3

Derivative instruments
  Unrealized gain (loss) on derivative instruments, net of tax of
  $(5) in 2006 and $9 in 2005                                              (10)           16
  Reclassification adjustments included in net income, net of tax
  benefit of $(1) in 2006 and $(6) in 2005                                  (2)          (10)

Net income                                                                  10           157
                                                                         -----         -----
Total Comprehensive Income                                               $  (4)        $ 166
                                                                         =====         =====
</TABLE>

                                      CE-25
<PAGE>

                                                        Consumers Energy Company

                      (This page intentionally left blank)

                                      CE-26
<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 consolidated 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 related Notes contained in the
Consumers' Form 10-K for the year ended December 31, 2005. 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. We manage our business by the nature of services each provides and
operate principally in two business segments: electric utility and gas utility.

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 FASB Interpretation
No. 46(R). 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.

REVENUE RECOGNITION POLICY: We recognize revenues from deliveries of electricity
and natural gas, and the storage of natural gas when services are provided.
Sales taxes are recorded as liabilities and are not included in revenues.

                                     CE-27
<PAGE>

                                                        Consumers Energy Company

ACCOUNTING FOR MISO TRANSACTIONS: We account for MISO transactions on a net
basis for all of our generating units combined. We record billing adjustments
when invoices are received and also record an expense accrual for future
adjustments based on historical experience.

LONG-LIVED ASSETS AND EQUITY METHOD INVESTMENTS: Our assessment of the
recoverability of long-lived assets and equity method investments involves
critical accounting estimates. We periodically perform tests of impairment 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 $12.943
billion at March 3l, 2006, 57 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 March 31                       2006       2005
- ---------------------------                       ----       ----
<S>                                               <C>        <C>
Other income
      Electric restructuring return                $ 1        $ 1
      Return on stranded and security costs          1          1
      Gain on stock                                  1          1
      All other                                      1          1
                                                   ---        ---
Total other income                                 $ 4        $ 4
                                                   ===        ===
</TABLE>

<TABLE>
<CAPTION>
                                                    In Millions
                                              -----------------
Three Months Ended March 31                   2006         2005
- ---------------------------                   ----         ----
<S>                                           <C>          <C>
Other expense
      Loss on reacquired debt                 $  -         $ (5)
      Civic and political expenditures          (1)          (1)
      Donations                                 (1)           -
      All other                                 (1)           -
                                              ----         ----
Total other expense                           $ (3)        $ (6)
                                              ====         ====
</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: During the period of May 2000 through January
2002, CMS MST engaged in simultaneous, prearranged commodity trading
transactions in which energy commodities were sold and repurchased at the same
price. These so called round-trip trades had no impact on previously reported
consolidated net income, earnings per share, or cash flows but had the effect of
increasing operating revenues and operating expenses by equal amounts.

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

                                     CE-28
<PAGE>

                                                        Consumers Energy Company

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. Those individuals filed a motion to dismiss the SEC
action, which was denied.

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. The cases were consolidated into a
single lawsuit, which 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, the court
granted a motion to dismiss Consumers and three of the individual defendants,
but denied the motions to dismiss CMS Energy and the 13 remaining individual
defendants. The court issued an opinion and order dated March 24, 2006, granting
in part and denying in part plaintiffs' amended motion for class certification.
The court conditionally certified a class consisting of "[a]ll persons who
purchased CMS Common Stock during the period of October 25, 2000 through and
including May 17, 2002 and who were damaged thereby." Appeals and motions for
reconsideration of the court's ruling have been lodged by the parties. 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, filed in
July 2002 in United States District Court for the Eastern District of Michigan,
brought as purported class actions on behalf of participants and beneficiaries
of the CMS Employees' Savings Plan (the Plan). 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, as well as other equitable relief and legal fees. On March 1, 2006,
CMS Energy and Consumers reached an agreement, subject to court and independent
fiduciary approval, to settle the lawsuits. The settlement agreement requires a
$28 million cash payment by CMS Energy's primary insurer that will be used to
pay Plan participants and beneficiaries for alleged losses, as well as any legal
fees and expenses. In addition, CMS Energy agreed to certain other steps
regarding administration of the Plan. The court issued an order on March 23,
2006, granting preliminary approval of the settlement and scheduling the
Fairness Hearing for June 15, 2006.

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 $819 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

      -     an AFUDC capitalization rate.

                                     CE-29
<PAGE>

                                                        Consumers Energy Company

Our current capital cost estimates include an escalation rate of 2.6 percent and
an AFUDC capitalization rate of 8.4 percent. As of March 2006, we incurred $616
million in capital expenditures to comply with the federal Clean Air Act and
resulting regulations and anticipate that the remaining $203 million of capital
expenditures will be made in 2006 through 2011. These expenditures include
installing selective catalytic control reduction technology at four of our
coal-fired electric generating plants. In addition to modifying coal-fired
electric generating plants, our compliance plan includes the use of nitrogen
oxide emission allowances until all of the control equipment is operational in
2011. The nitrogen oxide emission allowance annual expense is projected to be $6
million per year, which we expect to recover from our customers through the PSCR
process. The projected annual expense is based on market price forecasts and
forecasts of regulatory provisions, known as progressive flow control, that
restrict the usage in any given year of allowances banked from previous years.
The allowances and their cost are accounted for as inventory. The allowance
inventory is expensed at the rolling average cost as the coal-fired electric
generating plants emit nitrogen oxide.

In March 2005, the EPA adopted the Clean Air Interstate Rule that requires
additional coal-fired electric generating plant emission controls for nitrogen
oxides and sulfur dioxide. The rule involves a two-phase program to reduce
emissions of nitrogen oxides by 63 percent and sulfur dioxide by 71 percent from
2003 levels by 2015. The final rule will require that we run our selective
catalytic control reduction technology units year round beginning in 2009 and
may require that we purchase additional nitrogen oxide allowances beginning in
2009. The additional nitrogen oxide allowances are estimated to cost $4 million
per year for years 2009 through 2011.

In addition to the selective catalytic control reduction technology installed to
meet the nitrogen oxide standards, 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 an
estimated cost of $960 million. Our capital cost estimates include an escalation
rate of 2.6 percent and an AFUDC capitalization rate of 8.4 percent. We
currently have a surplus of sulfur dioxide allowances, which were granted by the
EPA and are accounted for as inventory. In January 2006, we sold some of our
excess sulfur dioxide allowances for $61 million and recognized the proceeds as
a regulatory liability.

Also in March 2005, the EPA issued the Clean Air Mercury Rule, which requires
initial reductions of mercury emissions from coal-fired electric generating
plants by 2010 and further reductions by 2018. The Clean Air Mercury Rule
establishes a cap-and-trade system for mercury emissions that is similar to the
system used in the Clean Air Interstate Rule. The industry has not reached a
consensus on the technical methods for curtailing mercury emissions. However, we
anticipate our capital and operating costs for mercury emissions reductions
required by the Clean Air Mercury Rule to be significantly less than what was
required for selective catalytic reduction technology used for nitrogen oxide
compliance.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan adopts the Federal Clean
Air Mercury Rule through its first phase, which ends in 2010. After the year
2010, the mercury emissions reduction standards outlined in the governor's plan
become more stringent than those included in the Federal Clean Air Mercury Rule.
If implemented as proposed, we anticipate the costs to comply with the
governor's plan will exceed Federal Clean Air Mercury Rule compliance costs. We
will work with the MDEQ on the details of these rules.

In August 2005, the MDEQ filed a Motion to Intervene in a court challenge to
certain aspects of EPA's Clean Air Mercury Rule, asserting that the rule is
inadequate. In October 2005, the EPA announced it would reconsider certain
aspects of the Clean Air Mercury Rule. During the reconsideration process, the
court challenge to the rule is on hold. We cannot predict the outcome of this
proceeding.

                                     CE-30
<PAGE>

                                                        Consumers Energy Company

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seeking permits to modify the
plant 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 generating 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 our experience, we
estimate that our share of the total liability for the known Superfund sites
will be between $2 million and $10 million. At March 31, 2006, 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 Ludington. 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 duct burner and failing to maintain certain
records in the required format. 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)
and took 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 configuration of that particular unit. The MCV Partnership
disagrees with certain of the MDEQ's assertions. The MCV Partnership filed a
response in July 2004 to address the Letter of Violation. 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 includes establishing a
higher carbon monoxide emissions limit on the five duct burners currently
unavailable, sufficient to allow the MCV Facility to return those duct burners
to service. The settlement would also satisfy state and federal requirements and
remove the MCV Partnership from the HPVL. Any such settlement may involve a
fine, but at this time, the MDEQ has not stated what, if any, fine they will
seek to impose. At this time, we cannot predict the financial impact or outcome
of this issue.

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, failing to document inspections, and other minor
infractions (alleged NPDES violations). In August 2004, the MCV Partnership
filed a response to the MDEQ letter covering the remediation for each of the
MDEQ's alleged violations. On October 17, 2005, the MDEQ, Water Bureau, issued
the MCV Partnership a Compliance Inspection

                                     CE-31
<PAGE>

                                                        Consumers Energy Company

report, which listed several minor violations and concerns that needed to be
addressed by the MCV Facility. This report was issued in connection with an
inspection of the MCV Facility in September 2005, which was conducted for
compliance and review of the Storm Water Pollution Prevention Plans (SWPPP). The
MCV Partnership submitted its updated SWPPP on December 1, 2005. The MCV
Partnership management believes it has resolved all issues associated with the
Notice Letter and Compliance Inspection and does not expect any further MDEQ
actions on these matters.

ALLOCATION OF BILLING COSTS: In February 2006, the MPSC issued an order which
determined that we violated the MPSC code of conduct by including a bill insert
advertising an unregulated service. The MPSC issued a penalty of $45,000 and
stated that any subsidy for the use of our billing system arising from past code
of conduct violations will be accounted for in our next electric rate case. We
cannot predict the outcome or the impact on any future electric rate case.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities (the
plaintiffs), which sell power to us, filed a lawsuit in Ingham County Circuit
Court. The lawsuit alleged 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.
The Michigan Court of Appeals upheld this order on the primary jurisdiction
question, but remanded the case back on another issue. 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
plaintiffs have appealed the MPSC order to the Michigan Court of Appeals. The
plaintiffs also filed suit in the United States Court for the Western District
of Michigan, which the judge subsequently dismissed. The plaintiffs have
appealed the dismissal to the United States Court of Appeals. We cannot predict
the outcome of these appeals.

ELECTRIC RESTRUCTURING MATTERS

ELECTRIC ROA: The Customer Choice Act allows all of our electric customers to
buy electric generation service from us or from an alternative electric
supplier. At March 31, 2006, alternative electric suppliers were providing 348
MW of generation service to ROA customers. This is 4 percent of our total
distribution load and represents a decrease of 61 percent compared to March 31,
2005. It is difficult to predict future ROA customer trends.

STRANDED COSTS: Prior MPSC orders adopted a mechanism pursuant to the Customer
Choice Act to provide recovery of Stranded Costs that occur when customers leave
our system to purchase electricity from alternative suppliers. In November 2005,
we filed an application with the MPSC related to the determination of 2004
Stranded Costs. Applying the Stranded Cost methodology used in prior MPSC
orders, we concluded that we experienced zero Stranded Costs in 2004.

ELECTRIC RATE MATTERS

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. Through a combination of owned capacity and purchases, we have supply
resources in place to cover approximately 110 percent of the projected firm
summer peak load for 2006. We have purchased capacity and energy contracts
covering partially the estimated reserve margin requirements for 2007 through
2010. As a result, we have recognized an asset of $72 million for unexpired
capacity and energy contracts at March 31, 2006. At April 2006, we expect the
total capacity cost of electric capacity and energy contracts for 2006 to be $18
million.

                                     CE-32
<PAGE>

                                                        Consumers Energy Company

PSCR: The PSCR process allows recovery of reasonable and prudent power supply
costs. Revenues from the PSCR charges are subject to reconciliation after actual
costs are reviewed for reasonableness and prudence. In September 2005, we
submitted our 2006 PSCR plan filing to the MPSC. In November 2005, we submitted
an amended 2006 PSCR plan to the MPSC to include higher estimates for certain
METC and coal supply costs. In December 2005, the MPSC issued an order
that temporarily excluded these increased costs from our PSCR charge and further
reduced the charge by one mill per kWh. We implemented the temporary order in
January 2006. If the temporary order remains in effect for the remainder of
2006, it would result in a delay in the recovery of $169 million.

In April 2006, the MPSC Staff filed briefs in the 2006 PSCR plan case
recommending inclusion of all filed costs in the 2006 PSCR charge, including
those temporarily excluded in the December 2005 order. If the MPSC adopts the
Staff's recommendation, our underrecovery of PSCR costs in 2006 would be reduced
to $67 million. These underrecoveries are due to increased bundled sales and
other cost increases beyond those included in the September and November
filings. We expect to recover fully all of our PSCR costs. To the extent that we
incur and are unable to collect these costs in a timely manner, our cash flows
from electric utility operations are affected negatively. In March 2006, we
submitted our 2005 PSCR reconciliation filing to the MPSC. We calculated an
underrecovery of $33 million for commercial and industrial customers, which we
expect to recover fully. We cannot predict the outcome of these PSCR
proceedings.

OTHER ELECTRIC CONTINGENCIES

THE MIDLAND COGENERATION VENTURE: The MCV Partnership, which leases and operates
the MCV Facility, contracted to sell electricity to Consumers for a 35-year
period beginning in 1990. 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 FASB Interpretation No. 46(R).

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 and throughout 2005. In 2005, the MCV Partnership reevaluated the
economics of operating the MCV Facility and recorded an impairment charge. If
natural gas prices remain at present levels or increase, the operations of the
MCV Facility would be adversely affected and could result in the MCV Partnership
failing to meet its obligations under the sale and leaseback transactions and
other contracts. Due to the impairment of the MCV Facility and subsequent
losses, the value of the equity held by all of the owners of the MCV Partnership
has decreased significantly and is now negative. Since we are one of the general
partners of the MCV Partnership, we have recognized a portion of the limited
partners' negative equity. At March 31, 2006, the negative minority interest for
the other general partners' share, including their portion of the limited
partners' negative equity, is $96 million and is included in Other Non-current
Assets on our Consolidated Balance Sheets. We are evaluating various
alternatives in order to develop a new long-term strategy with respect to the
MCV Facility.

Further, 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 underrecoveries of $55 million in 2006 and $39 million in 2007. Of the
2006 estimate, we expensed $14 million during the three months ended March 31,
2006. However, Consumers' direct savings from the RCP, after allocating a
portion to customers, are used to offset our capacity and fixed energy
underrecoveries expense. 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 MCV Partnership has indicated that it may take issue
with our exercise

                                     CE-33
<PAGE>

                                                        Consumers Energy Company

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. If we are successful in exercising the regulatory out
clause, the MCV Partnership has the right to terminate the MCV PPA. The MPSC's
future actions on the capacity and fixed energy payments recoverable from
customers subsequent to September 15, 2007 may affect negatively the financial
performance of the MCV Partnership.

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 benefits our ownership interest in the MCV Partnership.

In January 2005, we 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 approving the RCP. 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 City of Midland appealed the
decision to the Michigan Court of Appeals, and the MCV Partnership 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 2005. The
MCV Partnership estimates that the 1997 through 2005 tax year cases will result
in a refund to the MCV Partnership of $87 million, inclusive of interest, if the
decision of the Michigan Tax Tribunal is upheld. In February 2006, the Michigan
Court of Appeals largely affirmed the Michigan Tax Tribunal decision, but
remanded the case back to the Michigan Tax Tribunal to clarify certain aspects
of the Tax Tribunal decision. The remanded proceedings may result in the
determination of a greater refund to the MCV Partnership. In April 2006, the
City of Midland filed an application for Leave to Appeal with the Michigan
Supreme Court. The MCV Partnership filed a response in opposition to that
application. The MCV Partnership cannot predict the outcome of these
proceedings; therefore, this anticipated refund has not been recognized in
earnings.

NUCLEAR PLANT DECOMMISSIONING: The MPSC and the FERC regulate the recovery of
costs to decommission, or remove from service, our Big Rock and Palisades
nuclear plants. 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 in March 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, this estimated cost includes historical expenditures in nominal
dollars and future costs in 2003 dollars, with all Palisades costs given in 2003
dollars. Recently updated cost projections for Big Rock indicate an anticipated
decommissioning cost of $390 million as of March 2006.

Big Rock: In December 2000, funding of the Big Rock trust fund stopped because
the MPSC-authorized decommissioning surcharge collection period expired. In
March 2006, we contributed $16 million to the trust fund from our corporate
funds. 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

                                     CE-34
<PAGE>

                                                        Consumers Energy Company

provided by the trust for Big Rock will fall short of the amount needed to
complete the decommissioning by $36 million. At this time, we plan to provide
this additional amount from our corporate funds, and, subsequent to the
completion in 2007 of radiological decommissioning work, seek recovery of such
expenditures, in addition to the amount we added to the fund, from some
alternative source. We cannot predict the outcome of these efforts.

Palisades: Excluding additional nuclear fuel storage costs due to the DOE's
failure to accept spent fuel on schedule, we concluded, based on the cost
estimates filed in March 2004, that the existing Palisades' surcharge of $6
million needed to be increased to $25 million annually, beginning January 2006.
A settlement agreement was approved by the MPSC, providing for the continuation
of the existing $6 million annual decommissioning surcharge through 2011, our
current license expiration date, and for the next periodic review to be filed in
March 2007. Amounts collected from electric retail customers and deposited in
trusts, including trust earnings, are credited to a regulatory liability.

In March 2005, the NMC, which operates the Palisades plant, applied for a
20-year license renewal for the plant on behalf of Consumers. We expect a
decision from the NRC on the license renewal application in 2007. At this time,
we cannot determine what impact this will have on decommissioning costs or the
adequacy of funding.

In December 2005, we announced plans to sell Palisades and have begun pursuing
this asset divestiture. As a sale is not probable to occur until a firm purchase
commitment is entered into with a potential buyer, we have not classified the
Palisades assets as held for sale on our Consolidated Balance Sheets.

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 March 31, 2006, our DOE liability is $147
million. This amount includes interest, which is payable upon the first delivery
of spent nuclear fuel to the DOE. The amount of this liability, excluding a
portion of interest, was recovered through electric rates.

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. 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 2002, the site at Yucca Mountain, Nevada was designated for the development
of a repository for the disposal of high-level radioactive waste and spent
nuclear fuel. We expect that the DOE, in due course, will submit a final license
application to the NRC for 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

                                     CE-35
<PAGE>

                                                        Consumers Energy Company

insurance company, we could be subject to assessments of up to $28 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. 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 $15
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
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 2005, we estimated our remaining
costs to be between $29 million and $71 million, based on 2005 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 proceeds derived from a
settlement with insurers and MPSC-approved rates. At March 31, 2006, we have a
liability of $28 million, net of $54 million of expenditures incurred to date,
and a regulatory asset of $60 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, policies, and practices for
prudency in annual plan and reconciliation proceedings.

GCR reconciliation for year 2004-2005: In March 2006, a settlement was reached
and submitted to the MPSC for approval for our 2004-2005 GCR year
reconciliation. The settlement is for a $2 million net overrecovery for the GCR
year; it includes interest through March 2005 and refunds that we received from
our suppliers that are required to be refunded to our customers. In April 2006,
the MPSC approved the settlement; the settlement amount will be rolled into the
2005-2006 GCR year.

                                     CE-36
<PAGE>

                                                        Consumers Energy Company

GCR plan for year 2005-2006: In November 2005, the MPSC issued an order for our
2005-2006 GCR Plan year, which resulted in approval of a settlement agreement
and established a fixed price cap of $10.10 for the December 2005 through March
2006 billing period. We were able to maintain our billing GCR factor below the
authorized level for that period. The order was appealed to the Michigan Court
of Appeals by one intervenor. No action has been taken by the Court of Appeals
on the merits of the appeal and we are unable to predict the outcome.

GCR plan for year 2006-2007: In December 2005, we filed an application with the
MPSC seeking approval of a GCR plan for the 12-month period of April 2006
through March 2007. Our request proposed using a GCR factor consisting of:

      -     a base GCR ceiling factor of $11.10 per mcf, plus

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

Our GCR factor for the billing month of May 2006 is $9.07 per mcf.

2001 GAS DEPRECIATION 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,

      -     required us to undertake a study to determine why our plant removal
            costs are in excess of other regulated Michigan natural gas
            utilities, and

      -     required us to file a study report with the MPSC Staff on or before
            December 31, 2005.

We filed the study report with the MPSC Staff on December 29, 2005.

We are also required to file our next gas depreciation case within 90 days after
the MPSC issuance of a final order in the pending case related to ARO
accounting. We cannot predict when the MPSC will issue a final order in the ARO
accounting case.

If the depreciation case order is issued after the gas general rate case order,
we proposed to incorporate its results into the gas general rates using a
surcharge mechanism.

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. As part of this filing,
we also requested interim rate relief of $75 million.

The MPSC Staff and intervenors filed interim rate relief testimony on October
31, 2005. In its testimony, the MPSC Staff recommended granting interim rate
relief of $38 million.

In February 2006, the MPSC Staff recommended granting final rate relief of $62
million. The MPSC Staff proposed that $17 million of this amount be contributed
to a low income energy efficiency fund. The MPSC Staff also recommended reducing
our return on common equity to 11.15 percent, from our current 11.4 percent.

In March 2006, the MPSC Staff revised its recommended final rate relief to $71
million. As of April 2006, the MPSC has not acted on our interim or final rate
relief requests.

In April 2006, we revised our request for final rate relief downward to $118
million.

                                     CE-37
<PAGE>

                                                        Consumers Energy Company

OTHER CONTINGENCIES

IRS RULING AND AUDIT: In August 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. Under the IRS guidance, significant issues
with respect to the application of this method remain unresolved and subject to
dispute. However, the effect of the IRS's position may be to require Consumers
either (1) to repay all or a portion of previously received tax benefits, or (2)
to add back to taxable income, half in each of 2005 and 2006, all or a portion
of previously deducted overheads. The IRS is currently auditing Consumers and
recently notified us that it intends to propose an adjustment to 2001 taxable
income disallowing our simplified service cost deduction. The impact of this
matter on future earnings, cash flows, or our present NOL carryforwards remains
uncertain, but could be material. Consumers cannot predict the outcome of this
matter.

OTHER: 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.

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 following table describes our guarantees at March 31, 2006:

<TABLE>
<CAPTION>
                                                                                                   In Millions
                                                   -----------------------------------------------------------
                                                    Issue        Expiration         Maximum           Carrying
Guarantee Description                               Date            Date           Obligation          Amount
- ---------------------                              -------       ----------        ----------         --------
<S>                                                <C>           <C>               <C>                <C>
Standby letters of credit                          Various       Various              $ 36              $ -
Surety bonds                                       Various       Indefinite              1                -
Guarantee                                          Jan 1987      Mar 2015               85                -
Nuclear insurance retrospective premiums           Various       Indefinite            135                -
</TABLE>

                                     CE-38
<PAGE>

                                                        Consumers Energy Company

The following table provides additional information regarding our guarantees:

<TABLE>
<CAPTION>
Guarantee Description                     How Guarantee Arose                       Events That Would Require Performance
- ---------------------                     -------------------                       -------------------------------------
<S>                                       <C>                                       <C>
Standby letters of credit                 Normal operations of coal power plants    Noncompliance with environmental
                                                                                    regulations and inadequate response
                                                                                    to demands for corrective action

                                          Natural gas transportation                Nonperformance
                                          Self-insurance requirement                Nonperformance

Surety bonds                              Normal operating activity, permits and    Nonperformance
                                          licenses

Guarantee                                 Agreement to provide power and steam to   MCV Partnership's nonperformance or
                                          Dow                                       non-payment under a related contract

Nuclear insurance retrospective premiums  Normal operations of nuclear plants       Call by NEIL and Price-Anderson Act
                                                                                    for nuclear incident
</TABLE>

At March 31, 2006, none of our guarantees contained provisions allowing us to
recover, from third parties, any amount paid under the guarantees. We enter into
various agreements containing indemnification provisions in connection with a
variety of transactions. While we are unable to estimate the maximum potential
obligation related to these indemnities, we consider the likelihood that we
would be required to perform or incur significant losses related to these
indemnities and the guarantees listed in the preceding tables to be remote.

3: FINANCINGS AND CAPITALIZATION

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                       In Millions
                                                                        ------------------------------------------
                                                                        March 31, 2006           December 31, 2005
                                                                        --------------           -----------------
<S>                                                                     <C>                      <C>
First mortgage bonds                                                      $    3,175                 $    3,175
Senior notes and other                                                           853                        852
Securitization bonds                                                             362                        369
                                                                          ----------                 ----------
  Principal amounts outstanding                                                4,390                      4,396
    Current amounts                                                              (85)                       (85)
    Net unamortized discount                                                      (8)                        (8)
                                                                          ----------                 ----------
Total Long-term debt                                                      $    4,297                 $    4,303
                                                                          ==========                 ==========
</TABLE>

DEBT RETIREMENTS: The following is a summary of significant long-term debt
retirements during the three months ended March 31, 2006:

<TABLE>
<CAPTION>
                                            Principal      Interest        Issue/Retirement
                                          (in millions)    Rate (%)              Date              Maturity Date
                                          -------------    --------        ----------------        -------------
<S>                                       <C>              <C>             <C>                     <C>
Long-term debt - related parties             $ 129           9.00           February 2006            June 2031
</TABLE>

                                     CE-39
<PAGE>

                                                        Consumers Energy Company

REVOLVING CREDIT FACILITIES: The following secured revolving credit facilities
with banks are available at March 31, 2006:

<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                     March 30, 2007        $  300         $    -         $      -          $    300
Consumers                      May 18, 2010            500              -               36               464
MCV Partnership               August 26, 2006           50              -                2                48
</TABLE>

In March 2006, we entered into a short-term secured revolving credit agreement
with banks. This facility provides $300 million of funds for working capital and
other general corporate purposes.

DIVIDEND RESTRICTIONS: Under the provisions of our articles of incorporation, at
March 31, 2006, we had $149 million of unrestricted retained earnings available
to pay common stock dividends. Covenants in our debt facilities cap common stock
dividend payments at $300 million in a calendar year. For the three months ended
March 31, 2006, we paid $40 million in common stock dividends to CMS Energy.
Also, the provisions of the Federal Power Act and the Natural Gas Act
effectively restrict dividends to the amount of our retained earnings.

CAPITAL AND FINANCE LEASE OBLIGATIONS: Our capital leases are comprised mainly
of leased service vehicles, power purchase agreements and office furniture. At
March 31, 2006, capital lease obligations totaled $57 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 March 31, 2006, finance lease obligations totaled $279
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 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 at March 31, 2006 and $325 million of
receivables at December 31, 2005. 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 neither recorded a gain or loss on the
receivables sold nor 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
                                                                                      ----------------------
Three months ended March 31                                                            2006          2005
- ---------------------------                                                           -------       -------
<S>                                                                                   <C>           <C>
Net cash flow as a result of accounts receivable financing                            $ (325)       $  (304)
Collections from customers                                                            $1,817        $ 1,592
</TABLE>

4: FINANCIAL AND DERIVATIVE INSTRUMENTS

FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term investments, and
current liabilities approximate their fair values because of their short-term
nature. We estimate the fair values of long-term financial instruments based on
quoted market prices or, in the absence of specific market prices, on quoted
market prices of similar instruments or other valuation techniques.

                                     CE-40
<PAGE>

                                                        Consumers Energy Company

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

<TABLE>
<CAPTION>
                                                                                                                   In Millions
                                              --------------------------------------------------------------------------------
                                                           March 31, 2006                            December 31, 2005
                                              -------------------------------------      -------------------------------------
                                                             Fair       Unrealized                      Fair       Unrealized
                                               Cost         Value       Gain (Loss)       Cost         Value       Gain (Loss)
                                              ------        ------      -----------      ------        ------      -----------
<S>                                           <C>           <C>         <C>              <C>           <C>         <C>
Long-term debt,
    including current amounts                 $4,382        $4,304        $   78         $4,388        $4,393        $   (5)
Long-term debt - related parties,
    including current amounts                      -             -             -            129           131            (2)
Available-for-sale securities:
  Common stock of CMS Energy                      10            29            19             10            33            23
  SERP:
      Equity securities                           16            23             7             16            22             6
      Debt securities                              8             7            (1)             8             8             -
  Nuclear decommissioning investments:
      Equity securities                          136           261           125            134           252           118
      Debt securities                            301           301             -            287           291             4
</TABLE>

DERIVATIVE INSTRUMENTS: We are exposed to market risks including, but not
limited to, changes in commodity prices, interest rates, and equity security
prices. We may use various contracts to manage these risks, including options,
futures, swaps, and forward contracts. We enter into these risk management
contracts 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.

Our intention is that any increases or decreases in the value of these contracts
will be offset by an opposite change in the value of the item at risk. We enter
into all of these contracts for purposes other than trading.

The contracts we use to manage market risks may qualify as derivative
instruments that are subject to derivative and hedge accounting under SFAS No.
133. If a contract is a derivative, it is recorded on the balance sheet at its
fair value. We then adjust the resulting asset or liability each quarter to
reflect any change in the market value of the contract, a practice known as
marking the contract to market. If a derivative qualifies for cash flow hedge
accounting treatment, the changes in fair value (gains or losses) are reported
in accumulated other comprehensive income; otherwise, the changes are reported
in earnings.

For a derivative instrument to qualify for hedge accounting:

      -     the relationship between the derivative instrument and the item
            being hedged must be formally documented at inception,

      -     the derivative instrument must be highly effective in offsetting the
            hedged item's cash flows or changes in fair value, and

      -     if hedging a forecasted transaction, the forecasted transaction must
            be probable.

If a derivative qualifies for cash flow hedge accounting treatment and gains or
losses are recorded in accumulated other comprehensive income, those gains or
losses will be reclassified into earnings in the same period or periods the
hedged forecasted transaction affects earnings. If a cash flow hedge is

                                     CE-41
<PAGE>

                                                        Consumers Energy Company

terminated early because it is determined that the forecasted transaction will
not occur, any gain or loss recorded in accumulated other comprehensive income
at that date is recognized immediately in earnings. If a cash flow hedge is
terminated early for other economic reasons, any gain or loss as of the
termination date is deferred and then reclassified to earnings when the
forecasted transaction affects earnings. The ineffective portion, if any, of all
hedges is recognized in earnings.

To determine the fair value of our derivatives, we use information from external
sources (i.e., quoted market prices and third-party valuations), if available.
For certain contracts, this information is not available and we use mathematical
valuation models to value our derivatives. These models require various inputs
and assumptions, including commodity market prices and volatilities, as well as
interest rates and contract maturity dates. The cash returns we actually realize
on these contracts may vary, either positively or negatively, from the results
that we estimate using these models. As part of valuing our derivatives at
market, we maintain reserves, if necessary, for credit risks arising from the
financial condition of counterparties.

The majority of our commodity purchase and sale contracts are not subject to
derivative accounting under SFAS No. 133 because:

      -     they do not have a notional amount (that is, a number of units
            specified in a derivative instrument, such as MW of electricity or
            bcf of natural gas),

      -     they qualify for the normal purchases and sales exception, or

      -     there is not an active market for the commodity.

Our coal purchase contracts are not derivatives because there is not an active
market for the coal we purchase. Similarly, our electric capacity and energy
contracts are not derivatives due to the lack of an active energy market in
Michigan. If active markets for these commodities develop in the future, some of
these contracts may qualify as derivatives. For our coal purchase contracts, the
resulting mark-to-market impact on earnings could be material. For our electric
capacity and energy contracts, we believe that we would be able to apply the
normal purchases and sales exception, and, therefore, would not be required to
mark these contracts to market.

In 2005, the MISO began operating the Midwest Energy Market. As a result, the
MISO now centrally dispatches electricity and transmission service throughout
much of the Midwest and provides day-ahead and real-time energy market
information. At this time, we believe that the establishment of this market does
not represent the development of an active energy market in Michigan, as defined
by SFAS No. 133. However, as the Midwest Energy Market matures, we will continue
to monitor its activity level and evaluate whether or not an active energy
market may exist in Michigan.

                                     CE-42
<PAGE>
Derivative accounting is required for certain contracts used to limit our
exposure to commodity price risk. The following table summarizes our derivative
instruments:

<TABLE>
<CAPTION>
                                                                                                            In Millions
                                               -------------------------------------------------------------------------
                                                          March 31, 2006                         December 31, 2005
                                               --------------------------------          -------------------------------
                                                            Fair      Unrealized                    Fair   Unrealized
Derivative Instruments                         Cost        Value         Gain            Cost       Value  Gain (Loss)
- ----------------------                         ----        -----         ----            ----       -----  -----------
<S>                                            <C>         <C>        <C>                <C>        <C>     <C>
Gas supply option contracts                     $-          $ -            $ -            $1     $    (1)    $    (2)
FTRs                                             -            -              -             -           1           1
Derivative contracts associated with the MCV
Partnership:
    Long-term gas contracts (a)                  -           93             93             -         205         205
    Gas futures, options, and swaps (a)          -          144            144             -         223         223
</TABLE>

(a) The fair value of the MCV Partnership's long-term gas contracts and gas
futures, options, and swaps has decreased significantly from December 31, 2005
due to a decrease in natural gas prices since that time.

We record the fair value of our derivative contracts in Derivative instruments,
Other assets, or Other liabilities on our Consolidated Balance Sheets.

GAS SUPPLY OPTION 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. As part of the GCR process, the mark-to-market
gains and losses associated with these options are reported directly in earnings
as part of Other income, and then immediately reversed out of earnings and
recorded on the balance sheet as a regulatory asset or liability.

FTRs: With the establishment of the Midwest Energy Market, FTRs were
established. FTRs are financial instruments that manage price risk related to
electricity transmission congestion. An FTR entitles its holder to receive
compensation (or, conversely, to remit payment) for congestion-related
transmission charges. FTRs are marked-to-market each quarter, with changes in
fair value reported to earnings as part of Other income.

DERIVATIVE CONTRACTS ASSOCIATED WITH THE MCV PARTNERSHIP: Long-term gas
contracts: The MCV Partnership uses long-term gas contracts to purchase and
manage the cost of the natural gas it needs to generate electricity and steam.
The MCV Partnership believes that certain of these contracts qualify as normal
purchases under SFAS No. 133. Accordingly, we have not recognized these
contracts at fair value on our Consolidated Balance Sheets at March 31, 2006.

The MCV Partnership also holds certain long-term gas contracts that do not
qualify as normal purchases because these contracts contain volume optionality.
In addition, as a result of implementing the RCP in 2005, a significant portion
of long-term gas contracts no longer qualify as normal purchases, because the
gas will not be used to generate electricity or steam. Accordingly, all of these
contracts are accounted for as derivatives, with changes in fair value recorded
in earnings each quarter. For the three months ended March 31, 2006, we recorded
a $111 million loss, before considering tax effects and minority interest,
associated with the decrease in fair value of these long-term gas contracts.
This loss is included in the total Fuel costs mark-to-market at MCV on our
Consolidated Statements of Income. Because of the volatility of the natural gas
market, the MCV Partnership expects future earnings volatility on these
contracts, since gains and losses will be recorded each quarter.

                                     CE-43
<PAGE>

                                                        Consumers Energy Company

We have recorded derivative assets totaling $93 million associated with the fair
value of long-term gas contracts on our Consolidated Balance Sheets at March 31,
2006. We expect almost all of these assets, which represent cumulative net
mark-to-market gains, to reverse as losses through earnings during 2006 and 2007
as the gas is purchased, with the remainder reversing between 2008 and 2011. As
the MCV Partnership recognizes future losses from the reversal of these
derivative assets, we will continue to assume a portion of the limited partners'
share of those losses, in addition to our proportionate share.

For further details on the RCP, see Note 2, Contingencies, "Other Electric
Contingencies - The Midland Cogeneration Venture."

Gas Futures, Options, and Swaps: The MCV Partnership enters into natural gas
futures, options, and over-the-counter swap transactions in order to hedge
against unfavorable changes in the market price of natural gas. The MCV
Partnership uses these financial instruments to:

      -     ensure an adequate supply of natural gas for the projected
            generation and sales of electricity and steam, and

      -     manage price risk by fixing the price to be paid for natural gas on
            some of its long-term gas contracts.

At March 31, 2006, the MCV Partnership held natural gas futures, options, and
swaps. We have recorded derivative assets totaling $144 million associated with
the fair value of these contracts on our Consolidated Balance Sheets at March
31, 2006. Certain of these contracts qualify for cash flow hedge accounting and
we record our proportionate share of their mark-to-market gains and losses in
Accumulated other comprehensive income. The remaining contracts are not cash
flow hedges and their mark-to-market gains and losses are recorded to earnings.

Those contracts that qualify as cash flow hedges represent $137 million of the
total $144 million of futures, options, and swaps held. We have recorded a
cumulative net gain of $44 million, net of tax and minority interest, in
Accumulated other comprehensive income at March 31, 2006, representing our
proportionate share of the cash flow hedges held by the MCV Partnership. Of this
balance, we expect to reclassify $16 million, net of tax and minority interest,
as an increase to earnings during the next 12 months as the contracts settle,
offsetting the costs of gas purchases, with the remainder to be realized through
2009. There was no ineffectiveness associated with any of these cash flow
hedges.

The remaining futures, options, and swap contracts, representing $7 million of
the total $144 million, do not qualify as cash flow hedges. Prior to the
implementation of the RCP, the futures and swap contracts were accounted for as
cash flow hedges. Since the RCP was implemented in 2005, these instruments no
longer qualify for cash flow hedge accounting and we record any changes in their
fair value in earnings each quarter. For the three months ended March 31, 2006,
we recorded a $45 million loss, before considering tax effects and minority
interest, associated with the decrease in fair value of these instruments. This
loss is included in the total Fuel costs mark-to-market at MCV on our
Consolidated Statements of Income. Because of the volatility of the natural gas
market, the MCV Partnership expects future earnings volatility on these
contracts, since gains and losses will be recorded each quarter. We expect
almost all of these futures, options, and swap contracts to be realized during
2006 as the contracts settle, with the remainder to be realized during 2007. For
further details on the RCP, see Note 2, Contingencies, "Other Electric
Contingencies - The Midland Cogeneration Venture."

CREDIT RISK: Our swaps and forward contracts contain credit risk, which is the
risk that counterparties will fail to perform their contractual obligations. We
reduce this risk through established credit policies. For each counterparty, we
assess credit quality by using credit ratings, financial condition, and other

                                     CE-44
<PAGE>

                                                        Consumers Energy Company

available information. We then establish a credit limit for each counterparty
based upon our evaluation of credit quality. We monitor the degree to which we
are exposed to potential loss under each contract and take remedial action, if
necessary.

The MCV Partnership enters into contracts primarily with companies in the
electric and gas industry. This industry concentration may have an impact on our
exposure to credit risk, either positively or negatively, based on how these
counterparties are affected by similar changes in economic, weather, or other
conditions. The MCV Partnership typically uses industry-standard agreements that
allow for netting positive and negative exposures associated with the same
counterparty, thereby reducing exposure. These contracts also typically provide
for the parties to demand adequate assurance of future performance when there
are reasonable grounds for doing so.

The following table illustrates our exposure to potential losses at March 31,
2006, if each counterparty within this industry concentration failed to perform
its contractual obligations. This table includes contracts accounted for as
financial instruments. It does not include trade accounts receivable, derivative
contracts that qualify for the normal purchases and sales exception under SFAS
No. 133, or other contracts that are not accounted for as derivatives.

<TABLE>
<CAPTION>
                                                                                                             In Millions
                          ----------------------------------------------------------------------------------------------
                                                                                Net Exposure              Net Exposure
                             Exposure                                          from Investment          from Investment
                              Before          Collateral         Net                Grade                    Grade
                          Collateral (a)       Held (b)       Exposure          Companies (c)            Companies (%)
                          --------------       --------       --------          -------------            -------------
<S>                       <C>                 <C>             <C>              <C>                      <C>
MCV Partnership                $224              $104           $120                $102                       85
</TABLE>

(a) Exposure is reflected net of payables or derivative liabilities if netting
arrangements exist.

(b) Collateral held includes cash and letters of credit received from
counterparties.

(c) Approximately half of the remaining balance of our net exposure was from
independent natural gas producers/suppliers that do not have published credit
ratings.

Based on our credit policies and our current exposures, we do not expect a
material adverse effect on our financial position or future earnings as a result
of counterparty nonperformance.

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 between July
            1, 2003 and August 31, 2005,

      -     a DCCP for employees hired on or after September 1, 2005,

      -     benefits to certain management employees under SERP,

      -     a defined contribution 401(k) Savings Plan,

      -     benefits to a select group of management under the EISP, and

      -     health care and life insurance benefits under OPEB.

Pension Plan: The Pension Plan includes funds for most of our current employees,
our non-utility affiliates, and Panhandle, a former affiliate. The Pension
Plan's assets are not distinguishable by

                                     CE-45
<PAGE>

                                                        Consumers Energy Company
company.

Effective January 11, 2006, the MPSC electric rate order authorized us to
include $33 million of electric pension expense in our electric rates. Due to
the volatility of these particular costs, the order also established a pension
equalization mechanism to track actual costs. If actual pension expenses are
greater than the $33 million included in electric rates, the difference will be
recognized as a regulatory asset for future recovery from customers. If actual
pension expenses are less than the $33 million included in electric rates, the
difference will be recognized as a regulatory liability, and refunded to our
customers. The difference between pension expense allowed in our electric rates
and pension expense under SFAS No. 87, resulted in a $3 million net reduction in
pension expense and establishment of a corresponding regulatory asset for the
three months ending March 31, 2006.

Effective January 11, 2006, the MPSC electric rate order authorized us to
include $28 million of electric OPEB expense in our electric rates. Due to the
volatility of these particular costs, the order also established an OPEB
equalization mechanism to track actual costs. If actual OPEB expenses are
greater than the $28 million included in electric rates, the difference will be
recognized as a regulatory asset for future recovery from our customers. If
actual OPEB expenses are less than the $28 million included in electric rates,
the difference will be recognized as a regulatory liability, and refunded to our
customers. The difference between OPEB expense allowed in our electric rates and
OPEB expense under SFAS No. 106, resulted in less than $1 million net reduction
in OPEB expense and establishment of a corresponding regulatory asset for the
three months ending March 31, 2006.

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

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                            --------------------------------------------
                                                                 Pension                    OPEB
                                                            -----------------        ------------------
Three Months Ended March 31                                  2006        2005         2006         2005
- ---------------------------                                 -----       -----        -----        -----
<S>                                                         <C>         <C>          <C>          <C>
Service cost                                                $12         $ 9          $ 6          $ 5
Interest expense                                             19          18           16           15
Expected return on plan assets                              (20)        (23)         (14)         (13)
Amortization of:
  Net loss                                                   10           7            5            5
  Prior service cost                                          2           1           (3)          (2)
                                                            ---         ---          ---          ---
Net periodic cost                                            23          12           10           10
Regulatory adjustment                                        (3)          -            -            -
                                                            ---         ---          ---          ---
Net periodic cost after regulatory adjustment               $20         $12          $10          $10
                                                            ===         ===          ===          ===
</TABLE>

SERP: On April 1, 2006, we implemented a Defined Contribution Supplemental
Executive Retirement Plan (DC SERP) and froze further new participation in the
defined benefit SERP. The DC SERP plan provides promoted and newly hired
participants benefits ranging from five to 15 percent of total compensation. The
DC SERP plan requires a minimum of five years of participation before vesting;
our contributions to the plan, if any, will be placed in a grantor trust.

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 three
months ended March 31, 2006 and 2005 was less than $1 million.

                                     CE-46
<PAGE>

                                                        Consumers Energy Company

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.

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 $25 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 or associated obligations related to potential future
abandonment. 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 include use of
decommissioning studies that largely utilize third-party cost estimates.

FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
OBLIGATIONS: This Interpretation clarified 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. We determined that
abatement of asbestos included in our plant investments qualify as a conditional
ARO, as defined by FASB Interpretation No. 47.

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

<TABLE>
<CAPTION>

March 31, 2006                                                                                                  In Millions
- ---------------------------------------------------------------------------------------------------------------------------
                                              In Service                                                              Trust
ARO Description                                  Date            Long Lived Assets                                     Fund
- ---------------                                  ----            -----------------                                     ----
<S>                                           <C>                <C>                                                  <C>
Palisades - decommission plant site                 1972         Palisades nuclear plant                              $554
Big Rock - decommission plant site                  1962         Big Rock nuclear plant                                 22
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                    -
Asbestos abatement                                  1973         Electric and gas utility plant                          -
</TABLE>

                                     CE-47
<PAGE>

                                                        Consumers Energy Company

<TABLE>
<CAPTION>
                                                                                                                      In Millions
                                       ------------------------------------------------------------------------------------------
                                           ARO                                                                             ARO
                                        Liability                                                      Cash flow        Liability
ARO Description                          12/31/05      Incurred          Settled        Accretion      Revisions          3/31/06
- ---------------                          --------      --------          -------        ---------      ---------          -------
<S>                                     <C>            <C>               <C>            <C>            <C>              <C>
Palisades - decommission                     $375        $ -                $-               $6            $ -             $381
Big Rock - decommission                        27          -                 (4)              1              -               24
JHCampbell intake line                          -          -                 -                -              -                -
Coal ash disposal areas                        54          -                 -                1              -               55
Wells at gas storage fields                     1          -                 -                -              -                1
Indoor gas services relocations                 1          -                 -                -              -                1
Asbestos abatement                             36          -                 (2)              -              -               34
                                             ----        ---                ---              --            ---             ----

  Total                                      $494        $ -                $(6)             $8            $ -             $496
                                             ====        ===                ===              ==            ===             ====
</TABLE>

In October 2004, the MPSC initiated a generic proceeding to review SFAS No. 143,
FERC Order No. 631, Accounting, Financial Reporting, and Rate Filing
Requirements for Asset Retirement Obligations, and related accounting and
ratemaking issues for MPSC-jurisdictional electric and gas utilities. On
December 5, 2005, the ALJ issued a proposal for decision recommending that the
MPSC dismiss the proceeding. In March 2006, the MPSC remanded the case to the
ALJ for findings and recommendations. We consider the proceeding a clarification
of accounting and reporting issues that relate to all Michigan utilities. We
cannot predict the outcome of the proceeding.

7: EXECUTIVE INCENTIVE COMPENSATION

We provide a Performance Incentive Stock Plan (the Plan) to key employees and
non-employee directors based on their contributions to the successful management
of the company. The Plan has a five-year term, expiring in May 2009.

All grants awarded under the Plan for the three months ended March 31, 2006 and
in 2005 were in the form of restricted stock. Restricted stock awards are
outstanding shares to which the recipient has full voting and dividend rights
and vest 100 percent after three years of continued employment. Restricted stock
awards granted to officers in 2005 and 2004 are also subject to the achievement
of specified levels of total shareholder return, including a comparison to a
peer group of companies. All restricted stock awards are subject to forfeiture
if employment terminates before vesting. However, restricted shares may continue
to vest upon retirement or disability and vest fully if control of CMS Energy
changes, as defined by the Plan.

The Plan also allows for the following types of awards:

      -     stock options,

      -     stock appreciation rights,

      -     phantom shares, and

      -     performance units.


For the three months ended March 31, 2006 and in 2005, we did not grant any of
these types of awards.

Select participants may elect to receive all or a portion of their incentive
payments under the Officer's Incentive Compensation Plan in the form of cash,
shares of restricted common stock, shares of restricted stock units, or any
combination of these. These participants may also receive awards of additional
restricted common stock or restricted stock units, provided the total value of
these additional grants does

                                     CE-48
<PAGE>

                                                        Consumers Energy Company

not exceed $2.5 million for any fiscal year.

Shares awarded or subject to stock options, phantom shares, and performance
units may not exceed 6 million shares from June 2004 through May 2009, nor may
such awards to any participant exceed 250,000 shares in any fiscal year. We may
issue awards of up to 4,943,630 shares of common stock under the Plan at March
31, 2006. Shares for which payment or exercise is in cash, as well as shares or
stock options that are forfeited, may be awarded or granted again under the
Plan.

SFAS NO. 123(R) AND SAB NO. 107, SHARE-BASED PAYMENT: SFAS No. 123(R) was
effective for us on January 1, 2006. SFAS No. 123(R) 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 value over the required service
period of the awards. As a result, future compensation costs for share-based
awards with accelerated service provisions upon retirement will need to be fully
expensed by the period in which the employee becomes eligible to retire. At
January 1, 2006, unrecognized compensation cost for such share-based awards held
by retirement-eligible employees was not material.

We elected to adopt the modified prospective method recognition provisions of
this Statement instead of retrospective restatement. The modified prospective
method applies the recognition provisions to all awards granted or modified
after the adoption date of this Statement. We adopted the fair value method of
accounting for share-based awards effective December 2002. Therefore, SFAS No.
123(R) did not have a significant impact on our results of operations when it
became effective.

The SEC issued SAB No. 107 to express the views of the staff regarding the
interaction between SFAS No. 123(R) and certain SEC rules and regulations. Also,
the SEC issued SAB No. 107 to provide the staff's views regarding the valuation
of share-based payments, including assumptions such as expected volatility and
expected term. We applied the additional guidance provided by SAB No. 107 upon
implementation of SFAS No. 123(R) with no impact on our consolidated results of
operations.

The following table summarizes restricted stock activity under the Plan:

<TABLE>
<CAPTION>
                                                                                             Weighted-
                                                                                          Average Grant
Restricted Stock                                                Number of Shares         Date Fair Value
- ----------------                                                ----------------         ---------------
<S>                                                             <C>                      <C>
Nonvested at December 31, 2005                                       1,141,316                   $10.84
  Granted                                                                2,000                   $13.38
  Vested (a)                                                                 -                        -
  Forfeited                                                                  -                        -
                                                                     ---------                   ------
Nonvested at March 31, 2006                                          1,143,316                   $10.84
                                                                     =========                   ======
</TABLE>

(a) No shares vested during the three months ended March 31, 2006 and 2005.

We calculate the fair value of restricted shares granted based on the price of
our common stock on the grant date and expense the fair value over the required
service period. Total compensation cost recognized in income related to
restricted stock was $1 million for the three months ended March 31, 2006 and
2005. The total related income tax benefit recognized in income was less than $1
million for the three months ended March 31, 2006 and 2005. At March 31, 2006,
there was $8 million of total unrecognized compensation cost related to
restricted stock. We expect to recognize this cost over a weighted-average
period of 2.1 years.

                                     CE-49
<PAGE>

                                                        Consumers Energy Company

The following table summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
                                                                                             Weighted-
                                               Options               Weighted-                Average          Aggregate
                                             Outstanding,             Average                Remaining         Intrinsic
                                            Fully Vested,             Exercise              Contractual          Value
Stock Options                              and Exercisable             Price                   Term          (In Millions)
- -------------                              ---------------           ---------              -----------      -------------
<S>                                        <C>                       <C>                    <C>              <C>
Outstanding at December 31, 2005               1,714,787                $18.13                5.9 years              $ (6)
  Granted                                              -                     -
  Exercised                                      (14,000)                $6.35
  Cancelled or Expired                                 -                     -
                                               ---------                ------                ---------              ----
Outstanding at March 31, 2006                  1,700,787                $18.22                5.6 years              $ (9)
                                               =========                ======                =========              ====
</TABLE>

Stock options give the holder the right to purchase common stock at a price
equal to the fair value of our common stock on the grant date. Stock options are
exercisable upon grant, and expire up to 10 years and one month from the grant
date. We issue new shares when participants exercise stock options. For the
three months ended March 31, 2006, the total intrinsic value of stock options
exercised was less than $1 million. Cash received from exercise of these stock
options was less than $1 million. Since we utilized tax loss carryforwards, we
were not able to realize the excess tax benefits upon exercise of stock options.
Therefore, we did not recognize the related excess tax benefits in equity. No
stock options were exercised for the three months ended March 31, 2005.

8: REPORTABLE SEGMENTS

Our reportable segments are strategic business units organized and managed by
the nature of the products and services each provides. We evaluate performance
based upon the net income of each segment. We operate principally in two
segments: electric utility and gas utility.

The following table shows our financial information by reportable segment:

<TABLE>
<CAPTION>
                                                                                           In Millions
                                                                               -----------------------
Three Months Ended March 31                                                       2006            2005
- ---------------------------                                                       ----            ----
<S>                                                                            <C>             <C>
Operating revenue
      Electric                                                                    $729            $628
      Gas                                                                        1,041             992
      Other                                                                         12              12
                                                                               -------         -------

Total Operating Revenue                                                        $ 1,782         $ 1,632
                                                                               =======         =======
Net income available to common stockholder
      Electric                                                                    $ 29             $33
      Gas                                                                           37              58
      Other                                                                        (56)             66
                                                                               -------         -------

Total Net Income Available to Common Stockholder                               $    10         $   157
                                                                               =======         =======
</TABLE>

                                     CE-50
<PAGE>

                                                        Consumers Energy Company

<TABLE>
<CAPTION>
                                                                                                 In Millions
                                                                    ----------------------------------------
                                                                    March 31, 2006         December 31, 2005
                                                                    --------------         -----------------
<S>                                                                 <C>                    <C>
Assets
      Electric (a)                                                     $  7,864                 $  7,743
      Gas (a)                                                             3,193                    3,600
      Other                                                               1,886                    1,814
                                                                       --------                 --------

Total Assets                                                           $ 12,943                 $ 13,157
                                                                       ========                 ========
</TABLE>

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

                                     CE-51
<PAGE>

                                                        Consumers Energy Company

                       This page intentionally left blank

                                     CE-52
<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, due to the fact that the material weakness in CMS Energy's internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) identified in its 2005 Form 10-K, has not been tested to
confirm evidence of remediation, its disclosure controls and procedures were not
effective at March 31, 2006.

Management continues to validate the remedial actions it has taken to correct
the income tax-related material weakness identified in CMS Energy's 2005 Form
10-K. Management believes it has implemented the necessary processes and
procedures to overcome the material weakness relating to income taxes; however,
these processes and procedures, and correlating controls, have not been in place
for an adequate period of time to conclude that the material weakness has been
remediated at March 31, 2006. Management will continue to monitor and test the
continuous effectiveness of these controls and procedures and make appropriate
modifications, as necessary.

Management believes that the consolidated financial statements included in this
Form 10-Q fairly present, in all material respects, CMS Energy's financial
condition, results of operations and cash flows for the periods presented.

Internal Control Over Financial Reporting: Except as otherwise discussed herein,
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.

                                      CO-1
<PAGE>

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, 2005. Reference is also made to the Condensed Notes to Consolidated
Financial Statements, in particular, Note 2, 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.

CMS ENERGY

SEC REQUEST

On August 5, 2004, CMS Energy received a request from the SEC that CMS Energy
voluntarily produce documents and data relating to the SEC's inquiry into
payments made to the 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. The SEC
subsequently issued a formal order of private investigation on this matter 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 is cooperating and has been and will
continue to produce documents responsive to the subpoena.

GAS INDEX PRICE REPORTING LITIGATION

On February 28, 2006, CMS MST and CMS Field Services (which was sold to Cantera
Natural Gas, LLC and for which CMS Energy has indemnification obligations)
reached an agreement, subject to court approval, to settle a consolidated class
action lawsuit filed in the United States District Court for the Southern
District of New York. Cornerstone Propane Partners, L.P. filed the original
complaint in August 2003 as a putative class action and it was later
consolidated with two similar complaints filed by other plaintiffs. The amended
consolidated complaint, filed in January 2004, alleged that false natural gas
price reporting by the defendants manipulated the prices of NYMEX natural gas
futures and options. The complaint contained two counts under the Commodity
Exchange Act, one for manipulation and one for aiding and abetting violations.
The settlement agreement among the plaintiffs, CMS MST and CMS Field Services
requires a $6.975 million cash payment that CMS MST is responsible to pay. The
payment was made into a settlement fund that will be used to pay the class
members as well as any legal fees awarded to plaintiffs' attorneys. CMS Energy
established a reserve for this amount in the fourth quarter of 2005.

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

                                      CO-2
<PAGE>

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. The court issued an order granting the
motion to dismiss on December 19, 2005 and entered judgment in favor of
defendants on December 23, 2005. Plaintiffs have appealed the dismissal to the
Ninth Circuit Court of Appeals.

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 in Natural Gas Antitrust Cases V were ordered to file a
consolidated complaint, but a consolidated

                                      CO-3
<PAGE>

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. On August 10, 2005, certain
defendants, including CMS MST, filed a motion to dismiss and CMS Energy and CMS
Field Services filed a motion to dismiss for lack of personal jurisdiction.
Plaintiffs have opposed the motions to dismiss. An order transferring the case
to the MDL proceeding was issued on or about August 11, 2005, and the motions to
dismiss remain pending.

On November 20, 2005, CMS MST was served with a summons and complaint which
named CMS Energy, CMS MST and CMS Field Services as defendants in a new putative
class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc.,
et al. Similar to the other actions that have been filed, the complaint alleges
that during the putative class period, January 1, 2000 through October 31, 2002,
defendants engaged in a scheme to violate the Kansas Restraint of Trade Act by
knowingly reporting false or inaccurate information to the publications, thereby
affecting the market price of natural gas. Plaintiffs, who allege they purchased
natural gas from defendants and other for their facilities, are seeking
statutory full consideration damages consisting of the full consideration paid
by plaintiffs for natural gas. On December 7, 2005, the case was removed to the
United States District Court for the District of Kansas and later that month a
motion was filed to transfer the case to the MDL proceeding. On January 6, 2006,
plaintiffs filed a motion to remand the case to Kansas state court. On January
23, 2006, a conditional transfer order transferring the case to the MDL
proceeding was issued. On February 7, 2006, plaintiffs filed an opposition to
the conditional transfer order.

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.
The cases were consolidated into a single lawsuit, which 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, the court granted a motion to dismiss
Consumers and three of the individual defendants, but denied the motions to
dismiss CMS Energy and the 13 remaining individual defendants. The court issued
an opinion and order dated March 24, 2006, granting in part and denying in part
plaintiffs' amended motion for class certification.

                                      CO-4
<PAGE>

The court conditionally certified a class consisting of "[a]ll persons who
purchased CMS Common Stock during the period of October 25, 2000 through and
including May 17, 2002 and who were damaged thereby." Appeals and motions for
reconsideration of the court's ruling have been lodged by the parties. 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, filed in July 2002 in
United States District Court for the Eastern District of Michigan, brought as
purported class actions on behalf of participants and beneficiaries of the CMS
Employees' Savings Plan (the Plan). 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, as
well as other equitable relief and legal fees. On March 1, 2006, CMS Energy and
Consumers reached an agreement, subject to court and independent fiduciary
approval, to settle the lawsuits. The settlement agreement requires a $28
million cash payment by CMS Energy's primary insurer that will be used to pay
Plan participants and beneficiaries for alleged losses, as well as any legal
fees and expenses. In addition, CMS Energy agreed to certain other steps
regarding administration of the Plan. The court issued an order on March 23,
2006, granting preliminary approval of the settlement and scheduling the
Fairness Hearing for June 15, 2006.

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 1A. RISK FACTORS

Other than discussed below, there have been no material changes to the Risk
Factors as previously disclosed in CMS Energy's and Consumers' Forms 10-K for
the year ended December 31, 2005.

RISKS RELATED TO CMS ENERGY

      CMS ENERGY'S NATURAL GAS PIPELINE AND ELECTRIC GENERATION PROJECT LOCATED
IN ARGENTINA AND CHILE MAY BE NEGATIVELY IMPACTED BY ARGENTINE GOVERNMENTAL
RESTRICTIONS PLACED ON NATURAL GAS EXPORTS TO CHILE.

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

      Argentina and Bolivia extended the term of that agreement through December
31, 2006. With the Bolivian gas supply, Argentina relaxed its export
restrictions to GasAtacama, currently allowing GasAtacama to receive
approximately 50 percent of its contracted gas quantities at its electric
generating

                                      CO-5
<PAGE>

plant. On May 1, 2006, the Bolivian government announced its intention to
nationalize the natural gas industry. At this point in time, it is not possible
to predict the outcome of these events and their effect on the earnings of
GasAtacama. At March 31, 2006, the value of our investment in GasAtacama was
$378 million.

RISKS RELATED TO CMS ENERGY AND CONSUMERS

      CMS ENERGY AND CONSUMERS MAY BE NEGATIVELY IMPACTED BY THE RESULTS OF AN
EMPLOYEE BENEFIT PLAN LAWSUIT.

      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 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. On March 1, 2006, CMS Energy and Consumers reached an agreement,
subject to court and independent fiduciary approval, to settle the consolidated
lawsuits. The settlement agreement among the plaintiffs and the defendants
requires a $28 million cash payment that will be paid by CMS Energy's primary
insurer and will be used to pay Plan participants and beneficiaries for alleged
losses, as well as any legal fees and expenses awarded to plaintiffs' attorneys.
In addition, CMS Energy agreed to enhance fiduciary education and training,
improve discussion of investment diversification with Plan participants and not
prevent, for a period of four years, Plan participants from selling CMS Energy
Common Stock held in the Plan. The court issued an order on March 23, 2006,
granting preliminary approval of the settlement and scheduling the Fairness
Hearing for June 15, 2006.

      CMS ENERGY AND CONSUMERS COULD INCUR SIGNIFICANT CAPITAL EXPENDITURES TO
COMPLY WITH ENVIRONMENTAL STANDARDS AND FACE DIFFICULTY IN RECOVERING THESE
COSTS ON A CURRENT BASIS.

      CMS Energy, Consumers, and their subsidiaries are subject to costly and
increasingly stringent environmental regulations. They expect that the cost of
future environmental compliance, especially compliance with clean air and water
laws, will be significant.

     In March 2005, the EPA issued the Clean Air Mercury Rule, which requires
initial reductions of mercury emissions from coal-fired electric generating
plants by 2010 and further reductions by 2018. The Clean Air Mercury Rule
establishes a cap-and-trade system for mercury emissions that is similar to the
system used in the Clean Air Interstate Rule. The industry has not reached a
consensus on the technical methods for curtailing mercury emissions. However,
Consumers anticipates its capital and operating costs for mercury emissions
reductions required by the Clean Air Mercury Rule to be significantly less than
what was required for selective catalytic reduction technology used for nitrogen
oxide compliance.

     In April 2006, Michigan's governor announced a plan that would result in
mercury emissions reductions of 90 percent by 2015. This plan adopts the Federal
Clean Air Mercury Rule through its first phase, which ends in 2010. After the
year 2010, the mercury emissions reduction standards outlined in the governor's
plan become more stringent than those included in the Federal Clean Air Mercury
Rule. If implemented as proposed, Consumers anticipates its costs to comply with
the governor's plan will exceed Federal Clean Air Mercury Rule compliance costs.
Consumers will work with the MDEQ on the details of these rules.

                                      CO-6
<PAGE>

      These and other required environmental expenditures, if not recovered from
customers in Consumers' rates, may require CMS Energy and/or Consumers to seek
significant additional financing to fund these expenditures and could strain
their cash resources.

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

None.

ITEM 5. OTHER INFORMATION

A shareholder who wishes to submit a proposal for consideration at the CMS
Energy 2007 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 15,
2006. In any event if CMS Energy has not received written notice of any matter
to be proposed at that meeting by February 28, 2007, 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

(10)(a)     $300 million Credit Agreement dated as of March 31, 2006 among
            Consumers, the Banks, the Administrative Agent, the Syndication
            Agent, the Co-Documentation Agents, and the Co-Managing 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-7
<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: May 3, 2006             By:              /s/ Thomas J. Webb
                                             ----------------------------
                                                    Thomas J. Webb
                                             Executive Vice President and
                                               Chief Financial Officer

                                        CONSUMERS ENERGY COMPANY
                                               (Registrant)

Dated: May 3, 2006             By:              /s/ Thomas J. Webb
                                             ----------------------------
                                                    Thomas J. Webb
                                             Executive Vice President and
                                               Chief Financial Officer

                                      CO-8

<PAGE>

                                 EXHIBIT INDEX

EX. NO.     DESCRIPTION
- -------     -----------

(10)(a)     $300 million Credit Agreement dated as of March 31, 2006 among C
            onsumers, the Banks, the Administrative Agent, the Syndication
            Agent, the Co-Documentation Agents, and the Co-Managing 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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(A)
<SEQUENCE>2
<FILENAME>k04805exv10wxay.txt
<DESCRIPTION>CREDIT AGREEMENT DATED AS OF MARCH 31, 2006
<TEXT>
<PAGE>

                                                                   EXHIBIT 10(a)

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

                                CREDIT AGREEMENT

                           DATED AS OF MARCH 31, 2006

                                      AMONG

                            CONSUMERS ENERGY COMPANY,
                                AS THE BORROWER,

                    THE FINANCIAL INSTITUTIONS NAMED HEREIN,
                                  AS THE BANKS,

                               BARCLAYS BANK PLC,
                            AS ADMINISTRATIVE AGENT,

                         UNION BANK OF CALIFORNIA, N.A.,
                              AS SYNDICATION AGENT,

                                  BNP PARIBAS,
                      DEUTSCHE BANK TRUST COMPANY AMERICAS
                                       AND
                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                           AS CO-DOCUMENTATION AGENTS,

                                       AND

                                 CITIBANK, N.A.,
                          J.P. MORGAN CHASE BANK, N.A.,
                             MERRILL LYNCH BANK USA
                                       AND
                            THE BANK OF NOVA SCOTIA,
                             AS CO-MANAGING AGENTS,

                                BARCLAYS CAPITAL
                                       AND
                         UNION BANK OF CALIFORNIA, N.A.
                    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.........................................................................................    11

1.3      Accounting Terms.......................................................................................    11

ARTICLE II THE ADVANCES.........................................................................................    12

2.1      Commitment.............................................................................................    12

2.2      Repayment..............................................................................................    12

2.3      Ratable Loans..........................................................................................    12

2.4      Types of Advances......................................................................................    12

2.5      Fees and Changes in Commitments........................................................................    12

2.6      Minimum Amount of Advances.............................................................................    14

2.7      Optional Principal Payments............................................................................    14

2.8      Method of Selecting Types and Interest Periods for New Advances........................................    14

2.9      Conversion and Continuation of Outstanding Advances....................................................    15

2.10     Interest Rates, Interest Payment Dates.................................................................    15

2.11     Rate after Maturity....................................................................................    16

2.12     Method of Payment......................................................................................    16

2.13     Bonds; Record-keeping; Telephonic Notices..............................................................    16

2.14     Lending Installations..................................................................................    17

2.15     Non-Receipt of Funds by the Agent......................................................................    17

ARTICLE III  SECURITY...........................................................................................    17

3.1      Mortgage and Security Agreement........................................................................    17

3.2      First Mortgage Bonds...................................................................................    18

3.3      Release of Collateral..................................................................................    18

ARTICLE IV  CHANGE IN CIRCUMSTANCES.............................................................................    18

4.1      Yield Protection.......................................................................................    18

4.2      Replacement Bank.......................................................................................    19

4.3      Availability of Eurodollar Rate Loans..................................................................    20

4.4      Funding Indemnification................................................................................    20
</TABLE>

                                      -i-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                                                   PAGE
<S>                                                                                                                <C>
4.5      Taxes..................................................................................................    20

4.6      Bank Certificates, Survival of Indemnity...............................................................    22

ARTICLE V   REPRESENTATIONS AND WARRANTIES......................................................................    22

5.1      Incorporation and Good Standing........................................................................    23

5.2      Corporate Power and Authority: No Conflicts............................................................    23

5.3      Governmental Approvals.................................................................................    23

5.4      Legally Enforceable Agreements.........................................................................    23

5.5      Financial Statements...................................................................................    23

5.6      Litigation.............................................................................................    23

5.7      Margin Stock...........................................................................................    24

5.8      ERISA..................................................................................................    24

5.9      Insurance..............................................................................................    24

5.10     Taxes..................................................................................................    24

5.11     Investment Company Act.................................................................................    24

5.12     Bonds..................................................................................................    24

5.13     Disclosure.............................................................................................    24

5.14     OFAC...................................................................................................    24

ARTICLE VI  AFFIRMATIVE COVENANTS...............................................................................    24

6.1      Payment of Taxes, Etc..................................................................................    24

6.2      Maintenance of Insurance...............................................................................    25

6.3      Preservation of Corporate Existence, Etc...............................................................    25

6.4      Compliance with Laws, Etc..............................................................................    25

6.5      Visitation Rights......................................................................................    25

6.6      Keeping of Books.......................................................................................    25

6.7      Reporting Requirements.................................................................................    25

6.8      Use of Proceeds........................................................................................    27

6.9      Maintenance of Properties, Etc.........................................................................    27

6.10     Bonds..................................................................................................    27

ARTICLE VII  NEGATIVE COVENANTS.................................................................................    27
</TABLE>

                                      -ii-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                                                   PAGE
<S>                                                                                                                <C>
7.1      Liens..................................................................................................    28

7.2      Sale of Assets.........................................................................................    29

7.3      Mergers, Etc...........................................................................................    29

7.4      Compliance with ERISA..................................................................................    29

7.5      Change in Nature of Business...........................................................................    30

7.6      Restricted Payments....................................................................................    30

7.7      Off-Balance Sheet Liabilities..........................................................................    30

7.8      Transactions with Affiliates...........................................................................    30

ARTICLE VIII   FINANCIAL COVENANTS..............................................................................    30

8.1      Debt to Capital Ratio..................................................................................    30

8.2      Interest Coverage Ratio................................................................................    30

ARTICLE IX   EVENTS OF DEFAULT..................................................................................    30

9.1      Events of Default......................................................................................    30

9.2      Remedies...............................................................................................    32

ARTICLE X   WAIVERS, AMENDMENTS AND REMEDIES....................................................................    32

10.1     Amendments.............................................................................................    32

10.2     Preservation of Rights.................................................................................    33

ARTICLE XI   CONDITIONS PRECEDENT...............................................................................    33

11.1     Initial Advance Prior to the FMB Issue Date............................................................    33

11.2     Initial Advance After the FMB Issue Date...............................................................    34

11.3     Each Advance...........................................................................................    35

ARTICLE XII  GENERAL PROVISIONS.................................................................................    35

12.1     Successors and Assigns.................................................................................    35

12.2     Survival of Representations............................................................................    37

12.3     Governmental Regulation................................................................................    37

12.4     Taxes..................................................................................................    37

12.5     Choice of Law..........................................................................................    37

12.6     Headings...............................................................................................    37

12.7     Entire Agreement.......................................................................................    37
</TABLE>

                                     -iii-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                                                   PAGE
<S>                                                                                                                <C>
12.8     Expenses; Indemnification..............................................................................    37

12.9     Severability of Provisions.............................................................................    38

12.10    Setoff.................................................................................................    38

12.11    Ratable Payments.......................................................................................    38

12.12    Nonliability...........................................................................................    39

12.13    Other Agents...........................................................................................    39

12.14    USA Patriot Act........................................................................................    39

12.15    Platform...............................................................................................    39

ARTICLE XIII   THE AGENT........................................................................................    41

13.1     Appointment............................................................................................    41

13.2     Powers.................................................................................................    41

13.3     General Immunity.......................................................................................    41

13.4     No Responsibility for Loans, Recitals, Etc.............................................................    41

13.5     Action on Instructions of Banks........................................................................    41

13.6     Employment of Agents and Counsel.......................................................................    42

13.7     Reliance on Documents; Counsel.........................................................................    42

13.8     Agent's Reimbursement and Indemnification..............................................................    42

13.9     Rights as a Bank.......................................................................................    42

13.10    Bank Credit Decision...................................................................................    43

13.11    Successor Agent........................................................................................    43

13.12    Agent and Arranger Fees................................................................................    44

ARTICLE XIV   NOTICES...........................................................................................    44

14.1     Giving Notice..........................................................................................    44

14.2     Change of Address......................................................................................    44

ARTICLE XV  COUNTERPARTS........................................................................................    44

ARTICLE XVI  RELEASE OF BONDS...................................................................................    44
</TABLE>

                                      -iv-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>            <C>
SCHEDULES

Schedule 1     Pricing Schedule
Schedule 2     Commitment Schedule
Schedule 3     Notice Information

EXHIBITS

Exhibit A      Form of Supplemental Indenture

Exhibit B-1    Required Opinions from General Counsel or Assistant General Counsel (Section 11.1)
Exhibit B-2    Required Opinion from Miller, Canfield, Paddock and Stone, P.L.C. (Section 11.1)
Exhibit B-3    Required Opinions from General Counsel or Assistant General Counsel (Section 11.2)
Exhibit B-4    Required Opinion from Miller, Canfield, Paddock and Stone, P.L.C. (Section 11.2)
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
Exhibit I      Form of Mortgage and Security Agreement
</TABLE>

                                      -v-
<PAGE>

                                CREDIT AGREEMENT

      This Credit Agreement, dated as of March 31, 2006, 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 Barclays Bank PLC, as Agent.

                                   WITNESSETH:

      WHEREAS, the Company has requested, and the Banks have agreed to enter
into, a credit facility in an aggregate amount of $300,000,000 (subject to
increase as provided herein);

      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 Barclays Bank PLC 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 Outstandings" means, at any time, the aggregate principal
amount of all outstanding Advances.

      "Agreement" means this Credit Agreement, as amended from time to time.

<PAGE>

      "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.

      "Arranger" means each of Barclays Capital and Union Bank of California,
N.A. in its capacity as Co-Lead Arranger and Joint Book Runner for the credit
facility created hereby.

      "Assignment Agreement" - see Section 12.1(e).

      "Banks" - see the preamble.

      "Barclays" means Barclays Bank PLC, in its individual capacity, and its
successors and assigns.

      "Base Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the per annum interest rate determined by the offered
rate per annum at which deposits in U.S. dollars, for a period equal or
comparable to such Interest Period, appears on 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 Barclays' 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 Barclays' 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 a Supplemental Indenture issued in favor of, and in form and substance
satisfactory to, the Agent.

      "Borrowing Date" means a date on which an Advance is made hereunder.

      "Borrowing Notice" - see Section 2.8.

      "Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in 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

                                       2
<PAGE>

(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.

      "Commitment" means, for each Bank, the obligation of such Bank to make
Loans to 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, (c) 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, and (d)
non-cash losses on mark-to-market valuation of contracts minus (ii) to the
extent included in such Consolidated Net Income, extraordinary gains realized
other than in the ordinary course of business and non-cash gains on
mark-to-market valuation of contracts, 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
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.

                                       3
<PAGE>

      "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, any promissory note issued
pursuant to Section 2.13, prior to the FMB Issue Date, the Mortgage and Security
Agreement, and on and after the FMB Issue Date, the Supplemental Indenture and
the Bonds.

      "Debt" means, with respect to any Person, and without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all 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.

      "Effective Date" means March 31, 2006.

      "Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any governmental agency or
authority relating in any way to the environment, preservation or reclamation of
natural resources, the management, release or threatened release of any
Hazardous Substance or to health and safety matters.

      "Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), 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

                                       4
<PAGE>

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 or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Bank or the Agent is incorporated or organized or (ii) the jurisdiction in
which the Agent's or such Bank's principal executive office or such Bank's
applicable Lending Installation is located.

      "Federal Funds 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.

      "Final Maturity Date" - see Section 2.2.

      "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.

                                       5
<PAGE>

      "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 Issue Date" - see Section 3.2.

      "FMB Release Date" means the date on which the Bonds are released pursuant
to Article XVI.

      "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 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

                                       6
<PAGE>

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 the Indenture
Trustee.

      "Indenture Trustee" means JPMorgan Chase Bank, N.A., as trustee, and its
successors, under the Indenture.

      "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 Revolving Termination Date
(or, if the Company exercises the Term Out Option, the Final Maturity Date).

      "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.

      "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
Outstandings 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

                                       7
<PAGE>

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.

      "Moody's" means Moody's Investors Service, Inc. or any successor thereto.

      "Mortgage and Security Agreement" means a Mortgage and Security Agreement
substantially in the form of Exhibit I between the Company and the Agent.

      "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.

      "Net Proceeds" means, with respect to any sale or issuance of securities
or incurrence of Debt by any Person, the excess of (i) the gross cash proceeds
received by or on behalf of such Person in respect of such sale, issuance or
incurrence (as the case may be) over (ii) customary underwriting commissions,
auditing and legal fees, printing costs, rating agency fees and other customary
and reasonable fees and expenses incurred by such Person in connection
therewith.

      "Net Worth" means, with respect to any Person, the excess of such Person's
total assets over its total liabilities, total assets and total liabilities each
to be determined in accordance with GAAP consistently applied, excluding 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 accrued and unpaid fees and all other obligations of
the Company to any Bank 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).

                                       8
<PAGE>

      "Payment Date" means the second Business Day of each calendar quarter
occurring after the Effective Date; provided that, solely for purposes of
payments of the Commitment Fee pursuant to Section 2.5, the first Payment Date
shall be July 5, 2006.

      "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.

      "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 Barclays or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

      "Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.

      "Pro Rata Share" means, with respect to 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.

      "Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.

                                       9
<PAGE>

      "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.

      "Revolving Termination Date" means the earlier of (i) March 30, 2007 and
(ii) the date on which the Commitments are terminated.

      "S&P" means Standard and Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., or any successor thereto.

      "SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.

      "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.

      "Term Out Option" - see Section 2.2.

      "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.

                                       10
<PAGE>

      "Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Credit
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid
Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).

      "Type" - see Section 2.4.

      "Unused Commitment" means, at any time, the Aggregate Commitment then in
effect minus the Aggregate Outstandings 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.

      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

                                       11
<PAGE>

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 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 Effective Date and prior to the
Revolving Termination Date, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make loans to the Company from time
to time (the "Loans"); provided that, after giving effect to the making of each
such Loan, the principal amount of such Bank's Loans shall not exceed its
Commitment. In no event may the Aggregate Outstandings exceed the Aggregate
Commitment. Subject to the terms and conditions of this Agreement, the Company
may borrow, repay and reborrow at any time prior to the Revolving Termination
Date. The Commitments shall expire on the Revolving Termination Date.

      2.2 Repayment. All outstanding Loans and all other unpaid obligations of
the Company hereunder shall be paid in full on the Revolving Termination Date;
provided that if (a) not less than ten Business Days prior to such date, the
Company submits a notice in writing to the Agent (which shall promptly notify
each Bank thereof) that it wishes to exercise its option pursuant to this
Section 2.2 (the "Term Out Option"), (b) the Company certifies on the Revolving
Termination Date that the representations and warranties contained in Article V
are true and correct in all material respects as of the Revolving Termination
Date and (c) no Default or Event of Default exists on the Revolving Termination
Date, then all outstanding Loans and all other unpaid obligations of the Company
hereunder shall be paid in full on the first anniversary of the Revolving
Termination Date (the "Final Maturity Date").

      2.3 Ratable Loans. Each Advance shall consist of Loans made by the several
Banks ratably according to their Pro Rata Shares.

                                       12
<PAGE>

      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 a commitment fee (the "Commitment Fee") at the
Commitment Fee Rate on the daily Unused Commitment from the Effective Date to
but not including the date on which this Agreement is terminated in full and all
of the Obligations hereunder have been paid in full. The 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 Revolving Termination Date
or, if the Company exercises the Term Out Option, the Final Maturity 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.

      (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 Outstandings. All accrued Commitment Fees shall be payable on the
effective date of any termination of the obligation of the Banks to make
Advances hereunder. Upon any permanent reduction in the Aggregate Commitment
pursuant to the terms of this Section 2.5(b) after the FMB Issue Date, 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 $200,000,000 (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 (which consent 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 after the FMB Issue Date and
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

                                       13
<PAGE>

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.

      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
unused 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

                                       14
<PAGE>

            (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 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

                                       15
<PAGE>

            (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 Revolving Termination Date (or, if the Company
exercises the Term Out Option, on the Final Maturity 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 Revolving Termination Date (or, if the Company exercises the Term Out
Option, on the Final Maturity 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 and interest on Floating Rate Advances based on the Federal
Funds Effective Rate shall be calculated for actual days elapsed on the basis of
a 360-day year. Interest on Floating Rate Advances based on the Prime Rate shall
be calculated for actual days elapsed on the basis of a 365- or 366-day year, as
appropriate. Interest on each Advance shall accrue from and including the date
such Advance is made to but excluding the date payment thereof is received in
accordance with Section 2.12. If any payment of principal of or interest on an
Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day (unless, in the case of a
Eurodollar Advance, such next succeeding Business Day falls in a new calendar
month, in which case such payment shall be due on the immediately preceding
Business Day) and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.

      2.11 Rate after Maturity. Any Advance not paid by the Company at maturity,
whether by acceleration or otherwise, shall bear interest until paid in full at
a rate per annum equal to the higher of (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 Schedule 3 (or at any other Lending Installation of the
Agent specified in writing by the Agent to the Company) not later than 1:00 p.m.
(New York time) on the date when due and shall be applied ratably by the Agent
among the Banks. Funds received after such time shall be deemed received on the
following Business Day unless the Agent shall have received from, or on behalf
of, the Company a Federal Reserve reference number with respect to such payment
before 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 Barclays, if any, for each payment of principal, interest and fees as such
payment becomes due hereunder.

      2.13 Bonds; Record-keeping; Telephonic Notices.

                                       16
<PAGE>

      (a) Beginning on the FMB Issue Date and continuing thereafter until the
FMB Release Date, the obligation of the Company to repay the Obligations shall
be evidenced by one or more Bonds. After the FMB Release Date, the Company
shall, at the request of any Bank deliver to such Bank 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, and (iii) the amount of any sum received by the Agent hereunder
from the Company and each Bank's share thereof.

      (d) The entries maintained in the accounts maintained pursuant to 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 at any Lending Installation selected by such Bank and
may change its Lending Installation from time to time. All terms of this
Agreement shall apply to any such Lending Installation and the 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 and for whose
account payments on the Loans 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

                                       17
<PAGE>

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
                                    SECURITY

      3.1 Mortgage and Security Agreement. Prior to the FMB Issue Date, the
Obligations shall be secured, pursuant to the Mortgage and Security Agreement,
by a second lien on the collateral securing the Company's First Mortgage Bonds
(excluding (a) surplus land at the Company's Ludington pumped storage plant and
(b) the Palisades nuclear power plant property that the Company proposes to sell
that also includes a parcel of land located at the Company's Big Rock Point site
where spent nuclear fuel is stored (the "Palisades Property"); provided that if
the Company determines that it will not proceed with the sale of all or
substantially all of the Palisades Property, or the Company has not entered into
a contract for the sale of such property by December 31, 2006, then the Company
will promptly grant a second lien on such property to secure the Obligations).

      3.2 First Mortgage Bonds. Within 60 days after the date on which the
Company has capacity (in addition to the $300,000,000 of capacity existing on
the date hereof) to issue First Mortgage Bonds under the Indenture in an amount
at least equal to the Aggregate Commitment, the Company shall issue First
Mortgage Bonds to the Agent pursuant to the Bond Delivery Agreement and a
Supplemental Indenture (the date of such issuance, the "FMB Issue Date"). Upon
the issuance of such First Mortgage Bonds, the Agent shall release the second
lien securing the Obligations referred to in Section 3.1.

      3.3 Release of Collateral. So long as the Obligations are secured by the
second lien referred to in Section 3.1, upon the request of the Company, the
Agent will promptly execute a release of such lien on any collateral that has
been contracted to be sold or otherwise disposed of by the Company if the
Indenture Trustee has released the lien on such property securing the First
Mortgage Bonds; provided that if an Acceleration (as defined in the Mortgage and
Security Agreement) has occurred, the Agent shall not be obligated to release
such lien unless it has received satisfactory evidence that the net proceeds of
such disposition will be applied to repay (a) First Mortgage Bonds, (b) the
Obligations or (c) ratably to the Obligations and to Debt of the type referred
to in the proviso to Section 7.1(p). Any such request shall be accompanied by a
signed copy of the release by the Indenture Trustee and a form of release in
recordable form for the Agent to execute. Upon receipt of such documents,
subject to the proviso to the first sentence of this Section 3.3, the Agent
shall forthwith execute such form of release without any further documentation
being required.

                                   ARTICLE IV
                             CHANGE IN CIRCUMSTANCES

      4.1 Yield Protection.

                                       18
<PAGE>

      (a) If any change in law or any governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any
interpretation thereof by any agency or authority having jurisdiction over any
Bank,

            (i) subjects any Bank or any applicable Lending Installation to any
      increased tax, duty, charge or withholding on or from payments due from
      the Company (excluding taxation measured by or attributable to the overall
      net income of such Bank or such applicable Lending Installation, whether
      overall or in any geographic area), or changes the rate of taxation of
      payments to any Bank in respect of its Loans or other amounts due it
      hereunder, or

            (ii) imposes or increases or deems applicable any reserve,
      assessment, insurance charge, special deposit or similar requirement
      against assets of, deposits with or for the account of, or credit extended
      by any Bank or any applicable Lending Installation (including any reserve
      costs under Regulation D with respect to Eurocurrency liabilities (as
      defined in Regulation D)), or

            (iii) imposes any other condition the result of which is to increase
      the cost to any Bank or any applicable Lending Installation of making,
      funding or maintaining Loans, or reduces any amount receivable by any Bank
      or any applicable Lending Installation in connection with Loans or
      requires any Bank or any applicable Lending Installation to make any
      payment calculated by reference to its Loans or interest received by it,
      by an amount deemed material by such Bank, or

            (iv) affects the amount of capital required or expected to be
      maintained by any Bank or any applicable Lending Installation or any
      corporation controlling any Bank and such Bank determines the amount of
      capital required is increased by or based upon the existence of this
      Agreement or its obligation to make Loans hereunder or of commitments of
      this type,

then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1) setting
forth the basis for such determination and the additional amounts reasonably
determined by such Bank for the period of up to 90 days prior to the date on
which such certificate is delivered to the Company and the Agent, to be
sufficient to compensate such Bank in light of such circumstances, the Company
shall within 30 days of such delivery of such certificate pay to the Agent for
the account of such Bank the specified amounts set forth on such certificate.
The affected Bank shall deliver to the Company and the Agent a certificate
setting forth the basis of the claim and specifying in reasonable detail the
calculation of such increased expense, which certificate shall be prima facie
evidence as to such increase and such amounts. An affected Bank may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
may make such reasonable estimates, assumptions, allocations and the like that
such Bank in good faith determines to be appropriate, and such Bank's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.

                                       19
<PAGE>

      (b) No Bank shall be entitled to demand compensation or be compensated
hereunder to the extent that such compensation relates to any period of time
more than 90 days prior to the date upon which such Bank first notified the
Company of the occurrence of the event entitling such Bank to such compensation
(unless, and to the extent, that any such compensation so demanded shall relate
to the retroactive application of any event so notified to the Company).

      4.2 Replacement Bank.

      (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 Loans within the period ending on the later of such 30th day and
the last day of the longest of the then current Interest Periods. 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 Loans 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 Loans to the Company in the
amount of the outstanding Loans 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;

                                       20
<PAGE>

provided that the Company shall not be liable for any of the foregoing to the
extent they arise because of acceleration by any Bank.

      4.5 Taxes.

      (a) All payments by the Company to or for the account of any Bank or the
Agent hereunder or under any Bond shall be made free and clear of and without
deduction for any and all Taxes. If the Company shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to any Bank or
the Agent, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 4.5) such Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such deductions, (iii) the
Company shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.

      (b) In addition, the Company hereby agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Bond or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Bond ("Other Taxes").

      (c) The Company hereby agrees to indemnify the Agent and each Bank for the
full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed
on amounts payable under this Section 4.5) paid by the Agent or such Bank and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. Payments due under this indemnification shall be made
within 30 days of the date the Agent or such Bank makes demand therefor pursuant
to Section 4.6.

      (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

                                       21
<PAGE>

which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form or amendment with respect to it and such Bank
advises the Company and the Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax.

      (e) For any period during which a Non-U.S. Bank has failed to provide the
Company with an appropriate form pursuant to clause (d), above (unless such
failure is due to a change in treaty, law or regulation, or any change in the
interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Bank shall not be entitled to indemnification under
this Section 4.5 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Bank which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (d) above, the Company shall take such
steps as such Non-U.S. Bank shall reasonably request to assist such Non-U.S.
Bank to recover such Taxes.

      (f) Any Bank that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Bond
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Company (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.

      (g) If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered or properly completed, because such Bank failed to notify the
Agent of a change in circumstances which rendered its exemption from withholding
ineffective, or for any other reason), such Bank shall indemnify the Agent fully
for 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

                                       22
<PAGE>

the Base Eurodollar Rate applicable to such Loan whether in fact that is the
case or not. Unless otherwise provided herein, the amount specified in any
certificate shall be payable on demand after receipt by the Company of such
certificate. The obligations of the Company under Sections 4.1, 4.4 and 4.5
shall survive payment of the Obligations and termination of this Agreement;
provided that no Bank shall be entitled to compensation to the extent that such
compensation relates to any period of time more than 90 days after the
termination of this Agreement.

                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

      The Company hereby represents and warrants that:

      5.1 Incorporation and Good Standing. The Company is duly incorporated,
validly existing and in good standing under the laws of the State of Michigan.

      5.2 Corporate Power and Authority: No Conflicts. The execution, delivery
and performance by the Company of the Credit Documents are within the Company's
corporate powers, have been duly authorized by all necessary corporate action
and do not (i) violate the Company's charter, bylaws or any applicable law, or
(ii) breach or result in an event of default under any indenture or material
agreement, and do not result in or require the creation of any Lien upon or with
respect to any of its properties (except the Lien of the Indenture securing the
Bonds).

      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, 2005, 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), 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, 2005, there has been no Material Adverse Change.

                                       23
<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, 2005 and Current Report on
Form 8-K filed by the Company on March 1, 2006, 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
Effective 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 Loan will be used to buy or carry any
margin stock or to extend credit to others for the purpose of buying or carrying
any margin stock.

      5.8 ERISA. No 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 Bonds. On and after the FMB Issue Date, 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.

      5.13 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.

                                       24
<PAGE>

      5.14 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 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.

      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.

                                       25
<PAGE>

      6.7 Reporting Requirements. Furnish to the Agent, with sufficient copies
for each of the Banks:

      (a) as soon as practicable and in any event within five Business Days
after becoming aware of the occurrence of any Default or Event of Default, a
statement of a Designated Officer as to the nature thereof, and as soon as
practicable and in any event within five Business Days thereafter, a statement
of a Designated Officer as to the action which the Company has taken, is taking
or proposes to take with respect thereto;

      (b) as soon as available and in any event within 60 days after the end of
each of the first three quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its Consolidated
Subsidiaries as at the end of and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, or statements providing
substantially similar information (which requirement shall be deemed satisfied
by the delivery of the Company's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to the absence of
footnotes and to year-end audit adjustments) by a Designated Officer as having
been prepared in accordance with GAAP, together with (i) a certificate of a
Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto, and (ii) a certificate of a Designated Officer, in
substantially the form of Exhibit C hereto, setting forth the Company's
computation of the financial ratios specified in Sections 8.1 and 8.2 as of the
end of the immediately preceding fiscal quarter or year, as the case may be, of
the Company;

      (c) as soon as available and in any event within 120 days after the end of
each fiscal year of the Company, a copy of the 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 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,

                                       26
<PAGE>

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 Loans for
general corporate purposes and working capital. The Company will not, nor will
it permit any Subsidiary to, use any of the proceeds of the Loans to purchase or
carry any "margin stock" (as defined in Regulation U).

      6.9 Maintenance of Properties, Etc. The Company shall, and shall cause
each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar businesses and owning
similar properties, and not permit, commit or suffer any waste or abandonment of
any such Property, and from time to time 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

                                       27
<PAGE>

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 FMB Issue Date and continuing until the
earlier of (i) the FMB Release Date and (ii) the date on which the Commitments
have terminated and all Obligations have been paid in full, cause the face
amount of all Bonds to at all times be equal to or greater than the greater of
(a) the Aggregate Commitment and (b) the Aggregate Outstandings.

                                  ARTICLE VII
                               NEGATIVE COVENANTS

      So long as any Obligations shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Company shall not:

      7.1 Liens. Create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, except:

      (a) Liens created pursuant to the Indenture securing First Mortgage Bonds;
provided that the aggregate amount of First Mortgage Bonds issued after the
Effective Date and prior to the FMB Issue Date shall not exceed $300,000,000;

      (b) Liens securing pollution control bonds, or bonds issued to refund or
refinance pollution control bonds (including Liens securing obligations
(contingent or otherwise) of the Company under letter of credit agreements or
other reimbursement or similar credit enhancement agreements with respect to
pollution control bonds); provided that the aggregate face amount of any such
bonds so issued shall not exceed the aggregate face amount of such pollution
control bonds, as the case may be, so refunded or refinanced;

      (c) Liens in (and only in) assets acquired to secure Debt incurred to
finance the acquisition of such assets;

      (d) Statutory and common law banker's Liens on bank deposits;

      (e) Liens in respect of accounts receivable sold, transferred or assigned
by the Company;

      (f) Liens for taxes, assessments or other governmental charges or levies
not at the time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;

      (g) Liens of carriers, warehousemen, mechanics, materialmen and landlords
incurred in the ordinary course of business for sums not overdue or being
contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;

      (h) Liens incurred in the ordinary course of business in connection with
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, or

                                       28
<PAGE>

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;

      (o) Liens securing the Obligations;

      (p) Other Liens securing Debt in an aggregate amount not in excess of the
lesser of (i) $200,000,000 and (ii) the remainder of $500,000,000 less the
Aggregate Commitment; provided that such Debt (i) has no scheduled amortization
prior to the 91st day after the scheduled Revolving Termination Date (or, if the
Company exercises the Term Out Option, the Final Maturity Date), (ii) has no
borrowing conditions, mandatory prepayments, covenants or defaults that are more
restrictive than the provisions of this Agreement, (iii) is not entitled to
receive First Mortgage Bonds prior to the FMB Issue Date and (iv) prior to the
FMB Issue Date, has no collateral other than, if applicable, the collateral
described in the Mortgage and Security Agreement and the Lien thereon shared
with the Banks on a pro rata basis.

      7.2 Sale of Assets. During the period from the Effective Date through the
Revolving Termination Date or, if the Company exercises the Term Out Option, the
Final Maturity Date, 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, 2005.

      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,

                                       29
<PAGE>

immediately after giving effect thereto, (a) no event shall occur and be
continuing which constitutes a Default or Event of Default, (b) the Company is
the surviving corporation, (c) the Company shall not be liable with respect to
any Debt or allow its Property to be subject to any Lien which it could not
become liable with respect to or allow its Property to become subject to under
this Agreement on the date of such transaction and (d) the Company's Net Worth
shall be equal to or greater than its Net Worth immediately prior to such
merger.

      7.4 Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan, 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 or would result therefrom, 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 Chase Bank, N.A.,
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 or any Bank shall
have any Commitment under this Agreement, the Company shall:

                                       30
<PAGE>

      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.

                                   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 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;

                                       31
<PAGE>

      (e) The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iii) shall have had
any such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 30 consecutive days or more; or (iv) by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its property;
or (v) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 30 days or more; or (vi) shall take any
corporate action to authorize any of the actions set forth above in this 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 Issue Date, the Mortgage and Security Agreement
shall cease to be in full force and effect or the Company shall deny that it has
any liability or obligation under the Mortgage and Security Agreement.

      (i) On and after the FMB Issue Date but 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 to be terminated or suspended,
whereupon the same shall forthwith terminate, and/or (ii) declare the
Obligations to be forthwith due and payable, whereupon all Loans and all other
Obligations shall become and be forthwith due and payable; provided that in the
case of an Event of Default referred to in Section 9.1(e), the Commitments shall
automatically terminate

                                       32
<PAGE>

and the Obligations shall automatically become due and payable without notice,
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company.

                                   ARTICLE X
                        WAIVERS, AMENDMENTS AND REMEDIES

      10.1 Amendments. Subject to the provisions of this Article X, the Majority
Banks (or the Agent with the consent in writing of the Majority Banks) and the
Company may enter into written agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Credit Documents or changing in any
manner the rights of the Banks or the Company hereunder or waiving any Event of
Default hereunder; provided that no such supplemental agreement shall, without
the consent of all of the Banks:

      (a) Extend the maturity of any Loan or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon or
fees thereon.

      (b) Modify the percentage specified in the definition of Majority Banks.

      (c) Extend the Revolving Termination Date or the Final Maturity Date or
increase the amount of the Commitment of any Bank hereunder 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) (i) Prior to the FMB Issue Date, release all or substantially all of
the collateral described in the Mortgage and Security Agreement or (ii) on or
after the FMB Issue Date, 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.

      10.2 Preservation of Rights. No delay or omission of the Banks or the
Agent to exercise any right under the Credit Documents shall impair such right
or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of an Advance notwithstanding the existence
of a Default or Event of Default or the inability of the Company to satisfy the
conditions precedent to such Advance 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

                                       33
<PAGE>

afforded shall be cumulative and all shall be available to the Agent and the
Banks until the Obligations have been paid in full.

                                   ARTICLE XI
                              CONDITIONS PRECEDENT

      11.1 Initial Advance Prior to the FMB Issue Date. The Banks shall not be
required to make the initial Advance prior to the FMB Issue Date 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.

      (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) Counterparts of the Mortgage and Security Agreement executed by the
Company and the Agent.

      (g) Favorable opinions of: (i) the General Counsel or an Assistant General
Counsel of the Company or 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, in form and substance satisfactory to the Agent, that the
Company has obtained all governmental approvals, if any, necessary for it to
enter into the Credit Documents.

      (i) Such other documents as any Bank or its counsel may have reasonably
requested.

It shall be a further condition precedent to the making of the initial Advance
hereunder that the Company shall have paid (i) to the Agent for the account of
the Banks the fees required to be

                                       34
<PAGE>

paid on the Effective Date and (ii) to the Agent and each Arranger the fees
required to be paid to them pursuant to any fee letter.

      11.2 Initial Advance After the FMB Issue Date. The Banks shall not be
required to make the initial Advance on or after the FMB Issue Date hereunder
unless the Company has furnished to the Agent with sufficient copies for the
Banks:

      (a) The First Mortgage Bonds referred to in Section 3.2.

      (b) Favorable opinions of: (i) the General Counsel or an Assistant General
Counsel of the Company or CMS, as to the matters set forth in Exhibit B-3 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-4
and as to such other matters as the Agent may reasonably request. Such opinions
shall be addressed to the Agent and the Banks and shall be satisfactory in form
and substance to the Agent.

      (c) If no Advances were made prior to the FMB Issue Date, each of the
documents specified in the Section 11.1(a), (b), (c), (d) and (h) (to the extent
not previously delivered).

      (d) Such other documents as any Bank or its counsel may have reasonably
requested.

      11.3 Each Advance. The Banks shall not be required to make any Advance if
on the applicable Borrowing Date, (i) any Default or Event of Default exists,
(ii) any representation or warranty contained in Article V is not true and
correct as of such Borrowing Date, (iii) after the FMB Issue Date but prior to
the FMB Release Date, after giving effect to such Advance the Aggregate
Outstandings would exceed the face amount of all Bonds or (iv) all legal matters
incident to the making of such Advance are not satisfactory to the Banks and
their counsel; provided that, on any date following the Effective 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 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
Advance.

                                  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.

                                       35
<PAGE>

      (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 Loans); 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 its
Loans 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 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

                                       36
<PAGE>

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 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 Advances
herein contemplated.

      12.3 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Bank shall be obligated to extend credit to the
Company in violation of any limitation or prohibition provided by any applicable
statute or regulation.

      12.4 Taxes. Any taxes (excluding income taxes) payable or ruled payable by
any Federal or State authority in respect of the execution of the Credit
Documents shall be paid by the Company, together with interest and penalties, if
any.

      12.5 Choice of Law. 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

                                       37
<PAGE>

HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT AND THE
COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION OR ARISING HEREUNDER OR UNDER ANY
CREDIT DOCUMENT.

      12.6 Headings. Section headings in the Credit Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Credit Documents.

      12.7 Entire Agreement. The Credit Documents embody the entire agreement
and understanding between the Company, the Agent and the Banks and supersede all
prior agreements and understandings between the Company, the Agent and the Banks
relating to the subject matter thereof (other than those contained in the any
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
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 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, 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 Advance 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

                                       38
<PAGE>

made in Section 5.14. 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 Loans in a greater proportion than that received by
any other Bank, such Bank agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Banks so that after such purchase each Bank will
hold its Pro Rata Share of all outstanding Loans. If any Bank, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Bank agrees, promptly upon demand, to take
such action necessary such that all Banks share in the benefits of such
collateral ratably in proportion to their respective Pro Rata Share of the Total
Outstandings. 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 and the Agent, on the other hand, shall be solely
that of borrower and lender. None of the Agent, either Arranger or any Bank
shall have any fiduciary responsibilities to the Company. None of the Agent,
either Arranger 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 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 or any Bank shall have any liability with respect

                                       39
<PAGE>

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", a "Co-Documentation Agent" or
a "Co-Managing 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.

      12.15 Platform.

      (a) The Company shall use its commercially reasonable best efforts to
transmit to the Agent all information, documents and other materials that it is
obligated to furnish to the Agent pursuant to this Agreement and the other
Credit Documents, including all notices, requests, financial statements,
financial and other reports, certificates and other information materials, but
excluding (i) any Borrowing Notice, Conversion/Continuation Notice or notice of
prepayment, (ii) any notice of a Default or an Event of Default or (iii) any
communication that is required to be delivered to satisfy any condition
precedent to the effectiveness of this Agreement and/or any Advance hereunder
(all such non-excluded communications, collectively, "Communications"), in an
electronic/soft medium in a format reasonably acceptable to the Agent to such
e-mail address as designated by the Agent from time to time. In addition, the
Company shall continue to provide Communications to the Agent or any Bank in the
manner specified in this Agreement but only to the extent requested by the Agent
or such Bank. Each Bank and the Company further agrees that the Agent may make
Communications available to the Banks by posting Communications on IntraLinks or
a substantially similar electronic transmission system (the "Platform");
provided, that upon written notice to the Agent and the Company, any Bank (such
bank, a "Declining Bank") may decline to receive Communications via the Platform
and shall direct the Company to provide, and the Company shall so provide, such
Communications to such Declining Bank by delivery to such Declining Bank's
address in accordance with Section 14.1. Subject to the conditions set forth in
the proviso in the immediately preceding sentence, nothing in this Section 12.15
shall prejudice the right of the Agent to make Communications available to the
Banks in any other manner specified herein.

      (b) Each Bank (other than a Declining Bank) agrees that e-mail notice to
it (at the address provided pursuant to the next sentence and deemed delivered
as provided in clause (c)

                                       40
<PAGE>

below) specifying that a Communication has been posted to the Platform shall
constitute effective delivery of such Communication to such Bank for purposes of
this Agreement. Each Bank (other than a Declining Bank) agrees (i) to notify the
Agent in writing (including by electronic communication) from time to time to
ensure that the Agent has on record an effective e-mail address for such Bank to
which the foregoing notice may be sent by electronic transmission and (ii) that
the foregoing notice may be sent to such e-mail address.

      (c) Each party hereto (other than a Declining Bank) agrees that any
electronic Communication referred to in this Section 12.15 shall be deemed
delivered upon the posting of a record of such Communication as "sent" in the
e-mail system of the sending party or, in the case of any such Communication to
the Agent, upon the posting of a record of such Communication as "received" in
the e-mail system of the Agent, provided that if such Communication is not so
received by a Person during the normal business hours of such Person, such
Communication shall be deemed delivered at the opening of business on the next
business day for such Person.

      (d) Each party hereto acknowledges that the distribution of material
through an electronic medium is not necessarily secure and there are
confidentiality and other risks associated with such distribution.

      (e) EACH PARTY HERETO FURTHER ACKNOWLEDGES AND AGREES THAT:

            (i) NONE OF THE AGENT OR ITS AFFILIATES OR ANY OF THEIR RESPECTIVE
      OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES
      (COLLECTIVELY, THE "AGENT PARTIES") WARRANTS THE ADEQUACY OF THE PLATFORM
      OR THE ACCURACY OR COMPLETENESS OF ANY COMMUNICATION, AND EACH AGENT PARTY
      EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN ANY
      COMMUNICATION; AND

            (ii) NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY,
      INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
      PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR
      OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH ANY
      COMMUNICATION OR THE PLATFORM.

      (f) This Section 12.15 shall terminate on the date that no Agent Party is
the Agent under this Agreement.

                                  ARTICLE XIII
                                    THE AGENT

      13.1 Appointment. Barclays Bank PLC is hereby appointed Agent hereunder,
and each of the Banks irrevocably authorizes the Agent to act as the contractual
representative on behalf of such Bank. The Agent agrees to act as such upon the
express conditions contained in

                                       41
<PAGE>

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.

      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

                                       42
<PAGE>

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 Advance 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 Barclays 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 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

                                       43
<PAGE>

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 and
the Arrangers, for their respective accounts, such fees as may be agreed to
between or among any of such parties 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, at its address or facsimile number set
forth on Schedule 3, (y) in the case of any Bank, at its address or facsimile
number set forth in its Administrative Questionnaire or (z) in the case of any
party, at such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the Agent and the Company in accordance
with the provisions of this Section 14.1. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered (or, in the case
of electronic transmission, received) at the address specified in this Section;
provided that notices to the Agent under Article II shall not be effective until
received.

                                       44
<PAGE>

      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
                                  COUNTERPARTS

      This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Company, the Agent and the Banks and
each party has notified the Agent by facsimile or telephone that it has taken
such action.

                                  ARTICLE XVI
                                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]

                                       45
<PAGE>

      IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.

                                     CONSUMERS ENERGY COMPANY

                                     By: /s/ Laura L. Mountcastle
                                         ----------------------------------
                                         Name: Laura L. Mountcastle
                                         Title: Vice President and Treasurer

                                                                Credit Agreement

<PAGE>

                                     BARCLAYS BANK PLC, as Administrative Agent
                                     and as a Bank

                                     By: /s/ Sydney G. Dennis
                                         ----------------------------------
                                         Name: Sydney G. Dennis
                                         Title: Director

                                                                Credit Agreement

<PAGE>

                                     UNION BANK OF CALIFORNIA, N.A., as
                                     Syndication Agent and as a Bank

                                     By: /s/ Robert J. Olson
                                         ----------------------------------
                                         Name: Robert J. Olson
                                         Title: Senior Vice President

                                                                Credit Agreement

<PAGE>

                                     BNP PARIBAS

                                     By: /s/ Francis J. Delaney
                                         ----------------------------------
                                         Name: Francis J. Delaney
                                         Title: Managing Director

                                     By: /s/ Timothy F. Vincent
                                         ----------------------------------
                                         Name: Timothy F. Vincent
                                         Title: Director

                                                                Credit Agreement
<PAGE>

                                     DEUTSCHE BANK TRUST COMPANY AMERICAS

                                     By: /s/ Marcus M. Tarkington
                                         ----------------------------------
                                         Name: Marcus M. Tarkington
                                         Title: Director

                                     By: /s/ Evelyn Thierry
                                         ----------------------------------
                                         Name: Evelyn Thierry
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     WACHOVIA BANK, NATIONAL ASSOCIATION

                                     By: /s/ Lawrence N. Gross
                                         ----------------------------------
                                         Name: Lawrence N. Gross
                                         Title: Assistant Vice President

                                                                Credit Agreement

<PAGE>

                                     CITIBANK, N.A.

                                     By: /s/ Richard Evans
                                         ----------------------------------
                                         Name: Richard Evans
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     JPMORGAN CHASE BANK, N.A.

                                     By: /s/ Michael J. DeForge
                                         ----------------------------------
                                         Name: Michael J. DeForge
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     MERRILL LYNCH BANK USA

                                     By: /s/ Louis Alder
                                         ----------------------------------
                                         Name: Louis Alder
                                         Title: Director

                                                                Credit Agreement

<PAGE>

                                     THE BANK OF NOVA SCOTIA

                                     By: /s/ Thane Rattew
                                         ----------------------------------
                                         Name: Thane Rattew
                                         Title: Managing Director

                                                                Credit Agreement

<PAGE>

                                     UBS LOAN FINANCE LLC

                                     By: /s/ Richard L. Tavrow
                                         ----------------------------------
                                         Name: Richard L. Tavrow
                                         Title: Director

                                     By: /s/ Irja R. Otsa
                                         ----------------------------------
                                         Name: Irja R. Otsa
                                         Title: Associate Director

                                                                Credit Agreement

<PAGE>

                                     COMERICA BANK

                                     By: /s/ Blake W. Arnett
                                         ----------------------------------
                                         Name: Blake W. Arnett
                                         Title: Assistant Vice President

                                                                Credit Agreement

<PAGE>

                                     FIFTH THIRD BANK

                                     By: /s/ Randal Wolffis
                                         ----------------------------------
                                         Name: Randal Wolffis
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     LASALLE BANK MIDWEST NATIONAL ASSOCIATION

                                     By: /s/ David J. Lochner
                                         ----------------------------------
                                         Name: David J. Lochner
                                         Title: Senior Vice President

                                                                Credit Agreement

<PAGE>

                                     SUNTRUST BANK

                                     By: /s/ Kelley Brandenburg
                                         ----------------------------------
                                         Name: Kelley Brandenburg
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     WELLS FARGO BANK, NATIONAL ASSOCIATION

                                     By: /s/ Steven Buehler
                                         ----------------------------------
                                         Name: Steven Buehler
                                         Title: Vice President

                                     By: /s/ Peter Martinets
                                         ----------------------------------
                                         Name: Peter Martinets
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     HUNTINGTON NATIONAL BANK

                                     By: /s/ Patrick T. Barbour
                                         ----------------------------------
                                         Name: Patrick T. Barbour
                                         Title: Vice President

                                                                Credit Agreement

<PAGE>

                                     THE NORINCHUKIN BANK

                                     By: /s/ Masanori Shoji
                                         ----------------------------------
                                         Name: Masanori Shoji
                                         Title: Joint General Manager

                                                                Credit Agreement

<PAGE>

                                    EXHIBIT A

                        [FORM OF SUPPLEMENTAL INDENTURE]

                 ONE HUNDRED [_________] SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                [200[ ]-[ ]] COLLATERAL SERIES (INTEREST BEARING)

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

                             DATED AS OF [ ], 200[ ]

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

                            CONSUMERS ENERGY COMPANY

                                       TO

                           JPMORGAN CHASE BANK, N.A.,

                                     TRUSTEE

                                                          Counterpart ____ of 80

<PAGE>

      THIS ONE HUNDRED [_________]SUPPLEMENTAL INDENTURE, dated as of [ ], 200_
(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 Credit Agreement dated as of March
31, 2006 (as amended or otherwise modified from time to time, the "Credit
Agreement") with various financial institutions and Barclays Bank PLC, as
administrative agent (in such capacity, the "Agent") for the Banks (as 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 defined in the Credit Agreement), a new series of bonds under the Indenture;
and

      WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, [200[ ]-[ ]] Collateral Series
(Interest Bearing), each of which

                                      A-2
<PAGE>

bonds shall also bear the descriptive title "First Mortgage Bond" (hereinafter
provided for and hereinafter sometimes referred to as the "[200[ ]-[ ]]
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 Revolving Termination Date (as defined in the
Credit Agreement) or, if the Company exercises the Term Out Option (as defined
in the Credit Agreement), the Final Maturity Date (as defined in the Credit
Agreement); and

      WHEREAS, each of the registered bonds without coupons of the [200[ ]-[ ]]
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 [200[ ]-[ ]] COLLATERAL BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                [200[ ]-[ ]] COLLATERAL SERIES (INTEREST BEARING)

      No. 1                                                    $________________

      CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to Barclays Bank PLC, as
administrative agent (in such capacity, the "Agent") for the Banks under and as
defined in the Credit Agreement dated as of March 31, 2006 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
__________________ Million Dollars ($__________) or such lesser principal amount
as shall be equal to the aggregate principal amount of the Loans (as defined in
the Credit Agreement) included in the Obligations (as defined in the Credit
Agreement) outstanding on the Revolving Termination Date (as defined in the
Credit Agreement) or, if the Company exercises the Term Out Option (as defined
in the Credit Agreement), the Final Maturity 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 March 31, 2006. 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

                                      A-4
<PAGE>

their commercial lending activities and on which interbank wire transfers can be
made on the Fedwire system; (B) "Interest Payment Date" shall mean each date on
which Obligations constituting interest and/or fees are due and payable from
time to time pursuant to the Credit Agreement; (C) "Interest Rate" shall mean a
rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of Obligations constituting interest and
fees due under the Credit Agreement on the applicable Interest Payment Date; and
(D) "Record Date" with respect to any Interest Payment Date shall mean the day
(whether or not a Business Day) immediately next preceding such Interest Payment
Date.

      Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

      The provisions of this bond are continued on the reverse hereof and such
continued provisions shall for all purposes have the same effect as though fully
set forth at this place.

      This bond shall not be valid or become obligatory for any purpose unless
and until it shall have been authenticated by the execution by the Trustee or
its successor in trust under the Indenture of the certificate hereon.

                                      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
                [200[ ]-[ ]] COLLATERAL SERIES (INTEREST BEARING)

      This bond is one of the bonds of a series designated as First Mortgage
Bonds, [200[ ]-[ ]] Collateral Series (Interest Bearing) (sometimes herein
referred to as the "[200[ ]-[ ]] 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 [200[ ]-[ ]] 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
[200[ ]-[ ]] Collateral Bonds.

      The obligation of the Company to make payments with respect to the
principal of [200[ ]-[ ]] 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 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 means
that if any payment is made on the principal of the Loans, a corresponding
payment obligation with respect to the principal of the [200[ ]-[ ]] Collateral
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Loans discharges the outstanding obligation with respect to such Loans.
No such payment of principal shall reduce the principal amount of the [200[ ]-
[ ]] Collateral Bonds.

      The obligation of the Company to make payments with respect to the
interest on [200[ ]-[ ]] 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 [200[ ]-[ ]] Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
Loans discharges the outstanding obligation with respect to such Loans.

                                      A-7
<PAGE>

      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 [200[ ]-[ ]] 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 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 [200[ ]-[ ]] Collateral Bonds equal to the
amount of such unpaid principal (but in no event in excess of the principal
amount of the [200[ ]-[ ]] Collateral Bonds). If an Event of Default (as defined
in the Credit Agreement) with respect to the payment of interest on the Loans 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 [200[ ]-
[ ]] 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
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.

                                      A-8
<PAGE>

      The Company reserves the right, without any consent, vote or other action
by holders of the [200[ ]-[ ]] 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 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 [200[ ]-[ ]] COLLATERAL BONDS]

                              - - - - - - - - - - -

                                      A-9
<PAGE>

      AND WHEREAS all acts and things necessary to make the [200[ ]-[ ]]
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
$__________ 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 "[200[ ]-[ ]]
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
[200[ ]-[ ]] Collateral Bonds shall be issued in the aggregate principal amount
of $__________, shall mature on the Revolving Termination Date (as defined in
the Credit Agreement) or, if the Company exercises the Term Out Option (as
defined in the Credit Agreement), the Final Maturity Date (as 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 defined in the Sample Bonds) to evidence and secure any and all
Obligations (as defined in the Credit Agreement) of the Company under the Credit
Agreement.

      The [200[ ]-[ ]] 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 [200[ ]-[ ]] 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 included in the
Obligations shall have been fully or partially paid. Satisfaction of any

                                      A-11
<PAGE>

obligation to the extent that payment is made with respect to the Loans means
that if any payment is made on the principal of the Loans, a corresponding
payment obligation with respect to the principal of the [200[ ]-[ ]] Collateral
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Loans discharges the outstanding obligation with respect to such Loans.
No such payment of principal shall reduce the principal amount of the [200[ ]-
[ ]] Collateral Bonds.

      The obligation of the Company to make payments with respect to interest on
[200[ ]-[ ]] 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 [200[ ]-[ ]] 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 [200[ ]-[ ]] 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 defined in
the Credit Agreement), any right or interest to avail himself of any benefit
under any provision of the Indenture, as so supplemented and amended.

      SECTION 7. The Trustee assumes no responsibility for or in respect of the
validity or sufficiency of this Supplemental Indenture or of the Indenture as
hereby supplemented or the due

                                      A-14
<PAGE>

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
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

                                      A-15
<PAGE>
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 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

                                      A-16
<PAGE>

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

                                      A-21
<PAGE>

      based on the East line of Section 32, T1S, R6W, from the Southeast corner
      of said section to the Northeast corner of said section assumed as North.)

                                   CASS COUNTY

      Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

      The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S, R13W.

                                CHARLEVOIX COUNTY

      Certain land in South Arm Township, Charlevoix County, Michigan described
as:

            A parcel of land in the SW 1/4 of Section 29, T32N, R7W, described
      as follows: Beginning at the Southwest corner of said section and running
      thence North along the West line of said section 788.25 feet to a point
      which is 528 feet distant South of the South 1/8 line of said section as
      measured along the said West line of said section; thence N 89 degrees 30'
      19" E, parallel with said South 1/8 line of said section 442.1 feet;
      thence South 788.15 feet to the South line of said section; thence S 89
      degrees 29' 30" W, along said South line of said section 442.1 feet to the
      place of beginning.

                                CHEBOYGAN COUNTY

      Certain land in Inverness Township, Cheboygan County, Michigan described
as:

            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.)

                                      A-25
<PAGE>

                                  IOSCO COUNTY

      Certain land in Alabaster Township, Iosco County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 34, T21N, R7E, described
      as follows: To find the place of beginning of this description commence at
      the N 1/4 post of said section; run thence South along the North and South
      1/4 line of said section, 1354.40 feet to the place of beginning of this
      description; thence continuing South along the said North and South 1/4
      line of said section, 165.00 feet to a point on the said North and South
      1/4 line of said section which said point is 1089.00 feet distant North of
      the center of said section; thence West 440.00 feet; thence North 165.00
      feet; thence East 440.00 feet to the said North and South 1/4 line of said
      section and the place of beginning.

                                 ISABELLA COUNTY

      Certain land in Chippewa Township, Isabella County, Michigan described as:

            The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29, T14N,
      R3W.

                                 JACKSON COUNTY

      Certain land in Waterloo Township, Jackson County, Michigan described as:

            A parcel of land in the North fractional part of the N fractional
      1/2 of Section 2, T1S, R2E, described as follows: To find the place of
      beginning of this description commence at the E 1/4 post of said section;
      run thence N 01 degrees 03' 40" E along the East line of said section
      1335.45 feet to the North 1/8 line of said section and the place of
      beginning of this description; thence N 89 degrees 32' 00" W, 2677.7 feet
      to the North and South 1/4 line of said section; thence S 00 degrees 59'
      25" W along the North and South 1/4 line of said section 22.38 feet to the
      North 1/8 line of said section; thence S 89 degrees 59' 10" W along the
      North 1/8 line of said section 2339.4 feet to the center line of State
      Trunkline Highway M-52; thence N 53 degrees 46' 00" W along the center
      line of said State Trunkline Highway 414.22 feet to the West line of said
      section; thence N 00 degrees 55' 10" E along the West line of said section
      74.35 feet; thence S 89 degrees 32' 00" E, 5356.02 feet to the East line
      of said section; thence S 01 degrees 03' 40" W along the East line of said
      section 250 feet to the place of beginning.

                                      A-26
<PAGE>

                                KALAMAZOO COUNTY

      Certain land in Alamo Township, Kalamazoo County, Michigan described as:

            The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16, T1S,
      R12W, being more particularly described as follows: To find the place of
      beginning of this description, commence at the Northwest corner of said
      section; run thence S 00 degrees 36' 55" W along the West line of said
      section 971.02 feet to the place of beginning of this description; thence
      continuing S 00 degrees 36' 55" W along said West line of said section
      350.18 feet to the North 1/8 line of said section; thence S 87 degrees 33'
      40" E along the said North 1/8 line of said section 1325.1 feet to the
      West 1/8 line of said section; thence N 00 degrees 38' 25" E along the
      said West 1/8 line of said section 350.17 feet; thence N 87 degrees 33'
      40" W, 1325.25 feet to the place of beginning.

                                 KALKASKA COUNTY

      Certain land in Kalkaska Township, Kalkaska County, Michigan described as:

            The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
      therefrom all mineral, coal, oil and gas and such other rights as were
      reserved unto the State of Michigan in that certain deed running from the
      Department of Conservation for the State of Michigan to George Welker and
      Mary Welker, his wife, dated October 9, 1934 and recorded December 28,
      1934 in Liber 39 on page 291 of Kalkaska County Records, and subject to
      easement for pipeline purposes as granted to Michigan Consolidated Gas
      Company by first party herein on April 4, 1963 and recorded June 21, 1963
      in Liber 91 on page 631 of Kalkaska County Records.

                                   KENT COUNTY

      Certain land in Caledonia Township, Kent County, Michigan described as:

            A parcel of land in the Northwest fractional 1/4 of Section 15, T5N,
      R10W, described as follows: To find the place of beginning of this
      description commence at the North 1/4 corner of said section, run thence S
      0 degrees 59' 26" E along the North and South 1/4 line of said section
      2046.25 feet to the place of beginning of this description, thence
      continuing S 0 degrees 59' 26" E along said North and South 1/4 line of
      said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90 feet to a
      point herein designated "Point A" on the East bank of the Thornapple
      River, thence continuing S 88 degrees 53' 30" W to the center thread of
      the Thornapple River, thence NW'ly along the center thread of said
      Thornapple River to a point which said point is S 88 degrees 58' 30" W of
      a point on the East bank of the Thornapple River herein designated "Point

                                      A-27
<PAGE>

      B", said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
      above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
      B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place of
      beginning. (Bearings are based on the East line of Section 15, T5N, R10W
      between the East 1/4 corner of said section and the Northeast corner of
      said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

      Certain land in Pinora and Cherry Valley Townships, Lake County, Michigan
described as:

            A strip of land 50 feet wide East and West along and adjoining the
      West line of highway on the East side of the North 1/2 of Section 13 T18N,
      R12W. Also a strip of land 100 feet wide East and West along and adjoining
      the East line of the highway on the West side of following described land:
      The South 1/2 of NW 1/4, and the South 1/2 of the NW 1/4 of the SW 1/4,
      all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

      Certain land in Hadley Township, Lapeer County, Michigan described as:

            The South 825 feet of the W 1/2 of the SW 1/4 of Section 24, T6N,
      R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

      Certain land in Cleveland Township, Leelanau County, Michigan described
as:

            The North 200 feet of the West 180 feet of the SW 1/4 of the SE 1/4
      of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

      Certain land in Madison Township, Lenawee County, Michigan described as:

            A strip of land 165 feet wide off the West side of the following
      described premises: The E 1/2 of the SE 1/4 of Section 12. The E 1/2 of
      the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13, being all in T7S,
      R3E, excepting therefrom a parcel of land in the E 1/2 of the SE 1/4 of
      Section 12, T7S, R3E, beginning at the Northwest corner of said E 1/2 of
      the SE 1/4 of Section 12, running thence East 4 rods, thence South 6 rods,
      thence West 4 rods, thence North 6 rods to the place of beginning.

                                      A-28
<PAGE>

                                LIVINGSTON COUNTY

      Certain land in Cohoctah Township, Livingston County, Michigan described
as:

            Parcel 1

            The East 390 feet of the East 50 rods of the SW 1/4 of Section 30,
      T4N, R4E.

            Parcel 2

            A parcel of land in the NW 1/4 of Section 31, T4N, R4E, described as
      follows: To find the place of beginning of this description commence at
      the N 1/4 post of said section; run thence N 89 degrees 13' 06" W along
      the North line of said section, 330 feet to the place of beginning of this
      description; running thence S 00 degrees 52' 49" W, 2167.87 feet; thence N
      88 degrees 59' 49" W, 60 feet; thence N 00 degrees 52' 49" E, 2167.66 feet
      to the North line of said section; thence S 89 degrees 13' 06" E along
      said North line of said section, 60 feet to the place of beginning.

                                  MACOMB COUNTY

      Certain land in Macomb Township, Macomb County, Michigan described as:

            A parcel of land commencing on the West line of the E 1/2 of the NW
      1/4 of fractional Section 6, 20 chains South of the NW corner of said E
      1/2 of the NW 1/4 of Section 6; thence South on said West line and the
      East line of A. Henry Kotner's Hayes Road Subdivision #15, according to
      the recorded plat thereof, as recorded in Liber 24 of Plats, on page 7,
      24.36 chains to the East and West 1/4 line of said Section 6; thence East
      on said East and West 1/4 line 8.93 chains; thence North parallel with the
      said West line of the E 1/2 of the NW 1/4 of Section 6, 24.36 chains;
      thence West 8.93 chains to the place of beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

      Certain land in Manistee Township, Manistee County, Michigan described as:

            A parcel of land in the SW 1/4 of Section 20, T22N, R16W, described
      as follows: To find the place of beginning of this description, commence
      at the Southwest corner of said section; run thence East along the South
      line of said section 832.2 feet to the place of beginning of this
      description; thence continuing East along said South line of said section
      132 feet; thence North 198 feet; thence West 132 feet; thence South 198
      feet to the place of beginning, excepting therefrom the South 2 rods
      thereof which was conveyed to Manistee Township for highway purposes

                                      A-29
<PAGE>

      by a Quitclaim Deed dated June 13, 1919 and recorded July 11, 1919 in
      Liber 88 of Deeds on page 638 of Manistee County Records.

                                  MASON COUNTY

      Certain land in Riverton Township, Mason County, Michigan described as:

            Parcel 1

            The South 10 acres of the West 20 acres of the S 1/2 of the NE 1/4
      of Section 22, T17N, R17W.

            Parcel 2

            A parcel of land containing 4 acres of the West side of highway,
      said parcel of land being described as commencing 16 rods South of the
      Northwest corner of the NW 1/4 of the SW -1/4 of Section 22, T17N, R17W,
      running thence South 64 rods, thence NE'ly and N'ly and NW'ly along the
      W'ly line of said highway to the place of beginning, together with any and
      all right, title, and interest of Howard C. Wicklund and Katherine E.
      Wicklund in and to that portion of the hereinbefore mentioned highway
      lying adjacent to the E'ly line of said above described land.

                                 MECOSTA COUNTY

      Certain land in Wheatland Township, Mecosta County, Michigan described as:

            A parcel of land in the SW 1/4 of the SW 1/4 of Section 16, T14N,
      R7W, described as beginning at the Southwest corner of said section;
      thence East along the South line of Section 133 feet; thence North
      parallel to the West section line 133 feet; thence West 133 feet to the
      West line of said Section; thence South 133 feet to the place of
      beginning.

                                 MIDLAND COUNTY

      Certain land in Ingersoll Township, Midland County, Michigan described as:

            The West 200 feet of the W 1/2 of the NE 1/4 of Section 4, T13N,
      R2E.

                                MISSAUKEE COUNTY

      Certain land in Norwich Township, Missaukee County, Michigan described as:

            A parcel of land in the NW 1/4 of the NW 1/4 of Section 16, T24N,
      R6W, described as follows: Commencing at the Northwest corner of said
      section, running thence N 89 degrees 01' 45" E along the North

                                      A-30
<PAGE>

      line of said section 233.00 feet; thence South 233.00 feet; thence S 89
      degrees 01' 45" W, 233.00 feet to the West line of said section; thence
      North along said West line of said section 233.00 feet to the place of
      beginning. (Bearings are based on the West line of Section 16, T24N, R6W,
      between the Southwest and Northwest corners of said section assumed as
      North.)

                                  MONROE COUNTY

      Certain land in Whiteford Township, Monroe County, Michigan described as:

            A parcel of land in the SW1/4 of Section 20, T8S, R6E, described as
      follows: To find the place of beginning of this description commence at
      the S 1/4 post of said section; run thence West along the South line of
      said section 1269.89 feet to the place of beginning of this description;
      thence continuing West along said South line of said section 100 feet;
      thence N 00 degrees 50' 35" E, 250 feet; thence East 100 feet; thence S 00
      degrees 50' 35" W parallel with and 16.5 feet distant W'ly of as measured
      perpendicular to the West 1/8 line of said section, as occupied, a
      distance of 250 feet to the place of beginning.

                                 MONTCALM COUNTY

      Certain land in Crystal Township, Montcalm County, Michigan described as:

            The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

      Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

            Lot 14 of Hillman Industrial Park, being a subdivision in the South
      1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to the plat
      thereof recorded in Liber 4 of Plats on Pages 32-34, Montmorency County
      Records.

                                 MUSKEGON COUNTY

      Certain land in Casnovia Township, Muskegon County, Michigan described as:

            The West 433 feet of the North 180 feet of the South 425 feet of the
      SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

      Certain land in Ashland Township, Newaygo County, Michigan described as:

            The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                      A-31
<PAGE>

                                 OAKLAND COUNTY

      Certain land in Wixcom City, Oakland County, Michigan described as:

            The E 75 feet of the N 160 feet of the N 330 feet of the W 526.84
      feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more particularly
      described as follows: Commence at the NW corner of said Section 8, thence
      N 87 degrees 14' 29" E along the North line of said Section 8 a distance
      of 451.84 feet to the place of beginning for this description; thence
      continuing N 87 degrees 14' 29" E along said North section line a distance
      of 75.0 feet to the East line of the West 526.84 feet of the NW 1/4 of the
      NW 1/4 of said Section 8; thence S 02 degrees 37' 09" E along said East
      line a distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
      75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to the
      place of beginning.

                                  OCEANA COUNTY

      Certain land in Crystal Township, Oceana County, Michigan described as:

            The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290 feet
      of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

      Certain land in West Branch Township, Ogemaw County, Michigan described
as:

            The South 660 feet of the East 660 feet of the NE 1/4 of the NE 1/4
      of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

      Certain land in Hersey Township, Osceola County, Michigan described as:

            A parcel of land in the North 1/2 of the Northeast 1/4 of Section
      13, T17N, R9W, described as commencing at the Northeast corner of said
      Section; thence West along the North Section line 999 feet to the point of
      beginning of this description; thence S 01 degrees 54' 20" E 1327.12 feet
      to the North 1/8 line; thence S 89 degrees 17' 05" W along the North 1/8
      line 330.89 feet; thence N 01 degrees 54' 20" W 1331.26 feet to the North
      Section line; thence East along the North Section line 331 feet to the
      point of beginning.

                                  OSCODA COUNTY

      Certain land in Comins Township, Oscoda County, Michigan described as:

                                      A-32
<PAGE>

            The East 400 feet of the South 580 feet of the W 1/2 of the SW 1/4
      of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

      Certain land in Corwith Township, Otsego County, Michigan described as:

            Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W, described
      as: Beginning at the N 1/4 corner of said section; running thence S 89
      degrees 04' 06" E along the North line of said section, 330.00 feet;
      thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89 degrees 04' 06" W,
      330.00 feet to the North and South 1/4 line of said section; thence N 00
      degrees 28' 43" W along the said North and South 1/4 line of said section,
      400.00 feet to the point of beginning; subject to the use of the N'ly
      33.00 feet thereof for highway purposes.

                                  OTTAWA COUNTY

      Certain land in Robinson Township, Ottawa County, Michigan described as:

            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.

                                      A-33
<PAGE>

                                ROSCOMMON COUNTY

      Certain land in Gerrish Township, Roscommon County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 19, T24N, R3W, described
      as follows: To find the place of beginning of this description commence at
      the Northwest corner of said section, run thence East along the North line
      of said section 1,163.2 feet to the place of beginning of this description
      (said point also being the place of intersection of the West 1/8 line of
      said section with the North line of said section), thence S 01 degrees 01'
      E along said West 1/8 line 132 feet, thence West parallel with the North
      line of said section 132 feet, thence N 01 degrees 01' W parallel with
      said West 1/8 line of said section 132 feet to the North line of said
      section, thence East along the North line of said section 132 feet to the
      place of beginning.

                                 SAGINAW COUNTY

      Certain land in Chapin Township, Saginaw County, Michigan described as:

            A parcel of land in the SW 1/4 of Section 13, T9N, R1E, described as
      follows: To find the place of beginning of this description commence at
      the Southwest corner of said section; run thence North along the West line
      of said section 1581.4 feet to the place of beginning of this description;
      thence continuing North along said West line of said section 230 feet to
      the center line of a creek; 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:

                                      A-34
<PAGE>

            The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

      Certain land in Mendon Township, St. Joseph County, Michigan described as:

            The North 660 feet of the West 660 feet of the NW 1/4 of SW 1/4,
      Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

      Certain land in Millington Township, Tuscola County, Michigan described
as:

            A strip of land 280 feet wide across the East 96 rods of the South
      20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
      particularly described as commencing at the Northeast corner of Section 3,
      T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
      Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
      distance of 1398.67 feet to the South 1/8 line of said Section 34 and the
      place of beginning for this description; thence continuing N 18 degrees
      11' 50" W a distance of 349.91 feet; thence N 89 degrees 57' 01" W a
      distance of 294.80 feet; thence S 18 degrees 11' 50" E a distance of
      350.04 feet to the South 1/8 line of said Section 34; thence S 89 degrees
      58' 29" E along the South 1/8 line of said section a distance of 294.76
      feet to the place of beginning.

                                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-35
<PAGE>

            A parcel of land in the NE 1/4 of the NW 1/4 of Section 1, T4S, R3E,
      described as follows: To find the place of beginning of this description
      commence at the Northwest corner of said section; run thence East along
      the North line of said section 1355.07 feet to the West 1/8 line of said
      section; thence S 00 degrees 22' 20" E along said West 1/8 line of said
      section 927.66 feet to the place of beginning of this description; thence
      continuing S 00 degrees 22' 20" E along said West 1/8 line of said section
      660 feet to the North 1/8 line of said section; thence N 86 degrees 36'
      57" E along said North 1/8 line of said section 660.91 feet; thence N 00
      degrees22' 20" W, 660 feet; thence S 86 degrees 36' 57" W, 660.91 feet to
      the place of beginning.

                                  WAYNE COUNTY

      Certain land in Livonia City, Wayne County, Michigan described as:

            Commencing at the Southeast corner of Section 6, T1S, R9E; thence
      North along the East line of Section 6 a distance of 253 feet to the point
      of beginning; thence continuing North along the East line of Section 6 a
      distance of 50 feet; thence Westerly parallel to the South line of Section
      6, a distance of 215 feet; thence Southerly parallel to the East line of
      Section 6 a distance of 50 feet; thence easterly parallel with the South
      line of Section 6 a distance of 215 feet to the point of beginning.

                                 WEXFORD COUNTY

      Certain land in Selma Township, Wexford County, Michigan described as:

            A parcel of land in the NW 1/4 of Section 7, T22N, R10W, described
      as beginning on the North line of said section at a point 200 feet East of
      the West line of said section, running thence East along said North
      section line 450 feet, 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
_______, 200_, 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
______, 200_, 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

                  GENERAL COUNSEL OR ASSISTANT GENERAL COUNSEL
                              OF THE COMPANY OR CMS

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));

            (c) result in or require the creation of any Lien upon or with
      respect to any of the Company's properties except (i) the lien of the
      Mortgage and Security Agreement and (ii) after the FMB Issue Date, the
      lien of the Indenture securing the Bonds; or

            (d) conflict with judicial orders or regulatory orders applicable to
      the Company.

      As used in this paragraph 2, "Company Indentures" means, collectively, (i)
the Indenture (as defined in the Credit Agreement), (ii) 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 (iii) 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, 2005
and Current Report on Form 8-K filed by the Company on March 1, 2006, 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

                                     B-1-1
<PAGE>

results of operations of the Company and its Consolidated Subsidiaries, taken as
a whole, or that would materially adversely affect the Company's ability to
perform its obligations under any Credit Document. To the best of my knowledge,
there is no litigation challenging the validity or the enforceability of any of
the Credit Documents.

5. No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Company of any Credit Document,
except for the authorization to issue, sell or guarantee secured and/or
unsecured short-term debt granted by the Federal Energy Regulatory Commission
(hereinafter the "FERC") in Docket No. ES04-31-000 (hereinafter the "FERC
Order"). The FERC Order is in full force and effect as of the date hereof.

6. 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.

7. 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 execution and delivery of the Mortgage and Security Agreement by
the Company and the performance by the Company of its obligations thereunder
will not conflict with the provisions of the Indenture (as defined in the Credit
Agreement).

      2. The Mortgage and Security Agreement is effective to create a valid and
perfected second lien on the collateral described therein.

                                     B-2-1
<PAGE>

                                   EXHIBIT B-3

                             REQUIRED OPINIONS FROM

                  GENERAL COUNSEL OR ASSISTANT GENERAL COUNSEL
                              OF THE COMPANY OR CMS

1. The Bonds, assuming due authentication in accordance with the terms of the
Indenture, are in due and proper form and, when delivered to the Agent pursuant
to the Bond Delivery Agreement, will evidence and secure the Obligations owing
under the Agreement and will be valid and enforceable obligations of the Company
in accordance with their terms, secured by the lien of the Indenture on an equal
and ratable basis with all other bonds issued thereunder and otherwise entitled
to the benefits provided by the Indenture.

2. The 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.

                                     B-3-1
<PAGE>

                                   EXHIBIT B-4

                              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-4-1
<PAGE>

                                    EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

      I, _________________, ______________ of Consumers Energy Company, a
Michigan corporation (the "Company"), DO HEREBY CERTIFY in connection with the
Credit Agreement dated as of March 31, 2006 (the "Credit Agreement"; the terms
defined therein being used herein as so defined) among the Company, various
financial institutions and Barclays Bank PLC, 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 payments
           with respect to Hybrid Preferred Securities

                                      C-1
<PAGE>

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
           Item A(l) are deemed equity)

                                      C-2
<PAGE>

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

plus  (f)  Non-cash losses on mark-to-market valuation of
           contracts

minus (g)  Extraordinary gains realized other than in the        $
           ordinary course of business
minus (h)  Non-cash gains on mark-to-market valuation of
           contracts

                                                       TOTAL     $

B.    Consolidated Interest Expense                              $

C.    Interest Coverage Ratio                                      _____ to 1.00
      (total of A divided by total of B)

      IN WITNESS WHEREOF, I have signed this Certificate this ___ day of
_________, ___.

                                      C-3
<PAGE>

                                    EXHIBIT D

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

      This Assignment and Assumption (the "Assignment and Assumption") is dated
as of the Effective Date set forth below and is entered into by and between
[Insert name of Assignor] (the "Assignor") and [Insert name of Assignee] (the
"Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement"), receipt of a copy of which is hereby acknowledged by the
Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are
hereby agreed to and incorporated herein by reference and made a part of this
Assignment and Assumption as if set forth herein in full.

      For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Agent as contemplated below, the interest in and to all of the Assignor's
rights and obligations in its capacity as a Bank under the Credit Agreement and
any other documents or instruments delivered pursuant thereto that represents
the amount and percentage interest identified below of all of the Assignor's
outstanding rights and obligations under the respective facilities identified
below (including 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: Barclays Bank PLC, as the Agent under the Credit Agreement.

5. Credit Agreement: The Credit Agreement dated as of March 31, 2006 among
Consumers Energy Company, the Banks party thereto, and Barclays Bank PLC, as
Agent.

                                      D-1
<PAGE>

6. Assigned Interest:

<TABLE>
<CAPTION>
                                    Aggregate
                                   Commitment /          Amount of Commitment /        Percentage Assigned of
                               Outstanding Loans of        Outstanding Loans          Commitment / Outstanding
Facility Assigned                   all Banks*                 Assigned*                      Loans(1)
- -----------------             ----------------------    ------------------------     ---------------------------
<S>                           <C>                       <C>                          <C>
____________                        $                           $                            _______%
____________                        $                           $                            _______%
____________                        $                           $                            _______%
</TABLE>

7. Trade Date: ____________________________________ (2)

Effective Date: ____________________, 20__ TO BE INSERTED BY AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT.]

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

* Amount to be adjusted by the counterparties to take into account any payments
or prepayments made between the Trade Date and the Effective Date.

(1)   Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
      of all Banks thereunder.

(2)   Insert if satisfaction of minimum amounts is to be determined as of the
      Trade Date.

                                      D-2
<PAGE>

      The terms set forth in this Assignment and Assumption are hereby agreed
to:

                                     ASSIGNOR
                                     [NAME OF ASSIGNOR]

                                     By: __________________________________
                                                 Title:

                                     ASSIGNEE
                                     [NAME OF ASSIGNEE]

                                     By: _______________________________________
                                                 Title:

[Consented to and](3) Accepted:

Barclays Bank PLC, 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 Advances 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, 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)

<PAGE>

              US AND NON-US TAX INFORMATION REPORTING REQUIREMENTS

     (Schedule to be supplied by Closing Unit or Trading Documentation Unit)

<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

                           BARCLAYS BANK PLC, AS AGENT

                           Dated as of March 31, 2006

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

                                   Relating to
                              First Mortgage Bonds,

                [200[ ]-[ ]] Collateral Series (Interest Bearing)

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

                                      G-1
<PAGE>

      THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of [ ], 2006, is
between Consumers Energy Company (the "Company"), and Barclays Bank PLC, as
administrative agent (the "Agent") under the Credit Agreement (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement")
dated as of March 31, 2006 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, [200[ ]-
[ ]] Collateral Series (Interest Bearing) in the aggregate principal amount of
$__________ (the "Bonds"), to be issued under and in accordance with the One
Hundred [_____________] Supplemental Indenture dated as of [ ], 2006 (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 $__________, maturing on the earlier
of (a) __________ or such later date as may be fixed as the Revolving
Termination Date (as defined in the Credit Agreement) or, if the Company
exercises the Term Out Option (as defined in the Credit Agreement), the Final
Maturity Date (as defined in the Credit Agreement) under 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.

                                      G-2
<PAGE>

      The Bonds are registered in the name of the Agent and shall be owned and
held by the Agent, subject to the provisions of this Agreement, for the benefit
of the Banks, and the Company shall have no interest therein. The Agent shall be
entitled to exercise all rights of bondholders under the Indenture with respect
to the Bonds.

      The Agent hereby acknowledges receipt of the Bonds.

Section 1.2  Payments on the Bonds.

      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:

Barclays Bank PLC, as Agent

___________________________________________

Name:
Title:

                                      G-4
<PAGE>

                                    EXHIBIT H
                                     FORM OF
                                INCREASE REQUEST

                        _________________________, 20___

Barclays Bank PLC, as Agent
under the Credit Agreement referred to below

Ladies/Gentlemen:

      Please refer to the Credit Agreement dated as of March 31, 2006 among
Consumers Energy Company (the "Company"), various financial institutions and
Barclays Bank PLC, 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]

Barclays Bank PLC, 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 March 31, 2006 among the Company, various financial institutions and
Barclays Bank PLC, 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

__________, _____

Barclays Bank PLC, as Agent

By: ________________________________
Name: _____________________________
Title: _____________________________

                                      H-2
<PAGE>

                              ANNEX II TO EXHIBIT H

                                     [Date]

Barclays Bank PLC, 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 March 31, 2006 among the Company, various financial institutions and
Barclays Bank PLC, 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___

Barclays Bank PLC, as Agent

By: _____________________________
Name: ___________________________
Title: __________________________

                                      H-4
<PAGE>

                                    EXHIBIT I
                                     FORM OF
                         MORTGAGE AND SECURITY AGREEMENT

                                [TO BE ATTACHED]

                                      I-1
<PAGE>

                                   SCHEDULE 1

                                PRICING SCHEDULE

<TABLE>
<CAPTION>
                     Greater than
                      or equal to
                     BBB+ from S&P
                      or greater       Equal to BBB     Equal to BBB-     Equal to BB+      Equal to BB      Lower than BB
                     than or equal     from S&P or       from S&P or       from S&P or      from S&P or       from S&P or
                     to Baa1 from     equal to Baa2     equal to Baa3     equal to Ba1      equal to Ba2     lower thanBa2
  Ratings (1)           Moody's        from Moody's      from Moody's     from Moody's      from Moody's      from Moody's
- -----------------    --------------   -------------    ---------------   ---------------    ------------     ---------------
<S>                  <C>              <C>              <C>               <C>                <C>              <C>
 Commitment Fee         10.0 bp         12.50  bp          15.0 bp           17.5 bp          20.0 bp           32.50 bp

   Applicable
     Margin             50.0 bp          60.0 bp           87.5 bp          112.5 bp         125.0 bp           250.0 bp
Eurodollar Loans

   Applicable
Margin ABR Loans        0.0 bp            0.0 bp            0.0 bp           12.5 bp          25.0 bp           150.0 bp
</TABLE>

(1) Pricing shall be based on (a) prior to the FMB Release Date, the S&P rating
or the Moody's rating (whichever is higher) that is immediately below such
rating agency's rating for the Company's First Mortgage Bonds, provided that if
the Agent has received First Mortgage Bonds to secure the full amount of the
Obligations, pricing shall be based on the S&P rating or the Moody's rating
(whichever is higher) for the Company's First Mortgage Bonds; and (b) on and
after the FMB Release Date, the S&P rating or the Moody's rating (whichever is
higher) for the Company's senior unsecured long-term debt (without third-party
credit enhancement) or, if there is no such rating, the rating that is
immediately below such rating agency's rating for the Company's First Mortgage
Bonds. If the Company exercises the Term Out Option, then during the term period
the Applicable Margin for Eurodollar Loans shall increase by 25 bp at all rating
levels and the Applicable Margin for ABR Loans shall increase by 12.5 bp at the
BBB-/Baa3 level and by 25 bp at each of the lowest three levels.

                                      1-1
<PAGE>

                                   SCHEDULE 2

                               COMMITMENT SCHEDULE

<TABLE>
<CAPTION>
BANK                                                               COMMITMENT
- ----                                                               ----------
<S>                                                                <C>
Barclays Bank PLC                                                  $ 21,000,000

Union Bank of California, N.A.                                     $ 21,000,000

BNP Paribas                                                        $ 19,000,000

Deutsche Bank Trust Company Americas                               $ 19,000,000

Wachovia Bank                                                      $ 19,000,000

Citibank, N.A.                                                     $ 19,000,000

JPMorgan Chase Bank, N.A.                                          $ 19,000,000

Merrill Lynch                                                      $ 19,000,000

The Bank of Nova Scotia                                            $ 19,000,000

UBS                                                                $ 17,000,000

Comerica Bank                                                      $ 17,000,000

Fifth Third Bank                                                   $ 17,000,000

LaSalle Bank Midwest National Association                          $ 17,000,000

SunTrust Bank                                                      $ 17,000,000

Wells Fargo Bank National Association                              $ 17,000,000

Huntington National Bank                                           $ 14,000,000

The Norinchukin Bank                                               $  9,000,000

AGGREGATE COMMITMENT                                               $300,000,000
</TABLE>

                                      2-1

<PAGE>

                                   SCHEDULE 3

                               NOTICE INFORMATION

Consumers Energy Company:

One Energy Plaza
Jackson, MI  49201
Attention: Beverly S. Burger
Phone: (517) 788-2541
Facsimile: (517) 788-0412
E-Mail: bsburger@cmsenergy.com

Barclays Bank PLC:

Barclays Bank PLC, New York Branch
200 Park Avenue, 4th Floor
New York, NY  10166
Telephone: 212-412-7693
Telecopier: 212-412-7600
Attention: David Barton
Email: davide.barton@barcap.com

With a copy to:

Barclays Bank PLC/Global Services Unit
200 Cedar Knolls Road
Whippany, New Jersey  07981
Telephone: 973-576-3251
Telecopier: 973-576-3014
Attention: May Wong
Email: may.wong@barcap.com

                                      3-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>3
<FILENAME>k04805exv31wxay.txt
<DESCRIPTION>CMS - SECTION 302 CERTIFICATION OF CEO
<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:  May 3, 2006                          By:          /s/ David W. Joos
                                                  -----------------------------
                                                            David W. Joos
                                                            President and
                                                      Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>4
<FILENAME>k04805exv31wxby.txt
<DESCRIPTION>CMS - SECTION 302 CERTIFICATION OF CFO
<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:  May 3, 2006                          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>k04805exv31wxcy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY - SECTION 302 CERTIFICATION OF CEO
<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:  May 3, 2006                          By:          /s/ David W. Joos
                                                 -------------------------------
                                                            David W. Joos
                                                      Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(D)
<SEQUENCE>6
<FILENAME>k04805exv31wxdy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY - SECTION 302 CERTIFICATION OF CFO
<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:  May 3, 2006                          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>k04805exv32wxay.txt
<DESCRIPTION>CMS - SECTION 906 CERTIFICATION OF CEO
<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 March 31, 2006 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:  May 3, 2006

/s/ Thomas J. Webb
- --------------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  May 3, 2006

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(B)
<SEQUENCE>8
<FILENAME>k04805exv32wxby.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY - SECTION 906 CERTIFICATION
<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 March 31, 2006 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:  May 3, 2006

  /s/ Thomas J. Webb
- --------------------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  May 3, 2006
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
