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<SEC-DOCUMENT>0000950124-06-004182.txt : 20060804
<SEC-HEADER>0000950124-06-004182.hdr.sgml : 20060804
<ACCEPTANCE-DATETIME>20060804153312
ACCESSION NUMBER:		0000950124-06-004182
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060804
DATE AS OF CHANGE:		20060804

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:		061005727

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

	MAIL ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CONSUMERS POWER CO
		DATE OF NAME CHANGE:	19920703

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09513
		FILM NUMBER:		061005728

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

	MAIL ADDRESS:	
		STREET 1:		ONE ENERGY PLAZA
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>k06781e10vq.txt
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 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 JUNE 30, 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 August 1, 2006:

CMS ENERGY CORPORATION:

<TABLE>
<S>                                                            <C>
CMS Energy Common Stock, $.01 par value                        221,587,738
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 JUNE 30, 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 Information......................................................   CMS - 2
          Results of Operations...........................................................................   CMS - 5
          Critical Accounting Policies....................................................................  CMS - 13
          Capital Resources and Liquidity.................................................................  CMS - 18
          Outlook.........................................................................................  CMS - 20
          Implementation of New Accounting Standards......................................................  CMS - 30
          New Accounting Standards Not Yet Effective......................................................  CMS - 30
     Consolidated Financial Statements
          Consolidated Statements of Income ..............................................................  CMS - 32
          Consolidated Statements of Cash Flows...........................................................  CMS - 35
          Consolidated Balance Sheets.....................................................................  CMS - 36
          Consolidated Statements of Common Stockholders' Equity..........................................  CMS - 38
     Condensed Notes to Consolidated Financial Statements (Unaudited):
          1.   Corporate Structure and Accounting Policies................................................  CMS - 39
          2.   Contingencies..............................................................................  CMS - 41
          3.   Financings and Capitalization..............................................................  CMS - 59
          4.   Earnings Per Share.........................................................................  CMS - 61
          5.   Financial and Derivative Instruments.......................................................  CMS - 63
          6.   Retirement Benefits........................................................................  CMS - 70
          7.   Asset Retirement Obligations...............................................................  CMS - 72
          8.   Executive Incentive Compensation...........................................................  CMS - 73
          9.   Equity Method Investments..................................................................  CMS - 75
         10.   Reportable Segments .......................................................................  CMS - 76
</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 Information......................................................    CE - 2
          Results of Operations...........................................................................    CE - 5
          Critical Accounting Policies....................................................................   CE - 10
          Capital Resources and Liquidity.................................................................   CE - 14
          Outlook.........................................................................................   CE - 16
          Implementation of New Accounting Standards......................................................   CE - 24
          New Accounting Standards Not Yet Effective......................................................   CE - 25
     Consolidated Financial Statements
          Consolidated Statements of Income...............................................................   CE - 26
          Consolidated Statements of Cash Flows...........................................................   CE - 27
          Consolidated Balance Sheets.....................................................................   CE - 28
          Consolidated Statements of Common Stockholder's Equity..........................................   CE - 30
     Condensed Notes to Consolidated Financial Statements (Unaudited):
          1.  Corporate Structure and Accounting Policies.................................................   CE - 33
          2.  Contingencies...............................................................................   CE - 35
          3.  Financings and Capitalization...............................................................   CE - 48
          4.  Financial and Derivative Instruments........................................................   CE - 50
          5.  Retirement Benefits.........................................................................   CE - 56
          6.  Asset Retirement Obligations................................................................   CE - 58
          7.  Executive Incentive Compensation............................................................   CE - 59
          8.  Reportable Segments.........................................................................   CE - 62

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 - 8
     Item 3.    Defaults Upon Senior Securities...........................................................   CO - 8
     Item 4.    Submission of Matters to a Vote of Security Holders.......................................   CO - 8
     Item 5.    Other Information.........................................................................   CO - 9
     Item 6.    Exhibits..................................................................................   CO - 9
     Signatures...........................................................................................  CO - 11
</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

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

CMS Midland Holdings Company......    CMS Midland Holdings Company, a subsidiary of Consumers that has a 46
                                      percent ownership interest in First Midland Limited Partnership and a 35
                                      percent lessor interest in the MCV Facility


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

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
</TABLE>


                                       3
<PAGE>


<TABLE>
<S>                                   <C>
DIG...............................    Dearborn Industrial Generation, LLC, an indirect wholly owned subsidiary of CMS
                                      Energy

DOE...............................    U.S. Department of Energy

DOJ...............................    U.S. Department of Justice

Dow...............................    The Dow Chemical Company, a non-affiliated company

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

Entergy...........................    Entergy Corporation, a non-affiliated company

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

FIN 48............................    FASB Interpretation No. 48, Uncertainty in Income Taxes

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

ISFSI.............................    Independent Spent Fuel Storage Installation

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

ITC...............................    ITC Holdings Corporation

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.

MMBtu.............................    Million British Thermal Units

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

MRV...............................    Market-Related Value of Plan assets

MSBT..............................    Michigan Single Business Tax

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

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"
</TABLE>


                                       6
<PAGE>


<TABLE>
<S>                                   <C>
SFAS No. 133.......................   SFAS No. 133, "Accounting for Derivative Instruments and Hedging
                                      Activities, as amended and interpreted"

SFAS No. 143.......................   SFAS No. 143, "Accounting for Asset Retirement Obligations"

Shuweihat...........................  A power and desalination plant of Emirates CMS Power Company, in which
                                      CMS Generation holds a 20 percent interest

SLAP...............................   Scudder Latin American Power Fund

Special Committee..................   A special committee of independent directors, established by CMS
                                      Energy's Board of Directors, to investigate matters surrounding
                                      round-trip trading

Stranded Costs.....................   Costs incurred by utilities in order to serve their customers in a
                                      regulated monopoly environment, which may not be recoverable in a
                                      competitive environment because of customers leaving their systems and
                                      ceasing to pay for their costs. These costs could include owned and
                                      purchased generation and regulatory assets.

Superfund..........................   Comprehensive Environmental Response, Compensation and Liability Act

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
</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/A Amendment No. 1 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, and 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 electric and gas
            utility operations,

      -     energy commodity prices,

      -     interest rates, and

      -     our debt credit rating.

During the past several 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 selected assets, and to improve earnings and cash flow from the
businesses we retain.

In July 2006, we reached an agreement to sell the Palisades nuclear plant to
Entergy for $380 million. We also signed a 15-year power purchase agreement for
100 percent of the plant's current electric output. We are targeting to close
the sale in the first quarter of 2007. The sale will result in an immediate
improvement in our cash flow, a reduction in our nuclear operating and
decommissioning risk, and an improvement in our financial flexibility to support
other utility investments. We expect that a portion of the proceeds will benefit
our customers. We plan to use the cash that we retain from the sale to reduce
debt.

We are working to reduce Parent debt. During the first six months of 2006, we
retired $76 million of CMS Energy senior notes. We also 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 remain at high levels. 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.


                                     CMS-1
<PAGE>


                                                          CMS Energy Corporation

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. High gas prices
could result in a further impairment of our interest in the MCV Partnership.

Due to the impairment of the MCV Facility and operating losses from
mark-to-market adjustments on derivative instruments, the equity held by a
Consumers' subsidiary and the other 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. In July 2006,
we reached an agreement to sell our interests in the MCV Partnership and the
FMLP. The sale is subject to various regulatory approvals including the MPSC. If
the sale closes by the end of 2006, as expected, it will have a $56 million
positive impact on our 2006 cash flow. The sale will reduce our exposure to
sustained high natural gas prices. We will use the proceeds to reduce utility
debt. If the sale is not completed, the viability of the MCV Facility is still
in question.

Going forward, our strategy will continue to focus on:

      -     managing cash flow issues,

      -     reducing parent company debt,

      -     maintaining and growing earnings,

      -     reducing risk, 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 June 30, 2006, alternative
electric suppliers were providing 311 MW of generation service to ROA customers.
This is 4 percent of our total distribution load and represents a decrease of 62
percent of ROA load compared to June 30, 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:


                                     CMS-2
<PAGE>


                                                          CMS Energy Corporation

      -     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,

      -     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 increasing rapidly,

                  -     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
            the FMLP investments, regulatory decisions that limit recovery of
            capacity and fixed energy payments, and our ability to complete the
            sale of our interests in the MCV Partnership and the FMLP,

      -     if Consumers is successful in exercising the regulatory out clause
            of the MCV PPA, and if the sale of our interests in the MCV
            Partnership and the FMLP is not completed, the negative impact on
            the MCV Partnership's financial performance,

      -     if Consumers exercises its regulatory out rights causing the MCV
            Partnership to terminate the MCV PPA, 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,


                                     CMS-3
<PAGE>


                                                          CMS Energy Corporation

      -     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 customers,

      -     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,

      -     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,


                                     CMS-4
<PAGE>


                                                          CMS Energy Corporation

      -     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, 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

CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                        In Millions (except for
                                                                           per share amounts)
                                                                    --------------------------------
Three months ended June 30                                            2006       2005        Change
- --------------------------                                          --------    --------    --------
<S>                                                                 <C>         <C>         <C>
Net Income Available to Common Stockholders                         $     72    $     27    $     45
Basic Earnings Per Share                                            $   0.33    $   0.12    $   0.21
Diluted Earnings Per Share                                          $   0.31    $   0.12    $   0.19
                                                                    --------    --------    --------

Electric Utility                                                    $     37    $     46    $     (9)
Gas Utility                                                               (3)         (3)          -
Enterprises (Includes the MCV Partnership and the FMLP interests)          4          29         (25)
Corporate Interest and Other                                              32         (45)         77
Discontinued Operations                                                    2           -           2
                                                                    --------    --------    --------
Net Income Available to Common Stockholders                         $     72    $     27    $     45
                                                                    ========    ========    ========
</Table>

For the three months ended June 30, 2006, net income available to common
stockholders was $72 million compared to $27 million for 2005. The increase
primarily reflects a $62 million impact from the resolution of an IRS income tax
audit. The audit resolution resulted in an increase to net income of $46 million
at our corporate interest and other segment, $8 million at Enterprises, $4
million at the electric utility, $3 million at the gas utility, and $1 million
in discontinued operations. Also contributing to the increase was an insurance
reimbursement for previously incurred legal expenses and a reduction in
corporate interest and other expenses. At our electric utility, the positive
effects of recent regulatory activities and the return to full service-rates of
customers previously using alternative energy suppliers were more than offset by
increased operating and maintenance expenses.

Specific changes to net income available to common stockholders for the three
months ended June 30, 2006 versus 2005 are:


                                     CMS-5
<PAGE>


                                                          CMS Energy Corporation

<Table>
<Caption>
                                                                                                           In Millions
                                                                                                           -----------
<S>                                                                                                        <C>
- -     effects of the resolution of an IRS income tax audit on corporate and Enterprises income
      taxes, primarily for the utilization or restoration of income tax credits,                              $  54

- -     additional decrease in corporate interest and other expenses due to a $15 million insurance
      reimbursement received in June 2006 for previously incurred legal expenses, and an
      additional $16 million reduction in other expenses primarily due to lower interest
      expenses, lower legal expenses, and a decrease in general taxes,                                           31

- -     effects from other Enterprises operations, including equity method investments,                             5

- -     absence of income tax benefits recorded in 2005 at Enterprises resulting from the
      American Jobs Creation Act of 2004,                                                                       (24)

- -     mark-to-market losses recorded at CMS ERM in 2006, and                                                    (12)

- -     decrease in net income from our electric utility primarily due to increased operating
      expenses, primarily driven by a planned refueling outage at Palisades, and a reduction
      in income from the regulatory return on capital expenditures, offset partially by
      an increase in revenue from an electric rate order, the return to full service-rates
      of customers previously using alternative energy suppliers, and the effects
      of the resolution of an IRS income tax audit.                                                              (9)
                                                                                                              -----
Total Change                                                                                                  $  45
                                                                                                              =====
</Table>

<Table>
<Caption>
                                                           In Millions (except for
                                                              per share amounts)
                                                      ---------------------------------
Six months ended June 30                                2006         2005       Change
- ------------------------                              --------     --------    --------
<S>                                                   <C>          <C>         <C>
Net Income Available to Common Stockholders           $     45     $    177    $   (132)
Basic Earnings Per Share                              $   0.21     $   0.86    $  (0.65)
Diluted Earnings Per Share                            $   0.20     $   0.82    $  (0.62)
                                                      --------     --------    --------

Electric Utility                                      $     66     $     79    $    (13)
Gas Utility                                                 34           55         (21)
Enterprises (Includes the MCV Partnership and
  the FMLP interests)                                      (45)         134        (179)
Corporate Interest and Other                               (13)         (91)         78
Discontinued Operations                                      3            -           3
                                                      --------     --------    --------
Net Income Available to Common Stockholders           $     45     $    177    $   (132)
                                                      ========     ========    ========
</Table>

For the six months ended June 30, 2006, net income available to common
stockholders was $45 million compared to $177 million for 2005. The decrease
reflects the impact of gas prices on the market value of certain long-term gas
contracts and financial hedges. In order to reflect the market value of these
contracts and hedges, mark-to-market losses were recorded in 2006 to reverse
partially gains recorded on these assets in 2005. Further contributing to the
decrease in net income were increased operating expenses at Enterprises, and
decreases in net income at our electric and gas utilities. At our electric
utility, the positive effects of recent regulatory activities, and the return to
full service-rates of customers previously using alternative energy suppliers
were more than offset by increased operating and maintenance expenses. At our
gas utility, warmer weather and customer conservation efforts negatively
impacted results. These decreases were offset partially by the $62 million
impact from the resolution of an IRS income tax audit, an insurance
reimbursement for previously incurred legal expenses and additional reductions
in corporate interest and other expenses.


                                     CMS-6
<PAGE>


                                                          CMS Energy Corporation

Specific changes to net income available to common stockholders for the six
months ended June 30, 2006 versus 2005 are:

<Table>
<Caption>
                                                                                                            In Millions
                                                                                                            -----------
<S>                                                                                                         <C>
- -     decrease in earnings from our ownership interest in the MCV Partnership primarily due to
      mark-to-market losses on certain long-term gas contracts and financial hedges, which
      reduced partially gains recorded in 2005,                                                               $ (122)

- -     mark-to-market losses recorded at CMS ERM in 2006 versus gains recorded in 2005,                           (40)

- -     absence of income tax benefits recorded in 2005 at Enterprises resulting from the
      American Jobs Creation Act of 2004,                                                                        (24)

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

- -     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,  the return to
      full service-rates of customers previously using alternative energy suppliers,
      and the effects of the resolution of an IRS income tax audit,                                              (13)

- -     decrease in equity earnings from Enterprises investments,                                                   (3)

- -     effects of the resolution of an IRS income tax audit on corporate and Enterprises income
      taxes, primarily for the utilization or the restoration of income tax credits,                              54

- -     additional decrease in corporate interest and other expenses due to a $15 million insurance
      reimbursement received in June 2006 for previously incurred legal expenses, and an
      additional $17 million reduction in other expenses primarily due to lower interest
      expenses, lower legal expenses, and a decrease in general taxes, and                                        32

- -     effects from other Enterprises operations.                                                                   5
                                                                                                              ------
Total Change                                                                                                  $ (132)
                                                                                                              ======
</Table>


                                     CMS-7
<PAGE>


                                                          CMS Energy Corporation

ELECTRIC UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                                      In Millions
                                                                             --------------------
June 30                                                                      2006   2005   Change
- -------                                                                      ----   ----   ------
<S>                                                                          <C>    <C>    <C>
Three months ended                                                           $ 37   $ 46   $   (9)
Six months ended                                                             $ 66   $ 79   $  (13)
                                                                             ====   ====   ======
</Table>

<Table>
<Caption>
                                                  Three Months Ended           Six Months Ended
Reasons for the change:                         June 30, 2006 vs. 2005      June 30, 2006 vs. 2005
- -----------------------                         ----------------------      ----------------------
<S>                                             <C>                         <C>
Electric deliveries                                   $       60                  $      119
Power supply costs and related revenue                         3                          12
Other operating expenses, other income, and
  non-commodity revenue                                      (71)                       (130)
Regulatory return on capital expenditures                     (8)                        (21)
General taxes                                                 (1)                         (1)
Interest charges                                              (3)                         (2)
Income taxes                                                  11                          10
                                                      ----------                   ---------
Total change                                          $       (9)                  $      (13)
                                                      ==========                   ==========
</Table>

ELECTRIC DELIVERIES: For the three months ended June 30, 2006, electric
deliveries, excluding intersystem sales, decreased 0.2 billion kWh or 2.1
percent versus 2005. For the six months ended June 30, 2006, electric
deliveries, excluding intersystem sales, decreased 0.3 billion kWh or 1.8
percent versus 2005. The decrease in electric deliveries for both periods is
primarily due to 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
alternative energy suppliers.

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 $23 million for the three
months ended June 30, 2006 and $43 million for the six months ended June 30,
2006 versus the same periods in 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 $12 million for the three months ended
June 30, 2006 and $23 million for the six months ended June 30, 2006 versus the
same periods in 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 $2 million for the three months
ended June 30, 2006 and $5 million for the six months ended June 30, 2006 versus
the same periods in 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 June 30,
2006, alternative electric suppliers were providing 311 MW of generation service
to ROA customers. This amount represents a decrease of 62 percent of ROA load
compared to June 30, 2005. The return of former ROA customers to full-service
rates increased electric revenues $15 million for the three months ended June
30, 2006 and $28 million for the six months ended June 30, 2006 versus the same
periods in 2005.


                                     CMS-8
<PAGE>


                                                          CMS Energy Corporation

POWER SUPPLY COSTS AND RELATED REVENUE: In 2005, power supply costs exceeded
power supply revenue due to rate caps for our residential customers. Rate caps
for our residential customers expired on December 31, 2005. In 2006, the absence
of rate caps allows us to record power supply revenue to offset fully our power
supply costs. Our ability to recover fully these power supply costs resulted in
a $3 million increase to electric revenue for the three months ended June 30,
2006 and $12 million for the six months ended June 30, 2006 versus the same
periods in 2005.

OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: For the three
months ended June 30, 2006, other operating expenses increased $73 million,
other income increased $3 million, and non-commodity revenue decreased $1
million versus 2005. For the six months ended June 30, 2006, other operating
expenses increased $135 million, other income increased $8 million, and
non-commodity revenue decreased $3 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 tree trimming and 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 in 2005, and the latest collective bargaining agreement between the
Utility Workers Union of America and Consumers.

The increase in other income is primarily due to higher interest income and 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 a
decrease in capital-related services provided to METC in 2006 versus 2005.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The $8 million decrease for the three
months ended June 30, 2006 and $21 million decrease for the six months ended
June 30, 2006 versus the same periods in 2005, 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.

GENERAL TAXES: For the three and six months ended June 30, 2006, the increase in
general taxes reflect higher MSBT expense, offset partially by lower property
tax expense.

INTEREST CHARGES: For the three and six months ended June 30, 2006, interest
charges increased primarily due to adjustments made in connection with an IRS
income tax audit. The settlement recognized that Consumers' taxable income for
prior years was higher than originally filed, resulting in the accrual of
interest on the additional tax liability for these prior years.

INCOME TAXES: For the three and six months ended June 30, 2006, income taxes
decreased versus 2005 primarily due to lower earnings by the electric utility
and the resolution of an IRS income tax audit, which resulted in a $4 million
income tax benefit primarily for the utilization or restoration of income tax
credits.


                                     CMS-9
<PAGE>


                                                          CMS Energy Corporation

GAS UTILITY RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                                           In Millions
                                                                                ----------------------
June 30                                                                         2006    2005    Change
- -------                                                                         ----    ----    ------
<S>                                                                             <C>     <C>     <C>
Three months ended                                                              $ (3)   $ (3)   $    -
Six months ended                                                                $ 34    $ 55    $  (21)
                                                                                ====    ====    ======
</Table>

<Table>
<Caption>
                                                    Three Months Ended             Six Months Ended
Reasons for the change:                           June 30, 2006 vs. 2005        June 30, 2006 vs. 2005
- -----------------------                           ----------------------        ----------------------
<S>                                               <C>                           <C>
Gas deliveries                                           $     (5)                    $    (36)
Gas wholesale and retail services, other gas
   revenues and other income                                    6                           11
Operation and maintenance                                       1                           (2)
General taxes and depreciation                                 (2)                          (5)
Interest charges                                               (3)                          (3)
Income taxes                                                    3                           14
                                                         --------                     --------
Total change                                             $      -                     $    (21)
                                                         ========                     ========
</TABLE>

GAS DELIVERIES: For the three months ended June 30, 2006, gas deliveries,
including miscellaneous transportation to end-use customers, decreased 6 bcf or
12 percent. The decrease in gas deliveries is due to increased customer
conservation efforts in response to higher gas prices and warmer than normal
weather.

For the six months ended June 30, 2006, gas deliveries, including miscellaneous
transportation to end-use customers, decreased 28 bcf or 14.4 percent. The
decrease in gas deliveries is primarily due to warmer weather in 2006 versus
2005 and increased customer conservation efforts in response to higher gas
prices. Average temperatures during the six-month period in 2006 were 4.3
percent warmer than 2005.

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUES AND OTHER INCOME: For the
three and six months ended June 30, 2006, the increase is related primarily to
increased gas wholesale and retail services revenue.

OPERATION AND MAINTENANCE: For the three months ended June 30, 2006, operation
and maintenance expenses decreased versus 2005 primarily due to a reduction in
our injuries and damages expense, offset partially by 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.

For the six months ended June 30, 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.

GENERAL TAXES AND DEPRECIATION: For the three and six months ended June 30,
2006, depreciation expense increased versus 2005 primarily due to higher plant
in service. The increase in general taxes reflects higher MSBT expense,
partially offset by lower property tax expense.


                                     CMS-10
<PAGE>


                                                          CMS Energy Corporation

INTEREST CHARGES: For the three and six months ended June 30, 2006, interest
charges increased primarily due to adjustments made in connection with an IRS
income tax audit.

INCOME TAXES: For the three and six months ended June 30, 2006, income taxes
decreased versus 2005 primarily due to lower earnings by the gas utility and the
resolution of an IRS income tax audit, which resulted in a $3 million income tax
benefit primarily for the utilization or restoration of income tax credits.

ENTERPRISES RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                                             In Millions
                                                                               -------------------------
June 30                                                                         2006      2005    Change
- -------                                                                        ------    ------   ------
<S>                                                                            <C>       <C>      <C>
Three months ended                                                             $    4    $   29   $  (25)
Six months ended                                                               $  (45)   $  134   $ (179)
                                                                               ======    ======   ======
</Table>

<Table>
<Caption>
                                                           Three Months Ended         Six Months Ended
Reasons for the change:                                  June 30, 2006 vs. 2005    June 30, 2006 vs. 2005
- -----------------------                                  ----------------------    ----------------------
<S>                                                      <C>                       <C>
Operating revenues                                              $     84                 $    121
Cost of gas and purchased power                                      (95)                    (197)
Fuel costs mark-to-market at the MCV Partnership                      (3)                    (368)
Earnings from equity method investees                                (14)                      (9)
Gain on sale of assets                                                (2)                      (5)
Operation and maintenance                                              -                      (17)
General taxes, depreciation, and other income, net                    15                       47
Fixed charges                                                         14                        3
Minority interest                                                    (14)                     167
Income taxes                                                         (10)                      79
                                                                --------                 --------
Total change                                                    $    (25)                $   (179)
                                                                ========                 ========
</Table>

OPERATING REVENUES: For the three and six months ended June 30, 2006, operating
revenues increased versus 2005 due to the impact of increased production at our
Takoradi plant, which is contracted to provide power when local hydro-generating
plants are unable to meet demand. Also contributing to the increase was
increased customer demand at our South American facilities and increased
third-party gas sales at CMS ERM. These increases were offset partially by
mark-to-market losses on gas contracts at CMS ERM compared to gains in 2005.

COST OF GAS AND PURCHASED POWER: For the three and six months ended June 30,
2006, cost of gas and purchased power increased versus 2005. The increase in
expense is primarily due to increased fuel costs related to increased production
at Takoradi. Also contributing to the increase are higher gas prices and an
increase in fuel and power purchases in order to meet customer demand, primarily
in South America.

FUEL COSTS MARK-TO-MARKET AT THE MCV PARTNERSHIP: For the three months ended
June 30, 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 decreased gas prices versus smaller losses in 2005.

For the six months ended June 30, 2006, the fuel costs mark-to-market
adjustments at the MCV Partnership


                                     CMS-11
<PAGE>


                                                          CMS Energy Corporation

decreased operating earnings due to the impact of gas prices on the market value
of certain long-term gas contracts and financial hedges. In order to reflect the
market value of these contracts and hedges, mark-to-market losses were recorded
in 2006 to reduce partially gains recorded on these assets in 2005. The 2005
gains were primarily due to the marking-to-market of certain long term gas
contracts and financial hedges 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: For the three months ended June 30, 2006,
equity earnings decreased by $14 million versus 2005. Contributing to this
decrease was the establishment of a tax reserve related to some of our foreign
investments and lower earnings at GasAtacama. These decreases were offset
partially by mark-to-market gains on interest rate swaps associated with our
investment in Taweelah, compared to losses recorded on these instruments in the
same period of 2005.

For the six months ended June 30, 2006, equity earnings decreased $9 million
versus 2005. This decrease was due to the establishment of a tax reserve related
to some of our foreign investments and lower earnings at GasAtacama. These
decreases were offset partially by mark-to-market gains on interest rate swaps
associated with our investment in Taweelah, compared to losses recorded on these
instruments in the same period of 2005. The decreases were also reduced
partially by higher earnings at Neyveli, due to the absence in 2006 of expenses
related to a forced outage and a penalty on coal purchase commitments, which
were recorded in 2005.

GAIN ON SALE OF ASSETS: For the three months ended June 30, 2006, there were no
gains or losses on asset sales versus a $2 million gain on the sale of SLAP in
2005.

For the six months ended June 30, 2006, there were no gains or losses on asset
sales versus a $3 million gain on the sale of GVK and a $2 million gain on the
sale of SLAP in 2005.

OPERATION AND MAINTENANCE: For the six months ended June 30, 2006, operation and
maintenance expenses increased due to higher salaries and benefits, primarily at
South American subsidiaries, and increased expenditures related to prospecting
initiatives.

GENERAL TAXES, DEPRECIATION AND OTHER INCOME, NET: For the three and six months
ended June 30, 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 higher interest income. These increases
were offset partially by higher general taxes, primarily at South American
subsidiaries.

FIXED CHARGES: For the three and six months ended June 30, 2006, fixed charges
decreased due to lower interest expense at the MCV Partnership as the result of
lower debt levels, offset partially by higher interest expense from an increase
in subsidiary debt and interest rates.

MINORITY INTEREST: For the three months ended June 30, 2006, minority owners
shared in a portion of the losses at our subsidiaries. The allocation of losses
to minority owners increased our net income for the period. For the three months
ended June 30, 2005, minority interest owners shared in a portion of larger
losses at our subsidiaries. The losses in 2006 and 2005 were primarily due to
activities at the MCV Partnership.

For the six months ended June 30, 2006, minority owners shared in a portion of
the losses at our subsidiaries versus sharing in the profits of these
subsidiaries in 2005. The losses in 2006 and the profits in 2005 were primarily
due to activities at the MCV Partnership.


                                     CMS-12
<PAGE>


                                                          CMS Energy Corporation

INCOME TAXES: For the three months ended June 30, 2006, the income tax benefit
was lower versus 2005. The benefit in 2006 was due to the resolution of an IRS
income tax audit, which resulted in an $8 million income tax benefit primarily
for the utilization or restoration of income tax credits. The 2005 benefit was
due to income tax benefits related to the American Jobs Creation Act of 2004,
offset partially by higher earnings.

For the six months ended June 30, 2006, we recognized income tax benefits versus
income tax expense in 2005. The benefit in 2006 was due to the resolution of an
IRS income tax audit, which resulted in an $8 million income tax benefit
primarily for the utilization or restoration of income tax credits. The income
tax expense in 2005 was due to higher earnings offset partially by the income
tax benefits related to the American Jobs Creation Act of 2004.

CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                In Millions
                                                     ----------------------
June 30                                              2006    2005    Change
- -------                                              ----    ----    ------
<S>                                                  <C>     <C>     <C>
Three months ended                                   $ 32    $(45)   $   77
Six months ended                                     $(13)   $(91)   $   78
                                                     ====    ====    ======
</Table>

For the three months ended June 30, 2006, net income from corporate interest and
other was $32 million versus net expenses of $45 million in 2005. The $77
million change reflects the resolution of an IRS income tax audit, which
resulted in a $46 million income tax benefit primarily for the utilization or
restoration of income tax credits. Also contributing to the change was an
insurance reimbursement received in June 2006 for previously incurred legal
expenses.

For the six months ended June 30, 2006, net expense from corporate interest and
other was $13 million versus net expenses of $91 million in 2005. The decrease
reflects the resolution of an IRS income tax audit, which resulted in a $46
million income tax benefit primarily for the utilization or restoration of
income tax credits. Also contributing to the change was an insurance
reimbursement received in June 2006 for previously incurred legal expenses.

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


                                     CMS-13
<PAGE>


                                                          CMS Energy Corporation

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. In July 2006, the FASB issued a new
interpretation on the recognition and measurement of uncertain tax positions.
For additional details, see the "New Accounting Standards Not Yet Effective"
section included in this MD&A.

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 account for derivative instruments in accordance with
SFAS No. 133. 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.

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
our counterparties.

The following table summarizes the interest rate and volatility rate assumptions
we used to value these contracts at June 30, 2006:

<Table>
<Caption>
                                                              Interest Rates (%)      Volatility Rates (%)
                                                              ------------------      --------------------
<S>                                                           <C>                     <C>
Long-term gas contracts associated with the MCV
     Partnership                                                  5.33 - 5.68                31 - 69
Gas-related option contracts                                         4.90                      59
Electricity-related option contracts                                 4.90                   119 - 158
</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


                                     CMS-14
<PAGE>


                                                          CMS Energy Corporation

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 purchase and sale contracts may qualify as derivatives.
However, we believe that we would be able to apply the normal purchases and
sales exception of SFAS No. 133 to these contracts and, therefore, would 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, options,
and swaps to earnings, the MCV Partnership has recognized the following losses
in 2006:

<Table>
<Caption>
                                                                 In Millions
                                       -------------------------------------
                                                       2006
                                       -------------------------------------
                                         First        Second        Year to
                                        Quarter       Quarter         Date
                                       ---------     ---------     ---------
<S>                                    <C>           <C>           <C>
Long-term gas contracts                $    (111)    $     (34)    $    (145)
Related futures, options, and swaps          (45)           (8)          (53)
                                       ---------     ---------     ---------
Total                                  $    (156)    $     (42)    $    (198)
                                       =========     =========     =========
</Table>

These losses, shown before consideration of tax effects and minority interest,
are included in the total Fuel costs mark-to-market at the MCV Partnership 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 will continue to record these
gains and losses in our consolidated  financial statements until we close the
sale of our interest in the MCV Partnership.

We have recorded derivative assets totaling $58 million associated with the fair
value of these contracts on our Consolidated Balance Sheets at June 30, 2006.
The MCV Partnership expects 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, but
only until we close the sale of our interest in the MCV Partnership.

At the closing of this sale, these assets, which represent cumulative net
mark-to-market gains, will be sold in conjunction with the sale of our ownership
interest. As a result, we will no longer record the fair value of these
long-term gas contracts or the related futures, options, and swaps on our
Consolidated Balance Sheets and will not be required to recognize gains or
losses related to changes in the fair value of these contracts on our
Consolidated Statements of Income. Additionally, at June 30, 2006, we have
recorded a cumulative net gain of $39 million, net of tax and minority interest,
in Accumulated other comprehensive loss representing our proportionate share of
the cash flow hedges held by the MCV


                                     CMS-15
<PAGE>

                                                          CMS Energy Corporation

Partnership. At the closing of the sale of our interest, this amount, adjusted
for any additional changes in fair value, will be reclassified and recognized in
earnings.

Any changes in the fair value of these contracts recognized before the closing
will not affect the purchase price of our ownership interest in the MCV
Partnership. For additional details on the sale of our interest in the MCV
Partnership, see the "Other Electric Utility Business Uncertainties - MCV
Underrecoveries" section in this MD&A and 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.
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 June 30, 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)          -          (1)         (1)
Contracts realized or otherwise settled during the period                    7         (13)         (6)
Other changes in fair value (b)                                             (8)        (42)        (50)
                                                                       -------     -------     -------
Fair value of contracts outstanding at June 30, 2006                   $   (64)    $    44     $   (20)
                                                                       =======     =======     =======
</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 June 30, 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                       (64)          (12)       (21)     (31)           -
                                               -----         -----      -----    -----        -----
Total                                          $ (64)        $ (12)     $ (21)   $ (31)       $   -
                                               =====         =====      =====    =====        =====
</Table>

<Table>
<Caption>
Fair Value of Trading Contracts at June 30, 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                         $ (54)        $ (18)     $ (36)   $    -       $   -
Prices obtained from external
   sources or based on models and
   other valuation methods                        98            22         45        31           -
                                               -----         -----      -----    ------       -----
Total                                          $  44         $   4      $   9    $   31       $   -
                                               =====         =====      =====    ======       =====
</Table>


                                     CMS-16
<PAGE>
                                                          CMS Energy Corporation

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.

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

<Table>
<Caption>
                                                                                          In Millions
                                                                   ----------------------------------
                                                                   June 30, 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)            222                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
                                                                  -----------------------------------
                                                                  June 30, 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                                          19                 39
        Gas futures, options, and swaps                                  34                 48

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

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

<Table>
<Caption>
                                                                                           In Millions
                                                                   -----------------------------------
                                                                   June 30, 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 June 30, 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


                                     CMS-17
<PAGE>


                                                          CMS Energy Corporation

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. For additional details on nuclear plant
decommissioning at Big Rock and Palisades, see the "Other Electric Utility
Business Uncertainties - Nuclear Matters" section included in this MD&A.

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/A and there have
been no subsequent 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 and the MCV Partnership fuel cost mark-to-market charges during 2006,
Consumers' ability to issue FMB as primary obligations or as collateral for
financing is expected to be limited to $298 million through December 31, 2006.
After December 31, 2006, Consumers' ability to


                                     CMS-18
<PAGE>


                                                          CMS Energy Corporation

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.

CASH POSITION, INVESTING, AND FINANCING

Our operating, investing, and financing activities meet consolidated cash needs.
At June 30, 2006, $918 million consolidated cash was on hand, which includes $67
million of restricted cash and $273 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 six months ended June 30, 2006, Consumers paid $40 million
in common stock dividends to CMS Energy.

SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS:

<TABLE>
<CAPTION>
                                                            In Millions
                                                          --------------
Six months ended June 30                                  2006     2005
- ------------------------                                  -----    -----
<S>                                                       <C>      <C>
Net cash provided by (used in):
   Operating activities                                   $ 489    $ 480
   Investing activities                                    (250)    (110)
                                                          -----    -----
Net cash provided by operating and investing activities     239      370
   Financing activities                                    (236)     (27)
Effect of exchange rates on cash                              1        1
                                                          -----    -----
Net Increase in Cash and Cash Equivalents                 $   4    $ 344
                                                          =====    =====
</Table>

OPERATING ACTIVITIES: For the six months ended June 30, 2006, net cash provided
by operating activities was $489 million, an increase of $9 million versus 2005.
This was the result of a decrease in accounts receivable, cash proceeds from the
sale of excess sulfur dioxide allowances, and a return of funds formerly held as
collateral under certain gas hedging arrangements. This activity was offset by
decreases in accounts payable and the MCV Partnership gas supplier funds on
deposit. The decrease in accounts receivable was primarily due to the expiration
of emergency rules initiated by the MPSC, which delayed customer payments during
the heating season. The decrease in the MCV Partnership gas supplier funds on
deposit was the result of refunds to suppliers from decreased exposure due to
declining gas prices in 2006. The decrease in accounts payable was mainly due to
payments for higher priced gas that were accrued as of December 31, 2005.

INVESTING ACTIVITIES: For the six months ended June 30, 2006, net cash used in
investing activities was $250 million, an increase of $140 million versus 2005.
This was primarily due to the absence of short-term investment proceeds, the
absence of proceeds from asset sales, an increase in capital expenditures, and
an increase in notes receivable. This activity was offset by a release of
restricted cash in February 2006, which we used to extinguish long-term
debt-related parties.


                                     CMS-19
<PAGE>


                                                          CMS Energy Corporation

FINANCING ACTIVITIES: For the six months ended June 30, 2006, net cash used in
financing activities was $236 million, an increase of $209 million versus 2005.
This was primarily due to a decrease in proceeds from common stock issuances of
$271 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.

DEBT CREDIT RATINGS: In June 2006, Moody's placed the debt ratings of CMS Energy
under review for possible upgrade. Moody's also affirmed CMS Energy's liquidity
rating and revised the debt rating outlook for Consumers to stable from
negative.

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.

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 managing cash flow
issues, reducing parent company debt, maintaining and growing earnings, reducing
risk, 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.


                                     CMS-20
<PAGE>

                                                          CMS Energy Corporation

ELECTRIC RESERVE MARGIN: We have a reserve margin of approximately 11 percent
for summer 2006, or supply resources equal to 111 percent of projected firm
summer peak load. The 2006 supply resources of 111 percent come from our
electric generating plants, long-term power purchase contracts, and other
contractual arrangements. We have purchased capacity and energy contracts
covering the reserve margin requirements for 2006 and covering partially the
estimated reserve margin requirements for 2007 through 2010. As a result, we
recognized an asset of $75 million for unexpired capacity and energy contracts
at June 30, 2006. Upon the completion of the sale of the Palisades plant, the
power purchase agreement will offset, for the term of the agreement, the
reduction in the owned capacity represented by the Palisades plant.

The MCV PPA is not affected by our agreement to sell our interest in the MCV
Partnership. After September 15, 2007, we expect to exercise our claim for
relief under the regulatory out provision in the MCV PPA. If we are successful
in exercising our claim, the MCV Partnership has the right to terminate the MCV
PPA, which could impact our reserve margin status.

ELECTRIC TRANSMISSION EXPENSES: 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 December 2006. We are attempting
to recover these costs through our 2006 PSCR plan case. The PSCR process allows
recovery of all reasonable and prudent power supply costs. However, we cannot
predict when 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."

In May 2006, ITC, a company that operates electric transmission facilities
through a wholly owned subsidiary, including the transmission system within
Detroit Edison's territory, filed an application with the FERC to acquire METC.
The FERC subsequently delayed hearings concerning the METC transmission rates.
We will continue to participate in the FERC proceeding concerning the METC
transmission rates and the FERC proceeding concerning ITC's proposed acquisition
of METC. We are unable to predict the nature and timing of any action by the
FERC on transmission rates or if and when the ITC's purchase of METC will be
completed.

INDUSTRIAL REVENUE OUTLOOK: Our electric utility customer base includes a mix of
residential, commercial, and diversified industrial customers. 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 with six facilities
in our service territory, 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 former ROA
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 proposed a special reliability
charge that 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


                                     CMS-21
<PAGE>


                                                          CMS Energy Corporation

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.

BURIAL OF OVERHEAD POWER LINES: The City of Taylor, a municipality located in
Wayne county, Michigan, passed an ordinance that required Detroit Edison to bury
a section of overhead power lines at Detroit Edison's expense. In September
2004, the Michigan Court of Appeals upheld a lower court decision affirming the
legality of the ordinance over Detroit Edison's objections. Other municipalities
in our service territory adopted, or proposed the adoption of, similar
ordinances. Detroit Edison appealed the Michigan Court of Appeals ruling to the
Michigan Supreme Court. In May 2006, the Michigan Supreme Court ruled in favor
of Detroit Edison. The Court found that the MPSC has primary jurisdiction over
this issue and accordingly, the Taylor ordinance is subject to any applicable
rules and regulations of the MPSC, including issues concerning who should bear
the expense of underground facilities. If incurred, we would seek recovery of
these costs from the municipality, or from our customers located in the
municipality, subject to MPSC approval.

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 Act: 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 June 2006, we have incurred
$634 million in capital expenditures to comply with the federal Clean Air Act
and resulting regulations and anticipate that the remaining $185 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.

Clean Air Interstate Rule: 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. We plan to meet this
rule by year round operation of our selective catalytic reduction control
technology units and installation of flue gas desulfurization scrubbers at an
estimated total cost of $960 million, to be incurred by 2014.

Clean Air Mercury Rule: 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. We anticipate
our capital costs for mercury emissions reductions required by Phase I of the
Clean Air Mercury Rule to be less than $50 million and implemented by 2010.
Phase II requirements of the Clean Air Mercury Rule are not yet known and a cost
estimate has not been determined.


                                     CMS-22
<PAGE>


                                                          CMS Energy Corporation

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. We are working with the MDEQ on the
details of these rules. We will develop a cost estimate when the details of
these rules are determined.

Greenhouse gases: Several legislative proposals have been introduced in the
United States Congress that would require reductions in emissions of greenhouse
gases, including potentially carbon dioxide. 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. Fish kill reduction studies are required to be
submitted to the EPA in 2007 and 2008. EPA compliance options in the rule are
currently being challenged in court and we will finalize our cost estimates in
2008, when a decision on the final rule is anticipated. We expect to implement
the EPA approved process from 2009 to 2011.

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 June 30, 2006, alternative electric suppliers
were providing 311 MW of generation service to ROA customers, which represents 4
percent of our total distribution load. 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 each of 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.

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.

In March 2006, the ALJ in our 2004 PSCR reconciliation case issued a Proposal
for Decision recommending that we use a greater portion of our net sales of
excess power into the bulk electricity market to offset our 2004 PSCR costs,
rather than 2004 Stranded Costs. In June 2006, the ALJ issued a Proposal for
Decision in our 2004 Stranded Cost case recommending that the MPSC find that we
had no Stranded Costs in 2004. If the MPSC adopts the ALJ recommendations,
earnings would be impacted adversely by $10 million. We cannot predict the
outcome of these proceedings.


                                     CMS-23
<PAGE>

                                                          CMS Energy Corporation

Through and Out Rates: From December 2004 to March 2006, we paid a transitional
charge pursuant to a FERC order eliminating regional "through and out" rates. In
May 2006, the FERC approved an agreement between the PJM RTO transmission owners
and Consumers concerning these transitional charges. The agreement resolves all
issues regarding transitional charges for Consumers and eliminates the potential
for refunds or additional charges to Consumers. In May 2006, Baltimore Gas &
Electric filed a notice of withdrawal from the settlement. Consumers, PJM, and
others filed responses with the FERC on this matter. The FERC has not ruled on
whether the notice of withdrawal is effective, but we do not believe this action
will have any material impact on us.

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

Sale of our Interest in the MCV Partnership and the FMLP: In July 2006, we
reached an agreement to sell 100 percent of the stock of CMS Midland, Inc. and
CMS Midland Holdings Company to an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments for $60.5 million. These Consumers'
subsidiaries hold our interests in the MCV Partnership and the FMLP. The sales
agreement calls for the purchaser, an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments to pay $85 million, subject to certain
conditions and reimbursement rights, if Dow terminates an agreement under which
it is provided power and steam by the MCV Partnership. The purchaser will secure
their reimbursement obligation with an irrevocable letter of credit of up to $85
million. The MCV PPA and the associated customer rates are not affected by the
sale. We are targeting to close on the sale before the end of 2006. The sale is
subject to various regulatory approvals, including the MPSC's approval and the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The MPSC has established a contested case proceeding
schedule, which will allow for a decision from the MPSC by the end of 2006. We
cannot predict the timing or the outcome of the MPSC's decision. We further
cannot predict with certainty whether or when this transaction will be
completed.

For additional details on the sale of our interests in the MCV Partnership and
the FMLP, see Note 2, Contingencies, "Other Consumers' Electric Utility
Contingencies -- The Midland Cogeneration Venture", and the Stock Purchase
Agreement, which is attached as Exhibit 10c to this filing.

Financial Condition of the MCV Partnership: 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. Historically high natural gas prices have caused the MCV Partnership to
reevaluate the economics of operating the MCV Facility and to record an
impairment charge in 2005. 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.

Underrecoveries related to the MCV PPA: 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


                                     CMS-24
<PAGE>

                                                          CMS Energy Corporation

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: Sale of Nuclear Assets: In July 2006, we reached an agreement
to sell Palisades and the Big Rock Independent Spent Fuel Storage Installation
(ISFSI) for $380 million to Entergy. The sales price reflects a $35 million
premium above the estimated Palisades asset values at the closing date after
accounting for estimated sales-related costs. This premium is expected to
benefit our customers. Entergy will assume responsibility for the future
decommissioning of the plant and for storage and disposal of spent nuclear fuel.
At the date of close, decommissioning trust assets are estimated to be $566
million. Consumers will retain $200 million of these funds at the time of close
and will be entitled to receive a return of $116 million of decommissioning
trust fund assets, pending either a favorable federal tax ruling regarding the
release of the funds or, if the funds are available, after decommissioning of
the Palisades site is complete. The disposition of the retained and receivable
nuclear decommissioning funds is subject to regulatory approval. We expect that
a portion of the proceeds will benefit our customers. We plan to use the cash
that we retain from the sale to reduce debt.

As part of the transaction, Entergy will sell us 100 percent of the plant's
output up to its current capacity of 798 MW under a 15-year power purchase
agreement. During the term of the PPA, Entergy is obligated to supply, and we
are obligated to take, all capacity and energy from the Palisades plant,
exclusive of uprates above the plant's presently specified capacity. When the
plant is not operating or is derated, under certain circumstances, Entergy can
elect to provide replacement power from another source at the rates set in the
PPA. Otherwise, we would have to obtain replacement power from the market.
However, we are only obligated to pay Entergy for capacity and energy actually
delivered by Entergy either from the plant or from an allowable replacement
source chosen by Entergy. If Entergy schedules a plant outage in June, July or
August, Entergy is required to provide replacement power at PPA rates. There are
significant penalties incurred by Entergy if the delivered energy fails to
achieve a minimum capacity factor level during July and August. Over the term of
the PPA, the pricing is structured such that Consumers' ratepayers will retain
the benefits of the Palisades plant's low-cost nuclear generation.


                                     CMS-25
<PAGE>


                                                          CMS Energy Corporation

The sale is subject to various regulatory approvals, including the MPSC's
approval of the power purchase agreement, the FERC's approval for Entergy to
sell power to us under the PPA and other related matters, the NRC's approval of
the transfer of the operating license to Entergy and other related matters, and
the expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The final purchase price will be subject to various
closing adjustments such as working capital and capital expenditure adjustments,
adjustments for nuclear fuel usage and inventory, and the date of closing. We
are targeting to complete the sale in the first quarter of 2007. However, the
sale agreement can be terminated if the closing does not occur within 18 months
of the execution of the agreement. The closing can be extended for up to six
months to accommodate delays in receiving regulatory approval. We cannot predict
with certainty whether or when the closing conditions will be satisfied or
whether or when this transaction will be completed.

For additional details on the sale of Palisades and the Big Rock ISFSI, see the
Asset Sale Agreement and the Power Purchase Agreement, which are attached as
Exhibits 10a and 10b to this filing.

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 complete by the end of the third quarter 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. An area of
approximately 105 acres encompassing the Big Rock ISFSI, where eight casks
loaded with spent fuel and other high-level radioactive material are stored, has
been sold to Entergy. We will be required to pay Entergy $30 million for
accepting responsibility for the storage and disposal of these materials.

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 June 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.

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,


                                     CMS-26
<PAGE>


                                                          CMS Energy Corporation

      -     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."

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, a process used to incorporate specialty items into customer
rates.

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 and energy efficiency fund. The MPSC Staff also recommended
reducing our allowed 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, which includes $17 million to be contributed to a low income and energy
efficiency fund. In April 2006, we revised our request for final rate relief
downward to $118 million.


                                     CMS-27
<PAGE>


                                                          CMS Energy Corporation

In May 2006, the MPSC issued an order granting us interim gas rate relief of $18
million annually, which is under bond and subject to refund if final rate relief
is granted in a lesser amount. The order also extended the temporary two-year
surcharge of $58 million granted in October 2004 until the issuance of a final
order in this proceeding. The MPSC has not set a date for issuance of an order
granting final rate relief.

In July 2006, the ALJ issued a Proposal for Decision recommending final rate
relief of $74 million above current rate levels, which include interim and
temporary rate relief. The $74 million includes $17 million to be contributed to
a low income and energy efficiency fund. The Proposal for Decision also
recommended reducing our return on common equity to 11 percent, from our current
11.4 percent.

ENTERPRISES OUTLOOK

We are evaluating new development prospects 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 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 has had 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


                                     CMS-28
<PAGE>

                                                          CMS Energy Corporation

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, 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 and raise prices under its existing gas export
contracts. Since May, gas flow from Bolivia has been restricted as Argentina and
Bolivia have been renegotiating the price for gas. Simultaneously, gas supply to
GasAtacama has been further curtailed. In July 2006, Argentina agreed to
increase the price it pays for gas from Bolivia through the term of the existing
contract, December 31, 2006. Concurrently, Argentina announced that it would
recover all of this price increase by a special tax on its gas exports. The
decision of Argentina to pass all of these increased costs to exports, in
addition to maintaining the current curtailment scheme, has increased the risk
and cost of GasAtacama's fuel supply. We are analyzing this situation to
determine what effect these actions may have on the value of our investment in
GasAtacama, but at this time cannot determine the effect. If an appropriate
resolution of this issue is not reached, it could result in an impairment of our
investment in GasAtacama. At June 30, 2006, the carrying value of our investment
in GasAtacama was $361 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
originally expired on December 31, 2004, but has recently been approved through
December 31, 2005. SENECA has informed the MEP that for 2006, SENECA will
continue to apply the fuel subsidy as a credit against a portion of its fuel
bills from its fuel supplier, Deltaven, a governmental body regulated by the
MEP. Continued receipt of the fuel subsidy is part of SENECA's broader
discussions with the MEP for appropriate financial relief. We have been informed
that the MEP is examining other aspects of SENECA's financial relief proposal.
The outcome of these discussions is uncertain and, if not favorable, could
impact adversely SENECA's liquidity and the value of our investment.

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
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: 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, 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 in 2005. 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. Although the Senate and House
bills were similar, they did contain a number of differences.


                                     CMS-29
<PAGE>

                                                          CMS Energy Corporation

The House and Senate have passed the Pension Protection Act of 2006, which
primarily reflects a bipartisan House-Senate pension conference agreement. The
bill reforms the funding rules for employer-provided pension plans, effective
for plan years beginning after 2007, and was sent to the President in August
2006 for his signature. We are in the process of determining the impact of this
potential legislation on our financial statements.

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.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

FIN 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES: In June 2006, the FASB
issued FIN 48. This interpretation provides a two-step approach for the
recognition and measurement of uncertain tax positions taken, or expected to be
taken, by a company on its income tax returns. The first step is to evaluate the
tax position to determine if, based on management's best judgment, it is greater
than 50 percent likely that the taxing authority will sustain the tax position.
The second step is to measure the appropriate amount of the benefit to
recognize. This is done by estimating the potential outcomes and recognizing the
greatest amount that has a cumulative probability of at least 50 percent. We are
presently evaluating the impacts, if any, of FIN 48. Any impacts of implementing
FIN 48 will result in a cumulative adjustment to retained earnings. This
interpretation is effective for us beginning January 1, 2007.

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 other comprehensive income could
be reduced significantly. We are in the process of determining the impact of
this proposed SFAS on our financial statements.


                                     CMS-30
<PAGE>


                                                          CMS Energy Corporation


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                                     CMS-31

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

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                 --------------------      --------------------
June 30                                                           2006          2005         2006         2005
- -------                                                          -------      -------      -------      -------
                                                                                                    In Millions
<S>                                                              <C>          <C>          <C>          <C>
OPERATING REVENUE                                                $ 1,396      $ 1,230      $ 3,428      $ 3,075

EARNINGS FROM EQUITY METHOD INVESTEES                                  8           21           44           52

OPERATING EXPENSES
     Fuel for electric generation                                    257          178          482          355
     Fuel costs mark-to-market at the MCV Partnership                 42           39          198         (170)
     Purchased and interchange power                                 182          102          332          197
     Cost of gas sold                                                297          334        1,243        1,173
     Other operating expenses                                        247          257          526          491
     Maintenance                                                      87           58          167          116
     Depreciation, depletion and amortization                        127          122          289          278
     General taxes                                                    68           66          146          141
                                                                 -------      -------      -------      -------
                                                                   1,307        1,156        3,383        2,581
                                                                 -------      -------      -------      -------

OPERATING INCOME                                                      97           95           89          546

OTHER INCOME (DEDUCTIONS)
     Accretion expense                                                (2)          (5)          (4)         (10)
     Gain on asset sales, net                                          -            2            -            5
     Interest and dividends                                           22           15           39           25
     Regulatory return on capital expenditures                         7           15           10           31
     Foreign currency gains (losses), net                              1           (3)           1           (4)
     Other income                                                     15           10           22           18
     Other expense                                                    (1)          (5)         (10)         (12)
                                                                 -------      -------      -------      -------
                                                                      42           29           58           53
                                                                 -------      -------      -------      -------

FIXED CHARGES
     Interest on long-term debt                                      120          121          239          243
     Interest on long-term debt - related parties                      4            6            8           16
     Other interest                                                    9            6           16           10
     Capitalized interest                                             (3)          (1)          (5)          (2)
     Preferred dividends of subsidiaries                               2            1            3            2
                                                                 -------      -------      -------      -------
                                                                     132          133          261          269
                                                                 -------      -------      -------      -------

INCOME (LOSS) BEFORE MINORITY INTERESTS                                7           (9)        (114)         330

MINORITY INTERESTS (OBLIGATIONS), NET                                  -          (14)         (68)          99
                                                                 -------      -------      -------      -------

INCOME (LOSS) BEFORE INCOME TAXES                                      7            5          (46)         231

INCOME TAX EXPENSE (BENEFIT)                                         (66)         (25)         (94)          49
                                                                 -------      -------      -------      -------

INCOME FROM CONTINUING OPERATIONS                                     73           30           48          182

INCOME FROM DISCONTINUED OPERATIONS, NET OF
    $- AND $1 TAX EXPENSE IN 2006                                      2            -            3            -
                                                                 -------      -------      -------      -------

NET INCOME                                                            75           30           51          182
PREFERRED DIVIDENDS                                                    3            3            6            5
                                                                 -------      -------      -------      -------

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS                      $    72      $    27      $    45      $   177
                                                                 =======      =======      =======      =======
</TABLE>

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

                                     CMS-32
<PAGE>

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED      SIX MONTHS ENDED
June 30                                                           2006       2005       2006       2005
- -------                                                         -------     ------     ------     -------
                                                                                              In Millions
<S>                                                              <C>        <C>        <C>        <C>
CMS ENERGY
    NET INCOME
        Net Income Available to Common Stockholders              $   72     $   27     $   45     $   177
                                                                =======     ======     ======     =======

    BASIC EARNINGS PER AVERAGE COMMON SHARE
        Income from Continuing Operations                        $ 0.32     $ 0.12     $ 0.19     $  0.86
        Gain from Discontinued Operations                          0.01          -       0.02           -
                                                                -------     ------     ------     -------
        Net Income Attributable to Common Stock                  $ 0.33     $ 0.12     $ 0.21     $  0.86
                                                                =======     ======     ======     =======

    DILUTED EARNINGS PER AVERAGE COMMON SHARE
        Income from Continuing Operations                        $ 0.30     $ 0.12     $ 0.19     $  0.82
        Gain from Discontinued Operations                          0.01          -       0.01           -
                                                                -------     ------     ------     -------
        Net Income Attributable to Common Stock                  $ 0.31     $ 0.12     $ 0.20     $  0.82
                                                                =======     ======     ======     =======

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

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-33
<PAGE>

                                                          CMS Energy Corporation

                      (This page intentionally left blank)


                                     CMS-34
<PAGE>

                             CMS ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED
June 30                                                                                   2006         2005
- -------                                                                                 -------      -------
                                                                                                 In Millions
<S>                                                                                     <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                            $    51      $   182
    Adjustments to reconcile net income to net cash
      provided by operating activities
        Depreciation, depletion and amortization (includes nuclear
          decommissioning of $3 per period)                                                 289          278
        Deferred income taxes and investment tax credit                                    (184)          42
        Minority interests (obligations), net                                               (68)          99
        Fuel costs mark-to-market at the MCV Partnership                                    198         (170)
        Regulatory return on capital expenditures                                           (10)         (31)
        Capital lease and other amortization                                                 23           21
        Earnings from equity method investees                                               (44)         (52)
        Accretion expense                                                                     4           10
        Gain on the sale of assets                                                            -           (5)
        Changes in other assets and liabilities:
           Decrease (increase) in accounts receivable and accrued revenues                   19          (78)
           Decrease in inventories                                                          103          112
           Increase (decrease) in accounts payable                                         (105)          23
           Increase (decrease) in accrued taxes                                              23          (56)
           Increase in accrued expenses                                                      63            6
           Increase (decrease) in the MCV Partnership gas supplier funds on deposit        (100)           4
           Cash distributions received from equity method investees                          48           36
           Decrease in other current and non-current assets                                 175           11
           Increase in other current and non-current liabilities                              4           48
                                                                                        -------      -------

          Net cash provided by operating activities                                     $   489      $   480
                                                                                        -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                     $  (320)     $  (280)
  Cost to retire property                                                                   (31)         (18)
  Restricted cash and restricted short-term investments                                     127          (20)
  Investments in nuclear decommissioning trust funds                                        (18)          (3)
  Proceeds from nuclear decommissioning trust funds                                          13           24
  Proceeds from short-term investments                                                        -          295
  Purchase of short-term investments                                                          -         (186)
  Maturity of the MCV Partnership restricted investment securities held-to-maturity         118          222
  Purchase of the MCV Partnership restricted investment securities held-to-maturity        (118)        (223)
  Proceeds from sale of assets                                                                -           59
  Other investing                                                                           (21)          20
                                                                                        -------      -------

          Net cash used in investing activities                                         $  (250)     $  (110)
                                                                                        -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes, bonds, and other long-term debt                                  $    43      $   900
  Issuance of common stock                                                                   12          283
  Retirement of bonds and other long-term debt                                             (271)      (1,169)
  Payment of preferred stock dividends                                                       (6)          (6)
  Payment of capital lease and financial lease obligations                                   (5)          (5)
  Debt issuance costs and financing fees                                                     (9)         (30)
                                                                                        -------      -------

          Net cash used in financing activities                                         $  (236)     $   (27)
                                                                                        -------      -------

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

NET INCREASE IN CASH AND CASH EQUIVALENTS                                               $     4      $   344

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                              847          669
                                                                                        -------      -------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                $   851      $ 1,013
                                                                                        =======      =======
</TABLE>

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

                                     CMS-35
<PAGE>
                             CMS ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
                                                                                               June 30
                                                                                                 2006           December 31
                                                                                              (Unaudited)          2005
                                                                                              ------------     ------------
                                                                                                                In Millions
<S>                                                                                           <C>              <C>
PLANT AND PROPERTY (AT COST)
   Electric utility                                                                           $      8,396     $      8,204
   Gas utility                                                                                       3,179            3,151
   Enterprises                                                                                       1,060            1,068
   Other                                                                                                31               25
                                                                                              ------------     ------------
                                                                                                    12,666           12,448
   Less accumulated depreciation, depletion and amortization                                         5,210            5,123
                                                                                              ------------     ------------
                                                                                                     7,456            7,325
   Construction work-in-progress                                                                       572              520
                                                                                              ------------     ------------
                                                                                                     8,028            7,845
                                                                                              ------------     ------------

INVESTMENTS
   Enterprises                                                                                         738              712
   Other                                                                                                10               13
                                                                                              ------------     ------------
                                                                                                       748              725
                                                                                              ------------     ------------

CURRENT ASSETS
   Cash and cash equivalents at cost, which approximates market                                        851              847
   Restricted cash and restricted short-term investments                                                67              198
   Accounts receivable, notes receivable and accrued revenue, less
     allowances of $32 and $31, respectively                                                           790              824
   Accounts receivable, dividends receivable, and notes receivable - related parties                    67               54
   Inventories at average cost
      Gas in underground storage                                                                       949            1,069
      Materials and supplies                                                                            93               96
      Generating plant fuel stock                                                                      129              110
   Price risk management assets                                                                         59              113
   Regulatory assets - postretirement benefits                                                          19               19
   Derivative instruments                                                                               95              242
   Deferred property taxes                                                                             147              160
   Prepayments and other                                                                               127              167
                                                                                              ------------     ------------
                                                                                                     3,393            3,899
                                                                                              ------------     ------------

NON-CURRENT ASSETS
   Regulatory Assets
      Securitized costs                                                                                538              560
      Additional minimum pension                                                                       399              399
      Postretirement benefits                                                                          105              116
      Customer Choice Act                                                                              206              222
      Other                                                                                            475              484
   Price risk management assets                                                                        114              165
   Nuclear decommissioning trust funds                                                                 563              555
   Goodwill                                                                                             30               27
   Notes receivable - related parties                                                                  185              187
   Notes receivable                                                                                    210              187
   Other                                                                                               672              649
                                                                                              ------------     ------------
                                                                                                     3,497            3,551
                                                                                              ------------     ------------


TOTAL ASSETS                                                                                  $     15,666     $     16,020
                                                                                              ============     ============
</TABLE>

                                     CMS-36
<PAGE>



STOCKHOLDERS' INVESTMENT AND LIABILITIES

<TABLE>
<CAPTION>
                                                                                   June 30
                                                                                    2006           December 31
                                                                                 (Unaudited)         2005
                                                                                ------------      ------------
                                                                                                   In Millions
<S>                                                                             <C>               <C>
CAPITALIZATION
   Common stockholders' equity
      Common stock, authorized 350.0 shares; outstanding 221.5 shares and
         220.5 shares, respectively                                             $          2      $          2
      Other paid-in capital                                                            4,452             4,436
      Accumulated other comprehensive loss                                              (282)             (288)
      Retained deficit                                                                (1,783)           (1,828)
                                                                                ------------      ------------
                                                                                       2,389             2,322

   Preferred stock of subsidiary                                                          44                44
   Preferred stock                                                                       261               261

   Long-term debt                                                                      6,851             6,800
   Long-term debt - related parties                                                      178               178
   Non-current portion of capital and finance lease obligations                          310               308
                                                                                ------------      ------------
                                                                                      10,033             9,913
                                                                                ------------      ------------

MINORITY INTERESTS                                                                       362               333
                                                                                ------------      ------------

CURRENT LIABILITIES
   Current portion of long-term debt, capital and finance leases                         174               316
   Current portion of long-term debt - related parties                                     -               129
   Accounts payable                                                                      496               597
   Accounts payable - related parties                                                     13                16
   Accrued interest                                                                      157               145
   Accrued taxes                                                                         354               331
   Price risk management liabilities                                                      66                80
   Current portion of gas supply contract obligations                                     11                10
   Deferred income taxes                                                                  72                55
   MCV Partnership gas supplier funds on deposit                                          93               193
   Other                                                                                 242               241
                                                                                ------------      ------------
                                                                                       1,678             2,113
                                                                                ------------      ------------

NON-CURRENT LIABILITIES
   Regulatory Liabilities
      Regulatory liabilities for cost of removal                                       1,166             1,120
      Income taxes, net                                                                  468               455
      Other regulatory liabilities                                                       222               178
   Postretirement benefits                                                               424               382
   Deferred income taxes                                                                  79               297
   Deferred investment tax credit                                                         64                67
   Asset retirement obligations                                                          496               496
   Price risk management liabilities                                                     127               161
   Gas supply contract obligations                                                        53                61
   Other                                                                                 494               444
                                                                                ------------      ------------
                                                                                       3,593             3,661
                                                                                ------------      ------------

COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 5)

TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES                                  $     15,666      $     16,020
                                                                                ============      ============
</TABLE>

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

                                     CMS-37
<PAGE>
                             CMS ENERGY CORPORATION
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED    SIX MONTHS ENDED
June 30                                                                                      2006       2005      2006       2005
- -------                                                                                     -------    -------   -------    -------
                                                                                                                        In Millions
<S>                                                                                         <C>        <C>       <C>        <C>
COMMON STOCK
   At beginning and end of period                                                           $     2    $     2   $     2    $     2
                                                                                            -------    -------   -------    -------

OTHER PAID-IN CAPITAL
   At beginning of period                                                                     4,445      4,147     4,436      4,140
   Common stock issued                                                                            7        275        15        281
   Common stock reissued                                                                          -          -         1          1
                                                                                            -------    -------   -------    -------
      At end of period                                                                        4,452      4,422     4,452      4,422
                                                                                            -------    -------   -------    -------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
   Minimum Pension Liability
      At beginning of period                                                                    (19)       (17)      (19)       (17)
      Minimum pension liability adjustments (a)                                                   -         (9)        -         (9)
                                                                                            -------    -------   -------    -------
         At end of period                                                                       (19)       (26)      (19)       (26)
                                                                                            -------    -------   -------    -------

   Investments
      At beginning of period                                                                     11          8         9          9
      Unrealized gain (loss) on investments (a)                                                  (1)         -         1         (1)
                                                                                            -------    -------   -------    -------
         At end of period                                                                        10          8        10          8
                                                                                            -------    -------   -------    -------

   Derivative Instruments
      At beginning of period                                                                     30          1        35         (9)
      Unrealized gain (loss) on derivative instruments (a)                                        4         (6)        -         12
      Reclassification adjustments included in net income (loss) (a)                              1          2         -         (6)
                                                                                            -------    -------   -------    -------
         At end of period                                                                        35         (3)       35         (3)
                                                                                            -------    -------   -------    -------

   Foreign Currency Translation
      At beginning of period                                                                   (308)      (315)     (313)      (319)
      Other foreign currency translations (a)                                                     -          3         5          7
                                                                                            -------    -------   -------    -------
         At end of period                                                                      (308)      (312)     (308)      (312)
                                                                                            -------    -------   -------    -------

      At end of period                                                                         (282)      (333)     (282)      (333)
                                                                                            -------    -------   -------    -------

RETAINED DEFICIT
   At beginning of period                                                                    (1,855)    (1,584)   (1,828)    (1,734)
   Net income (a)                                                                                75         30        51        182
   Preferred stock dividends declared                                                            (3)        (3)       (6)        (5)
                                                                                            -------    -------   -------    -------
      At end of period                                                                       (1,783)    (1,557)   (1,783)    (1,557)
                                                                                            -------    -------   -------    -------

TOTAL COMMON STOCKHOLDERS' EQUITY                                                           $ 2,389    $ 2,534   $ 2,389    $ 2,534
                                                                                            =======    =======   =======    =======

(A)  DISCLOSURE OF OTHER COMPREHENSIVE INCOME:
         Minimum Pension Liability
            Minimum pension liability adjustments, net of tax benefit of
               $-, $(5), $- and $(5), respectively                                          $     -    $    (9)  $     -    $    (9)
         Investments
            Unrealized gain (loss) on investments, net of tax of
               $1, $-, $- and $-, respectively                                                   (1)         -         1         (1)
         Derivative Instruments
            Unrealized gain (loss) on derivative instruments, net of tax (tax benefit) of
               $(2), $4, $(7) and $13, respectively                                               4         (6)        -         12
            Reclassification adjustments included in net income, net of tax benefit of
               $(1), $-, $(2) and $(6), respectively                                              1          2         -         (6)
         Foreign currency translation, net                                                        -          3         5          7
         Net income                                                                              75         30        51        182
                                                                                            -------    -------   -------    -------

       Total Other Comprehensive Income                                                     $    79    $    20   $    57    $   185
                                                                                            =======    =======   =======    =======
</TABLE>

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

                                     CMS-38
<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/A Amendment No. 1 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 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,

                                     CMS-39
<PAGE>

                                                          CMS Energy Corporation

natural gas, and other energy products are recognized at delivery.
Mark-to-market changes in the fair values of energy trading contracts that
qualify as derivatives are recognized as revenues in the periods in which the
changes occur.

ACCOUNTING FOR MISO TRANSACTIONS: CMS ERM accounts for MISO transactions on a
net basis for all of the generating units for which CMS ERM markets 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 June 30, 2006, the cumulative Foreign Currency Translation component of
stockholders' equity is $308 million, which primarily represents currency losses
in Argentina and Brazil. The cumulative foreign currency loss due to the
unfavorable exchange rate of the Argentine peso using an exchange rate of 3.092
pesos per U.S. dollar was $266 million, net of tax. The cumulative foreign
currency loss due to the unfavorable exchange rate of the Brazilian real using
an exchange rate of 2.217 reais 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 $15.666
billion at June 30, 2006, 56 percent represent long-lived assets and equity
method investments that are subject to this type of analysis.

There were no asset sales for the six months ended June 30, 2006. Gross cash
proceeds received from the sale of assets totaled $59 million for the six months
ended June 30, 2005. The impacts of these sales are included in Gain on assets
sales, net on our Consolidated Statements of Income.

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

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

                                     CMS-40
<PAGE>

                                                          CMS Energy Corporation

DETERMINATION OF PENSION MRV OF PLAN ASSETS: We determine the MRV for pension
plan assets, as defined in SFAS No. 87, as the fair value of plan assets on the
measurement date, adjusted by the gains or losses that will not be admitted into
MRV until future years. We reflect each year's assets gain or loss in MRV in
equal amounts over a five-year period beginning on the date the original amount
was determined. The MRV is used in the calculation of net pension cost.

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

<TABLE>
<CAPTION>
                                                                                                           In Millions
                                                                   ---------------------------------------------------
                                                                    Three Months Ended              Six Months Ended
                                                                   ---------------------         ---------------------
June 30                                                             2006           2005           2006           2005
- -------                                                            ------         ------         ------         ------
<S>                                                                <C>            <C>            <C>            <C>
Other income
       Interest and dividends - related parties                    $    4         $    3         $    6         $    5
       Electric restructuring return                                    1              3              2              4
       Return on stranded and security costs                            2              2              3              3
       Nitrogen oxide allowance sales                                   6              1              6              1
       Refund of surety bond premium                                    -              -              1              -
       Reduction of contingent liability                                -              -              -              3
       All other                                                        2              1              4              2
                                                                   ------         ------         ------         ------
Total other income                                                 $   15         $   10         $   22         $   18
                                                                   ======         ======         ======         ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                                           In Millions
                                                                   ---------------------------------------------------
                                                                    Three Months Ended              Six Months Ended
                                                                   ---------------------         ---------------------
June 30                                                             2006           2005           2006           2005
- -------                                                            ------         ------         ------         ------
<S>                                                                <C>            <C>            <C>            <C>
Other expense
       Investment write-down                                       $    -         $    -         $    -         $   (1)
       Loss on SERP investment                                          -             (1)             -             (1)
       Loss on reacquired and extinguished debt                         -             (1)            (5)            (6)
       Civic and political expenditures                                 -              -             (1)            (1)
       Donations                                                        -              -             (1)             -
       All other                                                       (1)            (3)            (3)            (3)
                                                                   ------         ------         ------         ------
Total other expense                                                $   (1)        $   (5)        $  (10)        $  (12)
                                                                   ======         ======         ======         ======
</TABLE>

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

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE: FIN 48, Accounting for Uncertainty
in Income Taxes: In June 2006, the FASB issued FIN 48. This interpretation
provides a two-step approach for the recognition and measurement of uncertain
tax positions taken, or expected to be taken, by a company on its income tax
returns. The first step is to evaluate the tax position to determine if, based
on management's best judgment, it is greater than 50 percent likely that the
taxing authority will sustain the tax position. The second step is to measure
the appropriate amount of the benefit to recognize. This is done by estimating
the potential outcomes and recognizing the greatest amount that has a cumulative
probability of at least 50 percent. We are presently evaluating the impacts, if
any, of FIN 48. Any impacts of implementing FIN 48 will result in a cumulative
adjustment to retained earnings. This interpretation is effective for us
beginning January 1, 2007.

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-41
<PAGE>

                                                          CMS Energy Corporation

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 "all persons who
purchased CMS Common Stock during the period of October 25, 2000 through and
including May 17, 2002 and who were damaged thereby." The court excluded
purchasers of CMS Energy's 8.75 percent Adjustable Convertible Trust Securities
("ACTS") from the class. Trial has been scheduled for March 2007. In response to
the court's opinion and order excluding purchasers of ACTS from the shareholder
class, a new class action lawsuit was filed on behalf of ACTS purchasers. The
new lawsuit names the same defendants as the shareholder action and contains
essentially the same allegations and class period. CMS Energy and the individual
defendants will defend themselves vigorously in this litigation but cannot
predict its outcome.

ERISA LAWSUITS: CMS Energy was 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 alleged breaches of
fiduciary duties under ERISA and sought 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 required a
$28 million cash payment by CMS Energy's primary insurer to 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 hearing on final approval of the settlement was
held on June 15, 2006. On June 27, 2006, the judge entered the Order and Final
Judgment, approving the proposed settlement with minor modifications.

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

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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 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, a water collection system was
constructed to recover seep water from one of the CKD piles and CMS Energy built
a treatment plant to treat the seep water. 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, a
subsidiary of Enterprises (CMS Land) 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, which was approved by the EPA on March 30,
2006. On May 30, 2006, the EPA approved a pilot carbon dioxide augmentation plan
to augment the leachate recovery system by improving pH results in certain
areas. The augmentation system was installed in June 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 collection
trenches in the East Park leachate release area. On June 19, 2006, the EPA
approved an East CKD Removal Action Work Plan and Final Engineering Design for
Consolidation. The work plan calls for completion of the collection trenches in
East Park by November 15, 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. After a March 28, 2006 hearing on motions filed by CMS Energy
and other defendants, the judge dismissed 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 the existing case, and any other property damage
and personal injury claims or lawsuits.

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CMS Energy has recorded a charge 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 Act: 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 through 2011. 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 June 2006, we have incurred
$634 million in capital expenditures to comply with the federal Clean Air Act
and resulting regulations and anticipate that the remaining $185 million of
capital expenditures will be made in 2006 through 2011. These expenditures
include installing selective catalytic reduction control 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.

Clean Air Interstate Rule: 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 more than 60 percent
and sulfur dioxide by more than 70 percent from 2003 levels by 2015. The final
rule will require that we run our selective catalytic reduction control
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, which we expect to recover from our customers through the PSCR
process.

In addition to the selective catalytic reduction control technology installed to
meet the nitrogen oxide standards, our current plan includes installation of
flue gas desulfurization scrubbers. The scrubbers

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are to be installed by 2014 to meet the Phase I reduction requirements of the
Clean Air Interstate Rule, at an estimated total 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.

Clean Air Mercury Rule: 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 costs for mercury emissions
reductions required by Phase I of the Clean Air Mercury Rule to be less than $50
million and implemented by 2010. Phase II requirements of the Clean Air Mercury
Rule are not yet known and a cost estimate has not been determined.

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. We cannot predict the outcome of this proceeding.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan would adopt the Clean Air
Mercury Rule through its first phase. Beginning in year 2015, the mercury
emissions reduction standards outlined in the governor's plan would become more
stringent than those included in the Clean Air Mercury Rule. We are working with
the MDEQ on the details of these rules. We will develop a cost estimate when the
details of these rules are determined.

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 $1 million and $10 million. At June 30, 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.

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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 there after declared five of
the six duct burners in the MCV Facility as unavailable for operational use
(which reduced the generation capability of the MCV Facility by approximately
100 MW) and took other corrective action to address the MDEQ's assertions.
Testing of the one available duct burner occurred in April 2005, and its
emissions met permitted levels due to the configuration of that particular unit.
In July 2004, the MCV Partnership filed a response to the Letter of Violation,
opposing its findings. On December 13, 2004, the MDEQ informed the MCV
Partnership that it was pursuing an escalated enforcement action against the MCV
Partnership. 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). Following voluntary settlement discussions, the
MDEQ issued the MCV Partnership a new PTI, which established higher carbon
monoxide emissions limits on the five duct burners that had been declared
unavailable. The MCV Partnership has returned those duct burners to service. The
MDEQ and the MCV Partnership are pursuing a settlement of the emission
violation, which will also satisfy state and federal requirements and remove the
MCV Partnership from the HPVL. At this time, we cannot predict the financial
impact or outcome of this issue.

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

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                                                          CMS Energy Corporation

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 June 30, 2006, alternative electric suppliers were providing 311 MW
of generation service to ROA customers, which represents 4 percent of our total
distribution load. This represents a decrease of 11 percent of ROA load compared
to March 31, 2006 and a decrease of 62 percent of ROA load compared to June 30,
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 Stranded Costs in 2004; however, we
also concluded that these costs were offset completely by our net sales of
excess power into the bulk electricity market.

In March 2006, the ALJ in our 2004 PSCR reconciliation case issued a Proposal
for Decision recommending that we use a greater portion of our net sales of
excess power into the bulk electricity market to offset our 2004 PSCR costs,
rather than 2004 Stranded Costs. We believe, if accepted, that this
recommendation would lead to a greater amount of 2004 Stranded Costs to recover
from ROA customers. However, in June 2006, the ALJ issued a Proposal for
Decision in our 2004 Stranded Cost case recommending that the MPSC find that we
had no Stranded Costs in 2004 because the ALJ did not believe we demonstrated
that the Stranded Costs were caused by ROA. If the MPSC adopts the ALJ
recommendations earnings would be impacted adversely by $10 million. In June
2006, we filed exceptions to this Proposal for Decision in the Stranded Cost
case. We cannot predict the outcome of these proceedings.

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. We have purchased capacity and energy contracts covering the reserve
margin requirements for 2006 and covering partially the estimated reserve margin
requirements for 2007 through 2010. As a result, we have recognized an asset of
$75 million for unexpired capacity and energy contracts at June 30, 2006. At
July 2006, we expect the total capacity cost of electric capacity and energy
contracts for 2006 to be $19 million.

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PSCR: The PSCR process allows recovery of reasonable and prudent power supply
costs. Revenues from the PSCR charges are subject to reconciliation after review
of actual costs 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 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.

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 temporary order. In May 2006,
the ALJ issued a Proposal for Decision with a recommendation similar to the MPSC
Staff. However, the ALJ recommended that we continue to exclude those costs
temporarily excluded until addressed in our 2006 PSCR reconciliation case, which
we plan to file in March 2007. Depending on the action taken by the MPSC, our
cash underrecoveries of power supply costs for 2006 could range from $39 million
to $146 million.

These underrecoveries are due to increased bundled sales, and other cost
increases beyond those included in the September 2005 and November 2005 filings.
We expect to recover fully all of our PSCR costs. When we incur and are unable
to collect these costs in a timely manner, there is a negative impact on our
cash flows from electric utility operations.

In March 2006, we submitted our 2005 PSCR reconciliation filing to the MPSC. In
July 2006, we submitted supplemental testimony in which we calculated an
underrecovery of $37 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).

Sale of our Interest in the MCV Partnership and the FMLP: In July 2006, we
reached an agreement to sell 100 percent of the stock of CMS Midland, Inc. and
CMS Midland Holdings Company to an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments for $60.5 million. These Consumers'
subsidiaries hold our interest in the MCV Partnership and the FMLP. The MCV PPA
and the associated customer rates are not affected by the sale. We are targeting
to close on the sale by the end of 2006. The sale is subject to various
regulatory approvals, including the MPSC's approval and the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On July 27, 2006, the MPSC issued an order establishing a contested case
proceeding and provided a schedule, which will allow for a decision from the
MPSC by the end of 2006. We cannot predict the timing or the outcome of the
MPSC's decision. We further cannot predict with certainty whether or when this
transaction will be completed.

Further, because of the PPA in place between Consumers and the MCV Partnership,
the transaction is effectively a sale and leaseback for accounting purposes.
SFAS No. 98 specifies the accounting required for a seller's sale and
simultaneous leaseback transaction involving real estate,

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                                                          CMS Energy Corporation

including real estate with equipment. In accordance with SFAS No. 98, the
transaction will be required to be accounted for as a financing and not a sale.
This is due to forms of continuing involvement we will have with the MCV
Partnership. At closing, we will remove from our Consolidated Balance Sheets all
of the assets, liabilities, and minority interest associated with both the MCV
Partnership and the FMLP except for the real estate assets and equipment of the
MCV Partnership. Those assets will remain at their carrying value. If the fair
value is determined to be less than the present carrying value, an impairment
charge would result.

Further, as disclosed in Note 5, Financial and Derivative Instruments,
"Derivative Contracts Associated with the MCV Partnership," we will reflect in
earnings certain cumulative amounts of MCV Partnership-related derivative fair
value changes that are accounted for in other comprehensive income. We will also
reflect in earnings a liability for the fair value of a guarantee, and income
related to certain MCV Partnership gas contracts which are being sold. The
transaction will not result in the MCV Partnership or the FMLP assets being
classified as held for sale on our Consolidated Balance Sheets.

Financial Condition of the MCV Partnership: 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. Historically high natural gas prices have caused the MCV Partnership to
reevaluate the economics of operating the MCV Facility and to record an
impairment charge in 2005. 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 June 30,
2006, the negative minority interest for the other general partners' share,
including their portion of the limited partners' negative equity, is $112
million and is included in Other Non-current Assets on our Consolidated Balance
Sheets.

Underrecoveries related to the MCV PPA: 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 $28 million
during the six months ended June 30, 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 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

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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 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 2006. 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. 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 remanded
proceedings may result in the determination of a greater refund to the MCV
Partnership. In July 2006, the Michigan Supreme Court denied the City of
Midland's 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. Updated cost projections for Big Rock indicate an anticipated
decommissioning cost of $393 million as of June 2006.

Big Rock: In December 2000, funding of the Big Rock trust fund stopped because
the MPSC-authorized decommissioning surcharge collection period expired. In our
March 2004 report to the MPSC, we indicated that we would manage the
decommissioning trust fund to meet annual NRC financial assurance requirements
by withdrawing NRC radiological decommissioning costs from the fund and
initially funding non-NRC, greenfield costs out of corporate funds. In March
2006, we contributed $16 million to the trust fund from our corporate funds to
support NRC radiological decommissioning costs. Excluding the additional nuclear
fuel storage costs due to the DOE's failure to accept spent fuel on schedule, we
are projecting that the level of funds provided by the trust will fall short of
the amount needed to complete the decommissioning by $39 million, which is the
amount projected for non-NRC, greenfield costs. We plan initially to fund the
$39 million out of corporate funds. Therefore, at this time, we plan to provide
a total of $55 million from corporate funds for costs associated with NRC

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radiological and non-NRC greenfield decommissioning work. We plan to seek
recovery of such expenditures. 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 July 2006, we reached an agreement to sell Palisades and the Big Rock ISFSI
to Entergy. As part of the transaction, Entergy will sell us 100 percent of the
plant's output up to its current capacity of 798 MW under a 15-year power
purchase agreement. Because of the PPA that will be in place between Consumers
and Entergy, the transaction is effectively a sale and leaseback for accounting
purposes. SFAS No. 98 specifies the accounting required for a seller's sale and
simultaneous leaseback transaction involving real estate, including real estate
with equipment. In accordance with SFAS No. 98, the transaction will be
accounted for as a financing and not a sale. This is due to forms of continuing
involvement. As such, we will not classify the 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 June 30, 2006, our DOE liability is $148
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. In conjunction with
the sale of Palisades and the Big Rock ISFSI, we will retain this obligation and
provide security to Entergy for this obligation in the form of either cash, a
letter of credit, or other acceptable means.

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.

                                     CMS-51
<PAGE>

                                                          CMS Energy Corporation

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 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 up to $544 million through
nuclear insurance and NRC indemnity, and maintains 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 June 30, 2006, we have a
liability of $28 million, net of $54 million of expenditures incurred to date,
and a regulatory asset of $59 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.

                                     CMS-52
<PAGE>

                                                          CMS Energy Corporation

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.

The following table summarizes our GCR reconciliation filings with the MPSC:

Gas Cost Recovery Reconciliation

<TABLE>
<CAPTION>
                                           Net Over-
GCR Year     Date Filed     Order Date     recovery        Status
- --------     ----------     ----------     ---------       ------
<S>          <C>            <C>            <C>             <C>
2004-2005    June 2005      April 2006     $2 million      The net overrecovery includes interest expense through March 2005 and
                                                           refunds that we received from our suppliers that are required to be
                                                           refunded to our customers.

2005-2006    June 2006      Pending        $3 million      The net overrecovery includes $1 million interest income through
                                                           March 2006, which resulted from a net underrecovery position
                                                           during the majority of the GCR period.
</TABLE>

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 per mcf 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.

In July 2006, all parties signed a partial settlement agreement, which calls for
a base GCR ceiling factor of $9.48 per mcf. The settlement agreement is also
subject to a quarterly GCR ceiling price adjustment of up to $3.50 per MMbtu,
contingent upon future events. The settlement agreement is subject to MPSC
approval.

Our GCR factor for the billing month of August 2006 is $8.37 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,

                                     CMS-53
<PAGE>

                                                          CMS Energy Corporation

     -    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, a process used to incorporate specialty items into customer
rates.

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 and energy efficiency fund. The MPSC Staff also recommended
reducing our allowed 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, which includes $17 million to be contributed to a low income and energy
efficiency fund. In April 2006, we revised our request for final rate relief
downward to $118 million.

In May 2006, the MPSC issued an order granting us interim gas rate relief of $18
million annually, which is under bond and subject to refund if final rate relief
is granted in a lesser amount. The order also extended the temporary two-year
surcharge of $58 million granted in October 2004 until the issuance of a final
order in this proceeding. The MPSC has not set a date for issuance of an order
granting final rate relief.

In July 2006, the ALJ issued a Proposal for Decision recommending final rate
relief of $74 million above current rate levels, which include interim and
temporary rate relief. The $74 million includes $17 million to be contributed to
a low income and energy efficiency fund. The Proposal for Decision also
recommended reducing our return on common equity to 11 percent, from our current
11.4 percent.

                                     CMS-54
<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, Colorado,
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
court approved the settlement in May 2006. The $6.975 million settlement was
paid by CMS MST. CMS Energy had established a reserve for this amount in the
fourth quarter of 2005. CMS Energy and the other CMS Energy defendants will
defend themselves vigorously against these matters but cannot predict their
outcome.

DEARBORN INDUSTRIAL GENERATION: In October 2001, Duke/Fluor Daniel (DFD), the
primary construction contractor for the DIG facility, 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 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 late-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. On May
19, 2006, the court issued a scheduling order and the case has been set for
trial in February 2007. The parties attended a court-ordered mediation on July
14, 2006 and the matter was not resolved. 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

                                     CMS-55
<PAGE>

                                                          CMS Energy Corporation

payments are currently insufficient to cover CMS Ensenada's operating costs,
including quarterly debt service payments to the Overseas Private Investment
Corporation (OPIC). Enterprises is party to a Sponsor Support Agreement pursuant
to which Enterprises has guaranteed CMS Ensenada's debt service payments to OPIC
up to an amount which is in dispute, but which Enterprises estimates to be
approximately $7 million.

The Argentine commercial court granted injunctive relief to CMS Ensenada
pursuant to an ex parte action, and such relief will remain in effect until
completion of arbitration on the matter, to be administered by the International
Chamber of Commerce. The arbitration hearing was held in July 2005 and a
decision from the arbitration panel is expected in 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 AUDIT RESOLUTION: 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 have been using this tax accounting
method, generally allowed by the IRS under section 263A of the Internal Revenue
Code, with respect to the allocation of certain indirect overhead costs to the
tax basis of self-constructed utility assets.

In June 2006, the IRS concluded its most recent audit of CMS Energy and its
subsidiaries and proposed changes to taxable income for the years ended December
31, 1987 through December 31, 2001. The proposed overall cumulative increase to
taxable income related primarily to the disallowance of the simplified service
cost method with respect to certain self-constructed utility assets. We have
accepted these proposed adjustments to taxable income, which resulted in the
payment of $76 million of tax in

                                     CMS-56
<PAGE>

                                                          CMS Energy Corporation

July 2006, and a reduction of our June 2006 income tax provision of $62 million,
net of interest expense, primarily for the utilization or restoration of
previously written off income tax credits.

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 June 30, 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                  $1,133              $ 1
Standby letters of credit and loans (b)               Various               Various through                131                -
                                                                            May 2010
Surety bonds and other indemnifications               Various               Indefinite                      10                -
Other guarantees (c)                                  Various               Various through                218                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 June
30, 2006, letters of credit issued on behalf of unconsolidated affiliates
totaling $65 million were outstanding.

(c) Maximum obligation includes $85 million related to the MCV Partnership's
non-performance under a steam and electric power agreement with Dow. We have
reached an agreement to sell our interests in the MCV Partnership and the FMLP,
subject to certain regulatory and other closing conditions. The sales agreement
calls for the purchaser, an affilate of GSO Capital Partners and Rockland
Capital Energy Investments to pay $85 million, subject to certain reimbursement
rights, if Dow terminates an agreement under which it is provided power and
steam by the MCV Partenership.


                                     CMS-57
<PAGE>

                                                          CMS Energy Corporation

The purchaser will secure their reimbursement obligation with an irrevocable
letter of credit of up to $85 million.

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
                                          Natural gas transportation                Nonperformance

                                          Self-insurance requirement                Nonperformance
Standby letters of credit and loans       Credit agreement                          Non-payment by CMS Energy and
                                                                                    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

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


                                          Bay Harbor remediation efforts            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 June 30, 2006, certain contracts contained provisions allowing us to recover,
from third-parties, amounts paid under the guarantees. For example, if we are
required to purchase a property under a put option agreement, we may sell the
property to recover the amount paid under the option.

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

                                     CMS-58
<PAGE>

                                                          CMS Energy Corporation

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
                                                                             ------------------------------------
                                                                              June 30, 2006     December 31, 2005
                                                                             --------------    ------------------
<S>                                                                          <C>               <C>
CMS ENERGY CORPORATION
    Senior notes                                                               $    2,271          $    2,347
    Other long-term debt                                                                2                   2
                                                                               ----------          ----------
         Total - CMS Energy Corporation                                             2,273               2,349
                                                                               ----------          ----------
CONSUMERS ENERGY COMPANY
    First mortgage bonds                                                            3,174               3,175
    Senior notes and other                                                            855                 852
    Securitization bonds                                                              355                 369
                                                                               ----------          ----------
         Total - Consumers Energy Company                                           4,384               4,396
                                                                               ----------          ----------
OTHER SUBSIDIARIES                                                                    358                 363
                                                                               ----------          ----------
TOTAL PRINCIPAL AMOUNTS OUTSTANDING                                                 7,015               7,108
    Current amounts                                                                  (147)               (289)
    Net unamortized discount                                                          (17)                (19)
                                                                               ----------          ----------
Total Long-term debt                                                           $    6,851          $    6,800
                                                                               ==========          ==========
</TABLE>

FINANCINGS: The following is a summary of significant long-term debt retirements
during the six months ended June 30, 2006:

<TABLE>
<CAPTION>
                                                 Principal       Interest
                                               (in millions)     Rate (%)            Retirement Date                Maturity Date
                                               -------------     --------            ---------------                -------------
<S>                                            <C>               <C>                 <C>                            <C>
CMS ENERGY
 Senior notes                                     $  76            9.875              January through                October 2007
                                                                                         April 2006

CONSUMERS
 Long-term debt - related parties                   129            9.000               February 2006                  June 2031
                                                  -----
            TOTAL                                 $ 205
                                                  =====
</TABLE>

REGULATORY AUTHORIZATION FOR FINANCINGS: In May 2006, the FERC issued an order
authorizing Consumers to issue up to $2.0 billion of secured and unsecured
short-term securities for the following purposes:

     -    up to $1.0 billion for general corporate purposes, and

     -    up to $1.0 billion of FMB or other securities to be issued solely as
          collateral for other short-term securities.

Also in May 2006, the FERC issued an order authorizing Consumers to issue up to
$5.0 billion of secured and unsecured long-term securities for the following
purposes:

     -    up to $1.5 billion for general corporate purposes,

     -    up to $1.0 billion for purposes of refinancing or refunding existing
          long-term debt, and

                                     CMS-59
<PAGE>

                                                          CMS Energy Corporation

     -    up to $2.5 billion of FMB or other securities to be issued solely as
          collateral for other long-term securities.

Any long-term issuances during the two-year authorization period are exempt from
the FERC's competitive bidding and negotiated placement requirements.

The authorizations are for a two-year period beginning July 1, 2006 and ending
June 30, 2008.

REVOLVING CREDIT FACILITIES:  The following secured revolving credit facilities
with banks are available at June 30, 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         $    -         $     103       $       197
Consumers                       March 30, 2007           300              -                 -               300
Consumers                        May 18, 2010            500              -                42               458
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, dependent on the aggregate amounts of
unrestricted cash and unused commitments under the facility.

Under the provisions of its articles of incorporation, at June 30, 2006,
Consumers had $184 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 six months ended
June 30, 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
June 30, 2006, capital lease obligations totaled $56 million. In order to obtain
permanent financing for the MCV Facility, the MCV Partnership entered into a
sale and lease back agreement with a lessor group, which includes the FMLP, for
substantially all of the MCV Partnership's fixed assets. In accordance with SFAS
No. 98, the MCV Partnership accounted for the transaction as a financing
arrangement. At June 30, 2006, finance lease obligations totaled $281 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 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 June 30, 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

                                     CMS-60
<PAGE>

                                                          CMS Energy Corporation

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
                                                                                      ----------------------
Six months ended June 30                                                               2006           2005
- ------------------------                                                              -------        -------
<S>                                                                                   <C>            <C>
Net cash flow as a result of accounts receivable financing                            $  (325)       $  (304)
Collections from customers                                                             $3,232        $ 2,787
</TABLE>

CONTINGENTLY CONVERTIBLE SECURITIES: In June 2006, the $11.87 per share
conversion trigger price contingency was met for our $250 million 4.50 percent
contingently convertible preferred stock. As a result, these securities are
convertible at the option of the security holders for the three months ending
September 30, 2006, with the par value payable in cash. As of July 2006, none of
the security holders have notified us of their intention to convert these
securities.

In June 2006, the $12.81 per share conversion trigger price contingency was not
met for our $150 million 3.375 percent contingently convertible senior notes.
Therefore, they retained the characteristics of a long-term liability and we
reclassified them as long-term debt.

4:   EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                         In Millions, Except Per Share Amounts
                                                         -------------------------------------
Three Months Ended June 30                                      2006            2005
- --------------------------                                     -------         -------
<S>                                                      <C>                   <C>
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS
  Income from Continuing Operations                            $    73         $    30
  Less Preferred Dividends                                          (3)             (3)
                                                               -------         -------
  Income from Continuing Operations
         Available to Common Stockholders
         - Basic and Diluted                                   $    70         $    27
                                                               =======         =======
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
    Weighted Average Shares - Basic                              219.6           217.9
    Add dilutive impact of Contingently
            Convertible Securities                                 8.6            10.2
    Add dilutive Stock Options and Warrants                        1.4             0.8
                                                               -------         -------
    Weighted Average Shares - Diluted                            229.6           228.9
                                                               =======         =======

EARNINGS PER AVERAGE COMMON SHARE
  AVAILABLE TO COMMON STOCKHOLDERS
        Basic                                                  $  0.32         $  0.12
        Diluted                                                $  0.30         $  0.12
                                                               =======         =======
</TABLE>

                                     CMS-61
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                         In Millions, Except Per Share Amounts
                                                         -------------------------------------
Six Months Ended June 30                                        2006            2005
- ------------------------                                       -------         -------
<S>                                                      <C>                   <C>

EARNINGS AVAILABLE TO COMMON STOCKHOLDERS
  Income from Continuing Operations                            $    48         $   182
  Less Preferred Dividends                                          (6)             (5)
                                                               -------         -------
  Income from Continuing Operations Available to
         Common Stockholders - Basic and Diluted               $    42         $   177
                                                               =======         =======
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
    Weighted Average Shares - Basic                              219.3           206.7
    Add dilutive impact of Contingently
            Convertible Securities                                 9.6             8.2
    Add dilutive Stock Options and Warrants                        1.4             0.8
                                                               -------         -------
    Weighted Average Shares - Diluted                            230.3           215.7
                                                               =======         =======

EARNINGS PER AVERAGE COMMON SHARE
  AVAILABLE TO COMMON STOCKHOLDERS
        Basic                                                  $  0.19         $  0.86
        Diluted                                                $  0.19         $  0.82
                                                               =======         =======
</TABLE>

Contingently Convertible Securities: 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.

Stock Options and Warrants: Since the exercise price was greater than the
average market price of our common stock, there was no impact to diluted EPS for
additional options and warrants to purchase 1.8 million shares of common stock
for the three months ended June 30, 2006, and 3.4 million shares of common stock
for the three months ended June 30, 2005. There was also no impact to diluted
EPS for additional options and warrants to purchase 1.8 million shares of common
stock for the six months ended June 30, 2006, and 3.5 million shares of common
stock for the six months ended June 30, 2005.

Convertible Debentures: Due to accounting EPS dilution principles, for the three
and six months ended June 30, 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 for the three
          months ended June 30, 2006 and $4 million for the six months ended
          June 30, 2006, 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.

                                     CMS-62
<PAGE>

                                                          CMS Energy Corporation

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
                                            -------------------------------------------------------------------------------
                                                        June 30, 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,                             $6,998        $6,926      $      72        $7,089        $7,315      $  (226)
    including current amounts
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                             16            15             (1)           17            17            -
Nuclear decommissioning investments:
    Equity securities                          135           253            118           134           252          118
    Debt securities                            306           303             (3)          287           291            4
</TABLE>

In July 2006, Consumers reached an agreement to sell Palisades and the Big Rock
ISFSI to Entergy. Entergy will assume responsibility for the future
decommissioning of the plant and for storage and disposal of spent nuclear fuel.
Accordingly, upon completion of the sale, Consumers will transfer $366 million
of nuclear decommissioning trust fund assets to Entergy and retain $200 million.
Consumers will also be entitled to receive a return of $116 million of
decommissioning trust fund assets pending either a favorable federal tax ruling
regarding the release of the funds, or, if the funds are available, after
decommissioning of the Palisades site is complete. The disposition of the
retained and receivable nuclear decommissioning funds is subject to regulatory
proceedings.

DERIVATIVE INSTRUMENTS: In order to limit our exposure to certain market risks,
we may enter into various risk management contracts, such as swaps, options,
futures, and forward contracts. These contracts, used primarily to manage our
exposure to changes in interest rates, commodity prices, and currency exchange
rates, are classified as either non-trading or trading. We enter into these
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.

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

                                     CMS-63
<PAGE>

                                                          CMS Energy Corporation

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 our 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.

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

                                     CMS-64
<PAGE>

                                                          CMS Energy Corporation

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
                                                    ------------------------------------------------------------------------------
                                                              June 30, 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             -             1              1
Derivative contracts associated with the MCV
  Partnership:
  Long-term gas contracts (a)                           -            59            59             -           205            205
  Gas futures, options, and swaps (a)                   -           121           121             -           223            223
CMS ERM contracts:
  Non-trading electric / gas contracts                  -           (64)          (64)            -           (63)           (63)
  Trading electric / gas contracts (b)                 (3)           44            47            (3)          100            103
Derivative contracts associated with equity
  investments in:
  Shuweihat                                             -            (6)           (6)            -           (20)           (20)
  Taweelah                                            (35)           (6)           29           (35)          (17)            18
  Jorf Lasfar                                           -            (6)           (6)            -            (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
partly due to a decrease in natural gas prices since that time. The decrease is
also the result of the normal reversal of such derivative assets. As gas has
been purchased under the long-term gas contracts and the gas futures, options,
and swap contracts have been settled, the fair value of the contracts has
decreased.

(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-to-market
gains and losses associated with these options are reported directly in earnings
as part of

                                     CMS-65
<PAGE>

                                                          CMS Energy Corporation

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 June 30, 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 further details on the RCP, see Note 2,
Contingencies, "Other Consumers' Electric Utility Contingencies - The Midland
Cogeneration Venture."

For the six months ended June 30, 2006, we recorded a $145 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 the MCV Partnership 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 will continue to record these gains
and losses in our consolidated financial statements until we close the sale of
our ownership interest in the MCV Partnership.

We have recorded derivative assets totaling $59 million associated with the fair
value of long-term gas contracts on our Consolidated Balance Sheets at June 30,
2006. The MCV Partnership expects 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,
but only until we close the sale of our ownership interest in the MCV
Partnership.

At the closing of this sale, these assets, which represent cumulative net
mark-to-market gains, will be sold in conjunction with the sale of our ownership
interest. Also at the closing, we will record any additional mark-to-market
gains or losses associated with the long-term gas contracts and recognize the
changes in fair value in earnings. Any such changes in the fair value of these
contracts recognized before the closing will not affect the purchase price of
our ownership interest in the MCV Partnership. After the closing of the sale, we
will no longer record the fair value of these long-term gas contracts on our
Consolidated Balance Sheets and will not be required to recognize gains or
losses related to changes in the fair value of these contracts on our
Consolidated Statements of Income.

For further details on the sale of our interest in the MCV Partnership, see Note
2, Contingencies, "Other Consumers' Electric Utility Contingencies - The
Midland Cogeneration Venture."

                                     CMS-66
<PAGE>

                                                          CMS Energy Corporation

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 June 30, 2006, the MCV Partnership held natural gas futures, options, and
swaps. We have recorded a net derivative asset amount of $121 million on our
Consolidated Balance Sheets at June 30, 2006 associated with the fair value of
these contracts. Certain of the futures and swaps qualify for cash flow hedge
accounting and we record our proportionate share of their mark-to-market gains
and losses in 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 assets of $122
million of the net $121 million derivative assets recorded on our Consolidated
Balance Sheets. We have recorded a cumulative net gain of $39 million, net of
tax and minority interest, in Accumulated other comprehensive loss at June 30,
2006, representing our proportionate share of the cash flow hedges held by the
MCV Partnership. If we have not closed the sale of our ownership interest in the
MCV Partnership within the next 12 months, we can expect to reclassify $17
million of this balance, net of tax and minority interest, as an increase to
earnings as the contracts settle, offsetting the costs of gas purchases. There
was no ineffectiveness associated with any of these cash flow hedges.

The remaining futures, options, and swap contracts, representing derivative
liabilities of $1 million, do not qualify as cash flow hedges. The futures and
swap contracts were previously 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. The MCV Partnership expects almost all of these derivative liabilities
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."

For the six months ended June 30, 2006, we recorded a $53 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 the MCV Partnership 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 will continue to record these gains and losses in our
consolidated financial statements until we close the sale of our ownership
interest in the MCV Partnership.

In conjunction with the sale of our ownership interest in the MCV Partnership,
all of the futures, options, and swaps will be sold. At the closing of this
sale, we will record any additional mark-to-market gains or losses associated
with these contracts and recognize the changes in fair value in Accumulated
other comprehensive loss or earnings, accordingly. Any such changes in the fair
value of these contracts recognized before the closing will not affect the
purchase price of our ownership interest in the MCV Partnership. Then, for those
futures and swaps that qualify as cash flow hedges, the related balance of net
cumulative gains recorded in Accumulated other comprehensive loss will be
reclassified and recognized in earnings. After the sale of these assets,

                                     CMS-67
<PAGE>

                                                          CMS Energy Corporation

we will no longer record the fair value of these contracts on our Consolidated
Balance Sheets and will not be required to recognize gains or losses related to
changes in the fair value of these contracts on our Consolidated Statements of
Income. For additional details on the sale of our interest in the MCV
Partnership, 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 June 30, 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 share in Earnings from Equity Method
Investees.

FOREIGN EXCHANGE DERIVATIVES: At times, we use forward exchange and option
contracts to hedge the value of 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 June 30, 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 June 30, 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

                                     CMS-68
<PAGE>

                                                          CMS Energy Corporation

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 conditions, the
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 June 30,
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                             $ 71            $ -          $ 71            $ 9 (c)                 13
MCV Partnership                      181             96            85             82 (d)                 96
</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) The remaining balance of the MCV Partnership's net exposure was from
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.

                                     CMS-69
<PAGE>

                                                          CMS Energy Corporation

6: RETIREMENT BENEFITS

We provide retirement benefits to our employees under a number of different
plans, including:

     -    a 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 net reduction in pension
expense of $2 million for the three months ended June 30, 2006 and $5 million
for the six months ended June 30, 2006. We have established a corresponding
regulatory asset of $5 million.

OPEB: 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 a $1 million net reduction in OPEB
expense for the three months and the six months ended June 30, 2006. We have
established a corresponding regulatory asset of $1 million.

                                     CMS-70
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                     ---------------------------------------------------
                                                                          Pension
                                                     ---------------------------------------------------
                                                     Three Months Ended              Six Months Ended
                                                     ------------------            ---------------------
June 30                                               2006        2005              2006           2005
- -------                                              ------      ------            ------         ------
<S>                                                  <C>         <C>               <C>            <C>
Service cost                                         $   12      $   15            $   24         $   25
Interest expense                                         21          30                42             49
Expected return on plan assets                          (21)        (38)              (43)           (63)
Amortization of:
  Net loss                                               11           7                22             14
  Prior service cost                                      2           3                 4              4
                                                     ------      ------            ------         ------
Net periodic cost                                        25          17                49             29
Regulatory adjustment                                    (2)          -                (5)             -
                                                     ------      ------            ------         ------
Net periodic cost after regulatory adjustment        $   23      $   17            $   44         $   29
                                                     ======      ======            ======         ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                             In Millions
                                                     ---------------------------------------------------
                                                                            OPEB
                                                     ---------------------------------------------------
                                                     Three Months Ended              Six Months Ended
                                                     ------------------            ---------------------
June 30                                               2006        2005              2006           2005
- -------                                              ------      ------            ------         ------
<S>                                                  <C>         <C>               <C>            <C>
Service cost                                         $    6      $    5            $   12         $   11
Interest expense                                         16          16                32             32
Expected return on plan assets                          (15)        (14)              (29)           (28)
Amortization of:
  Net loss                                                5           5                10              9
  Prior service cost                                     (2)         (2)               (5)            (4)
                                                     ------      ------            ------         ------
Net periodic cost                                        10          10                20             20
Regulatory adjustment                                    (1)          -                (1)             -
                                                     ------      ------            ------         ------
Net periodic cost after regulatory adjustment        $    9      $   10             $  19         $   20
                                                     ======      ======            ======         ======
</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 provides promoted and newly hired participants
benefits ranging from 5 to 15 percent of total compensation. The DC SERP
requires a minimum of five years of participation before vesting. Our
contributions to the plan, if any, will be placed in a grantor trust. For the
six months ended June 30, 2006, no contributions were made to the plan.

MCV: 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 and six months ended June 30, 2006 and 2005 was less than $1 million.

                                     CMS-71
<PAGE>

                                                          CMS Energy Corporation

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 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 qualifies 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>
June 30, 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                           $551
Big Rock-decommission plant site                       1962           Big Rock nuclear plant                              12
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>

                                     CMS-72
<PAGE>

                                                                 CMS Corporation

<TABLE>
<CAPTION>
                                                                                                                  In Millions
                                             --------------------------------------------------------------------------------
                                                ARO                                                                    ARO
                                             Liability                                                Cash flow     Liability
ARO Description                              12/31/05      Incurred       Settled(a)   Accretion      Revisions      6/30/06
- ---------------                              ---------     --------       ----------   ---------      ---------     ---------
<S>                                          <C>           <C>            <C>          <C>            <C>           <C>
Palisades-decommission                       $   375       $     -        $    -       $     12       $     -       $   387
Big Rock-decommission                             27             -           (15)             2             -            14
JHCampbell intake line                             -             -             -              -             -             -
Coal ash disposal areas                           54             -            (1)             2             -            55
Wells at gas storage fields                        1             -             -              -             -             1
Indoor gas services relocations                    1             -             -              -             -             1
Natural gas-fired power plant                      1             -             -              -             -             1
Close gas treating plant and gas wells             1             -             -              1             -             2
Asbestos abatement                                36             -            (2)             1             -            35
                                             -------       -------        ------       --------       -------       -------
Total                                        $   496       $     -        $  (18)      $     18       $     -       $   496
                                             =======       =======        ======       ========       =======       =======
</TABLE>

(a) These cash payments are included in the Other current and non-current
liabilities line in Net cash provided by operating activities on our
Consolidated Statements of Cash Flows. Cash payments for the six months ended
June 30, 2005 were $26 million.

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. In
December 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.

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 six months ended June 30, 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, if certain minimum service
requirements are met, 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.

                                     CMS-73
<PAGE>

                                                          CMS Energy Corporation

For the six months ended June 30, 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 4,906,300 shares of common stock under the Plan at June
30, 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
                                                          Date Fair
Restricted Stock                   Number of Shares         Value
- ----------------                   ----------------     -------------
<S>                                <C>                  <C>
Nonvested at December 31, 2005          1,682,056        $    10.64
  Granted                                  47,830        $    13.00
  Vested                                  (19,886)       $     9.12
  Forfeited                               (35,000)       $    10.92
                                        ---------        ----------

Nonvested at June 30, 2006              1,675,000        $    10.72
                                        =========        ==========
</TABLE>

The total fair value of shares vested was less than $1 million for the six
months ended June 30, 2006 and 2005.

                                     CMS-74
<PAGE>

                                                          CMS Energy Corporation

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 $3 million for the six months ended June 30, 2006 and $2
million for the six months ended June 30, 2005. The total related income tax
benefit recognized in income was $1 million for the six months ended June 30,
2006 and 2005. At June 30, 2006, there was $10 million of total unrecognized
compensation cost related to restricted stock. We expect to recognize this cost
over a weighted-average period of 2.0 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                                         (53,000)          $   7.08
  Cancelled or Expired                             (392,640)          $  30.76
                                                  ---------           --------            ---------         -----

Outstanding at June 30, 2006                      3,095,698           $  20.24            5.1 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 10 years and one month from the grant
date. We issue new shares when participants exercise stock options. The total
intrinsic value of stock options exercised was less than $1 million for the six
months ended June 30, 2006 and $1 million for the six months ended June 30,
2005. Cash received from exercise of these stock options was less than $1
million for the six months ended June 30, 2006 and $1 million for the six months
ended June 30, 2005. Since we have 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.

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. Earnings
from equity method investments was $8 million for the three months ended June
30, 2006 and $21 million for the three months ended June 30, 2005. Earnings from
equity method investments was $44 million for the six months ended June 30, 2006
and $52 million for the six months ended June 30, 2005. The most significant of
these investments is our 50 percent interest in Jorf Lasfar.

                                     CMS-75
<PAGE>

                                                          CMS Energy Corporation

Summarized financial information for Jorf Lasfar is as follows:

Income Statement Data
<TABLE>
<CAPTION>
                                                                             In Millions
                                     ---------------------------------------------------
JORF LASFAR                          Three Months Ended                Six Months Ended
- -----------                          ------------------              -------------------
June 30                              2006          2005              2006           2005
- -------                              ----          ----              ----           ----
<S>                                  <C>           <C>               <C>            <C>
Operating revenue                    $113          $129              $234           $259
Operating expenses                     79            90               158            173
                                     ----          ----              ----           ----
Operating income                       34            39                76             86
Other expense, net                     13            14                26             28
                                     ----          ----              ----           ----
Net income                           $ 21          $ 25              $ 50           $ 58
                                     ====          ====              ====           ====
</TABLE>


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                 Six Months Ended
                                                          ------------------------          -----------------------
June 30                                                    2006             2005             2006            2005
- -------                                                   -------          -------          -------         -------
<S>                                                       <C>              <C>              <C>             <C>
Operating Revenue
  Electric utility                                        $   791          $   644          $ 1,520         $ 1,272
  Gas utility                                                 334              355            1,375           1,347
  Enterprises                                                 271              231              533             456
                                                          -------          -------          -------         -------

Total Operating Revenue                                   $ 1,396          $ 1,230          $ 3,428         $ 3,075
                                                          =======          =======          =======         =======

Net Income Available to Common Stockholders
  Electric utility                                        $    37          $    46          $    66         $    79
  Gas utility                                                  (3)              (3)              34              55
  Enterprises                                                   4               29              (45)            134
  Other                                                        34              (45)             (10)            (91)
                                                          -------          -------          -------         -------

Total Net Income Available to Common Stockholders         $    72          $    27          $    45         $   177
                                                          =======          =======          =======         =======
</TABLE>

<TABLE>
<CAPTION>
                                                                     In Millions
                                                 -------------------------------
                                                 June 30, 2006 December 31, 2005
                                                 ------------- -----------------
<S>                                              <C>           <C>
Assets
  Electric utility (a)                              $ 7,925        $ 7,743
  Gas utility (a)                                     3,503          3,600
  Enterprises                                         3,695          4,130
  Other                                                 543            547
                                                    -------        -------
Total Assets                                        $15,666        $16,020
                                                    =======        =======
</TABLE>

                                     CMS-76
<PAGE>

                                                          CMS Energy Corporation

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

                                     CMS-77
<PAGE>

                                                          CMS Energy Corporation


                      (This page intentionally left blank)


                                     CMS-78



<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.

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 several 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.

In July 2006, we reached an agreement to sell the Palisades nuclear plant to
Entergy for $380 million. We also signed a 15-year power purchase agreement for
100 percent of the plant's current electric output. We are targeting to close
the sale in the first quarter of 2007. The sale will result in an immediate
improvement in our cash flow, a reduction in our nuclear operating and
decommissioning risk, and an improvement in our financial flexibility to support
other utility investments. We expect that a portion of the proceeds will benefit
our customers. We plan to use the cash that we retain from the sale to reduce
debt.



                                      CE-1
<PAGE>

                                                        Consumers Energy Company


Working capital and cash flow continue to be a challenge for us. Natural gas
prices continue to be volatile and remain at high levels. 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. High gas prices
could result in a further impairment of our interest in the MCV Partnership.

Due to the impairment of the MCV Facility, and operating losses from
mark-to-market adjustments on derivative instruments, the equity held by a
Consumers' subsidiary and the other 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. In July 2006,
we reached an agreement to sell our interests in the MCV Partnership and the
FMLP. The sale is subject to various regulatory approvals including the MPSC. If
the sale closes by the end of 2006, as expected, it will have a $56 million
positive impact on our 2006 cash flow. The sale will reduce our exposure to
sustained high natural gas prices. We will use the proceeds to reduce utility
debt. If the sale is not completed, the viability of the MCV Facility is still
in question.

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 June 30, 2006, alternative
electric suppliers were providing 311 MW of generation service to ROA customers.
This is 4 percent of our total distribution load and represents a decrease of 62
percent of ROA load compared to June 30, 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:



                                      CE-2
<PAGE>

                                                        Consumers Energy Company


     -    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,

     -    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 increasing rapidly,

               -    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
          the FMLP investments, regulatory decisions that limit recovery of
          capacity and fixed energy payments, and our ability to complete the
          sale of our interests in the MCV Partnership and the FMLP,

     -    if successful in exercising the regulatory out clause of the MCV PPA,
          and if the sale of our interests in the MCV Partnership and the FMLP
          is not completed, the negative impact on the MCV Partnership's
          financial performance,

     -    if we exercise our regulatory out rights causing the MCV Partnership
          to terminate the MCV PPA, 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,



                                      CE-3
<PAGE>

                                                        Consumers Energy Company


     -    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 customers,

     -    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,

     -    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, 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.



                                      CE-4
<PAGE>

                                                        Consumers Energy Company


RESULTS OF OPERATIONS

NET INCOME AVAILABLE TO COMMON STOCKHOLDER

<TABLE>
<CAPTION>
                                                                              In Millions
                                                          -------------------------------
Three months ended June 30                                2006         2005        Change
- --------------------------                                ----         ----        ------
<S>                                                       <C>          <C>          <C>

    Electric                                              $ 37         $ 46         $ (9)
    Gas                                                     (3)          (3)           -
    Other (Includes the MCV Partnership interest)            1          (11)          12
                                                          ----         ----         ----

Net income available to common stockholder                $ 35         $ 32         $  3
                                                          ====         ====         ====
</TABLE>

For the three months ended June 30, 2006, net income available to our common
stockholder was $35 million, compared to $32 million for the three months ended
June 30, 2005. The increase reflects higher electric utility revenues due to an
electric rate increase authorized in December 2005 and a $14 million impact from
the resolution of an IRS income tax audit. The audit resolution resulted in an
increase to net income of $4 million at the electric utility, $3 million at the
gas utility, and $7 million in our other segment. Partially offsetting these
increases are higher operating and maintenance costs at our electric utility.

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

<TABLE>
<CAPTION>
                                                                                                       In Millions
                                                                                                       -----------
<S>                                                                                                    <C>

- -    increase in electric delivery revenue primarily due to the MPSC's December 2005
     electric rate order,                                                                                 $ 39

- -    decrease in income taxes, offset by interest expense, primarily due to an IRS income tax audit,        14

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

- -    other net decreases                                                                                    (6)
                                                                                                          ----
Total Change                                                                                              $  3
                                                                                                          ====
</TABLE>

<TABLE>
<CAPTION>
                                                                                  In Millions
                                                          -----------------------------------
Six months ended June 30                                   2006           2005         Change
- ------------------------                                  ------         ------        ------
<S>                                                       <C>            <C>           <C>

    Electric                                              $   66         $   79        $  (13)
    Gas                                                       34             55           (21)
    Other (Includes the MCV Partnership interest)            (55)            55          (110)
                                                          ------         ------        ------

Net income available to common stockholder                $   45         $  189        $ (144)
                                                          ======         ======        ======
</TABLE>

For the six months ended June 30, 2006, net income available to our common
stockholder was $45 million, compared to $189 million for the six months ended
June 30, 2005. The decrease reflects the impact of gas prices on the market
value of certain long-term gas contracts and financial hedges. In order to
reflect the market value, mark-to-market losses were recorded in 2006 to reduce
partially gains



                                      CE-5
<PAGE>

                                                        Consumers Energy Company


recorded on these assets 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 and the $14 million impact from the
resolution of an IRS income tax audit.

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,             $ (122)

- -    increase in operating expenses primarily due to higher depreciation and amortization expense,
     expense, higher electric maintenance expense, and higher customer service expense,                   (88)

- -    decrease in gas delivery revenue primarily due to warmer weather and increased
     conservation efforts,                                                                                (23)

- -    decrease in return on electric utility capital expenditures in excess of depreciation base
     as allowed by the Customer Choice Act,                                                               (14)

- -    increase in electric delivery revenue primarily due to the MPSC's December 2005
     electric rate order,                                                                                  77

- -    decrease in income taxes, offset by interest expense, primarily due to an IRS income tax audit,       14

- -    increase in earnings due to the expiration of rate caps that, in 2005, would not allow us
     to recover fully our power supply costs from our residential customers, and                            8

- -    other net increases                                                                                    4
                                                                                                       ------
Total Change                                                                                           $ (144)
                                                                                                       ======
</TABLE>



                                      CE-6
<PAGE>

                                                        Consumers Energy Company


ELECTRIC UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 In Millions
                                                          ----------------------------------
June 30                                                    2006          2005         Change
- -------                                                   ------        ------        ------
<S>                                                       <C>           <C>           <C>

Three months ended                                        $   37        $   46        $   (9)
Six months ended                                          $   66        $   79        $  (13)
                                                          ======        ======        ======
</TABLE>

<TABLE>
<CAPTION>
                                                       Three Months Ended               Six Months Ended
Reasons for the change:                            June 30, 2006 vs. 2005         June 30, 2006 vs. 2005
- -----------------------                            ----------------------         ----------------------
<S>                                                <C>                            <C>

Electric deliveries                                               $   60                          $  119
Power supply costs and related revenue                                 3                              12
Other operating expenses, other income, and
  non-commodity revenue                                              (71)                           (130)
Regulatory return on capital expenditures                             (8)                            (21)
General taxes                                                         (1)                             (1)
Interest charges                                                      (3)                             (2)
Income taxes                                                          11                              10
                                                                  ------                          ------

Total change                                                      $   (9)                         $  (13)
                                                                  ======                          ======
</TABLE>

ELECTRIC DELIVERIES: For the three months ended June 30, 2006, electric
deliveries, excluding intersystem sales, decreased 0.2 billion kWh or 2.1
percent versus 2005. For the six months ended June 30, 2006, electric
deliveries, excluding intersystem sales, decreased 0.3 billion kWh or 1.8
percent versus 2005. The decrease in electric deliveries for both periods is
primarily due to 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
alternative energy suppliers.

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 $23 million for the three
months ended June 30, 2006 and $43 million for the six months ended June 30,
2006 versus the same periods in 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 $12 million for the three months ended
June 30, 2006 and $23 million for the six months ended June 30, 2006 versus the
same periods in 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 $2 million for the three months
ended June 30, 2006 and $5 million for the six months ended June 30, 2006 versus
the same periods in 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 June 30,
2006, alternative electric suppliers were providing 311 MW of generation service
to ROA customers. This amount represents a decrease of 62 percent of ROA load
compared to June 30, 2005. The return of former ROA customers to full-service
rates increased electric revenues $15 million for the three months ended June
30, 2006 and $28 million for the six months ended June 30, 2006 versus the same
periods in 2005.



                                      CE-7
<PAGE>

                                                        Consumers Energy Company


POWER SUPPLY COSTS AND RELATED REVENUE: In 2005, power supply costs exceeded
power supply revenue due to rate caps for our residential customers. Rate caps
for our residential customers expired on December 31, 2005. In 2006, the absence
of rate caps allows us to record power supply revenue to offset fully our power
supply costs. Our ability to recover fully these power supply costs resulted in
a $3 million increase to electric revenue for the three months ended June 30,
2006 and $12 million for the six months ended June 30, 2006 versus the same
periods in 2005.

OTHER OPERATING EXPENSES, OTHER INCOME AND NON-COMMODITY REVENUE: For the three
months ended June 30, 2006, other operating expenses increased $73 million,
other income increased $3 million, and non-commodity revenue decreased $1
million versus 2005. For the six months ended June 30, 2006, other operating
expenses increased $135 million, other income increased $8 million, and
non-commodity revenue decreased $3 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 tree trimming and 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 in 2005, and the latest collective bargaining agreement between the
Utility Workers Union of America and Consumers.

The increase in other income is primarily due to higher interest income and 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 a
decrease in capital-related services provided to METC in 2006 versus 2005.

REGULATORY RETURN ON CAPITAL EXPENDITURES: The $8 million decrease for the three
months ended June 30, 2006 and $21 million decrease for the six months ended
June 30, 2006 versus the same periods in 2005, 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.

GENERAL TAXES: For the three and six months ended June 30, 2006, the increase in
general taxes reflect higher MSBT expense, offset partially by lower property
tax expense.

INTEREST CHARGES: For the three and six months ended June 30, 2006, interest
charges increased primarily due to adjustments made in connection with an IRS
income tax audit. The settlement recognized that Consumers' taxable income for
prior years was higher than originally filed, resulting in the accrual of
interest on the additional tax liability for these prior years.

INCOME TAXES: For the three and six months ended June 30, 2006, income taxes
decreased versus 2005 primarily due to lower earnings by the electric utility
and the resolution of an IRS income tax audit, which resulted in a $4 million
income tax benefit primarily for the utilization or restoration of income tax
credits.



                                      CE-8
<PAGE>

                                                        Consumers Energy Company


GAS UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   In Millions
                                                          ------------------------------------
June 30                                                    2006           2005          Change
- -------                                                   ------         ------         ------
<S>                                                       <C>            <C>            <C>

Three months ended                                        $   (3)        $   (3)        $    -
Six months ended                                          $   34         $   55         $  (21)
                                                          ======         ======         ======
</TABLE>

<TABLE>
<CAPTION>
                                                    Three Months Ended            Six Months Ended
Reasons for the change:                         June 30, 2006 vs. 2005      June 30, 2006 vs. 2005
- -----------------------                         ----------------------      ----------------------
<S>                                             <C>                         <C>

Gas deliveries                                                  $   (5)                    $  (36)
Gas wholesale and retail services, other gas
  revenues and other income                                          6                         11
Operation and maintenance                                            1                         (2)
General taxes and depreciation                                      (2)                        (5)
Interest charges                                                    (3)                        (3)
Income taxes                                                         3                         14
                                                                ------                     ------

Total change                                                    $    -                     $  (21)
                                                                ======                     ======
</TABLE>

GAS DELIVERIES: For the three months ended June 30, 2006, gas deliveries,
including miscellaneous transportation to end-use customers, decreased 6 bcf or
12 percent. The decrease in gas deliveries is due to increased customer
conservation efforts in response to higher gas prices and warmer than normal
weather.

For the six months ended June 30, 2006, gas deliveries, including miscellaneous
transportation to end-use customers, decreased 28 bcf or 14.4 percent. The
decrease in gas deliveries is primarily due to warmer weather in 2006 versus
2005 and increased customer conservation efforts in response to higher gas
prices. Average temperatures during the six-month period in 2006 were 4.3
percent warmer than 2005.

GAS WHOLESALE AND RETAIL SERVICES, OTHER GAS REVENUES AND OTHER INCOME: For the
three and six months ended June 30, 2006, the increase is related primarily to
increased gas wholesale and retail services revenue.

OPERATION AND MAINTENANCE: For the three months ended June 30, 2006, operation
and maintenance expenses decreased versus 2005 primarily due to a reduction in
our injuries and damages expense, offset partially by 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.

For the six months ended June 30, 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.



                                      CE-9
<PAGE>

                                                        Consumers Energy Company


GENERAL TAXES AND DEPRECIATION: For the three and six months ended June 30,
2006, depreciation expense increased versus 2005 primarily due to higher plant
in service. The increase in general taxes reflects higher MSBT expense,
partially offset by lower property tax expense.

INTEREST CHARGES: For the three and six months ended June 30, 2006, interest
charges increased primarily due to adjustments made in connection with an IRS
income tax audit.

INCOME TAXES: For the three and six months ended June 30, 2006, income taxes
decreased versus 2005 primarily due to lower earnings by the gas utility and the
resolution of an IRS income tax audit, which resulted in a $3 million income tax
benefit primarily for the utilization or restoration of income tax credits.

OTHER RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   In Millions
                                                          ------------------------------------
June 30                                                    2006           2005          Change
- -------                                                   ------         ------         ------
<S>                                                       <C>            <C>            <C>
Three months ended                                        $    1         $  (11)        $   12
Six months ended                                          $  (55)        $   55         $ (110)
                                                          ======         ======         ======
</TABLE>

For the three months ended June 30, 2006, other operations net income was $1
million, an increase of $12 million versus 2005. The change is primarily due to
a $5 million increase in earnings from our ownership interest in the MCV
Partnership, primarily due to lower depreciation expense and higher dispatch
revenue. Also contributing to the increase were lower interest charges and lower
income tax expense at Consumers. The decrease in income tax expense is primarily
due to the resolution of an IRS income tax audit, which resulted in a $7 million
income tax benefit primarily for the utilization or restoration of income tax
credits.

For the six months ended June 30, 2006, other operations net loss was $55
million, a decrease of $110 million versus 2005. The change is primarily due to
a $122 million decrease in earnings from our ownership interest in the MCV
Partnership. The decrease in MCV Partnership earnings is due to the impact of
gas prices on the market value of certain long-term gas contracts and financial
hedges. In order to reflect the market value of these contracts and hedges,
mark-to-market losses were recorded in 2006 to reduce partially gains recorded
on these assets in 2005. The 2005 gains were primarily due to the
marking-to-market of certain long-term gas contracts and financial hedges that,
as a result of the implementation of the RCP, no longer qualified as normal
purchases or cash flow hedges.

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.



                                     CE-10
<PAGE>

                                                        Consumers Energy Company


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 account for derivative instruments in accordance with
SFAS No. 133. 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
our counterparties.

The following table summarizes the interest rate and volatility rate assumptions
we used to value these contracts at June 30, 2006:

<TABLE>
<CAPTION>
                                                              Interest Rates (%)     Volatility Rates (%)
                                                              ------------------     --------------------
<S>                                                           <C>                    <C>
Long-term gas contracts associated with the MCV
     Partnership                                                 5.33 - 5.68               31 - 69
</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 purchase and sale
contracts may qualify as derivatives. However, we believe that we would be able
to apply the normal purchases and sales exception of SFAS No. 133 to these
contracts and, therefore, would not be required to mark these contracts to
market.



                                     CE-11
<PAGE>

                                                        Consumers Energy Company


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, options,
and swaps to earnings, the MCV Partnership has recognized the following losses
in 2006:

<TABLE>
<CAPTION>
                                                                                    In Millions
                                                          -------------------------------------
                                                                           2006
                                                          -------------------------------------
                                                           First         Second         Year to
                                                          Quarter        Quarter         Date
                                                          -------        -------        -------
<S>                                                       <C>            <C>            <C>
Long-term gas contracts                                   $ (111)        $  (34)        $ (145)
Related futures, options, and swaps                          (45)            (8)           (53)
                                                          ------         ------         ------
Total                                                     $ (156)        $  (42)        $ (198)
                                                          ======         ======         ======
</TABLE>

These losses, shown before consideration of tax effects and minority interest,
are included in the total Fuel costs mark-to-market at the MCV Partnership 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 will continue to record
these gains and losses in our consolidated financial statements until we close
the sale of our interest in the MCV Partnership.

We have recorded derivative assets totaling $58 million associated with the fair
value of these contracts on our Consolidated Balance Sheets at June 30, 2006.
The MCV Partnership expects 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, but
only until we close the sale of our interest in the MCV Partnership.

At the closing of this sale, these assets, which represent cumulative net
mark-to-market gains, will be sold in conjunction with the sale of our ownership
interest. As a result, we will no longer record the fair value of these
long-term gas contracts or the related futures, options, and swaps on our
Consolidated Balance Sheets and will not be required to recognize gains or
losses related to changes in the fair value of these contracts on our
Consolidated Statements of Income. Additionally, at June 30, 2006, we have
recorded a cumulative net gain of $39 million, net of tax and minority interest,
in Accumulated other comprehensive income representing our proportionate share
of the cash flow hedges held by the MCV Partnership. At the closing of the sale
of our interest, this amount, adjusted for any additional changes in fair value,
will be reclassified and recognized in earnings.



                                     CE-12
<PAGE>

                                                        Consumers Energy Company


Any changes in the fair value of these contracts recognized before the closing
will not affect the purchase price of our ownership interest in the MCV
Partnership. For additional details on the sale of our interest in the MCV
Partnership, see the "Other Electric Business Uncertainties - MCV
Underrecoveries" section in this MD&A and Note 2, Contingencies, "Other Electric
Contingencies - The Midland Cogeneration Venture."

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.

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

<TABLE>
<CAPTION>
                                                                                                   In Millions
                                                                        --------------------------------------
                                                                        June 30, 2006        December 31, 2005
                                                                        -------------        -----------------
<S>                                                                     <C>                  <C>
Variable-rate financing - before tax annual earnings exposure              $    2                 $    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
                                                                            -----------------------------------------
                                                                            June 30, 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                                                           19                        39
  Gas futures, options, and swaps                                                   34                        48
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                                          In Millions
                                                                            -----------------------------------------
                                                                            June 30, 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 June 30, 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. For additional details on nuclear plant
decommissioning at Big Rock and Palisades, see the "Other Electric Business
Uncertainties - Nuclear Matters" section included in this MD&A.



                                     CE-13
<PAGE>

                                                        Consumers Energy Company


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,

     -    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 subsequent 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 and the MCV Partnership fuel cost mark-to-market charges during 2006, our
ability to issue FMB as primary obligations or as collateral for financing is
expected to be limited to $298 million through December 31, 2006. After December
31, 2006, our ability to issue FMB in excess of $298 million is based on
achieving a two-times FMB interest coverage ratio.



                                     CE-14
<PAGE>

                                                        Consumers Energy Company


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 June 30, 2006, $511 million consolidated cash was on hand, which includes $55
million of restricted cash and $265 million from entities consolidated pursuant
to FASB Interpretation No. 46(R).

SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS:

<TABLE>
<CAPTION>
                                                                              In Millions
                                                                    ---------------------
Six Months Ended June 30                                             2006           2005
- ------------------------                                            ------         ------
<S>                                                                 <C>            <C>
Net cash provided by (used in):
   Operating activities                                             $  274         $  564
   Investing activities                                               (214)          (284)
                                                                    ------         ------
Net cash provided by operating and investing activities                 60            280
   Financing activities                                                (20)           162
                                                                    ------         ------
Net Increase in Cash and Cash Equivalents                           $   40         $  442
                                                                    ======         ======
</TABLE>

OPERATING ACTIVITIES: For the six months ended June 30, 2006, net cash provided
by operating activities was $274 million, a decrease of $290 million versus
2005. This was a result of income tax payments to the parent and decreases in
the MCV Partnership gas supplier funds on deposit, offset by a decrease in
accounts receivable and an increase in accounts payable. The decrease in the MCV
Partnership gas supplier funds on deposit was the result of refunds to suppliers
from decreased exposure due to declining gas prices in 2006. The decrease in
accounts receivable was primarily due to the expiration of emergency rules
initiated by the MPSC, which delayed customer payments during the heating
season. The increase in accounts payable was due to the timing of additional tax
payments to the parent related to the IRS income tax audit offset by payments
for higher priced gas that were accrued as of December 31, 2005.

INVESTING ACTIVITIES: For the six months ended June 30, 2006, net cash used in
investing activities was $214 million, a decrease of $70 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 six months ended June 30, 2006, net cash used in
financing activities was $20 million, an increase of $182 million versus 2005.
This increase was primarily due to lower stockholder's contributions from the
parent, partially offset by a decrease in payments of common stock dividends of
$127 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.



                                     CE-15
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                                                        Consumers Energy Company


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.

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 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 have a reserve margin of approximately 11 percent
for summer 2006, or supply resources equal to 111 percent of projected firm
summer peak load. The 2006 supply resources of 111 percent come from our
electric generating plants, long-term power purchase contracts, and other
contractual arrangements. We have purchased capacity and energy contracts
covering the reserve margin requirements for 2006 and covering partially the
estimated reserve margin requirements for 2007 through 2010. As a result, we
recognized an asset of $75 million for unexpired capacity and energy contracts
at June 30, 2006. Upon the completion of the sale of the Palisades plant, the
power purchase agreement will offset for the term of the agreement, the
reduction in the owned capacity represented by the Palisades plant.

The MCV PPA is not affected by our agreement to sell our interest in the MCV
Partnership. After September 15, 2007, we expect to exercise our claim for
relief under the regulatory out provision in the MCV PPA. If we are successful
in exercising our claim, the MCV Partnership has the right to terminate the MCV
PPA, which could impact our reserve margin status.

ELECTRIC TRANSMISSION EXPENSES: 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 December 2006. We are attempting
to recover these costs through our 2006 PSCR plan case. The PSCR process allows
recovery of all reasonable and prudent power supply costs. However, we cannot
predict when 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."



                                     CE-16
<PAGE>

                                                        Consumers Energy Company


In May 2006, ITC, a company that operates electric transmission facilities
through a wholly owned subsidiary, including the transmission system within
Detroit Edison's territory, filed an application with the FERC to acquire METC.
The FERC subsequently delayed hearings concerning the METC transmission rates.
We will continue to participate in the FERC proceeding concerning the METC
transmission rates and the FERC proceeding concerning ITC's proposed acquisition
of METC. We are unable to predict the nature and timing of any action by the
FERC on transmission rates or if and when the ITC's purchase of METC will be
completed.

INDUSTRIAL REVENUE OUTLOOK: Our electric utility customer base includes a mix of
residential, commercial, and diversified industrial customers. 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 with six facilities
in our service territory, 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 former ROA
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 proposed a special reliability
charge that 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.

BURIAL OF OVERHEAD POWER LINES: The City of Taylor, a municipality located in
Wayne county, Michigan, passed an ordinance that required Detroit Edison to bury
a section of overhead power lines at Detroit Edison's expense. In September
2004, the Michigan Court of Appeals upheld a lower court decision affirming the
legality of the ordinance over Detroit Edison's objections. Other municipalities
in our service territory adopted, or proposed the adoption of, similar
ordinances. Detroit Edison appealed the Michigan Court of Appeals ruling to the
Michigan Supreme Court. In May 2006, the Michigan Supreme Court ruled in favor
of Detroit Edison. The Court found that the MPSC has primary jurisdiction over
this issue and accordingly, the Taylor ordinance is subject to any applicable
rules and regulations of the MPSC, including issues concerning who should bear
the expense of underground facilities. If incurred, we would seek recovery of
these costs from the municipality, or from our customers located in the
municipality, subject to MPSC approval.



                                     CE-17
<PAGE>

                                                        Consumers Energy Company


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 Act: 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 June 2006, we have incurred
$634 million in capital expenditures to comply with the federal Clean Air Act
and resulting regulations and anticipate that the remaining $185 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.

Clean Air Interstate Rule: 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. We plan to meet this
rule by year round operation of our selective catalytic reduction control
technology units and installation of flue gas desulfurization scrubbers at an
estimated total cost of $960 million, to be incurred by 2014.

Clean Air Mercury Rule: 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. We anticipate
our capital costs for mercury emissions reductions required by Phase I of the
Clean Air Mercury Rule to be less than $50 million and implemented by 2010.
Phase II requirements of the Clean Air Mercury Rule are not yet known and a cost
estimate has not been determined.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. We are working with the MDEQ on the
details of these rules. We will develop a cost estimate when the details of
these rules are determined.

Greenhouse gases: Several legislative proposals have been introduced in the
United States Congress that would require reductions in emissions of greenhouse
gases, including potentially carbon dioxide. 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



                                     CE-18
<PAGE>

                                                        Consumers Energy Company


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. Fish kill reduction studies are required to be
submitted to the EPA in 2007 and 2008. EPA compliance options in the rule are
currently being challenged in court and we will finalize our cost estimates in
2008, when a decision on the final rule is anticipated. We expect to implement
the EPA approved process from 2009 to 2011.

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 June 30, 2006, alternative electric suppliers
were providing 311 MW of generation service to ROA customers, which represents 4
percent of our total distribution load. 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 each of 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.

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.

In March 2006, the ALJ in our 2004 PSCR reconciliation case issued a Proposal
for Decision recommending that we use a greater portion of our net sales of
excess power into the bulk electricity market to offset our 2004 PSCR costs,
rather than 2004 Stranded Costs. In June 2006, the ALJ issued a Proposal for
Decision in our 2004 Stranded Cost case recommending that the MPSC find that we
had no Stranded Costs in 2004. If the MPSC adopts the ALJ recommendations,
earnings would be impacted adversely by $10 million. We cannot predict the
outcome of these proceedings.

Through and Out Rates: From December 2004 to March 2006, we paid a transitional
charge pursuant to a FERC order eliminating regional "through and out" rates. In
May 2006, the FERC approved an agreement between the PJM RTO transmission owners
and Consumers concerning these transitional charges. The agreement resolves all
issues regarding transitional charges for Consumers and eliminates the potential
for refunds or additional charges to Consumers. In May 2006, Baltimore Gas &
Electric filed a notice of withdrawal from the settlement. Consumers, PJM, and
others filed responses with the FERC on this matter. The FERC has not ruled on
whether the notice of withdrawal is effective, but we do not believe this action
will have any material impact on us.



                                     CE-19
<PAGE>

                                                        Consumers Energy Company


For additional details and material changes relating to the restructuring of the
electric utility industry and electric rate matters, see Note 2, Contingencies,
"Electric Restructuring Matters," and "Electric Rate Matters."

OTHER ELECTRIC BUSINESS UNCERTAINTIES

MCV UNDERRECOVERIES: The MCV Partnership, which leases and operates the MCV
Facility, contracted to sell electricity to Consumers for a 35-year period
beginning in 1990. We hold a 49 percent partnership interest in the MCV
Partnership, and a 35 percent lessor interest in the MCV Facility.

Sale of our Interest in the MCV Partnership and the FMLP: In July 2006, we
reached an agreement to sell 100 percent of the stock of CMS Midland, Inc. and
CMS Midland Holdings Company to an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments for $60.5 million. These Consumers'
subsidiaries hold our interests in the MCV Partnership and the FMLP. The sales
agreement calls for the purchaser, an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments to pay $85 million, subject to certain
conditions and reimbursement rights, if Dow terminates an agreement under which
it is provided power and steam by the MCV Partnership. The purchaser will secure
their reimbursement obligation with an irrevocable letter of credit of up to $85
million. The MCV PPA and the associated customer rates are not affected by the
sale. We are targeting to close on the sale before the end of 2006. The sale is
subject to various regulatory approvals, including the MPSC's approval and the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The MPSC has established a contested case proceeding
schedule, which will allow for a decision from the MPSC by the end of 2006. We
cannot predict the timing or the outcome of the MPSC's decision. We further
cannot predict with certainty whether or when this transaction will be
completed.

For additional details on the sale of our interests in the MCV Partnership and
the FMLP, see Note 2, Contingencies, "Other Electric Contingencies -- The
Midland Cogeneration Venture", and the Stock Purchase Agreement, which is
attached as Exhibit 10c to this filing.

Financial Condition of the MCV Partnership: 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. Historically high natural gas prices have caused the MCV Partnership to
reevaluate the economics of operating the MCV Facility and to record an
impairment charge in 2005. 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.

Underrecoveries related to the MCV PPA: 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



                                     CE-20
<PAGE>

                                                        Consumers Energy Company


     -    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: Sale of Nuclear Assets: In July 2006, we reached an agreement
to sell Palisades and the Big Rock Independent Spent Fuel Storage Installation
(ISFSI) for $380 million to Entergy. The sales price reflects a $35 million
premium above the estimated Palisades asset values at the closing date after
accounting for estimated sales-related costs. This premium is expected to
benefit our customers. Entergy will assume responsibility for the future
decommissioning of the plant and for storage and disposal of spent nuclear fuel.
At the date of close, decommissioning trust assets are estimated to be $566
million. Consumers will retain $200 million of these funds at the time of close
and will be entitled to receive a return of $116 million of decommissioning
trust fund assets, pending either a favorable federal tax ruling regarding the
release of the funds or, if the funds are available, after decommissioning of
the Palisades site is complete. The disposition of the retained and receivable
nuclear decommissioning funds is subject to regulatory approval. We expect that
a portion of the proceeds will benefit our customers. We plan to use the cash
that we retain from the sale to reduce debt.

As part of the transaction, Entergy will sell us 100 percent of the plant's
output up to its current capacity of 798 MW under a 15-year power purchase
agreement. During the term of the PPA, Entergy is obligated to supply, and we
are obligated to take, all capacity and energy from the Palisades plant,
exclusive of uprates above the plant's presently specified capacity. When the
plant is not operating or is derated, under certain circumstances, Entergy can
elect to provide replacement power from another source at the rates set in the
PPA. Otherwise, we would have to obtain replacement power from the market.
However, we are only obligated to pay Entergy for capacity and energy actually
delivered by Entergy either from the plant or from an allowable replacement
source chosen by Entergy. If Entergy schedules a plant outage in June, July or
August, Entergy is required to provide replacement power at PPA rates. There are
significant penalties incurred by Entergy if the delivered energy fails to
achieve a minimum capacity factor level during July and August. Over the term of
the PPA, the pricing is structured such that Consumers' ratepayers will retain
the benefits of the Palisades plant's low-cost nuclear generation.

The sale is subject to various regulatory approvals, including the MPSC's
approval of the power purchase agreement, the FERC's approval for Entergy to
sell power to us under the PPA and other related matters, the NRC's approval of
the transfer of the operating license to Entergy and other related matters, and
the expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The final purchase price will be subject to various
closing adjustments such as working capital and capital



                                     CE-21
<PAGE>

                                                        Consumers Energy Company


expenditure adjustments, adjustments for nuclear fuel usage and inventory, and
the date of closing. We are targeting to complete the sale in the first quarter
of 2007. However, the sale agreement can be terminated if the closing does not
occur within 18 months of the execution of the agreement. The closing can be
extended for up to six months to accommodate delays in receiving regulatory
approval. We cannot predict with certainty whether or when the closing
conditions will be satisfied or whether or when this transaction will be
completed.

For additional details on the sale of Palisades and the Big Rock ISFSI, see the
Asset Sale Agreement and the Power Purchase Agreement, which are attached as
Exhibits 10a and 10b to this filing.

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 complete by the end of the third quarter 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. An area of
approximately 105 acres encompassing the Big Rock ISFSI, where eight casks
loaded with spent fuel and other high-level radioactive material are stored, has
been sold to Entergy. We will be required to pay Entergy $30 million for
accepting responsibility for the storage and disposal of these materials.

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 June 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.

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.



                                     CE-22
<PAGE>

                                                        Consumers Energy Company


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, 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, a process used to incorporate specialty items into customer
rates.

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 and energy efficiency fund. The MPSC Staff also recommended
reducing our allowed 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, which includes $17 million to be contributed to a low income and energy
efficiency fund. In April 2006, we revised our request for final rate relief
downward to $118 million.



                                     CE-23
<PAGE>

                                                        Consumers Energy Company


In May 2006, the MPSC issued an order granting us interim gas rate relief of $18
million annually, which is under bond and subject to refund if final rate relief
is granted in a lesser amount. The order also extended the temporary two-year
surcharge of $58 million granted in October 2004 until the issuance of a final
order in this proceeding. The MPSC has not set a date for issuance of an order
granting final rate relief.

In July 2006, the ALJ issued a Proposal for Decision recommending final rate
relief of $74 million above current rate levels, which include interim and
temporary rate relief. The $74 million includes $17 million to be contributed to
a low income and energy efficiency fund. The Proposal for Decision also
recommended reducing our return on common equity to 11 percent, from our current
11.4 percent.

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
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. 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 in 2005. 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. Although the Senate and House
bills were similar, they did contain a number of differences. The House and
Senate have passed the Pension Protection Act of 2006, which primarily reflects
a bipartisan House-Senate pension conference agreement. The bill reforms the
funding rules for employer-provided pension plans, effective for plan years
beginning after 2007, and was sent to the President in August 2006 for his
signature. We are in the process of determining the impact of this potential
legislation on our financial statements.


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.



                                     CE-24
<PAGE>

                                                        Consumers Energy Company


NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

FIN 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES: In June 2006, the FASB
issued FIN 48. This interpretation provides a two-step approach for the
recognition and measurement of uncertain tax positions taken, or expected to be
taken, by a company on its income tax returns. The first step is to evaluate the
tax position to determine if, based on management's best judgment, it is greater
than 50 percent likely that the taxing authority will sustain the tax position.
The second step is to measure the appropriate amount of the benefit to
recognize. This is done by estimating the potential outcomes and recognizing the
greatest amount that has a cumulative probability of at least 50 percent. We are
presently evaluating the impacts, if any, of FIN 48. Any impacts of implementing
FIN 48 will result in a cumulative adjustment to retained earnings. This
interpretation is effective for us beginning January 1, 2007.

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 other comprehensive income could
be reduced significantly. We are in the process of determining the impact of
this proposed SFAS on our financial statements.



                                     CE-25

<PAGE>
                            CONSUMERS ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)


<Table>
<Caption>
                                                                                                                In Millions
                                                            ---------------------------------------------------------------
                                                                 Three Months Ended                  Six Months Ended
                                                            -----------------------------     -----------------------------
June 30                                                        2006             2005              2006             2005
- -------                                                     ------------     ------------     ------------     ------------

<S>                                                         <C>              <C>              <C>              <C>
OPERATING REVENUE                                           $      1,138     $      1,016     $      2,920     $      2,648

EARNINGS FROM EQUITY METHOD INVESTEES                                  1                -                1                -

OPERATING EXPENSES
 Fuel for electric generation                                        172              157              344              311
 Fuel costs mark-to-market at the MCV Partnership                     42               39              198             (170)
 Purchased and interchange power                                     134               63              244              127
 Purchased power - related parties                                    19               14               37               31
 Cost of gas sold                                                    223              242            1,039              982
 Other operating expenses                                            220              201              435              389
 Maintenance                                                          79               50              150              102
 Depreciation, depletion, and amortization                           116              111              268              256
 General taxes                                                        56               53              121              118
                                                            ------------     ------------     ------------     ------------
                                                                   1,061              930            2,836            2,146
                                                            ------------     ------------     ------------     ------------

OPERATING INCOME                                                      78               86               85              502

OTHER INCOME (DEDUCTIONS)
 Accretion expense                                                     -               (1)               -               (1)
 Interest and dividends                                               16               10               26               15
 Regulatory return on capital expenditures                             7               15               10               31
 Other income                                                         10                6               14               10
 Other expense                                                        (1)              (2)              (4)              (8)
                                                            ------------     ------------     ------------     ------------
                                                                      32               28               46               47
                                                            ------------     ------------     ------------     ------------

INTEREST CHARGES
 Interest on long-term debt                                           74               75              146              147
 Interest on long-term debt - related parties                          -                2                1                9
 Other interest                                                        5                2                8                4
 Capitalized interest                                                 (3)              (1)              (5)              (2)
                                                            ------------     ------------     ------------     ------------
                                                                      76               78              150              158
                                                            ------------     ------------     ------------     ------------

INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS              34               36              (19)             391

MINORITY INTERESTS (OBLIGATIONS), NET                                 (3)             (14)             (75)              97
                                                            ------------     ------------     ------------     ------------

INCOME BEFORE INCOME TAXES                                            37               50               56              294

INCOME TAX EXPENSE                                                     1               17               10              104
                                                            ------------     ------------     ------------     ------------

NET INCOME                                                            36               33               46              190

PREFERRED STOCK DIVIDENDS                                              1                1                1                1
                                                            ------------     ------------     ------------     ------------

NET INCOME AVAILABLE TO COMMON STOCKHOLDER                  $         35     $         32     $         45     $        189
                                                            ============     ============     ============     ============
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.



                                     CE-26


<PAGE>

                            CONSUMERS ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                              In Millions
                                                                                        -----------------
                                                                                         Six Months Ended
                                                                                        -----------------
June 30                                                                                  2006       2005
- -------                                                                                 ------     ------
<S>                                                                                     <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                             $   46     $  190
    Adjustments to reconcile net income to net cash
      provided by operating activities
        Depreciation, depletion, and amortization (includes nuclear
          decommissioning of $3 per year)                                                  268        256
        Deferred income taxes and investment tax credit                                   (260)        78
        Fuel costs mark-to-market at the MCV Partnership                                   198       (170)
        Minority interests (obligations), net                                              (75)        97
        Regulatory return on capital expenditures                                          (10)       (31)
        Capital lease and other amortization                                                18         17
        Earnings from equity method investees                                               (1)         -
        Changes in assets and liabilities:
            Increase in accounts receivable and accrued revenue                             (6)       (94)
            Decrease in inventories                                                         91        107
            Increase in accounts payable                                                   147         35
            Increase in accrued expenses                                                    62          4
            Decrease in accrued taxes                                                     (202)       (30)
            Increase (decrease) in the MCV Partnership gas supplier funds on deposit      (100)         4
            Decrease in other current and non-current assets                                53        125
            Increase (decrease) in other current and non-current liabilities                45        (24)
                                                                                        ------     ------
          Net cash provided by operating activities                                        274        564
                                                                                        ------     ------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                       (310)      (270)
  Cost to retire property                                                                  (31)       (18)
  Restricted cash and restriced short-term investments                                     128        (33)
  Investments in nuclear decommissioning trust funds                                       (18)        (3)
  Proceeds from nuclear decommissioning trust funds                                         13         24
  Proceeds from short-term investments                                                       -        145
  Purchase of short-term investments                                                         -       (141)
  Maturity of the MCV Partnership restricted investment securities held-to-maturity        118        222
  Purchase of the MCV Partnership restricted investment securities held-to-maturity       (118)      (223)
  Cash proceeds from sale of assets                                                          -          1
  Other investing                                                                            4         12
                                                                                        ------     ------

          Net cash used in investing activities                                           (214)      (284)
                                                                                        ------     ------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of long term debt                                                   -        735
  Retirement of long-term debt                                                            (144)      (925)
  Payment of common stock dividends                                                        (40)      (167)
  Payment of preferred stock dividends                                                      (1)        (1)
  Payment of capital and finance lease obligations                                          (5)        (5)
  Stockholder's contribution, net                                                          200        550
  Decrease in notes payable                                                                (27)         -
  Debt issuance and financing costs                                                         (3)       (25)
                                                                                        ------     ------

          Net cash provided by (used in) financing activities                              (20)       162
                                                                                        ------     ------

Net Increase in Cash and Cash Equivalents                                                   40        442

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

Cash and Cash Equivalents, End of Period                                                $  456     $  613
                                                                                        ======     ======
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                     CE-27
<PAGE>

                            CONSUMERS ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                     In Millions
                                                                  ------------------------------
                                                                        June 30
                                                                           2006      December 31
                                                                    (Unaudited)             2005
                                                                  -------------    -------------
<S>                                                               <C>              <C>
ASSETS

PLANT AND PROPERTY (AT COST)
  Electric                                                        $       8,396    $       8,204
  Gas                                                                     3,179            3,151
  Other                                                                     229              227
                                                                  -------------    -------------
                                                                         11,804           11,582
  Less accumulated depreciation, depletion, and amortization              4,891            4,804
                                                                  -------------    -------------
                                                                          6,913            6,778
  Construction work-in-progress                                             559              509
                                                                  -------------    -------------
                                                                          7,472            7,287
                                                                  -------------    -------------

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

CURRENT ASSETS
  Cash and cash equivalents at cost, which approximates market              456              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                          649              653
  Accounts receivable - related parties                                       9                9
  Inventories at average cost
    Gas in underground storage                                              949            1,068
    Materials and supplies                                                   74               75
    Generating plant fuel stock                                             109               80
  Deferred property taxes                                                   147              159
  Regulatory assets - postretirement benefits                                19               19
  Derivative instruments                                                     95              242
  Prepayments and other                                                      89               70
                                                                  -------------    -------------
                                                                          2,651            2,974
                                                                  -------------    -------------

NON-CURRENT ASSETS
  Regulatory assets
    Securitized costs                                                       538              560
    Additional minimum pension                                              399              399
    Postretirement benefits                                                 105              116
    Customer Choice Act                                                     206              222
    Other                                                                   475              484
  Nuclear decommissioning trust funds                                       563              555
  Other                                                                     547              520
                                                                  -------------    -------------
                                                                          2,833            2,856
                                                                  -------------    -------------
TOTAL ASSETS                                                      $      12,988    $      13,157
                                                                  =============    =============
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.



                                     CE-28

<PAGE>

STOCKHOLDER'S INVESTMENT AND LIABILITIES

<TABLE>
<CAPTION>

                                                                                         In Millions
                                                                          --------------------------
                                                                           June 30
                                                                             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                                           53             72
  Retained earnings since December 31, 1992                                       238            233
                                                                          -----------    -----------
                                                                                2,964          2,778

  Preferred stock                                                                  44             44

  Long-term debt                                                                4,291          4,303
  Non-current portion of capital leases and finance lease obligations             310            308
                                                                          -----------    -----------
                                                                                7,609          7,433
                                                                          -----------    -----------
MINORITY INTERESTS                                                                269            259
                                                                          -----------    -----------
CURRENT LIABILITIES
  Current portion of long-term debt, capital leases and finance leases            113            112
  Current portion of long-term debt - related parties                               -            129
  Notes payable - related parties                                                   -             27
  Accounts payable                                                                385            458
  Accounts payable - related parties                                              260             40
  Accrued interest                                                                 93             82
  Accrued taxes                                                                   198            400
  Deferred income taxes                                                            72             55
  MCV Partnership gas supplier funds on deposit                                    93            193
  Other                                                                           180            150
                                                                          -----------    -----------
                                                                                1,394          1,646
                                                                          -----------    -----------

NON-CURRENT LIABILITIES
  Deferred income taxes                                                           727          1,027
  Regulatory liabilities
    Regulatory liabilities for cost of removal                                  1,166          1,120
    Income taxes, net                                                             468            455
    Other regulatory liabilities                                                  222            178
  Postretirement benefits                                                         347            308
  Asset retirement obligations                                                    493            494
  Deferred investment tax credit                                                   64             67
  Other                                                                           229            170
                                                                          -----------    -----------
                                                                                3,716          3,819
                                                                          -----------    -----------


  Commitments and Contingencies (Notes 2, 3, and 4)

TOTAL STOCKHOLDER'S INVESTMENT AND LIABILITIES                            $    12,988    $    13,157
                                                                          ===========    ===========
</Table>


                                     CE-29
<PAGE>


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

<Table>
<Caption>
                                                                                                       In Millions
                                                               ---------------------------------------------------
                                                                 Three Months Ended           Six Months Ended
                                                               -----------------------     -----------------------
June 30                                                          2006          2005          2006          2005
- -------                                                        ---------     ---------     ---------     ---------
<S>                                                            <C>           <C>           <C>           <C>
COMMON STOCK
  At beginning and end of period (a)                           $     841     $     841     $     841     $     841
                                                               ---------     ---------     ---------     ---------


OTHER PAID-IN CAPITAL
  At beginning of period                                           1,832         1,132         1,632           932
  Stockholder's contribution                                           -           350           200           550
                                                               ---------     ---------     ---------     ---------
    At end of period                                               1,832         1,482         1,832         1,482
                                                               ---------     ---------     ---------     ---------

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

  Investments
    At beginning of period                                            16            15            18            12
    Unrealized gain (loss) on investments (b)                          -             3            (2)            6
                                                               ---------     ---------     ---------     ---------
      At end of period                                                16            18            16            18
                                                               ---------     ---------     ---------     ---------

  Derivative instruments
    At beginning of period                                            44            26            56            20
    Unrealized gain (loss) on derivative instruments (b)              (4)            7           (14)           23
    Reclassification adjustments included in net income (b)           (1)           (1)           (3)          (11)
                                                               ---------     ---------     ---------     ---------
      At end of period                                                39            32            39            32
                                                               ---------     ---------     ---------     ---------

Total Accumulated Other Comprehensive Income                          53            48            53            48
                                                               ---------     ---------     ---------     ---------

RETAINED EARNINGS
    At beginning of period                                           203           647           233           608
    Net income                                                        36            33            46           190
    Cash dividends declared - Common Stock                             -           (49)          (40)         (167)
    Cash dividends declared - Preferred Stock                         (1)           (1)           (1)           (1)
                                                               ---------     ---------     ---------     ---------
      At end of period                                               238           630           238           630
                                                               ---------     ---------     ---------     ---------

TOTAL COMMON STOCKHOLDER'S EQUITY                              $   2,964     $   3,001     $   2,964     $   3,001
                                                               =========     =========     =========     =========

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                     CE-30


<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       Six Months Ended
                                                                                -------------------     -------------------
June 30                                                                          2006         2005       2006         2005
- -------                                                                         -------     -------     -------     -------
<S>                                                                             <C>         <C>         <C>         <C>
Minimum Pension Liability
  Minimum pension liability adjustment, net of tax of
  $-, $-, $-, and $-, respectively                                              $     -     $    (1)    $     -     $    (1)

Investments
  Unrealized gain (loss) on investments, net of tax (tax benefit) of
  $-, $1, $(1), and $3, respectively                                            $     -     $     3     $    (2)    $     6

Derivative instruments
  Unrealized gain (loss) on derivative instruments, net of tax (tax benefit)
  of $(2), $3, $(7), and $12, respectively                                           (4)          7         (14)         23
  Reclassification adjustments included in net income, net of tax
  benefit of $-, $(1), $(1), and $(6), respectively                                  (1)         (1)         (3)        (11)

Net income                                                                           36          33          46         190
                                                                                -------     -------     -------     -------
Total Comprehensive Income                                                      $    31     $    41     $    27     $   207
                                                                                =======     =======     =======     =======


</Table>

                                     CE-31


<PAGE>

                                                        Consumers Energy Company




                      (This page intentionally left blank)


                                     CE-32
<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. 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-33
<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 $12.988
billion at June 30, 2006, 58 percent represent long-lived assets and equity
method investments that are subject to this type of analysis.

DETERMINATION OF PENSION MRV OF PLAN ASSETS: We determine the MRV for pension
plan assets, as defined in SFAS No. 87, as the fair value of plan assets on the
measurement date, adjusted by the gains or losses that will not be admitted into
MRV until future years. We reflect each year's assets gain or loss in MRV in
equal amounts over a five-year period beginning on the date the original amount
was determined. The MRV is used in the calculation of net pension cost.

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

<Table>
<Caption>
                                                                                       In Millions
                                                  ------------------------------------------------
                                                   Three Months Ended           Six Months Ended
                                                  --------------------        --------------------
June 30                                            2006          2005          2006          2005
- -------                                           ------        ------        ------        ------
<S>                                               <C>           <C>           <C>           <C>
Other income
     Electric restructuring return                $    1        $    3        $    2        $    4
     Return on stranded and security costs             2             2             3             3
     Nitrogen oxide allowance sales                    6             1             6             1
     Gain on stock                                     -             -             1             1
     All other                                         1             -             2             1
                                                  ------        ------        ------        ------
Total other income                                $   10        $    6        $   14        $   10
                                                  ======        ======        ======        ======
</Table>

<Table>
<Caption>
                                                                                     In Millions
                                             ---------------------------------------------------
                                              Three Months Ended              Six Months Ended
                                             ---------------------         ---------------------
June 30                                       2006           2005           2006           2005
- -------                                      ------         ------         ------         ------
<S>                                          <C>         <C>               <C>         <C>
Other expense
     Loss on reacquired debt                 $    -         $   (1)        $    -         $   (6)
     Civic and political expenditures             -              -             (1)            (1)
     Donations                                    -              -             (1)             -
     All other                                   (1)            (1)            (2)            (1)
                                             ------         ------         ------         ------
Total other expense                          $   (1)        $   (2)        $   (4)        $   (8)
                                             ======         ======         ======         ======
</TABLE>

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

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE: FIN 48, Accounting for Uncertainty
in Income Taxes: In June 2006, the FASB issued FIN 48. This interpretation
provides a two-step approach for the recognition and measurement of uncertain
tax positions taken, or expected to be taken, by a company on its income tax
returns. The first step is to evaluate the tax position to determine if, based
on management's best judgment, it is greater than 50 percent likely that the
taxing authority will sustain the tax position. The second step is to measure
the appropriate amount of the benefit to recognize. This is done by estimating
the potential outcomes and recognizing the greatest amount that has a cumulative
probability of at least 50 percent. We are presently evaluating the impacts, if
any, of FIN 48. Any impacts of implementing FIN 48 will result in a cumulative
adjustment to retained earnings. This interpretation is effective for us
beginning January 1, 2007.


                                     CE-34
<PAGE>
                                                        Consumers Energy Company


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 "all persons who
purchased CMS Common Stock during the period of October 25, 2000 through and
including May 17, 2002 and who were damaged thereby." The court excluded
purchasers of CMS Energy's 8.75 percent Adjustable Convertible Trust Securities
("ACTS") from the class. Trial has been scheduled for March 2007. In response to
the court's opinion and order excluding purchasers of ACTS from the shareholder
class, a new class action lawsuit was filed on behalf of ACTS purchasers. The
new lawsuit names the same defendants as the shareholder action and contains
essentially the same allegations and class period. CMS Energy and the individual
defendants will defend themselves vigorously in this litigation but cannot
predict its outcome.

ERISA LAWSUITS: CMS Energy was 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 alleged breaches of
fiduciary duties under ERISA and sought 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 required a
$28 million cash payment by CMS Energy's primary insurer to 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 hearing on final approval of the



                                     CE-35
<PAGE>
                                                        Consumers Energy Company


settlement was held on June 15, 2006. On June 27, 2006, the judge entered the
Order and Final Judgment, approving the proposed settlement with minor
modifications.

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 Act: 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 through 2011. 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 June 2006, we have incurred
$634 million in capital expenditures to comply with the federal Clean Air Act
and resulting regulations and anticipate that the remaining $185 million of
capital expenditures will be made in 2006 through 2011. These expenditures
include installing selective catalytic reduction control 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.

Clean Air Interstate Rule: 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 more than 60 percent
and sulfur dioxide by more than 70 percent from 2003 levels by 2015. The final
rule will require that we run our selective catalytic reduction control
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, which we expect to recover from our customers through the PSCR
process.

In addition to the selective catalytic reduction control 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 total 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



                                     CE-36
<PAGE>
                                                        Consumers Energy Company


sold some of our excess sulfur dioxide allowances for $61 million and recognized
the proceeds as a regulatory liability.

Clean Air Mercury Rule: 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 costs for mercury emissions
reductions required by Phase I of the Clean Air Mercury Rule to be less than $50
million and implemented by 2010. Phase II requirements of the Clean Air Mercury
Rule are not yet known and a cost estimate has not been determined.

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. We cannot predict the outcome of this proceeding.

In April 2006, Michigan's governor announced a plan that would result in mercury
emissions reductions of 90 percent by 2015. This plan would adopt the Clean Air
Mercury Rule through its first phase. Beginning in year 2015, the mercury
emissions reduction standards outlined in the governor's plan would become more
stringent than those included in the Clean Air Mercury Rule. We are working with
the MDEQ on the details of these rules. We will develop a cost estimate when the
details of these rules are determined.

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 $1 million and $10 million. At June 30, 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.



                                     CE-37
<PAGE>

                                                        Consumers Energy Company


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 there after declared five of
the six duct burners in the MCV Facility as unavailable for operational use
(which reduced the generation capability of the MCV Facility by approximately
100 MW) and took other corrective action to address the MDEQ's assertions.
Testing of the one available duct burner occurred in April 2005, and its
emissions met permitted levels due to the configuration of that particular unit.
In July 2004, the MCV Partnership filed a response to the Letter of Violation,
opposing its findings. On December 13, 2004, the MDEQ informed the MCV
Partnership that it was pursuing an escalated enforcement action against the MCV
Partnership. 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). Following voluntary settlement discussions, the
MDEQ issued the MCV Partnership a new PTI, which established higher carbon
monoxide emissions limits on the five duct burners that had been declared
unavailable. The MCV Partnership has returned those duct burners to service. The
MDEQ and the MCV Partnership are pursuing a settlement of the emission
violation, which will also satisfy state and federal requirements and remove the
MCV Partnership from the HPVL. At this time, we cannot predict the financial
impact or outcome of this issue.

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.



                                     CE-38
<PAGE>
                                                        Consumers Energy Company


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 June 30, 2006, alternative electric suppliers were providing 311 MW
of generation service to ROA customers, which represents 4 percent of our total
distribution load. This represents a decrease of 11 percent of ROA load compared
to March 31, 2006 and a decrease of 62 percent of ROA load compared to June 30,
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 Stranded Costs in 2004; however, we
also concluded that these costs were offset completely by our net sales of
excess power into the bulk electricity market.

In March 2006, the ALJ in our 2004 PSCR reconciliation case issued a Proposal
for Decision recommending that we use a greater portion of our net sales of
excess power into the bulk electricity market to offset our 2004 PSCR costs,
rather than 2004 Stranded Costs. We believe, if accepted, that this
recommendation would lead to a greater amount of 2004 Stranded Costs to recover
from ROA customers. However, in June 2006, the ALJ issued a Proposal for
Decision in our 2004 Stranded Cost case recommending that the MPSC find that we
had no Stranded Costs in 2004 because the ALJ did not believe we demonstrated
that the Stranded Costs were caused by ROA. If the MPSC adopts the ALJ
recommendations earnings would be impacted adversely by $10 million. In June
2006, we filed exceptions to this Proposal for Decision in the Stranded Cost
case. We cannot predict the outcome of these proceedings.

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. We have purchased capacity and energy contracts covering the reserve
margin requirements for 2006 and covering partially the estimated reserve margin
requirements for 2007 through 2010. As a result, we have recognized an asset of
$75 million for unexpired capacity and energy contracts at June 30, 2006. At
July 2006, we expect the total capacity cost of electric capacity and energy
contracts for 2006 to be $19 million.

PSCR: The PSCR process allows recovery of reasonable and prudent power supply
costs. Revenues from the PSCR charges are subject to reconciliation after review
of actual costs 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 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.


                                     CE-39
<PAGE>

                                                        Consumers Energy Company


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 temporary order. In May 2006,
the ALJ issued a Proposal for Decision with a recommendation similar to the MPSC
Staff. However, the ALJ recommended that we continue to exclude those costs
temporarily excluded until addressed in our 2006 PSCR reconciliation case, which
we plan to file in March 2007. Depending on the action taken by the MPSC, our
cash underrecoveries of power supply costs for 2006 could range from $39 million
to $146 million.

These underrecoveries are due to increased bundled sales, and other cost
increases beyond those included in the September 2005 and November 2005 filings.
We expect to recover fully all of our PSCR costs. When we incur and are unable
to collect these costs in a timely manner, there is a negative impact on our
cash flows from electric utility operations.

In March 2006, we submitted our 2005 PSCR reconciliation filing to the MPSC. In
July 2006, we submitted supplemental testimony in which we calculated an
underrecovery of $37 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).

Sale of our Interest in the MCV Partnership and the FMLP: In July 2006, we
reached an agreement to sell 100 percent of the stock of CMS Midland, Inc. and
CMS Midland Holdings Company to an affiliate of GSO Capital Partners and
Rockland Capital Energy Investments for $60.5 million. These Consumers'
subsidiaries hold our interest in the MCV Partnership and the FMLP. The MCV PPA
and the associated customer rates are not affected by the sale. We are targeting
to close on the sale by the end of 2006. The sale is subject to various
regulatory approvals, including the MPSC's approval and the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On July 27, 2006, the MPSC issued an order establishing a contested case
proceeding and provided a schedule, which will allow for a decision from the
MPSC by the end of 2006. We cannot predict the timing or the outcome of the
MPSC's decision. We further cannot predict with certainty whether or when this
transaction will be completed.

Further, because of the PPA in place between Consumers and the MCV Partnership,
the transaction is effectively a sale and leaseback for accounting purposes.
SFAS No. 98 specifies the accounting required for a seller's sale and
simultaneous leaseback transaction involving real estate, including real estate
with equipment. In accordance with SFAS No. 98, the transaction will be required
to be accounted for as a financing and not a sale. This is due to forms of
continuing involvement we will have with the MCV Partnership. At closing, we
will remove from our Consolidated Balance Sheets all of the assets, liabilities,
and minority interest associated with both the MCV Partnership and the FMLP
except for the real estate assets and equipment of the MCV Partnership. Those
assets will remain at their carrying value. If the fair value is determined to
be less than the present carrying value, an impairment charge would result.



                                     CE-40
<PAGE>

                                                        Consumers Energy Company

Further, as disclosed in Note 4, Financial and Derivative Instruments,
"Derivative Contracts Associated with the MCV Partnership," we will reflect in
earnings certain cumulative amounts of MCV Partnership-related derivative fair
value changes that are accounted for in other comprehensive income. We will also
reflect in earnings a liability for the fair value of a guarantee, and income
related to certain MCV Partnership gas contracts which are being sold. The
transaction will not result in the MCV Partnership or the FMLP assets being
classified as held for sale on our Consolidated Balance Sheets.

Financial Condition of the MCV Partnership: 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. Historically high natural gas prices have caused the MCV Partnership to
reevaluate the economics of operating the MCV Facility and to record an
impairment charge in 2005. 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 June 30,
2006, the negative minority interest for the other general partners' share,
including their portion of the limited partners' negative equity, is $112
million and is included in Other Non-current Assets on our Consolidated Balance
Sheets.

Underrecoveries related to the MCV PPA: 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 $28 million
during the six months ended June 30, 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 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 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.

                                     CE-41
<PAGE>

                                                        Consumers Energy Company


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 2006. 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. 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 remanded
proceedings may result in the determination of a greater refund to the MCV
Partnership. In July 2006, the Michigan Supreme Court denied the City of
Midland's 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. Updated cost projections for Big Rock indicate an anticipated
decommissioning cost of $393 million as of June 2006.

Big Rock: In December 2000, funding of the Big Rock trust fund stopped because
the MPSC-authorized decommissioning surcharge collection period expired. In our
March 2004 report to the MPSC, we indicated that we would manage the
decommissioning trust fund to meet annual NRC financial assurance requirements
by withdrawing NRC radiological decommissioning costs from the fund and
initially funding non-NRC, greenfield costs out of corporate funds. In March
2006, we contributed $16 million to the trust fund from our corporate funds to
support NRC radiological decommissioning costs. Excluding the additional nuclear
fuel storage costs due to the DOE's failure to accept spent fuel on schedule, we
are projecting that the level of funds provided by the trust will fall short of
the amount needed to complete the decommissioning by $39 million, which is the
amount projected for non-NRC, greenfield costs. We plan initially to fund the
$39 million out of corporate funds. Therefore, at this time, we plan to provide
a total of $55 million from corporate funds for costs associated with NRC
radiological and non-NRC greenfield decommissioning work. We plan to seek
recovery of such expenditures. 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.



                                     CE-42
<PAGE>

                                                        Consumers Energy Company

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 July 2006, we reached an agreement to sell Palisades and the Big Rock ISFSI
to Entergy. As part of the transaction, Entergy will sell us 100 percent of the
plant's output up to its current capacity of 798 MW under a 15-year power
purchase agreement. Because of the PPA that will be in place between Consumers
and Entergy, the transaction is effectively a sale and leaseback for accounting
purposes. SFAS No. 98 specifies the accounting required for a seller's sale and
simultaneous leaseback transaction involving real estate, including real estate
with equipment. In accordance with SFAS No. 98, the transaction will be
accounted for as a financing and not a sale. This is due to forms of continuing
involvement. As such, we will not classify the 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 June 30, 2006, our DOE liability is $148
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. In conjunction with
the sale of Palisades and the Big Rock ISFSI, we will retain this obligation and
provide security to Entergy for this obligation in the form of either cash, a
letter of credit, or other acceptable means.

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 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.



                                     CE-43
<PAGE>
                                                        Consumers Energy Company

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 up to $544 million through
nuclear insurance and NRC indemnity, and maintains 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 June 30, 2006, we have a
liability of $28 million, net of $54 million of expenditures incurred to date,
and a regulatory asset of $59 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.



                                     CE-44
<PAGE>
                                                        Consumers Energy Company


The following table summarizes our GCR reconciliation filings with the MPSC:

<TABLE>
<CAPTION>
Gas Cost Recovery Reconciliation
- -------------------------------------------------------------------------------------------------------------------
                                                        Net Over-
GCR Year            Date Filed        Order Date         recovery                         Status
- ---------           ----------        ----------      ------------      -------------------------------------------
<S>                 <C>               <C>             <C>               <C>
2004-2005            June 2005        April 2006      $2 million        The net overrecovery includes interest
                                                                        expense through March 2005 and refunds that
                                                                        we received from our suppliers that are
                                                                        required to be refunded to our customers.

                                                                        The net overrecovery includes $1 million
2005-2006            June 2006          Pending       $3 million        interest income through March 2006, which
                                                                        resulted from a net underrecovery position
                                                                        during the majority of the GCR period.
</Table>

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 per mcf 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.

In July 2006, all parties signed a partial settlement agreement, which calls for
a base GCR ceiling factor of $9.48 per mcf. The settlement agreement is also
subject to a quarterly GCR ceiling price adjustment of up to $3.50 per MMbtu,
contingent upon future events. The settlement agreement is subject to MPSC
approval.

Our GCR factor for the billing month of August 2006 is $8.37 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.


                                     CE-45
<PAGE>
                                                        Consumers Energy Company


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, a process used to incorporate specialty items into customer
rates.

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 and energy efficiency fund. The MPSC Staff also recommended
reducing our allowed 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, which includes $17 million to be contributed to a low income and energy
efficiency fund. In April 2006, we revised our request for final rate relief
downward to $118 million.

In May 2006, the MPSC issued an order granting us interim gas rate relief of $18
million annually, which is under bond and subject to refund if final rate relief
is granted in a lesser amount. The order also extended the temporary two-year
surcharge of $58 million granted in October 2004 until the issuance of a final
order in this proceeding. The MPSC has not set a date for issuance of an order
granting final rate relief.

In July 2006, the ALJ issued a Proposal for Decision recommending final rate
relief of $74 million above current rate levels, which include interim and
temporary rate relief. The $74 million includes $17 million to be contributed to
a low income and energy efficiency fund. The Proposal for Decision also
recommended reducing our return on common equity to 11 percent, from our current
11.4 percent.

OTHER CONTINGENCIES

IRS AUDIT RESOLUTION: 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 have been using this tax accounting
method, generally allowed by the IRS under section 263A of the Internal Revenue
Code, with respect to the allocation of certain indirect overhead costs to the
tax basis of self-constructed utility assets.

In June 2006, the IRS concluded its most recent audit of CMS Energy and its
subsidiaries, and proposed changes to taxable income for the years ended
December 31, 1987 through December 31, 2001. The proposed overall cumulative
increase to taxable income related primarily to the disallowance of the
simplified service cost method with respect to certain self-constructed utility
assets. CMS Energy has accepted these proposed adjustments to taxable income,
which has been allocated based upon Consumers' separate taxable income in
accordance with CMS Energy's tax sharing agreement. We had


                                     CE-46
<PAGE>
                                                        Consumers Energy Company


tax related payables to CMS Energy with respect to its share of audit
adjustments of $232 million, and a reduction of our June 2006 income tax
provision of $14 million, net of interest expense, primarily for the
utilization or restoration of previously written off income tax credits.

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 June 30, 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            $   41         $  -
Surety bonds                                       Various           Indefinite              1            -
Guarantee (a)                                      January 1987      March 2015             85            -
Nuclear insurance retrospective premiums           Various           Indefinite            135            -
</Table>

(a) We have reached an agreement to sell our interests in the MCV Partnership
and the FMLP, subject to certain regulatory and other closing conditions. The
sales agreement calls for the purchaser, an affiliate of GSO Capital Partners
and Rockland Capital Energy Investments to pay $85 million, subject to certain
reimbursement rights, if Dow terminates an agreement under which it is provided
power and steam by the MCV Partnership. The purchaser will secure their
reimbursement obligation with an irrevocable letter of credit of up to $85
million.



                                     CE-47
<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 June 30, 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
                                                                         -------------------------------------------
                                                                          June 30, 2006            December 31, 2005
                                                                          -------------            -----------------
<S>                                                                       <C>                      <C>
First mortgage bonds                                                        $   3,174                 $   3,175
Senior notes and other                                                            855                       852
Securitization bonds                                                              355                       369
                                                                            ---------                 ---------
  Principal amounts outstanding                                                 4,384                     4,396
    Current amounts                                                               (86)                      (85)
    Net unamortized discount                                                       (7)                       (8)
                                                                            ---------                 ---------
Total Long-term debt                                                        $   4,291                 $   4,303
                                                                            =========                 =========
</TABLE>

DEBT RETIREMENTS: The following is a summary of significant long-term debt
retirements during the six months ended June 30, 2006:

<Table>
<Caption>
                                        Principal      Interest           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-48
<PAGE>
                                                        Consumers Energy Company


REGULATORY AUTHORIZATION FOR FINANCINGS: In May 2006, the FERC issued an order
authorizing us to issue up to $2.0 billion of secured and unsecured short-term
securities for the following purposes:

      -     up to $1.0 billion for general corporate purposes, and

      -     up to $1.0 billion of FMB or other securities to be issued solely as
            collateral for other short-term securities.

Also in May 2006, the FERC issued an order authorizing us to issue up to $5.0
billion of secured and unsecured long-term securities for the following
purposes:

      -     up to $1.5 billion for general corporate purposes,

      -     up to $1.0 billion for purposes of refinancing or refunding existing
            long-term debt, and

      -     up to $2.5 billion of FMB or other securities to be issued solely as
            collateral for other long-term securities.

Any long-term issuances during the two-year authorization period are exempt from
FERC's competitive bidding and negotiated placement requirements.

The authorizations are for a two-year period beginning July 1, 2006 and ending
June 30, 2008.

REVOLVING CREDIT FACILITIES: The following secured revolving credit facilities
with banks are available at June 30, 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              -               42               458
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
June 30, 2006, we had $184 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 six months ended
June 30, 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
June 30, 2006, capital lease obligations totaled $56 million. In order to obtain
permanent financing for the MCV Facility, the MCV Partnership entered into a
sale and lease back agreement with a lessor group, which includes the FMLP, for
substantially all of the MCV Partnership's fixed assets. In accordance with SFAS
No. 98, the MCV Partnership accounted for the transaction as a financing
arrangement. At June 30, 2006, finance lease obligations totaled $281 million,
which represents the third-party portion of the MCV Partnership's finance lease
obligation.



                                     CE-49
<PAGE>
                                                        Consumers Energy Company


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 June 30, 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
                                                                                       -------------------
Six months ended June 30                                                                2006         2005
- ------------------------                                                               ------       ------
<S>                                                                                    <C>          <C>
Net cash flow as a result of accounts receivable financing                             $ (325)      $ (304)
Collections from customers                                                             $3,232       $2,787
</Table>

4: FINANCIAL AND DERIVATIVE INSTRUMENTS

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

The cost and fair value of our long-term financial instruments are as follows:
<Table>
<Caption>
                                                                                                              In Millions
                                            -----------------------------------------------------------------------------
                                                      June 30, 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,                             $4,377      $4,214      $       163       $4,388      $4,393      $        (5)
    including current amounts
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                         17          23                6           16          22                6
      Debt securities                            8           7               (1)           8           8                -
  Nuclear decommissioning investments:
      Equity securities                        135         253              118          134         252              118
      Debt securities                          306         303               (3)         287         291                4
</Table>

In July 2006, we reached an agreement to sell Palisades and the Big Rock ISFSI
to Entergy. Entergy will assume responsibility for the future decommissioning of
the plant and for storage and disposal of spent nuclear fuel. Accordingly, upon
completion of the sale, we will transfer $366 million of nuclear decommissioning
trust fund assets to Entergy and retain $200 million. We will also be entitled
to receive a return of $116 million of decommissioning trust fund assets pending
either a favorable federal



                                     CE-50
<PAGE>
                                                        Consumers Energy Company


tax ruling regarding the release of the funds, or, if the funds are available,
after decommissioning of the Palisades site is complete. The disposition of
the retained and receivable nuclear decommissioning funds is subject to
regulatory proceedings.

DERIVATIVE INSTRUMENTS: In order to limit our exposure to certain market risks,
we may enter into various risk management contracts, such as swaps, options,
futures, and forward contracts. These contracts, used primarily to manage our
exposure to changes in interest rates and commodity prices, are entered into for
purposes other than trading. We enter into these 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.

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 our counterparties.



                                     CE-51
<PAGE>
                                                        Consumers Energy Company


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.

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
                                                  -----------------------------------------------------------------------
                                                           June 30, 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          -          1                 1
Derivative contracts associated with the MCV
Partnership:
    Long-term gas contracts (a)                      -         59              59          -        205               205
    Gas futures, options, and swaps (a)              -        121             121          -        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. The decrease is partly
also the result of the normal reversal of such derivative assets. As gas has
been purchased under the long-term gas contracts and the gas futures, options,
and swap contracts have been settled, the fair value of the contracts has
decreased.

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



                                     CE-52
<PAGE>
                                                        Consumers Energy Company


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 June 30, 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 further details on the RCP, see Note 2,
Contingencies, "Other Electric Contingencies - The Midland Cogeneration
Venture."

For the six months ended June 30, 2006, we recorded a $145 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 the MCV Partnership 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 will continue to record these gains
and losses in our consolidated financial statements until we close the sale of
our interest in the MCV Partnership.

We have recorded derivative assets totaling $59 million associated with the fair
value of long-term gas contracts on our Consolidated Balance Sheets at June 30,
2006. The MCV Partnership expects 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,
but only until we close the sale of our interest in the MCV Partnership.

At the closing of this sale, these assets, which represent cumulative net
mark-to-market gains, will be sold in conjunction with the sale of our interest.
Also at the closing, we will record any additional mark-to-market gains or
losses associated with the long-term gas contracts and recognize the changes in
fair value in earnings. Any such changes in the fair value of these contracts
recognized before the closing will not affect the purchase price of our
ownership interest in the MCV Partnership. After the closing of the sale, we
will no longer record the fair value of these long-term gas contracts on our
Consolidated Balance Sheets and will not be required to recognize gains or
losses related to changes in the fair value of these contracts on our
Consolidated Statements of Income.

For further details on the sale of our interest in the MCV Partnership, see Note
2, Contingencies, "Other Electric Contingencies - The Midland Cogeneration
Venture."



                                     CE-53
<PAGE>
                                                        Consumers Energy Company


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 June 30, 2006, the MCV Partnership held natural gas futures, options, and
swaps. We have recorded a net derivative asset amount of $121 million on our
Consolidated Balance Sheets at June 30, 2006 associated with the fair value of
these contracts. Certain of the futures and swaps 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 assets of $122
million of the net $121 million derivative assets recorded on our Consolidated
Balance Sheets. We have recorded a cumulative net gain of $39 million, net of
tax and minority interest, in Accumulated other comprehensive income at June 30,
2006, representing our proportionate share of the cash flow hedges held by the
MCV Partnership. If we have not closed the sale of our interest in the MCV
Partnership within the next 12 months, we can expect to reclassify $17 million
of this balance, net of tax and minority interest, as an increase to earnings as
the contracts settle, offsetting the costs of gas purchases. There was no
ineffectiveness associated with any of these cash flow hedges.

The remaining futures, options, and swap contracts, representing derivative
liabilities of $1 million, do not qualify as cash flow hedges. The futures and
swap contracts were previously 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. The MCV Partnership expects almost all of these derivative liabilities
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."

For the six months ended June 30, 2006, we recorded a $53 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 the MCV Partnership 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 will continue to record these gains and losses in our
consolidated financial statements until we close the sale of our interest in the
MCV Partnership.

In conjunction with the sale of our interest in the MCV Partnership, all of the
futures, options, and swaps will be sold. At the closing of this sale, we will
record any additional mark-to-market gains or losses associated with these
contracts and recognize the changes in fair value in Accumulated other
comprehensive income or earnings, accordingly. Any such changes in the fair
value of these contracts recognized before the closing will not affect the
purchase price of our ownership interest in the MCV Partnership. Then, for those
futures and swaps that qualify as cash flow hedges, the related balance of net
cumulative gains recorded in Accumulated other comprehensive income will be
reclassified and recognized in earnings. After the sale of these assets, we will
no longer record the fair value of these contracts on our Consolidated Balance
Sheets and will not be required to



                                     CE-54
<PAGE>
                                                        Consumers Energy Company


recognize gains or losses related to changes in the fair value of these
contracts on our Consolidated Statements of Income. For additional details on
the sale of our interest in the MCV Partnership, 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
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 conditions, the
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 June 30,
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                   $181              $96          $85               $82                      96
</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 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.



                                     CE-55
<PAGE>
                                                        Consumers Energy Company


5: RETIREMENT BENEFITS

We provide retirement benefits to our employees under a number of different
plans, including:

      -     a 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 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 net reduction in pension
expense of $2 million for the three months ended June 30, 2006 and $5 million
for the six months ended June 30, 2006. We have established a corresponding
regulatory asset of $5 million.

OPEB: 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 a $1 million net reduction in OPEB
expense for the three months and the six months ended June 30, 2006. We have
established a corresponding regulatory asset of $1 million.



                                     CE-56
<PAGE>
                                                        Consumers Energy Company


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

<Table>
<Caption>
                                                                                     In Millions
                                                   ---------------------------------------------
                                                                      Pension
                                                   ---------------------------------------------
                                                   Three Months Ended         Six Months Ended
                                                   -------------------       -------------------
June 30                                             2006         2005         2006         2005
- ---------------------------------------------      ------       ------       ------       ------
<S>                                                <C>          <C>          <C>          <C>
Service cost                                       $   11       $   14       $   23       $   23
Interest expense                                       20           27           39           45
Expected return on plan assets                        (20)         (35)         (40)         (58)
Amortization of:
  Net loss                                             10            7           20           14
  Prior service cost                                    2            2            4            3
                                                   ------       ------       ------       ------
Net periodic cost                                      23           15           46           27
Regulatory adjustment                                  (2)           -           (5)           -
                                                   ------       ------       ------       ------
Net periodic cost after regulatory adjustment      $   21       $   15       $   41       $   27
                                                   ======       ======       ======       ======
</TABLE>

<Table>
<Caption>
                                                                                     In Millions
                                                   ---------------------------------------------
                                                                       OPEB
                                                   ---------------------------------------------
                                                    Three Months Ended        Six Months Ended
                                                   -------------------       -------------------
June 30                                             2006         2005         2006        2005
- -------                                            ------       ------       ------       ------
<S>                                                <C>          <C>          <C>          <C>
Service cost                                       $    6       $    5       $   12       $   10
Interest expense                                       16           15           32           30
Expected return on plan assets                        (15)         (13)         (29)         (26)
Amortization of:
  Net loss                                              5            5           10           10
  Prior service cost                                   (2)          (2)          (5)          (4)
                                                   ------       ------       ------       ------
Net periodic cost                                      10           10           20           20
Regulatory adjustment                                  (1)           -           (1)           -
                                                   ------       ------       ------       ------
Net periodic cost after regulatory adjustment      $    9       $   10       $   19       $   20
                                                   ======       ======       ======       ======
</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 provides promoted and newly hired participants
benefits ranging from 5 to 15 percent of total compensation. The DC SERP
requires a minimum of five years of participation before vesting. Our
contributions to the plan, if any, will be placed in a grantor trust. For the
six months ended June 30, 2006, no contributions were made to the plan.

MCV: 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 and six months ended June 30, 2006 and 2005 was less than $1 million.



                                     CE-57
<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 qualifies 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>

June 30, 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                      $551
Big Rock - decommission plant site                       1962       Big Rock nuclear plant                         12
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-58
<PAGE>
                                                        Consumers Energy Company


<Table>
<Caption>

                                                                                                           In Millions
                                         ------------------------------------------------------------------------------
                                            ARO                                                                  ARO
                                         Liability                                             Cash flow      Liability
ARO Description                          12/31/05     Incurred   Settled (a)     Accretion     Revisions       6/30/06
- ---------------                          --------     --------   -----------     ---------     ---------       -------
<S>                                      <C>          <C>        <C>             <C>           <C>            <C>
Palisades - decommission                      $375         $ -           $-            $12           $ -          $387
Big Rock - decommission                         27           -          (15)             2             -            14
JHCampbell intake line                           -           -            -              -             -             -
Coal ash disposal areas                         54           -           (1)             2             -            55
Wells at gas storage fields                      1           -            -              -             -             1
Indoor gas services relocations                  1           -            -              -             -             1
Asbestos abatement                              36           -           (2)             1             -            35
                                              ----         ---         ----            ---           ---          ----

  Total                                       $494         $ -         $(18)           $17           $ -          $493
                                              ====         ===         ====            ===           ===          ====
</TABLE>


(a) These cash payments are included in the Other current and non-current
liabilities line in Net cash provided by operating activities on our
Consolidated Statements of Cash Flows. Cash payments for the six months ended
June 30, 2005 were $26 million.

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. In
December 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 six months ended June 30, 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, if certain minimum service
requirements are met, 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 six months ended June 30, 2006 and for the year ended 2005, we did not
grant any of these types of awards.



                                     CE-59
<PAGE>
                                                        Consumers Energy Company


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 4,906,300 shares of common stock under the Plan at June
30, 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                                                         43,330                              $12.98
  Vested                                                         (10,000)                             $ 6.23
  Forfeited                                                            -                                   -
                                                               ---------                              ------
Nonvested at June 30, 2006                                     1,174,646                              $10.96
                                                               =========                              ======
</Table>

The total fair value of shares vested was less than $1 million for the six
months ended June 30, 2006 and 2005.



                                     CE-60
<PAGE>
                                                        Consumers Energy Company


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 $2 million for the six months ended June 30, 2006 and $1
million for the six months ended June 30, 2005. The total related income tax
benefit recognized in income was $1 million for the six months ended June 30,
2006 and less than $1 million for the six months ended June 30, 2005. At June
30, 2006, there was $7 million of total unrecognized compensation cost related
to restricted stock. We expect to recognize this cost over a weighted-average
period of 2.0 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                   1,714,787            $18.13            5.9 years            $ (6)
  Granted                                                  -                 -
  Exercised                                          (14,000)             6.35
  Cancelled or Expired                                     -                 -
                                                   ---------            ------            ---------            ----
Outstanding at June 30, 2006                       1,700,787            $18.22            5.4 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. The total
intrinsic value of stock options exercised was less than $1 million for the six
months ended June 30, 2006 and $1 million for the six months ended June 30,
2005. Cash received from exercise of these stock options was less than $1
million for the six months ended June 30, 2006 and $1 million for the six months
ended June 30, 2005. Since we have 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.



                                     CE-61
<PAGE>
                                                        Consumers Energy Company


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            Six Months Ended
                                                                 --------------------       ---------------------
June 30                                                             2006         2005          2006          2005
- -------                                                             ----         ----          ----          ----
<S>                                                                <C>          <C>         <C>           <C>
Operating revenue
   Electric                                                        $ 791        $ 649       $ 1,520       $ 1,277
   Gas                                                               334          355         1,375         1,347
   Other                                                              13           12            25            24
                                                                 -------      -------       -------       -------

Total Operating Revenue                                          $ 1,138      $ 1,016       $ 2,920       $ 2,648
                                                                 =======      =======       =======       =======

Net income available to common stockholder
   Electric                                                         $ 37          $46          $ 66           $79
   Gas                                                                (3)          (3)           34            55
   Other                                                               1          (11)          (55)           55
                                                                 -------      -------       -------       -------

Total Net Income Available to Common Stockholder                 $    35      $    32       $    45       $   189
                                                                 =======      =======       =======       =======
</Table>

<Table>
<Caption>
                                                                                                      In Millions
                                                                        -----------------------------------------
                                                                        June 30, 2006           December 31, 2005
                                                                        -------------           -----------------
<S>                                                                     <C>                     <C>
Assets
   Electric (a)                                                           $  7,925                      $7,743
   Gas (a)                                                                   3,503                       3,600
   Other                                                                     1,560                       1,814
                                                                          --------                    --------

Total Assets                                                              $ 12,988                    $ 13,157
                                                                          ========                    ========
</Table>


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



                                     CE-62
<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 had adequate
testing to confirm evidence of remediation, its disclosure controls and
procedures were not effective at June 30, 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 June 30, 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: 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 Form 10-K/A Amendment No. 1 and Consumers' Form 10-K
for the year ended December 31, 2005 and Forms 10-Q for the quarter ended March
31, 2006. 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

CMS MST and CMS Field Services (which was sold to Cantera Natural Gas, LLC and
for which CMS Energy has indemnification obligations) were defendants in 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.
On May 24, 2006, the judge entered a Final Judgment and Order of Dismissal
approving settlements between plaintiffs and various defendants, including CMS
MST and CMS Field Services. The settlement agreement required a $6.975 million
cash payment that CMS MST was 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 had established a reserve for
this amount in the fourth quarter of 2005.


                                      CO-2
<PAGE>

In a similar but unrelated matter, Texas-Ohio Energy, Inc. filed a putative
class action lawsuit in the United States District Court for the Eastern
District of California in November 2003 against a number of energy companies
engaged in the sale of natural gas in the United States (including CMS Energy).
The complaint alleged defendants entered into a price-fixing scheme by engaging
in activities to manipulate the price of natural gas in California. The
complaint alleged violations of the federal Sherman Act, the California
Cartwright Act, and the California Business and Professions Code relating to
unlawful, unfair and deceptive business practices. The complaint sought both
actual and exemplary damages for alleged overcharges, attorneys fees and
injunctive relief regulating defendants' future conduct relating to pricing and
price reporting. In April 2004, a Nevada Multidistrict Litigation (MDL) Panel
ordered the transfer of the Texas-Ohio case to a pending MDL matter in the
Nevada federal district court that at the time involved seven complaints
originally filed in various state courts in California. These complaints make
allegations similar to those in the Texas-Ohio case regarding price reporting,
although none contain a federal Sherman Act claim. In November 2004, those seven
complaints, as well as a number of others that were originally filed in various
state courts in California and subsequently transferred to the MDL proceeding,
were remanded back to California state court. The Texas-Ohio case remained in
Nevada federal district court, and defendants, with CMS Energy joining, filed a
motion to dismiss. The court issued an order granting the motion to dismiss on
April 8, 2005 and entered a judgment in favor of the defendants on April 11,
2005. Texas-Ohio has appealed the dismissal to the Ninth Circuit Court of
Appeals.

Three federal putative class actions, Fairhaven Power Company v. Encana Corp. et
al., Utility Savings & Refund Services LLP v. Reliant Energy Resources Inc. et
al., and Abelman Art Glass v. Encana Corp. et al., all of which make allegations
similar to those in the Texas-Ohio case regarding price manipulation and seek
similar relief, were originally filed in the United States District Court for
the Eastern District of California in September 2004, November 2004 and December
2004, respectively. The Fairhaven and Abelman Art Glass cases also include
claims for unjust enrichment and a constructive trust. The three complaints were
filed against CMS Energy and many of the other defendants named in the
Texas-Ohio case. In addition, the Utility Savings case names CMS MST and Cantera
Resources Inc. (Cantera Resources Inc. is the parent of Cantera Natural Gas,
LLC. and CMS Energy is required to indemnify Cantera Natural Gas, LLC and
Cantera Resources Inc. with respect to these actions.)

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


                                      CO-3
<PAGE>

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 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 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. Defendants attempted to remove the
case to federal court, but it was remanded to state court by a federal judge.
Plaintiffs have opposed the motions to dismiss and they 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 others 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.

Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et
al., a class action complaint brought on behalf of retail direct purchasers of
natural gas in Colorado, was filed in Colorado state court in May 2006.
Defendants, including CMS Energy, CMS Field Services, and CMS MST are alleged to
have violated the Colorado Antitrust Act of 1992 in connection with their
natural gas price reporting activities. Plaintiffs are seeking full refund
damages.

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


                                      CO-4
<PAGE>

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
"all persons who purchased CMS Common Stock during the period of October 25,
2000 through and including May 17, 2002 and who were damaged thereby." The court
excluded purchasers of CMS Energy's 8.75 percent Adjustable Convertible Trust
Securities ("ACTS") from the class. Trial has been scheduled for March 2007. In
response to the court's opinion and order excluding purchasers of ACTS from the
shareholder class, a new class action lawsuit was filed on behalf of ACTS
purchasers. The new lawsuit names the same defendants as the shareholder action
and contains essentially the same allegations and class period. CMS Energy and
the individual defendants will defend themselves vigorously in this litigation
but cannot predict its outcome.

ERISA LAWSUITS

CMS Energy was 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 alleged breaches of fiduciary
duties under ERISA and sought 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 required a $28
million cash payment by CMS Energy's primary insurer to 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 hearing on final approval of the settlement was
held on June 15, 2006. On June 27, 2006, the judge entered the Order and Final
Judgment, approving the proposed settlement with minor modifications.

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 Form 10-K/A Amendment No. 1 and
Consumers' Form 10-K for the year ended December 31, 2005 and CMS Energy's and
Consumers' Forms 10-Q for the quarter ended March 31, 2006.


                                      CO-5
<PAGE>

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 has had 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,
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 and raise prices under its existing gas export
contracts. Since May, gas flow from Bolivia has been restricted as Argentina and
Bolivia have been renegotiating the price for gas. Simultaneously, gas supply to
GasAtacama has been further curtailed. In July 2006, Argentina agreed to
increase the price it pays for gas from Bolivia through the term of the existing
contract, December 31, 2006. Concurrently, Argentina announced that it would
recover all of this price increase by a special tax on its gas exports. The
decision of Argentina to pass all of these increased costs to exports in
addition to maintaining the current curtailment scheme, has increased the risk
and cost of GasAtacama's fuel supply. CMS Energy is analyzing this situation to
determine what effect these actions may have on the value of its investment in
GasAtacama, but at this time cannot determine the effect. If an appropriate
resolution of this issue is not reached, it could result in an impairment of our
investment in GasAtacama. At June 30, 2006, the carrying value of CMS Energy's
investment in GasAtacama was $361 million.

RISKS RELATED TO CMS ENERGY AND CONSUMERS

    CMS ENERGY AND CONSUMERS MAY BE NEGATIVELY IMPACTED BY THE RESULTS OF AN
EMPLOYEE BENEFIT LAWSUIT.

    CMS Energy was 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 alleged breaches of fiduciary
duties under ERISA and sought 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 required a $28
million cash payment by CMS Energy's primary insurer to 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 hearing on final approval of the settlement was
held on June 15, 2006. On June 27, 2006, the judge entered the Order and Final
Judgment, approving the proposed settlement with minor modifications. With the
conclusion of this matter, there is no further risk to CMS Energy and Consumers.

    CONSUMERS' OWNERSHIP OF A NUCLEAR GENERATING FACILITY CREATES RISK RELATING
TO NUCLEAR ENERGY.

    Consumers owns the Palisades nuclear power plant and is, therefore, subject
to the risks of nuclear generation, including the risks associated with the
operation of plant facilities and the storage and disposal


                                      CO-6
<PAGE>

of spent fuel and other radioactive waste. The NRC has broad authority under
federal law to impose licensing and safety-related requirements for the
operation of nuclear generation facilities. In the event of non-compliance, the
NRC has the authority to impose fines or shut down a unit, or both, depending
upon its assessment of the severity of the situation, until compliance is
achieved. In addition, if a serious nuclear incident were to occur at Consumers'
plant, it could harm Consumers' results of operations and financial condition. A
major incident at a nuclear facility anywhere in the world could cause the NRC
to limit or prohibit the operation or licensing of any domestic nuclear unit.

     In July 2006, Consumers reached an agreement to sell the Palisades nuclear
plant to Entergy for $380 million. Consumers also signed a 15-year power
purchase agreement for 100 percent of the plant's current electric output. We
are targeting to close the sale in the first quarter of 2007. The sale will
result in an immediate reduction in our nuclear operating and decommissioning
risk.

    CONSUMERS CURRENTLY UNDERRECOVERS IN ITS RATES ITS PAYMENTS TO THE MCV
PARTNERSHIP FOR CAPACITY AND ENERGY, AND IS ALSO EXPOSED TO FUTURE CHANGES IN
THE MCV PARTNERSHIP'S FINANCIAL CONDITION THROUGH ITS EQUITY AND LESSOR
INVESTMENTS.

    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. Historically high natural gas prices have caused the
MCV Partnership to reevaluate the economics of operating the MCV Facility and to
record an impairment charge in 2005. 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.

    In January 2005, Consumers 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


                                      CO-7
<PAGE>

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. Consumers
cannot predict the outcome of these matters.

    CMS Energy and Consumers cannot estimate, at this time, the impact of these
issues on Consumers' future earnings or cash flow from its interest in the MCV
Partnership. The ability to develop a new long-term strategy with respect to the
MCV Facility, the future price of natural gas and an MPSC decision related to
Consumers' recovery of capacity payments are the three most significant
variables in the analysis of the MCV Partnership's future financial performance.
It is not presently possible to predict the future price of natural gas, or the
actions of the MPSC in 2007 or later. For these reasons, at this time CMS Energy
and Consumers cannot predict the impact of these issues on Consumers' future
earnings or cash flows or on the value of its equity interest in the MCV
Partnership and CMS Energy's lessor interest in the FMLP.

    In July 2006, we reached an agreement to sell 100 percent of the stock of
CMS Midland, Inc. and CMS Midland Holdings Company to an affiliate of GSO
Capital Partners and Rockland Capital Energy Investments for $60.5 million.
These Consumers' subsidiaries hold our interest in the MCV Partnership and the
FMLP. We are targeting to close on the sale by the end of 2006. The sale will
result in reduced exposure to sustained high natural gas prices.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

At the CMS Energy Annual Meeting of Shareholders held on May 19, 2006, the CMS
Energy shareholders voted upon two proposals, as follows:

     o   Ratification of the appointment of Ernst & Young LLP as the independent
         registered public accounting firm to audit CMS Energy's financial
         statements for the year ending December 31, 2006, with a vote of
         185,968,036 shares in favor, 807,698 against and 1,369,527 abstentions;
         and

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

CMS ENERGY
<TABLE>
<CAPTION>
 Number of Votes:                     For                   Withheld                     Total
- -------------------------------------------------------------------------------------------------
<S>                               <C>                       <C>                       <C>
 Merribel S. Ayres                183,831,106               4,316,601                 188,147,707
 Jon E. Barfield                  182,673,024               5,474,683                 188,147,707
 Richard M. Gabrys                183,863,009               4,284,698                 188,147,707
 David W. Joos                    182,597,983               5,549,724                 188,147,707
 Philip R. Lochner, Jr.           182,245,636               5,902,071                 188,147,707
 Michael T. Monahan               180,418,128               7,729,579                 188,147,707
 Joseph F. Paquette, Jr.          181,141,145               7,006,562                 188,147,707
 Percy A. Pierre                  181,914,512               6,233,195                 188,147,707
 Kenneth L. Way                   181,075,586               7,072,121                 188,147,707
 Kenneth Whipple                  182,847,974               5,299,733                 188,147,707
 John B. Yasinsky                 181,992,749               6,154,958                 188,147,707
</TABLE>




                                      CO-8
<PAGE>

CONSUMERS

Consumers did not solicit proxies for the matters submitted to votes at the
contemporaneous May 19, 2006 Consumers' Annual Meeting of Shareholders. All
84,108,789 shares of Consumers Common Stock were voted in favor of electing the
above-named individuals as directors of Consumers and in favor of the remaining
proposals for Consumers. None of the 441,599 shares of Consumers Preferred Stock
were voted at the Annual Meeting.

ITEM 5.  OTHER INFORMATION

A shareholder who wishes to submit a proposal for consideration at the CMS
Energy 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)      Asset Sale Agreement dated as of July 11, 2006 by and among
             Consumers Energy Company as Seller and Entergy Nuclear Palisades,
             LLC as Buyer

(10)(b)      Palisades Nuclear Power Plant Power Purchase Agreement dated as of
             July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers
             Energy Company

(10)(c)      Stock Purchase Agreement dated as of July 24, 2006 by and among
             Consumers Energy Company, CMS Midland, Inc., CMS Midland Holdings
             Company, and MCV Power Partners, Inc.

(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


                                      CO-9
<PAGE>


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


                                     CO-10
<PAGE>
                                   SIGNATURES


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



                                            CMS ENERGY CORPORATION
                                                   (Registrant)

Dated:  August 4, 2006             By:               /s/ Thomas J. Webb
                                                 -------------------------------
                                                         Thomas J. Webb
                                                 Executive Vice President and
                                                   Chief Financial Officer

                                            CONSUMERS ENERGY COMPANY
                                                    (Registrant)

Dated:  August 4, 2006             By:               /s/ Thomas J. Webb
                                                 -------------------------------
                                                         Thomas J. Webb
                                                 Executive Vice President and
                                                   Chief Financial Officer


                                     CO-11
<PAGE>
                        CMS ENERGY AND CONSUMERS EXHIBITS



EXHIBIT
NUMBER        DESCRIPTION
- -------       -----------

(10)(a)       Asset Sale Agreement dated as of July 11, 2006 by and among
              Consumers Energy Company as Seller and Entergy Nuclear Palisades,
              LLC as Buyer

(10)(b)       Palisades Nuclear Power Plant Power Purchase Agreement dated as of
              July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers
              Energy Company

(10)(c)       Stock Purchase Agreement dated as of July 24, 2006 by and among
              Consumers Energy Company, CMS Midland, Inc., CMS Midland Holdings
              Company, and MCV Power Partners, Inc.

(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>k06781exv10wxay.txt
<DESCRIPTION>ASSET SALE AGREEMENT
<TEXT>
<PAGE>

                                                                EXHIBIT (10)(a)

                              ASSET SALE AGREEMENT

                                  BY AND AMONG

                            CONSUMERS ENERGY COMPANY,
                                    AS SELLER

                                       AND

                         ENTERGY NUCLEAR PALISADES, LLC
                                    AS BUYER

                            DATED AS OF JULY 11, 2006

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ARTICLE 1 DEFINITIONS....................................................      1
   1.1.   Definitions....................................................      1
   1.2.   Certain Interpretive Matters...................................     21

ARTICLE 2 PURCHASE AND SALE..............................................     22
   2.1.   Included Assets................................................     22
   2.2.   Excluded Assets................................................     25
   2.3.   Assumed Liabilities and Obligations............................     27
   2.4.   Excluded Liabilities...........................................     29
   2.5.   Control of Litigation..........................................     31

ARTICLE 3 THE CLOSING....................................................     32
   3.1.   Closing........................................................     32
   3.2.   Payment of Purchase Price......................................     32
   3.3.   Adjustments to the Purchase Price..............................     32
   3.4.   Allocation of Purchase Price...................................     35
   3.5.   Prorations.....................................................     35
   3.6.   Deliveries by Seller...........................................     37
   3.7.   Deliveries by Buyer............................................     38

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER.......................     39
   4.1.   Organization...................................................     39
   4.2.   Authority Relative to this Agreement...........................     39
   4.3.   Consents and Approvals; No Violation...........................     40
   4.4.   Reports........................................................     40
   4.5.   Title and Related Matters......................................     41
   4.6.   Insurance......................................................     41
   4.7.   Environmental Matters..........................................     41
   4.8.   Labor Matters..................................................     43
   4.9.   ERISA; Benefit Plans...........................................     44
   4.10.  Sufficiency of Assets..........................................     46
   4.11.  Certain Contracts and Arrangements.............................     46
   4.12.  Legal Proceedings, etc.........................................     47
   4.13.  Permits........................................................     47
   4.14.  NRC Licenses...................................................     47
   4.15.  Regulation as a Utility........................................     48
   4.16.  Tax Matters....................................................     48
   4.17.  Qualified Decommissioning Fund.................................     48
   4.18.  Intellectual Property..........................................     50
   4.19.  Zoning Classification..........................................     50
   4.20.  Emergency Warning Sirens.......................................     50
   4.21.  Disclaimer.....................................................     50
</TABLE>


                                        i

<PAGE>

<TABLE>
<S>                                                                         <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER........................     51
   5.1.   Organization; Qualification....................................     51
   5.2.   Authority Relative to this Agreement...........................     51
   5.3.   Consents and Approvals; No Violation...........................     52
   5.4.   Availability of Funds..........................................     52
   5.5.   Legal Proceedings..............................................     52
   5.6.   WARN Act.......................................................     53
   5.7.   Transfer of Assets of Qualified Decommissioning Fund...........     53
   5.8.   Foreign Ownership or Control...................................     53
   5.9.   Permit and License Qualifications..............................     53

ARTICLE 6 COVENANTS OF THE PARTIES.......................................     54
   6.1.   Conduct of Business Relating to the Included Assets............     54
   6.2.   Access to Information..........................................     58
   6.3.   Expenses.......................................................     61
   6.4.   Further Assurances; Cooperation................................     61
   6.5.   Public Statements..............................................     63
   6.6.   Consents and Approvals.........................................     64
   6.7.   Brokerage Fees and Commissions.................................     66
   6.8.   Tax Matters....................................................     66
   6.9.   Advice of Changes; Supplements to Schedules....................     68
   6.10.  Employees......................................................     68
   6.11.  Risk of Loss...................................................     77
   6.12.  Qualified Decommissioning Fund.................................     78
   6.13.  Spent Nuclear Fuel Fees........................................     79
   6.14.  Standard Spent Fuel Disposal Contract; Spent Nuclear Fuel
          Litigation.....................................................     79
   6.15.  Department of Energy Decontamination and Decommissioning Fees..     81
   6.16.  Cooperation Relating to Insurance and Price-Anderson Act.......     81
   6.17.  Release of Seller..............................................     82
   6.18.  Private Letter Ruling..........................................     82
   6.19.  NRC Commitments................................................     83
   6.20.  Decommissioning; Return of Excess Qualified Decommissioning
          Fund Assets....................................................     83
   6.21.  Buyer's Parent Guaranty........................................     86
   6.22.  Nuclear Insurance Policies.....................................     86
   6.23.  No Transport or Storage of Waste...............................     87
   6.24.  Title and Survey...............................................     87
   6.25.  Big Rock Amount................................................     87
   6.26.  Removal of Trade Names, Trademarks, etc........................     88
   6.27.  Financial Assurances to the NRC................................     88

ARTICLE 7 CONDITIONS.....................................................     88
   7.1.   Conditions to Obligations of Buyer.............................     88
   7.2.   Conditions to Obligations of Seller............................     92

ARTICLE 8 INDEMNIFICATION................................................     93
   8.1.   Indemnification................................................     93
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>                                                                         <C>
   8.2.   Limitations on Indemnification.................................     94
   8.3.   Defense of Claims..............................................     95

ARTICLE 9 TERMINATION AND REMEDIES.......................................     97
   9.1.   Termination....................................................     97
   9.2.   Procedure and Effect of No Default Termination.................     98
   9.3.   Remedies.......................................................     98

ARTICLE 10 MISCELLANEOUS PROVISIONS......................................     99
   10.1.  Limitation of Liability; Waiver of Certain Damages.............     99
   10.2.  Amendment and Modification.....................................     99
   10.3.  Waiver of Compliance; Consents.................................     99
   10.4.  Survival of Representations, Warranties, Covenants and
          Obligations....................................................     99
   10.5.  Notices........................................................    100
   10.6.  Assignment.....................................................    101
   10.7.  No Third Party Beneficiaries...................................    102
   10.8.  Governing Law..................................................    102
   10.9.  Counterparts...................................................    103
   10.10. Schedules and Exhibits.........................................    103
   10.11. Entire Agreement...............................................    103
   10.12. Acknowledgment; Independent Due Diligence......................    103
   10.13. Bulk Sales Laws................................................    104
   10.14. No Joint Venture...............................................    104
   10.15. Change in Law..................................................    104
   10.16. Severability...................................................    104
</TABLE>

LIST OF EXHIBITS AND SCHEDULES

EXHIBITS
Exhibit A   Form of Assignment and Assumption Agreement
Exhibit B   Form of Bill of Sale
Exhibit C   Form of Interconnection Agreement
Exhibit D-1 Form of Palisades Deed
Exhibit D-2 Form of Big Rock ISFSI Deed
Exhibit E   Form of Firing Range Lease
Exhibit F   Form of Power Purchase Agreement
Exhibit G   Form of Emergency Operations Facilities Lease
Exhibit H   Form of Buyer's Parent Guaranty
Exhibit I   Form of Seller's FIRPTA Certificate
Exhibit J   Form of Title Commitments
Exhibit K   Form of Consumers Guaranty


                                      iii

<PAGE>

SCHEDULES
1.1(26)     Book Value
2.1(a)      Description of Real Property
2.1(b)      Description of Personal Property
2.1(i)      Intellectual Property
2.1(l)      ANI Insurance Policies Included in the Included Assets
2.1(m)      Radio Licenses
2.1(n)      Pending Causes of Action
2.1(q)      Emergency Equipment Easements and List of Emergency Sirens
2.2(o)      Excluded Contracts
3.3(a)(4)   Capital Budget
3.3(a)(5)   Decrease in Purchase Price
4.3(a)      Seller's Third Party Consents
4.3(b)      Seller's Required Regulatory Approvals
4.5(c)4.6   Insurance Exceptions
4.7         Environmental Matters
4.8         Labor Matters
4.9(a)      Benefit Plans
4.9(d)      Benefit Plan Exceptions
4.11(a)(i)  Seller's Agreements (other than Fuel Contracts)
4.11(a)(ii) Fuel Contracts
4.11(b)     Material Breaches
4.12        Legal Proceedings
4.13(b)     Permits
4.14(b)     NRC Licenses
4.16        Tax Matters
4.17        Tax and Financial Matters Relating to Qualified Decommissioning Fund
4.18        Exceptions to Ownership of Intellectual Property
4.19        Zoning Classification
5.3(a)      Buyer's Third Party Consents
5.3(b)      Buyer's Required Regulatory Approvals
6.10(a)     Transferred Employees
6.10(g)     Actuarial Assumptions


                                       iv
<PAGE>

                              ASSET SALE AGREEMENT

          ASSET SALE AGREEMENT, dated as of July 11, 2006, (the "Agreement") by
and among Consumers Energy Company, a Michigan corporation ("Seller" or
"Consumers"), and Entergy Nuclear Palisades, LLC, a Delaware limited liability
company ("Buyer"). Seller and Buyer are referred to individually as a "Party,"
and collectively as the "Parties."

                                   WITNESSETH:

          WHEREAS, Seller owns the Palisades Nuclear Power Plant ("Palisades"),
located near South Haven, Michigan, and certain facilities and other assets
associated therewith and ancillary thereto, in accordance with NRC Operating
License No. DPR- 20;

          WHEREAS, as agent for Consumers, Nuclear Management Company, LLC, a
Wisconsin limited liability company ("NMC"), has operational responsibility with
respect to Palisades pursuant to (i) a Nuclear Power Plant Operating Services
Agreement, dated as of November 7, 2000, by and between NMC and Consumers (the
"NPPOSA") and (ii) NRC Operating License No. DPR- 20;

          WHEREAS, Seller owns and operates the Big Rock Independent Spent Fuel
Storage Installation (the "Big Rock ISFSI"), located in Charlevoix County,
Michigan, in accordance with NRC Operating License No. DPR-6;

          WHEREAS, Buyer desires to purchase and assume, and Seller desires to
sell and assign, all of the Included Assets (as defined below) and the Assumed
Liabilities and Obligations, upon the terms and conditions hereinafter set forth
in this Agreement;

          WHEREAS, the Parties desire that Buyer's Parent support certain of the
obligations of Buyer hereunder.

          NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

     1.1. Definitions.

          As used in this Agreement, the following terms have the meanings
specified in this Section 1.1.

          (1) "Actual Amount" has the meaning set forth in Section 6.10(g)(6).

          (2) "Actual Retiree Medical and Life Insurance Amount" has the meaning
set forth in Section 6.10(l)(3).

<PAGE>

          (3) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act and, with respect to Seller, shall
also include any ERISA Affiliate.

          (4) "Agreement" has the meaning set forth in the preamble.

          (5) "Allocation" has the meaning set forth in Section 3.4(b).

          (6) "Ancillary Agreements" means the Bill of Sale, Assignment and
Assumption Agreement, the Deeds, the Interconnection Agreement, the Emergency
Operations Facility Lease, the Firing Range Lease and the Power Purchase
Agreement, as the same may be amended from time to time.

          (7) "ANI" means American Nuclear Insurers, or any successors thereto.

          (8) "APBO" has the meaning set forth in Section 6.10(l)(2).

          (9) "Approved Marked Up Title Commitments" has the meaning set forth
in Section 7.1(s).

          (10) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Seller and Buyer in the form of Exhibit A hereto,
by which Seller, subject to the terms and conditions hereof, shall assign
Seller's interest in and rights under the Seller's Agreements, the Fuel
Contracts, the Non-material Contracts, the Transferable Permits, licenses for
emergency warning sirens, dosimeters and environmental sampling stations that
are not located on the Sites, certain intangible assets and other Included
Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities and
Obligations.

          (11) "Assumed Liabilities and Obligations" has the meaning set forth
in Section 2.3.

          (12) "Atomic Energy Act" means the Atomic Energy Act of 1954, as
amended, 42 U.S.C. Section 2011 et seq.

          (13) "Bargaining Unit Transferred Employees" means those Transferred
Employees whose employment is covered by the Collective Bargaining Agreement.

          (14) "Benefit Plans" has the meaning set forth in Section 4.9(a).

          (15) "Big Rock Amount" has the meaning set forth in Section 6.25.

          (16) "Big Rock ISFSI" has the meaning set forth in the recitals
hereto.

          (17) "Big Rock ISFSI Assets" means that part of the Included Assets
related to the Big Rock ISFSI.

          (18) "Big Rock ISFSI Deed" means a deed conveying the Real Property
comprising the Big Rock ISFSI Site to Buyer, in the form of Exhibit D-2 hereto.


                                       2

<PAGE>

          (19) "Big Rock ISFSI Employees" means those employees of Consumers
identified on Schedule 6.10(a) as employees principally performing services at
the Big Rock ISFSI.

          (20) "Big Rock ISFSI Facilities" means the Facilities associated with
the Big Rock ISFSI.

          (21) "Big Rock ISFSI Site" means the parcels of land included in the
Real Property conveyed to Buyer pursuant to the Big Rock ISFSI Deed.

          (22) "Big Rock ISFSI Survey" has the meaning set forth in Section
6.24.

          (23) "Big Rock ISFSI Title Commitment" means the title commitment
issued by Chicago Title Insurance Company, Revision No. 6, effective date May
10, 2006 at 8:00 a.m., File No. 150430683CML that is included in Exhibit J
attached hereto.

          (24) "Big Rock Point Plant Operating Facility" means the nuclear power
plant located in Charlevoix County, Michigan, owned by Seller pursuant to NRC
License No. DPR-6 and currently undergoing Decommissioning.

          (25) "Bill of Sale" means the Bill of Sale, in the form of Exhibit B
hereto, to be delivered at the Closing, with respect to the tangible personal
property included in the Included Assets to be transferred to Buyer at the
Closing.

          (26) "Book Value" means, as of the date a calculation is to be made of
a specified asset (i) with respect to Seller's Facility Inventories, the value
on the books of Seller, determined in accordance with GAAP consistent with
Seller's past practices, and (ii) with respect to Seller's Nuclear Fuel
Inventories, the value on the books of Seller, determined in accordance with
GAAP consistent with Seller's past practices (with such adjustments and as more
fully described in Schedule 1.1(26), which schedule also provides an
illustration of the calculation of the Book Value of Seller's Nuclear Fuel
Inventories as of May 31, 2006). With respect to Facility Inventories, Book
Value shall not reflect inventory items which were not included in Book Value on
January 1, 2006 unless such items were purchased by Seller or NMC from unrelated
third parties after such date.

          (27) "Business Books and Records" has the meaning set forth in Section
2.1(f).

          (28) "Business Day" shall mean any day other than Saturday, Sunday and
any day on which banking institutions in the State of Michigan are authorized by
law or other governmental action to close.

          (29) "Buyer" has the meaning set forth in the preamble.

          (30) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).

          (31) "Buyer Material Adverse Effect" has the meaning set forth in
Section 5.3(a).


                                       3

<PAGE>

          (32) "Buyer's Parent" means Entergy Corporation, a Delaware
corporation.

          (33) "Buyer's Parent Guaranty" shall mean a guaranty executed on the
Effective Date by Buyer's Parent in the form of Exhibit H hereto.

          (34) "Buyer's Required Regulatory Approvals" has the meaning set forth
in Section 5.3(b).

          (35) "Byproduct Material" means any radioactive material (except
Special Nuclear Material) yielded in, or made radioactive by, exposure to the
radiation incident to the process of producing or utilizing Special Nuclear
Material.

          (36) "Capital Budget" means the budget established for capital
projects as set forth in Schedule 3.3(a)(4), as such budget may be amended by
agreement of the Parties.

          (37) "Capital Expenditures Shortfall" means the aggregate amount equal
to (1) the sum of the monthly amounts set forth for each capital project in the
Capital Budget for the period from January 1, 2006 through the Closing Date,
less (2) the sum of the amounts actually spent on such projects during such
period (not to exceed the applicable line item therefor by greater than ten
percent (10%)), provided that the monthly amount with respect to the month
during which the Closing occurs shall be prorated.

          (38) "CBA Termination Date" has the meaning set forth in Section
6.10(c).

          (39) "Closing" has the meaning set forth in Section 3.1.

          (40) "Closing Date" has the meaning set forth in Section 3.1.

          (41) "Closing Payment" has the meaning set forth in Section 3.3(b).

          (42) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and the rules and regulations promulgated thereunder.

          (43) "Code" means the Internal Revenue Code of 1986, as amended.

          (44) "Collective Bargaining Agreement" means that certain Working
Agreement between Consumers and the UWUA and its Michigan State Utility Workers
Council, dated as of June 1, 2005, as amended from time to time.

          (45) "Commercially Reasonable Efforts" mean efforts which are designed
to enable a Party, directly or indirectly, to expeditiously satisfy a condition
to, or otherwise assist in the consummation of, the transactions contemplated by
this Agreement and which do not require the performing Party to expend any funds
or assume Liabilities other than expenditures and Liability assumptions which
are customary and reasonable in nature and amount in the context of the
transactions contemplated by this Agreement.

          (46) "Confidentiality Agreement" means the letter agreement, dated
January 3, 2006, executed by Entergy Nuclear, Inc.


                                       4

<PAGE>

          (47) "Consumers" has the meaning set forth in the preamble.

          (48) "Consumers Guaranty" has the meaning set forth in Section
6.14(g).

          (49) "Credited Service" has the meaning set forth in Section 6.10(e).

          (50) "Decommission" means, with respect to each Site, to completely
retire and remove the Facilities on that Site from service and to restore the
Site, as well as any planning and administrative activities incidental thereto,
including: (i) the dismantlement and removal of the Facilities on such Site and
any reduction or removal of radioactivity at such Site to a level that permits
termination of the applicable NRC License and unrestricted use of the Site; (ii)
all other activities necessary for the retirement, dismantlement,
decontamination and/or storage of the Facilities at such Site to comply with all
applicable Nuclear Laws and Environmental Laws, including the applicable
requirements of the Atomic Energy Act and the NRC's rules, regulations, orders
and pronouncements thereunder; and (iii) once the applicable Site is no longer
utilized (A) in the case of Palisades, either for power generation of any kind
or for any storage of Spent Nuclear Fuel or other Nuclear Material, and (B) in
the case of the Big Rock ISFSI, for storage of Spent Nuclear Fuel or other
Greater Than Class C Waste, the removal of structures, buried piping, rebar,
below grade foundations, paved areas and rubble, and restoration of such Site to
an appropriately graded, stabilized and vegetated condition. The Parties
understand and agree that SAFSTOR is a permissible interim status for Palisades,
provided that Decommissioning is completed in accordance with the applicable NRC
regulations.

          (51) "Decommissioning Target" means an amount equal to Two Hundred
Fifty Million Dollars ($250,000,000), which amount shall be increased by five
and one-half percent (5.5%) per annum, compounded daily, from and after March 1,
2007 through and including the Closing Date.

          (52) "Deeds" means the Palisades Deed and the Big Rock ISFSI Deed,
collectively.

          (53) "Department of Energy" means the United States Department of
Energy and any successor agency thereto.

          (54) "Department of Energy Claim" means the action commenced by Seller
on December 16, 2002, as amended from time to time, or any other action
commenced by Seller for (i) pre-Closing damages resulting from the Department of
Energy's failure to commence the removal, transportation, acceptance or any
delay in accepting Spent Nuclear Fuel from Palisades and from the Big Rock Point
Plant Operating Facility (now located at the Big Rock ISFSI) for disposal
pursuant to the Standard Spent Fuel Disposal Contract and (ii) the recovery of
any damages of the kind described in clause (i) and arising post-Closing in
respect of the Big Rock ISFSI, up to an amount equal to the Big Rock Amount. The
Department of Energy Claim shall not include, and Buyer shall have the right to
pursue, damages against the Department of Energy arising after the Closing in
respect of Palisades and, to the extent Buyer has not been compensated for such
damages pursuant to Section 6.25, the Big Rock ISFSI.

          (55) "Department of Energy Decommissioning and Decontamination Fees"
means all fees related to the Department of Energy's Special Assessment of
utilities for the


                                       5

<PAGE>

Uranium Enrichment Decontamination and Decommissioning Funds pursuant to
Sections 1801, 1802 and 1803 of the Atomic Energy Act and the Department of
Energy's implementing regulations at 10 C.F.R. Part 766, applicable to
separative work units consumed and/or purchased from the Department of Energy in
order to decontaminate and decommission the Department of Energy's gaseous
diffusion enrichment facilities.

          (56) "Department of Justice" means the United States Department of
Justice and any successor agency thereto.

          (57) "Direct Claim" has the meaning set forth in Section 8.3(c).

          (58) "Downgrade Event" means, with respect to Buyer's Parent, any
period of time when such party's unsecured, senior long-term debt obligations
(not supported by third-party credit enhancements) are rated below Baa3 by
Moody's Investment Services, Inc. (or its successor), and rated below BBB- by
Standard & Poor's Rating Group (or its successor).

          (59) "Effective Date" means the date of this Agreement.

          (60) "Emergency Equipment Easements" means the easements listed on
Schedule 2.1(q) with respect to thirteen (13) of the emergency warning sirens
constituting part of the Palisades Assets and located off-Site.

          (61) "Emergency Operations Facilities" means (i) the facility owned by
Consumers located in South Haven, Michigan and utilized as the emergency
operations facility, (ii) the joint news center for Palisades located at the
Lake Michigan College Mendel Center and (iii) the Allegan Service Center
utilized as an alternative off-Site relocation and mustering or assembly
facility.

          (62) "Emergency Operations Facilities Lease" means the lease in the
form of Exhibit G to be entered into between Buyer and Consumers as of the
Closing Date with respect to the facility located in South Haven, Michigan that
is part of the Emergency Operations Facilities.

          (63) "Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).

          (64) "Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).

          (65) "Encumbrances" means any mortgages, pledges, liens, security
interests, activity and use limitations, conservation easements, deed
restrictions, rights of way, covenants, reservations, zoning limitations,
easements, purchase rights, rights of first refusal and other encumbrances of
any kind.

          (66) "Energy Reorganization Act" means the Energy Reorganization Act
of 1974, as amended.


                                       6

<PAGE>

          (67) "Environment" means all soil, real property, air, water
(including surface waters, streams, ponds, drainage basins and wetlands),
groundwater, water body sediments, drinking water supply, stream sediments or
land, including land surface or subsurface strata, including all fish, plant,
wildlife, and other biota and any other environmental medium or natural
resource.

          (68) "Environmental Claim" means any and all written communications
alleging potential Liability, administrative or judicial actions, suits, orders,
liens, written notices alleging Liability, noncompliance or a violation,
investigations which have been disclosed in writing to Seller or NMC, requests
by Governmental Authorities for information relating to Releases or threatened
Releases, complaints, proceedings, or other written communications, whether
criminal or civil, pursuant to or relating to any applicable Environmental Law
by any Person based upon, alleging, asserting, or claiming any actual or
potential (a) violation of, or Liability under, any Environmental Law, (b)
violation of, or Liability under, any Environmental Permit, or (c) Liability for
investigatory costs, monitoring costs, cleanup costs, removal costs, remedial
costs, response costs, natural resource damages, property damage, loss of life,
injury or illness to persons, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release of
any Hazardous Materials related to the Included Assets, including at any
Off-Site Location to which Hazardous Materials, or materials containing
Hazardous Materials, were sent.

          (69) "Environmental Cleanup Site" means any location that is listed or
formally proposed for listing on the National Priorities List or on any similar
state list of sites requiring investigation that has been disclosed in writing
to Seller or NMC or cleanup, or that is the subject of any action, suit,
proceeding or investigation for any alleged violation of any Environmental Law,
or at which, to the Knowledge of Seller, there has been a Release of Hazardous
Materials.

          (70) "Environmental Laws" means all Laws regarding pollution or
protection of the Environment, including Laws regarding Releases or threatened
Releases of Hazardous Materials (including Releases to ambient air, surface
water, groundwater, land, surface and subsurface strata) or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, Release,
transport, disposal or handling of Hazardous Materials. "Environmental Laws"
include the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. Sections 9601 et seq.), the Hazardous Materials Transportation
Act (49 U.S.C. Sections 5101 et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. Sections 6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. Sections 1251 et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the
Oil Pollution Act (33 U.S.C. Sections 2701 et seq.) and the Emergency Planning
and Community Right-to-Know Act (42 U.S.C. Sections 11001 et seq.).
Notwithstanding the foregoing, Environmental Laws do not include any of the
foregoing to the extent that such Laws regulate Nuclear Fuel, Spent Nuclear Fuel
or other Nuclear Materials, nor do Environmental Laws include any Nuclear Laws.

          (71) "Environmental Permit" means any federal, state or local permits,
licenses, approvals, consents, registrations or authorizations required by any
Governmental Authority under or in connection with any Environmental Law
including any and all orders,


                                       7

<PAGE>

consent orders or binding agreements issued or entered into by a Governmental
Authority under any applicable Environmental Law.

          (72) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the applicable rules and regulations promulgated
thereunder.

          (73) "ERISA Affiliate" has the meaning set forth in Section 2.4(f).

          (74) "Estimated Adjustments" has the meaning set forth in Section
3.3(b).

          (75) "Estimated Allocation" has the meaning set forth in Section
3.4(a).

          (76) "Estimated Closing Statement" has the meaning set forth in
Section 3.3(b).

          (77) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

          (78) "Excess PLR Decommissioning Amount" has the meaning set forth in
Section 6.12(a).

          (79) "Excess Qualified Decommissioning Fund Assets" has the meaning
set forth in Section 6.20(c).

          (80) "Excluded Assets" has the meaning set forth in Section 2.2.

          (81) "Excluded Contracts" has the meaning set forth in Section 2.2(o).

          (82) "Excluded Liabilities" has the meaning set forth in Section 2.4.

          (83) "Exempt Wholesale Generator" means an exempt wholesale generator
as defined in the regulations of the FERC at 18 C.F.R. Section 366.

          (84) "Existing Savings Plans" has the meaning set forth in Section
6.10(f).

          (85) "Facilities" means the plant, facilities, equipment, supplies and
improvements in which Seller has an ownership interest and which are included in
the Included Assets.

          (86) "Facility Inventories" means materials, spare parts, consumable
supplies, diesel and other fuel supplies (other than Nuclear Fuel) and chemical
and gas inventories relating to the operation of the Facilities located at, or
in transit to, the Facilities.

          (87) "Federal Power Act" means the Federal Power Act, as amended.

          (88) "Federal Trade Commission" means the United States Federal Trade
Commission or any successor agency thereto.

          (89) "FERC" means the United States Federal Energy Regulatory
Commission or any successor agency thereto.


                                       8

<PAGE>

          (90) "Fiduciary" has the meaning set forth in ERISA Section 3(21).

          (91) "Final Determination" has the meaning set forth in section
1313(a) of the Code (or any similar provision of state or local Law).

          (92) "Firing Range" means that certain firearms facility that is the
subject of the Firing Range Lease.

          (93) "Firing Range Lease" means the lease in the form of Exhibit E to
be entered into between Buyer and Consumers as of the Closing Date with respect
to the Firing Range.

          (94) "FIRPTA Certificate" means the certificate in the form of Exhibit
I hereto satisfying the requirements of the Foreign Investment and Real Property
Tax Act of 1980.

          (95) "Fuel Contracts" has the meaning set forth in Section 4.11(a).

          (96) "GAAP" means United States generally accepted accounting
principles.

          (97) "Good Utility Practices" means any of the practices, methods and
activities generally accepted in the electric utility industry in the United
States of America during the relevant period as good practices applicable to
nuclear generating facilities similar to the Facilities or any of the practices,
methods or activities which, in the exercise of reasonable judgment by a prudent
nuclear operator in light of the facts known at the time the decision was made
(other than the fact that such operator is in the process of selling the
facility), could have been expected to accomplish the desired result at a
reasonable cost consistent with good business practices, reliability, safety,
expedition, the requirements of any Governmental Authority having jurisdiction
and applicable Laws including Nuclear Laws and Laws relating to the protection
of public health and safety. Good Utility Practices are not intended to be
limited to the optimal practices, methods or acts to the exclusion of all
others, but rather to be practices, methods or acts generally accepted in the
electric utility industry in the United States of America. For purposes of this
Agreement, the determination of Good Utility Practices includes the assumption
that the expected initial re-licensing of Palisades will occur.

          (98) "Governmental Authority" means any federal, state, local,
provincial, foreign, international or other governmental, regulatory or
administrative agency, taxing authority, commission, department, board, or other
governmental subdivision, court, tribunal, arbitrating body or other
governmental authority.

          (99) "Governmental Order" means any judgment, decision, consent
decree, injunction, ruling, writ or order of any Governmental Authority.

          (100) "Greater Than Class C Waste" means radioactive waste that
contains a radionuclide whose concentration exceeds the value in Table 1 or
Table 2 of 10 C.F.R. 61.55, and therefore is currently not generally acceptable
for disposal at existing (near surface) low level radioactive waste disposal
facilities.


                                       9

<PAGE>

          (101) "GUST" means: (a) the Uruguay Round Agreements Act, Pub. L.
103-465; (b) the Uniformed Services Employment and Reemployment Rights Act of
1994, Pub. L. 103-353; (c) the Small Business Job Protection Act of 1996, Pub.
L. 104-188; (d) the Taxpayer Relief Act of 1997, Pub. L. 105-34; (e) the
Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206;
and (f) the Community Renewal Tax Relief Act of 2000, Pub. L. 106-554.

          (102) "Hazardous Materials" means (a) any petroleum, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead-based
paint and polychlorinated biphenyls; (b) any chemicals, wastes, materials or
substances defined as or included in the definition of, or regulated as,
"hazardous substances," "hazardous wastes," "hazardous materials," "hazardous
constituents," "restricted hazardous materials," "extremely hazardous
substances," "toxic substances," "contaminants," "pollutants," "toxic
pollutants," "hazardous air pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, the exposure to which is prohibited, limited or
regulated by any applicable Environmental Law; excluding, however, any Nuclear
Material.

          (103) "Head" has the meaning set forth in Section 7.1(z).

          (104) "Head Contract" has the meaning set forth in Section 7.1(z).

          (105) "High Level Waste Repository" means a facility which is
designed, constructed and operated by or on behalf of the Department of Energy
for the storage and disposal of Spent Nuclear Fuel in accordance with the
requirements set forth in the Nuclear Waste Policy Act or subsequent
legislation.

          (106) "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996 and accompanying regulations.

          (107) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.

          (108) "Included Assets" has the meaning set forth in Section 2.1.

          (109) "Income Tax" means any Tax (a) based upon, measured by or
calculated with respect to net income, profits or receipts (including capital
gains Taxes and minimum Taxes), or (b) based upon, measured by or calculated
with respect to multiple bases (including the Michigan Single Business Tax and
any corporate franchise Tax) if one or more of the bases on which such Tax may
be based, measured by or calculated with respect to, is described in clause (a),
in each case together with any interest, penalties or additions to such Tax.

          (110) "Indemnifiable Loss" has the meaning set forth in Section
8.1(a).

          (111) "Indemnifying Party" means the Party required to provide
indemnification under this Agreement.

          (112) "Indemnitee" means either a Seller Indemnitee or a Buyer
Indemnitee.


                                       10

<PAGE>

          (113) "Independent Accounting Firm" means such independent accounting
firm of national reputation as is mutually appointed by Seller and Buyer.

          (114) "Independent Appraiser" means such independent engineering firm
or appraiser of national reputation as is mutually appointed by Seller and
Buyer.

          (115) "Indus Software" has the meaning set forth in Section 6.4(f).

          (116) "Initial Retiree Medical and Life Insurance Transfer" has the
meaning set forth in Section 6.10(l)(2).

          (117) "Initial Transfer" has the meaning set forth in Section
6.10(g)(4).

          (118) "Intellectual Property" has the meaning set forth in Section
2.1(i).

          (119) "Interconnection Agreement" means the Interconnection Agreement,
substantially in the form of Exhibit C hereto, among Buyer, transmission
owner(s) and MISO, under which Palisades will be provided after the Closing with
interconnection services consistent with FERC regulations and precedent and NRC
requirements relating to offsite power availability and grid reliability.

          (120) "Interest Rate" means, for any date, the lesser of (i) the per
annum rate of interest equal to the prime lending rate as may from time to time
be published in The Wall Street Journal under "Money Rates" on such day (or if
not published on such day on the most recent preceding day on which published)
and (ii) the maximum rate permitted by applicable Law.

          (121) "IRS" means the United States Internal Revenue Service or any
successor agency thereto.

          (122) "Knowledge" means (i) with respect to Buyer the actual knowledge
(based upon reasonable inquiry of appropriate executive officers and managers of
Buyer and Buyer's Parent) of the corporate officers of Buyer who are charged
with responsibility for the particular function relating to the specific matter
of the inquiry and (ii) with respect to Seller, the actual knowledge (based upon
reasonable inquiry of appropriate executive officers and managers of Seller and
NMC) of the corporate officers of Seller who are charged with responsibility for
the particular function relating to the specific matter of inquiry.

          (123) "Law" or "Laws" means all laws, rules, regulations, codes,
statutes, ordinances, treaties, and/or Governmental Orders, including the common
law.

          (124) "Liability" or "Liabilities" means any liability, indebtedness,
fine, penalty or obligation (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) other than
any liability for Taxes. Without limiting the generality of the foregoing, in
the case of the NRC Licenses, "Liabilities" shall include the NRC Commitments.

          (125) "Loss" or "Losses" means any and all damages, fines, fees,
penalties, deficiencies, losses and expenses (including all Remediation costs,
fees of attorneys, accountants


                                       11

<PAGE>

and other experts, or other expenses of litigation or proceedings or of any
claim, default or assessment).

          (126) "Low Level Waste" means radioactive material that: (a) is
neither Spent Nuclear Fuel, Greater Than Class C Waste nor Byproduct Material;
and (b) the NRC, consistent with existing Law and in accordance with clause (a),
classifies as low-level radioactive waste.

          (127) "Material Adverse Effect" means the occurrence after the date
hereof and prior to the Closing of: (i) any change to or effect on the Included
Assets, including the operations or condition (financial or otherwise) thereof,
taken as a whole, the result of which is Losses related to the Included Assets
that are likely to require the expenditure by Buyer, within one (1) year
following the Closing Date, of in excess of Two Million Five Hundred Thousand
Dollars ($2,500,000) individually or Ten Million Dollars ($10,000,000) in the
aggregate; (ii) a permanent shutdown of the Palisades Facilities; or (iii) a
permanent diminution of the full licensed thermal power of the Palisades
Facilities of in excess of twenty-five (25) Megawatts thermal (MWth).
Notwithstanding the foregoing, a "Material Adverse Effect" shall not include:
(i) any changes or effects (taken together) generally affecting (A) a
substantial portion of the international, national or regional electric or
nuclear power industries, (B) international, national or regional wholesale or
retail markets for electric power or Nuclear Fuel or (C) international,
national, regional or electric transmission systems or operations thereof; (ii)
any change in any Law generally applicable to similarly situated Persons; (iii)
any change in the application or enforcement of any Law by any Governmental
Authority with respect to the Facilities or to similarly situated Persons,
unless such change in application or enforcement prohibits consummation of the
transactions contemplated by this Agreement; or (iv) any changes resulting from
or associated with acts of war or terrorism or changes imposed by a Governmental
Authority associated with additional security to address concerns of terrorism.
Notwithstanding the foregoing, no changes or effects that are cured to the
reasonable satisfaction of Buyer prior to the Closing at Seller's expense shall
be considered a Material Adverse Effect.

          (128) "Michigan Land Division Act" has the meaning set forth in
Section 4.5(f).

          (129) "MISO" means Midwest Independent Transmission System Operator,
Inc.

          (130) "Mortgage Indenture" means the trust indenture dated as of
September 1, 1945 between Consumers Power Company (now Consumers Energy Company)
and City Bank Farmers Trust Company (now held by JPMorgan Chase Bank, N.A.,
successor trustee) and all supplemental indentures thereto, as may be further
amended and/or supplemented from time to time.

          (131) "MPSC" means the Michigan Public Service Commission or any
successor agency thereto.

          (132) "NEIL" means Nuclear Electric Insurance Limited, or any
successor thereto.

          (133) "NMC" has the meaning set forth in the recitals.


                                       12

<PAGE>

          (134) "Non-Bargaining Unit Transferred Employee" means any Transferred
Employee whose employment is not covered by the Collective Bargaining Agreement.

          (135) "Non-material Contracts" means those contracts, agreements,
personal property leases, software or other licenses, or other commitments,
understandings or instruments relating to or associated with the operation,
maintenance, repair, replacement, inspection, modification and/or procurement of
the Included Assets, that have been entered into by Seller or NMC in the
ordinary course of business prior to the Closing and which either (i) are
terminable without penalty, termination payments, or other financial obligations
associated with termination (except for wind-down costs) upon notice of ninety
(90) days or less by Seller or, following the Closing, by Buyer or (ii) require
the payment or delivery of goods or services with a value of less than (a) One
Hundred Thousand Dollars ($100,000) per annum in the case of any individual
contract or commitment or (b) Two Hundred Fifty Thousand Dollars ($250,000) per
annum in the aggregate with respect to any single landlord, vendor or supplier.

          (136) "Notional Investment Amount" has the meaning set forth in
Section 6.20(c).

          (137) "NPPOSA" has the meaning set forth in the recitals.

          (138) "NRC" means the United States Nuclear Regulatory Commission and
any successor agency thereto.

          (139) "NRC Commitments" means all written regulatory commitments
identified as such by Seller to the NRC.

          (140) "NRC Licenses" means those licenses listed on Schedule 4.14(b).

          (141) "Nuclear Fuel Book Value Baseline Amount" means (i) if the
Closing shall occur prior to the commencement of the next refueling outage for
Palisades, Fifty Five Million Seven Hundred Sixty Eight Thousand Nine Hundred
Eighty Four Dollars ($55,768,984) and (ii) if the Closing shall occur after the
completion of the next refueling outage for Palisades, Sixty Seven Million Five
Hundred Thousand Dollars ($67,500,000).

          (142) "Nuclear Fuel" means: (i) all nuclear fuel assemblies in the
Palisades reactor on the Closing Date; (ii) any previously irradiated fuel
assemblies that have been temporarily removed from the Palisades reactor as of
the Closing Date but which are capable of and intended for reinsertion into the
Facilities reactor as of the Closing Date without modification or additional
cost (for example, assemblies that are temporarily removed from the reactor
during a refueling outage for the purpose of rearranging the locations of
assemblies within the reactor core, or for purposes of repair prior to
reinsertion), (iii) any unirradiated fuel assemblies located at Palisades
awaiting their initial insertion into the Palisades reactor as of the Closing
Date; and (iv) all nuclear fuel constituents (including uranium in any form and
separative work units) in any stage of the fuel cycle that are in process of
production, conversion, enrichment or fabrication for use in the Palisades
reactor and which are owned by Seller, or in which Seller has any right, title
or interest, on the Closing Date.


                                       13

<PAGE>

          (143) "Nuclear Fuel Inventories" means Nuclear Fuel inventories
relating to the operation of the Facilities located at, or in transit to, the
Facilities.

          (144) "Nuclear Insurance Policies" means all nuclear insurance
policies carried by or for the benefit of Seller with respect to the ownership,
operation or maintenance of the Facilities, including all nuclear liability,
property damage and business interruption policies in respect thereof. Without
limiting the generality of the foregoing, the term "Nuclear Insurance Policies"
includes all policies issued or administered by ANI or NEIL.

          (145) "Nuclear Laws" means all Laws relating to the regulation of
nuclear power plants, Source Material, Byproduct Material and Special Nuclear
Materials; Decommissioning; the regulation of Low Level Waste and Spent Nuclear
Fuel; the transportation and storage of Nuclear Materials; the regulation of
Safeguards Information; the regulation of Nuclear Fuel; the enrichment of
uranium; the disposal and storage of Spent Nuclear Fuel; contracts for and
payments into the Nuclear Waste Fund; and as applicable, the antitrust laws and
the Federal Trade Commission Act to specified activities or proposed activities
of certain licensees of commercial nuclear reactors, but shall not include
Environmental Laws. "Nuclear Laws" include the Atomic Energy Act of 1954, as
amended (42 U.S.C. Section 2011 et seq.), the Price-Anderson Act (Section 170 of
the Atomic Energy Act of 1954, as amended); the Energy Reorganization Act of
1974 (42 U.S.C. Section 5801 et seq.); Convention on the Physical Protection of
Nuclear Material Implementation Act of 1982 (Public Law 97 -351; 96 Stat. 1663);
the prohibition against nuclear enrichment transfers found in the Foreign
Assistance Act of 1961 (22 U.S.C. Section 2151, 2799 aa et seq.); the Nuclear
Non-Proliferation Act of 1978 (22 U.S.C. Section 3201); the Low-Level
Radioactive Waste Policy Act (42 U.S.C. Section 2021b et seq.); the Nuclear
Waste Policy Act (42 U.S.C. Section 10101 et seq. as amended); the Low-Level
Radioactive Waste Policy Amendments Act of 1985 (42 U.S.C. Section 2021b, 471);
the Energy Policy Act of 1992 (4 U.S.C. Section 13201 et seq.); the provisions
of 10 CFR Section 73.21. For sake of clarity, "Nuclear Laws" shall include the
requirements of any Law to the extent excluded from the definition of
"Environmental Laws" pursuant to the application of the last sentence thereof.

          (146) "Nuclear Material or Materials" means Source Material, Special
Nuclear Material, Greater Than Class C Waste, Low Level Waste, Byproduct
Material and Spent Nuclear Fuel.

          (147) "Nuclear Waste Fund" means the fund established by Section
302(c) of the Nuclear Waste Policy Act in which the Spent Nuclear Fuel Fees to
be used for the design, construction and operation of a High Level Waste
Repository and other activities related to the storage and disposal of Spent
Nuclear Fuel is deposited.

          (148) "Nuclear Waste Policy Act" means the Nuclear Waste Policy Act of
1982, as amended.

          (149) "Observers" has the meaning set forth in Section 6.1(c).

          (150) "Off-Site Location" means any real property or other location,
other than the real property comprising the Sites.


                                       14

<PAGE>

          (151) "Palisades" has the meaning set forth in the recitals.

          (152) "Palisades Assets" means that part of the Included Assets
related to Palisades.

          (153) "Palisades Deed" means a deed conveying the Real Property
comprising the Palisades Site and the Emergency Equipment Easements to Buyer, in
the form of Exhibit D-1 hereto.

          (154) "Palisades Defined Benefit Plan" has the meaning set forth in
Section 6.10(g).

          (155) "Palisades Defined Contribution Plan" has the meaning set forth
in Section 6.10(f).

          (156) "Palisades Employee" means an hourly-paid or salaried employee
of (i) NMC or an Affiliate of NMC, or (ii) Consumers, who is subject to the
Collective Bargaining Agreement with the UWUA, and in either case who receives
an IRS Form W-2 from NMC or an Affiliate of NMC, or from Consumers and who is
principally employed as of the Closing Date at Palisades (including employees
absent from service due to illness, leave of absence or military service, or
whose work responsibilities involve principally the operation of any of the
Palisades Assets, which employees shall be set forth in Schedule 6.10(a) (which
shall be updated as of the Closing Date as provided for herein). "Palisades
Employee" does not mean or include any worker, working at or on the Facilities
or the Palisades Assets, who is compensated directly by an entity other than NMC
or an Affiliate of NMC or Consumers and/or for whom NMC or an Affiliate of NMC
or Consumers issues an IRS Form 1099.

          (157) "Palisades Facilities" means the Facilities associated with
Palisades.

          (158) "Palisades Retiree Coverages" has the meaning set forth in
Section 6.10(k).

          (159) "Palisades Site" means the parcels of land included in the Real
Property conveyed to Buyer pursuant to the Palisades Deed.

          (160) "Palisades Survey" has the meaning set forth in Section 6.24.

          (161) "Palisades Title Commitment" means the title commitment issued
by Chicago Title Insurance Company, Revision No. 6, effective date April 10,
2006 at 8:00 a.m., File No. 800414496CML that is included in Exhibit J attached
hereto.

          (162) "Party" (and the corresponding term "Parties") has the meaning
set forth in the preamble.

          (163) "PBGC" means the Pension Benefit Guaranty Corporation
established by ERISA.

          (164) "Permits" has the meaning set forth in Section 4.13(a).


                                       15
<PAGE>

          (165) "Permitted Encumbrances" means: (i) without limiting Buyer's
rights in regard to any applicable conditions to consummate the Closing, (A)
with respect to the Palisades Site, (x) the exceptions to title listed in Items
6 through 28 of Schedule B, Part II, of the Palisades Title Commitment, (y) all
matters shown on the Palisades Survey and (z) any rights of the public under the
"public trust" doctrine in areas adjoining the Lake Michigan shore, and (B) with
respect to the Big Rock ISFSI Site, the exceptions to title listed in Items 6
and 8 of Schedule B, Part II, of the Big Rock Point ISFSI Title Commitment and
all matters shown on the Big Rock ISFSI Survey; (ii) Encumbrances created by the
Mortgage Indenture that will be released prior to or at the Closing; (iii)
statutory liens for Taxes or other governmental charges or assessments not yet
due or delinquent or the validity of which are being contested in good faith by
appropriate proceedings and which do not individually or in the aggregate exceed
$500,000 (iv) mechanics', materialmen's, carriers', workers', repairers' and
other similar liens arising or incurred in the ordinary course of business
relating to obligations as to which there is no default on the part of Seller or
the validity of which are being contested in good faith, and which do not,
individually or in the aggregate, exceed Five Hundred Thousand Dollars
($500,000); (v) subject to Section 6.6(f), Seller's representations and
warranties in this Agreement and without limiting any of Buyer's rights in
regard to any applicable conditions to Buyer's obligations to consummate the
Closing or under the terms of the Deeds, zoning, entitlement, environmental or
conservation restrictions and other land use and environmental regulations
imposed by Governmental Authorities which do not, individually or in the
aggregate, interfere with the present use or operation of the Included Assets;
(vi) the rights and easements to be reserved by Seller following the Closing
pursuant to the Deeds and associated terms and conditions set forth in the
Deeds; and (vii) such other imperfections in or failures of title, easements,
leases, licenses, restrictions, building or use limitations, conservation
easements, encumbrances and encroachments, as do not, individually or in the
aggregate, materially detract from the value of the Included Assets as such
assets are currently used by an amount in excess of One Hundred Thousand Dollars
($100,000) or materially interfere with the present use or operation of the
Included Assets.

          (166) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
association or Governmental Authority.

          (167) "Plans" has the meaning set forth in Section 2.4(f).

          (168) "PLR Decommissioning Amount" has the meaning set forth in
Section 6.12(a).

          (169) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).

          (170) "Post-Closing Decommissioning Trust Agreement" means the
decommissioning trust agreement between Buyer and the Trustee pursuant to which
any assets of the Qualified Decommissioning Fund to be transferred by Seller at
Closing pursuant to Section 6.12 hereof will be held in trust.

          (171) "Post-Closing SNF Claim" has the meaning set forth in Section
6.14(a).

          (172) "Post-Closing Statement" has the meaning set forth in Section
3.3(c).


                                       16

<PAGE>

          (173) "Power Purchase Agreement" means the Power Purchase Agreement
between Seller and Buyer, dated as of the Effective Date and in the form of
Exhibit F hereto.

          (174) "Pre-1983 Fee" means the one-time fee, including any interest,
late fees and/or penalties accruing thereon from time to time, payable by Seller
pursuant to Article VIII (B)(2) of the Standard Spent Fuel Disposal Contract.

          (175) "Price-Anderson Act" means Section 170 of the Atomic Energy Act
and related provisions of Section 11 of the Atomic Energy Act.

          (176) "Proposed Post-Closing Adjustment" has the meaning set forth in
Section 3.3(c).

          (177) "Proprietary Information" (i) with respect to information
provided by Seller to Buyer, has the meaning as set forth in the Confidentiality
Agreement, and (ii) with respect to information provided by Buyer to Seller,
shall mean information relating to the financing or operation and maintenance,
actual or proposed, of the Included Assets and any financial, operational or
other information concerning Buyer or its Affiliates or their respective assets
and properties furnished by Buyer or its Representatives to Seller or its
Representatives, whether furnished before, on or after the Effective Date,
whether oral or written, and regardless of the manner in which it is furnished;
but does not include information which (a) is or becomes generally available to
the public other than as a result of a disclosure by Seller or its
Representatives, (b) was available to Seller or its Representatives on a
non-confidential basis prior to its disclosure by Buyer or its Representatives
or (c) becomes available on a non-confidential basis from a person other than
Buyer or its Representatives who is not otherwise bound by a confidentiality
agreement with Buyer or its Representatives, or is otherwise not under any
obligation to Buyer or its Representatives not to transmit the information to
Seller or its Representatives.

          (178) "Purchase Price" has the meaning set forth in Section 3.2.

          (179) "Qualified Decommissioning Fund" means, with respect to Seller,
Seller's external trust fund for purposes of Decommissioning Palisades that
meets the requirements of Code Section 468A and Treas. Reg. Section 1.468A-5,
maintained by Seller with respect to the Facilities prior to Closing pursuant to
Seller's Decommissioning Trust Agreement and, with respect to Buyer, Buyer's
external trust fund for purposes of Decommissioning Palisades that meets the
requirements of Code Section 468A and Treas. Reg. Section 1.468A-6(b)(2),
maintained by Buyer after the Closing pursuant to the Post-Closing
Decommissioning Trust Agreement to the extent assets are transferred to such
fund by Seller pursuant to Section 6.12.

          (180) "Real Property" has the meaning set forth in Section 2.1(a).

          (181) "Release" shall have the meaning set forth in Environmental
Laws, but shall include any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of
Hazardous Materials into the Environment; provided, however, that "Release"
shall not include any release that is permissible under applicable Environmental
Laws or Environmental Permits.


                                       17

<PAGE>

          (182) "Remediation" means action of any kind required by any
applicable Environmental Law or order of a Governmental Authority to address a
Release, the threat of a Release or the presence of Hazardous Materials at a
Site, the Included Assets or an Off-Site Location including any or all of the
following activities to the extent they relate to or arise from the Release or
presence of Hazardous Materials at that Site, the Included Assets or an Off-Site
Location: (a) monitoring, investigation, assessment, treatment, cleanup,
containment, removal, mitigation, response or restoration work; (b) obtaining
any permits, consents, approvals or authorizations of any Governmental Authority
necessary to conduct any such activity; (c) preparing and implementing any plans
or studies for any such activity; (d) obtaining a written communication from a
Governmental Authority with jurisdiction over the Site, the Included Assets or
an Off-Site Location under Environmental Law that no material additional work is
required by such Governmental Authority; (e) the use, implementation,
application, installation, operation or maintenance of remedial action at the
Site, the Included Assets or an Off-Site Location, remedial technologies applied
to the surface or subsurface soils, excavation and off-Site treatment or
disposal of soils, systems for long term treatment of surface water or ground
water, engineering controls or institutional controls; and (f) any other
activities reasonably determined to be required under Environmental Laws to
address the presence or Release of Hazardous Materials at the Site, the Included
Assets or an Off-Site Location.

          (183) "Replacement Benefit Plans" has the meaning set forth in Section
6.10(e).

          (184) "Replacement Defined Benefit Plans" has the meaning set forth in
Section 6.10(g)(1).

          (185) "Replacement Retiree Coverages" has the meaning set forth in
Section 6.10(k).

          (186) "Replacement Welfare Plans" has the meaning set forth in Section
6.10(d).

          (187) "Reportable Event" has the meaning set forth in ERISA Section
4043.

          (188) "Representatives" of a Party means the Party and its Affiliates
and their directors, officers, employees, agents, partners, advisors (including
accountants, counsel, environmental consultants, financial advisors and other
authorized representatives) and parents and other controlling Persons.

          (189) "Requested Rulings" has the meaning set forth in Section 6.18.

          (190) "Safeguards Information" means information that is required to
be protected under the terms of 10 C.F.R. Section 73.21.

          (191) "SAFSTOR" means a method of Decommissioning in which a nuclear
facility is placed and maintained in such condition that such facility can be
safely stored and subsequently decontaminated to levels that permit release for
unrestricted use.

          (192) "SEC" means the United States Securities and Exchange Commission
and any successor agency thereto.


                                       18

<PAGE>

          (193) "Securities Act" means the Securities Act of 1933, as amended.

          (194) "Seller" has the meaning set forth in the preamble.

          (195) "Seller Indemnitee" has the meaning set forth in Section 8.1(a).

          (196) "Seller's Agent(s)" has the meaning set forth in Section 6.1(c).

          (197) "Seller's Agreements" means those contracts, agreements,
licenses, leases and other legally binding commitments and arrangements
primarily relating to the ownership, operation and maintenance of the Included
Assets, including licenses and leases for computer hardware and software,
described on Schedule 4.11(a)(i).

          (198) "Seller's Decommissioning Trust Agreement" means the Amended and
Restated Trust Agreement, dated January 1, 2004, by and between Consumers and
State Street Bank and Trust Company, regarding the Qualified Decommissioning
Fund of Seller.

          (199) "Seller's Parent" means CMS Energy Corporation, a Michigan
corporation.

          (200) "Seller's Required Regulatory Approvals" has the meaning set
forth in Section 4.3(b).

          (201) "SFAS 106" has the meaning set forth in Section 6.10(l)(2).

          (202) "Sites" means, collectively, the Big Rock ISFSI Site and the
Palisades Site. Any reference to the Sites or to any particular Site shall
include, by definition, the surface and subsurface elements, including the soils
and groundwater present at the relevant Site or Sites and any references to
items "at the Site" or "at the Sites" shall include all items "at, in, on, upon,
over, across, under, and within" the relevant Site(s).

          (203) "Source Material" means: (1) uranium or thorium; or any
combination thereof, in any physical or chemical form, or (2) ores which contain
by weight one-twentieth of one percent (0.05%) or more of (i) uranium, (ii)
thorium, or (iii) any combination thereof. Source Material does not include
Special Nuclear Material.

          (204) "Special Nuclear Material" means plutonium, uranium-233, uranium
enriched in the isotope-233 or in the isotope-235, and any other material that
the NRC determines to be "Special Nuclear Material," but does not include Source
Material. Special Nuclear Material also refers to any material artificially
enriched by any of the above-listed materials or isotopes, but does not include
Source Material.

          (205) "Spent Nuclear Fuel" means fuel that has been permanently
withdrawn from a nuclear reactor following irradiation, and has not been
chemically separated into its constituent elements by reprocessing. Spent
Nuclear Fuel includes the Special Nuclear Material, Byproduct Material, Source
Material, Greater Than Class C Waste, and other radioactive materials associated
with Nuclear Fuel assemblies.


                                       19

<PAGE>

          (206) "Spent Nuclear Fuel Fees" means those fees assessed pursuant to
the Standard Spent Fuel Disposal Contract, as provided in Section 302 of the
Nuclear Waste Policy Act and 10 C.F.R. Part 961, as the same may be amended from
time to time, on electricity generated at Palisades and the Big Rock Point Plant
Operating Facility.

          (207) "Standard Spent Fuel Disposal Contract" means the Contract for
Disposal of Spent Nuclear Fuel and/or High Level Radioactive Waste, No.
DE-CR01-83NE44374, dated June 3, 1983 and entered into between Consumers and the
United States of America, represented by the Department of Energy, as amended,
which shall be deemed a Seller's Agreement under this Agreement.

          (208) "Survey(s)" has the meaning set forth in Section 6.24(b).

          (209) "Tangible Personal Property" has the meaning set forth in
Section 2.1(b).

          (210) "Tax" or "Taxes" means, all taxes, charges, fees, levies,
penalties or other assessments, including Income Taxes, imposed by any federal,
state, local, provincial or foreign taxing authority, including gross receipts,
single business, excise, ad valorem, real or personal property, sales, transfer,
customs, duties, franchise, payroll, withholding, social security, receipts,
license, stamp, occupation, employment, or other taxes, including any interest,
penalties or additions attributable thereto, and any payments to any state,
local, provincial or foreign taxing authorities in lieu of any such taxes,
charges, fees, levies or assessments.

          (211) "Tax Rate" has the meaning set forth in Section 6.20(c).

          (212) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
related or supporting information) required to be supplied to any Governmental
Authority with respect to Taxes including amendments thereto.

          (213) "Termination Date" has the meaning set forth in Section 9.1(b).

          (214) "Third Party Claim" has the meaning set forth in Section 8.3(a).

          (215) "Threshold Amount" has the meaning set forth in Section 8.2(a).

          (216) "Total Compensation" has the meaning set forth in Section
6.10(c).

          (217) "Transferable Permits" means those Permits and Environmental
Permits which are transferable to Buyer without consent or approval of any
Governmental Authority.

          (218) "Transferred Employee Records" means all reasonably available
records related to Transferred Employees (including those employed by NMC) for
the entire term of their employment with Seller, NMC or any of their Affiliates,
including the following information: (i) skill and development training, (ii)
seniority histories, (iii) salary and benefit information, (iv) Occupational,
Safety and Health Administration reports, (v) medical records and active medical
restriction forms, (vi) fitness for duty, (vii) disciplinary actions, (viii) job
performance appraisals and/or evaluations, (ix) employment applications, (x)
bonuses, (xi) job


                                       20

<PAGE>

history, (xii) access authorization records, (xiii) radiation exposure records,
(xiv) direct deposit financial institution data, (xv) wages paid, recurring
payroll deductions, Taxes withheld and/or paid and liens, (xvi) payroll advance
data, (xvii) accrued and unused sick or vacation leave and (xviii) service
credited for purposes of vesting and eligibility to participate under any
Benefit Plan, in each case for the year in which the Closing occurs.

          (219) "Transferred Employees" has the meaning set forth in Section
6.10(b).

          (220) "Transfer Taxes" means any real property transfer, sales, use,
value added, stamp, documentary, recording, registration, conveyance, stock
transfer, intangible property transfer, personal property transfer, gross
receipts, registration, duty, securities transactions or similar fees or Taxes
or governmental charges (together with any interest or penalty, addition to Tax
or additional amount imposed) as levied by any Governmental Authority in
connection with the transactions contemplated by this Agreement, including any
payments made in lieu of any such Taxes or governmental charges which become
payable in connection with the transactions contemplated by this Agreement.

          (221) "Transition Committee" has the meaning set forth in Section
6.1(b).

          (222) "Trustee" means with respect to Seller prior to the Closing the
trustee of the Qualified Decommissioning Fund appointed by Seller pursuant to
Seller's Decommissioning Trust Agreement and after the Closing to the extent any
assets of the Qualified Decommissioning Fund are transferred by Seller pursuant
to Section 6.12 hereof, the trustees appointed pursuant to the Post-Closing
Decommissioning Trust Agreement.

          (223) "USERRA" means the Uniformed Services Employment and
Reemployment Rights Act of 1994, as amended, and the accompanying regulations.

          (224) "UWUA" means the Utility Workers Union of America, an affiliate
of the AFL-CIO.

          (225) "WARN Act" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended.

          (226) "WARN Certificate" has the meaning set forth in Section 6.10(h).

     1.2. Certain Interpretive Matters.

          (a) Unless otherwise required by the context in which any term
appears:

               (1) Capitalized terms used in this Agreement shall have the
     meanings specified in this Article.

               (2) The singular shall include the plural, the plural shall
     include the singular, and the masculine shall include the feminine and
     neuter.

               (3) References to "Articles," "Sections," "Schedules" or
     "Exhibits" shall be to articles, sections, schedules or exhibits of or to
     this Agreement, and references


                                       21

<PAGE>

     to "paragraphs" or "clauses" shall be to separate paragraphs or clauses of
     the section or subsection in which the reference occurs.

               (4) The words "herein," "hereof" and "hereunder" shall refer to
     this Agreement as a whole and not to any particular section or subsection
     of this Agreement; and the words "include," "includes" or "including" shall
     mean "including, but not limited to."

               (5) The term "day" shall mean a calendar day, commencing at 12:00
     a.m. (local time). The term "week" shall mean any seven consecutive day
     period commencing on a Sunday, and the term "month" shall mean a calendar
     month; provided that when a period measured in months commences on a date
     other than the first day of a month, the period shall run from the date on
     which it starts to the corresponding date in the next month and, as
     appropriate, to succeeding months thereafter. Whenever an event is to be
     performed or a payment is to be made by a particular date and the date in
     question falls on a day which is not a Business Day, the event shall be
     performed, or the payment shall be made, on the next succeeding Business
     Day; provided, however, that all calculations shall be made regardless of
     whether any given day is a Business Day and whether or not any given period
     ends on a Business Day.

               (6) All references to a particular entity shall include such
     entity's permitted successors and permitted assigns unless otherwise
     specifically provided herein.

               (7) All references herein to any Law or to any contract or other
     agreement shall be to such Law, contract or other agreement as amended,
     supplemented or modified from time to time unless otherwise specifically
     provided herein.

          (b) The titles of the articles, sections and schedules herein have
been inserted as a matter of convenience of reference only, and shall not
control or affect the meaning or construction of any of the terms or provisions
hereof.

          (c) This Agreement was negotiated and prepared by both Parties with
advice of counsel to the extent deemed necessary by each Party; the Parties have
agreed to the wording of this Agreement; and none of the provisions hereof shall
be construed against one Party on the ground that such Party is the author of
this Agreement or any part hereof.

          (d) The Exhibits hereto are incorporated in and are intended to be a
part of this Agreement; provided, however, that in the event of a conflict
between the terms of any Exhibit and the terms of the remainder of this
Agreement, the terms of the remainder of this Agreement shall take precedence.

                                    ARTICLE 2
                                PURCHASE AND SALE

     2.1. Included Assets.

          Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, at the Closing, Seller will sell, assign, convey,
transfer and deliver, or cause to be


                                       22

<PAGE>

sold, assigned, conveyed, transferred and delivered, to Buyer, and Buyer will
purchase, assume and acquire from Seller free and clear of all Encumbrances
(except for Permitted Encumbrances), all of Seller's right, title and interest
in and to the properties and assets constituting, or primarily used in the
ownership, maintenance or operation of, Palisades and the Big Rock ISFSI at or
prior to the Closing (other than the Excluded Assets) (collectively, the
"Included Assets"), including the following:

          (a) The land described on Schedule 2.1(a) (which land comprises the
Sites) together with all buildings, facilities, fixtures and other improvements
thereon including the Facilities (but excluding any personal property of Seller
thereon) and all rights arising out of the ownership thereof or appurtenances
thereto, including all related easements, all related rights of ingress and
egress, the water intake and discharge structures to the extent such may be
deemed real property (collectively, the "Real Property");

          (b) All machinery, mobile or otherwise, equipment (including computer
hardware and communications equipment), vehicles, tools, spare parts, materials,
works in progress, furniture and furnishings and other items of personal
property used primarily in connection with the ownership, maintenance or
operation of Palisades and the Big Rock ISFSI, including that listed on Schedule
2.1(b) (collectively, "Tangible Personal Property");

          (c) All Nuclear Fuel Inventories and Facility Inventories wherever
located, and all Nuclear Materials located at the Sites at Closing which Nuclear
Materials were used at or in connection with Palisades or Big Rock Point Plant
Operating Facility and resulted from the operation or maintenance of Palisades
or Big Rock Point Plant Operating Facility;

          (d) Subject to the provisions of Section 6.4(d), all rights of Seller
under the Fuel Contracts, the Non-material Contracts and the Seller's
Agreements;

          (e) All Transferable Permits;

          (f) To the extent permitted by Law, except for the books and records
that are Excluded Assets, all books, operating records, licensing records,
quality assurance records, purchasing records, and equipment repair,
maintenance, safety or service records, operating, safety and maintenance
manuals, inspection reports, environmental assessments, environmental reports
made to Governmental Authorities and records maintained in accordance with
Environmental Laws, engineering design plans, documents, blueprints and as built
plans, specifications, procedures, studies or reports and other similar items of
Seller primarily relating to the design, construction, licensing, regulation,
operation or Decommissioning of Palisades, the Big Rock ISFSI and the Included
Assets (including all of Seller's rights to use such documents owned by other
Persons and licensed to or held for use by or for Seller or its agents) wherever
located and whether existing in hard copy or magnetic or electronic form
(subject to the right of Seller to retain copies of same for its use and subject
to the obligation of Buyer to preserve such records and make such records
available to Seller as reasonably necessary for Seller's reasonable and lawful
purposes following the Closing Date as provided in Section 6.2(c))
(collectively, the "Business Books and Records"), provided, that Buyer agrees
that Seller, at its option, may transfer to Buyer either originals or copies of
the Business Books and Records, and, with respect to the Business Books and
Records related to the Big Rock ISFSI, Seller may transfer to Buyer


                                       23

<PAGE>

originals or copies of Seller's books and records relating to the Big Rock Point
Plant Operating Facility, which books and records include the Business Books and
Records related to the Big Rock ISFSI;

          (g) All unexpired, transferable warranties and guarantees from third
parties with respect to any item constituting part of the Included Assets;

          (h) The name "Palisades Nuclear Plant," "Palisades" and "Big Rock
ISFSI" as used as a designation attached to or associated with the Facilities
and any derivative tradenames, trademarks, servicemarks or logos;

          (i) All patents and patent rights, trademarks and trademark rights,
service marks and service mark rights, inventions, proprietary processes, trade
names, copyrights and copyright rights, trade secrets, computer programs and
other software, know-how, domain names, websites, source and object codes and
all other intellectual property and intellectual property rights primarily used
in, the operation or maintenance of, the Included Assets, and all pending
applications for registrations of patents, trademarks, service marks and
copyrights, including those items described on Schedule 2.1(i) (the
"Intellectual Property"), provided, however, that Seller hereby reserves, and
Buyer hereby grants to Seller and its Affiliates, to the extent transferable or
subject to reservation, as applicable, an irrevocable, fully-paid, royalty-free,
license to use such Intellectual Property (except that such license or
reservation, as applicable, shall not apply with respect to any trademarks and
trademark rights, service marks and service mark rights, trade names, domain
names and websites included within the Intellectual Property);

          (j) All equipment located within the boundaries of the Palisades Site
substation owned by Seller, other than the meters referred to in Section 2.2(a);

          (k) Subject to Section 6.20(c), those assets comprising the Qualified
Decommissioning Fund relating to the Palisades Facilities being transferred to
Buyer pursuant to Section 6.12(a), including all profits, dividends, income,
interest and earnings accrued thereon, together with all related Tax, accounting
and other records for such assets, including all Decommissioning studies,
analyses and cost estimates and all records related to the determination of the
Tax basis of such assets;

          (l) Subject to Section 2.2(e), those Nuclear Insurance Policies with
ANI and, to the extent transferable, those certain Indemnity Agreements of the
Atomic Energy Commission, in either case to the extent relating to the
Facilities and listed on Schedule 2.2(l);

          (m) The radio licenses set forth on Schedule 2.1(m);

          (n) Except for the Department of Energy Claim, the rights of Seller in
and to any causes of action asserted and unasserted (other than any causes of
action filed and pending as of the Closing Date, as set forth on Schedule 2.1(n)
(as updated on or prior to the Closing Date) to the extent relating to the
period prior to the Closing Date) claims (including rights under insurance
policies to proceeds, refunds or distributions thereunder paid after the Closing
Date with respect to the Assumed Liabilities and Obligations or with respect to
pre-Closing damages to the Included Assets that have not been remedied by
Seller) and defenses against third parties


                                       24

<PAGE>

(including indemnification and contribution) to the extent relating to any
Assumed Liabilities and Obligations, including (subject to Section 6.14) the
right to prosecute any and all claims for damages arising post-Closing under the
Standard Spent Fuel Disposal Contract (except to the extent included within the
Department of Energy Claim);

          (o) The Transferred Employee Records, subject to the right of Seller
to retain copies of such records for its use and subject to the obligation of
Buyer to preserve such records and make such records available to Seller as
necessary for Seller's purposes following the Closing Date as provided in
Section 6.2(c);

          (p) All assignable right, title and interest to the NRC Licenses; and

          (q) All rights of Seller in property, assets, leases and agreements
primarily used in providing emergency warning or primarily associated with
emergency preparedness, including (i) the Emergency Equipment Easements set
forth on Schedule 2.1(q) and (ii) except as set forth in Schedule 4.13(b), the
emergency warning sirens and environmental sampling and dosimeter stations
listed on Schedule 2.1(q).

     2.2. Excluded Assets.

          Notwithstanding anything to the contrary in this Agreement, nothing in
this Agreement shall be construed as conferring on Buyer, and Buyer is not
acquiring, any right, title or interest in or to the following specific assets
which are associated with the Included Assets, but which are hereby specifically
excluded from the sale and the definition of Included Assets herein (the
"Excluded Assets"):

          (a) Any meters owned or to be owned by Seller located within the
boundaries of the Palisades Site substation and to be used in connection with
providing station power service to Palisades;

          (b) The radio communications system antenna and related equipment
located on the "Meteorological Tower Site" as further described in the Palisades
Deed;

          (c) Except to the extent contemplated by the Firing Range Lease and
the Emergency Operations Facilities Lease, Seller's interest in (i) the Firing
Range and (ii) the facility in South Haven, Michigan included in the Emergency
Operations Facilities;

          (d) Certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities relating to the
Facilities or the Sites, except such assets comprising the Qualified
Decommissioning Fund or assets transferred pursuant to Section 6.10;

          (e) All rights to premium refunds and distributions made on or after
the Closing Date with respect to periods prior to the Closing Date under Nuclear
Insurance Policies of Seller with ANI, including any rights to receive premium
refunds, distributions and continuity credits with respect to periods prior to
the Closing Date pursuant to the ANI nuclear industry credit rating plan;


                                       25

<PAGE>

          (f) Seller's policyholder interest under its NEIL policies, including
rights to any premium refunds or other distributions made on or after the
Closing Date;

          (g) Seller's interest in all cash, cash equivalents, bank deposits,
accounts and notes receivable (trade or otherwise), and any income, sales,
payroll or other receivables relating to Taxes, in each case relating to the
Included Assets, except to the extent such assets are included in the Qualified
Decommissioning Fund or are assets transferred pursuant to Section 6.10;

          (h) The rights of Seller and its Affiliates to the names "Consumers
Energy" or "Consumers" or any related or similar trade names, trademarks,
service marks, corporate names or logos, or any part, derivative or combination
thereof (for the avoidance of doubt, Buyer shall not acquire any right to or
interest in the name "CMS Energy" or any related or similar trade names,
trademarks, service marks, corporate names or logos, or any part, derivative or
combination thereof);

          (i) All tariffs, agreements and arrangements to which Seller is a
party or has an interest for the purchase or sale of electric capacity and/or
energy or for the purchase or sale of transmission or ancillary services;

          (j) Other than those contemplated by Section 2.1(n), the rights of
Seller in and to any causes of action, claims and defenses against third parties
(including indemnification and contribution) arising out of or relating to (i)
any Real Property or personal property, Permits, Taxes, Emergency Equipment
Easements, the Seller's Agreements, Fuel Contracts or the Non-material
Contracts, if any, including any claims for refunds (including refunds of
previously paid Department of Energy Decommissioning and Decontamination Fees),
prepayments, offsets, recoupment, insurance proceeds, condemnation awards,
judgments and the like, whether received as payment or credit against future
liabilities, relating specifically to the Included Assets (including the
Facilities and the Sites), to the extent relating to any period prior to the
Closing Date, (ii) the Excluded Assets or (iii) the Excluded Liabilities;

          (k) The Department of Energy Claim;

          (l) All personnel records of Seller, NMC and their Affiliates relating
to the Facilities or the Sites, except the Transferred Employee Records;

          (m) Unless included as a Seller Agreement, any and all of Seller's
rights in any contract representing an intercompany transaction between Seller
and an Affiliate of Seller, whether or not such transaction relates to the
provision of goods and services, payment arrangements, intercompany charges or
balances, or the like;

          (n) To the extent not otherwise provided for in this Section 2.2 and
unless prorated as provided in Section 3.5, any refund or credit (i) related to
Taxes paid by Seller with respect to periods (or portions thereof) that end on
or prior to the Closing Date in respect of the Included Assets, whether such
refund is received as a payment or as a credit against future Taxes, or (ii)
arising under any agreement which is part of the Included Assets and relating to
a period (or portion thereof) ending on or prior to the Closing Date;


                                       26

<PAGE>

          (o) All rights of Seller under those contracts, agreements, purchase
orders and personal property leases set forth in Schedule 2.2(o) (the "Excluded
Contracts");

          (p) All books, operating records, licensing records, quality assurance
records, purchasing records, and equipment repair, maintenance or service
records relating exclusively to the design, construction, licensing or operation
of the Facilities, operating, safety and maintenance manuals, inspection
reports, environmental assessments, engineering design plans, documents,
blueprints and as built plans, specifications, procedures and other similar
items of Seller, wherever located, relating to the Excluded Assets or the
Excluded Liabilities, whether existing in hard copy or magnetic or electronic
form;

          (q) All of the assets of Seller comprising any fund relating to
Decommissioning, other than the Seller's Qualified Decommissioning Fund;

          (r) The right to the Excess PLR Decommissioning Amount, if any, upon
the occurrence of any event specified in Section 6.20(c) or the receipt of the
Requested Rulings prior to the Closing; and

          (s) All other assets of Seller and its Affiliates not constituting an
interest in the Included Assets (it being acknowledged and agreed that no spare
transformer for the Facilities has been included in the Included Assets).

     2.3. Assumed Liabilities and Obligations.

          At the Closing, Buyer shall deliver to Seller the Assignment and
Assumption Agreement pursuant to which Buyer shall assume and agree to discharge
when due, the following specific Liabilities and certain liabilities for Taxes
of Seller that relate to the Included Assets or are otherwise specified below
(collectively, "Assumed Liabilities and Obligations"):

          (a) All Liabilities arising after the Closing with respect to the
ownership, operation, use or maintenance after the Closing of the Included
Assets, and all Liabilities arising after the Closing under the Seller's
Agreements (including the Standard Spent Fuel Disposal Contract), Fuel
Contracts, the Emergency Equipment Easements, the Non-material Contracts and the
Transferable Permits in accordance with the terms thereof, including all
Liabilities arising after the Closing relating to the contracts, licenses,
agreements and personal property leases entered into with respect to the
Included Assets after the Effective Date consistent with Section 6.9, except in
each case to the extent such Liabilities, but for a breach or default by Seller
or a related waiver or extension, would have been paid, performed or otherwise
discharged at or prior to the Closing or to the extent the same arise out of any
such breach or default or related waiver or out of any event which after the
giving of notice or the passage of time would constitute a default by Seller;

          (b) All Liabilities with respect to the Transferred Employees relating
to loss of life, injury, illness, discrimination, wrongful discharge, unfair
labor practice, or constructive termination of any individual, or similar claim
or cause of action that are attributable to any actions or inactions of Buyer or
its Affiliates at or after the Closing;


                                       27

<PAGE>

          (c) All Liabilities with respect to Transferred Employees for which
Buyer is responsible pursuant to Section 6.10;

          (d) Except as contemplated by Section 2.4(d), 2.4(i) and 2.4(j), all
Liabilities of Seller under or related to Environmental Laws with respect to the
ownership, use, operation or maintenance of the Included Assets (i) arising pre-
or post-Closing, with respect to any such Liabilities caused (or allegedly
caused) by the presence or Release of Hazardous Materials at, on, in, under or
migrating from the Palisades Site (but excluding any such Liability arising
pre-Closing with respect to an Off-site Location, except to the extent that the
Hazardous Materials giving rise to such Liability are present on the Palisades
Site and such Off-Site Location as a result of the same Release occurring prior
to the Closing) and (ii) arising after the Closing with respect to all other
such Liabilities, including any such Liabilities caused (or allegedly caused) by
the presence or Release of Hazardous Materials at, on, in, under or migrating
from the Big Rock ISFSI Site;

          (e) Liabilities for any claims by third parties resulting from or in
connection with loss of life, injury or illness to persons or damages to
property or the Environment and caused (or allegedly caused) by the presence or
Release after the Closing of Hazardous Materials at, on, in, under or migrating
from the Palisades Site or the Big Rock ISFSI Site;

          (f) All Liabilities associated with or arising from the Included
Assets in respect of Taxes for which Buyer is liable pursuant to Section 3.5 or
6.8;

          (g) With respect to the Included Assets, all Liabilities for any Taxes
that may be imposed by any Governmental Authority on the ownership, sale,
maintenance, operation or use of the Included Assets or that relate to or arise
from the Included Assets, in either case with respect to taxable periods (or
portions thereof) beginning at or after the Closing (except for any Taxes
imposed upon Seller arising from the sale of the Included Assets pursuant to
this Agreement, any Income Taxes attributed to income actually received and
retained by Seller, any Taxes imposed upon Seller under Section 6.8);

          (h) All Liabilities to Decommission the Facilities and the Sites;

          (i) Without limiting the Liabilities retained by Seller pursuant to
Sections 6.13, 6.14 or 6.15, all Liabilities (other than Liabilities relating to
claims by third parties, which are addressed in Section 2.3(j)), (A) whether
arising pre- or post-Closing with respect to the Palisades Assets (but not, with
respect to any such pre-Closing Liabilities, at any Off-Site Location) and (B)
arising after the Closing with respect to the Big Rock ISFSI Assets, (x) under
or relating to Nuclear Laws and arising out of the ownership, use, operation or
maintenance at the applicable Site of the Included Assets or (y) associated
with, or related to any claim in respect of, Nuclear Fuel, Spent Nuclear Fuel or
other Nuclear Materials located at the applicable Site, including any and all
such Liabilities arising out of or resulting from an "extraordinary nuclear
occurrence," a "nuclear incident" or a "precautionary evacuation" (as such terms
are defined in the Atomic Energy Act) at the Sites or any other licensed nuclear
reactor site in the United States, or such an extraordinary nuclear occurrence,
nuclear incident or precautionary evacuation in the course of the transportation
of radioactive materials to or from the Sites or any other site, including
Liability for any deferred premiums assessed in connection


                                       28

<PAGE>

with such an extraordinary nuclear occurrence, a nuclear incident or
precautionary evacuation under any applicable NRC or industry retrospective
rating plan or insurance policy, including any mutual insurance pools
established in compliance with the requirements imposed under Section 170 of the
Atomic Energy Act, 10 C.F.R. Part 140, and 10 C.F.R. Section 50.54(w); provided,
however, that Buyer does not assume, and Seller shall retain as Excluded
Liabilities hereunder, all Liabilities of Seller arising pre-Closing and
associated with the off-Site processing, disposal, fabrication, storage,
handling or transportation of Nuclear Fuel, Spent Nuclear Fuel or other Nuclear
Materials (including, for purposes of this Section 2.3(i), Hazardous Materials
mixed with Nuclear Materials) owned by Seller or NMC or otherwise associated in
any manner with the Included Assets; and provided further, that, for sake of
clarity, Buyer does not assume any such Liabilities associated with the
construction, operation or Decommissioning of the Big Rock Point Plant Operating
Facility, except all Liabilities attributable to periods following the Closing
related to the Big Rock ISFSI;

          (j) Liabilities for any claims by third parties (including employees,
whether such Liability is work-related or not) for loss of life, injury or
illness to persons, damages to property or tort or similar causes of action
based on acts or omissions arising or occurring after the Closing (i) under or
relating to Nuclear Laws and arising out of the ownership, use, operation or
maintenance of the Included Assets or (ii) associated with, or related to any
claim in respect of, Nuclear Fuel, Spent Nuclear Fuel or other Nuclear Materials
located at the Palisades Site or the Big Rock ISFSI Site; and

          (k) All other Liabilities expressly allocated to or assumed by Buyer
in this Agreement.

     2.4. Excluded Liabilities.

          Notwithstanding anything to the contrary in this Agreement, nothing in
this Agreement shall be construed to impose on Buyer, and Buyer shall not assume
or be obligated to pay, perform or otherwise discharge, any Liabilities not
expressly identified as Assumed Liabilities and Obligations in Section 2.3 above
(collectively, the "Excluded Liabilities"), including the following Liabilities
and liabilities for Taxes, with all of such Excluded Liabilities remaining as
obligations of Seller:

          (a) Any Liabilities in respect of (i) any Excluded Assets or other
assets of Seller which are not Included Assets and (ii) any Excluded Contracts;

          (b) Any Liabilities for Taxes attributable to the ownership, sale,
operation, maintenance or use of the Included Assets (including any withholding
Taxes imposed on Seller with respect to the Transferred Employees) for taxable
periods, or portions thereof, ending at or prior to the Closing, except for
Taxes for which Buyer is liable pursuant to Section 3.5 or 6.8 hereof;

          (c) Any Liabilities arising under the NPPOSA prior to, at or after the
Closing or any of the Seller's Agreements, Fuel Contracts, the Emergency
Equipment Easements, Transferable Permits or Non-material Contracts at or prior
to the Closing;


                                       29

<PAGE>

          (d) Any Liabilities for any monetary fines or penalties imposed by a
Governmental Authority with respect to the Included Assets or the employment of
the Palisades Employees or Big Rock ISFSI Employees, in either case to the
extent attributable to acts or omissions of Seller prior to the Closing,
together with the reasonable out-of-pocket expenses of Buyer incurred in the
course of responding to any investigation relating thereto commenced by a
Governmental Authority;

          (e) Subject to Section 3.5, any payment obligations of Seller for
goods delivered, and services rendered, at or prior to the Closing, including
rental or lease payments due and owing at or prior to the Closing pursuant to
any leases relating to Tangible Personal Property;

          (f) Subject to Section 6.10, any Liabilities relating to any Benefit
Plan, any employee benefit plan as defined in Section 3(3) of ERISA, or any
other plan, program, arrangement or policy established or maintained in whole or
in part by Seller or NMC or by any trade or business (whether or not
incorporated) which is or ever has been under common control, or which is or
ever has been treated as a single employer, with Seller or NMC under Section
414(b), (c), (m), (o) or (t) of the Code ("ERISA Affiliate") or to which Seller,
NMC or any ERISA Affiliate contributes or contributed, including any
multiemployer plan, multiple employer plan or multiple employer welfare
arrangement contributed to by Seller, NMC or any ERISA Affiliate or to which
Seller, NMC or any ERISA Affiliate is or was obligated to contribute (the
"Plans"), including any such Liability (i) for the termination or discontinuance
of, or the Seller's, NMC's or an ERISA Affiliate's withdrawal from, any such
Plan, (ii) relating to benefits payable under any such Plan or the denial of
benefits alleged to be payable under any such Plan, (iii) relating to the PBGC
under Title IV of ERISA, (iv) relating to a multiemployer plan, multiple
employer plan or multiple employer welfare arrangement, (v) with respect to
noncompliance with the notice requirements of COBRA, (vi) with respect to any
noncompliance with ERISA or any other applicable Laws, and (vii) with respect to
any suit, proceeding or claim which is asserted against Seller, NMC or any of
their respective Affiliates, or against any Plan or any fiduciary or former
fiduciary of, any of the Plans;

          (g) Any Liabilities relating to the failure to hire, the employment or
services or termination of employment or services of any individual, including
wages, compensation, benefits, affirmative action, personal injury (of any
kind), discrimination, harassment, retaliation, constructive termination,
wrongful discharge, unfair labor practices, or constructive termination by
Seller or NMC of any individual, or any similar or related claim or cause of
action attributable to any actions or inactions by such Person at or prior to
the Closing with respect to the Included Assets, the Palisades Employees, the
Big Rock ISFSI Employees, independent contractors, applicants, and any other
individuals who are determined by a court or by a Governmental Authority to have
been applicants or employees of Seller, NMC or any of their respective
Affiliates, provided that neither Seller nor NMC will have any Liability for
similar actions or inactions by Buyer or any successor thereto on or after the
Closing Date. Notwithstanding the foregoing, Buyer shall not assume any
Liabilities for any employees of Seller, NMC or their Affiliates who are
terminated or retire prior to the Closing and are not considered a Transferred
Employee hereunder;


                                       30
<PAGE>

          (h) All Spent Nuclear Fuel Fees, the Pre-1983 Fee and any other fees
associated with electricity generated at Palisades and the Big Rock Point Plant
Operating Facility and sold on or prior to the Closing Date;

          (i) Any Liability arising out of or related to Releases from the
former sulfuric acid above-ground storage tanks described in the amendment dated
May 19, 2006 to the Phase I Environmental Site Assessment relating to the
Palisades Site;

          (j) Any Liability arising out of or related to the presence or Release
of Hazardous Materials at the Big Rock ISFSI Site as a result of the Release of
Hazardous Materials at, on, in, under or migrating from the Big Rock Point Plant
Operating Facility site;

          (k) Any Liability arising out of or related to the release, prior to
the Closing, of tritium, strontium 90 or cesium 137 at the Sites that requires
Buyer to undertake remediation at any Site or any Off-Site Location prior to the
commencement of Decommissioning of the applicable Site.

          (l) Except as provided in Section 6.8(c), any Taxes incurred by
Seller's Qualified Decommissioning Fund for taxable periods, or portions
thereof, ending on or prior to the Closing Date (including any Tax incurred as a
result of the ownership or disposition of an interest in a common trust fund
subject to Code Section 584);

          (m) Except as otherwise expressly provided herein, Liabilities of
Seller to the extent arising from the execution, delivery or performance of this
Agreement and the transactions contemplated hereby; and

          (n) Any other Liabilities expressly allocated to or retained by Seller
in this Agreement;

     2.5. Control of Litigation.

          (a) The Parties agree and acknowledge that, following the Closing and
subject to the provisions of Article 8, Seller shall pay for and be entitled
exclusively to control, defend and settle any litigation, administrative or
regulatory proceeding, and any investigation or other activities arising out of
or related to any Excluded Assets or Excluded Liabilities and Buyer agrees to
reasonably cooperate, at Seller's expense, with Seller in connection therewith.
Subject to the foregoing, Buyer shall have the right, at its option and expense,
but not the obligation, to retain counsel to represent its interests in
connection with any such litigation, investigation, proceedings or activities.

          (b) The Parties agree and acknowledge that, subject to the provisions
of Article 8, Buyer shall pay for and be entitled exclusively to control, defend
and settle any litigation, administrative or regulatory proceeding, and any
investigation or other activities for which Buyer has responsibility under this
Agreement, and Seller agrees to reasonably cooperate, at Buyer's expense, with
Buyer in connection therewith.


                                       31

<PAGE>

                                    ARTICLE 3
                                   THE CLOSING

     3.1. Closing.

          (a) Upon the terms and subject to the satisfaction of the conditions
contained in Article 7 of this Agreement, the sale, assignment, conveyance,
transfer and delivery of the Included Assets to Buyer, the payment of the
Purchase Price to Seller, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Consumers at One Energy
Plaza, Jackson, Michigan at 10:00 a.m. local time, or another mutually
acceptable time and location, on the date that is twenty (20) Business Days
following the date on which the last of the conditions precedent to Closing set
forth in Article 7 of this Agreement has been either satisfied or waived by the
Party for whose benefit such condition precedent exists (except with respect to
those conditions which by their terms are to be satisfied at or immediately
prior to Closing), but in any event not after the Termination Date, unless the
Parties mutually agree on another date. The date of Closing is hereinafter
called the "Closing Date." The Closing shall be effective for all purposes as of
00:00:01 Eastern Standard Time on the Closing Date.

          (b) The Parties agree that, notwithstanding anything to contrary
contained herein, the Parties shall not be required to effect the Closing during
the period commencing on July 15, 2007 and ending upon the completion of the
next refueling outage for Palisades, which is currently scheduled to begin
during the third quarter of 2007. In the event that the Closing shall occur
after such refueling outage has been completed, the Purchase Price shall be
reset as described in Schedule 3.3(a)(5).

     3.2. Payment of Purchase Price.

          Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, in consideration of the aforesaid sale, assignment,
conveyance, transfer and delivery of the Included Assets, Buyer will pay or
cause to be paid to Seller at the Closing in consideration of the Included
Assets the sum of Three Hundred Eighty Million Dollars ($380,000,000) (the
"Purchase Price") plus or minus any adjustments to such Purchase Price pursuant
to the provisions of Section 3.3 below, by wire transfer of immediately
available funds denominated in U.S. dollars in accordance with written
instructions of Seller given to Buyer at least two (2) Business Days prior to
the Closing Date or by such other means as are agreed upon by Seller and Buyer.

     3.3. Adjustments to the Purchase Price.

          (a) Subject to Sections 3.3(b) and 3.3(c), as of the Closing the
Purchase Price shall be adjusted, on a dollar-for-dollar basis and without
duplication, to account for the items set forth in this Section 3.3(a):

               (1) The Purchase Price shall be adjusted to account for the items
     prorated as of the Closing pursuant to Section 3.5.


                                       32

<PAGE>

               (2) The Purchase Price shall be (A) increased if and to the
     extent that the Book Value of the Nuclear Fuel owned by Seller as of the
     Closing is greater than the applicable Nuclear Fuel Book Value Baseline
     Amount, and (B) decreased if and to the extent that Book Value of the
     Nuclear Fuel owned by Seller as of the Closing is less than the applicable
     Nuclear Fuel Book Value Baseline Amount.

               (3) The Purchase Price shall be (A) increased if and to the
     extent that the Book Value of the Facility Inventories as of the Closing is
     greater than Twenty Five Million Two Hundred Thousand Dollars
     ($25,200,000), and (B) decreased if and to the extent that the Book Value
     of the Facility Inventories as of the Closing is less than Twenty Five
     Million Two Hundred Thousand Dollars ($25,200,000).

               (4) The Purchase Price shall be (i) decreased by the Capital
     Expenditures Shortfall and (ii) increased by the amount of any and all
     expenditures (including an allocation for corporate overhead, warehousing
     and general and administrative expenses) for capital additions to or
     replacements of property, plant and equipment and other expenditures or
     repairs on property, plant and equipment relating to the Facilities or the
     Sites that are capitalized by Seller in accordance with its normal
     accounting policies ("Capital Expenditures") that are made in respect of
     work performed after the date hereof and have been specifically requested
     or approved by Buyer in writing. For purposes of this Section 3.3(a)(4),
     any work described on the Capital Budget or set forth in Schedule 3.3(a)(5)
     shall not be deemed to have been requested or approved by Buyer unless
     otherwise set forth in writing and specifically requesting or authorizing
     the same. Nothing in this paragraph should be construed to limit Seller's
     rights and obligations to make all Capital Expenditures necessary to comply
     with the NRC License, the NRC Commitments and other Permits.

               (5) The Purchase Price shall be adjusted each day that the
     Closing Date occurs after March 1, 2007 by the cumulative applicable dollar
     amount for all such days as set forth in Schedule 3.3(a)(5).

               (6) If the projected cost to dispose of the Low Level Waste at
     the Palisades Facilities as of the Closing Date is greater than Five
     Hundred Thousand Dollars ($500,000), the Purchase Price shall be adjusted
     downward to the extent that the cost of such Low Level Waste disposal is
     greater than Five Hundred Thousand Dollars ($500,000). Conversely, if the
     projected cost to dispose of the Low Level Waste at the Palisades
     Facilities as of the Closing Date is less than Five Hundred Thousand
     Dollars ($500,000), the Purchase Price shall be adjusted upward to the
     extent that the cost of such Low Level Waste disposal is less than Five
     Hundred Thousand Dollars ($500,000). The calculation of the projected cost
     to dispose of the Low Level Waste at the Palisades Facilities as of the
     Closing Date shall be made in accordance with the methodology set forth on
     Schedule 3.3(a)(5).

               (7) The Purchase Price shall be adjusted as provided in Section
     6.10(g).

               (8) The Purchase Price shall be adjusted as provided in Section
     6.10(l).


                                       33

<PAGE>

               (9) The Purchase Price shall be adjusted for the Big Rock Amount
     as provided in Section 6.25.

          (b) No less than ten (10) Business Days prior to the Closing Date,
Seller shall prepare in good faith and deliver to Buyer an estimated closing
statement (the "Estimated Closing Statement") that shall set forth Seller's best
estimate of all adjustments to the Purchase Price required by Section 3.3(a)
(the "Estimated Adjustments"). Seller shall cooperate with Buyer and provide
Buyer and its representatives access to all information used to calculate the
Estimated Adjustments. Within five (5) Business Days after the delivery of the
Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith
to any Estimated Adjustment in writing. If Buyer objects to an Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If and to the extent the Parties are able to do so prior to the
Closing Date (or if Buyer does not object to any of the Estimated Adjustments),
the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing
by the amount of the Estimated Adjustments not in dispute. The Purchase Price,
as so adjusted at Closing by the undisputed Estimated Adjustments, is referred
to herein as the "Closing Payment." The Closing Payment shall be paid by Buyer
to Seller at the Closing. The disputed Estimated Adjustments shall be resolved
in accordance with the provisions of Section 3.3(c) and paid as part of any
Post-Closing Adjustment to the extent required by Section 3.3(c).

          (c) Within sixty (60) Business Days after the Closing Date, Seller
shall prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) and any disputed Estimated Adjustments pursuant to Section
3.3(b) (the "Proposed Post-Closing Adjustment") and all work papers detailing
such adjustments. Within thirty (30) Business Days after the delivery of the
Post-Closing Statement by Seller to Buyer, Buyer may object to the Proposed
Post-Closing Adjustment in writing. Seller and Buyer agree to cooperate with one
another to provide one another with the information used to prepare the
Post-Closing Statement and information relating thereto. If Buyer objects to the
Proposed Post-Closing Adjustment, the Parties shall attempt to resolve such
dispute by negotiation. If the Parties are unable to resolve such dispute within
thirty (30) days after any objection by Buyer, the Parties shall appoint the
Independent Accounting Firm, which shall, at Seller's and Buyer's joint expense,
review the Proposed Post-Closing Adjustment and determine the appropriate
adjustment to the Purchase Price, if any, within thirty (30) days after such
appointment. The Parties agree to cooperate with the Independent Accounting Firm
and provide it with such information as it reasonably requests to enable it to
make such determination. The Independent Accounting Firm shall act as an expert
and not as an arbitrator and shall make findings only with respect to the
remaining disputes so submitted to it (and not by independent review). The
finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination of the appropriate adjustment (the "Post-Closing
Adjustment") by agreement of the Parties or by binding determination of the
Independent Accounting Firm, the Party owing the difference shall deliver such
amount to the other Party (together with interest accrued thereon at the
Interest Rate from and including the Closing Date to but excluding the date of
payment) no later than two (2) Business Days after such determination, in
immediately available funds or in any other manner as reasonably requested by
the payee.


                                       34

<PAGE>

     3.4. Allocation of Purchase Price.

          (a) Buyer and Seller shall use their reasonable good faith efforts to
jointly agree at least forty-five (45) days prior to the Closing Date to an
estimated allocation among the Included Assets of the sum of the Purchase Price
and the Assumed Liabilities and Obligations that is consistent with the
allocation methodology provided by Section 1060 of the Code and the regulations
promulgated thereunder and the private letter rulings issued by the IRS under
Code Section 468A relating to the transfer of Qualified Decommissioning Fund
assets (the "Estimated Allocation"). The Estimated Allocation, to the extent
agreed to, will be used for transfer and sales tax filings and for all other
Closing document purposes.

          (b) Buyer and Seller shall use their reasonable good faith efforts to
jointly agree, within ninety (90) days after the Closing Date, to an allocation
among the Included Assets of the sum of the Purchase Price (including any
subsequent adjustments thereto) and the Assumed Liabilities and Obligations
(together with any other relevant items) that is consistent with the allocation
methodology provided by Section 1060 of the Code and the regulations promulgated
thereunder (the "Allocation").

          (c) Except to the extent required to comply with a Final
Determination, Buyer and Seller (to the extent Seller is required to make any
such reports) shall report the transactions contemplated by this Agreement for
all Tax purposes in a manner consistent with the Allocation. Buyer and Seller
shall not take any position in any Tax Return, Tax proceeding or audit that is
inconsistent with the Allocation without the consent of the other Party. To the
extent such filings are required, Buyer and Seller agree to file Internal
Revenue Service Form 8594 (Asset Acquisition Statement under Section 1060), and
all federal, state, local and foreign Tax Returns, in accordance with the
Allocation. Subsequent to the preparation of the Estimated Allocation and the
Allocation as provided in Sections 3.4(a) and 3.4(b), Buyer and Seller agree to
provide the other with any information required to complete Form 8594 within ten
(10) days of the request for such information. Buyer and Seller shall notify and
provide the other with reasonable assistance in the event of an examination,
audit or other proceeding relating to Taxes regarding the allocation of the
Purchase Price pursuant to this Section 3.4. Notwithstanding the foregoing, in
the event Buyer and Seller cannot agree as to the Allocation, each Party shall
be entitled to take its own position in any Tax Return, Tax proceeding or audit,
provided that Seller and Buyer shall take all actions required to comply with a
Final Determination. Buyer and Seller shall treat the transaction contemplated
by this Agreement as the acquisition by Buyer of a trade or business for United
States federal income Tax purposes and agree that no portion of the
consideration shall be treated in whole or in part as the payment for services
or future services.

     3.5. Prorations.

          (a) Buyer and Seller agree that all of the items normally prorated,
including those listed below (but not including Income Taxes and Transfer
Taxes), relating to the business and operation of the Included Assets shall be
prorated as of the Closing, with Seller liable to the extent such items relate
to any time period ending at or prior to the Closing, and Buyer liable to the
extent such items relate to periods commencing after the Closing (measured in
the same units used to compute the item in question, otherwise measured by
calendar days or fraction thereof):


                                       35

<PAGE>

               (1) Taxes, assessments and other charges, if any, relating to the
     ownership, operation, maintenance, use or business of the Included Assets
     (subject to Sections 3.5(b) and 3.5(c) below);

               (2) Any prepaid expenses (including security deposits) relating
     to the Included Assets;

               (3) Rent, Taxes and all other items (including goods not included
     in Facility Inventory) under any of Seller's Agreements or the Non-material
     Contracts;

               (4) Any permit, license, registration, compliance assurance fees
     or other fees with respect to any Transferable Permit;

               (5) Sewer rents and charges for water, telephone, electricity and
     other utilities;

               (6) Spent Nuclear Fuel Fees for the quarter in which the Closing
     occurs, provided that Seller agrees to pay all Spent Nuclear Fuel Fees for
     the quarter which ended prior to the quarter in which Closing occurs;

               (7) Fees or charges (other than Taxes) imposed by any
     Governmental Authority; and

               (8) Insurance premiums with respect to the Nuclear Insurance
     Policies with ANI transferred to Buyer pursuant to Section 2.1(l).

          (b) Ad valorem real estate Taxes on the Real Property that first
become due and payable prior to the Closing will be paid in full by Seller and
ad valorem real estate Taxes on the Real Property that first become due and
payable after the Closing will be paid in full by Buyer without proration.
Seller shall fully pay and be responsible for all special assessments which have
become a lien on the Real Property prior to or as of the Closing. Buyer shall be
responsible for all special assessments which first become a lien on the Real
Property after the Closing.

          (c) All personal property Taxes on the property included in the
Included Assets that, under applicable Law, is taxed as personal property that
first become due and payable prior to the Closing will be paid in full by Seller
and all personal property Taxes on the property included in the Included Assets
that, under applicable Law, is taxed as personal property, that first become due
and payable after the Closing will be paid in full by Buyer without proration.

          (d) Notwithstanding any other provision of this Agreement, a Tax in
the form of interest or penalties shall be allocated (i) to Seller (whether such
Taxes accrue or are imposed or assessed on, before or after the Closing Date) to
the extent they result from a failure by the Seller to pay a Tax or failure by
the Seller to file a Tax Return, in each case, that was due on or before the
Closing Date and (ii) to Buyer (whether such Taxes accrue or are imposed or
assessed on, before or after the Closing Date) to the extent they result from a
failure by Buyer to pay a Tax or failure by Buyer to file a Tax Return, in each
case that was due after the Closing Date.


                                       36

<PAGE>

          (e) In connection with the prorations referred to in (a) above, in the
event that actual figures are not available at the Closing, the proration shall
be based upon the actual accrued through the Closing or paid for the most recent
year (or other appropriate period) for which actual amounts paid are available.
Such prorated amounts shall be re-prorated and paid to the appropriate Party
within sixty (60) days of the date that the previously unavailable actual
figures become available. Prorations measured by calendar days shall be based on
the number of days (and fractions thereof) in a year or other appropriate period
(i) before the Closing and (ii) after the Closing. Seller and Buyer agree to
promptly furnish each other with such documents and other records as may be
reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.5.

          (f) To the extent that the proration of a Tax under this Section 3.5
allocates such Tax to a period (or portion thereof) ending at or prior to the
Closing, such Tax shall constitute an Excluded Liability. To the extent that the
proration of a Tax under this Section 3.5 allocates such Tax to a period (or
portion thereof) ending after the Closing, such Tax shall constitute an Assumed
Liability and Obligation.

     3.6. Deliveries by Seller.

          At the Closing (or, in the case of those items contemplated by
paragraph (f) below, at the Facilities on or before the Closing Date), Seller
will deliver, or cause to be delivered, the following to Buyer:

          (a) All Ancillary Agreements, duly executed by Seller, as applicable,
except for the Power Purchase Agreement which shall be executed prior thereto;

          (b) Copies of Seller's Required Regulatory Approvals and any and all
consents, waivers or approvals set forth on Schedule 4.3(a) and obtained by
Seller with respect to the transfer of the Included Assets, or the consummation
of the transactions contemplated by this Agreement together with notice to, and
if required by the terms thereof, consents by other Persons that are parties to
(or have issued, in the case of the Transferable Permits) the Seller's
Agreements, the Fuel Contracts and, to the extent reasonably necessary to
operate the Facilities, the Transferable Permits;

          (c) Copies, certified by the Secretary or any Assistant Secretary of
Seller, of corporate resolutions authorizing the execution and delivery of this
Agreement and the Ancillary Agreements and all of the other agreements and
instruments to be executed and delivered by Seller in connection herewith and
therewith, and the consummation of the transactions contemplated hereby and
thereby;

          (d) A certificate of the Secretary or any Assistant Secretary of
Seller identifying the name and title and bearing the signatures of the officers
of Seller authorized to execute and deliver this Agreement and the Ancillary
Agreements and the other agreements and instruments contemplated hereby and
thereby;

          (e) A certificate of good standing with respect to Seller, issued by
the Secretary of State of the State of Michigan;


                                       37

<PAGE>

          (f) To the extent reasonably available, originals or otherwise true
and correct copies as certified by an officer of Seller of the Seller's
Agreements, Fuel Contracts, Non-material Contracts, Emergency Equipment
Easements, Transferred Employee Records and Transferable Permits and, if not
reasonably available, true and correct copies thereof;

          (g) The assets of the Qualified Decommissioning Fund to be transferred
pursuant to Section 6.12, provided that such assets shall be delivered to the
Trustee of the Post-Closing Decommissioning Trust Agreement;

          (h) All such other instruments of assignment, transfer or conveyance
as shall, in the reasonable opinion of Buyer and its counsel, be necessary or
desirable to transfer to Buyer the Included Assets, in accordance with this
Agreement and where necessary or desirable in recordable form;

          (i) Such other agreements, consents, documents, instruments and
writings as are required to be delivered by Seller at or prior to the Closing
pursuant to this Agreement or the Ancillary Agreements or otherwise reasonably
required in connection herewith or therewith;

          (j) Seller's FIRPTA Certificate;

          (k) The WARN Certificate;

          (l) The Palisades Title Commitment and the Big Rock Title Commitment,
down-dated/marked up to the Closing Date, each together with any owner's
affidavits or similar documents required thereby.

          (m) Evidence of the release of the Included Assets from the lien of
the Mortgage Indenture; and

          (n) The security required to be furnished by Seller pursuant to
Section 7.3 of the Power Purchase Agreement.

     3.7. Deliveries by Buyer.

          At the Closing, Buyer will deliver, or cause to be delivered, the
following to Seller:

          (a) The Closing Payment, payable pursuant to Section 3.2, as adjusted
pursuant to Section 3.3;

          (b) All Ancillary Agreements, duly executed by Buyer, as applicable,
except for the Power Purchase Agreement and Interconnection Agreement, which
shall be executed prior thereto;

          (c) Copies of Buyer's Required Regulatory Approvals and any and all
consents, waivers or approvals set forth on Schedule 5.3(a) and obtained by
Buyer with respect to the transfer of the Included Assets, or the consummation
of the transactions contemplated by this Agreement;


                                       38

<PAGE>

          (d) Copies, certified by the Secretary or any Assistant Secretary of
Buyer of resolutions authorizing the execution and delivery of this Agreement
and the Ancillary Agreements and all of the other agreements and instruments to
be executed and delivered by Buyer and Buyer's Parent in connection herewith and
therewith, and the consummation of the transactions contemplated hereby and
thereby;

          (e) A certificate of the Secretary or any Assistant Secretary of Buyer
identifying the name and title and bearing the signatures of the officers of
Buyer and Buyer's Parent authorized to execute and deliver this Agreement and
the Ancillary Agreements and the other agreements contemplated hereby and
thereby;

          (f) A certificate of good standing with respect to Buyer, issued by
the Secretary of State of the State of Delaware;

          (g) A certificate of authority of Buyer (or its assignee of this
Agreement) to do business in Michigan, issued by the Secretary of State of the
State of Michigan;

          (h) All such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Buyer to assume
the Assumed Liabilities and Obligations in accordance with this Agreement;

          (i) A copy of the Post-Closing Decommissioning Trust Agreement;

          (j) Such other agreements, documents, instruments and writings as are
required to be delivered by Buyer at or prior to the Closing pursuant to this
Agreement, or otherwise reasonably required in connection herewith;

          (k) The security required to be furnished by Buyer pursuant to Section
7.2 of the Power Purchase Agreement.

                                    ARTICLE 4
                    REPRESENTATIONS AND WARRANTIES OF SELLER

          Seller hereby represents and warrants to Buyer as follows:

     4.1. Organization.

          Seller is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Michigan and has all requisite corporate
power and authority to own, lease, and operate its properties and to carry on
its business as is now being conducted. Complete and correct copies of the
Articles of Incorporation and By-laws of Seller, each as amended to date, have
heretofore been made available to Buyer.

     4.2. Authority Relative to this Agreement.

          Seller has full corporate power and authority to execute and deliver
this Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary


                                       39

<PAGE>

Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
required on the part of Seller and no other corporate proceedings on the part of
Seller are necessary to authorize this Agreement or the Ancillary Agreements or
to consummate the transactions contemplated hereby and thereby. This Agreement
and the Ancillary Agreements to which it is a party have been duly and validly
executed and delivered by Seller, or, if applicable, will be duly and validly
executed and delivered by Seller at the Closing, and assuming that this
Agreement and the applicable Ancillary Agreements constitute valid and binding
agreements of Buyer, and subject to the receipt of Seller's Required Regulatory
Approvals and Buyer's Required Regulatory Approvals, this Agreement and the
Ancillary Agreements constitute legal, valid and binding agreements of Seller,
enforceable against Seller in accordance with their respective terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium, and other similar
Laws affecting creditors' rights generally and to general principles of equity
(whether considered in a proceeding at law or in equity).

     4.3. Consents and Approvals; No Violation.

          (a) Subject to the receipt of the third-party consents set forth in
Schedule 4.3(a), the Seller's Required Regulatory Approvals and the Buyer's
Required Regulatory Approvals, neither the execution and delivery of this
Agreement or the Ancillary Agreements by Seller nor the consummation of the
transactions contemplated hereby or thereby will (i) conflict with or result in
the breach or violation of any provision of the Articles of Incorporation or
By-laws of Seller; (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which Seller is a party or by which Seller, or any
of the Included Assets, may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which do not, individually or in the aggregate,
create a Material Adverse Effect; (iii) constitute violations of any Law
applicable to Seller, NMC, any of the Included Assets or any of the Palisades
Employees or the Big Rock ISFSI Employees, except for such violations as do not,
individually or in the aggregate, create a Material Adverse Effect; or (iv)
result in the creation, continuation or imposition of an Encumbrance on any of
the Included Assets other than a Permitted Encumbrance.

          (b) Except as set forth in Schedule 4.3(b) (the filings and approvals
referred to in Schedule 4.3(b) are collectively referred to as the "Seller's
Required Regulatory Approvals"), no declaration, filing or registration with, or
notice to, or permit of, or authorization, consent or approval of any
Governmental Authority is necessary for the execution and delivery of this
Agreement or any Ancillary Agreement or the consummation by Seller of the
transactions contemplated hereby or thereby.

     4.4. Reports.

          Since January 1, 2003, each of Seller and its Affiliates and, to
Seller's Knowledge, NMC, has filed or caused to be filed with the SEC, the
applicable state or local utility commissions or regulatory bodies, the NRC, the
Department of Energy, the FERC, the Federal Communications Commission and the
Federal Aviation Administration, as the case may


                                       40

<PAGE>

be, all material forms, statements, reports and documents (including all
exhibits, amendments and supplements thereto) required to be filed by it with
respect to the Included Assets or the ownership or operation thereof under each
of the Securities Act, the Exchange Act, the applicable state public utility
laws, the Federal Power Act, the Public Utility Holding Company Act of 1935, the
Public Utility Holding Company Act of 2005, the Atomic Energy Act, the Energy
Reorganization Act, the Price Anderson Act, the Communications Act of 1934 and
the Federal Aviation Act and the respective rules and regulations under each of
the foregoing. All such filings complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder in effect on the date each such report was filed.

     4.5. Title and Related Matters.

          (a) Seller has marketable title, insurable by a nationally recognized
title insurance company, to all of the Real Property, free and clear of all
Encumbrances other than the Permitted Encumbrances.

          (b) Seller has good and valid title to the Included Assets not
constituting Real Property free and clear of all Encumbrances, except Permitted
Encumbrances.

          (c) All improvements constituting part of the Real Property are in
compliance in all material respects with all applicable Laws and Permits.

          (d) Neither the whole nor any part of the Real Property is subject to
any pending suit for condemnation or other taking by any Governmental Authority,
and to Seller's Knowledge, no such condemnation or other taking has been
threatened.

     4.6. Insurance.

          Except as set forth in Schedule 4.6, all policies of property damage,
fire, liability, Nuclear Insurance Policies, workers' compensation and forms of
insurance relating to the Included Assets are in full force and effect, all
premiums with respect thereto covering all periods up to and including the date
as of which this representation is being made have been paid (other than
retroactive premiums which may be payable with respect to NEIL policies), and no
written notice of cancellation, non-renewal or termination has been received
with respect to any such policy which was not replaced on substantially similar
terms prior to the date of such cancellation. Except as described in Schedule
4.6, as of the date of this Agreement, to the Knowledge of Seller, no insurance
with respect to the Included Assets has been refused nor has its coverage been
limited by any insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the past three (3) years, and all
required notices have been sent to insurers to preserve all material claims
under the aforementioned insurance policies.

     4.7. Environmental Matters.

          With respect to the Included Assets and the ownership or operation
thereof, except as disclosed in Schedule 4.7 and Schedule 4.12:


                                       41

<PAGE>

          (a) Seller alone or together with NMC has obtained and holds all
Environmental Permits used in or necessary for the ownership and the current use
of the Included Assets, all of which Environmental Permits are in full force and
effect, and Seller and NMC are and have been in compliance in all material
respects with all such Environmental Permits, and Seller has no Knowledge of any
conditions, or circumstances that represent any material impediment to the
prompt renewal or extension of any such Environmental Permits with an associated
cost not in excess of standard renewal or extension fees. Seller has no planned
changes to the Included Assets that requires modification of any Environmental
Permit which has not yet been obtained. Schedule 4.13(b) sets forth all material
Environmental Permits applicable to the Included Assets, as well as the status
of any pending applications for renewal, modification or extension of any such
Environmental Permits.

          (b) The Included Assets are presently and at all times in the last two
(2) years have been in compliance in all material respects with all
Environmental Laws. In connection with the ownership or operation of the
Included Assets, none of Seller, its Affiliates, nor, to Seller's Knowledge,
NMC, has received within the past two (2) years any written notice from any
Governmental Authority that it is not or has not been in material compliance
with all Environmental Laws and all Environmental Permits. There are no facts,
circumstances or conditions that are reasonably likely to be expected to
materially restrict, encumber or result in the imposition of any material lien,
restriction or limitation, or to result in the imposition of material special
conditions, under any Environmental Law with respect to the ownership,
occupancy, or use of the Included Assets.

          (c) There are no material Environmental Claims pending or, to Seller's
Knowledge, threatened with respect to the Included Assets and to Seller's
Knowledge there are no facts or circumstances that are reasonably likely to form
the basis for any material Environmental Claim with respect to the Included
Assets.

          (d) In connection with the operation of the Included Assets by or on
behalf of Seller, to Seller's Knowledge, no Releases of Hazardous Materials have
occurred, and no Hazardous Materials are present on or migrating from the Sites,
that are reasonably likely to give rise to a material Environmental Claim or
require any material Remediation, it being understood that Hazardous Materials
properly used, stored or maintained at the Sites in compliance with applicable
Environmental Law shall not be considered to present a reasonable likelihood of
a material Environmental Claim or of a material Remediation requirement.

          (e) Neither the Sites nor any portion of the Sites is an Environmental
Cleanup Site, and, to Seller's Knowledge, neither Seller nor NMC has transported
or arranged for treatment, storage, handling, disposal or transportation of any
Hazardous Materials from the Sites to any location which is an Environmental
Cleanup Site.

          (f) Except for tanks and equipment that are in conformance with all
applicable Environmental Law, there are no above ground or underground storage
tanks, active or abandoned, at the Sites nor, to Seller's Knowledge any
polychlorinated biphenyl-containing equipment located at the Sites.


                                       42

<PAGE>

          (g) In the three (3) years prior to the date hereof (i) none of Seller
or its Affiliates, nor, to Seller's Knowledge, NMC, has previously sought or
obtained, nor has there been or is there currently, to Seller's Knowledge,
environmental liability insurance coverage for the Included Assets, and (ii)
there have been no claims by Seller or NMC against primary general liability or
excess liability insurance policies for any Loss resulting from, relating to or
arising from Environmental Claims with respect to the Included Assets.

          The representations and warranties made by Seller in this Section 4.7
are the exclusive representations and warranties made to Buyer relating to
environmental matters.

     4.8. Labor Matters.

          (a) Schedule 4.8 sets forth all collective bargaining agreements and
all written and to Seller's Knowledge oral employment agreements, including
without limitation severance and change-in-control agreements, that relate to
the Palisades Employees and Big Rock ISFSI Employees currently in effect.
Complete and correct copies of all collective bargaining agreements and other
written employment agreements in respect of the Palisades Employees and Big Rock
ISFSI Employees, including all amendments thereto, have been made available to
Buyer. To the Knowledge of Seller, each Palisades Employee and Big Rock ISFSI
Employee and each other individual that provides services at the Facilities or
otherwise in support of the Included Assets is performing, and is qualified,
licensed, certified or trained, in accordance with applicable requirements or
standards of Governmental Authorities to perform the duties and responsibilities
of their current job assignment, and each has the appropriate nuclear power
plant access authorizations, where required.

          (b) With respect to the Palisades Employees and the Big Rock ISFSI
Employees, (i) each employer of such employees is in material compliance with
all applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including all recordkeeping
requirements thereunder; (ii) there is no material suit, action, investigation,
charge, claim or proceeding pending, or to Seller's Knowledge, threatened
(whether internal to Seller, its Affiliates or NMC or before any Governmental
Authority), or any order binding upon or applicable to Seller, its Affiliates or
NMC, in any case relating to employment, employment and hiring practices, terms
and conditions of employment, wages and hours, employment discrimination and
equal employment opportunity, employee benefits, occupational safety or health,
collective bargaining, immigration, workers' compensation, the payment of Social
Security Taxes and other Taxes or plant closings; (iii) there has been no notice
of any unfair labor practice charge or complaint pending, or, to Seller's
Knowledge, threatened, before the National Labor Relations Board; (iv) there is
no strike, slowdown or work stoppage actually pending or, to Seller's Knowledge,
threatened; (v) no representation petition has been filed with the National
Labor Relations Board, and to Seller's Knowledge, no union organizing campaign
is underway; and (vi) no arbitration proceeding arising out of or under the
Collective Bargaining Agreement is pending, or to Seller's Knowledge, threatened
with respect to any material grievance thereunder.


                                       43

<PAGE>

     4.9. ERISA; Benefit Plans.

          (a) Schedule 4.9(a) lists each employee benefit plan, including each
employee benefit plan as defined in Section 3(3) of ERISA, each multiemployer
plan as defined in Section 3(37) of ERISA, each multiple employer plan within
the meaning of Code Section 413(c), each multiple employer welfare arrangement
as defined in Section 3(40) of ERISA, and each other plan, contract, agreement,
arrangement or policy, whether written or oral, qualified or non-qualified,
providing for (i) compensation, severance benefits, bonuses, profit-sharing or
other forms of incentive compensation; (ii) vacation, holiday, sickness or other
time-off; (iii) health, medical, dental, disability, life, accidental death and
dismemberment, employee assistance, educational assistance, relocation or fringe
benefits or perquisites, including post-employment benefits; and (iv) deferred
compensation, defined benefit or defined contribution, retirement or pension
benefits, or equity grants that covers any Palisades Employee, or that is
maintained, administered or with respect to which contributions are made by any
of NMC, Seller or ERISA Affiliates in respect of Palisades Employees or their
beneficiaries ("Benefit Plans"). True, correct, and complete copies of (i) all
such Benefit Plans, including all amendments thereto and other information
regarding benefit changes that have been previously communicated, (ii) all
related trust agreements, insurance contracts and funding arrangements that
implement each such Benefit Plan, (iii) all related summary plan descriptions
and summaries of material modifications of such Benefit Plans, (iv) all
determination letters received from the IRS pertaining to any such Benefit Plan,
(v) all annual reports (IRS Forms 5500) for the three (3) most recent plan years
for each such Benefit Plan, (vi) all compliance testing data and results for the
three (3) most recent plan years for each such Benefit Plan and (vii) all
communications with any Governmental Authority with respect to each Benefit Plan
have been made available to Buyer. Except as set forth on Schedule 4.9(a), no
such information with respect to the Big Rock ISFSI Employee(s) has been
provided.

          (b) Each Benefit Plan and related trust which is intended to be
qualified within the meaning of Code Section 401(a) or tax-exempt under Code
Section 501(c)(9) is so qualified or exempt from taxation and has received a
favorable determination letter as to its qualification or tax-exempt status
under all applicable Laws (or if no favorable determination letter has yet been
issued, a request for such determination letter with respect to such Benefit
Plan was timely submitted) and has never lost its qualified or tax-exempt status
and, to Seller's Knowledge, there are no facts or circumstances that would
adversely affect IRS qualification or tax-exempt status. The most recent IRS
determination letters and any outstanding request for a determination letter
have been furnished by Seller to Buyer.

          (c) With respect to each Benefit Plan: (i) such Benefit Plan (and each
related trust, insurance contract or fund) has been maintained, funded and
administered in accordance with the terms of such Benefit Plan and the terms of
the Collective Bargaining Agreement, if applicable, and complies in all material
respects with all applicable Laws, including ERISA, COBRA, HIPAA, USERRA and the
Code, the Securities Act and the Exchange Act; (ii) all required reports and
descriptions (including annual reports (IRS Form 5500), summary annual reports,
summary plan descriptions and summaries of material modifications) have been
filed on a timely basis and/or distributed in accordance with the applicable
requirements of ERISA and the Code; (iii) no such Benefit Plan that is an
Employee Pension Benefit Plan has been completely or partially terminated, and
no proceeding by the PBGC to terminate any such


                                       44

<PAGE>

Employee Pension Benefit Plan has been instituted or to Seller's Knowledge
threatened; (iv) to Seller's Knowledge no Fiduciary has incurred any Liability
for breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of such Benefit Plan, (v)
subject to the Collective Bargaining Agreement, such Benefit Plan may be
amended, terminated, or otherwise modified by the sponsoring employer (including
elimination of future accruals under any such Benefit Plan), and no
communication concerning such Benefit Plan or provision in any document
governing such Benefit Plan (whether express or implied or written has failed to
reserve effectively the right of the sponsoring employer (including, after any
assumption of such Benefit Plan, Buyer) to terminate, or make any amendment or
modification to such Benefit Plan in whole or in part; (vi) subject to the
Collective Bargaining Agreement or as otherwise permitted by Section 6.1(a)(10),
neither NMC nor Seller has made any commitment to establish any new Benefit
Plan, to modify any Benefit Plan (except as required under applicable Laws), nor
has any intention to do so been communicated in writing to any Palisades
Employees or Big Rock ISFSI Employees; (vii) no actions, suits, proceedings,
hearings, investigations or claims with respect to the administration or the
investment of the assets of such Benefit Plan (other than routine claims for
benefits in the ordinary course) are pending or threatened, and Seller has no
Knowledge of any basis for any such action, suit, proceeding, hearing,
investigation or claim; (viii) no administrative investigation, audit or other
administrative proceeding by the Department of Labor, the PBGC, the IRS or other
Governmental Authority is pending, in progress or threatened; and (ix) as of the
date hereof, none of Seller, NMC or any ERISA Affiliate has an application
pending to the IRS under the Employee Plans Compliance Resolution System or has
had such an application pursuant to the Employee Plans Compliance Resolution
System or its predecessor denied, and if NMC or Seller has previously made such
application and a compliance statement has been issued, Seller, NMC or such
ERISA Affiliate, as applicable, has signed such statement and made the
applicable correction or will make the applicable correction within the
requisite time period.

          (d) All contributions, premiums or other payments (including all
employer contributions and employee salary reduction and other contributions)
that are due have been made within the time periods prescribed by ERISA, the
Code or the applicable plan document to each Employee Pension Benefit Plan. All
contributions for any period ending at or before the Closing which are not yet
due have been made to each Employee Pension Benefit Plan or have been properly
accrued in accordance with the past custom and practice of Seller.

          (e) Neither NMC, Seller nor any ERISA Affiliate has incurred any
material Liability, nor, to Seller's Knowledge, are there any facts or
circumstances that, would reasonably be expected to subject Seller, NMC or any
ERISA Affiliate to any Liability (i) to the PBGC in connection with any Benefit
Plan or otherwise under Title IV of ERISA, (ii) under the Code with respect to
any such Benefit Plan, or (iii) under COBRA, HIPAA, USERRA or the Code with
respect to any such Benefit Plan. Except as set forth in Schedule 4.9(e), no
Benefit Plan is or has been the subject of a Reportable Event, and no non-exempt
"prohibited transaction" (as described in Section 406 of ERISA and Section 4975
of the Code) has occurred with respect to any Benefit Plan. None of Seller, NMC
or their ERISA Affiliates contributes to, has any obligation to contribute to,
or has any Liability (including any withdrawal liability under Section 4201 et.
seq. of ERISA) under or with respect to any "multiemployer plan" within the
meaning of Section 3(37) of ERISA or with respect to any multiple employer
welfare arrangement within the meaning of Section 3(40) of ERISA.


                                       45
<PAGE>

          (f) To the Knowledge of Seller, neither NMC nor Seller nor any ERISA
Affiliate or successor corporation, within the meaning of Section 4069(b) of
ERISA, has engaged in any transaction that may be disregarded under Section 4069
or Section 4212(c) of ERISA.

     4.10. Sufficiency of Assets.

     The Included Assets, in the aggregate, constitute all of the assets,
tangible and intangible, of any nature whatsoever (including, without
limitation, all of the contracts, agreements, licenses, leases, commitments and
other legally binding arrangements, whether for services, goods or otherwise),
and the Palisades Employees and the Big Rock ISFSI Employees constitute all of
the personnel, reasonably necessary for the ownership, operation and maintenance
of Palisades and the Big Rock ISFSI in the manner presently operated and
maintained or used in the operation and maintenance thereof during the twelve
(12) months prior to the Effective Date and the Closing Date. Palisades is
currently operable at a level sufficient to meet the accredited capacity
obligations in the Power Purchase Agreement and Seller has no Knowledge of any
condition that would prevent the operation of Palisades at this level consistent
with past performance.

     4.11. Certain Contracts and Arrangements.

          (a) Except for Seller's interests in and rights under (i) those
purchase orders, contracts, agreements, licenses and leases relating to the
ownership, operation and maintenance of the Included Assets, which are listed in
Schedule 4.9(a) and Schedule 4.11(a)(i), (ii) those contracts, agreements,
commitments and understandings relating to the procurement or fabrication of
Nuclear Fuel, a list of which is included on Schedule 4.11(a)(ii) ("Fuel
Contracts"), (iii) contracts, agreements, personal property leases, licenses,
commitments, understandings or instruments which will expire or terminate, or in
which the obligations of Seller will be fully performed, prior to the Closing
Date, (iv) Non-material Contracts, (v) the Ancillary Agreements and (vi) the
Excluded Contracts, Seller is not, as of the date of this Agreement, a party to
any written contract, agreement, personal property lease, commitment,
understanding or instrument which relates to the ownership or operation of the
Included Assets or provides for the sale of capacity, energy or ancillary
services from Palisades.

          (b) Except as set forth on Schedule 4.11(b), there is not, under any
Seller's Agreement, Fuel Contract or Non-material Contract, any breach on the
part of Seller, or to the Knowledge of Seller, on the part of any of the parties
thereto, except such material breaches as to which requisite waivers or consents
have been obtained or which do not, individually or in the aggregate, create a
Material Adverse Effect.

          (c) Each Seller's Agreement, Fuel Contract and Non-material Contract
(i) is legal, valid and enforceable as to Seller in accordance with its terms
and is in full force and effect, and (ii) except as disclosed in Schedule
4.3(a), may be transferred or assigned to Buyer at the Closing without consent
or approval of the other parties thereto and


                                       46

<PAGE>

          (d) True and complete copies of each Seller's Agreement and Fuel
Contract, including any amendments, supplements and modifications thereto, have
been provided or made available to Buyer.

     4.12. Legal Proceedings, etc.

          Except as described in Schedule 4.12, there are no claims, actions or
proceedings pending or, to the Knowledge of Seller, threatened against Seller or
NMC before any court, arbitrator or Governmental Authority (i) with respect to
the Included Assets, the Palisades Employees or the Big Rock ISFSI Employees, or
(ii) which prohibit or restrain the performance of this Agreement or any of the
Ancillary Agreements. None of Seller or its Affiliates, nor, to Seller's
Knowledge, NMC, is subject to any outstanding Governmental Order specifically
relating to the Included Assets, the Palisades Employees or the Big Rock ISFSI
Employees.

     4.13. Permits.

          (a) Seller (together with NMC) has all permits, licenses,
registrations, certificates, franchises and other governmental authorizations,
consents and approvals, other than with respect to permits under Environmental
Laws referred to in Section 4.7 hereof or licenses issued by the NRC referred to
in Section 4.14 hereof (collectively, "Permits"), used in, or necessary for the
ownership and operation of, the Included Assets as presently conducted or as
required by Law. All Permits are in full force and effect, and neither Seller
nor NMC has received any written notification which remains unresolved that it
is in violation of any of such Permits, or any Law or Governmental Order
applicable to the Included Assets except for notifications of violations that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Seller has no Knowledge of any conditions,
circumstances or issues that represent any material impediment to prompt
issuance, renewal, continuation or extension of the Permits without substantial
increased cost or that represent any material impediment to the current use of
Palisades, the Included Assets or the Sites under its existing emergency plan.
Palisades and the Big Rock ISFSI are in compliance with all Permits, Laws and
Governmental Orders applicable to the Included Assets except for violations
which, individually or in the aggregate, do not create a Material Adverse
Effect.

          (b) Schedule 4.13(b) sets forth all material Permits, including all
material Environmental Permits and Transferable Permits.

     4.14. NRC Licenses.

          (a) Seller (together with NMC) has all licenses, permits, and other
material consents and approvals applicable to the Included Assets that are
issued by the NRC and are necessary to the ownership and operation of the
Included Assets as presently operated, pursuant to the requirements of all
Nuclear Laws, and all NRC Licenses are in full force and effect. Neither Seller
nor, to Seller's Knowledge, NMC has received any written notification which
remains unresolved that it is in material violation of any of such NRC License,
or any order, rule, regulation, or decision of the NRC with respect to the
Included Assets. Each of Seller and its Affiliates, and to Seller's Knowledge,
NMC is in material compliance with all Nuclear Laws and


                                       47

<PAGE>

all orders, rules, regulations, or decisions of NRC applicable to it with
respect to the Included Assets.

          (b) Schedule 4.14(b) sets forth all NRC Licenses issued by the NRC
applicable to the Included Assets and currently in effect.

          (c) The Included Assets conform in all material respects to the
technical specifications included in the NRC Licenses in accordance with the
requirements of 10 C.F.R. Section 50.36 and the final safety analysis reports
(as updated) that are required under 10 C.F.R. Section 50.71(e).

     4.15. Regulation as a Utility.

          Seller is a subsidiary of a "public utility holding company" as
defined in the Public Utility Holding Company Act of 2005, a public utility
within the meaning of the Federal Power Act and a public utility within the
meaning of MCL 460.1 et seq. Except with respect to local tax and zoning laws,
Seller is not, as a result of its ownership or operation of the Included Assets,
subject to regulation as a public utility or public service company (or similar
designation) by any state of the United States (other than Michigan), any
foreign country or any municipality or any political subdivision of the
foregoing.

     4.16. Tax Matters.

          Except as set forth on Schedule 4.16 and except with respect to the
portion of the Included Assets that are part of the Qualified Decommissioning
Fund, with respect to the Included Assets, (i) all material Tax Returns of
Seller required to be filed for taxable periods ended prior to the Closing Date
regarding the ownership or operation of the Included Assets have been filed, and
(ii) all material Taxes shown to be due on such Tax Returns have been paid in
full, except where such Taxes are being contested in good faith through
appropriate proceedings. No written notice of deficiency or assessment has been
received from any taxing authority with respect to any material amount of
Liabilities for Taxes of Seller, in respect of the Included Assets or, to the
Knowledge of Seller, with respect to the Palisades Employees or the Big Rock
ISFSI Employees, as applicable, that has not been fully paid or finally settled,
except for matters that are being contested in good faith through appropriate
proceedings. There are no Encumbrances for Taxes upon any of the Included
Assets, except for Encumbrances for Taxes not yet due and payable and
Encumbrances for Taxes that are listed on Schedule 4.16, which are being
contested in good faith through appropriate proceedings.

     4.17. Qualified Decommissioning Fund.

          (a) Except as described on Schedule 4.17, with respect to all periods
prior to the Closing: (i) Seller's Qualified Decommissioning Fund has been a
trust, validly existing under the Laws of the Commonwealth of Massachusetts or
the State of Michigan, as applicable, with all requisite authority to conduct
its affairs as it now does; (ii) Seller's Qualified Decommissioning Fund
satisfied the requirements necessary for such fund to be treated as "Nuclear
Decommissioning Reserve Fund" and a "Qualified Nuclear Decommissioning Fund"
within the meaning of Treas. Reg. Section 1.468A-1(b)(3); (iii) Seller's
Qualified Decommissioning Fund has been in compliance with all applicable Laws
of the NRC, FERC, the IRS, MPSC and


                                       48

<PAGE>

any other Governmental Authority; (iv) Seller's Qualified Decommissioning Fund
has not engaged in any acts of "self-dealing" as defined in Treas. Reg. Section
1.468A-5(b)(2); (v) no "excess contribution," as defined in Treas. Reg. Section
1.468A-5(c)(2)(ii), has been made to Seller's Qualified Decommissioning Fund
which has not been withdrawn within the period provided under Treas. Reg.
Section 1.468A-5(c)(2)(i); and (vi) Seller has timely made valid elections to
make annual contributions to the Qualified Decommissioning Fund and Seller has
made available copies of such elections requested by the Buyer for the Tax years
ended December 31, 2000 through 2004.

          (b) Seller has heretofore delivered to Buyer a copy of Seller's
Decommissioning Trust Agreement as in effect on the Effective Date.

          (c) Subject only to Seller's Required Regulatory Approvals, Seller and
the Trustee have, or as of Closing will have, all requisite authority to cause
the assets of the Qualified Decommissioning Fund to be transferred on behalf of
Buyer to the Trustee of the Post-Closing Decommissioning Trust Agreement.

          (d) With respect to all periods prior to the Closing, (i) Seller
and/or the Trustee of Seller's Qualified Decommissioning Fund has/have filed or
caused to be filed with the NRC, FERC, MPSC and any other Governmental Authority
all material forms, statements, reports, documents (including all exhibits,
amendments and supplements thereto) required to be filed by such entities and
(ii) there are no interim rate orders that may be retroactively adjusted or
retroactive adjustments to interim rate orders that may affect amounts that may
be contributed to the Qualified Decommissioning Fund. Seller has delivered to
Buyer a copy of the schedule of ruling amounts most recently issued by the IRS
for the Seller's Qualified Decommissioning Fund and a complete copy of the
currently pending request for revised ruling amounts, together with all
exhibits, amendments and supplements thereto. Any amounts contributed to
Seller's Qualified Decommissioning Fund while such ruling request is pending
before the IRS and which are finally determined to exceed the applicable amounts
provided in the schedule of ruling amounts issued by the IRS will be withdrawn
from Seller's Qualified Decommissioning Fund within the period provided in
Treasury Reg. 1.468A-5(c)(2)(i).

          (e) Seller has made available to Buyer a statement of assets and
liabilities verified by the Trustee for the Seller's Qualified Decommissioning
Fund as of December 31, 2005 and will make such an unaudited statement as of the
last Business Day before Closing available prior to Closing, and they present
fairly in all material respects as of such dates the financial position of the
Qualified Decommissioning Fund.

          (f) Seller's Qualified Decommissioning Fund has filed or as of the
Closing Date will have filed all material Tax Returns required to be filed prior
to the Closing Date with respect to all taxable periods ending on or prior to
the Closing Date, including returns for estimated Income Taxes; such Tax Returns
are true, correct and complete in all material respects, and all Taxes shown to
be due on such Tax Returns have been paid in full. Except as shown in Schedule
4.17, no notice of deficiency or assessment has been received from any taxing
authority with respect to any Liability for Taxes of Seller's Qualified
Decommissioning Fund which have not been fully paid or finally settled, and any
such deficiency shown in such Schedule 4.17 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule 4.17, there are
no outstanding agreements or waivers extending the applicable statutory


                                       49

<PAGE>

periods of limitations for any Taxes associated with Seller's Qualified
Decommissioning Fund for any period.

     4.18. Intellectual Property.

          Except as set forth on Schedule 4.18, Seller or NMC has ownership of
or a fully paid-up, valid license to use all of the Intellectual Property
reasonably necessary for the operation of the Facilities. Neither Seller nor NMC
has received written notice of any claims or demands of any other Person
pertaining to any of the Intellectual Property and no proceedings have been
instituted, or are pending or, to Seller's Knowledge, threatened, which
challenge the rights of Seller in respect thereof. To the Knowledge of Seller,
none of the Intellectual Property materially infringes upon any intellectual
property of any other Person and neither Seller nor NMC is making unauthorized
use of any confidential information or trade secrets of any Person, including
any former employer of any past or present employee of Seller or NMC in
connection with the operation of the Included Assets.

     4.19. Zoning Classification.

          The Palisades Site is zoned as set forth in Schedule 4.19. Palisades,
as currently operated, is not a nonconforming use (legal or otherwise). The Big
Rock ISFSI, as currently operated, is a legal nonconforming use. Except as set
forth on Schedule 4.19, Seller has not requested, applied for, or given its
consent to, and Seller has no Knowledge of, any pending change in the zoning of
the Real Property.

     4.20. Emergency Warning Sirens.

          All emergency warning sirens located at or within public property or
public right of way areas are located and operating pursuant to duly issued and
currently effective and valid resolutions or other authorizations from the
applicable Governmental Authority(ies), and such resolutions or other
authorizations are assignable to Buyer.

     4.21. Disclaimer.

          EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
yARTICLE 4, THE INCLUDED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE
IS," AND ACCORDINGLY SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR
WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING THE
INCLUDED ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY,
USAGE, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR AS TO THE WORKMANSHIP
THEREOF OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR AS TO THE CONDITION OF THE
INCLUDED ASSETS, OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED
AND DISCLAIMED. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS yARTICLE 4,
SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING
THE ABSENCE OF HAZARDOUS MATERIALS OR LIABILITY ARISING UNDER ENVIRONMENTAL
LAWS. WITHOUT LIMITING THE


                                       50

<PAGE>

GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING
THE CONDITION OF THE INCLUDED ASSETS OR THE SUITABILITY OF THE FACILITIES FOR
OPERATION AND NO OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATION MADE
BY SELLER OR ANY OFFICER, EMPLOYEE, CONSULTANT OR AGENT THEREOF, OR ANY BROKER
OR INVESTMENT BANKER WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS
TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE INCLUDED ASSETS OR ANY PART
THEREOF.

          THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED BY THE PARTIES
HERETO AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND
NEGATION OF ANY REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED OR
STATUTORY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH
IN ARTICLES 4 AND 5 OF THIS AGREEMENT.

                                    ARTICLE 5
                     REPRESENTATIONS AND WARRANTIES OF BUYER

          Buyer represents and warrants to Seller as follows:

     5.1. Organization; Qualification.

          Buyer is a limited liability company duly formed, validly existing and
in good standing under the laws of the State of Delaware. Buyer has all
requisite limited liability company power and authority to own, lease and
operate its properties and to carry on its business as is now being conducted.
Buyer has heretofore delivered to Seller complete and correct copies of its
Certificate of Formation and limited liability company operating agreement as
currently in effect. Buyer is, or on the Closing Date will be, qualified to
conduct business in the State of Michigan.

     5.2. Authority Relative to this Agreement.

          Buyer has full limited liability company power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party and to consummate the transactions contemplated hereby or thereby. The
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby or thereby, have been duly
and validly authorized by all necessary limited liability company action
required on the part of Buyer and no other limited liability company proceedings
on the part of Buyer are necessary to authorize this Agreement and the Ancillary
Agreements to which it is a party or to consummate the transactions contemplated
hereby or thereby. This Agreement and the Ancillary Agreements to which it is a
party have been duly and validly executed and delivered by Buyer, or, if
applicable, will be duly and validly executed and delivered by Buyer at or prior
to the Closing and assuming that this Agreement and each such Ancillary
Agreement constitute or will constitute at Closing valid and binding agreements
of Seller, and subject to the receipt of Buyer's Required Regulatory Approvals
and Seller's Required Regulatory Approvals,


                                       51

<PAGE>

constitute valid and binding agreements of Buyer, enforceable against Buyer in
accordance with their respective terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium, and other similar Laws affecting
creditors' rights generally and to general principles of equity (whether
considered in a proceeding at law or in equity).

     5.3. Consents and Approvals; No Violation.

          (a) Subject to the receipt of the third-party consents set forth in
Schedule 5.3(a), the Seller's Required Regulatory Approvals and the Buyer's
Required Regulatory Approvals, neither the execution and delivery of this
Agreement or any Ancillary Agreements by Buyer nor the consummation of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the Certificate of Formation or limited liability
company operating agreement (or other similar governing documents) of Buyer,
(ii) result in a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, agreement, lease or other instrument or obligation to
which Buyer is a party or by which any of its assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which do not,
individually or in the aggregate, create a material adverse effect on the
ability of Buyer to perform its obligations hereunder (a "Buyer Material Adverse
Effect"), or (iv) constitute violations of any Law applicable to Buyer, except
for such violations as do not, individually or in the aggregate, create a Buyer
Material Adverse Effect.

          (b) Except as set forth in Schedule 5.3(b) (the filings and approvals
referred to in such schedule are collectively referred to as the "Buyer's
Required Regulatory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of any Governmental Authority
is necessary for the execution and delivery of this Agreement or any Ancillary
Agreement or the consummation by Buyer of the transactions contemplated hereby
or thereby.

     5.4. Availability of Funds.

          Buyer and/or Buyer's Parent currently have sufficient funds available
to it through corporate funds, credit facilities and access to capital markets
to provide sufficient funds to pay the Purchase Price on the Closing Date and to
enable Buyer to timely perform all of its obligations under this Agreement.

     5.5. Legal Proceedings.

          There are no claims, actions or proceedings pending or, to the
Knowledge of Buyer and Buyer's Parent, threatened against Buyer or Buyer's
Parent before any court, arbitrator or Governmental Authority which,
individually or in the aggregate, (i) would reasonably be expected to result in
a Buyer Material Adverse Effect or (ii) prohibit or restrain the performance of
this Agreement or any of the Ancillary Agreements.


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<PAGE>

     5.6. WARN Act.

          Neither Buyer nor Buyer's Parent intends with respect to the Included
Assets to engage in a "plant closing" or "mass layoff," as such terms are
defined in the WARN Act, within sixty (60) days after the Closing Date.

     5.7. Transfer of Assets of Qualified Decommissioning Fund.

          With respect to Seller's transfer of the assets of the Qualified
Decommissioning Fund to the Trustee under the Post-Closing Decommissioning Trust
Agreement, except for the fact that Palisades in the hands of Buyer may not be
treated as a "nuclear power plant" within the meaning of Treasury Regulations
Section 1.468A-1(b)(4) because Buyer's rates for the sale or furnishing of
electricity are not established or approved by a public utility commission or
under the jurisdiction of the Rural Electric Administration, Buyer will
otherwise acquire and own a "qualifying interest" in Palisades within the
meaning of Treasury Regulations Section 1.468A-l and will, as the transferee,
satisfy each of the requirements applicable to the transferee set forth in
Treasury Regulations Section 1.468A-6(b)(2). At the Closing, the Post-Closing
Decommissioning Trust Agreement will satisfy the requirements of Section 468A of
the Code and the regulations promulgated thereunder. At the Closing, the
Post-Closing Decommissioning Trust Agreement for Buyer's Qualified
Decommissioning Fund will satisfy the NRC's requirements for decommissioning
trust provisions in 10 C.F.R. 50.75(h)(i). The Post-Closing Decommissioning
Trust Agreement will provide that upon the occurrence of any event specified in
Section 6.20(c), to the extent then permitted by applicable Law, the Trustee of
the Buyer's Post-Closing Trust Agreement shall distribute the Excess Qualified
Decommissioning Fund Assets (or such smaller portion of such assets as specified
in Section 6.20(d)) directly to the Seller.

     5.8. Foreign Ownership or Control.

          Buyer or, if applicable, Buyer's Parent, will conform to the
restrictions on foreign ownership, control or domination contained in Section
104(d) of the Atomic Energy Act of 1954, as amended, 42 U.S.C. Sections 2133(d)
and 2134(d), as applicable, and the NRC's regulations in 10 C.F.R. Section
50.38. Neither Buyer's Parent nor Buyer is currently owned, controlled or
dominated by a foreign entity and neither will become owned, controlled, or
dominated by a foreign entity before the Closing Date of this transaction.

     5.9. Permit and License Qualifications.

          To the Knowledge of Buyer, as of the Closing, Buyer (or its successor
or assigns) will, as the owner of the Included Assets, be qualified to hold any
Permits, Environmental Permits and NRC Licenses necessary to operate the
Included Assets.


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                                    ARTICLE 6
                            COVENANTS OF THE PARTIES

     6.1. Conduct of Business Relating to the Included Assets.

          (a) Notwithstanding anything in this Agreement to the contrary, Buyer
acknowledges that Seller and NMC, as the licensed operators of the Facilities,
retain the exclusive responsibility for safe operation of the Facilities, and
nothing in this Agreement shall in any way alter the licensed operator's duties
or obligations under any Law, regulation or its operating license. Except as
described in the Capital Budget, during the period from the Effective Date to
the Closing Date, Seller shall operate and maintain, or cause to be operated and
maintained, the Included Assets in the ordinary course consistent with Good
Utility Practices and past practices; it being understood that any actions
deemed reasonably necessary in the operation of the Included Assets in
accordance with Good Utility Practices shall be deemed to be in the ordinary
course unless such actions would reasonably be expected to create a Material
Adverse Effect. Without limiting the generality of the foregoing, during the
period from the Effective Date to the Closing Date; Seller (1) shall use and
cause to be used Commercially Reasonable Efforts to preserve intact the Included
Assets and preserve the goodwill and relationships with the Palisades Employees
and Big Rock ISFSI Employees, independent contractors, customers, suppliers and
others having business dealings with Seller with respect thereto, (2) shall
comply in all material respects with all applicable Laws relating to the
Included Assets and the Palisades Employees and Big Rock ISFSI Employees and (3)
shall provide Buyer with the actual monthly calculation of the amount and Book
Value of Nuclear Fuel. Notwithstanding the foregoing, during the period from the
Effective Date to the Closing Date, without the prior written consent of Buyer
(unless such consent would be prohibited by Law), which consent shall not be
unreasonably withheld. Seller shall not directly do any of the following with
respect to the Included Assets, and shall not issue any consent or approval, or
otherwise take any action (or refrain from taking any action), that permits NMC
to do any of the following on the Seller's behalf or otherwise with respect to
the Included Assets (Buyer acknowledges, however, that NMC may be permitted to
do one or more of the following without the Seller's or Buyer's consent or
approval under the terms and conditions of the NPPOSA and the NRC Licenses, and
if NMC proceeds to do so accordingly, Seller shall not be in violation of this
Section 6.1; provided, however, that Buyer and Seller shall negotiate in good
faith a fair and equitable adjustment to the Purchase Price, as a result of such
NMC actions):

               (1) make any material change in the levels of Facility
     Inventories customarily maintained by Palisades with respect to the
     Included Assets, except for such changes as are consistent with Good
     Utility Practices or make any change in the levels of Nuclear Fuel
     Inventories other than with respect to deliveries to Seller or NMC pursuant
     to the Fuel Contracts;

               (2) except for Permitted Encumbrances (including amendments
     and/or replacements to the Permitted Encumbrances), sell, lease (as
     lessor), pledge, mortgage, encumber, restrict, transfer or otherwise
     dispose of, or grant any right, or suffer to be imposed any Encumbrance
     with respect to, any of the Included Assets, other than assets used,
     consumed, disposed of or replaced in the ordinary course of business
     consistent with Good Utility Practices;


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<PAGE>

               (3) materially amend, extend or voluntarily terminate prior to
     the expiration date thereof any of Seller's Agreements or any agreement
     listed on Schedule 4.8 (or any other agreement to the extent that any such
     extension or amendment thereof would require the agreement to be disclosed
     on Schedule 4.8 or Schedule 4.11(a)(i)), or any Permit, Environmental
     Permit or NRC License, or waive any default by, or release, settle or
     compromise any claim against, any other party thereto, other than (a) if
     the terms and conditions of such modified agreement, Permit, Environmental
     Permit or NRC License are not materially less favorable to Buyer than the
     original agreement, Permit, Environmental Permit or NRC License, or (b)
     immaterial amendments to such agreement, Permit, Environmental Permit or
     NRC License to conform such agreement, Permit, Environmental Permit or NRC
     License for Buyer's purchase hereunder;

               (4) (i) reallocate or change the delivery quantities or times for
     any Nuclear Fuel or services contemplated under any Fuel Contract, or (ii)
     enter into any new commitment or agreement for the purchase or sale of
     Nuclear Fuel, or modify, amend, extend or terminate any existing Fuel
     Contract; provided, however, that Seller or NMC, as applicable, may execute
     the Fuel Contracts identified on Schedule 4.11(a)(ii) delivered on the
     Effective Date as "DRAFT, YET TO BE SIGNED" as long as such Fuel Contracts,
     when executed, contain substantially the same terms and conditions as the
     drafts provided to Buyer prior to the Effective Date;

               (5) enter into any power sales agreement relating to Palisades,
     other than an agreement to resell power purchased under the Power Purchase
     Agreement, having a term that extends beyond the Closing Date, except if
     such agreement will be terminated by Seller prior to the Closing;

               (6) amend in any material respect or cancel any property,
     liability or casualty insurance policies related thereto, or fail to use
     Commercially Reasonable Efforts to maintain by self insurance or with
     financially responsible insurance companies insurance in such amounts and
     against such risks and losses as are customary for such assets and
     businesses;

               (7) enter into any contracts, agreements, personal property
     leases, software or other licenses or other commitments for goods or
     services (other than employment-related services), in any case not
     addressed in Sections 6.1(a)(1) through 6.1(a)(6) above, that (i) are not
     terminable without further Liability upon notice of 90 days or less by
     Seller (prior to the Closing) or Buyer (following the Closing) or (ii)
     require payment, or delivery of goods and services with a value of, in
     excess of $100,000 per annum individually (and each such commitment or
     contract shall either become a Seller's Agreement and added to Schedule
     4.11(a)(i) in accordance with Section 6.9, or, if appropriate, shall become
     a Non-material Contract, and a copy of each such commitment or contract
     shall be delivered to Buyer pursuant to Section 3.6);

               (8) except as required by any Law or GAAP, change, in any
     material respect, its Tax practice or policy (including making new Tax
     elections or changing Tax


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<PAGE>

     elections and settling Tax controversies not in the ordinary course of
     business) to the extent such change or settlement would be binding on
     Buyer;

               (9) except as required by any Law or GAAP, change, in any
     material respect, its accounting practices or policies to the extent such
     change would be result in a revaluation of inventory items which increases
     the Book Value thereof;

               (10) (A) hire or permit NMC to hire any new Palisades Employees
     or Big Rock ISFSI Employees (other than to replace any such employees
     existing as of the Effective Date who have resigned or been terminated and
     employees hired to perform the duties of such employees who are on leave),
     (B) enter into any written employment agreements, including any retention
     agreements, severance agreements or change-in control-agreements, with any
     current or new Palisades Employees or Big Rock ISFSI Employees, (C)
     establish or permit NMC to establish any Benefit Plan for the benefit of
     Palisades Employees or Big Rock ISFSI Employees, or materially change any
     Benefit Plan existing as of the Effective Date, (D) except to the extent
     consistent with past practices or as required under the Collective
     Bargaining Agreement, increase or permit NMC to increase the compensation
     or benefits payable to any Palisades Employee or Big Rock ISFSI Employee,
     (E) communicate or permit NMC to communicate to Palisades Employees, Big
     Rock ISFSI Employees or any third party the terms and conditions of
     employment or potential employment with Buyer or its Affiliate, other than
     those established in this Agreement (F) exchange or transfer, or permit NMC
     to exchange or transfer, any Palisades Employees or Big Rock ISFSI
     Employees existing as of the Effective Date for any employees of Seller or
     NMC, except pursuant to contractual obligations in effect as of the
     Effective Date or as otherwise permitted by the NPPOSA or (G) terminate any
     Palisades Employee or Big Rock ISFSI Employee, other than for cause or
     through voluntary termination or retirement;

               (11) fail to make Commercially Reasonable Efforts to pursue
     currently pending regulatory approvals and Permit or Environmental Permit
     applications, approvals and renewals relating to the Included Assets that
     are reasonably necessary to operate the Facilities;

               (12) knowingly engage in any practice, take any action, fail to
     take any action, or enter into any transaction through the Closing Date
     that will result or would reasonably be anticipated to result in any breach
     of a material representation or warranty of Seller hereunder as of the
     Closing;

               (13) resolve, settle or compromise any Environmental Claim except
     to the extent that such resolution, settlement or compromise does not
     impose any post-Closing Liabilities on Buyer, limit Buyer's post-Closing
     rights and remedies relating to the Included Assets or require any
     post-Closing Remediation;

               (14) settle any claim or litigation that results in any material
     obligation imposed on the Included Assets that could reasonably be likely
     to continue past the Closing Date, provided, that Buyer hereby acknowledges
     and agrees that Seller shall be permitted to settle the Department of
     Energy Claim and any settlement by Seller of the


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<PAGE>

     Department of Energy Claim may include a damages calculation based upon an
     express or implicit allocation of queue/scheduling rights in respect of the
     pick-up by the Department of Energy of Spent Nuclear Fuel under the
     Standard Spent Fuel Disposal Contract from Palisades to the Big Rock Point
     Plant Operating Facility and agreement as to a pre-Closing acceptance rate;
     provided further, however, that any such settlement shall not commit the
     Buyer to any valuation methodology in respect of post-Closing damages under
     the Standard Spent Fuel Disposal Contract (except to the extent resulting
     from Seller's use of an acceptance rate or an allocation of
     queue/scheduling rights as part of its damages calculation, as described
     above) or to any actual allocation of queue/scheduling rights in respect of
     the pick-up by the Department of Energy of Spent Nuclear Fuel or any actual
     acceptance rate for Spent Nuclear Fuel by the Department of Energy that
     would affect Buyer's calculation of its post-Closing damages under the
     Standard Spent Fuel Disposal Contract;

               (15) store any Spent Nuclear Fuel or other Nuclear Material at
     the Big Rock ISFSI other than the Spent Nuclear Fuel and other Nuclear
     Material stored at the Big Rock ISFSI as of the Effective Date; or

               (16) agree to enter into any of the transactions set forth in the
     foregoing paragraphs (1) through (15);

provided, however, that nothing contained in this Agreement shall restrict the
ability of Seller at any time to (i) perform or enforce any existing contract to
which it is a party and which is listed on the schedules to this Agreement or
(ii) take any and all actions necessary to effect the termination by Seller of
the NPPOSA. In addition, notwithstanding the foregoing, Seller shall be entitled
to amend, substitute or otherwise modify any Seller's Agreement if the terms and
conditions of such modified Seller's Agreement constituting the Assumed
Liabilities and Obligations are on terms and conditions not less favorable to
Buyer than the original Seller's Agreement.

          (b) The Parties shall establish, as soon as practicable after the
execution of this Agreement, a committee (the "Transition Committee") comprised
of at least four (4) persons, including two (2) persons designated by Seller and
two (2) persons designated by Buyer. The Transition Committee shall remain in
existence until the Closing Date and shall oversee and manage the transition
process through the Closing Date. Subject to applicable Laws, the Transition
Committee will be kept fully apprised by Seller of all the Facilities'
management and operating developments, including with respect to any pre-closing
outage, any repairs to the Facilities and the Capital Expenditures. The
Transition Committee shall have no authority to bind or make agreements on
behalf of Seller or Buyer or to issue instructions to or direct or exercise
authority over Seller or Buyer or any of their respective officers, employees,
advisors or agents or to waive or modify any provision of this Agreement. Seller
shall use Commercially Reasonable Efforts to arrange for Buyer's representatives
on the Transition Committee to have access to the management of NMC.

          (c) Between the Effective Date and the Closing Date, in the interest
of cooperation between Seller and Buyer and to plan for and facilitate an
orderly transition of ownership and operation of the Included Assets from Seller
to Buyer and to permit informed


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<PAGE>

action by Buyer regarding its rights pursuant to Section 6.1(a), the Parties
agree that at the sole responsibility and expense of Buyer, and subject to
compliance with all applicable NRC rules and regulations and other applicable
Laws, Seller shall permit Persons reasonably designated by Buyer ("Observers")
to observe all operations of Palisades and the Big Rock ISFSI that relate to the
Included Assets, and such observation will be permitted on a cooperative basis
in the presence of one or more individuals designated by Seller together with
NMC (the "Seller's Agent(s)"); provided, however, that such Observers and their
actions shall not interfere with the operation of Palisades or the Big Rock
ISFSI; and provided, further, that the number of Observers observing at any
particular time and the scheduling and duration of their observation shall be
subject at all times to the approval of the Seller's Agent(s) (it being
acknowledged and agreed that in no event shall more than five (5) such Observers
be permitted on Site at any one time). Seller shall use Commercially Reasonable
Efforts to provide to the Observers interim furnished office space, utilities
and HVAC at the Facilities reasonably necessary to allow Buyer to conduct its
transition efforts through the Closing Date at no cost to Buyer; provided that
Buyer shall be responsible for all other costs relating thereto, including
telecommunications expenses and the cost of workers' compensation and employer's
liability coverage, which coverage shall be maintained by Buyer on such terms as
may be customarily required by Seller for its contractors.

          (d) Buyer's members of the Transition Committee and/or the Observers
may recommend or suggest to Seller that actions be taken or not be taken to
improve or enhance the operation and maintenance of the Included Assets from the
Effective Date through the Closing Date; provided, however, that Seller will not
be under any obligation to follow any such recommendations or suggestions and
Seller shall be entitled, subject to this Agreement, to conduct its business in
accordance with its own judgment and discretion. Buyer's Observers shall have no
authority to bind or make agreements on behalf of Seller; to conduct discussions
with or make representations to third parties on behalf of Seller; or to issue
instructions to or direct or exercise authority over Seller or any of Seller's
officers, employees, advisors or agents. Notwithstanding anything in this
Section 6.1(d) to the contrary, prior to the Closing Date, Buyer shall not have
the right to perform or conduct any environmental sampling or testing at, in, on
or underneath the Included Assets. Buyer shall have no Liability for any
suggestions or recommendations made by an Observer.

     6.2. Access to Information.

          (a) In addition to the rights granted by Sections 6.1(b), (c) and (d),
between the Effective Date and the Closing Date, Seller will, and will use
Commercially Reasonable Efforts to cause NMC to, during ordinary business hours,
upon reasonable notice and subject to compliance with all applicable NRC rules
and regulations and other applicable Laws and subject to approval in advance by
the Seller's Agent(s) which approval shall not be unreasonably withheld or
delayed (i) give Buyer and Buyer's Representatives reasonable access to all
management personnel engaged in the operation of the Included Assets and all
books, documents, records, plants, offices and other facilities and properties
constituting the Included Assets; (ii) permit Buyer to make such reasonable
inspections thereof as Buyer may reasonably request; (iii) furnish Buyer with
such financial and operating data and other information with respect to the
Included Assets and the Palisades Employees and the Big Rock ISFSI Employees as
Buyer may from time to time reasonably request; (iv) furnish Buyer a copy of
each report,


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<PAGE>

schedule or other document filed or received by it since the date hereof with
respect to the Included Assets with the NRC, FERC or any other Governmental
Authority having jurisdiction over the Included Assets; provided, however, that
(A) any such investigation shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Included Assets, (B) Seller
shall not be required to take any action which would constitute a waiver of the
attorney-client privilege, and (C) Seller need not supply Buyer with any
information that Seller is legally prohibited from supplying. Seller will use
its Commercially Reasonable Efforts to cause NMC to provide Buyer or Buyer's
Representatives with access to the Transferred Employee Records that it has, but
Seller shall not be required to provide or cause to be provided access to other
employee records or medical information unless required by Law or specifically
authorized by the affected employee. Notwithstanding anything in this Section
6.2 to the contrary, Seller shall only provide or cause to be provided such
access to Transferred Employee Records and personnel and medical records as is
permitted by Law or required by legal process or subpoena. In addition, Seller
will use Commercially Reasonable Efforts to cause NMC to provide Buyer or
Buyer's Representatives with access to NMC personnel engaged in the supervision,
operation, maintenance or otherwise supporting the Included Assets. To the
extent not prohibited by applicable Law, Seller shall cause NMC to deliver in a
timely manner to Buyer all documents, electronic files and records in a format
sufficient (as reasonably determined by Buyer) to facilitate the anticipated
Closing. Without limiting the generality of the foregoing, four (4) weeks prior
to the anticipated Closing Date, (A) Seller shall provide, or cause NMC to
provide, to Buyer a list of the Palisades Employees and Big Rock ISFSI Employees
anticipated to become Transferred Employees, and (B) Seller shall cooperate, and
shall cause NMC to cooperate, with Buyer to enable Buyer to document the
transfer of the Transferred Employees according to Buyer's or Buyer's
Affiliate's standard practices and employment prerequisites.

          (b) Buyer and Seller acknowledge that all information furnished to or
obtained by Buyer or Buyer's Representatives pursuant to either Section 6.1 or
this Section 6.2 shall be subject to the provisions of the Confidentiality
Agreement and shall be treated as Proprietary Information.

          (c) For a period of five (5) years following the Closing Date (or such
other date as the Parties may agree in writing), and in the case of books and
records relating to the Decommissioning Funds, until the completion of
Decommissioning, and subject to all applicable NRC rules and regulations, each
Party and its respective Representatives shall have reasonable access to all of
the Business Books and Records, including all Transferred Employee Records or
other personnel and medical records required to be made available by Law, legal
process or subpoena, in the possession of the other Party to the extent that
such access may reasonably be required by such Party in connection with the
Assumed Liabilities and Obligations or the Excluded Liabilities, or other
matters relating to or affected by the operation of the Included Assets. Such
access shall be afforded by the Party in possession of such books and records
upon receipt of reasonable advance notice and during normal business hours. The
Party exercising this right of access shall be solely responsible for any costs
or expenses incurred by it pursuant to this Section 6.2(c). If the Party in
possession of such books and records shall desire to dispose of any such books
and records prior to the expiration of the applicable time period specified in
this Section 6.2(c), such Party shall, prior to such disposition, give the other
Party a reasonable opportunity at such other Party's expense, to segregate and
remove such books and records as


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<PAGE>

such other Party may select. Notwithstanding the foregoing, the right of access
to medical records and other confidential employee records shall be subject to
all applicable Laws.

          (d) Seller agrees (i) not to release any Person (other than Buyer)
from any confidentiality agreement now existing with respect to the Included
Assets, or waive or amend any provision thereof, and (ii) to assign at the
Closing any rights arising under any such confidentiality agreement (to the
extent assignable) to Buyer. Notwithstanding the foregoing, Seller agrees and
shall use Commercially Reasonable Efforts to cause NMC to agree that following
the Closing, no Transferred Employee shall be subject to any confidentiality,
non-solicitation or non-competition obligation for the benefit of Seller or its
Affiliates or NMC.

          (e) Notwithstanding the terms of the Confidentiality Agreement and
Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may
reveal or disclose Proprietary Information to other Persons to the extent
reasonably necessary in connection with Buyer's financing and risk management of
the Included Assets, and, to the extent that Seller consents, which consent
shall not be unreasonably withheld or delayed, to such Persons with whom Buyer
expects it may have business dealings regarding the Included Assets from and
after the Closing Date; provided, however, that all such Persons agree in
writing to maintain the confidentiality of the Proprietary Information on
substantially the same terms and conditions as those contained in the
Confidentiality Agreement; and provided, further, that Buyer shall be
responsible for any breach by any such Persons of such confidentiality
obligations.

          (f) Except as may be permitted under the Confidentiality Agreement,
Buyer agrees that, prior to the Closing Date, it will not contact any vendors,
suppliers, employees, or other contracting parties of NMC, Seller or Seller's
Affiliates with respect to any aspect of the Included Assets or the transactions
contemplated hereby, without the prior written consent of Seller, which consent
shall not be unreasonably withheld or delayed; provided, however, that such
consent shall not (subject to the notice requirement set forth in the next
sentence) be required during the period beginning sixty (60) days prior to the
anticipated Closing Date through the Closing Date. Notwithstanding the
foregoing, prior to the Closing, (i) Buyer may conduct general employee meetings
addressing the following topics: payroll, transition, compensation, health and
wellness benefits, pension plans, 401(k) plan transitions, post-Closing policies
and procedures and other matters of general employee concern, provided that
Buyer shall provide NMC with notice of any such meeting a reasonable period of
time in advance thereof and shall reasonably coordinate with NMC as to the
conduct thereof and (ii) Buyer may make any contacts with Persons as expressly
contemplated by this Agreement, including without limitation contacts with
vendors, suppliers and customers in connection with obtaining assignments of
contracts and discussing the post-Closing relationship with such Persons,
provided that Buyer shall keep Seller reasonably informed as to the existence of
any such contacts.

          (g) Upon Buyer's or Seller's (as the case may be) prior written
approval (which approval shall not be unreasonably withheld or delayed), Seller
or Buyer (as the case may be) may provide Proprietary Information of the other
Party to the NRC, FERC or any other Governmental Authority having jurisdiction
over the Included Assets or any stock exchange, as may be necessary to obtain
Seller's Required Regulatory Approvals or Buyer's Required Regulatory Approvals,
respectively. The disclosing Party shall seek confidential treatment for


                                       60
<PAGE>

the Proprietary Information provided to any such Governmental Authority and the
disclosing Party shall notify the other Party as far in advance as practical of
its intention to release to any Governmental Authority any such Proprietary
Information.

          (h) Seller or Buyer (as the case may be) may, without the prior
consent of the other Party, disclose Proprietary Information of the other Party
as may be necessary to comply generally with any applicable Laws, requests from
Governmental Authorities or with the rules of any applicable stock exchange. The
disclosing Party shall notify the other Party as far in advance as practical of
its intention to release to any third party any such Proprietary Information.

          (i) The Parties agree that the Confidentiality Agreement shall remain
in effect until the Closing. Thereafter, the Parties agree that any restrictions
contained in the Confidentiality Agreement with respect to Buyer's disclosure of
Proprietary Information shall terminate, other than with respect to the
Proprietary Information of Seller that does not relate to the Included Assets.
The Parties further agree that after the Closing Date, Seller shall keep
confidential all Proprietary Information provided by Buyer or which Seller
possesses with respect to the Included Assets, to the extent permitted by Law,
and to the same extent and under the same conditions applicable to Buyer's
obligations with respect to Seller's Proprietary Information as contained in the
Confidentiality Agreement between the Parties, but for a period of time equal to
six (6) years from the Closing.

     6.3. Expenses.

          (a) Except to the extent specifically provided herein, whether or not
the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby, including the cost of legal, technical and financial consultants and the
cost of filing for and prosecuting applications for Buyer's and Seller's
Required Regulatory Approvals, shall be borne by the Party incurring such costs
and expenses.

          (b) Buyer shall be responsible for all third party vendor costs and
expenses incurred and relating to work performed with respect to the Included
Assets at the written request of Buyer after the date hereof.

          (c) Seller shall be responsible for the payment of any exit or
termination fee as a result of the termination of the NPPOSA in connection with
the transactions contemplated by this Agreement.

     6.4. Further Assurances; Cooperation.

          (a) Subject to the terms and conditions of this Agreement, each of the
Parties hereto will use Commercially Reasonable Efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable Laws to consummate and make effective the sale,
transfer, conveyance and assignment of the Included Assets and the assignment of
the Assumed Liabilities and Obligations or the exclusion of the Excluded
Liabilities pursuant to this Agreement, including using Commercially Reasonable
Efforts to ensure satisfaction of the conditions precedent to each Party's
obligations hereunder.


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<PAGE>

Notwithstanding anything in the previous sentence to the contrary, Seller and
Buyer shall use Commercially Reasonable Efforts to obtain all Permits,
Environmental Permits and NRC Licenses necessary for Buyer to acquire and
operate the Included Assets. Seller shall be responsible at its cost for
providing all notices required under, and obtaining all assignments, consents to
transfer and similar documents for, each of the Seller's Agreements,
Non-material Contracts, Fuel Contracts, Emergency Equipment Easements,
Transferable Permits, and other items to be delivered by Seller at Closing.
Buyer shall use its Commercially Reasonable Efforts to assist Seller in
obtaining such consents and assignments, but shall not be required to assume
additional out-of-pocket costs, expenses or Liabilities in connection therewith.
Neither Buyer nor Seller shall, without the prior written consent of the other,
advocate or take any action that would reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by this
Agreement or which could reasonably be expected to cause, or to contribute to
causing, the other to receive less favorable regulatory treatment than that
sought by the other. Buyer further agrees that prior to the Closing Date,
neither it nor its Affiliates will enter into any other contract to acquire or
market or control the output of, nor acquire or market or control the output of,
electric generation facilities or uncommitted generation capacity if the
proposed acquisition or the ability to market or control output of such
additional electric generation facilities or uncommitted generation capacity
would increase the market power attributable to Buyer in a manner materially
adverse to approval of the transactions contemplated hereby or would otherwise
prevent or materially interfere with the transactions contemplated by this
Agreement.

          (b) From time to time after the Closing, Seller will execute and
deliver such documents to Buyer as Buyer may reasonably request, at Seller's
expense, in order to more effectively consummate the sale and purchase,
including the transfer, conveyance and assignment, of the Included Assets or to
more effectively vest in Buyer such title to the Included Assets (or such rights
to use, with respect to Seller's interest in Included Assets not owned by
Seller), subject to the Permitted Encumbrances. From time to time after the
Closing, without further consideration, Buyer will, at its own expense, execute
and deliver such documents to Seller as Seller may reasonably request in order
to evidence Buyer's assumption of the Assumed Liabilities and Obligations.

          (c) The Parties shall use Commercially Reasonable Efforts to cooperate
with each other, and Seller shall use Commercially Reasonable Efforts to cause
NMC to cooperate with Buyer, to facilitate the transition of the information
systems, computer applications and processing of data at the Facilities in a
timely manner and in formats reasonably acceptable to Buyer.

          (d) To the extent that Seller's rights under any Non-material Contract
may not be assigned without the consent of another Person which consent has not
been obtained, this Agreement shall not constitute an agreement to assign the
same if an attempted assignment would constitute a breach thereof or be
unlawful, and Seller, at its expense, shall use Commercially Reasonable Efforts
to obtain any such required consent(s) as promptly as possible. Seller and Buyer
agree that if any consent to an assignment of any Non-material Contract shall
not be obtained or if any attempted assignment would be ineffective or would
impair Buyer's rights and obligations under the applicable Non-material Contract
so that Buyer would not in effect acquire the benefit of all such rights and
obligations, then Seller, to the maximum extent


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<PAGE>

permitted by Law and such Non-material Contract (as reasonably determined by
Seller in consultation with its counsel), shall, after the Closing (i) appoint
Buyer to be Seller's agent with respect to such Non-material Contract and/or
(ii) enter into such arrangements with Buyer as are reasonably necessary to
provide Buyer with the benefits and obligations (including post-Closing
Liabilities) of such Non-material Contract. Seller and Buyer shall cooperate and
Seller shall continue to use Commercially Reasonable Efforts after the Closing
to obtain an assignment of such Non-material Contract to Buyer. In the event
that any such consent to assignment has not been obtained, the Parties agree to
proceed under this Agreement to the extent permissible.

          (e) For a reasonable period of time after the Closing Date, Buyer and
Seller agree to provide such services to each other, and to the extent
Commercially Reasonable, Seller shall cause NMC to provide such services to
Buyer, as are reasonably required to the extent necessary to ensure the
continuity of support for Palisades, the Big Rock ISFSI and the Seller's other
facilities and the orderly completion of projects or other work in progress that
would be adversely affected if those services were interrupted, including
mutually acceptable arrangements regarding the lease of the facility located in
South Haven, Michigan that is part of Emergency Operations Facilities from
Seller to Buyer for a period of up to three (3) years pursuant to the Emergency
Operations Facilities Lease. Buyer and Seller will agree, as promptly as
practicable, following the Effective Date, on the nature of such services.

          (f) Seller shall cooperate with Buyer and use Commercially Reasonable
Efforts to cause NMC to agree to (i) maintain all data relating to the Indus
PassPort and Indus EMPAC software applications (the "Indus Software") on NMC's
or third party service provider's servers for the 12-month period following the
Closing and (ii) allow Buyer and its Affiliates to interface with such servers
and provide such related services such that Buyer and its Affiliates shall be
able to access and import all data relating to the Included Assets that is
included in the Indus Software.

          (g) Not earlier than 90 days prior to the Closing Date and before the
Closing Date, Seller shall cause to be prepared and shall deliver to Buyer an
update of the Phase I environmental site assessment of the Palisades Site and
the Big Rock ISFSI Site and amendments thereto previously provided to Buyer.
Such Phase I updates will ensure that the Phase I environmental site
assessments, as amended, meet the requirements of 40 C.F.R. Section 312 as of
the Closing Date. The cost of such updates shall be shared equally between Buyer
and Seller.

          (h) At the Closing, Seller shall have caused all revenue meters,
telemetering equipment and other equipment required under or necessary for
performance by Buyer (in its capacity as the seller of energy) under the Power
Purchase Agreement and the Interconnection Agreement to be installed and
operational within the accuracy and tolerances required pursuant to such
agreements, and shall have caused the Facilities to be capable of producing and
absorbing all ancillary services which are required to be produced and absorbed
under such agreements.

     6.5. Public Statements.

          Prior to the Closing, the Parties shall not issue any press release or
other public disclosure with respect to this Agreement or the transactions
contemplated hereby without first


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<PAGE>

affording the non-disclosing Party the opportunity to review and comment on such
disclosure, except as may be required by applicable Law or stock exchange rules.
In addition, the Parties shall confer with each other regarding the substance
and form of their initial post-Closing public announcement relating to the
Closing.

     6.6. Consents and Approvals.

          (a) Seller and Buyer shall each file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. The Parties
shall consult with each other as to the appropriate time of filing such
notifications and shall agree upon the timing of such filings, and respond
promptly to any requests for additional information made by either of such
agencies. The Parties shall use their Commercially Reasonable Efforts to cause
the waiting periods under the HSR Act to terminate or expire at the earliest
possible date after the date of filing. All filing fees under the HSR Act shall
be borne by Buyer and each Party will bear its own costs for the preparation of
any such filing.

          (b) As promptly as practicable after the Effective Date and after the
receipt of any determinations required to be made by any other Governmental
Authority as a condition to Buyer making the filings contemplated by this
paragraph, (i) Buyer shall file with FERC (and if requested by Buyer, Seller
shall support) a notice of self-certification or a petition seeking
certification, at Buyer's election, regarding Exempt Wholesale Generator status
for Buyer, which filing may be made individually by Buyer or jointly with
Seller, as reasonably determined by Buyer, and (ii) Buyer shall file with FERC
any necessary applications requesting authority to sell electric capacity,
energy and ancillary services at wholesale. In fulfilling its obligations set
forth in part (i) of the immediately preceding sentence, Buyer shall use best
efforts to effect the referenced filings with FERC within forty-five (45) days
after receipt of the last of any determinations required to be made by any other
Governmental Authority as a condition to Buyer and Seller making the filings. In
fulfilling its obligations set forth in part (ii) of the immediately preceding
sentence, Buyer shall use best efforts to effect the referenced filings with
FERC within forty-five (45) days of the Effective Date. During preparation of
such FERC applications, Buyer shall coordinate with Seller, shall allow Seller
to communicate with any witnesses who submit testimony or evidence accompanying
such applications, and shall provide Seller with notice and an opportunity to
attend any meetings with the FERC staff regarding such applications. No later
than ten (10) days prior to submitting any such applications with FERC, Buyer
shall submit the application to Seller for review and comment, and Buyer shall
in good faith consider any revisions reasonably requested by Seller. Buyer shall
be solely responsible for its own cost of preparing, reviewing and filing its
respective application, responses and any petition(s) for rehearing or any
reapplication(s).

          (c) As promptly as practicable after the Effective Date, Buyer and
Seller shall jointly prepare and file with NRC an application requesting consent
under Section 184 of the Atomic Energy Act and 10 C.F.R. Section 50.80 for the
transfer of the NRC Licenses from Seller to Buyer and Buyer's Affiliate, and
approval of any conforming license amendments or other related approvals. In
fulfilling their respective obligations set forth in the immediately preceding
sentence, each of Buyer and Seller shall use its best efforts to effect any such
filing within forty-


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<PAGE>

five (45) days of the Effective Date. Each Party will bear its own costs of the
preparation of any such filing and Buyer and Seller will each pay 50% of any NRC
fees. Thereafter, Buyer and Seller shall cooperate with one another to
facilitate NRC review of the application, including by providing the NRC staff
with such documents or information that the NRC staff may reasonably request or
require any of the Parties to provide or generate.

          (d) As promptly as practicable after the Effective Date, Seller and
Buyer shall jointly prepare as co-applicants, and Seller shall file with FERC,
an application for approval of this transaction under Section 203 of the Federal
Power Act. During preparation of such FERC application, Seller shall coordinate
with Buyer, shall allow Buyer to communicate with any witnesses who submit
testimony or evidence accompanying such application, and shall provide Buyer
with notice and an opportunity to attend any meetings with the FERC staff
regarding such application. No later than fifteen (15) days prior to Seller's
submission of such application with FERC, Seller shall submit such application
to Buyer for review and comment and Seller shall consider in good faith any
revisions reasonably requested by Buyer. Seller and Buyer shall respond promptly
to all requests from FERC or its staff for additional information regarding such
application and use their respective Commercially Reasonable Efforts to
participate in any hearings, settlement proceedings or other proceedings ordered
by FERC with respect to the application. In fulfilling their respective
obligations set forth in this Section 6.6(d), each of Buyer and Seller shall use
best efforts to effect the referenced filings with FERC within forty-five (45)
days of the Effective Date. Seller shall be solely responsible for the cost of
filing this application, any petition(s) for rehearing, or any reapplication(s).
Each Party will bear its own costs of the preparation and review of such filing,
provided that Buyer shall be solely responsible for the cost of any market power
study or analysis associated with such filing.

          (e) Seller and Buyer shall cooperate with each other and use
Commercially Reasonable Efforts to, as promptly as practicable after the
Effective Date, (i) prepare and make with FERC or any other Governmental
Authority having jurisdiction over Seller, Buyer or the Included Assets, all
necessary filings required to be made with respect to the transactions
contemplated hereby (including those specified above), (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, (iii) obtain the transfer or reissuance to Buyer of all necessary
Permits, Environmental Permits, consents, approvals and authorizations of all
Governmental Authorities, and (iv) obtain all necessary consents, approvals and
authorizations of all other parties, in the case of each of the foregoing
clauses (i), (ii) and (iii), necessary or advisable to consummate the
transactions contemplated by this Agreement (including Seller's Required
Regulatory Approvals and Buyer's Required Regulatory Approvals and the renewal
of the Palisades NRC License) or required by the terms of any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument to which Seller or Buyer is a party or by
which any of them is bound. The Parties shall respond promptly to any requests
for additional information made by such agencies, use their respective
Commercially Reasonable Efforts to participate in any hearings, settlement
proceedings or other proceedings ordered with respect to the applications, and
use their respective Commercially Reasonable Efforts to cause regulatory
approval or other consent to be obtained at the earliest possible date after the
date of filing or other request. Each Party will bear its own costs of the
preparation and review of any such filing or request. Seller and Buyer shall
have the right to review in advance all characterizations of the information
relating to the transactions contemplated by this Agreement which appear in any
filing made in connection with


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<PAGE>

the transactions contemplated hereby and the filing Party shall consider in good
faith any revisions reasonably requested by the non-filing Party. In fulfilling
its obligations set forth in this subsection (e) with respect to the making of
any filings with the MPSC set forth on Schedule 4.3(b), Buyer shall use best
efforts to effect such filings with the MPSC within forty-five (45) days of the
Effective Date.

          (f) The Parties shall reasonably cooperate prior to Closing in
communicating with the Hayes Township assessor to obtain assurance that a
separate tax parcel number will be issued for the Big Rock ISFSI Site as soon as
practicable. In the event that despite the Parties' use of all reasonable
efforts, the Big Rock ISFSI Site is not assigned a separate tax parcel number by
the Hayes Township assessor in time for any Tax bill rendered after Closing to
be rendered to Buyer on the Big Rock ISFSI Site as a separate parcel, then the
Parties will pro-rate any such Tax bill on the basis of the acreage of the
pre-existing tax parcel that is included in the Big Rock ISFSI Site and the
acreage that is outside the Big Rock ISFSI Site with Buyer paying the former
portion and Seller paying the latter portion.

          (g) Buyer shall have the primary responsibility for securing the
transfer, reissuance or procurement of the Permits and Environmental Permits
other than Transferable Permits, effective as of the Closing. Seller shall
cooperate with Buyer's efforts in this regard and assist in any transfer or
reissuance of a Permit or Environmental Permit held by Seller or the procurement
of any other Permit or Environmental Permit when so requested by Buyer. In the
event that Buyer is unable, despite its Commercially Reasonable Efforts, to
obtain a transfer or reissuance of one or more of the Permits or Environmental
Permits as of the Closing Date, Buyer may use the applicable Permit or
Environmental Permit issued to Seller, provided (i) such use is not unlawful,
(ii) Buyer notifies Seller prior to the Closing Date, (iii) Buyer continues to
make Commercially Reasonable Efforts to obtain a transfer or reissuance of such
Permit or Environmental Permit after the Closing, and (iv) Buyer indemnifies
Seller for any losses, claims or penalties suffered by Seller in connection with
the Permit or Environmental Permit that is not transferred or reissued as of the
Closing resulting from Buyer's ownership or operation of the Included Assets
following the Closing. In no event shall Buyer use or otherwise rely on a Permit
or Environmental Permit issued to Seller beyond one (1) year after the Closing
Date.

     6.7. Brokerage Fees and Commissions.

          Seller and Buyer each represent and warrant to the other that, other
than with respect to fees and commissions of Concentric Energy Advisors Inc.,
which shall be the sole responsibility of Seller, no other Person is entitled to
any brokerage fees, commissions or finder's fees in connection with the
transaction contemplated hereby by reason of any action taken by the Party
making such representation or its Affiliates. Seller and Buyer will pay to the
other or otherwise discharge, and will indemnify and hold the other harmless
from and against, any and all claims or liabilities for all brokerage fees,
commissions and finder's fees incurred by reason of any action taken by the
indemnifying party or its Affiliates.

     6.8. Tax Matters.

          (a) All Transfer Taxes incurred in connection with this Agreement and
the transactions contemplated hereby, if any, shall be shared equally between
Seller and Buyer.


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<PAGE>

Seller will, at its own expense, file, to the extent required by applicable Law,
all necessary Tax Returns and other documentation with respect to all such
Transfer Taxes, and Buyer shall be entitled to review such returns prepared by
Seller in advance and provide comments thereon, which Seller shall accept to the
extent such comments are reasonable, and, if required by applicable Law, Buyer
will join in the execution of any such Tax Returns or other documentation. Buyer
will provide to Seller, to the extent possible, an appropriate exemption
certificate in connection with this Agreement and the transactions contemplated
hereby, due from each applicable taxing authority, and the Parties shall comply
with all requirements and use Commercially Reasonable Efforts to secure
applicable sales tax exemptions for the transactions contemplated by this
Agreement.

          (b) [Intentionally omitted]

          (c) With respect to Seller's Qualified Decommissioning Fund, prior to
the Closing Date, Seller shall cause the Trustee of Seller's Qualified
Decommissioning Fund to pay estimated Income Taxes for the taxable period that
ends on the Closing Date in an amount equal to the estimated Income Tax
Liability of Seller's Qualified Decommissioning Fund for the taxable period that
ends on the Closing Date. To the extent the amount of estimated Income Taxes
paid pursuant to this Section 6.8(c) is less than the Income Tax Liability of
Seller's Qualified Decommissioning Fund for the taxable period that ends on the
Closing Date, any such deficiency will be paid by the Trustee of the
Post-Closing Decommissioning Trust Agreement and charged against the Excess
Qualified Decommissioning Fund assets, or if such Excess Qualified
Decommissioning Fund assets are not sufficient to pay such Income Tax Liability,
such deficiency will be paid by Seller. Such payment will be made no later than
the due date, as extended, of the initial Tax Return.

          (d) Each of the Parties shall provide the other with such assistance
as may reasonably be requested by the other Party in connection with the
preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to Liability
for Taxes and each will retain and provide the requesting Party with any records
or information which may be relevant to such return, audit or examination,
proceedings or determination. Any information obtained pursuant to this Section
6.8(d) or pursuant to any other Section hereof providing for the sharing of
information or review of any Tax Return or other schedule relating to Taxes
shall be kept confidential by the Parties hereto, except to the extent such
information is required to be disclosed by Law.

          (e) Seller shall use Commercially Reasonable Efforts to cooperate with
NMC and cause any of Seller's Affiliates that provide or have provided an IRS
Form W-2 to any Transferred Employee to cooperate with Buyer and Buyer's
Affiliate in the efforts to obtain "successor employer" or "same employer"
status for federal and state employment Tax and unemployment Tax purposes. Such
cooperation shall include but not be limited to compliance with all requirements
of applicable Laws and administrative practice of any Governmental Authority
relevant to obtaining such status to assist Buyer and its Affiliate in meeting
the requirements for obtaining such status. Seller shall also use Commercially
Reasonable Efforts to cooperate with NMC and cause any of Seller's Affiliates to
provide to Buyer all information reasonably available and necessary to enable
Buyer or its Affiliate to successfully transfer and transition payroll functions
with respect to the Transferred Employees. Such cooperation shall


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<PAGE>

include but not be limited to payroll, salary, benefits and withholding and
employment Tax records and returns with respect to such Transferred Employees

     6.9. Advice of Changes; Supplements to Schedules.

          (a) Prior to the Closing, each Party will promptly advise the other in
writing of any change or discovery occurring after the Effective Date that, if
occurring on or prior to the Effective Date, would have been required to be
disclosed to the other Party and/or set forth or described in the
representations, warranties or covenants contained in this Agreement or on the
Schedules to this Agreement so as to have avoided a material breach of any
representation, warranty or covenant of the advising or other Party under this
Agreement. If a Party advises the other Party of any such matter with respect to
a deemed material breach by the advising Party, the other Party shall have the
right to terminate this Agreement in accordance with and subject to the
provisions of Sections 9.1(e) or (f), as the case may be. If a Party advises the
other Party of any such matter with respect to a deemed material breach by the
other Party, the advising Party shall have the right to terminate this Agreement
in accordance with and subject to the provisions of Sections 9.1(e) or (f), as
the case may be. If a Party fails to exercise its termination right, the written
notice under this Section 6.9(a) will be deemed to have amended this Agreement,
including the appropriate schedule, or to have qualified the applicable
representations and warranties and no indemnification may be sought with respect
to such matters.

          (b) Five (5) Business Days prior to the Closing, each of the Parties
shall provide the other Party with any and all revisions, modifications and
updates to the Schedules, solely with respect to matters arising after the
Effective Date which if existing or occurring as of the Effective Date, would
have been required to be set forth or described in such Schedules, such that the
Schedules will be true and correct as of such date of delivery. To the extent
that such revisions, modifications and updates do not, either individually or in
the aggregate, create a Material Adverse Effect or a Buyer Material Adverse
Effect, then such revisions, modifications and updates shall be deemed to be
automatically incorporated into the Schedules.

     6.10. Employees.

          (a) Buyer shall offer employment, commencing as of the Closing, to all
Palisades Employees and Big Rock ISFSI Employees employed immediately prior to
the Closing, which Palisades Employees and Big Rock ISFSI Employees are set
forth on Schedule 6.10(a), as amended between the Effective Date and the Closing
Date to reflect any changes in the identities of work force personnel.
Notwithstanding the foregoing any individual who is absent from service due to
illness, leave of absence, military service or otherwise on the Closing Date
shall not be considered a Palisades Employee or a Big Rock ISFSI Employee (and
shall not be entitled to any wages, compensation, or benefits from Buyer) unless
or until such individual returns to work and is actively employed by Buyer no
later than fifty-two (52) weeks from the date his/her leave began or such later
date as required by Law or the Collective Bargaining Agreement, in which case
any wages, compensation, or benefits eligibility shall be prospective only, from
the date of such individual's active employment with Buyer. Each offer of
employment made by Buyer to a Palisades Employee or a Big Rock ISFSI Employee
shall be consistent with the standard hiring practices and employment
prerequisites of Buyer (applied consistent with Buyer's past practices), and to
the receipt by Buyer of confirmation from Seller


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<PAGE>

or NMC that such individual (i) is currently performing and is qualified,
licensed, certified, or trained in accordance with any applicable requirement of
Governmental Authority to perform the duties and responsibilities of his or her
current job assignment or the position to be offered to him or her by Buyer; and
(ii) has the appropriate nuclear power plant access authorization. At the
Closing, Buyer shall assume the Collective Bargaining Agreement and shall assume
all of Seller's or NMC's obligations under the Collective Bargaining Agreement
with respect to each Bargaining Unit Transferred Employee as of the date he or
she commences employment with Buyer, including the provision of retirement and
insurance benefits, for the remainder of the term of the Collective Bargaining
Agreement. For purposes of this Section 6.10, Buyer shall include any Affiliate
of Buyer which offers employment to Palisades Employees or Big Rock ISFSI
Employees. Buyer does not assume any Liability under the Collective Bargaining
Agreement or otherwise with respect to any Palisades Employee unless and until
he or she becomes a Transferred Employee. Buyer's agreement to offer employment
to the Palisades Employees and Big Rock ISFSI Employees under this Section
6.10(a) shall not constitute an employment agreement or contract with any
Palisades Employee or Big Rock ISFSI Employee, and each Transferred Employee
shall be an "at-will" employee, subject to the Collective Bargaining Agreement,
if applicable.

          (b) Each Palisades Employee or Big Rock ISFSI Employee who is offered,
accepts and commences employment with Buyer will be referred to herein as a
"Transferred Employee." With respect to each Big Rock ISFSI Employee who is a
Transferred Employee, Buyer shall not be required to provide any replacement
welfare, benefit, defined benefit or retiree coverages or plans separate from or
in addition to those being provided to the other Transferred Employees
hereunder. If, but only if, any Big Rock ISFSI Employee participates in a plan
or has a coverage as of the Effective Date identified in Schedules 4.8 or 4.9(a)
that is being replicated by Buyer hereunder, then such Big Rock ISFSI Employee
shall be permitted to participate in such replicated plan or coverage of Buyer.
Otherwise, such Big Rock ISFSI Employees shall be treated for all purposes under
this Agreement as Non-Bargaining Unit Transferred Employees.

          (c) For the period commencing on the Closing Date and ending
thirty-six (36) months thereafter (regardless of whether a Non-Bargaining Unit
Transferred Employee becomes a Non-Bargaining Unit Transferred Employee after
the Closing Date), except as Buyer and any Non-Bargaining Unit Transferred
Employee may otherwise mutually agree, Buyer shall provide Non-Bargaining Unit
Transferred Employees with annualized total compensation, including base pay,
authorized overtime, bonuses, incentive compensation and benefits provided under
all applicable employee benefits plans and programs, and fringe benefit
arrangements (other than severance benefits, which are as set forth in Section
6.10(m)) (collectively, "Total Compensation") that in the aggregate is
comparable in value to the Non-Bargaining Unit Transferred Employees' annualized
Total Compensation immediately prior to the Closing Date. For the period
commencing on the Closing Date and ending on the date on which the Collective
Bargaining Agreement expires or terminates (such date, the "CBA Termination
Date"), except as Buyer and any Bargaining Unit Transferred Employee may
otherwise mutually agree, Buyer shall provide Bargaining Unit Transferred
Employees with Total Compensation in accordance with the terms set forth in the
Collective Bargaining Agreement. Notwithstanding anything to the contrary
herein, Buyer shall take all actions necessary to comply with the requirements
of MCL Section 460.10p, to the extent applicable.


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<PAGE>

          (d) Effective as of the Closing Date or such later date as they become
Transferred Employees, all Transferred Employees shall cease to participate in
the Employee Welfare Benefit Plans maintained or sponsored by NMC, Seller or
their Affiliates and shall commence participation (if applicable eligibility
requirements are satisfied) in the Employee Welfare Benefit Plans of Buyer or
its Affiliates (the "Replacement Welfare Plans") that (i) for Non-Bargaining
Unit Transferred Employees, will, when combined with the other elements of Total
Compensation, provide benefits and coverage that are comparable on average to
the benefits and coverage provided to the Non-Bargaining Unit Transferred
Employees on average under NMC's, Seller's, or their Affiliates', as the case
may be, Employee Welfare Benefit Plans in effect for the Non-Bargaining Unit
Transferred Employees immediately prior to the Closing Date and (ii) for
Bargaining Unit Transferred Employees, will provide benefits and coverage in
accordance with the terms set forth in the Collective Bargaining Agreement.
Buyer shall not be obligated to maintain such benefits and coverage in the
Replacement Welfare Plans as described in the preceding sentence (regardless of
whether any Transferred Employee becomes a Transferred Employee after the
Closing Date) (A) beyond the 36-month period following the Closing Date with
respect to Non-Bargaining Unit Transferred Employees, and (B) beyond the
remaining term of the Collective Bargaining Agreement with respect to Bargaining
Unit Transferred Employees. Buyer shall (i) waive all limitations as to
pre-existing condition exclusions and waiting periods with respect to the
Transferred Employees under the Replacement Welfare Plans, other than, but only
to the extent of, limitations or waiting periods that were in effect with
respect to such employees under the corollary Employee Welfare Benefit Plans
maintained by NMC, Seller or their Affiliates and that have not been satisfied
as of the Closing Date, and (ii) provide each Transferred Employee with credit
for any coinsurance limit payments and deductibles paid prior to the Closing
Date during a plan year under NMC's, Seller's or their Affiliates' plans that
have not ended as of the Closing Date, in satisfying any deductible or
coinsurance limit requirements under the Replacement Welfare Plans (on a
pro-rata basis in the event of a difference in plan years). In administering any
lifetime maximum claims amount, Buyer and its Affiliates shall reserve the right
to recognize claims under the corollary Employee Welfare Benefit Plans
maintained by NMC, Seller or their Affiliates.

          (e) Other than with respect to Buyer's replacement 401(k) plans and
defined contribution plans, Replacement Defined Benefit Plans and Replacement
Retiree Coverages which are governed by Sections 6.10(f), (g) and (l),
respectively, Buyer shall give all Transferred Employees credit for all service
with NMC, Seller and their Affiliates under all Employee Welfare Benefit Plans
and all fringe benefit plans, programs and arrangements of Buyer ("Replacement
Benefit Plans") in which they become participants to the extent such service
would be credited under the corollary plans and arrangements maintained by NMC,
Seller or their Affiliates ("Credited Service"). The Credited Service given is
for purposes of eligibility, vesting and service related level of benefits, but
not benefit accrual (except as provided in the following sentence). For purposes
of benefit accrual, Buyer shall give Transferred Employees credit for all
Credited Service with NMC, Seller and their Affiliates under all Replacement
Benefit Plans, but the ultimate benefits provided under Replacement Benefit
Plans shall be offset by the corresponding benefits previously provided by NMC,
Seller or their Affiliates or benefit plans of NMC, Seller or their Affiliates,
or by the corresponding benefits accrued under the benefit plans of Seller or
its Affiliates or otherwise committed to be provided by NMC, Seller or their
Affiliates in the future.


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<PAGE>

          (f) Effective as of the Closing Date or such later date as they become
Transferred Employees, Buyer agrees to allow the Non-Bargaining Unit Transferred
Employees to be eligible to commence participation in one or more tax-qualified
401(k) plans sponsored by Buyer or its Affiliates that will, when combined with
the other elements of Total Compensation, provide benefits which in the
aggregate are comparable in value to the benefits provided to the Non-Bargaining
Unit Transferred Employees under the tax-qualified 401(k) plans sponsored by NMC
or its Affiliates in effect for Non-Bargaining Unit Transferred Employees
immediately prior to the Closing Date (the "Existing Savings Plans"). Effective
as of the Closing Date, or such later date as they become Transferred Employees,
Buyer agrees to allow the Bargaining Unit Transferred Employees to commence
participation in one or more tax-qualified 401(k) plans sponsored by Buyer or
its Affiliates that will provide benefits in accordance with the terms set forth
in the Collective Bargaining Agreement. In addition, Buyer agrees to allow the
Bargaining Unit Transferred Employees who participate in the Consumers Defined
Company Contribution Plan (the "Palisades Defined Contribution Plan"), effective
on the Closing Date, or such later date as they become Transferred Employees, to
be eligible to commence participation in one or more defined contribution plans
that will provide benefits which are equivalent in value to the benefits
provided to such employees under the Palisades Defined Contribution Plan. Buyer
shall give all Transferred Employees credit for all service with NMC, Seller and
their Affiliates under Buyer's replacement 401(k) plans and defined contribution
plans in which they become participants to the extent such service would be
credited under the Existing Savings Plans and the Palisades Defined Contribution
Plan, provided that such service credit shall be given only for purposes of
eligibility and vesting, but not benefit accrual. Buyer shall not be obligated
to maintain such participation and benefits under such defined contribution
plans (regardless of whether any Transferred Employee becomes a Transferred
Employee after the Closing Date) (A) beyond the 36-month period following the
Closing Date with respect to Non-Bargaining Unit Transferred Employees, and (B)
beyond the remaining term of the Collective Bargaining Agreement with respect to
Bargaining Unit Transferred Employees (provided, however, that if changes in the
Collective Bargaining Agreement or the Law, or failure to otherwise meet any
legal qualification requirements under existing Law, require(s) any terms of
such defined contribution plans to be modified, or if any such terms are
required by the IRS to be modified in connection with Buyer's application for a
determination letter for such defined contribution plans, Buyer may modify such
terms to the extent that it deems necessary to comply with such Laws, IRS
directives or changes in the Collective Bargaining Agreement). To the extent
allowable by Law and the applicable Seller plan, Buyer shall take any and all
necessary action to cause the trustee of any tax-qualified defined contribution
plan of Buyer or its Affiliates in which any Transferred Employee becomes a
participant to accept a direct "rollover" in cash of all or a portion of said
employee's "eligible rollover distribution" within the meaning of Section 402 of
the Code from the Existing Savings Plans and/or the Palisades Defined
Contribution Plan, if requested to do so by the Transferred Employee. Seller
covenants that Transferred Employees shall be fully vested under the Existing
Savings Plans and the Palisades Defined Contribution Plan as of the Closing
Date.

          (g)

               (1) Effective as of the Closing Date or such later date as they
     become Transferred Employees, Buyer shall cause to be provided to those
     Transferred Employees participating in the Pension Plan for Employees of
     Consumers Energy and Other CMS


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<PAGE>

     Energy Companies (the "Palisades Defined Benefit Plan") one or more defined
     benefit pension plans ("Replacement Defined Benefit Plans"). The
     Replacement Defined Benefit Plans shall provide benefit formulas and
     provisions that are identical to the final average pay benefit plan
     formulas and provisions for such Transferred Employees in the Palisades
     Defined Benefit Plan effective immediately prior to the Closing. For the
     purposes of this Section 6.10(g), except as required by the Collective
     Bargaining Agreement or Law, or as required by the IRS in connection with
     applications for determination letters for the Palisades Defined Benefit
     Plan, no material change shall be made to such benefit formulas and
     provisions referenced above in the Palisades Defined Benefit Plan for the
     Transferred Employees after the Effective Date and prior to the Closing
     without the written consent of Buyer which consent shall not be
     unreasonably withheld. Buyer agrees to maintain such final average pay
     benefit formulas and provisions (A) for Non-Bargaining Unit Transferred
     Employees for the period commencing on the Closing Date and ending
     thirty-six (36) months thereafter and (B) for Bargaining Unit Transferred
     Employees commencing on the Closing Date and for the remaining term of the
     Collective Bargaining Agreement, (provided, however, that if changes in the
     Collective Bargaining Agreement or the Law, or failure to otherwise meet
     any legal qualification requirements under existing Law, require(s) any
     such terms to be modified or if any such terms are required by the IRS to
     be modified in connection with Buyer's application for a determination
     letter for the Replacement Defined Benefit Plans, Buyer may modify such
     terms to the extent that it deems necessary to comply with such Laws, IRS
     directives or changes in the Collective Bargaining Agreement). Following
     the end of the 36-month period described in the preceding sentence for
     Non-Bargaining Unit Transferred Employees and the end of the term of the
     Collective Bargaining Agreement for Bargaining Unit Transferred Employees,
     nothing in this Section 6.10(g) shall require Buyer to increase any
     benefits accrued under the Replacement Defined Benefit Plans that are
     attributable to Credited Service or for any other purpose.

               (2) The Transferred Employees participating in the Palisades
     Defined Benefit Plan shall be given credit in the Replacement Defined
     Benefit Plans for all service with and compensation from NMC, Seller, or
     their Affiliates as if it were service with and compensation from Buyer for
     purposes of determining eligibility for benefits, the amount of any
     benefits or benefit accruals, vesting and service related levels of
     benefits under the Replacement Defined Benefit Plans.

               (3) At least thirty (30) days prior to the Closing Date, Seller
     and Buyer shall file or cause to be filed any forms 5310-A that may be
     required to be submitted to the IRS in connection with the transfers
     described in this Section 6.10(g). The transfers and payments described in
     this Section 6.10(g) shall in no event be made prior to the thirtieth
     (30th) day following the filing of such form 5310-A with the IRS. In the
     event that the IRS, the PBGC or any other Governmental Authority raises any
     objections to the transfer, Seller and Buyer shall cooperate in good faith
     to resolve any such objections.

               (4) At the Closing, Seller shall cause to be transferred from the
     Palisades Defined Benefit Plan to the corresponding Replacement Defined
     Benefit Plans, assets equal to Seller's good faith estimate of the amount
     that is required to be transferred in compliance with the requirements of
     Section 414(l) of the Code and Treasury


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<PAGE>

     Regulation Section 1.414(l)-1 (determined under assumptions used by the
     PBGC as of the Closing Date including the assumptions set forth in Schedule
     6.10(g)) (the "Initial Transfer").

               (5) Seller shall furnish to Buyer, within forty-five (45) days or
     as soon as reasonably practicable following the Closing Date, the amount of
     the accrued benefits under the Palisades Defined Benefit Plan for each
     Transferred Employee, and shall provide to Buyer a complete employment
     history for each Transferred Employee, including date of birth, date of
     hire, credited service, vesting service, breaks in employment, monthly
     pensionable earnings history, and any other information, including
     actuarial assumptions, necessary for Buyer to administer the accrued
     benefits transferred pursuant to this Section 6.10(g), and to permit
     Buyer's actuary to review and confirm the amounts of the benefit
     Liabilities determined by Seller's actuary, and shall provide Buyer with
     any actuarial tables or factors which Buyer may require in order to
     properly administer the accrued benefits transferred.

               (6) Within one hundred fifty (150) days after the Closing Date,
     Seller shall calculate the actual amount that is required to be transferred
     in compliance with the requirements of Section 414(l) of the Code and
     Treasury Regulation Section 1.414(l)-1 (determined under assumptions used
     by the PBGC as of the Closing Date including the assumptions set forth in
     Schedule 6.10(g)) (the "Actual Amount"). To the extent that the Actual
     Amount is less than the Initial Transfer, the amount of such differential
     (together with interest accrued thereon at the Interest Rate from and
     including the Closing Date to but excluding the date of payment) shall be
     transferred by the applicable Replacement Defined Benefit Plan to the
     Palisades Defined Benefit Plan within 10 days of such determination. To the
     extent that the Actual Amount is greater than the Initial Transfer, Seller
     shall cause to be transferred from the Palisades Defined Benefit Plan to
     the applicable Replacement Defined Benefit Plan the amount of such
     differential (together with interest accrued thereon at the Interest Rate
     from and including the Closing Date to but excluding the date of payment)
     within 10 days of such determination. To the extent the Actual Amount is
     less than Eighteen Million Nine Hundred Thousand Dollars ($18,900,000), the
     Purchase Price shall be decreased by the amount of the shortfall as part of
     the Post-Closing Adjustment, which shall be completed in the manner
     specified in Section 3.3(c). During the fifty-sixth week following the
     Closing, Seller shall calculate the Actual Amount (the "Additional Actual
     Amount") with respect to any Transferred Employee who was not included in
     the calculation of the Actual Amount referred to in the first sentence of
     this Section 6.10(g)(6) and Seller shall true up, to the extent required,
     the adjustment provided in the previous sentence as if the Additional
     Actual Amount had been included in the original determination of the Actual
     Amount.

               (7) All assets transferred under this Section 6.10(g) shall be
     made in cash, or in marketable securities that are reasonably acceptable to
     Buyer.

               (8) Upon completion of the Initial Transfer under this Section
     6.10(g), all benefit payments from the Replacement Defined Benefit Plans
     shall be the responsibility of Buyer. Buyer shall not assume or bear any
     Liability attributable to the costs of any changes to benefit formulas or
     other benefits provisions or practices with


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<PAGE>

     respect to Transferred Employees for periods prior to the Closing that are
     required by the IRS or any court regarding the Tax-qualification
     requirements under Section 401(a) of the Code, or any other legal
     requirements, including any age discrimination requirements.

          (h) Buyer and Seller do not anticipate the issuance of any notices
pursuant to the WARN Act. Notwithstanding the foregoing, Seller agrees to timely
perform and discharge all requirements under the WARN Act and under applicable
Laws for the notification of employees arising from the sale of the Included
Assets to Buyer up to the Closing Date for those employees who will not become
Transferred Employees effective as of the Closing Date. On and after the Closing
Date, Buyer shall be responsible for performing and discharging all requirements
under the WARN Act and under applicable Laws for the notification of Transferred
Employees with respect to the Included Assets. At Closing, Seller shall provide
to Buyer a certificate setting forth the number of employees, if any, who
suffered an "employment loss," as defined under the WARN Act, at the Included
Assets in the ninety (90) days immediately preceding the Closing Date, as well
as the dates of their respective employment loss (the "WARN Certificate").

          (i) On and after the Closing Date, Buyer shall be responsible for
providing COBRA continuation coverage only to Transferred Employees and
qualified beneficiaries of such employees who become entitled to COBRA
continuation coverage by reason of the occurrence of a COBRA qualifying event
after becoming Transferred Employees.

          (j) Seller shall remain responsible for paying Transferred Employees
for: (1) all salary, wages, Benefit Plan benefits (excluding under the Palisades
Defined Benefit Plan), and a pro rata portion of any bonuses or incentive
compensation that were earned for time worked for Seller or its Affiliates or
NMC prior to the respective dates they become Transferred Employees; (2) any
change-of-control, retention or similar payments to Transferred Employers
arising out of the consummation of the transactions contemplated by this
Agreement; and (3) all workers' compensation, disability benefits, or life
insurance benefits for which entitlement to payment is based upon events
occurring prior to the Closing including any incurred but unreported claims
and/or unpaid insurance premiums under the Benefit Plans. At Closing, and
thereafter as they become Transferred Employees, Seller shall pay to Buyer the
cash equivalent for all vacation time, floating holidays, paid time-off plan
Liabilities (including employee purchased paid time-off), sick days, personal
days and bonuses and incentive compensation for Transferred Employees (including
amounts carried over from prior years) which have accrued prior to but remain
unpaid as of the date of commencement of employment with Buyer (holiday time
shall not be included in such payment). For purposes hereof, the foregoing
calculations shall be determined consistent with NMC's and Seller's past
practices, as applicable.

          (k) Consistent with the Collective Bargaining Agreement and applicable
Law, no provision of this Agreement shall be deemed to create any express or
implied obligation for Buyer not to modify any particular compensation or
benefits provided to Bargaining Unit Transferred Employees after the Closing.

          (l)


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<PAGE>

               (1) For the period commencing on the Closing Date and ending
     thirty-six (36) months thereafter for Non-Bargaining Unit Transferred
     Employees, and beginning on the Closing Date and for the remaining term of
     the Collective Bargaining Agreement for Bargaining Unit Transferred
     Employees, Buyer shall provide all Transferred Employees who retire within
     such period with retiree medical, prescription drug, dental and life
     insurance (and with respect to Non-Bargaining Unit Transferred Employees,
     executive survivor) coverages (the "Replacement Retiree Coverages") that
     are equivalent on average in value (A) with respect to Non-Bargaining Unit
     Transferred Employees (other than Big Rock ISFSI Employees), to the retiree
     medical, prescription drug, dental, life insurance and executive survivor
     coverages available to eligible Palisades Employees who retire from Seller
     or NMC immediately prior to the Closing Date, (B) with respect to Big Rock
     ISFSI Employees, to the retiree medical, prescription drug, dental, life
     insurance and executive survivor coverages available to eligible Palisades
     Employees, but only if such Big Rock ISFSI Employees would be eligible for
     such coverages if they retired from Seller or NMC immediately prior to the
     Closing Date and (C) with respect to Bargaining Unit Transferred Employees,
     the retiree medical, prescription drug, dental and life insurance coverages
     in accordance with the terms set forth in the Collective Bargaining
     Agreement (the "Palisades Retiree Coverages"). Buyer shall (i) waive all
     limitations as to pre-existing condition exclusions and waiting periods
     with respect to the Transferred Employees under the Replacement Retiree
     Coverages, other than, but only to the extent of limitations or waiting
     periods that were in effect with respect to such employees under the
     Palisades Retiree Coverages and that have not been satisfied as of the
     Closing Date, and (ii) provide each Transferred Employee with credit for
     any coinsurance limit payments and deductibles paid prior to the Closing
     Date during a plan year under each applicable Palisades Retiree Coverages
     plan that has not ended as of the Closing Date, in satisfying any
     deductible or coinsurance limit requirements under the Replacement Retiree
     Coverages (on a pro-rata basis in the event of a difference in plan years).
     Buyer shall give all Transferred Employees credit for all service with NMC,
     Seller and their Affiliates with respect to the Replacement Retiree
     Coverages to the extent such service would be credited under the corollary
     Palisades Retiree Coverages, provided that such service credit shall be
     given only for purposes of eligibility and service-related levels of
     benefits. Notwithstanding the foregoing, for purposes of Replacement
     Retiree Coverages with respect to the Non-Bargaining Unit Transferred
     Employees who participated in the NMC retiree coverages, Buyer shall not be
     required to recognize such Transferred Employees' past service with Seller,
     NMC or their Affiliates for any purpose whatsoever. Effective as of the
     date any Transferred Employee becomes a Transferred Employee, neither
     Seller nor NMC shall have any responsibility to provide retiree medical,
     dental, prescription drug, life insurance or executive survivor coverages
     for such Transferred Employee. Following the end of such thirty-six month
     period for Non-Bargaining Unit Transferred Employees and the end of the
     term of the Collective Bargaining Agreement for Bargaining Unit Transferred
     Employees, nothing in this Section 6.10(l) shall prohibit Buyer from
     changing or eliminating the Replacement Retiree Coverages for Transferred
     Employees who retire within such period or thereafter, including but not
     limited to prohibiting Buyer from implementing retiree cost sharing or
     other provisions under the Replacement


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<PAGE>

     Retiree Coverages that do not take into account service with Seller, NMC or
     their Affiliates.

               (2) At the Closing, Seller shall transfer to Buyer, either in
     cash or from the Consumers Energy Co. Non-Union Welfare Benefit Trust to
     Provide for Retiree Health Care & Other Benefits, the Consumers Energy Co.
     Non-Union Welfare Benefit Trust to Provide for Retiree Life Insurance &
     Other Benefits, the Consumers Energy Co. Union Welfare Benefit Trust to
     Provide for Retiree Health Care & Other Benefits and the Consumers Energy
     Co. Union Welfare Benefit Trust to Provide for Retiree Life Insurance &
     Other Benefits to Buyer's applicable welfare benefit trusts for the
     Replacement Retiree Coverages assets equal to Seller's good faith estimate
     of the product of (i) the Accumulated Postretirement Benefit Obligation
     ("APBO") of Transferred Employees determined as of the Closing Date under
     Statement of Financial Accounting Standards Number 106 ("SFAS 106"), based
     on the actuarial assumptions used by Seller for the most recent SFAS 106
     measurement date prior to the Closing Date (and for this purpose, no future
     medical inflation is assumed) and (ii) for Non-Bargaining Unit Transferred
     Employees, the funded percentage of Seller's overall Non-union SFAS 106
     APBO, and for Bargaining Unit Transferred Employees, the funded percentage
     of Seller's overall Union SFAS 106 APBO (in the aggregate, the "Initial
     Retiree Medical and Life Insurance Transfer"). Such funded percentages will
     be determined as of the Seller's most recent SFAS 106 measurement date
     prior to the Closing Date, based on the actuarial assumptions used by
     Seller as of that date for SFAS 106 purposes and the fair market value of
     SFAS 106 assets respectively for Non-Bargaining Unit Transferred Employees
     and Bargaining Unit Transferred Employees. Such asset transfers shall be
     allocated among Seller's welfare benefit trusts based on the transfer
     amounts determined for Bargaining Unit Transferred Employees and
     Non-Bargaining Unit Transferred Employees in accordance with the preceding
     two (2) sentences. These asset transfer amounts shall be further allocated,
     separately for Bargaining Unit Transferred Employees and Non-Bargaining
     Unit Transferred Employees between Seller's retiree health care and retiree
     life insurance trusts for the respective employee groups, in proportion to
     the assets of the four (4) trusts.

               (3) Within sixty (60) days after the Closing Date, Seller shall
     calculate the actual amount based on the product of subclauses (i) and (ii)
     in Section 6.10(l)(2) above (the "Actual Retiree Medical and Life Insurance
     Amount"). To the extent that the Actual Retiree Medical and Life Insurance
     Amount is less than the Initial Retiree Medical and Life Insurance
     Transfer, the amount of such differential (together with interest accrued
     thereon at the Interest Rate from and including the Closing Date to but
     excluding the date of payment) shall be transferred by Buyer to Seller
     within 10 days of such calculation. To the extent that the Actual Retiree
     Medical and Life Insurance Amount is greater than the Initial Retiree
     Medical and Life Insurance Transfer, the amount of such differential
     (together with interest accrued thereon at the Interest Rate from and
     including the Closing Date to but excluding the date of payment) shall be
     transferred by Seller to Buyer within 10 days of such calculation. If the
     Actual Retiree Medical and Life Insurance Amount is less than Six Million
     Two Hundred Fifty Thousand ($6,250,000), the Purchase Price shall be
     decreased by the amount of the shortfall as part of the Post-Closing
     Adjustment. During the fifty-sixth week following


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<PAGE>

     the Closing, Seller shall calculate the Actual Retiree Medical and Life
     Insurance Amount (the "Additional Retiree Medical and Life Insurance
     Amount") with respect to any Transferred Employee who was not included in
     the calculation of the Actual Retiree Medical and Life Insurance Amount
     referred in this Section 6.10(l)(3), and Seller shall true up, to the
     extent required, the adjustment provided in the previous sentence as if the
     Additional Retiree Medical and Life Insurance Amount had been included in
     the original determination of the Actual Retiree Medical and Life Insurance
     Amount.

          (m) Except as Buyer and any Transferred Employee may otherwise
mutually agree, Buyer shall pay to each Non-Bargaining Unit Transferred Employee
whose employment is terminated without cause by Buyer or one of its Affiliates
within the period commencing on the Closing Date and ending eighteen (18) months
thereafter severance payments equal to the greater of (i) such Transferred
Employee's Total Compensation for the remainder of such eighteen (18) month
period as if still employed and (ii) an amount equal to one (1) week's base pay
for each full year of service with Seller and/or NMC (up to a maximum of thirty
(30) weeks' base pay). Buyer is not establishing any separation plan or
severance agreement, plan or coverage to replicate any separation plan or
severance agreement, plan or coverage for the Non-Bargaining Unit Transferred
Employees that is identified in Schedules 4.8 or 4.9(a) (including any
agreement, coverage or plan so identified in Schedules 4.8 or 4.9(a) as being
specifically applicable to one or more Big Rock ISFSI Employees), and Buyer
shall not be obligated to provide any Non-Bargaining Unit Transferred Employee
any severance payment or other benefits upon the termination of such
Non-Bargaining Unit Transferred Employee's employment by Buyer without cause
other than as provided in the preceding sentence. Nothing contained herein shall
alter the at-will employment relationship of any Non-Bargaining Unit Transferred
Employee.

          (n) Buyer shall provide relocation assistance to any Bargaining Unit
Transferred Employee transferred more than sixty (60) miles from his/her current
place of employment to one of Buyer's other facilities, in accordance with the
terms of the Collective Bargaining Agreement.

          (o) Seller shall inform Buyer of any planned termination of employment
by any executive, key employee or group of five (5) or more employees at
Palisades reasonably promptly after Seller acquires Knowledge thereof.

     6.11. Risk of Loss.

          (a) Prior to the Closing, Buyer shall not bear any risk of loss or
damage to the property included in the Included Assets. Seller shall replace or
repair any damage to the Included Assets in accordance with Good Utility
Practices, except as otherwise provided in paragraphs (b) or (c) below.

          (b) If, before the Closing, all or any material portion of the
Included Assets are taken by eminent domain or are the subject of a pending or
(to the Knowledge of Seller) contemplated taking which has not been consummated,
Seller shall notify Buyer promptly in writing of such fact. Buyer and Seller
shall negotiate in good faith to settle the Loss resulting from such taking
(including by making a fair and equitable adjustment to the Purchase Price)


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<PAGE>

and, upon such settlement, consummate the transactions contemplated by this
Agreement pursuant to the terms of this Agreement. If no such settlement is
reached within sixty (60) days after Seller has notified Buyer of such taking,
and if such taking creates a Material Adverse Effect, then Buyer or Seller may
terminate this Agreement pursuant to Section 9.1(g); provided, that any such
termination notice must be given no later than ten (10) Business Days after the
expiration of such sixty (60) day period.

          (c) If, before the Closing, all or any material portion of the
Included Assets is damaged or destroyed by fire, or other casualty, Seller shall
notify Buyer promptly in writing of such fact. If Seller has not notified Buyer
within fifteen (15) days after its occurrence of its intention to repair such
damage, degradation or destruction (such repair to be reasonably satisfactory to
Buyer), Buyer and Seller shall negotiate in good faith to settle the Loss
resulting from such casualty (including by making a fair and equitable
adjustment to the Purchase Price) and, upon such settlement, consummate the
transactions contemplated by this Agreement pursuant to the terms of this
Agreement. If no such settlement is reached within sixty (60) days after Seller
has notified Buyer of such casualty, and if such damage or destruction creates a
Material Adverse Effect, then Buyer or Seller may terminate this Agreement
pursuant to Section 9.1(g); provided, that any such termination notice must be
given no later than ten (10) Business Days after the expiration of such sixty
(60) day period.

     6.12. Qualified Decommissioning Fund.

          (a) At the Closing, Seller shall cause to be transferred to the
Trustee under the Post-Closing Decommissioning Trust Agreement all of the assets
of the Seller's Qualified Decommissioning Fund, unless prior to such time Seller
shall have received a favorable private letter ruling from the IRS in respect of
withdrawing excess decommissioning funds, as contemplated by Section 6.18, in
which case Seller shall transfer an amount equal to the Decommissioning Target
or such other amount (but not less than the Decommissioning Target) specified in
such private letter ruling (the "PLR Decommissioning Amount"). Any assets held
by Seller's Qualified Decommissioning Fund that are in excess of the PLR
Decommissioning Amount (the "Excess PLR Decommissioning Amount") shall be
retained by the Seller's Qualified Decommissioning Fund for distribution to the
Seller as provided by the private letter ruling contemplated by Section 6.18.

          (b) Buyer shall take all reasonable steps necessary to satisfy any
requirements imposed by the NRC regarding the Buyer's Qualified Decommissioning
Fund, in a manner sufficient to obtain NRC approval of the transfer of Qualified
Decommissioning Fund assets from Seller to Buyer.

          (c) The Parties shall not take any actions that would cause the actual
Tax consequences of the transactions contemplated by this Agreement to differ
from or be inconsistent with the Requested Rulings set forth in Section 6.18.

          (d) Seller shall cause the Trustee of Seller's Qualified
Decommissioning Fund to pay final expenses for trustee and investment management
fees and other administrative expenses of Seller's Qualified Decommissioning
Fund to the extent practicable before the Closing. Seller shall cause the
Trustee of Seller's Qualified Decommissioning Fund to notify


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<PAGE>

Buyer in writing of any such Qualified Decommissioning Fund expenses due after
the Closing. Buyer agrees to direct the Trustee of the Post-Closing Qualified
Decommissioning Trust Agreement to pay the Qualified Decommissioning Fund
expenses identified in the preceding sentence to the extent not paid before the
Closing and such amount shall be charged against the Excess Qualified
Decommissioning Fund assets, or if such Excess Qualified Decommissioning Fund
assets are not sufficient to pay such expenses, Seller shall pay the same. Buyer
agrees to ensure that its trust agreements allow for the payment of such
expenses.

          (e) Any Excess Qualified Decommissioning Fund assets transferred to
Buyer pursuant to this Section 6.12 shall be distributed to Seller if and to the
extent required by Section 6.20(c).

          (f) Seller agrees not to amend Seller's Decommissioning Trust
Agreement between the date of this Agreement and the Closing Date without
Buyer's prior written consent, which shall not be unreasonably withheld, except
for any amendment which may be required to be made to the Seller's
Decommissioning Trust Agreement by any Law or to permit the transfers referred
to in this Section 6.12 or to permit return to Seller of assets of the Qualified
Decommissioning Fund in excess of the Decommissioning Target.

     6.13. Spent Nuclear Fuel Fees.

          Before the Closing and at all times thereafter, Seller shall remain
liable for, and pay as they come due, all Spent Nuclear Fuel Fees attributable
to electricity generated at Palisades and the Big Rock Point Plant Operating
Facility and sold prior to the Closing, including the Pre-1983 Fee, and Buyer
shall have no Liability or responsibility therefor. Buyer shall be liable for
all Spent Nuclear Fuel Fees attributable to electricity generated at Palisades
and sold after the Closing, and Seller shall have no Liability or responsibility
therefor.

     6.14. Standard Spent Fuel Disposal Contract; Spent Nuclear Fuel Litigation.

          (a) At the Closing, (i) Seller shall assign to Buyer, and Buyer shall
assume, Seller's rights, duties, title and interest in and to the Standard Spent
Fuel Disposal Contract (except for the obligation to pay the Pre-1983 Fee),
including, to the extent permitted by Law but subject to the Department of
Energy Claim and Section 6.14(d) below, the right to pursue and recover damages
arising post-Closing from the Department of Energy's failure to commence the
removal, transportation and acceptance or its delay in accepting Spent Nuclear
Fuel from Palisades and from the Big Rock Point Plant Operating Facility (now
located at the Big Rock ISFSI) for disposal pursuant to the Standard Spent Fuel
Disposal Contract (the "Post-Closing SNF Claim") and (ii) Buyer shall assume
title to, and responsibility for the management, storage, removal,
transportation and disposal of, all Spent Nuclear Fuel of Palisades located at
the Palisades Site and all Spent Nuclear Fuel located at the Big Rock ISFSI Site
in each case as of the Closing. Seller shall provide the required notice to the
Department of Energy of the assignment of the Standard Spent Fuel Disposal
Contract to Buyer within ninety (90) days of Closing, such notice to be in a
form reasonably acceptable to Seller and Buyer and to include a copy of this
Agreement therewith. Notwithstanding the foregoing, if a court of competent
jurisdiction finally determines that the Post-Closing SNF Claim is not
assignable hereunder, then Seller shall retain and prosecute such claim in a
manner as reasonably directed by Buyer and, to


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the extent Seller actually recovers damages relating to any Post-Closing SNF
Claim, such amounts shall paid over to Buyer after deducting therefrom any
reasonable and documented costs, fees (including, without limitation, attorney,
consultant, engineer and expert fees) and expenses related to the prosecution of
such claims.

          (b) In determining the scope of the Department of Energy Claim, it
shall be assumed that Seller would have made all improvements to Palisades that
would have been required for the acceptance, removal, transportation and/or
disposal of Spent Nuclear Fuel pursuant to the Standard Spent Fuel Disposal
Contract in a timely manner and that Seller was not required to make increased
contributions to Seller's Qualified Decommissioning Fund or other
Decommissioning trust as a result of the Department of Energy's failure to
commence the removal, transportation, acceptance or any delay in accepting Spent
Nuclear Fuel from Palisades and from the Big Rock Point Plant Operating Facility
(now located at the Big Rock ISFSI) for disposal pursuant to the Standard Spent
Fuel Disposal Contract. Seller agrees not to bring any claim against the
Department of Energy (or include any such claim within the Department of Energy
Claim) asserting that the amount of the Purchase Price was diminished or that
there has been any diminution in value of the Palisades Assets at or prior to
the Closing, that the Palisades Facility was subject to a taking by eminent
domain or otherwise, or that Seller was required to make increased contributions
to Seller's Qualified Decommissioning Fund as a result of the Department of
Energy's failure to commence the removal, transportation, acceptance or any
delay in accepting Spent Nuclear Fuel from Palisades and from the Big Rock Point
Plant Operating Facility (now located at the Big Rock ISFSI) for disposal
pursuant to the Standard Spent Fuel Disposal Contract. Seller also agrees that
any diminished value claim relating to the period from and after the Closing
that it brings against the Department of Energy with respect to the Big Rock
ISFSI shall be limited to a claim for Thirty Million Dollars ($30,000,000), plus
interest from and after the Closing.

          (c) Buyer acknowledges and agrees that, in connection with the
Department of Energy Claim, Seller has calculated its claim for pre-Closing
damages and taken the position with the Department of Energy that Seller would
have allocated certain queue/scheduling rights under the Standard Spent Fuel
Disposal Contract in respect of the pick-up by the Department of Energy of Spent
Nuclear Fuel from Palisades to the Big Rock Point Plant Operating Facility, such
that all Spent Nuclear Fuel from the Big Rock Point Plant Operating Facility
would have been picked-up by the Department of Energy prior to any pick-up of
Spent Nuclear Fuel from Palisades and therefore Seller would not have had to
construct the Big Rock ISFSI but for the Department of Energy's breach of the
Standard Spent Fuel Disposal Contract. Buyer agrees not to take any position
inconsistent with the foregoing or to otherwise impair the potential damages
recoverable by Seller pursuant to the Department of Energy Claim.

          (d) Buyer acknowledges and agrees that (i) the Post-Closing SNF Claim
does not include, and Seller has retained, the right to claim certain
post-Closing damages under the Standard Spent Fuel Disposal Contract in respect
of the Big Rock ISFSI, as more particularly described in the definition of the
Department of Energy Claim, (ii) Seller has retained rights under the Standard
Spent Fuel Disposal Contract to the extent necessary to prosecute such claims
and (iii) it shall not to take any position inconsistent with the foregoing.


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          (e) Seller acknowledges and agrees that Buyer shall be entitled to
prosecute any and all claims for post-Closing damages arising under the Standard
Spent Fuel Disposal Contract, including post-Closing damages with respect to the
Big Rock ISFSI Assets in excess of the Big Rock Amount.

          (f) Buyer agrees to provide Seller with a copy within ten (10)
Business Days of receipt of all notices provided to Buyer from the Department of
Energy regarding the date on which the Pre-1983 Fee will become due and payable
in accordance with the terms of the Standard Spent Fuel Disposal Contract, and
Seller agrees to cause such amounts to be duly paid when due as provided in
Section 2.4(h), subject to any rights of set-off to which Seller may be entitled
by reason of the Department of Energy's defaults under the Standard Spent Fuel
Disposal Contract.

          (g) Seller shall deliver to Buyer at the Closing security in respect
of Seller's obligation to pay the Pre-1983 Fee in the form of cash, letter(s) of
credit, or other security reasonably acceptable to Buyer in an amount not less
than the then-outstanding amount of the Pre-1983 Fee (such cash, letter of
credit or security to be adjusted not less than annually to reflect changes in
the amount of the Pre-1983 Fee due); provided, however, that if at any time the
rating of the unsecured, senior long-term debt obligations (not supported by
third-party credit enhancements) of Seller's Parent shall equal or exceed Baa3
by Moody's Investment Services, Inc. (or its successor), or BBB- by Standard and
Poor's Rating Group (or its successor), Seller shall be permitted to substitute
in lieu of such cash, letter(s) of credit or other security a guaranty of
Seller's Parent in the form attached hereto as Exhibit K (the "Consumers
Guaranty").

          (h) If future litigation by Buyer against the Department of Energy for
damages from the Department of Energy's failure to commence the removal,
transportation or acceptance or its delay in accepting Spent Nuclear Fuel from
Palisades or the Big Rock Point Plant Operating Facility (now located at the Big
Rock ISFSI) should result in a final, unappealable ruling that Buyer is entitled
to damages, but that such damages, in part or in full, must be offset against
any Liability to pay the Pre-1983 Fee, then Seller shall promptly pay to Buyer
the amount of any such offset, subject to receipt by Seller of either a written
acknowledgement by the Department of Energy or a Government Order that Seller's
liability for the Pre-1983 Fee shall be reduced by the amount of any such
offset.

     6.15. Department of Energy Decontamination and Decommissioning Fees.

          Seller will continue to pay all Department of Energy Decontamination
and Decommissioning Fees relating to separative work units purchased and/or
consumed at Palisades and the Big Rock Point Plant Operating Facility prior to
the Closing Date, including all annual Special Assessment invoices to be issued
after the Closing Date by the Department of Energy, as contemplated by its
regulations at 10 C.F.R. Part 766 implementing Sections 1801, 1802, and 1803 of
the Atomic Energy Act.

     6.16. Cooperation Relating to Insurance and Price-Anderson Act.

          Until the Closing, Seller will maintain, or cause to be maintained, in
effect (i) insurance in amounts and against such risks and losses as is
customary in the commercial nuclear


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power industry and (ii) not less than the level of property damage and liability
insurance for the Facilities as in effect on the Effective Date. Seller shall
cooperate with Buyer's efforts to obtain insurance, including insurance required
under the Price-Anderson Act or other Nuclear Laws with respect to the Palisades
Assets and the Big Rock ISFSI Assets. In addition, subject to Buyer's written
commitment to satisfy its indemnification obligations under Section 8.1(a),
Seller agrees to use Commercially Reasonable Efforts to assist Buyer in making
any claims against pre-Closing insurance policies that may provide coverage
related to Assumed Liabilities and Obligations.

     6.17. Release of Seller.

          Buyer shall use Commercially Reasonable Efforts to support Seller's
efforts to obtain a written release of Seller effective as of the Closing with
respect to obligations arising after the Closing under any of the Seller's
Agreements, Fuel Contracts or Non-material Contracts assigned to Buyer
hereunder, provided that Buyer shall not be required to assume additional costs,
expenses or Liabilities in connection therewith.

     6.18. Private Letter Ruling.

          The Parties agree to cooperate in good faith in the preparation and
joint filing of the private letter ruling request(s) to be made by Buyer and
Seller in order to obtain the Requested Rulings. Buyer and Seller shall use
Commercially Reasonable Efforts to obtain prior to the Closing Date one or more
private letter ruling(s) from the IRS (but receipt of any such letter rulings
shall not be a condition to the occurrence of the Closing) determining that (i)
the transfer of assets from the Seller's Qualified Decommissioning Fund to the
Buyer's Qualified Decommissioning Fund is a disposition that either satisfies or
is treated as satisfying the requirements of Treas. Reg. 1.468A-6(b) pursuant to
the IRS's exercise of discretion under Treas. Reg. 1.468A-6(g)(1) (including a
ruling that the Seller's Qualified Decommissioning Fund may transfer at Closing
a portion of its assets equal to the PLR Decommissioning Amount), (ii) none of
Seller, Buyer nor their respective Qualified Decommissioning Funds will
recognize gain or loss upon the transfer of assets from the Seller's Qualified
Decommissioning Fund to the Buyer's Qualified Decommissioning Fund, (iii) the
Buyer's Qualified Decommissioning Fund will be treated as satisfying the
requirements of Code Section 468A, (iv) the Buyer's Qualified Decommissioning
Fund will have a carryover Tax basis in the assets received from the Seller's
Qualified Decommissioning Fund and (v) Buyer is not treated as in constructive
receipt of any Excluded Assets comprised of any fund relating to
Decommissioning, other than the Seller's Qualified Decommissioning Fund, which
Excluded Assets shall be released from being dedicated to Decommissioning
Palisades (the "Requested Rulings"). The Requested Rulings shall be modified, as
necessary, to take into account any legislation enacted on or after the
Effective Date or any change in the Code or the Treasury Regulations promulgated
thereunder or the issuance of any notice, revenue procedure, private letter
ruling or similar administrative item by the IRS occurring on or after the
Effective Date. Neither Buyer nor Seller shall take any action that would cause
the transfer of assets from the Seller's Qualified Decommissioning Fund to the
Buyer's Qualified Decommissioning Fund to fail to be treated as satisfying the
requirements of Treas. Reg. 1.468A-6(b) (assuming solely for purposes of this
sentence that Palisades in the hands of Buyer qualifies as a "nuclear power
plant" within the meaning of Treasury Regulation Section 1.468A-1(b)(4) because
Buyer's rates for the sale or furnishing of


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electricity are not established or approved by a public utility commission or
under the jurisdiction of the Rural Electric Administration), or cause Buyer and
Seller to fail to obtain the Requested Rulings. The user fee set forth in the
applicable IRS Revenue Procedure for substantially identical letter rulings by a
common sponsor shall be shared equally by both Parties. Each Party will bear its
own legal fees with respect to any requests. The Parties agree to use
Commercially Reasonable Efforts to file the private letter ruling request
seeking the Requested Rulings within forty-five (45) days of the Effective Date.

     6.19. NRC Commitments.

          Following the Closing, Buyer shall maintain and operate the Facilities
in accordance with the NRC Commitments, the NRC Licenses, applicable NRC
regulations and policies and with applicable Nuclear Laws.

     6.20. Decommissioning; Return of Excess Qualified Decommissioning Fund
Assets.

          (a) Buyer hereby agrees that it will complete, at its expense, the
Decommissioning of the Facilities and each Site once that Site is no longer
utilized (i) in the case of Palisades, either for power generation of any kind
or for any storage of Spent Nuclear Fuel or other Nuclear Material and (ii) in
the case of the Big Rock ISFSI, for storage of Spent Nuclear Fuel or other
Greater Than Class C Waste, and that it will complete all Decommissioning
activities in accordance with all Nuclear Laws and Environmental Laws, including
applicable requirements of the Atomic Energy Act and the NRC's rules,
regulations, orders and pronouncements thereunder. The Parties acknowledge that
Seller shall have no obligation to audit, monitor or enforce rights and
obligations with respect to this Section 6.20.

          (b) Buyer shall use Commercially Reasonable Efforts to obtain all
consents and approvals necessary to permit Buyer to ship Spent Nuclear Fuel and
other Nuclear Material stored at the Big Rock ISFSI from the Big Rock ISFSI to
Palisades in the event the current Law is amended to permit such storage.

          (c) Without regard to the actual Decommissioning expenses incurred by
the Buyer or the Buyer's Qualified Decommissioning Fund, Buyer shall remit, or
cause Buyer's Qualified Decommissioning Fund to remit, to Seller an amount in
cash equal to (i) the assets of the Qualified Decommissioning Fund transferred
to Buyer, pursuant to Section 6.12 or Section 2.1 in excess of the
Decommissioning Target, if any, plus or less (as the case may be) (ii) earnings
(or losses) thereon accrued from and after the Closing Date to but not including
the date paid, at a rate equal to the total pre-tax return earned by the Buyer's
Qualified Decommissioning Fund during such period of time (such amounts under
clauses (i) and (ii) constituting the "Notional Investment Amount") (it being
understood earnings and losses shall be proportionately allocated to the
Notional Investment Amount), less (iii) the amount of any Income Taxes imposed
upon the Buyer's Qualified Decommissioning Fund properly allocable to the
Notional Investment Amount and any administrative expenses properly allocable to
such Notional Investment Amount (it being understood such Income Taxes and
administrative expenses shall be proportionately allocated to the Notional
Investment Amount), less (iv) any Income Taxes that would be imposed upon the
Buyer's Qualified Decommissioning Fund with respect to the distribution of such
excess to the Buyer if and to the extent that liquidation of investments would


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be required in order to make such distribution in cash in accordance with
Section 6.20(e) below or Income Taxes that would be imposed upon Buyer's
Qualified Decommissioning Fund on the distribution of assets, less (v) any
Income Tax liability that would be imposed upon Buyer upon withdrawal of the sum
required by this Section 6.20(c) from the Buyer's Qualified Decommissioning Fund
calculated by applying the then-maximum Tax rate applicable under Code Section
11 and relevant state Laws and assuming a full deduction for any state Taxes
(the "Tax Rate") (it being understood that the Income Tax basis of the assets
distributed or liquidated under clause (iv) or this clause (v) shall be
proportionate to the Income Tax basis of all of the assets in Buyer's Qualified
Decommissioning Fund), plus (vi) the net present value of any Income Tax
benefit, if any, accruing to Buyer resulting from the Buyer's obligation to make
or the making of the payment required by this Section 6.20(c) (it being
understood that to calculate the Tax benefit, the Parties shall utilize the Tax
Rate in effect on the date of payment and the long-term IRS applicable federal
rates, compounded annually, in effect on such date (or if applicable federal
rates are no longer published by the IRS, a comparable measure) less (vii)
Buyer's Qualified Decommissioning Fund Tax Amount (collectively, the "Excess
Qualified Decommissioning Fund Assets") promptly upon the occurrence of the
first to occur of the following events:

               (1) The Palisades Facilities and the Palisades Site are
     Decommissioned by Buyer or no funds remain in the Buyer's Qualified
     Decommissioning Fund;

               (2) (A) a change in the Code or the Treasury Regulations
     promulgated thereunder or (B) the issuance of a notice, revenue procedure
     or similar administrative item by the IRS, in either case, permitting the
     Buyer without seeking a private letter ruling from the IRS to withdraw a
     portion of the assets held by Buyer's Qualified Decommissioning Fund which
     were transferred from Seller's Qualified Decommissioning Fund or
     attributable to such assets without the imposition upon the Buyer or the
     Buyer's Qualified Decommissioning Fund of any Tax (including any Tax
     resulting from the failure of Buyer's Qualified Decommissioning Fund to
     continue to satisfy the applicable requirements of Code Section 468A) other
     than the Taxes specified in clauses (iii), (iv) and (v) above in this
     Section 6.20(c); provided that Buyer shall not be required to rely on such
     Code, Treasury Regulations or administrative item prior to Seller having
     furnished Buyer and the Trustee of the Post-Closing Decommissioning Trust
     Agreement with a legal opinion of Tax counsel (reasonably acceptable to
     Buyer and the Trustee of the Post-Closing Decommissioning Trust Agreement),
     in form and substance reasonably acceptable to Buyer and such Trustee, to
     the effect that no Tax or penalty will be imposed upon the Buyer or the
     Buyer's Qualified Decommissioning Fund (other than the Taxes specified in
     clauses (iii), (iv) and (v) above in this Section 6.20(c)) in connection
     with the distribution by the Buyer's Qualified Decommissioning Fund of a
     specified portion of its assets to Buyer; or

               (3) The receipt of a favorable private letter ruling from the IRS
     that a portion of the assets of Buyer's Qualified Decommissioning Fund and
     which were transferred from Seller's Qualified Decommissioning Fund or
     attributable to such assets may be distributed by the Buyer's Qualified
     Decommissioning Fund to the Buyer without the imposition of any Tax other
     than the Taxes specified in clauses (iii), (iv) and (v)


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     above in this Section 6.20(c); provided that the Buyer shall not be
     required to seek such private letter ruling from the IRS unless and until
     Seller shall have furnished to Buyer a legal opinion of Tax counsel
     (reasonably acceptable to Buyer), in form and substance reasonably
     acceptable to Buyer, to the effect that no Tax (including any Tax resulting
     from the failure of Buyer's Qualified Decommissioning Fund to continue to
     satisfy the applicable requirements of Code Section 468A) should be imposed
     upon the Buyer or the Buyer's Qualified Decommissioning Fund (other than
     the Taxes specified in clauses (iii), (iv) and (v) above in this Section
     6.20(c) in connection with the distribution by the Buyer's Qualified
     Decommissioning Fund of a specified portion of its assets to the Buyer, in
     which case Buyer shall promptly prepare and file such private letter ruling
     request and diligently pursue the same. The fees and costs in connection
     with obtaining such private letter ruling shall be shared equally by Buyer
     and Seller.

          (d) If one of the events described in Section 6.20(c) shall have
occurred, but such event shall only permit the withdrawal of a portion, but not
all, of the Excess Qualified Decommissioning Fund assets, then the payment
obligation of Buyer contained in Section 6.20(c) shall nonetheless apply with
respect to such portion of the Excess Qualified Decommissioning Fund assets and
the provisions of Section 6.20(c) shall remain in full force and effect with
respect to any remaining Excess Qualified Decommissioning Fund assets not yet
paid to Seller.

          (e) Following Closing and at all times thereafter until the Excess
Qualified Decommissioning Fund Assets are paid to the Seller pursuant to Section
6.20(c), Buyer shall (i) deliver or cause Trustee of the Buyer's Post-Closing
Decommissioning Trust Agreement to deliver to Seller all financial reports,
documents, information statements and schedules relating to the Buyer's
Qualified Decommissioning Fund promptly upon issuance thereof, (ii) provide
Seller promptly with copies of all written communications to or from the NRC and
the MPSC regarding Decommissioning of either the Big Rock ISFSI or Palisades or
regarding the level of Decommissioning funding for either Facility, including
but not limited to the periodic reports to the NRC regarding such funds, (iii)
use Commercially Reasonable Efforts to cause the Trustee to maintain all the
assets transferred by the Seller's Qualified Decommissioning Fund to the Buyer's
Qualified Decommissioning Fund in excess of the Decommissioning Target (plus all
earnings related thereto) in one separate account (the "First Decommissioning
Account") and assets in an amount equal to the Decommissioning Target (plus all
earnings related thereto) in a second separate account (the "Second
Decommissioning Account"), (iv) maintain sufficient funds in the Second
Decommissioning Account to comply with all NRC regulations, orders or directives
regarding the adequacy of Decommissioning funding, as if the First
Decommissioning Account were unavailable for Decommissioning, whether by
additional contributions or otherwise, (v) except to the extent provided in
Section 6.20(c), use Commercially Reasonable Efforts to cause the Trustee to
disburse funds from the Buyer's Qualified Decommissioning Fund only for
Decommissioning, the payment of the Buyer's Qualified Decommissioning Trust's
expenses and related purposes, and (vi) upon Decommissioning, use and exhaust
all funds in the Second Decommissioning Account before expending any funds from
the First Decommissioning Account. At Closing, all assets transferred by the
Seller's Qualified Decommissioning Fund to the Buyer's Qualified Decommissioning
Fund shall be apportioned pro rata between the First Decommissioning Account and
the Second Decommissioning Account with each account receiving an identical
percentage of each class or type of transferred assets to


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the greatest extent possible. Each account shall be managed by the same
investment manager applying the same investment guidelines principles and all
expenses (including Taxes) shall be shared proportionately between the two
accounts. To the extent it is not possible under applicable Law to establish
separate accounts representing the First Decommissioning Account and the Second
Decommissioning Account, Buyer shall cause the Trustee of Buyer's Qualified
Decommissioning Fund to establish separate books and records containing notional
accounts for the amounts described in clause (iii) above, and Buyer shall
otherwise treat such notional accounts as separate accounts for all purposes and
comply with all of the requirements of this Section 6.20(e) with respect to such
notional accounts, as though such notional accounts were the First
Decommissioning Account and the Second Decommissioning Account, respectively.

          (f) If any event described in Section 6.20(c) shall have occurred,
Buyer and Seller agree to cooperate and take all Commercially Reasonable Efforts
necessary to receive any additional consents (including any NRC consents) or to
satisfy any requirements not specified in Section 6.20(c) in order to permit the
transfers required by Section 6.20(c) above.

          (g) Buyer agrees to deliver to Seller a copy of Buyer's Post-Closing
Decommissioning Trust Agreement (reflecting the requirements stated in Section
5.7) at least 20 days prior to the Closing Date and, except to the extent
required by law, to not amend the Buyer's Post Closing Decommissioning Trust
Agreement following such delivery in a manner that would be adverse to Seller,
without the Seller's prior written consent, which consent shall not be
unreasonably withheld.

     6.21. Buyer's Parent Guaranty.

          Buyer's Parent shall provide on the date hereof the Buyer's Parent
Guaranty to provide security for compliance with Buyer's payment obligations
under this Agreement, which guaranty shall remain in effect until the earliest
to occur of (i) all such obligations having been fully and irrevocably performed
and satisfied, (ii) the occurrence of the Closing and (iii) if applicable, the
termination of this Agreement pursuant to Section 9.1 (other than a termination
under Section 9.1(f)). If at any time there shall occur a Downgrade Event with
respect to Buyer's Parent, then Seller shall supplement the Buyer's Parent
Guaranty with either (i) a cash deposit in the amount of Thirty Million Dollars
($30,000,000), which deposit shall earn interest at the Interest Rate or (ii) a
letter of credit in the amount of Thirty Million Dollars ($30,000,000). Any such
letter of credit shall be reasonably satisfactory to Seller in form and
substance, shall be issued by a financial institution reasonably acceptable to
Seller, shall remain in effect until the expiration of the Buyer's Parent
Guaranty. Any such security shall be subject to all terms and conditions of this
Agreement otherwise applicable to the Buyer's Parent Guaranty. In the event
Buyer shall fail to provide such security within five (5) Business Days of
receipt of written notice, then a breach of this Agreement shall be deemed to
have occurred.

     6.22. Nuclear Insurance Policies.

          Following the Closing, Buyer shall use Commercially Reasonable Efforts
to maintain in effect policies of liability and property insurance with respect
to the ownership, operation and maintenance of the Facilities which shall afford
protection against the insurable hazards and risks with respect to which nuclear
facilities of similar size and type to the Facilities


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customarily maintain insurance, and which meets the requirements of 10 C.F.R.
Section 50.54(w) and 10 C.F.R. Part 140. Such coverage shall include nuclear
liability insurance from ANI in such form and in such amount as will meet the
financial protection requirements of the Atomic Energy Act, and an agreement of
indemnification as contemplated by Section 170 of the Atomic Energy Act. In the
event that the nuclear liability protection system contemplated by Section 170
of the Atomic Energy Act is repealed or changed, Buyer shall use Commercially
Reasonable Efforts to maintain in effect alternate protection against nuclear
liability. In addition, Buyer shall provide the financial assurance that it will
be able to pay the retrospective premiums for the Facilities to the extent it is
liable for the same under this Agreement as prescribed by Section 170 of the
Atomic Energy Act.

     6.23. No Transport or Storage of Waste.

          From and after the Closing, Buyer shall not permit any Spent Nuclear
Fuel or other Nuclear Materials generated outside of the Palisades Facilities to
be transported to the Palisades Site or to be stored at the Palisades Site for
any period of time, provided this Section 6.23 shall not apply to Spent Nuclear
Fuel or other Nuclear Materials located at the Big Rock ISFSI if Buyer obtains
the necessary regulatory approvals to transport and store such Spent Nuclear
Fuel and other Nuclear Materials at the Palisades Site. From and after the
Closing, Buyer shall not permit any Spent Nuclear Fuel or other Nuclear
Material, other than that stored at the Big Rock ISFSI as of the Closing, to be
transported to the Big Rock ISFSI Site or to be stored at the Big Rock ISFSI
Site for any period of time.

     6.24. Title and Survey.

          (a) Seller will reimburse Buyer for fifty percent (50%) of the
premium(s) paid by Buyer for issuance of title insurance policies (including
endorsements) pursuant to and in accordance with the Approved Marked Up Title
Commitments. Buyer will make arrangements for the issuance of such policies, and
Seller shall reasonably cooperate with Buyer in connection therewith.

          (b) Seller will, at its expense, deliver to Buyer as soon as
reasonably practicable but no later than December 31, 2006, revisions of the
existing survey for the Palisades Site identified as Sheridan Surveying Company
Drawing Number SF16761G, Sheet 1, Rev B, dated 3/23/06 (the "Palisades Survey")
and the existing survey for the Big Rock ISFSI Site identified as Ferguson &
Chamberlain Associates dated 10/20/2005 job SB-21094c.05 (the "Big Rock ISFSI
Survey") each to include necessary detail to constitute an "Urban ALTA/ACSM Land
Title Survey" meeting the 2005 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys as adopted by the American Land Title Association
and the National Society of Professional Surveyors (a member organization of the
American Congress on Surveying and Mapping), and shall include and incorporate
items 1 through 4, 6, 10, 11a and 18 of Table A of such Minimum Standard Detail
Requirements. Each of the Palisades Survey and the Big Rock ISFSI Survey will be
certified to Buyer and the title insurance company.

          (c) Buyer and Seller shall at or before Closing, enter into a license
agreement, on mutually acceptable terms (including a 99-year term), pursuant to
which Buyer shall grant Seller a non-terminable, nonexclusive license to
operate, maintain, repair, remove, upgrade,


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modify, and replace Seller's currently existing radio communications system
antenna and related equipment, located on the "Meteorological Tower Site" (as
such term is defined in the Palisades Deed) and a right for ingress to and
egress from such Meteorological Tower Site.

          (d) At the Closing, Seller will deliver a quitclaim deed conveying the
following easements: (1) easement recorded in Liber 2292, Page 598 Berrien
County records and (2) easement recorded in Liber 1009, Page 165 Allegan County
records.

     6.25. Big Rock Amount.

          At the Closing, Seller shall pay to Buyer an amount equal to Thirty
Million Dollars ($30,000,000) (the "Big Rock Amount"). Buyer expressly
acknowledges and agrees that, from and after the Closing Seller shall have no
further responsibility or Liability whatsoever in respect of the Big Rock ISFSI,
except for its obligations under Section 8.1, if any, and under the Power
Purchase Agreement.

     6.26. Removal of Trade Names, Trademarks, etc.

          Seller agrees, at Seller's expense, to remove prior to the Closing any
trade names, trademarks, logos and service marks of Consumers Energy or NMC
affixed to or appearing on any public signage, buildings, equipment or motorized
vehicles and included in the Included Assets.

     6.27. Financial Assurances to the NRC.

          If and to the extent required by the NRC, Buyer shall provide and
maintain sufficient financial assurances, whether in the form of a corporate
guaranty or other arrangement satisfactory to the NRC, so as to meet its license
obligations as to Palisades and the Big Rock ISFSI.

                                    ARTICLE 7
                                   CONDITIONS

     7.1. Conditions to Obligations of Buyer.

          The obligations of Buyer to purchase the Included Assets and to
consummate the other transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing of the following
conditions (any of which may be waived by Buyer prior to the Closing in whole or
in part which waiver shall be in writing and which waiver shall not be
considered a waiver of any other provision of this Agreement unless the writing
so specifically states):

          (a) All applicable waiting periods under the HSR Act relating to the
consummation of the transactions contemplated hereby shall have expired or been
terminated;

          (b) No preliminary or permanent injunction or other order or decree by
any federal or state court or Governmental Authority which restrains or prevents
the consummation of the transactions contemplated hereby shall have been issued
and remain in effect (each Party


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<PAGE>

agreeing to cooperate in all efforts to have any such injunction, order or
decree lifted) and no Law shall have been enacted by any state or federal
government or Governmental Authority which prohibits the consummation of the
transactions contemplated hereby;

          (c) Buyer shall have received all of Buyer's Required Regulatory
Approvals, in form and substance reasonably satisfactory to Buyer, and such
approvals shall be in full force and effect and either (i) shall be final and
non-appealable or (ii) if not final and non-appealable, shall not be subject to
the possibility of appeal, review or reconsideration which, in the reasonable
opinion of Buyer, is likely to be successful;

          (d) Seller shall have received all of Seller's Required Regulatory
Approvals (other than those the failure of which to obtain would not reasonably
be expected to result in a Material Adverse Effect or a Buyer Material Adverse
Effect), none of such approvals shall contain any conditions that could
reasonably be expected to result in a Material Adverse Effect or a Buyer
Material Adverse Effect, and such approvals shall be in full force and effect
and either (i) shall be final and non-appealable or (ii) if not final and non-
appealable, shall not be subject to the possibility of appeal, review or
reconsideration which, in the reasonable opinion of Buyer (A) is likely to be
successful and (B) if successful, would reasonably be expected to create a
Material Adverse Effect or Buyer Material Adverse Effect;

          (e) Seller shall have received and delivered to Buyer all third party
consents required for the transfer or assignment of all Seller's Agreements,
Fuel Contracts and, to the extent reasonably necessary to operate the
Facilities, the Transferable Permits;

          (f) Seller shall have performed and complied in all material respects
with the covenants and agreements contained in this Agreement which are required
to be performed and complied with by Seller at or prior to the Closing;

          (g) The representations and warranties of Seller set forth in this
Agreement that are qualified by materiality shall be true and correct as of the
Closing Date, and all other representations and warranties of Seller shall be
true and correct in all material respects as of the Closing Date, in each case
as though made at and as of the Closing Date (or, in each case, if made as of a
specified date, as of such date);

          (h) Buyer shall have received a certificate from an authorized officer
of Seller, dated the Closing Date, to the effect that the conditions set forth
in Section 7.1(f) and (g) have been satisfied by Seller;

          (i) Seller shall have delivered, or caused to be delivered, to Buyer
at the Closing, Seller's closing deliveries described in Section 3.6;

          (j) Seller shall have delivered, or caused to be delivered, the
written consent of Michigan Department of Natural Resources (and/or other
appropriate State of Michigan agency) to the assignment from Seller to Buyer of
the Easement to Construct and Maintain Water Intake Line and Discharge Conduit
dated January 17, 1968 and recorded February 19, 1968 in Liber 570, Page 271,
Van Buren County Records;


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<PAGE>

          (k) No Buyer Material Adverse Effect or Material Adverse Effect shall
have occurred and be continuing;

          (l) The lien of the Mortgage Indenture on the Included Assets shall
have been released and any documents necessary to evidence such release shall
have been delivered to Buyer;

          (m) Releases pertaining to that certain Installment Sales Contract and
that certain Grant of Project Easements, each dated August 1, 1973, as
identified on Schedule 4.3(a), shall have been obtained;

          (n) The Seller shall have transferred to the Trustee of the
Post-Closing Decommissioning Trust Agreement a portion or all of the assets of
Seller's Qualified Decommissioning Fund, in accordance with Section 6.12;

          (o) The Ancillary Agreements shall be in full force and effect as of
the Closing;

          (p) The NPPOSA shall have been terminated;

          (q) Buyer shall be reasonably satisfied that no materially adverse
matters are disclosed by the updates to the Palisades Survey and the Big Rock
ISFSI Survey conducted pursuant to Section 6.24(b) that have not been previously
expressly shown on the Palisades Survey or the Big Rock ISFSI Survey or
expressly identified to Buyer in this Agreement.

          (r) The Palisades Facilities shall have been operating at an average
of not less than ninety-five percent (95%) of its licensed thermal output for a
period of fourteen (14) days immediately preceding the Closing Date;

          (s) Buyer shall have received from Chicago Title Insurance Company, at
Seller's sole cost (i) the Palisades Title Commitment, which shall have been
down-dated as of the Closing Date without any new or changed exceptions or
changes in Schedule A information, reflecting a coverage amount reasonably
acceptable to Buyer (not to exceed the Purchase Price) and confirming no
conditions to issuance of the title policy except for payment of the policy
premiums, except that such Palisades Title Commitment shall be marked up to
include (A) the following affirmative coverage endorsements: deletion of
standard exceptions; separate tax parcel; survey; contiguity and/or spreader;
location; owner's comprehensive; 9.0 environmental; access; creditor's rights;
3.1 zoning; and CC&R and (B) the following revisions to Schedule B, Part II
thereof: (1) the deletion of item 5 or the clarification of item 5 that it is
applicable only to Taxes that first become due and payable after the Closing;
(2) the deletion of each of items 21, 28 and 29; (3) the revision of item 24 to
clarify that the referenced mortgage therein encumbers only METC's interest
under the Amended and Restated Easement Agreement identified therein; and (4)
the limitation of the exception in item 6 to only those portions of the
Palisades Site that are specifically identified on the Palisades Survey as
updated pursuant to Section 6.24 as having been dedicated or conveyed for public
street, road or highway purposes, and (ii) the Big Rock Title Commitment, which
shall have been down-dated as of the Closing Date without any new or changed
exceptions or changes in Schedule A information, reflecting a coverage amount
reasonably acceptable to Buyer (not to exceed the Purchase Price) and confirming
no conditions


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<PAGE>

to issuance of the title policy except for payment of the policy premiums,
except that such Big Rock Title Commitment shall be marked up to include (A) the
following affirmative coverage endorsements: deletion of standard exceptions;
separate tax parcel; survey; contiguity and/or spreader; location; owner's
comprehensive; 9.0 environmental; access; creditor's rights; 3.1 zoning; and
CC&R and (B) the following revisions to Schedule B, Part II thereof: (1) the
deletion of item 5 or the clarification of item 5 that it is applicable only to
Taxes that first become due and payable after the Closing and (2) the deletion
of each of items 7 and 9 (together, the "Approved Marked Up Title Commitments"),
and Buyer shall be reasonably satisfied that it will be able to procure two (2)
separate ALTA Owner's Title Policies, Form B, one covering the Palisades Site
and the other covering the Big Rock ISFSI Site, conforming to the Approved
Marked Up Title Commitments.

          (t) Seller shall have amended its EPCRA Tier II report to include
stored amounts of boric acid and Dynacool, in addition to any other chemicals
required to be reported in such EPRCA report, and Buyer shall be reasonably
satisfied that such EPCRA report is in compliance with applicable Law;

          (u) Buyer shall have entered into an agreement permitting Buyer the
continued use, after the Closing, of the Emergency Operations Facility known as
the Allegan Service Center as an alternative off-Site relocation and mustering
or assembly facility on terms and conditions reasonably satisfactory to Buyer;

          (v) Buyer shall have entered into an agreement providing for the
purchase of energy for the operation of Palisades for station service, backup
and outage power when it is not self supplying such energy upon terms and
conditions reasonably acceptable to Buyer, and such agreement shall be in full
force and effect;

          (w) Buyer and Seller shall have entered into an agreement satisfying
the applicable NRC Licenses and operating requirements providing energy from the
Consumers Energy Ludington Pumped Storage Facility to Buyer at the transmission
interconnection point for such facility. With respect to so called "black start"
power during periods when Palisades is not operating and energy is not otherwise
available, upon terms and conditions reasonably acceptable to Buyer and Seller,
and such agreement shall be in full force and effect;

          (x) Seller shall have repaired in accordance with Good Utility
Practices the crane which was damaged in the 2006 refueling outage; and

          (y) Seller shall have fully paid Babcock & Wilcox Canada, Ltd. and any
of its subcontractors all amounts due as of Closing with respect to the design
and fabrication of the Palisades replacement reactor head (the "Head"), pursuant
to Purchase Order P804313 Rev. 1 and Value Contract No. 30000445 for Reactor
Vessel Closure Head Supply (the "Head Contract") (only to the extent that such
amounts have not been paid prior to Closing or have not been otherwise already
included in the calculation of the Capital Expenditures Shortfall), all work
with respect thereto required to be completed at or prior to the Closing shall
have been completed in accordance with the specifications of the Head Contract
and the requirements of all applicable Governmental Authorities, each party to
the Head Contract shall be in compliance with the material terms thereof, and
Buyer shall be reasonably satisfied that the Head will be


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<PAGE>

capable of being installed and operated in accordance with the Head Contract,
applicable Law and Good Utility Practices.

     7.2. Conditions to Obligations of Seller.

          The obligation of Seller to sell the Included Assets and to consummate
the other transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing of the following conditions (any of which
may be waived by Seller prior to the Closing in whole or in part which waiver
shall be in writing and which waiver shall not be considered a waiver of any
other provision of this Agreement unless the writing so specifically states):

          (a) All applicable waiting periods under the HSR Act relating to the
consummation of the transactions contemplated hereby shall have expired or been
terminated;

          (b) No preliminary or permanent injunction or other order or decree by
any federal or state court or Governmental Authority which restrains or prevents
the consummation of the transactions contemplated hereby shall have been issued
and remain in effect (each Party agreeing to cooperate in all efforts to have
any such injunction, order or decree lifted) and no Law shall have been enacted
by any state or federal government or Governmental Authority in the United
States which prohibits the consummation of the transactions contemplated hereby;

          (c) Seller shall have received all of the Seller's Required Regulatory
Approvals, in form and substance reasonably satisfactory to Seller, and such
approvals shall be in full force and effect and either (i) shall be final and
non-appealable or (ii) if not final and non-appealable, shall not be subject to
the possibility of appeal, review or reconsideration which, in the reasonable
opinion of the Seller, is likely to be successful;

          (d) Buyer shall have received all Buyer's Required Regulatory
Approvals (other than those the failure of which to obtain would not reasonably
be expected to result in a Material Adverse Effect, a material adverse effect on
the business, assets, operations or condition (financial or otherwise) of
Seller, or a Buyer Material Adverse Effect), none of such approvals shall
contain any conditions that could reasonably be expected to result in a Material
Adverse Effect, a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of Seller, or a Buyer Material Adverse
Effect, and such approvals shall be in full force and effect and either (i)
shall be final and non-appealable or (ii) if not final and non-appealable, shall
not be subject to the possibility of appeal, review or reconsideration which, in
the reasonable opinion of Seller (A) is likely to be successful and (B) if
successful, would reasonably be expected to create a Material Adverse Effect, a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Seller or a Buyer Material Adverse Effect;

          (e) Buyer shall have performed and complied with in all material
respects the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Buyer at or prior to the Closing;

          (f) The representations and warranties of Buyer set forth in this
Agreement that are qualified by materiality shall be true and correct as of the
Closing Date and all other representations and warranties of Buyer shall be true
and correct in all material respects as of the


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<PAGE>

Closing Date, in each case as though made at and as of the Closing Date (or, in
each case, if made as of a specified date, as of such date);

          (g) Seller shall have received a certificate from an authorized
officer of Buyer, dated the Closing Date, to the effect that the conditions set
forth in Sections 7.2(e) and (f) have been satisfied;

          (h) Buyer shall have delivered, or caused to be delivered, to Seller
at the Closing, Buyer's Closing deliveries described in Section 3.7;

          (i) No Buyer Material Adverse Effect shall have occurred and be
continuing;

          (j) Releases pertaining to that certain Installment Sales Contract and
that certain Grant of Project Easements, each dated August 1, 1973, as
identified on Schedule y4.3(a), shall have been obtained; and

          (k) The Ancillary Agreements shall be in full force and effect as of
the Closing.

                                    ARTICLE 8
                                 INDEMNIFICATION

     8.1. Indemnification.

          (a) Following the Closing, Buyer shall indemnify, defend and hold
harmless Seller, its Affiliates, and each of their respective officers,
directors, employees, shareholders and agents (each, a "Seller Indemnitee") from
and against any and all claims, demands, suits, losses, liabilities, damages,
obligations, payments, costs and expenses (including the costs and expenses of
any and all actions, suits, proceedings, assessments, judgments, settlements and
compromises relating thereto and reasonable attorneys' fees and reasonable
disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted
against or suffered by any Seller Indemnitee relating to, resulting from or
arising out of (i) any breach by Buyer of the representations and warranties
that survive the Closing or any covenants contained in this Agreement, (ii) the
Assumed Liabilities and Obligations, (iii) any Third Party Claims against a
Seller Indemnitee arising out of or in connection with acts or omissions of
Buyer or Buyer's Parent related to the consummation of the transactions
contemplated by this Agreement or Buyer's ownership or operation of the Included
Assets following the Closing (other than any Third Party Claims that are
Excluded Liabilities) or (iv) fraud, intentional misrepresentation or a
deliberate or willful breach (without giving effect to any supplement to the
schedules) by Buyer of any representation, warranty or covenant under this
Agreement or in any certificate, schedule or exhibit pursuant hereto.

          (b) Following the Closing, Seller shall indemnify, defend and hold
harmless Buyer, its Affiliates, and each of their respective officers,
directors, members, employees, shareholders and agents (each, a "Buyer
Indemnitee") from and against any and all Indemnifiable Losses asserted against
or suffered by any Buyer Indemnitee relating to, resulting from or arising out
of (i) any breach by Seller of the representations and warranties that survive
the Closing or any covenants contained in this Agreement, (ii) the Excluded
Liabilities, (iii) any


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<PAGE>

Third Party Claims against a Buyer Indemnitee arising out of or in connection
with acts or omissions of Seller related to the consummation of the transactions
contemplated by this Agreement or Seller's or NMC's ownership or operation of
the Included Assets on or prior to the Closing, including the claim referenced
in Schedule 4.18 (other than any Third Party Claims that are Assumed Liabilities
and Obligations), (iv) fraud, intentional misrepresentation or a deliberate or
willful breach by Seller of any representation, warranty or covenant under this
Agreement or in any certificate, schedule or exhibit pursuant hereto or (v) the
exercise by Seller of any rights of set-off to which Seller may assert as
against Seller's obligation to pay the Pre-1983 Fee, as described in Section
6.14(f), by reason of the Department of Energy's defaults under the Standard
Spent Fuel Disposal Contract.

          (c) In addition to Seller's obligation set forth in Section 8.1(b),
Seller shall indemnify, defend and hold harmless any Buyer Indemnitee from
Indemnifiable Losses with respect to the Palisades Assets under or related to
Environmental Laws that were, prior to, on or after the Closing Date, caused (or
allegedly caused) by the Release of Hazardous Materials at, on, in, under,
adjacent to or migrating from the Palisades Assets prior to the Closing Date.
Seller's obligations to indemnify Buyer pursuant to this Section 8.1(c) shall
survive the Closing for a period of three (3) years and any claim for
indemnification hereunder shall be brought prior to the third anniversary of the
Closing Date, or not at all. If Buyer makes a claim for indemnification pursuant
to this Section 8.1(c), Buyer shall be barred from making the same claim for a
breach of a representation or warranty pursuant to Section 8.1(b) hereof and
likewise, claims made under Section 8.1(b) may not also be made under this
Section 8.1(c). In regard to the matters covered by this Section 8.1(c)y, each
Party shall at all times act reasonably so as to avoid unnecessarily exposing
the other Party to liability or to otherwise unnecessarily cause the other Party
to incur costs or expenses.

          (d) Following the Closing, the expiration or termination of any
representation, warranty, covenant or agreement shall not affect the Parties'
obligations under this Section 8.1 if the Person entitled to indemnification
hereunder (an "Indemnitee") provided the Person required to provide
indemnification under this Agreement (the "Indemnifying Party") with proper
notice of the claim or event for which indemnification is sought prior to such
expiration or termination.

          (e) The Parties agree to treat all payments relating to
indemnifications as adjustments to the Purchase Price to the extent allowed by
Law.

     8.2. Limitations on Indemnification.

          (a) No Indemnitee shall be entitled to assert any right to
indemnification under Section 8.1(a)(i), 8.1(b)(i), or 8.1(c) until the amount
of Indemnifiable Losses actually suffered by such Indemnitee exceeds One Million
Dollars ($1,000,000) with respect to any individual claim or Three Million
Dollars ($3,000,000) in the aggregate (as applicable, the "Threshold Amount") at
which point the Indemnifying Party shall only be liable for those Indemnifiable
Losses in excess of the Threshold Amount.

          (b) After the occurrence of the Closing the rights and remedies of
Seller and Buyer under this Article 8 are exclusive and in lieu of any and all
other rights and remedies which Seller and Buyer may have under this Agreement
or otherwise for monetary relief, with


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<PAGE>

respect to (i) any breach of or failure to perform any covenant, agreement, or
representation or warranty set forth in this Agreement or (ii) the Assumed
Liabilities and Obligations or the Excluded Liabilities, as the case may be. The
indemnification obligations of the Parties set forth in this Article 8 apply
only to matters arising out of this Agreement, excluding the Ancillary
Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations, if any,
contained in the Ancillary Agreement under which the Indemnifiable Loss arises.
The maximum aggregate exposure for indemnity by any Indemnifying Party hereunder
for any and all Indemnifiable Losses under this Agreement (other than arising
out of claims for breach of the representations and warranties contained in
Sections 4.17 and 5.7, as applicable) shall be Thirty Million Dollars
($30,000,000); provided, that the foregoing limitation shall not prevent
recovery under this Article 8 by an Indemnitee of Indemnifiable Losses arising
out of Third Party Claims.

          (c) Notwithstanding the foregoing or anything to the contrary herein,
the dollar deductibles and limitations set forth in Sections 8.2(a) and (b)
shall not apply with respect to (i) claims arising under Sections 4.1
(Organization), 4.2 (Authority Relative to this Agreement), (No Violation), 4.5
(Title and Related Matters), 4.9 (ERISA; Benefit Plans), 4.14 (NRC Licenses),
4.17 (Qualified Decommissioning Fund), 5.1 (Organization; Qualification), 5.2
(Authority Relative to this Agreement), and Section 6.20 (Decommissioning;
Return of Excess Qualified Decommissioning Fund Assets), (ii) claims involving
fraud, intentional misrepresentation, or deliberate or willful breach or
breaches of confidentiality provisions, and (iii) claims for indemnification
under Section 8.1(b)(v).

     8.3. Defense of Claims.

          (a) If any Indemnitee receives notice of the assertion of any claim or
of the commencement of any claim, action, or proceeding made or brought by any
Person who is not a Party to this Agreement or any Affiliate of a Party to this
Agreement (a "Third Party Claim"), including an information document request or
a notice of proposed disallowance issued by the IRS relating to a matter covered
by Section 5.7, with respect to which indemnification is to be sought from an
Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably
prompt written notice thereof, but in any event such notice shall not be given
later than twenty (20) days after the Indemnitee's receipt of notice of such
Third Party Claim. Such notice shall describe the nature of the Third Party
Claim in reasonable detail and shall indicate the estimated amount, if
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in or, by
giving written notice to the Indemnitee, to elect to assume the defense of any
Third Party Claim at such Indemnifying Party's expense and by such Indemnifying
Party's own counsel, provided that the counsel for the Indemnifying Party who
shall conduct the defense of such Third Party Claim shall be reasonably
satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in
such defense at such Indemnitee's own expense. If an Indemnifying Party elects
not to assume the defense of any Third Party Claim, the Indemnitee may
compromise or settle such Third Party Claim over the objection of the
Indemnifying Party, which settlement or compromise shall conclusively establish
the Indemnifying Party's Liability pursuant to this Agreement; provided,
however, that the Indemnitee provides written notice to the Indemnifying Party
of its intent to settle and such notice reasonably describes the terms of such
settlement at least ten (10) Business Days prior to entering into any
settlement.


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<PAGE>

          (b) (1) If, within twenty (20) days after an Indemnitee provides
written notice to the Indemnifying Party of any Third Party Claim, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.3(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) days after receiving notice from the Indemnitee that the
Indemnitee believes the Indemnifying Party has failed to take such steps, the
Indemnitee may assume its own defense and the Indemnifying Party shall be liable
for all reasonable expenses thereof.

               (2) Without the prior written consent of the Indemnitee, which
     consent shall not be unreasonably withheld or delayed, the Indemnifying
     Party shall not enter into any settlement of any Third Party Claim which
     would lead to Liability or create any financial or other obligation on the
     part of the Indemnitee for which the Indemnitee is not entitled to
     indemnification hereunder. If a firm offer is made to settle a Third Party
     Claim without leading to Liability or the creation of a financial or other
     obligation on the part of the Indemnitee for which the Indemnitee is not
     entitled to indemnification hereunder and the Indemnifying Party desires to
     accept and agree to such offer, the Indemnifying Party shall give written
     notice to the Indemnitee to that effect. If the Indemnitee fails to consent
     to such firm offer within twenty (20) days after its receipt of such
     notice, the Indemnifying Party shall be relieved of its obligations to
     defend such Third Party Claim and the Indemnitee may contest or defend such
     Third Party Claim. In such event, the maximum Liability of the Indemnifying
     Party as to such Third Party Claim will be the amount of such settlement
     offer.

          (c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than twenty (20) days after the Indemnitee becomes aware of such
Direct Claim, and the Indemnifying Party shall have a period of twenty (20) days
within which to respond to such Direct Claim. If the Indemnifying Party does not
respond within such twenty (20) day period, the Indemnifying Party shall be
deemed to have accepted such claim. If the Indemnifying Party rejects such
claim, the Indemnitee will be free to seek enforcement of its right to
indemnification under this Agreement.

          (d) The amount of any Indemnifiable Loss shall be reduced to the
extent that the Indemnitee receives any insurance proceeds with respect to an
Indemnifiable Loss. If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by, from or
against any other entity, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest accrued
thereon at the Interest Rate from and including the date of payment thereof to
but excluding the date or repayment) shall promptly be repaid by the Indemnitee
to the Indemnifying Party. Upon making any indemnity payment, the Indemnifying
Party shall, to the extent of such indemnity payment, be subrogated to all
rights


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<PAGE>

of the Indemnitee against any third party in respect of the Indemnifiable Loss
to which the indemnity payment relates.

          (e) A failure to give timely notice as provided in this Section 8.3
shall not affect the rights or obligations of any Party hereunder except if, and
only to the extent that, as a result of such failure, the Party that was
entitled to receive such notice was actually prejudiced as a result of such
failure.

                                    ARTICLE 9
                            TERMINATION AND REMEDIES

     9.1. Termination.

          (a) This Agreement may be terminated at any time prior to the Closing
by mutual written consent of Seller and Buyer.

          (b) This Agreement may be terminated by Seller or Buyer, if (i) any
Governmental Authority shall have enacted a Law or issued a Governmental Order
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and in the case of a Governmental Order, it shall have
become final and nonappealable; or (ii) the Closing contemplated hereby shall
have not occurred on or before the date that is eighteen (18) months following
the date of this Agreement (the "Termination Date"); provided, that the right to
terminate this Agreement under this Section 9.1(b)(ii) shall not be available to
any Party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur on or before
such date and provided, further, that if on the Termination Date the conditions
to the Closing set forth in Sections 7.1(c), 7.1(d), 7.2(c) or 7.2(d) shall not
have been fulfilled but all other conditions to the Closing shall be fulfilled
or shall have been capable of being fulfilled, or shall have been waived, then
the Termination Date shall be the date that is twenty-four (24) months following
the Effective Date.

          (c) This Agreement may be terminated by Buyer prior to the Closing if
any of Seller's Required Regulatory Approvals or Buyer's Required Regulatory
Approvals, the receipt of which is a condition to the obligation of Buyer to
consummate the Closing as set forth in Sections 7.1(c) and 7.1(d), shall have
been denied in a final, non-appealable Governmental Order or shall have been
granted subject to, or containing terms or conditions that prevents the
satisfaction of one or more of Buyer's conditions to Closing as set forth in
Sections 7.1(c) and 7.1(d), as applicable.

          (d) This Agreement may be terminated by Seller prior to the Closing if
any of the Seller's Required Regulatory Approvals or Buyer's Regulatory
Approvals, the receipt of which are a condition to the obligation of Seller to
consummate the Closing as set forth in Sections 7.2(c) and 7.2(d), shall have
been denied in a final, non-appealable Governmental Order or shall have been
granted subject to, or containing terms or conditions that prevents the
satisfaction of one or more of Seller's conditions to Closing as set forth in
Sections 7.2(c) and 7.2(d), as applicable.

          (e) This Agreement may be terminated by Buyer prior to the Closing if
there has been a breach by Seller of any applicable covenant, representation or
warranty contained in


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this Agreement constituting a Material Adverse Effect, such breach has not been
waived by Buyer, and such breach is not cured by the earlier of the Termination
Date or thirty (30) days after receipt by Seller (or Buyer in the case of notice
by Seller pursuant to Section 6.9) of written notice specifying particularly
such breach (provided that in the event Seller is attempting to cure the breach
in good faith, then Buyer may not terminate pursuant to this provision unless
the breach is not cured by the Termination Date).

          (f) This Agreement may be terminated by Seller prior to the Closing if
there has been a material breach by Buyer of any covenant, representation or
warranty contained in this Agreement, such material breach has not been waived
by Seller and such material breach is not cured by the earlier of the
Termination Date or thirty (30) days after receipt by Buyer (or by Seller in the
case of notice by Buyer pursuant to Section 6.9) of written notice specifying
particularly such breach (provided that in the event Buyer or Buyer's Parent, as
the case may be, is attempting to cure the breach in good faith, then Seller may
not terminate pursuant to this provision unless the breach is not cured by the
Termination Date).

          (g) This Agreement may be terminated by Buyer or Seller in accordance
with the provisions of Sections 6.11(b) or (c).

          (h) This Agreement may be terminated by Buyer prior to the Closing if
any "extraordinary nuclear occurrence" or "nuclear incident" or "precautionary
evacuation" (as such terms are defined in the Atomic Energy Act), other than the
nuclear incident at Three Mile Island in 1979, occurs at either Site or at any
other licensed nuclear reactor sited in the United States.

     9.2. Procedure and Effect of No Default Termination.

          In the event of termination of this Agreement by Seller or Buyer
pursuant to Section 9.1, written notice thereof shall promptly be given by the
terminating Party to the other Party, and this Agreement shall thereupon
terminate. In the event a Party terminates this Agreement pursuant to Section
9.1, except as otherwise provided in Section 9.3, such termination shall be the
sole and exclusive remedy of the Parties with respect to breaches of any
agreement, covenant, representation or warranty. Following any such termination,
Buyer and Seller will continue to be bound by the obligations set forth in
Sections 6.2(b) and 6.5. If this Agreement is terminated as provided herein, all
filings, applications and other submissions made to any Governmental Authority
shall, to the extent practicable, be withdrawn from the Governmental Authority
to which they were made.

     9.3. Remedies.

          (a) Notwithstanding anything herein to the contrary, if this Agreement
is terminated pursuant to Section 9.1(e) or 9.1(f), the terminating Party may
pursue any rights or remedies available at Law or in equity. If either Party
elects to pursue singularly any remedy available to it under this Section 9.3,
then such Party may at any time thereafter continue to pursue or cease pursuing
that remedy and simultaneously elect to pursue any other remedy available to it
under this Section 9.3.

          (b) Without limiting the generality of this Section 9.3, each of the
Parties acknowledges and agrees that the other Party would be damaged
irreparably in the event any of


                                       98

<PAGE>

the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached prior to the Closing. Accordingly, each
of the Parties agrees that the other Party shall be entitled to an injunction or
injunctions (preliminary, special and/or permanent) to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof, in addition to any other remedy to which they may
be entitled, at law or in equity.

                                   ARTICLE 10
                            MISCELLANEOUS PROVISIONS

     10.1. Limitation of Liability; Waiver of Certain Damages.

          Notwithstanding anything to the contrary herein, except in the case of
a Third Party Claim, or a Direct Claim that relates to a Third Party Claim, no
Party or Indemnitee shall be entitled to recover from any other Party (including
an Indemnifying Party) any liabilities, damages, obligations, payments, losses,
costs or expenses any amount in excess of the actual compensatory damages, court
costs and reasonable attorney's and other advisor fees suffered by such Party or
Indemnitee. Except for damages related to the other Party's breach of
obligations of confidentiality, Buyer, on behalf of itself and the Buyer
Indemnitees, and Seller, on behalf of itself and the Seller Indemnitees, hereby
waive any right to recover punitive, incidental, special, exemplary and
consequential damages arising in connection with or with respect to this
Agreement, including losses or damages caused by reason of unavailability of
Palisades, plant shutdowns or service interruptions, loss of use, profits or
revenue, inventory or use charges, cost of purchased or replacement power,
interest charges or cost of capital; provided, however, that for sake of clarity
the Parties acknowledge and agree that punitive, incidental, special, exemplary
or consequential damages that are an element of a Third Party Claim or a Direct
Claim that relates to a Third Party Claim, shall constitute Indemnifiable Losses
hereunder and as such are direct damages as between the Parties.

     10.2. Amendment and Modification.

          Subject to applicable Law, this Agreement may be amended, modified or
supplemented only by written agreement of Seller and Buyer.

     10.3. Waiver of Compliance; Consents.

          Except as otherwise provided in this Agreement, any failure of any of
the Parties to comply with any obligation, covenant, agreement or condition
herein may be waived, in whole or in part, by the Party entitled to the benefits
thereof only by a written instrument signed by the Party granting such waiver,
but such waiver of such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent failure to
comply therewith.

     10.4. Survival of Representations, Warranties, Covenants and Obligations.

          (a) The representations and warranties contained in this Agreement
shall survive the Closing for a period of eighteen (18) months from the Closing
Date except that (i) all representations and warranties set forth in Section 4.7
(Environmental Matters) shall survive the


                                       99

<PAGE>

Closing for a period of three (3) years from the Closing Date, (ii) all
representations and warranties set forth in Sections 4.9 (ERISA; Benefit Plans),
4.14 (NRC Licenses), and any claim with respect to fraud, intentional
misrepresentation or a deliberate or willful breach by Seller or Buyer shall
survive the Closing until the expiration of the applicable statutory period of
limitation plus any extensions or waivers thereof and (iii) all representations
and warranties set forth in Sections 4.1 (Organization), 4.2 (Authority Relative
to this Agreement), 4.5(a) and (b) (Title and Related Matters), 4.17 (Qualified
Decommissioning Fund) (except with respect to 4.17(a)(ii), (iv), (v), and (vi),
and 4.17(d)(ii) and 4.17(f)), 5.1 (Organization; Qualification), 5.2 (Authority
Relative to this Agreement), 5.7 (Transfer of Assets of Qualified
Decommissioning Fund) and 6.7 (Brokerage Fees and Commissions) hereof shall
survive the Closing indefinitely. Each Party shall be entitled to rely upon the
representations and warranties of the other Party set forth herein,
notwithstanding any investigation or audit conducted prior to or following the
Closing or the decision of any Party to complete the Closing.

          (b) The covenants and obligations of the Parties set forth in this
Agreement, including the indemnification obligations of the Parties under
Article 8 hereof, shall (unless otherwise specifically set forth herein) survive
the Closing in accordance with their terms, and the Parties shall be entitled to
the full performance thereof by the other Parties hereto.

     10.5. Notices.

          All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by facsimile transmission, or
mailed by overnight courier or registered or certified mail (return receipt
requested), postage prepaid, to the recipient Party at its address (or at such
other address or facsimile number for a Party as shall be specified by like
notice; provided, however, that notices of a change of address shall be
effective only upon receipt thereof):

          (a) If to Seller, to:

              Consumers Energy Company
              One Energy Plaza
              Jackson, MI 49201
              Attention: Robert A. Fenech
                         Senior Vice President
                         Nuclear, Fossil & Hydro Operations
              Facsimile: (517) 788-8936

              with copies to:

              Consumers Energy Company
              One Energy Plaza
              Jackson, MI 49201
              Attention: General Counsel
              Facsimile: (517) 788-0768


                                      100

<PAGE>

              and

              LeBoeuf, Lamb, Greene & MacRae LLP
              125 West 55th Street
              New York, New York 10019-5389
              Attention: John D. Draghi, Esq.
              Facsimile: (212) 649-0466

          (b) if to Buyer, to:

              Entergy Nuclear Palisades, LLC
              c/o Entergy Nuclear Northeast
              440 Hamilton Avenue
              White Plains, NY 10601
              Attention: Chief Executive Officer
              Facsimile: (914) 272-3205

              with a copy to:

              Entergy Corporation
              630 Loyola Avenue
              New Orleans, LA 70113
              Attention: General Counsel
              Facsimile: (504) 576-4150

              and with a copy to:

              Entergy Nuclear, Inc.
              1340 Echelon Parkway
              Jackson, MS 39313
              Attention: General Counsel
              Facsimile: (601) 368-5694

     10.6. Assignment.

          This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any Party hereto,
including by operation of Law, without the prior written consent of each other
Party, such consent not to be unreasonably withheld. Any assignment in
contravention of the foregoing sentence shall be null and void and without legal
effect on the rights and obligations of the Parties hereunder. Notwithstanding
the foregoing, but subject to all applicable legal requirements, (i) Buyer or
its permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) all or any portion of its rights and interests
hereunder to a trustee, lending institution or other party for the purposes of
leasing, financing or refinancing the Included Assets, (ii) Buyer or its
permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) all or any portion of its rights and interests
hereunder to an Affiliate of Buyer and (iii) Buyer may assign this Agreement and
all or any portion of its rights,


                                      101

<PAGE>

interests or obligations hereunder to a future purchaser, direct or indirect, of
all or substantially all of the Palisades Assets or the Big Rock ISFSI Assets;
provided, however, that no such assignment shall relieve or discharge Buyer from
any of its obligations hereunder nor shall any such assignment be made without
Seller's prior written consent if it would reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by this
Agreement or increase the costs (to Seller) of the consummation of the
transactions contemplated by this Agreement. Each Party agrees, at the assigning
Party's expense, to execute and deliver such documents as may be reasonably
necessary to accomplish any such assignment, transfer, pledge or other
disposition of rights and interests hereunder so long as the non-assigning
Party's rights under this Agreement are not thereby altered, amended, diminished
or otherwise impaired. In the event Buyer assigns this agreement pursuant to
this Section 10.6, such assignee shall be defined as "Buyer" for all purposes
hereunder thereafter.

     10.7. No Third Party Beneficiaries.

          This Agreement shall not (except as specifically provided herein)
confer upon any other Person except the Parties hereto any rights, interests,
obligations or remedies hereunder, including as third party beneficiaries. In
furtherance of the foregoing, no provision of this Agreement shall create any
third party beneficiary rights in any employee or former employee of Seller or
NMC (including any beneficiary or dependent thereof) in respect of continued
employment or resumed employment, and no provision of this Agreement shall
create any rights in any such Persons in respect of any benefits that may be
provided, directly or indirectly, under any employee benefit plan or arrangement
except as expressly provided for thereunder.

     10.8. Governing Law.

          This Agreement shall be governed by and construed in accordance with
the law of the State of Michigan (without giving effect to the choice of law
principles thereof) as to all matters, including matters of validity,
construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT
VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS BETWEEN THE PARTIES RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE COURTS OF MICHIGAN AND
FEDERAL COURTS FOR THE WESTERN DISTRICT OF MICHIGAN, WHICH COURTS SHALL HAVE
EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH
COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.


                                      102

<PAGE>

     10.9. Counterparts.

          This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

     10.10. Schedules and Exhibits.

          Except as otherwise provided in this Agreement, all Exhibits and
Schedules referred to herein are intended to be and hereby are specifically made
a part of this Agreement. Any fact or item disclosed on any Schedule to this
Agreement shall be deemed disclosed on all other Schedules to this Agreement to
which such fact or item may reasonably apply so long as such disclosure is in
sufficient detail to enable a Party to identify the facts or items to which it
applies. Any fact or item disclosed on any Schedule hereto shall not by reason
only of such inclusion be deemed to be material and shall not be employed as a
point of reference in determining any standard of materiality under this
Agreement.

     10.11. Entire Agreement.

          This Agreement, the Confidentiality Agreement and the Ancillary
Agreements, including the Exhibits, Schedules, documents, certificates and
instruments referred to herein or therein, and any other documents that
specifically reference this Section 10.11, embody the entire agreement and
understanding of the Parties hereto in respect of the transactions contemplated
by this Agreement and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments and understandings between the
Parties, including all letters, memoranda or other documents or communications,
whether oral, written or electronic, submitted or made by (a) Buyer or its
agents or representatives to Seller, Concentric Energy Advisors Inc. or their
respective agents or representatives, or (b) Seller, Concentric Energy Advisors
Inc. or their respective agents or representatives to Buyer or any of its agents
or representatives, in connection with the sale process that occurred prior to
the execution of this Agreement or otherwise in connection with the negotiation
and execution of this Agreement. No communications by or on behalf of Seller,
including responses to any questions or inquiries, whether orally, in writing or
electronically, and no information provided in any data room or any copies of
any information from any data room provided to Buyer or its agents or
representatives or any other information shall be deemed to (i) constitute a
representation, warranty, covenant, undertaking or agreement of Seller or (ii)
be part of this Agreement.

     10.12. Acknowledgment; Independent Due Diligence.

          Each Party acknowledges that the other Party has not made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the transactions contemplated by this
Agreement and the Ancillary Agreements which is not included in this Agreement
or the Ancillary Agreements and the schedules thereto. Without limiting the
generality of the foregoing, no representation or warranty is made with respect
to any information contained in the Confidential Offering Memorandum relating to
the Facilities, dated January, 2006, or any supplement or amendment thereto
provided by Seller, such information having been provided for the convenience of
Buyer in order to assist Buyer in


                                      103

<PAGE>

framing its due diligence efforts. Each Party further acknowledges that: (a)
such Party, either alone or together with any individuals or entities that such
Party has retained to advise it with respect to the transactions contemplated by
this Agreement, has substantial knowledge and experience in transactions of this
type and in the business to which the Facilities relate and is therefore capable
of evaluating the risks and merits of undertaking such transactions; (b) such
Party has relied on its own independent investigation, and has not relied on any
information or representations furnished by the other Party or any
representative or agent of the other Party (except as specifically set forth in
this Agreement and the Ancillary Agreements), in determining to enter into this
Agreement and the Ancillary Agreements; (c) neither Party nor any of its
representatives or agents has given any investment, legal or other advice or
rendered any opinion as to whether the transactions contemplated by this
Agreement and the Ancillary Agreements are prudent, and no Party is relying on
any representation or warranty by the other Party or any representative or agent
of the other Party except as set forth in this Agreement and the Ancillary
Agreements; (d) Buyer has conducted extensive due diligence, including a review
of the documents provided by or on behalf of Seller; and (e) Buyer and its
attorneys, accountants and advisors have had the opportunity to visit the
Facilities and each Party has had the opportunity to ask questions and receive
answers concerning the Facilities and the terms and conditions of this Agreement
and the Ancillary Agreements. All such questions have been answered to Buyer's
or Seller's, as the case may be, complete satisfaction.

     10.13. Bulk Sales Laws.

          Buyer acknowledges that, notwithstanding anything in this Agreement to
the contrary, Seller will not comply with the provision of the bulk sales laws
of any jurisdiction in connection with the transactions contemplated by this
Agreement. Subject to Section 8.1, Buyer hereby waives compliance by Seller with
the provisions of the bulk sales laws of all applicable jurisdictions.

     10.14. No Joint Venture.

          Nothing in this Agreement creates or is intended to create an
association, trust, partnership, joint venture or other entity or similar legal
relationship among the Parties, or impose a trust, partnership or fiduciary
duty, obligation, or liability on or with respect to the Parties. Except as
expressly provided herein, neither Party is or shall act as or be the agent or
representative of the other Party.

     10.15. Change in Law.

          If and to the extent that any Laws or regulations that govern any
aspect of this Agreement shall change, so as to make any aspect of this
transaction unlawful, then the Parties agree to make such modifications to this
Agreement as may be reasonably necessary for this Agreement to accommodate any
such legal or regulatory changes, without materially changing the overall
benefits or consideration expected hereunder by any Party.

     10.16. Severability.

          Any term or provision of this Agreement that is held invalid or
unenforceable in any situation shall not affect the validity or enforceability
of the remaining terms and provisions


                                      104

<PAGE>

hereof or the validity or enforceability of the offending term or provision in
any other situation, provided, however, that the remaining terms and provisions
of this Agreement may be enforced only to the extent that such enforcement in
the absence of any invalid terms and provisions would not result in (a)
deprivation of a material aspect of a Party's original bargain upon execution of
this Agreement or any of the Ancillary Agreements, (b) unjust enrichment of a
Party, or (c) any other manifestly unfair or materially inequitable result.

                            [Signature Page Follows]


                                      105

<PAGE>

          IN WITNESS WHEREOF, the Parties have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.

                                        CONSUMERS ENERGY COMPANY


                                        By: /s/ Robert A. Fenech
                                            ------------------------------------
                                        Name: Robert A. Fenech
                                        Title: Senior Vice President
                                               Nuclear, Fossil &
                                               Hydro Operations


                                        ENTERGY NUCLEAR PALISADES, LLC


                                        By: /s/ Gary J. Taylor
                                            ------------------------------------
                                        Name: Gary J. Taylor
                                        Title: President

                                           Asset Sale Agreement - Signature Page
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(B)
<SEQUENCE>3
<FILENAME>k06781exv10wxby.txt
<DESCRIPTION>PALISADES NUCLEAR POWER PLANT POWER PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                EXHIBIT (10)(b)

                          PALISADES NUCLEAR POWER PLANT

                            POWER PURCHASE AGREEMENT

                                     BETWEEN

                         ENTERGY NUCLEAR PALISADES, LLC

                                       AND

                            CONSUMERS ENERGY COMPANY

                            DATED AS OF JULY 11, 2006

<PAGE>

                            POWER PURCHASE AGREEMENT
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                          <C>
ARTICLE I: DEFINITIONS....................................................     1
   1.1.   Defined Terms...................................................     1
   1.2.   Rules of Interpretation.........................................     8

ARTICLE II: PURCHASE OF CAPACITY, ENERGY, AND ANCILLARY SERVICES..........    10
   2.1.   Capacity Sale and Purchase......................................    10
   2.2.   Energy Sale and Purchase........................................    10
   2.3.   Ancillary Services..............................................    10
   2.4.   Replacement Energy and Replacement Capacity.....................    11
   2.5.   Delivery Point..................................................    13
   2.6.   Entitlement Due to Uprate.......................................    14
   2.7.   Capacity Accreditation..........................................    14
   2.8.   Reactive Power..................................................    15
   2.9.   Station Power Service...........................................    15

ARTICLE III: PAYMENTS.....................................................    15
   3.1.   Purchase Payments...............................................    15
   3.2.   Peak Adjustment Payment.........................................    16

ARTICLE IV: MAINTENANCE AND OPERATION.....................................    16
   4.1.   Scheduled Maintenance...........................................    16
   4.2.   Derate Notices..................................................    18
   4.3.   Other Operations Obligations....................................    18

ARTICLE V: METERING, BILLING AND PAYMENT..................................    19
   5.1.   Metering........................................................    19
   5.2.   Billing and Payment.............................................    21
   5.3.   Scheduling......................................................    22

ARTICLE VI: FORCE MAJEURE.................................................    23
   6.1.   Conditions of Excuse from Performance...........................    23
   6.2.   No Termination; Extension of Term...............................    23
   6.3.   Adjustment Payments.............................................    24

ARTICLE VII: EVENTS OF DEFAULT; REMEDIES..................................    24
   7.1.   List of Default Events..........................................    24
   7.2.   Seller's Security...............................................    25
   7.3.   Buyer's Security................................................    26
   7.4.   No Consequential Damages........................................    27

ARTICLE VIII: REPRESENTATIONS AND WARRANTIES..............................    27
   8.1.   Representations and Warranties of Buyer.........................    27
   8.2.   Representations and Warranties of Seller........................    28
</TABLE>


                                        i

<PAGE>

<TABLE>
<S>                                                                          <C>
ARTICLE IX: INDEMNITY AND LIMITATION OF LIABILITY.........................    29
   9.1.   Title and Risk of Loss..........................................    29
   9.2.   Indemnification.................................................    29
   9.3.   No Partnership..................................................    30
   9.4.   Responsibility for Employees....................................    30

ARTICLE X: TERM...........................................................    30
   10.1.  Term............................................................    30
   10.2.  Termination.....................................................    30
   10.3.  Effect of Termination...........................................    31

ARTICLE XI: RECORDS.......................................................    31
   11.1.  Inspection of Records...........................................    31

ARTICLE XII: ADMINISTRATIVE COMMITTEE.....................................    31
   12.1.  Purpose.........................................................    31
   12.2.  Membership......................................................    32
   12.3.  Meetings........................................................    32
   12.4.  Functions.......................................................    32
   12.5.  Expenses........................................................    32

ARTICLE XIII: NOTICES.....................................................    32
   13.1.  Notices in Writing..............................................    32
   13.2.  Date of Notification............................................    33
   13.3.  Oral Notice in Emergency........................................    33

ARTICLE XIV: CONFIDENTIALITY..............................................    33
   14.1.  Non-Disclosure to Third Parties.................................    33
   14.2.  Disclosure Permitted............................................    34
   14.3.  Survival of Confidentiality.....................................    34

ARTICLE XV: INSURANCE.....................................................    34
   15.1.  Coverage and Amounts of Seller and Buyer........................    34
   15.2.  Coverage for Full Term..........................................    35

ARTICLE XVI: ASSIGNMENT...................................................    35
   16.1.  Binding Effect..................................................    35
   16.2.  General.........................................................    36
   16.3.  Assignment to an Affiliate......................................    36
   16.4.  Assignment to Lenders...........................................    36

ARTICLE XVII: MISCELLANEOUS...............................................    36
   17.1.  Dispute Resolution..............................................    36
   17.2.  Recording Telephone Conversations...............................    37
   17.3.  Compliance with Laws............................................    37
   17.4.  Taxes and Other Charges.........................................    38
   17.5.  Future Attributes...............................................    38
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>                                                                          <C>
   17.6.  Financial Transmission Rights...................................    38
   17.7.  Governing Law; Venue............................................    39
   17.8.  Entire Agreement; Amendment.....................................    39
   17.9.  No Implied Waiver...............................................    39
   17.10. Severability....................................................    40
   17.11. No Exclusivity/Dedication of Assets.............................    40
   17.12. Expenses........................................................    40
   17.13. Counterparts....................................................    40
   17.14. Survival........................................................    40
   17.15. Third-Party Beneficiary.........................................    41
   17.16. Mobile-Sierra...................................................    41
   17.17. Forward Contract................................................    41
</TABLE>

          Exhibits

Exhibit A Capacity and Energy Charges
Exhibit B Buyer's Capacity Amount
Exhibit C Capacity and Energy Charge Shaping Factors
Exhibit D Diagram of Billing Meters
Exhibit E Form of Seller's Guaranty
Exhibit F Form of Buyer's Guaranty
Exhibit G Peak Adjustment Payment
Exhibit H Scheduling Procedures


                                       iii
<PAGE>

                            POWER PURCHASE AGREEMENT

     This POWER PURCHASE AGREEMENT is made and entered into as of July 11, 2006,
by and between ENTERGY NUCLEAR PALISADES, LLC, a Delaware limited liability
company ("Seller"), and CONSUMERS ENERGY COMPANY, a Michigan corporation
("Buyer") (hereinafter the parties hereto are sometimes referred to collectively
as the "Parties," or individually as a "Party").

                                   WITNESSETH:

     WHEREAS, Buyer is a public utility which operates a system for generation
and distribution of electric power in the State of Michigan; and

     WHEREAS, Buyer intends to transfer to Seller all of its rights, title, and
interests in and to the Palisades Nuclear Power Plant, an approximately 798 MW
(net) nuclear-powered electric generating facility and related assets located in
South Haven, Michigan, NRC Operating License No. DPR-20 (the "Facility"); and

     WHEREAS, in order to continue serving its wholesale and retail customers
following transfer of Buyer's interests in the Facility to Seller, Buyer desires
to purchase, and Seller desires to sell, Capacity, Energy, and all associated
Ancillary Services, on a unit contingent basis, on the terms, and subject to the
conditions, set forth below.

     NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Parties agree as follows:

                             ARTICLE I: DEFINITIONS

1.1. DEFINED TERMS

     As used in this Agreement, the following terms shall have the following
     meanings:

1.   "ACCREDITED CAPACITY" shall mean Capacity or Replacement Capacity that (a)
     meets the resource adequacy requirements in Module E of the MISO Tariff, as
     amended or superseded ("Module E"), and (b) is measured in accordance with
     the "Criteria and Method For the Uniform Rating of Generating Equipment"
     set forth in ECAR 4; provided, however, that if either requirement in (a)
     or (b) is inapplicable, or if both are inapplicable, then Accredited
     Capacity shall mean Capacity or Replacement Capacity that meets the
     applicable requirements for Capacity (the "Effective Capacity
     Requirements") of any Governing Authority having jurisdiction over Buyer,
     including any Capacity from the Facility that may be deemed available under
     the Effective Capacity Requirements even if the Facility is not operating.

2.   "ADMINISTRATIVE COMMITTEE" shall have the meaning set forth in Article XII.

3.   "AFFILIATE" shall mean, with respect to any Person, any other Person (other
     than an individual) that, directly or indirectly, through one or more
     intermediaries, controls, or is

<PAGE>

     controlled by, or is under common control with, such Person. For this
     purpose, "control" means the direct or indirect ownership of fifty percent
     (50%) or more of the outstanding capital stock or other equity interests
     having ordinary voting power.

4.   "AGREEMENT" shall mean this Power Purchase Agreement entered into by Seller
     and Buyer, including all Exhibits and any and all subsequent modifications
     or amendments hereto made in accordance herewith.

5.   "ALTERNATE DELIVERY POINT" shall have the meaning set forth in Section
     2.5(b).

6.   "ANCILLARY SERVICES" shall mean those services during the Term that are
     necessary to support the transmission of electric capacity and energy, and
     support the generation or transmission of Energy from the Facility while
     maintaining reliable operation of the transmission system, associated with
     or otherwise corresponding to the Capacity of the Facility and/or output of
     Energy at such time, which Ancillary Services shall include but not be
     limited to Reactive Power, regulation, and frequency response service.

7.   "ASSET SALE AGREEMENT" shall mean that certain Asset Sale Agreement between
     Buyer and Seller, dated as of the date hereof.

8.   "AUTHORIZATION" shall mean any license, permit, approval, consent, filing,
     waiver, exemption, variance, clearance, entitlement, allowance, franchise,
     or other authorization, whether corporate, governmental or otherwise.

9.   "BILLING CYCLE" shall mean each calendar month during the Term and any
     partial calendar month at the beginning or end of the Term.

10.  "BILLING METERS" means the bi-directional metering devices designated on
     Exhibit D as meters numbered one through four.

11.  "BUSINESS DAY" shall mean any day other than Saturday, Sunday, or any NERC
     holiday.

12.  "BUYER" shall have the meaning set forth in the preamble hereto.

13.  "BUYER'S CAPACITY AMOUNT" shall mean, for any given time, the applicable
     amount calculated in accordance with Exhibit B. The amount specified in the
     column entitled "Buyer's Capacity Amount" in Exhibit B shall equal the
     product of (a) the Capacity rating of the Facility, which shall be set
     forth in the column entitled "Capacity of the Facility" in Exhibit B, and
     determined in accordance with the applicable requirements for Capacity of
     ECAR 4 (or with the Effective Capacity Requirements, if applicable), and
     (b) the Buyer's Entitlement, which shall be set forth in the column
     entitled "Buyer's Entitlement" in Exhibit B, and determined in accordance
     with Section 2.6. The Capacity of the Facility, and the associated amounts
     in the column in Exhibit B entitled "Capacity of the Facility," shall be
     revised during the Term, upon written notice from Seller to Buyer providing
     the results of any net capability testing conducted of the Facility,
     whether or not conducted as part of an Uprate, in accordance with ECAR 4
     (or with the Effective Capacity Requirements, if applicable).


                                       2

<PAGE>

14.  "BUYER'S GUARANTOR" shall have the meaning set forth in Section 7.3.

15.  "BUYER'S GUARANTY" shall have the meaning set forth in Section 7.3.

16.  "BUYER'S ENTITLEMENT" shall mean the percentage of Capacity, Net Energy
     Output and Ancillary Services allocated to Buyer pursuant to this
     Agreement, which as of the Effective Date is 100%, as may subsequently be
     reduced pursuant to Section 2.6.

17.  "CALENDAR YEAR" shall mean a twelve-month period beginning January 1 and
     ending December 31.

18.  "CAPACITY" shall mean, on or as of any date of determination, a power
     generation unit's capability to generate a specific amount of electrical
     energy at a given point in time.

19.  "CAPACITY PAYMENT" shall have the meaning set forth in Section 3.1(a).

20.  "CLAIMS" shall mean all third party claims or actions, threatened or filed
     and, whether groundless, false, fraudulent or otherwise, that directly or
     indirectly relate to the subject matter of an indemnity, and the resulting
     losses, damages, expenses, reasonable attorneys' fees and court costs.

21.  "CPNODE" shall have the meaning ascribed to such term by MISO in the
     applicable MISO Tariff or related documents, as such relevant meaning or
     relevant term may be modified from time to time.

22.  "DEFAULT INTEREST RATE" shall mean, with respect to all obligations to pay
     sums due under this Agreement, other than cash collateral held as security,
     the Interest Rate plus 200 basis points.

23.  "DELIVERED ENERGY" shall mean, for any period of time, the sum of Buyer's
     Entitlement of Net Energy Output plus Replacement Energy.

24.  "DELIVERY POINT" shall have the meaning set forth in Section 2.5.

25.  "DERATE" shall mean an event or condition which causes the Buyer's
     Entitlement of Net Energy Output to be less than ninety-five percent (95%)
     of the associated Buyer's Capacity Amount.

26.  "DERATE NOTICE" shall have the meaning set forth in Section 4.2.

27.  "DNR" shall mean a Designated Network Resource as defined under applicable
     MISO Tariffs and related documents, as amended or superseded. The term DNR
     shall apply to both the Facility and to the resource selected by Seller,
     and accepted by MISO, to provide Replacement Capacity for Buyer, in
     accordance with the terms and conditions of this Agreement.

28.  "DOWNGRADE EVENT" shall mean, with respect to the Seller's Guarantor or the
     Buyer's Guarantor, any period of time when such party's unsecured, senior
     long-term debt


                                       3

<PAGE>

     obligations (not supported by third-party credit enhancements) are rated
     below Baa3 by Moody's Investment Services, Inc. (or its successor), and
     rated below BBB- by Standard & Poor's Rating Group (or its successor).

29.  "ECAR 4" shall mean ECAR Document No. 4, "Criteria and Method for the
     Uniform Rating of Generating Equipment," which is an Organizational
     Standard of ReliabilityFirst Corporation, the successor organization to the
     East Central Area Coordination Agreement organization, as such document may
     be amended, superseded or adopted in whole or in part by ReliabilityFirst
     Corporation.

30.  "EFFECTIVE DATE" shall mean the Closing Date, as defined in the Asset Sale
     Agreement.

31.  "ENERGY" shall mean electric energy expressed in MWh.

32.  "ENERGY PAYMENT" shall have the meaning set forth in Section 3.1(b).

33.  "EST" shall mean Eastern Standard Time.

34.  "FACILITY" shall have the meaning set forth in the second recital of this
     Agreement.

35.  "FERC" shall mean the Federal Energy Regulatory Commission or any successor
     thereto.

36.  "FINANCIAL BILATERAL TRANSACTION" shall have the meaning ascribed to such
     term by MISO in the applicable MISO Tariff or related documents, as such
     relevant meaning or relevant term may be modified from time to time.

37.  "FORCE MAJEURE" shall mean an event or circumstance which prevents one
     Party from performing some or all of its obligations hereunder that (a) is
     not within the control of the Party relying thereon, and (b) could not have
     been prevented or avoided by such Party through the exercise of reasonable
     diligence. Subject to the foregoing, Force Majeure may include, without
     limitation, an act of God, war, insurrection, riot, terrorism or shutdowns
     or reductions in Facility output or capabilities required, caused by, or
     related to, directives, orders or requirements of any Governing Authority;
     provided, however, that the following acts, events or causes shall in no
     event constitute an event of Force Majeure: (i) any lack of profitability
     to a Party or any losses incurred by a Party or any other financial
     consideration of a Party; (ii) unavailability of funds or financing; (iii)
     an event caused by conditions of national or local economics or markets;
     and (iv) any failure of equipment which is not itself directly caused by an
     event which would otherwise independently constitute a Force Majeure.

38.  "GENERATION OFFER" shall have the meaning ascribed to such term by MISO in
     the applicable MISO Tariff or related documents, as such relevant meaning
     or relevant term may be modified from time to time.

39.  "GOOD UTILITY PRACTICES" shall mean any applicable practices, methods, and
     acts engaged in or approved by a significant portion of (a) as to Seller,
     the nuclear power electric generating industry, or (b) as to Buyer, the
     electric utility industry, during the relevant


                                       4

<PAGE>

     time period, or the practices, methods, and acts which, in the exercise of
     reasonable judgment by a prudent nuclear operator (or prudent utility
     operator, if applicable to Buyer) in light of the facts known at the time
     the decision was made, could have been expected to accomplish the desired
     result at a reasonable cost consistent with good business practices,
     reliability, safety, expedition, and the requirements of any Governing
     Authority having jurisdiction. Without limitation of the foregoing, "Good
     Utility Practices" shall include the applicable operating policies,
     standards, criteria, and/or guidelines of NERC, MISO, METC, NRC, RFC and
     any other Governing Authority. "Good Utility Practices" is not intended to
     be limited to the optimum practice, method, or act to the exclusion of all
     others, but rather to the acceptable practices, methods, or acts generally
     accepted in (a) as to Seller, the nuclear power electric generating
     industry, or (b) as to Buyer, the electric utility industry.

40.  "GOVERNING AUTHORITY" shall mean the federal government of the United
     States, and any state, county or local government, and any regulatory
     department, body, political subdivision, commission, bureau,
     administration, agency, instrumentality, ministry, court, judicial or
     administrative body, taxing authority, or other authority of any of the
     foregoing (including, without limitation, any corporation or other entity
     owned or controlled by any of the foregoing), MISO, METC, NERC, RFC, NRC,
     and any other regional reliability council, the Transmission Provider and
     any other regional transmission organization, in each case having
     jurisdiction over either or both of the Parties, the Facility, or the
     Transmission Provider's transmission system, whether acting under express
     or delegated authority.

41.  "INTERCONNECTION AGREEMENT" shall mean, with respect to the Facility, the
     interconnection agreement by and among Seller, MISO and METC, and any other
     agreement by and among Seller, MISO and METC, governing the interconnection
     of the Facility to the MISO or METC system and transmission of Energy from
     the Facility into the MISO or METC system, as amended or superseded.

42.  "INTERCONNECTION POINT" shall mean, with respect to the Facility, the
     Point(s) of Interconnection described in the Interconnection Agreement,
     unless the Parties specifically agree otherwise in writing.

43.  "INTEREST RATE" shall mean, the one-month LIBOR rate as published in The
     Wall Street Journal for the then current month, or in a comparable
     publication.

44.  "LAW" shall mean any law, statute, rule, regulation, or ordinance issued or
     promulgated by a Governing Authority.

45.  "LETTER(S) OF CREDIT" means one or more irrevocable, transferable standby
     Letters of Credit issued by a U.S. commercial bank or a foreign bank with a
     U.S. branch with such bank having a credit rating of at least A- from S&P
     or A3 from Moody's, in a form acceptable to the Party in whose favor the
     Letter of Credit is issued. Costs of a Letter of Credit shall be borne by
     the applicant for such Letter of Credit.

46.  "LMP" shall mean the Locational Marginal Price at the relevant CPNode for
     the relevant


                                       5

<PAGE>

     hour(s) and day(s), as posted by MISO.

47.  "MAINTENANCE SCHEDULE" shall have the meaning set forth in Section 4.1(a).

48.  "MERCHANT OPERATIONS CENTER" shall mean that operations center responsible
     for monitoring, coordinating and scheduling the outages and dispatch of
     generation facilities.

49.  "METERING PARTY" shall have the meaning set forth in Section 5.1(a).

50.  "METC" shall mean the Michigan Electric Transmission Company, or any
     successor entity.

51.  "MISO" shall mean the Midwest Independent Transmission System Operator,
     Inc., or any successor entity.

52.  "MISO TARIFF" shall mean the "Open Access Transmission and Energy Market
     Tariff for the Midwest Independent Transmission System Operator, Inc.," as
     amended or superseded.

53.  "MPSC" shall have the meaning set forth in Section 10.l.

54.  "MWH" shall mean megawatt hours.

55.  "NERC" shall mean the North American Electric Reliability Council, or any
     successor entity.

56.  "NET ENERGY OUTPUT" shall mean, for any hour during a Billing Cycle and
     with respect to the Facility, (a) if the Facility is operating, total
     Energy output of the Facility as measured at the Delivery Point, less
     Station Power Service Load, which amounts shall be calculated at the
     applicable Billing Meters, and provided that Net Energy Output can in no
     event be less than zero, or (b) if the Facility is not operating, zero. In
     accordance with the foregoing, if the Facility is operating, Net Energy
     Output is equal to the sum of the Billing Meter data for "in" flows less
     the sum of the Billing Meter data for "out" flows; where "in" flows are
     those flows having a direction designated as being from the Facility to the
     transmission system and "out" flows are those flows having a direction
     designated as being from the transmission system to the Facility. The
     absolute value of the data from each Billing Meter shall be used to
     calculate Net Energy Output.

57.  "NRC" shall mean the Nuclear Regulatory Commission, or any successor
     entity.

58.  "OFF-PEAK" shall mean all hours that are not On-Peak hours.

59.  "ON-PEAK" shall mean hour ending 0700 EST through hour ending 2200 EST,
     Monday through Friday, excluding NERC holidays.

60.  "OPERATING DAY" shall have the meaning ascribed to such term by MISO in the
     applicable MISO Tariff or related documents, as such relevant meaning or
     relevant term may be modified from time to time.


                                       6

<PAGE>

61.  "PARTY" shall have the meaning set forth in the preamble hereto.

62.  "PEAK ADJUSTMENT PAYMENT" shall have the meaning set forth in Section 3.2.

63.  "PERSON" shall mean any legal or natural person, including any individual,
     corporation, partnership, limited liability company, joint stock company,
     association, joint venture, trust, Governing Authority or international
     body or agency, or other entity.

64.  "REACTIVE POWER" shall mean the capability of the Facility when operating
     to produce or absorb reactive power.

65.  "REGULATORY EVENT" shall have the meaning set forth in Section 17.10.

66.  "REPLACEMENT CAPACITY" shall mean, at any time, Accredited Capacity
     supplied to Buyer by Seller from any DNR other than the Facility to
     fulfill, in whole or in part, Seller's obligation to supply Accredited
     Capacity under this Agreement. Replacement Capacity shall not exceed the
     Buyer's Capacity Amount. In addition, Replacement Capacity shall (a) not be
     committed for sale to any third party, and (b) be available at all times to
     serve Buyer's Capacity requirements.

67.  "REPLACEMENT ENERGY" shall mean, at any time, Energy supplied to Buyer by
     Seller from any generation resource other than the Facility to fulfill, in
     part or in whole, Seller's obligation to deliver Energy which, when
     combined with Buyer's Entitlement of Net Energy Output, shall not exceed
     the Buyer's Capacity Amount applicable to Buyer at such time under this
     Agreement.

68.  "RFC" shall mean the ReliabilityFirst Corporation, or any successor entity.

69.  "SCADA" shall mean supervisory, control and data acquisition technology and
     equipment.

70.  "SCHEDULED" or "SCHEDULING" means the actions of Seller, Buyer and/or their
     designated representatives, of notifying, requesting and confirming to each
     other and any third party the quantity and type of Energy to be delivered
     on any Operating Day (a) submitted to MISO by Seller as Seller's Generation
     Offer from the Facility for a relevant Operating Day during the Term
     pursuant to this Agreement, or (b) submitted to MISO by Seller and accepted
     by Buyer as a Financial Bilateral Transaction for a relevant Operating Day
     during the Term pursuant to this Agreement.

71.  "SCHEDULED MAINTENANCE OUTAGE" shall have the meaning set forth in Section
     4.1(a).

72.  "SELLER" shall have the meaning set forth in the preamble hereto.

73.  "SELLER'S GUARANTOR" shall have the meaning set forth in Section 7.2.

74.  "SELLER'S GUARANTY" shall have the meaning set forth in Section 7.2.

75.  "STATION POWER SERVICE LOAD" shall mean, for the Facility and for any hour
     during a


                                       7

<PAGE>

     Billing Cycle, the sum of the following items: (a) the station start-up
     transformer load for that hour; (b) the safeguard transformer load for that
     hour; and (c) the main transformer load for that hour.

76.  "SUMMER MAINTENANCE OUTAGE" shall have the meaning set forth in Section
     4.1(b)(i).

77.  "TARGET CAPACITY FACTOR" shall mean 0.9500.

78.  "TAX" shall mean all taxes, charges, fees, levies, penalties or other
     assessments imposed by any Governing Authority, including income, gross
     receipts, single business, excise, real or personal property, sales,
     transfer, customs, duties, franchise, payroll, withholding, social
     security, receipts, license, stamp, occupation, employment, or other taxes,
     including any interest, penalties or additions attributable thereto, and
     any payments to any state, local, provincial or foreign taxing authorities
     in lieu of any such taxes, charges, fees, levies or assessments.

79.  "TERM" shall mean the period from and after the Closing as defined in the
     Asset Sale Agreement to and including the date and time on which this
     Agreement is terminated in accordance with the terms hereof.

80.  "TERMINATION DATE" shall have the meaning set forth in Section 10.1.

81.  "TRANSMISSION OWNER" shall mean METC.

82.  "TRANSMISSION PROVIDER" shall mean the MISO.

83.  "UPRATE" shall mean the increase in the maximum power level at which the
     Facility may operate (a) under its NRC license as such license may be
     amended after the date hereof and/or (b) any increase in the power level at
     which the Facility may operate as a result of the replacement or
     modification of the Facility's moisture-separator reheaters.

1.2. RULES OF INTERPRETATION

     (a)  Unless otherwise required by the context in which any term appears:

          (i)  Capitalized terms used in this Agreement shall have the meanings
               specified in this Article.

          (ii) The singular shall include the plural, the plural shall include
               the singular, and the masculine shall include the feminine and
               neuter.

          (iii) References to "Articles," "Sections," or "Exhibits" shall be to
               articles, sections, or exhibits of this Agreement, and references
               to "Paragraphs" or "Clauses" shall be to separate paragraphs or
               clauses of the section or subsection in which the reference
               occurs.

          (iv) The words "herein," "hereof" and "hereunder" shall refer to this
               Agreement as a whole and not to any particular section or
               subsection of


                                       8

<PAGE>

               this Agreement; and the words "include," "includes" or
               "including" shall mean "including, but not limited to."

          (v)  The term "day" shall mean a calendar day, commencing at 12:00
               a.m. (EST). The term "week" shall mean any seven consecutive day
               period, and the term "month" shall mean a calendar month;
               provided that when a period measured in months commences on a
               date other than the first day of a month, the period shall run
               from the date on which it starts to the corresponding date in the
               next month and, as appropriate, to succeeding months thereafter.
               Whenever an event is to be performed or a payment is to be made
               by a particular date and the date in question falls on a day
               which is not a Business Day, the event shall be performed, or the
               payment shall be made, on the next succeeding Business Day;
               provided, however, that all calculations shall be made regardless
               of whether any given day is a Business Day and whether or not any
               given period ends on a Business Day.

          (vi) All references to a particular entity shall include such entity's
               permitted successors and permitted assigns unless otherwise
               specifically provided herein.

          (vii) All references herein to any Law or to any contract or other
               agreement shall be to such Law, contract or other agreement as
               amended, supplemented or modified from time to time unless
               otherwise specifically provided herein.

     (b)  The titles of the articles and sections herein have been inserted as a
          matter of convenience of reference only, and shall not control or
          affect the meaning or construction of any of the terms or provisions
          hereof.

     (c)  This Agreement was negotiated and prepared by both Parties with advice
          of counsel to the extent deemed necessary by each Party; the Parties
          have agreed to the wording of this Agreement; and none of the
          provisions hereof shall be construed against one Party on the ground
          that such Party is the author of this Agreement or any part hereof.

     (d)  The Exhibits hereto are incorporated in and are intended to be a part
          of this Agreement; provided, however, that in the event of a conflict
          between the terms of any Exhibit and the terms of the remainder of
          this Agreement, the terms of the remainder of this Agreement shall
          take precedence.


                                       9

<PAGE>

                  ARTICLE II: PURCHASE OF CAPACITY, ENERGY, AND
                               ANCILLARY SERVICES

2.1. CAPACITY SALE AND PURCHASE

     Subject to the terms and conditions of this Agreement, Seller agrees to
     sell and supply to Buyer, and Buyer agrees to accept and purchase from
     Seller, Buyer's Entitlement of all Accredited Capacity that Seller has
     available from the Facility for the duration of the Term. Seller agrees to
     sell and supply, and Buyer agrees to accept and purchase from Seller, all
     Accredited Capacity associated with Replacement Capacity that Seller
     supplies to Buyer pursuant to the terms of this Agreement. Buyer's
     obligation to pay for Accredited Capacity sold and supplied by Seller to
     Buyer for any period of time shall be based on the aggregate amount of
     Delivered Energy for that period of time.

2.2. ENERGY SALE AND PURCHASE

     Subject to the terms and conditions of this Agreement, for the duration of
     the Term, Seller shall sell and deliver to Buyer at the Delivery Point, and
     Buyer shall accept and purchase, Buyer's Entitlement of the Net Energy
     Output of the Facility. Buyer also agrees to accept and purchase all
     Replacement Energy that Seller delivers to Buyer pursuant to the terms of
     this Agreement. The amount of all Energy sold and delivered by Seller and
     accepted and purchased by Buyer pursuant to this Section 2.2, for any
     period of time, shall be the aggregate amount of Delivered Energy for such
     period of time.

2.3. ANCILLARY SERVICES

     (a)  The sale of Capacity and Energy hereunder from the Facility to Buyer
          shall include the Ancillary Services associated with Buyer's
          Entitlement of such Capacity and Energy from the Facility. Seller
          agrees to provide and/or execute any documents or agreements necessary
          to transfer to Buyer any revenue in excess of revenues from the sale
          of Energy and Capacity under this Agreement, and any other benefits
          and rights, received by Seller in providing such Ancillary Services.

     (b)  To the extent that Seller's unexcused failure to deliver Ancillary
          Services to Buyer results in any increased cost or penalty incurred by
          Buyer, Seller shall reimburse Buyer for any such increased cost or
          penalty. The amount of such cost or penalty to be reimbursed shall not
          exceed an amount equal to the increased costs or penalties actually
          incurred by Buyer. In the event that during the Term there exists a
          market for the purchase and sale of Ancillary Services, then (i) if
          Seller fails to provide an Ancillary Service required to be delivered
          hereunder from the Facility, Seller shall use commercially reasonable
          efforts to provide Buyer with a replacement for such Ancillary Service
          and (ii) if Seller is unsuccessful in satisfying its obligation under
          clause (i), Seller shall reimburse Buyer for the market-clearing price
          for such undelivered Ancillary Service to the extent such
          market-clearing price exceeds those amounts already due from Seller


                                       10

<PAGE>

          pursuant to this Section 2.3(b).

2.4. REPLACEMENT ENERGY AND REPLACEMENT CAPACITY

     Subject to the provisions of this Agreement, Seller may provide Buyer with
     Replacement Energy and Replacement Capacity and/or Accredited Capacity from
     the Facility as set forth below in this Section 2.4 during a Derate with a
     duration of more than one (1) day, including a Derate caused by a Scheduled
     Maintenance Outage, a Summer Maintenance Outage, or any other scheduled
     outage of the Facility. If Seller supplies Replacement Capacity and/or
     Accredited Capacity from the Facility without also simultaneously
     delivering Replacement Energy, Seller shall be deemed as not having
     supplied Replacement Capacity and as not having delivered Replacement
     Energy. If Seller delivers Replacement Energy without also simultaneously
     supplying Replacement Capacity and/or Accredited Capacity from the
     Facility, Seller shall be deemed as not having supplied Replacement
     Capacity and as not having delivered Replacement Energy. Seller may provide
     Replacement Energy from a generation resource that differs from the DNR
     selected by Seller to supply Replacement Capacity, if any.

     (a)  Notices to Supply Replacement Capacity and Deliver Replacement Energy

          If the event or condition constituting the Derate is an event or
          condition other than a Scheduled Maintenance Outage, Summer
          Maintenance Outage, or any other scheduled outage of the Facility,
          Seller shall notify Buyer's Merchant Operations Center of Seller's
          election in accordance with Section 2.4(b) below to provide or not to
          provide Replacement Capacity (to the extent not supplying Accredited
          Capacity from the Facility) and Replacement Energy no later than the
          second Business Day following the day that the Derate commenced.

          If the event or condition constituting the Derate is a Scheduled
          Maintenance Outage, a Summer Maintenance Outage, or any other
          scheduled outage of the Facility, Seller shall notify Buyer's Merchant
          Operations Center of Seller's election in accordance with Section
          2.4(b) below to provide or not to provide Replacement Capacity (to the
          extent not supplying Accredited Capacity from the Facility) and
          Replacement Energy no later than two (2) Business Days prior to the
          scheduled commencement of such Scheduled Maintenance Outage, Summer
          Maintenance Outage, or other scheduled outage of the Facility.

     (b)  Seller's Replacement Capacity and Replacement Energy Options

          Seller shall have the option of electing to provide: (i) Replacement
          Capacity (to the extent not supplying Accredited Capacity from the
          Facility) and Replacement Energy on a weekly basis, (ii) Replacement
          Capacity (to the extent not supplying Accredited Capacity from the
          Facility) and Replacement Energy for the expected duration of the
          Derate, or (iii) no Replacement Capacity and Replacement Energy for
          the expected duration of the Derate; provided, however, that with
          respect to a Derate other than a Scheduled Maintenance Outage, a
          Summer Maintenance Outage, or another scheduled outage of the
          Facility, Replacement Capacity (to the extent not supplying Accredited
          Capacity from the Facility) and Replacement


                                       11

<PAGE>

          Energy, if provided, must be provided for the remaining duration of
          the Derate commencing with the date that Buyer's Merchant Operations
          Center is notified in accordance with Section 2.4(a) above.
          Notwithstanding anything else in this Agreement to the contrary, if a
          Derate occurs in the month of July or August and is expected to have a
          duration in excess of one (1) week during any part of that two-month
          period, then Seller shall not have option (i) above with respect to
          Replacement Capacity and Replacement Energy but will have options (ii)
          and (iii) above. Notwithstanding the foregoing, Seller's only option
          with respect to a Summer Maintenance Outage is to provide Replacement
          Capacity (to the extent not supplying Accredited Capacity from the
          Facility) and Replacement Energy on a continuous basis for the
          duration of such an outage equal to the Buyer's Capacity Amount.

     (c)  Replacement Energy Scheduling

          Any Replacement Energy Scheduled hereunder shall be Scheduled in
          accordance with Section 5.3, subject to the following:

          (i)  Seller shall provide notice to Buyer of the proposed source and
               Delivery Point (or Alternate Delivery Point, as the case may be)
               of the Replacement Energy by the required time for notices to be
               provided to Buyer pursuant to Section 2.4(a) above; and,

          (ii) Replacement Energy may only be Scheduled and delivered on a
               continuous basis in either (A) a single fixed quantity or (B) a
               quantity varied to reflect expected changes in the Buyer's
               Entitlement of Net Energy Output of the Facility (e.g., changes
               in Facility output or ramp rates or expected resolution of
               outages) such that the aggregate of such Replacement Energy and
               Buyer's Entitlement of Net Energy Output of the Facility will
               result in a single, fixed quantity.

     (d)  Failure to Schedule/Deliver

          If Seller fails to deliver or cause to be delivered all or part of the
          Replacement Energy that is Scheduled in accordance with Section 2.4(c)
          above, or fails to Schedule Replacement Energy in accordance with
          Section 2.4(c) above after providing the requisite notice under
          Section 2.4(a), and such failure is not excused under the terms of
          this Agreement, then Seller shall pay to Buyer, within ten (10)
          Business Days of invoice receipt therefore, an amount equal to the
          positive difference, if any, between (i) the cost incurred by Buyer
          acting in a commercially reasonable manner to replace the Replacement
          Energy not delivered or Scheduled by Seller, including the cost
          incurred by Buyer in purchasing Energy to replace, at the Delivery
          Point, the Replacement Energy not delivered or Scheduled by Seller in
          either a bilateral transaction or the market price at the Delivery
          Point, plus additional transmission charges, if any, reasonably
          incurred by Buyer for the delivery of the Energy to the Delivery
          Point, and (ii) the cost (using the Energy Charge) that Buyer would
          have incurred under this Agreement had the


                                       12

<PAGE>

          Replacement Energy been delivered or Scheduled. Any invoice submitted
          by Buyer to Seller pursuant to this Section 2.4(d) shall include a
          written statement explaining in reasonable detail the calculation of
          the amount due from Seller.

          If Buyer fails to Schedule, receive or cause to be received all or
          part of the Replacement Energy that is Scheduled by Seller in
          accordance with Section 2.4 herein, and such failure is not excused
          under the terms of this Agreement, then Buyer shall pay to Seller,
          within ten (10) Business Days of invoice receipt therefore, an amount
          equal to the negative difference, if any, between (i) the amount
          received by Seller acting in a commercially reasonable manner in the
          reselling at the Delivery Point any Replacement Energy not received by
          Buyer, including the amount received by Seller in reselling any
          Replacement Energy, at the Delivery Point, not received by Buyer in
          either a bilateral transaction or the market price at the Delivery
          Point, less additional transmission charges, if any, and (ii) the
          amount (using the Energy Charge) that Seller would have received under
          this Agreement had the Replacement Energy been received by Buyer. Any
          invoice submitted by Seller to Buyer pursuant to this Section 2.4(d)
          shall include a written statement explaining in reasonable detail the
          calculation of the amount due from Buyer.

     (e)  Failure to Supply

          Seller shall have the option to supply Replacement Capacity to Buyer
          in accordance with this Agreement, provided that the combined amount
          of Capacity supplied from the Facility and the Replacement Capacity is
          equal to or less than the Buyer's Capacity Amount. If Seller fails to
          supply Replacement Capacity (to the extent it is not supplying
          Accredited Capacity from the Facility) after providing the requisite
          notice under Section 2.4(a), and such failure is not excused under the
          terms of this Agreement, then Seller shall pay Buyer, within ten (10)
          Business Days of invoice receipt therefore, an amount equal to the
          positive difference, if any, between (i) the cost incurred by Buyer
          acting in a commercially reasonable manner to replace the Replacement
          Capacity not supplied by Seller, including the cost incurred by Buyer
          in purchasing Capacity to replace the Replacement Capacity not
          supplied by Seller in either a bilateral transaction or the market
          price at the Delivery Point, and (ii) the cost (using the Capacity
          Charge) that Buyer would have incurred under this Agreement had the
          Replacement Capacity been supplied. Any invoice submitted by Buyer to
          Seller pursuant to this Section 2.4(e) shall include a written
          statement explaining in reasonable detail the calculation of the
          amount due from Seller.

     (f)  When supplying Replacement Energy and Replacement Capacity, Seller
          shall not be required to supply Ancillary Services with respect
          thereto.

2.5. DELIVERY POINT

     (a)  If the Facility is the generation source of Energy to be delivered to
          Buyer hereunder, then the "Delivery Point" for such Energy is the
          CPNode that


                                       13

<PAGE>

          corresponds to the Interconnection Point for the main transformer.

     (b)  If the Facility is not the generation source of Energy to be delivered
          to Buyer hereunder (i.e., if Replacement Energy is being supplied),
          then the "Delivery Point" for the Replacement Energy shall be,
          pursuant to the Seller's choice, any of: (i) the CPNode that
          corresponds to the Interconnection Point for the main transformer,
          (ii) any other CPNode located within the METC Sub-Control Area, or
          (iii) the CPNode that corresponds to the Buyer's Load Zone as defined
          by MISO ((ii) or (iii) being the "Alternate Delivery Point").

     (c)  In the event that Seller chooses to deliver Replacement Energy to an
          Alternate Delivery Point permitted by Section 2.5(b) above, Seller
          shall reimburse Buyer for any additional costs (net of any savings)
          incurred by Buyer (relative to that which would have been incurred by
          Buyer if such delivery had been made to the CPNode that corresponds to
          the Interconnection Point) as a result of the delivery of such
          Replacement Energy, including, but not limited to, LMP differentials,
          transmission costs, imbalance penalties or charges, scheduling
          penalties or fees, redispatch costs, cash out charges, congestion
          management fees, Ancillary Service costs associated with the
          incremental transmission, line losses and similar costs, regulation
          and frequency response charges, voltage support charges or any similar
          penalties, fees or charges assessed by Transmission Provider for
          failure to satisfy the Transmission Provider's balance, nomination
          and/or scheduling requirements.

2.6. ENTITLEMENT DUE TO UPRATE

     In the event of an Uprate, Seller shall be entitled to sell, and Buyer
     shall have no right to, all additional Capacity, Energy and Ancillary
     Services attributed to the Uprate. In the event of an Uprate, Seller will
     arrange for a net capability test (the "Uprate Capability Test") in
     accordance with ECAR 4 (or with the Effective Capacity Requirements, if
     applicable) to be conducted, after the Uprate is completed, tested and
     operational as determined by Seller, to calculate the actual net increase
     in the Capacity of the Facility attributable to the Uprate. Once the Uprate
     Capability Test is completed, the Buyer's Entitlement and the associated
     percentages in the column in Exhibit B entitled "Buyer's Entitlement" shall
     be revised, upon written notice from Seller to Buyer, to equal the
     quotient, stated as a percentage, resulting from (a) the Capacity of the
     Facility amount from Exhibit B (without taking into account the effect of
     the Uprate) corresponding to the month in which the Uprate is completed,
     tested and operational as determined by Seller, divided by (b) the Capacity
     rating of the Facility resulting from the Uprate Capability Test. Buyer
     shall be entitled under this Agreement to the Buyer's Entitlement of all
     Capacity made available, or capable of being made available, from the
     Facility (except for Capacity from the Facility attributable to an Uprate),
     and Seller shall not sell or commit to sell such Capacity to any party
     other than Buyer.

2.7. CAPACITY ACCREDITATION

     Seller shall, at its cost and expense, (a) on an annual basis (or more
     frequently as Seller may be directed by any Governing Authority), perform a
     Capacity test of the Facility, in


                                       14

<PAGE>

     accordance with ECAR 4 and Module E, and (b) take all other actions
     reasonably required to cause the Capacity of the Facility and the
     Replacement Capacity to be Accredited Capacity, including the satisfaction
     of all applicable requirements to establish and maintain the DNR status (as
     defined under applicable MISO Tariffs) of the Facility or the source of the
     Replacement Capacity for Buyer.

2.8. REACTIVE POWER

     (a)  Seller agrees that it shall not have any rights to the production or
          absorption of the Reactive Power capabilities of the Facility existing
          as of the time of closing of the transactions contemplated by the
          Asset Sale Agreement (which capabilities are identified in the
          Interconnection Agreement), and that Seller shall not operate the
          Facility to produce real power at a level or in a manner that
          compromises its ability to operate the Facility to produce or absorb
          Reactive Power to maintain the output voltage or power factor at the
          Interconnection Point as specified in the Interconnection Agreement
          or, if the Interconnection Agreement is not applicable, any other
          applicable agreement governing Seller's obligation to provide Reactive
          Power from the Facility. In addition, Seller shall maintain the
          Reactive Power capability of the Facility at the levels set forth in
          the Interconnection Agreement as the same may be amended by the
          parties thereto. Notwithstanding the foregoing, in no event shall
          Seller be required by Buyer to reduce its real power output below the
          Buyer's Capacity Amount for the purpose of producing Reactive Power.

     (b)  Notwithstanding Section 2.8(a), Seller may alter the Facility's
          ability to absorb or produce Reactive Power or otherwise change the
          amount or nature of Reactive Power if such alteration is approved by
          the applicable Governing Authority.

2.9. STATION POWER SERVICE

     During any period in which the Facility is operating, Seller shall be
     entitled to satisfy the Station Power Service Load using Energy generated
     by the Facility. Seller shall be solely responsible for obtaining, at its
     cost, Energy to serve the Station Power Service Load, including any
     transmission charges (if applicable) associated with such Energy, during
     any period of time in which the Facility is not operating, or is not
     generating sufficient Energy to meet the Station Power Service Load. In the
     event that any fees, penalties, or transmission charges are assessed
     against Buyer by any Governing Authority in connection with Seller's
     consumption of Energy to serve the Station Power Service Load or any Energy
     obtained by Seller to serve the Station Power Service Load, Seller shall
     reimburse Buyer for such fees, penalties, or transmission charges or
     Energy.

                              ARTICLE III: PAYMENTS

3.1. PURCHASE PAYMENTS

     The amounts to be paid to the Seller by the Buyer for purchases of
     Capacity, Energy and Ancillary Services under this Agreement shall be
     determined as follows:


                                       15
<PAGE>

     (a)  Capacity Payment. With respect to each Billing Cycle, Buyer shall make
          a payment to Seller equal to the product of: (i) the applicable
          "Capacity Charge" set forth in Exhibit A; (ii) the applicable Capacity
          Charge Shaping Factor set forth in Exhibit C; and (iii) the number of
          MWhs of Delivered Energy for the Billing Cycle (each, a "Capacity
          Payment").

     (b)  Energy Payment. With respect to each Billing Cycle, Buyer shall make a
          payment to Seller equal to the product of: (i) the applicable "Energy
          Charge" set forth in Exhibit A; (ii) the applicable Energy Charge
          Shaping Factor set forth in Exhibit C; and (iii) the number of MWhs of
          Delivered Energy for the Billing Cycle (each, an "Energy Payment").

     (c)  Ancillary Services. The Capacity Payment and the Energy Payment
          include payment for any and all Ancillary Services received by Buyer,
          and no additional payment in respect thereof shall be due at any time.
          Without limiting the generality of the foregoing, Seller specifically
          agrees that it shall not be entitled to any payment for Reactive Power
          under this Agreement, notwithstanding its obligation to operate the
          Facility in accordance with Section 2.8.

3.2. PEAK ADJUSTMENT PAYMENT

     If applicable, Seller shall make a payment to Buyer as determined in
     accordance with Exhibit G (each, a "Peak Adjustment Payment").

                      ARTICLE IV: MAINTENANCE AND OPERATION

4.1. SCHEDULED MAINTENANCE

     (a)  Scheduling Procedure

          Seller shall submit to Buyer a schedule of maintenance of the Facility
          (each, a "Maintenance Schedule" and each item thereon a "Scheduled
          Maintenance Outage") for each Calendar Year during the Term no later
          than twelve (12) months before the beginning of such year (or no later
          than three (3) months prior to the deadline for submittal of any such
          schedule to the Transmission Provider or any other applicable
          Governing Authority, if earlier); except that within thirty (30) days
          following the Effective Date, Seller shall submit to Buyer a
          Maintenance Schedule for the Calendar Year in which the Effective Date
          occurs and for the following Calendar Year. Each Maintenance Schedule
          shall meet the requirements set forth in Section 4.1(b) and shall be
          deemed confidential information and shall be treated accordingly as
          provided in Article XIV of this Agreement; provided, however, that
          Buyer shall have the right, consistent with Section 14.2(a), to submit
          the Maintenance Schedule to the MPSC. Seller shall also submit to
          Buyer any schedule of maintenance provided to the Transmission
          Provider, any Governing Authority or other entity.

     (b)  Limitations on Scheduled Maintenance Outages


                                       16

<PAGE>

          (i)  If Seller plans a Scheduled Maintenance Outage during the period
               from June 1st through August 31st (a "Summer Maintenance
               Outage"), Seller must comply with the notice and Scheduling
               provisions of Section 2.4 and the following terms and conditions:

               (A)  Seller shall supply Replacement Capacity (if and to the
                    extent Accredited Capacity from the Facility is not
                    provided), and Schedule and deliver Replacement Energy, on a
                    continuous basis to the Delivery Point (or Alternate
                    Delivery Point) for each hour of such Summer Maintenance
                    Outage in an amount equal to the Buyer's Capacity Amount;
                    and

               (B)  If Seller fails to deliver or cause to be delivered, or
                    fails to Schedule, all or part of the Replacement Energy
                    required by subsection (i)(A) above, and such failure is not
                    excused under the terms of this Agreement, then Seller shall
                    pay to Buyer, within ten (10) Business Days of invoice
                    receipt therefore, an amount equal to the positive
                    difference, if any, between (1) the cost incurred by Buyer
                    acting in a commercially reasonable manner to replace the
                    Replacement Energy not delivered or Scheduled by Seller,
                    including the cost incurred by Buyer in purchasing Energy to
                    replace, at the Delivery Point, the Replacement Energy not
                    delivered or Scheduled by Seller in either a bilateral
                    transaction or the market price at the Delivery Point, plus
                    additional transmission charges, if any, reasonably incurred
                    by Buyer for the delivery of the Energy to the Delivery
                    Point, and (2) the cost (using the Energy Charge) that Buyer
                    would have incurred under this Agreement had the Replacement
                    Energy been delivered or Scheduled. Any invoice submitted by
                    Buyer to Seller pursuant to this subsection (i)(B) shall
                    include a written statement explaining in reasonable detail
                    the calculation of the amount due from Seller.

               (C)  If Buyer fails to Schedule, receive or cause to be received
                    all or part of the Replacement Energy that is Scheduled by
                    Seller in accordance with subsection (i)(A) above and such
                    failure is not excused under the terms of this Agreement,
                    then Buyer shall pay to Seller, within ten (10) Business
                    Days of invoice receipt therefore, an amount equal to the
                    negative difference, if any, between (1) the amount received
                    by Seller acting in a commercially reasonable manner in the
                    reselling at the Delivery Point any Replacement Energy not
                    received by Buyer, including the amount received by Seller
                    in reselling any Replacement Energy, at the Delivery Point,
                    not received by Buyer in either a bilateral transaction or
                    the market price at the Delivery Point, less additional
                    transmission charges, if any, and (2) the amount (using the
                    Energy Charge) that Seller would have received under this
                    Agreement had the Replacement Energy been received by Buyer.
                    Any invoice submitted by Seller


                                       17

<PAGE>

                    to Buyer pursuant to this subsection (i)(C) shall include a
                    written statement explaining in reasonable detail the
                    calculation of the amount due from Buyer.

               (D)  If Seller fails to supply Replacement Capacity in accordance
                    with subsection (i)(A) above and such failure is not excused
                    under the terms of this Agreement, then Seller shall pay
                    Buyer, within ten (10) Business Days of invoice receipt
                    therefore, an amount equal to the positive difference, if
                    any, between (1) the cost incurred by Buyer to replace the
                    Replacement Capacity not supplied by Seller, including the
                    cost incurred by Buyer in purchasing Capacity to replace the
                    Replacement Capacity or the market price paid by Buyer for
                    Replacement Capacity not supplied by Seller, and (2) the
                    cost (using the Capacity Charge) that Buyer would have
                    incurred under this Agreement had the Replacement Capacity
                    been supplied. Any invoice submitted by Buyer to Seller
                    pursuant to this subsection (i)(D) shall include a written
                    statement explaining in reasonable detail the calculation of
                    the amount due from Seller.

          (ii) The conditions set forth in Section 4.1(b)(i) shall not apply to
               (x) the Scheduled Maintenance Outage which includes the
               Facility's reactor head replacement, (y) the Scheduled
               Maintenance Outage, if any, during which the Facility's steam
               generator is replaced, or (z) any unexpected maintenance outage
               (i.e., a maintenance outage which is scheduled in less than three
               months).

4.2. DERATE NOTICES

     In the event of any Derate, other than a Scheduled Maintenance Outage, any
     Summer Maintenance Outage, or any other scheduled outage of the Facility,
     Seller must notify Buyer's Merchant Operations Center telephonically of
     such Derate as soon as practicable after Seller becomes aware of the
     necessity or occurrence thereof (each, a "Derate Notice"), with written
     confirmation within 24 hours. During any ongoing Derate, Seller shall
     provide daily or more frequent updates to Buyer's Merchant Operations
     Center of the nature and expected duration of such Derate. During the
     course of development of a Derate, Seller shall provide frequent updates as
     to the magnitude and timing of actual and expected output changes of the
     Facility and such other information as may assist Buyer in assessing the
     reliability of output from the Facility.

4.3. OTHER OPERATIONS OBLIGATIONS

     (a)  Permits, Licenses and Approvals; Compliance with Laws

          Seller shall, at its expense, acquire and maintain in effect
          throughout the Term of this Agreement all permits, licenses, approvals
          and other Authorizations of any Governing Authority required for the
          lawful operation and maintenance of the Facility.


                                       18

<PAGE>

     (b)  Information Requirements

          Seller shall provide Buyer with the following real-time telemetered
          data (scanned no less frequently than once every four seconds) for the
          duration of the Term: (i) net output (megawatts and megaVARs), (ii)
          status (i.e., open or closed) of the applicable breaker, (iii)
          operating limits, and (iv) such additional information as may be
          required from time to time by the Transmission Provider or any
          Governing Authority, or Buyer's control area operator, or by Good
          Utility Practices. Seller shall provide Buyer with copies of any
          scheduling notices or requests submitted to the Transmission Provider,
          concurrently with the submission thereof. In addition, Seller shall
          provide Buyer with any other information Buyer may reasonably request
          regarding the operation of the Facility. Seller shall advise Buyer and
          provide information regarding events, ongoing work or Facility status
          which may create a risk of Derates. In no event shall the provisions
          of this Section 4.3(b) require Seller to provide Buyer with any
          information that Seller believes in good faith, based on established
          precedent or reasonable inquiry, violates the rules or regulations on
          transfer of information promulgated by any Governing Authority or
          Transmission Provider.

     (c)  SCADA Data

          Seller shall provide and make available to Buyer, on a real-time
          basis, all data generated by the SCADA system at the Facility,
          including, without limitation, all four-second meter data.

     (d)  Quality of Energy

          All Energy delivered hereunder shall be three-phase, 60 Hertz (plus or
          minus variations as may be required or allowed by the Transmission
          Provider), alternating current, at a voltage acceptable to the
          Transmission Provider, or shall otherwise comply with such other
          specifications of the Transmission Provider, regional reliability
          council or other Governing Authority responsible for the safety and
          reliability of the electric grid with authority over the Delivery
          Point (or Alternate Delivery Point, if applicable) as may be in effect
          at the time of delivery.

     (e)  Compliance with Interconnection Agreement

          To the extent the Interconnection Agreement requires delivery to Buyer
          of information and data substantially similar to that referred to in
          Sections 4.3(b) and (c), the information and data required by the
          Interconnection Agreement shall be delivered to Buyer in lieu of that
          required under Sections 4.3(b) and (c).

                    ARTICLE V: METERING, BILLING AND PAYMENT

5.1. METERING

     (a)  The Billing Meters shall at all times during the Term meet the
          requirements set by


                                       19

<PAGE>

          the Transmission Provider and all applicable Governing Authorities.
          Seller shall arrange with Transmission Owner for Transmission Owner to
          own, operate, test, maintain, and replace the Billing Meters at the
          main transformer (Meters #2 and #3 on Exhibit D). Transmission Owner
          shall be the metering party ("Metering Party") as to such Billing
          Meters. As between Seller and Buyer following the Effective Date,
          Seller shall bear all reasonable, documented costs associated with the
          operation, testing, maintenance, or replacement of the Billing Meters
          at the main transformer. Seller shall use reasonable efforts to cause
          the Transmission Owner to provide metering quantities, in analog
          and/or digital form, to Buyer upon Buyer's request.

     (b)  Buyer shall own, operate, test, maintain, and replace the Billing
          Meters at the start-up transformer and the safeguard transformer
          (Meters #1 and #4 on Exhibit D) in accordance with Good Utility
          Practices. Buyer shall be the Metering Party as to such Billing
          Meters. Following the Effective Date, Seller shall bear all
          reasonable, documented costs associated with the operation, testing,
          maintenance, or replacement of the Billing Meters at the start-up
          transformer or the standby transformer. Buyer shall provide metering
          quantities, in analog and/or digital form, to Seller upon Seller's
          request.

     (c)  The Transmission Owner's and Buyer's Billing Meters, which are shown
          on Exhibit D, shall be used for measurements under this Agreement and
          shall be sufficient to permit an accurate determination of the
          quantity and time of delivery of Energy delivered to Buyer. Buyer
          shall calibrate, and Seller shall use reasonable efforts following the
          Effective Date to cause the Transmission Owner to calibrate, their
          respective Billing Meters at least annually, and otherwise in
          accordance with applicable Governing Authority standards. Seller or
          Seller's representative shall have the right to be present during any
          calibration of the Billing Meters owned by Buyer, and Buyer shall
          provide reasonable notice to Seller of any such calibration. Seller
          agrees, and shall use reasonable efforts to cause the Transmission
          Owner to agree in writing, that upon reasonable notice, Transmission
          Owner (and Seller) shall provide Buyer access to the Billing Meters
          owned by Buyer and Transmission Owner during normal business hours for
          the purpose of reading, inspecting, calibrating, and testing such
          equipment, or witnessing the reading, inspecting, calibrating, and
          testing of such equipment by another party.

     (d)  Check Meters. Seller, at its option and expense, may install and
          operate on its premises and on its side of the Interconnection Points,
          one or more check meters to check the Billing Meters owned by Buyer.
          Seller is responsible for any separate arrangements to install check
          meters with respect to the Billing Meters owned by Transmission Owner.
          All such check meters shall be for check purposes only and shall not
          be used for the measurement of Energy flows for purposes of this
          Agreement, except as provided in Section 5.1(e) below. The check
          meters shall be subject at all reasonable times to inspection and
          examination by Transmission Provider, Buyer or their designees. The
          installation, operation and maintenance thereof shall be performed
          entirely by


                                       20

<PAGE>

          Seller in accordance with Good Utility Practice.

     (e)  Testing of Metering Equipment. Seller and Buyer agree, and Seller
          shall use reasonable efforts to cause the Transmission Owner to agree
          in writing to the following: the Metering Party shall inspect and test
          its Billing Meters upon installation and at least once every two (2)
          years thereafter. If requested to do so by a Party, the Metering Party
          shall, at the requesting Party's expense, inspect and test Billing
          Meters more frequently than once every two (2) years. The Metering
          Party shall give reasonable notice to the other Party of the time when
          any inspection or test shall take place, and the other Party may have
          representatives present at the test or inspection. In addition, Seller
          shall have the right to inspect Buyer's Billing Meters from time to
          time at its discretion. If at any time a Billing Meter is found to be
          inaccurate or defective, it shall be adjusted, repaired or replaced at
          Seller's expense, in order to provide accurate metering, unless the
          inaccuracy or defect is due to the Metering Party's failure to
          maintain, then the Metering Party shall pay. If a Billing Meter fails
          to register, or if the measurement made by a Billing Meter during a
          test varies by more than one-half of one percent (0.5%) from the
          measurement made by the standard meter used in the test, the Metering
          Party shall adjust the measurements by correcting all measurements for
          the period during which the Billing Meter was in error by using
          Seller's check meters, if installed and if, when tested, varied less
          than the Billing Meter. If no such check meters are installed, the
          Parties shall use the best available data for the period in question.
          If no other data are available, or if the period cannot be reasonably
          ascertained, the adjustment shall be for the period immediately
          preceding the test of the Billing Meter equal to one-half the time
          from the date of the previous test of the Billing Meter.

     (f)  Seller and Buyer agree, and Seller shall use reasonable efforts to
          cause the Transmission Owner to agree in writing, to the following: at
          Seller's expense, the metered data shall be telemetered by the
          Metering Party to one or more locations, designated by Transmission
          Owner and one or more locations designated by Buyer.

5.2. BILLING AND PAYMENT

     (a)  Seller shall send a billing statement to Buyer on or before the tenth
          (10th) day after the end of each Billing Cycle. If any net amount is
          due to Seller pursuant to any such billing statement, Buyer shall pay
          such amount to Seller by the later of (i) ten (10) Business Days after
          receipt of such billing statement, or (ii) the 20th day of the month
          in which the billing statement was received. If any net amount is due
          to Buyer pursuant to any such billing statement, Seller shall pay such
          amount to Buyer by the later of (i) ten (10) Business Days after
          receipt of such billing statement, or (ii) the 20th day of the month
          in which the billing statement was received. The billing statement
          shall show the kilowatt-hours of Delivered Energy for such Billing
          Cycle; the amounts due Seller for that Billing Cycle in respect of (i)
          the Capacity Payment and the Energy Payment, and (ii) any other
          amounts due to Seller hereunder; the amounts due Buyer for that
          Billing Cycle in


                                       21

<PAGE>

          respect of (iii) the Peak Adjustment Payment, and (iv) any other
          amounts due to Buyer hereunder; and the data reasonably pertinent to
          the calculation of the payments due to Seller or Buyer. If meter
          readings cannot be made during such Billing Cycle (or any portion
          thereof), the Buyer shall estimate deliveries to it for such period,
          tender payment accordingly, and make an adjustment for actual
          purchases in the next Billing Cycle's statement. For purposes of
          billing for Replacement Capacity and Replacement Energy, the Capacity
          of the resources providing Replacement Capacity and Replacement Energy
          shall be determined in accordance with Module E of the MISO Tariff,
          such determination to be submitted by Seller and Buyer and the
          Schedule(s) submitted in accordance with Section 2.4 to determine the
          amount of Replacement Capacity and Replacement Energy supplied and
          delivered to Buyer. Any amounts not paid by the due date shall be
          deemed delinquent and shall accrue interest at the Default Interest
          Rate, such interest to be calculated from and including the due date
          to but excluding the date the delinquent amount is paid in full.

     (b)  In the event of a dispute as to the amount of any bill, the disputing
          Party shall notify the other Party of the amount in dispute and Buyer
          or Seller, as applicable, shall pay to the other Party the undisputed
          portion of the bill on or prior to the due date therefor, as
          identified in Section 5.2(a). Buyer or Seller, as applicable, shall
          pay, with an interest charge computed at the Default Interest Rate,
          from and including the date payment was due to but excluding the date
          payment is made, any portion of the disputed amount ultimately found
          to be proper. In the event of a refund, Buyer or Seller, as
          applicable, shall pay, with an interest charge computed at the Default
          Interest Rate, from and including the date the disputed payment was
          made to but excluding the date the refund payment is made, any refund
          amount ultimately found to be due to the other Party.

     (c)  Neither the Buyer nor Seller shall have the right to challenge any
          billing statement rendered or received hereunder after a period of two
          (2) years from the date such statement was rendered. In the event that
          any such billing statement depends in whole or in part upon estimated
          data, this two (2) year limitation period shall be deemed to begin on
          the first day of the Billing Cycle in which such estimated data is
          adjusted to actual.

5.3. SCHEDULING

     Seller shall submit its Generation Offers and Financial Bilateral
     Transactions in accordance with applicable MISO rules and procedures, as
     the same may be amended or superseded, and consistent with offering the
     Facility in the MISO day-ahead market for dispatch as a must-run generation
     unit. The current version of such rules and procedures are attached hereto
     as Exhibit H.


                                       22

<PAGE>

                            ARTICLE VI: FORCE MAJEURE

6.1. CONDITIONS OF EXCUSE FROM PERFORMANCE

     If and to the extent resulting from a Force Majeure a Party hereto is
     rendered unable to perform any of its obligations under this Agreement
     (other than obligations of such Party to pay money when such money is due),
     that Party shall be excused, except as specifically provided elsewhere in
     this Agreement, from whatever performance is prevented by the Force Majeure
     to the extent so prevented, provided that:

     (a)  The Party claiming excuse gives the other Party prompt written notice
          describing how the event qualifies as a Force Majeure;

     (b)  The permitted suspension of performance is of no greater scope and of
          no longer duration than is required by the Force Majeure; provided,
          however, that performance under this Agreement shall only be excused
          for longer than one (1) year by reason of any particular Force Majeure
          if Seller first complies with subsection (e) below;

     (c)  No obligations of a Party hereto under this Agreement which arose and
          accrued before the Force Majeure are excused as a result of the Force
          Majeure;

     (d)  A Party's performance may be excused due to Force Majeure only for so
          long as such Party claiming Force Majeure is exercising commercially
          reasonable efforts consistent with Good Utility Practices to eliminate
          or ameliorate the Force Majeure condition; and

     (e)  Seller shall, within sixty (60) days of the occurrence of a Force
          Majeure affecting Seller's performance under this Agreement that
          Seller reasonably anticipates will last more than twelve (12) months
          after the commencement thereof, deliver to Buyer a detailed plan for
          the remedy of the Force Majeure condition, which plan shall include:
          (i) a detailed specification of Seller's proposal (including a
          timetable) to remedy the Force Majeure condition and restore the
          Facility to maximum attainable operating status, and (ii) Seller's
          decision as to whether it will commence supplying and delivering
          Replacement Capacity and Replacement Energy after the sixth (6th)
          month of the Force Majeure if the Force Majeure condition has not been
          remedied; provided, however, that, if Seller decides to provide
          Replacement Capacity and Replacement Energy after the sixth (6th)
          month of the Force Majeure, Seller must provide both Replacement
          Capacity and Replacement Energy on a continuous basis until the event
          that previously constituted the Force Majeure has been remedied.

6.2. NO TERMINATION; EXTENSION OF TERM

     In no event shall a condition of Force Majeure be grounds for termination
     of this Agreement, or extend the Term of this Agreement.


                                       23

<PAGE>

6.3. ADJUSTMENT PAYMENTS

     No Peak Adjustment Payment shall be calculated or accrue in favor of Buyer
     while performance of the Seller is excused pursuant to Section 6.1.

                    ARTICLE VII: EVENTS OF DEFAULT; REMEDIES

7.1. LIST OF DEFAULT EVENTS

     Except as otherwise provided in this Agreement and subject to the
     limitations contained in this Section 7.1, Section 7.2 and Section 7.3, a
     Party shall be entitled to pursue any remedies available to it under
     generally applicable Laws or under this Agreement upon the occurrence of
     any of the following events (except as to the event described in Section
     7.1(f), for which only Seller shall be entitled to pursue any remedies
     available to it under generally applicable Laws or under this Agreement):

     (a)  The failure of the other Party to make any undisputed payment due
          hereunder and such failure shall continue for ten (10) Business Days
          after written notice demanding such payment is received;

     (b)  In the event the other Party shall cease doing business as a going
          concern, shall generally not pay its debts as they become due or admit
          in writing its inability to pay its debts as they become due, shall
          file a voluntary petition in bankruptcy or shall be adjudicated as
          bankrupt or insolvent, or shall file any petition or answer seeking
          any reorganization, arrangement, composition, readjustment,
          liquidation, dissolution or similar relief under the present or any
          future federal bankruptcy code or any other present or future
          applicable Law, or shall seek or consent to or acquiesce in the
          appointment of any trustee, receiver, custodian or liquidator of said
          Party or of all or any substantial part of its properties, or shall
          make an assignment for the benefit of creditors, or said Party shall
          take any corporate action to authorize or that is in contemplation of
          the actions set forth above in this Section 7.1(b);

     (c)  In the event that within thirty (30) days after the commencement of
          any proceeding against either Party seeking any reorganization,
          arrangement, composition, readjustment, liquidation, dissolution or
          similar relief under the present or any future federal bankruptcy code
          or any other statute or Law, such proceeding shall not have been
          dismissed, or if, within thirty (30) days after the appointment
          without the consent or acquiescence of said Party of any trustee,
          receiver, custodian or liquidator of said Party or of all or any
          substantial part of its properties, such appointment shall not have
          been vacated or stayed on appeal or otherwise, or if, within thirty
          (30) days after the expiration of any such stay, such appointment
          shall not have been vacated;

     (d)  Any of the other Party's representations and warranties contained in
          Article VIII hereof was false or misleading in any material respect
          when made, unless the fact, circumstance or condition that is the
          subject of such representation or warranty is


                                       24

<PAGE>

          made true within thirty (30) days after the defaulting Party has
          received notice thereof from the non-defaulting Party;

     (e)  A default in performance by a Party of any agreement, undertaking,
          covenant or other obligation contained in Section 7.2 and Section 7.3,
          and such default shall continue for ten (10) Business Days after
          written notice demanding such performance is received;

     (f)  The failure of either Party to provide the other Party's employees,
          agents, and other representatives reasonable access to test or examine
          the other Party's Billing Meters after receiving notice to do so by
          the applicable Party as required under this Agreement;

     (g)  A material default in performance or observance of any other
          agreement, undertaking, covenant or other material obligation
          contained in this Agreement by a Party unless, within thirty (30) days
          after written notice from the non-defaulting Party specifying the
          nature of such material default, the defaulting Party cures such
          default or, if such cure cannot reasonably be completed within thirty
          (30) days and if the defaulting Party within such thirty (30) day
          period commences, and thereafter proceeds with all due diligence, to
          cure such default, said period shall be extended for such further
          period as shall be necessary for the defaulting Party to cure such
          default with all due diligence, provided that the extended cure period
          shall not exceed ninety (90) days from the date of the original
          notice; or

     (h)  Seller or Buyer shall permanently or persistently fail to perform
          under the terms of this Agreement, such persistent failure continues
          for a period of thirty (30) days following notice to Seller or Buyer
          (as appropriate) of such persistent failure and such failure is not
          due to Force Majeure.

If an event of default under Sections 7.1(a), (b), (c) or (e) occurs, the other
Party (the "Non-Defaulting Party") shall have (in addition to any remedies
available to under generally applicable Laws or under this Agreement) the right
(i) to terminate this Agreement and/or (ii) to suspend performance hereunder
including without limitation the delivery of Energy; provided, however, that
with respect to the circumstances described in Sections 7.1(a) and 7.1(e),
Seller's right to suspend performance hereunder, including without limitation
the delivery of Energy (but not the right to terminate this Agreement) shall
become effective upon the expiration of five (5) Business Days after (iii)
written notice demanding payment is received under Section 7.1.(a), or (iv)
written notice demanding performance is received under Section 7.1(e), as
applicable.

7.2. SELLER'S SECURITY

     (a)  Seller shall provide on the Effective Date, and maintain thereafter
          throughout the remainder of the Term, security for compliance with its
          payment obligations under this Agreement, which shall consist of (1) a
          cash deposit in the amount of $30,000,000, which deposit shall earn
          interest at the Interest Rate, (2) a corporate guaranty (the "Seller's
          Guaranty") in the form attached hereto as Exhibit E, from Entergy
          Corporation, or its Affiliate or successor ("Seller's Guarantor")
          whose


                                       25

<PAGE>

          unsecured, senior long-term debt obligations (not supported by
          third-party credit enhancements) are rated Baa3 or better by Moody's
          Investment Services, Inc. (or its successor), or BBB- or better by
          Standard & Poor's Rating Group (or its successor) in the amount of
          $30,000,000, or (3) a Letter or Letters of Credit in the amount of
          $30,000,000.

     (b)  A default specified in Section 7.1(a) may not be cured by drawing, or
          permitting a draw on, the cash deposit, Seller's Guaranty or Letter of
          Credit, unless the cash deposit, Seller's Guaranty or Letter of Credit
          is immediately replenished up to the required amount of the cash
          deposit, Seller's Guaranty or Letter of Credit under Section 7.2(a).

     (c)  If at any time there shall occur a Downgrade Event with respect to
          Seller's Guarantor or if the rating of the Letter of Credit issuing
          bank falls below the minimum acceptable level as set forth in the
          definition of Letter of Credit, then Buyer may require Seller to
          replace the Seller's Guaranty or Letter of Credit with a Letter of
          Credit acceptable to the beneficiary in the amount of $30,000,000, and
          shall be subject to all terms and conditions of this Agreement
          applicable to a Letter of Credit. In the event Seller shall fail to
          provide such security within ten (10) Business Days of receipt of
          written notice, then a breach of this Agreement shall be deemed to
          have occurred; provided, however, that Seller's obligation to provide
          a Letter of Credit due to a Downgrade Event with respect to Seller's
          Guarantor shall be suspended if the unsecured, senior long-term debt
          obligations (not supported by third-party credit enhancements) of the
          Seller's Guarantor are restored to a rating of Baa3 or better by
          Moody's Investment Services, Inc. (or its successor), or BBB- or
          better by Standard & Poor's Rating Group (or its successor).

7.3. BUYER'S SECURITY

     (a)  Buyer shall provide on the Effective Date, and maintain thereafter
          throughout the remainder of the Term, security for compliance with its
          payment obligations under this Agreement, which shall consist of (1) a
          cash deposit in the amount of $30,000,000, which deposit shall earn
          interest at the Interest Rate, (2) a corporate guaranty (the "Buyer's
          Guaranty") in the form attached hereto as Exhibit F, from CMS Energy
          Corporation, or its Affiliate or successor ("Buyer's Guarantor") whose
          unsecured, senior long-term debt obligations (not supported by
          third-party credit enhancements) are rated Baa3 or better by Moody's
          Investment Services, Inc. (or its successor), or BBB- or better by
          Standard & Poor's Rating Group (or its successor) in the amount of
          $30,000,000, or (3) a Letter or Letters of Credit in the amount of
          $30,000,000.

     (b)  A default specified in Section 7.1(a) may not be cured by drawing, or
          permitting a draw on, the cash deposit, Buyer's Guaranty or Letter of
          Credit, unless the cash deposit, Buyer's Guaranty or Letter of Credit
          is immediately replenished up to the required amount of the cash
          deposit, Buyer's Guaranty or Letter of Credit under Section 7.3(a).


                                       26

<PAGE>

     (c)  If at any time there shall occur a Downgrade Event with respect to
          Buyer's Guarantor or if the rating of the Letter of Credit issuing
          bank falls below the minimum acceptable level as set forth in the
          definition of Letter of Credit, then Seller may require Buyer to
          replace the Buyer's Guaranty or Letter of Credit with a Letter of
          Credit acceptable to the beneficiary in the amount of $30,000,000, and
          shall be subject to all terms and conditions of this Agreement
          applicable to a Letter of Credit. In the event Buyer shall fail to
          provide such security within ten (10) Business Days of receipt of
          written notice, then a breach of this Agreement shall be deemed to
          have occurred; provided, however, that Buyer's obligation to provide a
          Letter of Credit due to a Downgrade Event with respect to Buyer's
          Guarantor shall be suspended if the unsecured, senior long-term debt
          obligations (not supported by third-party credit enhancements) of the
          Buyer's Guarantor are restored to a rating of Baa3 or better by
          Moody's Investment Services, Inc. (or its successor), or BBB- or
          better by Standard & Poor's Rating Group (or its successor).

7.4. NO CONSEQUENTIAL DAMAGES

     In actions arising under Section 7.1 of this Agreement, and in all other
     claims arising under this Agreement by either Party against the other
     Party, neither Seller nor the Buyer shall be liable to the other for
     indirect, special, incidental, or consequential damages, except as to the
     indemnification obligations of the Parties under Article IX for the
     indirect, special, or consequential damages of third parties.

                  ARTICLE VIII: REPRESENTATIONS AND WARRANTIES

8.1. REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer makes the following representations and warranties to Seller, each of
     which is true and correct as of the Effective Date:

     (a)  Buyer is a corporation duly organized and in active status under the
          Laws of the State of Michigan.

     (b)  Buyer has all corporate power and authority to enter into and perform
          this Agreement and to carry out the transactions contemplated herein.

     (c)  Buyer's execution, delivery and performance of this Agreement have
          been duly authorized by, and are in accordance with, its articles of
          incorporation and by-laws; this Agreement has been duly executed and
          delivered for it by the signatory so authorized; and this Agreement
          constitutes its legal, valid, and binding obligation, enforceable
          against it in accordance with the terms hereof.

     (d)  Buyer's execution, delivery and performance of this Agreement (i) will
          not result in a breach or violation of, or constitute a default under,
          any Authorization, or any contract, lease or other agreement or
          instrument to which it is a party, or by which it or its properties
          may be bound or affected; and (ii) does not require any


                                       27

<PAGE>

          Authorization, or the consent, authorization or notification of any
          other Person, or any other action by or with respect to any other
          Person (except for Authorizations and consents or authorizations of
          other Persons already obtained, notifications already delivered, or
          other actions already taken).

     (e)  No suit, action or arbitration, or legal, administrative or other
          proceeding is pending or has been threatened against Buyer that would
          affect the validity or enforceability of this Agreement or the ability
          of Buyer to perform its obligations hereunder in any material respect,
          or that would, if adversely determined, have a material adverse effect
          on the business or financial condition of Buyer. There are no
          bankruptcy, insolvency, reorganization, receivership or other
          arrangement proceedings pending against or being contemplated by
          Buyer, or, to Buyer's knowledge, threatened against it.

     (f)  Buyer is not in breach of, in default under, or in violation of, any
          applicable Law, or the provisions of any Authorization, or in breach
          of, in default under, or in violation of, any provision of any
          promissory note, indenture or any evidence of indebtedness or security
          therefor, lease, contract, or other agreement by which it is bound,
          except for any such breaches, defaults or violations which,
          individually or in the aggregate, could not reasonably be expected to
          have a material adverse effect on the business or financial condition
          of Buyer or its ability to perform its obligations hereunder.

8.2. REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller makes the following representations and warranties to Buyer, each of
     which is true as of the Effective Date:

     (a)  Seller is a limited liability company duly organized and in good
          standing under the Laws of the State of Delaware and qualified to do
          business in the State of Michigan.

     (b)  Seller has all limited liability company power and authority to enter
          into and perform this Agreement and to carry out the transactions
          contemplated herein.

     (c)  Seller's execution, delivery and performance of this Agreement have
          been duly authorized by, and are in accordance with, its certificate
          of formation and operating agreement; this Agreement has been duly
          executed and delivered for it by the signatory so authorized; and this
          Agreement constitutes Seller's legal, valid and binding obligation,
          enforceable against it in accordance with the terms hereof.

     (d)  Seller's execution, delivery and performance of this Agreement (i)
          will not result in a breach or violation of, or constitute a default
          under, any Authorization, or any contract, lease or other agreement or
          instrument to which it is a party, or by which it or its properties
          may be bound or affected; and (ii) does not require any Authorization,
          or the consent, authorization or notification of any other Person, or
          any other action by or with respect to any other Person (except for
          Authorizations and consents or authorizations of other Persons already
          obtained, notifications


                                       28

<PAGE>

          already delivered, or other actions already taken).

     (e)  No suit, action or arbitration, or legal, administrative or other
          proceeding is pending or has been threatened against Seller that would
          affect the validity or enforceability of this Agreement or the ability
          of Seller to perform its obligations hereunder in any material
          respect, or that would, if adversely determined, have a material
          adverse effect on the business or financial condition of Seller. There
          are no bankruptcy, insolvency, reorganization, receivership or other
          arrangement proceedings pending against or being contemplated by
          Seller, or, to Seller's knowledge, threatened against it.

     (f)  Seller is not in breach of, in default under, or in violation of, any
          applicable Law, or the provisions of any Authorization, or in breach
          of, in default under, or in violation of, any provision of any
          promissory note, indenture or any evidence of indebtedness or security
          therefor, lease, contract, or other agreement by which it is bound,
          except for any such breaches, defaults or violations which,
          individually or in the aggregate, could not reasonably be expected to
          have a material adverse effect on the business or financial condition
          of Seller or its ability to perform its obligations hereunder.

                ARTICLE IX: INDEMNITY AND LIMITATION OF LIABILITY

9.1. TITLE AND RISK OF LOSS

     Title to and risk of loss related to the Capacity, Energy or Ancillary
     Services shall transfer from Seller to Buyer at the Delivery Point (or
     Alternate Delivery Point, if applicable). Seller warrants that it will
     deliver to Buyer the Capacity, Energy and Ancillary Services free and clear
     of all liens, security interests, claims and encumbrances or any interest
     therein or thereto by any Person arising prior to the Delivery Point (or
     Alternate Delivery Point, if applicable).

9.2. INDEMNIFICATION

     (a)  Each Party shall indemnify, defend and hold harmless the other Party
          from and against any Claims related to, or arising under, this
          Agreement and arising from or out of any event, circumstance, act or
          incident first occurring or existing during the period when control
          and title to Energy, Capacity and Ancillary Services is vested in such
          Party as provided in Section 9.1. Each Party shall indemnify, defend
          and hold harmless the other Party against any charges imposed by
          Governing Authority for which such Party is responsible.

     (b)  Notwithstanding any language to the contrary in this Agreement,
          neither Party shall have liability to the other Party with respect to
          provision of advice, consultation, proposals or recommendations by the
          first Party's personnel or representatives to the second Party whether
          occasioned by comments or requests of or by the second Party or by the
          negligent acts or omissions of employees or representatives of the
          first Party or otherwise, and the second Party shall


                                       29

<PAGE>

          indemnify the first Party and hold harmless the first Party from and
          against losses, damages, costs or liabilities arising therefrom.

     (c)  Each Party shall promptly notify the other Party of the assertion of
          any Claim against which such other Party may be required to provide
          indemnity hereunder and shall give such other Party an opportunity to
          defend such Claim. These indemnification provisions are for the
          protection of the Parties hereto only and shall not establish, of
          themselves, any liability to third parties.

9.3. NO PARTNERSHIP

     The Parties do not by this Agreement effect a joint undertaking and do not
     intend to create any joint or several obligations to third parties. Neither
     this Agreement nor any transaction hereunder, shall be construed to create
     a new entity, such as a partnership or a joint venture, or constitute an
     agency or employment relationship. Neither Party shall be under the control
     of or be deemed to control the other Party, and no Party shall have the
     right or power to bind any other Party.

9.4. RESPONSIBILITY FOR EMPLOYEES

     The Parties agree that, as between themselves, each Party shall be
     responsible for the acts and omissions of, and any claims by and
     compensation to, its employees and agents, irrespective of any limitation
     on the amount or type of damages, compensation or benefits payable by or
     for such Party under workers' or workmen's compensation acts, disability
     benefit acts or other employee benefit acts; provided, however, that the
     foregoing is not intended to create third-party beneficiary rights in any
     Person not a Party to this Agreement. Each Party shall indemnify the other
     Party from and against all liabilities, Claims, damages, suits, fines or
     judgments, including reasonable attorneys' fees and defense fees,
     disbursements and expenses, for injury or death to third persons and damage
     to or destruction of property of third persons, to the extent caused by
     such Party's employees or agents.

                                 ARTICLE X: TERM

10.1. TERM

     Subject to the terms and conditions of this Agreement, including the final
     approval of the Michigan Public Service Commission ("MPSC"), this Agreement
     shall commence on the Effective Date and, unless terminated earlier as
     expressly provided herein, shall continue in effect until 11:59:59 p.m.
     (EST) on the Fifteenth (15th) anniversary of the Effective Date (the
     "Termination Date").

10.2. TERMINATION

     If the NRC does not grant the application for renewal of Operating License
     No. DPR-20 for the Facility for an additional twenty years as set forth in
     NRC Docket No. 50-255, the Termination Date shall be March 24, 2011 and
     neither Party shall have any further


                                       30
<PAGE>

     obligations hereunder except for those obligations which survive such
     termination.

     Promptly following Seller's determination that operation of the Facility
     has become materially and economically adverse such that continued
     operation of the Facility is no longer feasible, prudent and/or
     sustainable, Seller shall provide twelve (12) months' written notice to
     Buyer (or longer notice if commercially feasible under the circumstances)
     that Seller will permanently retire the Facility at the expiration of that
     notice period (unless twelve (12) months' notice is not commercially
     feasible under the circumstances, in which case Seller shall provide such
     notice as is commercially feasible under the circumstances). This Agreement
     will terminate at the time specified in such notice which will become the
     Termination Date, and neither Party shall have any further obligations
     hereunder except for those obligations which survive such termination.

10.3. EFFECT OF TERMINATION

     Termination of this Agreement shall not terminate the rights or duties of
     either Party hereunder with respect to any obligations due to be performed
     on or before the effective date of termination. Without limitation of the
     foregoing, Article IX, Article XI and Article XIV shall survive the
     termination of this Agreement.

                               ARTICLE XI: RECORDS

11.1. INSPECTION OF RECORDS

     Buyer and Seller shall maintain, to the extent applicable, for a period of
     not less than seven (7) years from the date of preparation thereof complete
     and accurate records of: (a) all measurements by Billing Meters of
     Delivered Energy pursuant to this Agreement, (b) real and reactive power
     production for each hour, changes in operating status, scheduled outages
     and any unusual conditions found during inspections, and (c) all other data
     and information necessary to calculate payments as provided in this
     Agreement, including invoices, receipts, charts, printouts, and other
     materials and documents. Subject to limitations imposed by applicable Law,
     Seller or Buyer, or their respective representatives shall be permitted to
     inspect such records upon request during normal business hours and copies
     of such records shall be provided, if requested, at the requesting Party's
     expense, within thirty (30) days of such request.

                      ARTICLE XII: ADMINISTRATIVE COMMITTEE

12.1. PURPOSE

     From time to time various administrative and technical matters may arise in
     connection with the terms and conditions of this Agreement which will
     require the cooperation and consultation of the Parties and the exchange of
     information. As a means of providing for such cooperation, consultation and
     exchange, an Administrative Committee is hereby established with the
     functions described in Section 12.4. However, the Administrative Committee
     shall not (a) have the authority to amend this Agreement, or (b) diminish
     in


                                       31

<PAGE>

     any manner the authority or responsibility of either Party as set forth in
     the various sections of this Agreement.

12.2. MEMBERSHIP

     The Administrative Committee shall have two (2) members. Within sixty (60)
     days after execution of this Agreement, each Party shall designate its
     representative on the Administrative Committee and shall promptly give
     written notice thereof to the other Party. Thereafter, each Party shall
     promptly give written notice to the other Party of any change in the
     designation of its representative on the Administrative Committee. All
     actions taken by the Administrative Committee must be approved by both
     members.

12.3. MEETINGS

     Meetings as are reasonably required may be called by either member with as
     much advance notice as is practicable. Meetings may be attended by other
     representatives of the Parties.

12.4. FUNCTIONS

     The Administrative Committee shall have the following functions:

1.   Provide liaison between the Parties at the management level and exchange
     information with respect to significant matters arising under this
     Agreement.

2.   Appoint ad hoc committees, the members of which need not be members of the
     Administrative Committee, as necessary to perform detailed work and conduct
     studies regarding matters requiring investigation.

3.   Review, discuss and attempt to resolve disputes arising under this
     Agreement; provided, nothing herein shall limit the provisions of Section
     17.1.

4.   Provide liaison between the Parties concerning the status of and operation
     of the Facility.

12.5. EXPENSES

     Each Party shall be responsible for the salary and out-of-pocket expenses
     of its representative and its other attendees. All other expenses incurred
     in connection with the performance by the Administrative Committee of its
     functions shall be allocated and paid as determined by the Administrative
     Committee.

                              ARTICLE XIII: NOTICES

13.1. NOTICES IN WRITING

     All notices or other communications which are required or permitted under
     this Agreement shall be effective if they are in writing and delivered
     personally or by certified mail (postage prepaid and return receipt
     requested), reputable overnight delivery service,


                                       32

<PAGE>

     or telecopy or other confirmable form of electronic delivery, to the
     following address (except as to notices which are required by this
     Agreement to be delivered to a Party's Administrative Committee
     representative or to Buyer's Merchant Operations Center, which shall be
     delivered to such Party's Administrative Committee representative or the
     Buyer's Merchant Operations Center, as the case may be):

          (a)  if to Seller:    c/o Entergy Northeast
                                440 Hamilton Avenue
                                White Plains, NY 10601

          With a copy to:       c/o ENTERGY
                                100 First Stamford Place
                                Stamford, CT 06902

          (b)  if to the Buyer: Consumers Energy Company
                                1945 W. Parnall Road
                                Jackson, MI 49201
                                Attention: William E. Garrity

          (c)  or to such other person or address as the addressee may have
               specified in a notice duly given to the sender as provided
               herein.

13.2. DATE OF NOTIFICATION

     All notices or communications duly delivered or mailed and postmarked to a
     Party hereto as provided in Section 13.1 shall be effective as of the date
     of receipt.

13.3. ORAL NOTICE IN EMERGENCY

     Notwithstanding the provisions of Section 13.1, any notice required
     hereunder with respect to an occurrence or event requiring immediate
     attention may be made orally, by telephone or otherwise, provided such
     notice shall be confirmed in writing promptly thereafter. Each Party shall
     make any such oral notice directly to the Administrative Committee
     representative of the other Party.

                          ARTICLE XIV: CONFIDENTIALITY

14.1. NON-DISCLOSURE TO THIRD PARTIES

     Except in any proceeding to approve or enforce this Agreement, Seller and
     Buyer will not disclose to any third person (including any of Seller's
     personnel engaged in electricity market related activity, but excluding
     each Party's employees, lenders, counsel, accountants or advisors who have
     a need to know such information and have agreed to keep such items
     confidential) without the prior written consent of the other Party which
     shall not be unreasonably withheld: (a) the terms or conditions of this
     Agreement or any other agreement between the Parties required hereby or
     referred to herein; or (b) any confidential or proprietary information or
     data, whether oral or written, received from the


                                       33

<PAGE>

     other Party.

14.2. DISCLOSURE PERMITTED

     Notwithstanding Section 14.1, Seller or Buyer may disclose: (a) such
     information as may be required by any applicable Law, regulation, or
     governmental order, including a requirement, regulation or order of the
     MPSC; (b) such information as may reasonably be required by any operator of
     the Facility, or by independent accountants, attorneys, credit rating
     agency representatives, other professional consultants, or prospective
     lenders or investors, subject to reasonable procedures and other safeguards
     to protect the confidentiality of the information disclosed; (c) any
     information which is or becomes publicly known, other than by breach of
     this Agreement by the receiving Party; (d) information which becomes
     available to the receiving Party hereunder without restriction from a third
     party; (e) information which is at any time developed by the receiving
     Party independently of any disclosures hereunder; or (f) such information
     regarding the terms of this Agreement as such Party deems necessary to
     enable it to comply with the Securities Exchange Act of 1934, as amended,
     or the rules, regulations and forms of the Securities and Exchange
     Commission issued thereunder, the rules of the New York Stock Exchange, or
     the rules, regulations or orders of the FERC. In addition, the Buyer or
     Seller may use the confidential information in connection with their
     respective dealings with Governing Authorities of competent jurisdiction.
     In connection with any such use, the Buyer or Seller, as applicable, agrees
     to request confidential treatment of the information.

14.3. SURVIVAL OF CONFIDENTIALITY

     The provisions of this Article XIV shall survive the Termination Date (or
     any earlier termination of this Agreement) for a period of five (5) years.

                              ARTICLE XV: INSURANCE

15.1. COVERAGE AND AMOUNTS OF SELLER AND BUYER. During the Term, Seller and
     Buyer shall procure, pay premiums for and maintain in full force and effect
     the insurance coverages described below.

     (a)  Worker's Compensation Insurance as required by the Laws of the State
          of Michigan, and employer's liability insurance with limits
          established by state or federal Law, if applicable. This policy is to
          be endorsed to include a Waiver of Subrogation in favor of the Buyer
          or Seller, as the case may be.

     (b)  Commercial General Liability Insurance, including coverage for: (i)
          premises/operations, (ii) independent contractor, (iii) products and
          completed operations, (iv) broad form contractual liability, (v) broad
          form property damage, (vi) explosion, collapse and underground damage
          exclusion deletion, and (vii) personal injury, all with limits of not
          less than $25,000,000 each occurrence and in the aggregate. Such
          coverage can be made up of a combination of primary (or


                                       34

<PAGE>

          in lieu thereof, self-insurance of no more than $10,000,000) and
          excess coverage policies.

     (c)  Comprehensive Vehicle Liability Insurance, covering all vehicles and
          automobiles whether owned, leased, or rented when used by such Party
          in connection with performance of this Agreement and including
          coverage for bodily injury and property damage in an amount not less
          than $1,000,000 per accident.

     (d)  Notwithstanding the foregoing, Seller or Buyer may self-insure to meet
          the minimum insurance requirements of Sections 15.1(a) through 15.1(c)
          to the extent it maintains a self-insurance program; provided that
          Seller's or Buyer's, as the case may be (or the Seller's Guarantor or
          Buyer's Guarantor, as the case may be) senior secured debt meets the
          rating specified in Section 7.2(a)(2) or 7.3(a)(2) and that its
          self-insurance program meets minimum insurance requirements under
          Sections 15.1(a) through 15.1(c). For any period of time that Seller
          or Buyer, as the case may be (or Seller's Guarantor or Buyer's
          Guarantor, as the case may be) senior secured debt is unrated, the
          Party shall comply with the insurance requirements applicable to it
          under Sections 15.1(a) through 15.1(c). In the event that a Party is
          permitted to self-insure pursuant to this Section 15.1(d), it shall
          notify the other Party that it meets the minimum insurance requirement
          in a manner consistent with that specified in this Article XV.

     (e)  On the Effective Date, and thereafter from time to time at the request
          of a Party, the other Party shall provide certificates of insurance
          from insurance companies having a Best rating of A minus or better
          confirming that the insurance coverages required herein are
          maintained. Such certificates shall provide that the other Party be
          given thirty (30) days' prior written notice by the insurer, or its
          authorized representative, of any cancellation and ten (10) days'
          prior written notice due to cancellation for non-payment of premiums
          in any required coverage provided by such insurer as evidenced by the
          certificates. In addition, each Party agrees to provide notice to the
          other Party of any material change in the insurance coverages or
          policies required hereby.

15.2. COVERAGE FOR FULL TERM

All required coverages shall remain in full force and effect during the Term.
Buyer's and Seller's liability under this Agreement shall not be limited to or
by the insurance coverage required in this Article XV.

                             ARTICLE XVI: ASSIGNMENT

16.1. BINDING EFFECT

     This Agreement shall be binding upon and shall inure to the benefit of the
     Parties and their respective successors and permitted assignees.


                                       35

<PAGE>

16.2. GENERAL

     Except as provided in this Article XVI, neither Party shall assign or
     otherwise convey any of its right, title, or interest under this Agreement
     without the prior written consent of the other Party hereto (which consent
     shall not be unreasonably withheld or delayed). Seller shall not be
     permitted to assign this Agreement to any Person unless such Person also
     acquires all or substantially all of Seller's interest in the Facility. Any
     assignment or delegation made without required consent shall be null and
     void.

16.3. ASSIGNMENT TO AN AFFILIATE

     Notwithstanding Section 16.2, each Party shall have the right to assign all
     or a portion of its rights or obligations under this Agreement to an
     Affiliate without the consent of the other Party, and such Affiliate to
     which this Agreement has been assigned shall have the right to further
     assign the Agreement back to assigning Party without the consent of the
     other Party; provided, however that (a) the assigning Party shall provide
     written notice of such assignment to the other Party and the assuming
     Affiliate agrees in writing to assume all obligations under this Agreement,
     (b) the assignee can document its financial strength is no worse than that
     of the assignor, or the assignee will provide credit support from an entity
     with financial strength no worse than that of the assignor, and (c) any
     security requirements then in effect pursuant to Article VII remain
     effective following the assignment, or are replaced with equivalent
     security to the reasonable satisfaction of the non-assigning Party. In the
     event of an assignment to an Affiliate pursuant to this section, the
     Parties agree that the assignor is not released from any and all further
     obligations under this Agreement.

16.4. ASSIGNMENT TO LENDERS

     Seller shall have the right to assign all or a portion of its rights or
     obligations under this Agreement to any lender providing financing for
     Seller's acquisition of the Facility as collateral security for obligations
     under the financing documents entered into with such lenders provided that:
     (a) Seller first provides Buyer with written notice of not less than sixty
     (60) days of such collateral assignment; and (b) Buyer consents to the form
     of collateral assignment and related documentation.

                           ARTICLE XVII: MISCELLANEOUS

17.1. DISPUTE RESOLUTION

     If a dispute arises between the Parties relating to this Agreement except
     with respect to the matters set forth in Sections 7.1(a), (b), (c) or (e),
     the following procedure shall be followed except that either Party may seek
     injunctive relief from a court where appropriate in order to maintain the
     status quo while this procedure is being followed.

     (a)  The Parties shall promptly hold a meeting, attended by persons with
          decision-making authority regarding the dispute, to attempt in good
          faith to negotiate a


                                       36

<PAGE>

          resolution of the dispute; provided, however, that no such meeting
          shall be deemed to vitiate or reduce the obligations or liabilities of
          the Parties hereunder or be deemed a waiver of a Party hereof of any
          remedies to which such Party would otherwise be entitled hereunder.

     (b)  If, within thirty (30) days following such meeting, the Parties have
          not succeeded in negotiating a resolution of the dispute, they agree
          to submit the dispute to binding arbitration in accordance with the
          Center for Public Resources Rules for Non-Administered Arbitration of
          Business Disputes, by a neutral arbitrator to be mutually selected by
          the Parties. The cost of the arbitrator shall be borne by the Parties,
          and the Parties shall equally bear the costs of such arbitration. If
          the Parties are unable to agree upon an arbitrator within thirty (30)
          days, the Parties may then petition the Circuit Court of Jackson
          County, Michigan to appoint the arbitrator.

     (c)  In the event the Circuit Court appoints an arbitrator, arbitration
          shall take place in a mutually acceptable location in the State of
          Michigan. Otherwise the location for arbitration shall be mutually
          agreed to by the Parties. In either case the substantive and
          procedural law of the State of Michigan shall apply to the
          proceedings. Equitable remedies shall be available in any arbitration.
          Punitive damages shall not be awarded. The written decision of the
          arbitrator shall be binding on the Parties and the Parties hereby
          agree to execute all necessary documents, including releases and
          subrogation agreements as necessary in order to conclude the matter
          upon the arbitrator rendering a final award. This Section is subject
          to the Federal Arbitration Act, 9 USCA Section 1 et seq. and judgment
          upon the award, if any, may be entered by any court having
          jurisdiction thereof.

17.2. RECORDING TELEPHONE CONVERSATIONS

     Each Party agrees that the other Party or its representatives may record
     any or all telephone conversations between representatives of the two
     Parties pursuant to or relating to this Agreement and will advise the other
     Party that the conversation is being recorded. Seller is hereby advised
     that telephone conversations with Buyer's personnel relating to Articles
     II, IV and V are routinely recorded. Each Party further agrees that such
     recorded telephone conversations shall not be deemed inadmissible in any
     arbitration proceeding or court of law by virtue of the recorded nature of
     the conversations or any authority or lack of authority to make such
     recording. Each Party hereby waives any objection to the introduction of
     such recorded telephone conversations as evidence in any arbitration
     proceeding or court of law to the extent such objections are based on the
     recorded nature of such conversations or the authority or lack of authority
     to make such recording.

17.3. COMPLIANCE WITH LAWS

     Each Party shall at all times conform to all applicable Laws. Each Party
     shall give all required notices, shall procure and maintain all necessary
     Authorizations, governmental permits, licenses and inspections necessary
     for its performance of this Agreement, and shall pay all charges and fees
     in connection therewith.


                                       37

<PAGE>

17.4. TAXES AND OTHER CHARGES

     (a)  Seller's Taxes.

          Seller is liable for and shall pay, or cause to be paid, or reimburse
          Buyer if Buyer has paid, all Taxes applicable to any transaction
          arising out of this Agreement prior to the Delivery Point on the sale
          of Energy, Capacity or Ancillary Services to Buyer. Seller shall
          indemnify, defend and hold harmless Buyer from any Claims for such
          Taxes applicable prior to the Delivery Point.

     (b)  Buyer's Taxes.

          Buyer is liable for and shall pay, or cause to be paid, or reimburse
          Seller if Seller has paid, all Taxes applicable to any transaction
          arising out of this Agreement at or after the Delivery Point on the
          purchase by Buyer of Energy, Capacity or Ancillary Services. Buyer
          shall indemnify, defend and hold harmless Seller from any Claims for
          such Taxes applicable at or after the Delivery Point.

     (c)  Certificate of Tax Exemption.

          Either Party, upon written request of the other, shall provide a
          certificate of exemption or other reasonably satisfactory evidence of
          exemption if either Party is exempt from Taxes.

17.5. FUTURE ATTRIBUTES

     In the event that, at any time during the Term, a change in Law occurs that
     causes capability of the Facility as in existence on the date hereof to
     become a tradable attribute (e.g., emission credit, renewable energy
     credit, environmental credit, "Green" credit, etc.) or otherwise to have a
     market value, Buyer shall be entitled to one hundred percent (100%) of such
     tradable attribute and the benefits of such attribute until the tenth
     (10th) anniversary of the Effective Date and thereafter fifty percent (50%)
     until the Termination Date (with the other fifty percent (50%) belonging to
     Seller), and the Parties shall in good faith negotiate to reflect such
     allocation to Buyer at no additional cost to Buyer. Seller agrees to
     execute a separate agreement to transfer to Buyer any revenue, or any other
     benefit received by Seller for Buyer's tradable attributes and to execute
     all documents and agreements and take all steps necessary to permit Buyer
     to market Buyer's tradable attributes. Seller shall be entitled to all
     attributes and benefits arising from an Uprate.

17.6. FINANCIAL TRANSMISSION RIGHTS

     Buyer shall be entitled to all financial transmission rights or other
     rights and benefits with the Transmission Provider associated with the
     Capacity, Energy and Ancillary Services being purchased hereunder. Seller
     shall cooperate in good faith with Buyer to ensure that such financial
     transmission rights and other rights and benefits are assigned and
     transferred to Buyer at no additional cost to Buyer.


                                       38

<PAGE>

17.7. GOVERNING LAW; VENUE

     This Agreement shall be governed by and construed in accordance with the
     law of the State of Michigan (without giving effect to conflict of law
     principles) as to all matters, including but not limited to matters of
     validity, construction, effect, performance and remedies. THE PARTIES
     HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO
     THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE UNITED STATES DISTRICT
     COURT FOR THE WESTERN DISTRICT OF MICHIGAN. THE FOREGOING COURT SHALL HAVE
     EXCLUSIVE JURISDICTION FOR SUCH PURPOSES, AND THE PARTIES HERETO
     IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURT AND
     IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
     OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY
     MANNER RECOGNIZED BY SUCH COURT. EACH OF THE PARTIES HERETO IRREVOCABLY
     WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
     ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE
     TRANSACTIONS CONTEMPLATED HEREBY.

17.8. ENTIRE AGREEMENT; AMENDMENT

     This Agreement constitutes the entire agreement between the Parties
     pertaining to the subject matter of this Agreement, and supersedes and
     terminates any letters of intent and all prior and contemporaneous
     agreements, understandings, negotiations and discussions with the Parties,
     whether oral or written, regarding said subject matter, and there are no
     warranties, representations or other agreements between the Parties in
     connection with the subject matter of this Agreement, except as
     specifically set forth in this Agreement. NEITHER PARTY TO THIS AGREEMENT
     MAKES ANY REPRESENTATION, WARRANTY OR INDEMNITY, EXPRESS OR IMPLIED, TO THE
     OTHER PARTY TO THIS AGREEMENT EXCEPT FOR THE REPRESENTATIONS, WARRANTIES
     AND INDEMNITIES EXPRESSLY SET FORTH IN THIS AGREEMENT. No amendment,
     supplement, modification, waiver or termination of this Agreement shall be
     binding unless executed in writing by the Party to be bound thereby. No
     waiver of any of the provisions of this Agreement shall be deemed or shall
     constitute a waiver of any other provision of this Agreement, whether or
     not similar, nor shall such waiver constitute a continuing waiver unless
     otherwise expressly provided.

17.9. NO IMPLIED WAIVER

     The failure or delay of any Party hereto to enforce at any time any of the
     provisions of this Agreement, or to require at any time performance of the
     other Party hereto of any of the provisions hereof, shall neither be
     construed to be a waiver of such provisions nor affect the validity of this
     Agreement or any part hereof or the right of such Party thereafter to
     enforce each and every such provision.


                                       39

<PAGE>

17.10. SEVERABILITY

     Any provision of this Agreement declared or rendered unlawful by any
     Governing Authority or deemed unlawful because of a statutory change
     (individually or collectively, such events referred to as a "Regulatory
     Event") will not otherwise affect the remaining lawful obligations that
     arise under this Agreement; provided, however, that if a Regulatory Event
     occurs, the Parties shall use their best efforts to reform this Agreement
     in order to give effect to the original intention of the Parties.
     Additionally, in the event any Governing Authority imposes on Seller, the
     Facility or any Energy, Capacity or Ancillary Services delivered to Buyer
     by Seller pursuant to this Agreement any Tax or other payment obligation
     related to the ownership or operation of the Facility and not otherwise
     generally imposed on electric generation facilities under the jurisdiction
     of such Governing Authority, or energy, capacity or ancillary services
     produced thereby, then in such case the Energy Payment applicable to a
     Billing Cycle shall be increased to reflect fifty percent (50%) of such Tax
     or other payment obligation to the extent paid by Seller in such Billing
     Cycle. The Energy Payment applicable to a Billing Cycle shall be increased
     to reflect one-twelfth of 50% of any incremental real property Taxes paid
     with respect to any spent nuclear fuel storage facility located in
     Charlevoix County, Michigan owned by Seller, to the extent such Taxes with
     respect to such facility exceed $50,000 in the year of the Effective Date,
     or in subsequent years, $50,000 plus 4% per year.

17.11. NO EXCLUSIVITY/DEDICATION OF ASSETS

     This Agreement is not intended to be an exclusive arrangement between Buyer
     and Seller. No undertaking by a Party hereto to the other Party hereto
     under any provision of this Agreement shall constitute the dedication of
     that Party's assets or any portion thereof to the other Party or to the
     public.

17.12. EXPENSES

     Each Party shall pay the fees and expenses of its respective counsel,
     accountants, brokers, consultants, investment bankers and other experts
     incident to the negotiation and preparation of this Agreement.

17.13. COUNTERPARTS

     This Agreement may be executed simultaneously in two (2) or more
     counterparts, each of which shall be deemed an original but all of which
     together shall constitute one and the same instrument.

17.14. SURVIVAL

     The applicable provisions of this Agreement shall continue in effect after
     the termination of this Agreement, to the extent necessary to provide for
     final billing and adjustment, and to make other appropriate settlements
     hereunder. Those provisions hereof that by their express terms are intended
     to survive this Agreement shall so survive for the periods indicated.


                                       40

<PAGE>

17.15. THIRD-PARTY BENEFICIARY

     Nothing expressed or referenced in this Agreement shall be construed to
     give any Person other than the Parties hereto any legal or equitable right,
     remedy or claim under or with respect to this Agreement or any provision of
     this Agreement. This Agreement and the provisions and conditions hereof are
     for the sole and exclusive benefit of the Parties hereto, and their
     permitted successors and permitted assigns.

17.16. MOBILE-SIERRA

     It is the intent of the Parties that the rates and all other terms and
     conditions of the services provided hereunder shall not be subject to
     change under Sections 205 or 206 of the Federal Power Act of 1935, as
     amended, 16 U.S.C. Section 791 et seq. (or any successor legislation),
     without the consent of both Parties. Each of the Parties hereto agrees not
     to unilaterally file with the FERC a change in the rates, terms or
     conditions of this Agreement. Moreover, absent agreement of all Parties to
     a proposed change, the standard of review for changes to any rate, term or
     condition of this Agreement proposed by a non-Party or the FERC or any
     other Governing Authority acting sua sponte shall be the "public interest"
     standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas
     Services Corp., 350 U.S. 332 (1956) and Federal Power Commission v. Sierra
     Pacific Power Co., 350 U.S. 348 (1956). To the extent that the FERC adopts
     specific language that parties must incorporate into agreements in order to
     bind FERC, third parties and themselves to a public interest standard of
     review, the Parties hereby incorporate such language herein by reference.

17.17. FORWARD CONTRACT

     The Parties acknowledge and agree that this Agreement, the transactions
     contemplated hereby, and any security instrument that may be provided by
     either Party under Article VII shall each, and together, constitute one and
     the same "forward contract" within the meaning of the United Stated
     Bankruptcy Code (the "Code"), and Seller, Seller's Guarantor, Buyer, and
     the Buyer's Guarantor shall each constitute a "forward contract merchant"
     under the Code.


                                       41

<PAGE>

          IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed on its behalf by its duly authorized officer as of the
date first set forth above.

                                        ENTERGY NUCLEAR PALISADES, LLC


                                        By: /s/ Gary J. Taylor
                                            ------------------------------------
                                            Gary J. Taylor
                                            President


                                        CONSUMERS ENERGY COMPANY


                                        By: /s/ Robert A. Fenech
                                            ------------------------------------
                                            Robert A. Fenech
                                            Senior Vice President
                                            Nuclear, Fossil & Hydro Operations


                                       42
<PAGE>

                                    EXHIBIT A

                         CAPACITY AND ENERGY CHARGES(1)

<TABLE>
<CAPTION>
            CAPACITY       ENERGY CHARGE (IN      TOTAL
YEAR   CHARGE (IN $/MWH)         $/MWH)        (IN $/MWH)
- ----   -----------------   -----------------   ----------
<S>    <C>                 <C>                 <C>
2007    [to be inserted]    [to be inserted]     $43.50
2008    [to be inserted]    [to be inserted]     $44.00
2009    [to be inserted]    [to be inserted]     $44.50
2010    [to be inserted]    [to be inserted]     $45.75
2011    [to be inserted]    [to be inserted]     $47.00
2012    [to be inserted]    [to be inserted]     $48.25
2013    [to be inserted]    [to be inserted]     $49.00
2014    [to be inserted]    [to be inserted]     $50.00
2015    [to be inserted]    [to be inserted]     $51.00
2016    [to be inserted]    [to be inserted]     $52.50
2017    [to be inserted]    [to be inserted]     $54.00
2018    [to be inserted]    [to be inserted]     $55.50
2019    [to be inserted]    [to be inserted]     $57.00
2020    [to be inserted]    [to be inserted]     $58.50
2021    [to be inserted]    [to be inserted]     $60.00
2022    [to be inserted]    [to be inserted]     $61.50
2023    [to be inserted]    [to be inserted]     $63.00
</TABLE>

For each month during the Term, the Capacity Charge and the Energy Charge set
forth above shall be adjusted by multiplying the amount of such charge by the
applicable Shaping Factor for such month as set forth on Exhibit C hereto.

- ----------
(1)  Within three weeks of the execution of this Agreement, Buyer shall provide
     a notice to Seller that shall allocate the Total value for each year in the
     above table as between the Capacity Charge and the Energy Charge, and this
     Exhibit A shall be modified accordingly.

<PAGE>

                                    EXHIBIT B

                             BUYER'S CAPACITY AMOUNT

For any given month during the Term, the Buyer's Capacity Amount shall be as set
forth in the table below:

<TABLE>
<CAPTION>
COLUMN A            COLUMN B                 COLUMN C               COLUMN D
MONTH       CAPACITY OF THE FACILITY   BUYER'S ENTITLEMENT   BUYER'S CAPACITY AMOUNT
- --------    ------------------------   -------------------   -----------------------
<S>         <C>                        <C>                   <C>
January              813 MW                    100%                   813 MW
February             811 MW                    100%                   811 MW
March                809 MW                    100%                   809 MW
April                801 MW                    100%                   801 MW
May                  794 MW                    100%                   794 MW
June                 786 MW                    100%                   786 MW
July                 781 MW                    100%                   781 MW
August               778 MW                    100%                   778 MW
September            783 MW                    100%                   783 MW
October              800 MW                    100%                   800 MW
November             809 MW                    100%                   809 MW
December             810 MW                    100%                   810 MW
</TABLE>

Column A - Depicts the month of the year.

Column B - Will be updated over the Term of this Agreement to reflect the
Capacity of the Facility, as determined in accordance with ECAR 4 (or with the
Effective Capacity Requirements, if applicable).

Column C - Indicates the Buyer's Entitlement of the output of the Facility. This
value will be updated only after an Uprate (as defined in 1.1 (83)). The Buyer's
Entitlement shall be determined in accordance with Section 2.6 as follows (both
values shall be determined or measured for the same month):

           Capacity of the Facility before the Uprate Capability Test
    -------------------------------------------------------------------------
       Capacity of the Facility resulting from the Uprate Capability Test

Column D - Shall be the product of Column B and Column C, as those values may be
revised over the Term of this Agreement.

<PAGE>

                                    EXHIBIT C

                   CAPACITY AND ENERGY CHARGE SHAPING FACTORS

<TABLE>
<CAPTION>
MONTH       ON-PEAK HOURS   OFF-PEAK HOURS
- -----       -------------   --------------
<S>         <C>             <C>
January         1.350           0.8275
February        1.200           0.6750
March           1.140           0.6750
April           1.140           0.6750
May             1.200           0.6750
June            1.400           0.8250
July            1.500           0.9500
August          1.500           0.9500
September       1.400           0.8275
October         1.140           0.6750
November        1.140           0.6750
December        1.200           0.6750
</TABLE>

<PAGE>

                                    EXHIBIT G

                             PEAK ADJUSTMENT PAYMENT

During the months of July and August for each Calendar Year of the Term (the
"Peak Period"), Seller must achieve a specified capacity factor for the Facility
as set forth in this Exhibit G. If Seller fails to achieve such a capacity
factor for the specified period, Seller shall be responsible for a payment to
Buyer (the "Peak Adjustment Payment") calculated in accordance with the
following formula:

(TEM - DEM) x $20/MWh

where

TEM = Targeted Energy for the month, which shall be the product of: (i) the
applicable Buyer's Capacity Amount for the month; (ii) the number of hours in
the month; and (iii) the Target Capacity Factor.

DEM = Delivered Energy for the month.

If the resulting product of the above formula is positive, then such positive
amount shall equal the Peak Adjustment Payment for the month in question and
Seller shall pay that Peak Adjustment Payment in accordance with this Exhibit G.
If the resulting product is zero or negative, then Seller shall owe no Peak
Adjustment Payment to Buyer for the month. For purposes of calculating the TEM
and DEM, the determination of the applicable number of hours in a month and the
Delivered Energy for a month shall exclude (a) hours within an Summer
Maintenance Outage that occurs in that month and Energy delivered during those
outage hours, and (b) hours for which a damages amount has been paid by, or is
due from, Seller pursuant to Section 2.4(d) or Section 4.1(b).

If it is determined that Seller owes Buyer a Peak Adjustment Payment for a
particular month, Buyer shall have the right to either (a) demand payment of
that Peak Adjustment Payment in writing, in which case Seller shall make such
payment to Buyer within five (5) Business Days after the written demand for
payment is received, or (b) reduce the payments otherwise due to Seller under
this Agreement for the Billing Cycle that includes the month in question by the
amount of the Peak Adjustment Payment.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(C)
<SEQUENCE>4
<FILENAME>k06781exv10wxcy.txt
<DESCRIPTION>STOCK PURCHASE AGREEMENT
<TEXT>
<PAGE>
                                                                EXHIBIT (10)(c)



                            STOCK PURCHASE AGREEMENT

                            DATED AS OF JULY 24, 2006

                                  BY AND AMONG

                            CONSUMERS ENERGY COMPANY,

                               CMS MIDLAND, INC.,

                          CMS MIDLAND HOLDINGS COMPANY

                                       AND

                            MCV POWER PARTNERS, INC.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                     Page
- -------                                                                     ----
<S>       <C>                                                               <C>
                                    ARTICLE I
                           SALE AND PURCHASE OF SHARES

 1.1      Sale and Purchase of CMS Holdings Shares.......................     1
 1.2      Purchase Price.................................................     2
 1.3      Closing........................................................     2
 1.4      Closing Deliveries.............................................     2
 1.5      Purchase Agreement Fee.........................................     2
 1.6      Pre-Closing Restructuring......................................     3

                                   ARTICLE II
                              WARRANTIES OF SELLER

 2.1      Organization and Qualification.................................     3
 2.2      Capitalization; Right and Title to Interests...................     3
 2.3      Authority; Non-Contravention; Statutory Approvals..............     3
 2.4      Litigation.....................................................     4
 2.5      Absence of Defaults............................................     4
 2.6      Composite PPA, etc.............................................     5

                                   ARTICLE III
                           WARRANTIES OF THE COMPANIES

 3.1      Organization and Qualification; Authority; Non-Contravention;
          Statutory Approvals............................................     5
 3.2      Capitalization.................................................     6
 3.3      Financial Statements...........................................     7
 3.4      Absence of Certain Changes or Events...........................     8
 3.5      Tax Matters....................................................     8
 3.6      Litigation.....................................................    10
 3.7      Compliance with Laws...........................................    11
 3.8      Employee Benefits..............................................    11
 3.9      Permits........................................................    13
 3.10     Tangible Property..............................................    13
 3.11     Contracts......................................................    14
 3.12     Environmental Matters..........................................    16
 3.13     Labor Matters..................................................    17
 3.14     Intellectual Property..........................................    17
 3.15     Affiliate Contracts............................................    17
 3.16     Insurance......................................................    18
 3.17     Brokers and Finders............................................    18
 3.18     Absence of Certain Matters and Notices.........................    18
</TABLE>


                                        i

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                     Page
- -------                                                                     ----
<S>       <C>                                                               <C>
                                   ARTICLE IV
                             WARRANTIES OF PURCHASER

 4.1      Organization and Qualification.................................    18
 4.2      Authority; Non-Contravention; Statutory Approvals..............    18
 4.3      Financing......................................................    19
 4.4      Litigation.....................................................    20
 4.5      Investment Intention; Sufficient Investment Experience;
          Independent Investigation......................................    20
 4.6      Brokers and Finders............................................    20
 4.7      Qualified for Permits..........................................    20
 4.8      No Knowledge of Seller or Company Breach.......................    21
 4.9      Environmental Review...........................................    21

                                    ARTICLE V
                                    COVENANTS

 5.1      Conduct of Business............................................    21
 5.2      Regulatory Approvals...........................................    23
 5.3      Required Consents..............................................    23
 5.4      Access.........................................................    23
 5.5      Publicity......................................................    24
 5.6      Fees and Expenses..............................................    24
 5.7      Indemnification of Directors and Officers......................    25
 5.8      Termination of Affiliate Contracts.............................    26
 5.9      Further Assurances.............................................    26
 5.10     Supplements to Company Disclosure Schedules....................    26
 5.11     Change of Name.................................................    27
 5.12     Financing......................................................    27
 5.13     Termination of Tax Sharing Agreements..........................    28
 5.14     Tax Matters....................................................    28
 5.15     Unwind Agreement...............................................    32
 5.16     Books and Records..............................................    32
 5.17     FIRPTA Certificate.............................................    33

                                   ARTICLE VI
                              CONDITIONS TO CLOSING

 6.1      Conditions to the Obligations of the Parties...................    33
 6.2      Conditions to the Obligation of Purchaser......................    33
 6.3      Conditions to the Obligation of Seller.........................    34

                                   ARTICLE VII
                                   TERMINATION

 7.1      Termination....................................................    35
 7.2      Effect of Termination..........................................    36
</TABLE>


                                       ii

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                     Page
- -------                                                                     ----
<S>       <C>                                                               <C>
                                  ARTICLE VIII
                               LIMITS OF LIABILITY

 8.1      Non-Survival of Warranties, Covenants and Agreements...........    36
 8.2      Seller Indemnity...............................................    38
 8.3      Purchaser Indemnity............................................    38
 8.4      Claim Process..................................................    38
 8.5      Limitations on Claims..........................................    40
 8.6      Characterization of Payments for Damages.......................    42

                                   ARTICLE IX
                         DEFINITIONS AND INTERPRETATION

 9.1      Defined Terms..................................................    42
 9.2      Definitions....................................................    44
 9.3      Interpretation.................................................    50

                                    ARTICLE X
                               GENERAL PROVISIONS

 10.1     Notices........................................................    50
 10.2     Binding Effect.................................................    52
 10.3     Assignment; Successors; Third-Party Beneficiaries..............    52
 10.4     Amendment; Waivers; etc........................................    53
 10.5     Entire Agreement...............................................    53
 10.6     Severability...................................................    53
 10.7     Counterparts...................................................    54
 10.8     Governing Law..................................................    54
 10.9     Jurisdiction...................................................    54
 10.10    Limitation on Damages..........................................    54
 10.11    Enforcement....................................................    54
 10.12    No Right of Set-Off............................................    54
</TABLE>


                                       iii
<PAGE>

                                    SCHEDULES

Schedule 1.6           Pre-Closing Restructuring
Schedule 2.3(b)        Seller Required Consents
Schedule 2.3(c)        Seller Required Statutory Approvals
Schedule 2.6           Composite PPA
Schedule 3.1(a)        Organization and Qualification
Schedule 3.1(c)        Company Required Consents
Schedule 3.1(d)        Company Required Statutory Approvals
Schedule 3.2(a)        Partnership and Owner Participant
Schedule 3.2(c)        Agreements regarding Shares and Equity Interests
Schedule 3.4(a)        Absence of Certain Changes or Events
Schedule 3.5           Tax Matters
Schedule 3.6           Litigation
Schedule 3.7(a)        Compliance with Laws
Schedule 3.8(a)        Employee Benefits - A
Schedule 3.8(f)        Employee Benefits - B
Schedule 3.9(a)        Permits
Schedule 3.10          Tangible Property
Schedule 3.11(a)       Contracts - A
Schedule 3.11(b)(i)    Contracts - B
Schedule 3.11(b)(ii)   Contracts - C
Schedule 3.12          Environmental Matters
Schedule 3.13(a)       Labor Matters - A
Schedule 3.13(b)       Labor Matters - B
Schedule 3.15          Affiliate Contracts
Schedule 3.16          Insurance
Schedule 4.2(b)        Purchaser Required Consents
Schedule 4.2(c)        Purchaser Required Statutory Approvals
Schedule 4.3           Financing Arrangements
Schedule 4.4           Purchaser Litigation
Schedule 5.1           Conduct of Business
Schedule 5.4           Access


                                       iv

<PAGE>

                                    SCHEDULES

Schedule 5.8           Termination of Affiliate Contracts
Schedule 6.1(a)        Statutory Approvals
Schedule 6.2(e)        Resignations of Certain Officers & Directors
Schedule 9.2(a)        Knowledge Groups
Schedule 9.2(b)        Purchaser Knowledge Group
Schedule 9.2(c)        Unwind Agreement

                                    EXHIBITS

Exhibit A   SEPA Payment Agreement
Exhibit B   Disclosure Letter
Exhibit C   Instrument of Assignment


                                        v

<PAGE>

                            STOCK PURCHASE AGREEMENT

     This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 24,
2006, is entered into by and among Consumers Energy Company (formerly known as
Consumers Power Company), a Michigan corporation ("Seller"), CMS Midland, Inc.,
a Michigan corporation ("CMS Midland"), CMS Midland Holdings Company, a Michigan
corporation ("CMS Holdings"; each of CMS Midland and CMS Holdings is also
referred to herein as a "Company" and, collectively, the "Companies"), and MCV
Power Partners, Inc., a Delaware corporation ("Purchaser"). Each of Purchaser,
the Companies and Seller are sometimes referred to individually herein as a
"Party" and collectively as the "Parties". Certain other terms are defined
throughout this Agreement and in Section 9.2 hereof.

                                   WITNESSETH:

     WHEREAS Seller owns all the issued and outstanding Equity Interests in (i)
CMS Midland and (ii) CMS Holdings;

     WHEREAS CMS Holdings is a limited partner holding a 46.3818658% equity
interest in First Midland Limited Partnership, a Delaware limited partnership
(the "Owner Participant"), which entered into the Trust Agreement and certain
documents related thereto in respect of the sale and leaseback of a 75.46053%
undivided ownership interest in the MCV Facility;

     WHEREAS pursuant to the Amended and Restated Lease Agreement dated as of
June 1, 1990, as amended, between the Lessor and Midland Cogeneration Venture
Limited Partnership, a Michigan limited partnership (the "Partnership"), as
lessee, the Lessor leases such undivided ownership interest in the MCV Facility
to the Partnership;

     WHEREAS CMS Midland is a general partner holding a 49% (+/- 0.001%) equity
interest in the Partnership as set forth in the MCV Partnership Agreement;

     WHEREAS prior the Closing, Seller shall effect the transactions
contemplated in Schedule 1.6 of the Disclosure Letter; and

     WHEREAS Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, all the CMS Holdings Shares (and indirectly the Equity
Interest in CMS Midland), upon the terms and subject to the conditions set forth
in this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises, covenants and
warranties made in this Agreement and of the mutual benefits to be derived
therefrom, the Parties agree as follows:

<PAGE>

                                    ARTICLE I

                           SALE AND PURCHASE OF SHARES

          1.1 Sale and Purchase of CMS Holdings Shares. Upon the terms and
subject to the conditions of this Agreement, at the Closing, Purchaser shall
purchase from Seller, and Seller shall sell to Purchaser, good and valid title
free and clear of any Liens except those created by Purchaser arising out of
ownership of the Shares by Purchaser, all the CMS Holdings Shares (the
"Transaction").

          1.2 Purchase Price. The consideration to be paid by Purchaser in
respect of the purchase of CMS Holdings Shares (and indirectly the Equity
Interest in CMS Midland) shall be an amount in cash equal to Sixty Million Five
Hundred Thousand DOLLARS ($60,500,000) (the "Purchase Price").

          1.3 Closing. The closing of the Transaction (the "Closing") shall take
place at the offices of Sidley Austin LLP, 787 Seventh Avenue, New York, New
York, at 10:00 a.m., local time, as soon as practicable, but in any event not
later than the second (2nd) Business Day immediately following the date on which
the last of the conditions contained in Article VI is fulfilled or waived
(except for those conditions which by their nature can only be fulfilled at the
Closing, but subject to the fulfillment or waiver of such conditions), or at
such other place, time and date (the "Closing Date") as the Parties may agree.

          1.4 Closing Deliveries. At the Closing:

          (a) Seller shall deliver to Purchaser one or more stock certificates
evidencing the CMS Holdings Shares, duly endorsed in blank or accompanied by
powers duly executed in blank in proper form for transfer.

          (b) Purchaser shall pay, or cause to be paid, to Seller an amount in
cash equal to the Purchase Price, for the CMS Holdings Shares so delivered by
Seller, by wire transfer of immediately available funds to the bank account or
accounts designated by Seller prior to the Closing and application of amounts
previously delivered to Seller pursuant to Section 1.5.

          (c) Seller shall deliver to Purchaser the SEPA Payment Agreement
executed by Purchaser substantially in the form of Exhibit A hereto (the "SEPA
Payment Agreement").

          (d) Each Party shall deliver the certificates, agreements, instruments
and other documents required to be delivered by it pursuant to Article VI
hereof.

          1.5 Purchase Agreement Fee. Simultaneously with the execution of this
Agreement and in consideration of the time expended and expense incurred by
Seller and the Companies in negotiating and executing this Agreement, Purchaser
shall pay to Seller an amount in cash equal to five percent (5%) of the Purchase
Price (such amount, plus any interest deemed earned thereon from (and including)
the date hereof to (but excluding) the Closing Date or date of earlier
termination of this Agreement being referred to as the "Purchase Agreement
Fee"), in each case by wire transfer of immediately available funds to the bank
account or accounts that have been designated by Seller. The Purchase Agreement
Fee will be deemed to earn interest at the Specified Rate. Notwithstanding any
provision to the contrary contained herein, the Purchase Agreement Fee shall be
nonrefundable by Seller except in the event that this Agreement is duly and
validly terminated in accordance with Section 7.1(b) or Section 7.1(c) hereof or
Purchaser duly and validly terminates this Agreement in accordance with Section
7.1(d) hereof, in which event Seller shall pay to Purchaser, no later than ten
(10) Business Days following the effective date of such termination, an amount
equal to the Purchase Agreement Fee received by it pursuant to this Section 1.5
hereof by wire transfer of immediately available funds


                                        2

<PAGE>

to the bank account or accounts designated by Purchaser. The Purchase Agreement
Fee received by Seller shall be credited against (x) the Purchase Price payable
to Seller at the Closing in accordance with Section 1.4 hereof or (y) if this
Agreement is terminated (other than pursuant to Section 7.1(b) or 7.1(d)
hereof), the Damages, if any owed by Purchaser to Seller arising out of breach
of this Agreement by Purchaser. The Purchase Agreement Fee shall not be deemed
to be a liquidated damages payment for any breach by Purchaser of this
Agreement.

          1.6 Pre-Closing Restructuring. Prior to Closing, Seller shall effect
or cause to be effected the transactions contemplated in Schedule 1.6 of the
Disclosure Letter. Such transactions are intended to be a "reorganization" under
Section 368(a) of the Code, and the Parties agree to prepare, or cause to be
prepared, their respective Tax Returns in a manner consistent with such intent.

                                   ARTICLE II

                              WARRANTIES OF SELLER

     Except as disclosed in the Disclosure Letter attached hereto as Exhibit B
(the "Disclosure Letter"), Seller warrants, as to itself only, to Purchaser as
follows in this Article II:

          2.1 Organization and Qualification. Seller is a corporation duly
formed and validly existing under the laws of Michigan, and has full corporate
power and authority to own, lease and operate its assets and properties and to
conduct its business as presently conducted, except where the failure to have
such power and authority would not reasonably be expected to have, individually
or in the aggregate, a Seller Material Adverse Effect.

          2.2 Capitalization; Right and Title to Interests. As of the date
hereof, the authorized capital stock of (i) CMS Midland consists of 100,000
shares of common stock, of which 110 shares are issued and outstanding ("CMS
Midland Shares"), and (ii) CMS Holdings consists of 60,000 shares of common
stock, of which 10 shares are issued and outstanding (the "CMS Holdings Shares"
and, together with the CMS Midland Shares, the "Shares"). As of the date hereof,
CMS Midland Shares constitutes all of the issued and outstanding Equity
Interests in CMS Midland. As of the date hereof, CMS Holdings Shares constitutes
all of the issued and outstanding Equity Interests in CMS Holdings. Seller is
the record and beneficial holder of and has good and valid title to CMS Holdings
Shares and, as of the date hereof, the CMS Midland Shares. Seller holds, and
upon completion of the transactions referred to and as contemplated herein,
Purchaser shall have acquired from Seller, good and valid title to the CMS
Holdings Shares free and clear of any and all Liens.

          2.3 Authority; Non-Contravention; Statutory Approvals.

          (a) Authority. Seller has full corporate power and authority to enter
into this Agreement and, subject to receipt of the Seller Required Statutory
Approvals, to consummate the transactions contemplated hereby. The execution,
delivery and performance by Seller of this Agreement and the consummation by
Seller of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Seller, and no other
corporate proceedings or approvals on the part of Seller are necessary to
authorize this


                                        3

<PAGE>

Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Seller and, assuming the due
authorization, execution and delivery hereof by each other Party, constitutes
the legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as limited by Laws affecting the enforcement
of creditors' rights generally or by general equitable principles.

          (b) Non-Contravention. The execution and delivery of this Agreement by
Seller does not, and the consummation of the transactions contemplated hereby
will not, result in any violation or breach of or default (with or without
notice or lapse of time or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation under (any such violation,
breach, default, right of termination, cancellation or acceleration is referred
to herein as a "Violation"), or result in the creation of any Lien upon any of
the properties or assets of Seller pursuant to any provision of (i) subject to
obtaining the third-party Consents set forth in Schedule 2.3(b) of the
Disclosure Letter (the "Seller Required Consents"), the Organizational Documents
of Seller; (ii) subject to obtaining the Seller Required Consents, any lease,
mortgage, indenture, note, bond, deed of trust, or other instrument or agreement
of any kind to which it is a party or by which it may be bound; or (iii) subject
to obtaining the Seller Required Statutory Approvals, any Law, Permit or
Governmental Order applicable to it other than in the case of clauses (i), (ii)
and (iii) any such Violation or Lien which would not reasonably be expected to
have, individually or in the aggregate, a Seller Material Adverse Effect or a
Company Material Adverse Effect.

          (c) Statutory Approvals. Except for the filings or approvals (i) set
forth in Schedule 2.3(c) of the Disclosure Letter (the "Seller Required
Statutory Approvals") and (ii) as may be required due to the regulatory or other
status of Purchaser, no Consent of any Governmental Entity is required to be
made or obtained by Seller in connection with the execution and delivery of this
Agreement or the consummation by Seller of the transactions contemplated hereby,
except those which the failure to obtain or make would not reasonably be
expected to have, individually or in the aggregate, a Seller Material Adverse
Effect or a Company Material Adverse Effect.

          2.4 Litigation. There is no action, claim, suit or proceeding at law
or in equity pending or, to the Knowledge of Seller, threatened against Seller
that, if adversely determined, would reasonably be expected to have,
individually or in the aggregate, a Seller Material Adverse Effect. Subject to
obtaining the Seller Required Statutory Approvals, there are no Governmental
Orders of or by any Governmental Entity applicable to Seller except for such
that would not reasonably be expected to have, individually or in the aggregate,
a Seller Material Adverse Effect or a Company Material Adverse Effect.

          2.5 Absence of Defaults. To the Knowledge of Seller, Seller is not in
breach or default under any Affiliate Contract to which Seller is a party, which
breach or default has not been waived, and, to the Knowledge of Seller, no other
party to any such Affiliate Contract to which Seller is a party is in breach or
default, except in each case, for any breach or default that would not
reasonably be expected to have, individually or in the aggregate, a Seller
Material Adverse Effect or a Company Material Adverse Effect.


                                        4

<PAGE>

          2.6 Composite PPA, etc. Attached as Exhibit B to the Consumers Consent
is a true, correct and complete conformed composite copy of the Power Purchase
Agreement dated as of July 17, 1986, as amended, between Seller and MCV as in
effect on June 1, 1990 (the "Composite PPA"). Other than as reflected in the
Composite PPA or as may have been effected by the Consumers Consent, the RCA,
the RDA, the parties' course of dealing under Section 7(c) of the PPA and the
matters listed on Schedule 2.6 of the Disclosure Letter, there are no written
amendments, modifications, additions, deletions or other changes to the
Composite PPA. Prior to and after the Commercial Operation Date (as defined in
the Composite PPA), Seller and the Partnership have entered into various
agreements or undertakings including the Composite PPA and its amendments
related to charges for capacity and energy purchased from the Partnership and
delivered or made available to Seller (the "C&E Agreements"). The C&E Agreements
taken collectively constitute a settlement or resolution of claims relating to
the purchase of energy and capacity purported to be covered thereby for all
periods from the Commerical Operation Date through and including September 15,
2007 and do not act to suspend or otherwise delay or toll Seller's rights to
seek recovery from the Partnership with respect to such energy and capacity
purchases.

                                   ARTICLE III

                           WARRANTIES OF THE COMPANIES

     Except as disclosed in the Disclosure Letter and except for any actions
permitted by Section 5.1 of this Agreement, each of the Companies warrants to
Purchaser as follows in this Article III:

          3.1 Organization and Qualification; Authority; Non-Contravention;
Statutory Approvals.

          (a) Organization and Qualification. Each of the Companies, the
Partnership and the Owner Participant is duly formed, validly existing and in
good standing (to the extent such concepts are recognized under applicable Law)
under the laws of the jurisdiction of its formation, has, as applicable, full
corporate, partnership, limited liability company or similar power and authority
to own, lease and operate its assets and properties and to conduct its business
as presently conducted and is duly qualified to do business and is in good
standing (to the extent such concepts are recognized under applicable Law) as a
foreign corporation, partnership or limited liability company, as applicable, in
all jurisdictions in which such qualification is necessary under applicable Law
as a result of the conduct of its business or the ownership of its properties,
except for those jurisdictions where failure to have such power and authority or
to be so qualified or in good standing would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Except as
set forth on Schedule 3.1(a) of the Disclosure Letter, neither the Companies
nor, to the Knowledge of CMS Midland, the Partnership has been qualified to do
business in any jurisdiction as a foreign corporation, partnership or limited
liability company, as the case may be. True and complete copies of the
Organizational Documents of each Company, the Partnership and the Owner
Participant have been made available to the Purchaser.


                                       5

<PAGE>

          (b) Authority. Each of the Companies has full entity power and
authority to enter into this Agreement and, subject to receipt of the Seller
Required Statutory Approvals, to consummate the transactions contemplated
hereby. The execution, delivery and performance by each of the Companies of this
Agreement and the consummation by each of the Companies of the transactions
contemplated hereby have been duly and validly authorized by all requisite
entity action on the part of each of Companies, and no other corporate
proceedings or approvals on the part of the Companies are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of the Companies and,
assuming the due authorization, execution and delivery hereof by each other
Party, constitutes the legal, valid and binding obligation of each of the
Companies, enforceable against each of the Companies in accordance with its
terms, except as limited by Laws affecting the enforcement of creditors' rights
generally or by general equitable principles.

          (c) Non-Contravention. The execution and delivery of this Agreement by
each of the Companies does not, and the consummation of the transactions
contemplated hereby will not, result in any Violation or result in the creation
of any Lien upon any of the properties or assets of each of the Companies or, to
the Knowledge of CMS Midland, the Partnership, and to the Knowledge of CMS
Holdings, the Owner Participant and the Lessor, pursuant to any provision of (i)
subject to obtaining the third-party Consents set forth in Schedule 3.1(c) of
the Disclosure Letter (the "Company Required Consents"), the Organizational
Documents of the Company, the Partnership, the Owner Participant or the Lessor,
as applicable; (ii) subject to obtaining the Company Required Consents, any
lease, mortgage, indenture, note, bond, deed of trust, or other instrument or
agreement of any kind to which the Company, the Partnership, the Owner
Participant or the Lessor, as applicable, is a party or by which any of the
Company, the Partnership, the Owner Participant or the Lessor, as applicable,
may be bound; or (iii) subject to obtaining the Seller Required Statutory
Approvals and the Company Required Statutory Approvals, any Law, Permit or
Governmental Order applicable to each of the Companies, the Partnership, the
Owner Participant or the Lessor, as applicable, other than in the case of
clauses (i), (ii) and (iii) any such Violation or Lien which would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

          (d) Statutory Approvals. Except for the filings or approvals (i) set
forth in Schedule 3.1(d) of the Disclosure Letter (the "Company Required
Statutory Approvals") and (ii) as may be required due to the regulatory or
corporate status of Purchaser, no Consent of any Governmental Entity is required
to be made or obtained by each of the Companies or, to the Knowledge of CMS
Midland, the Partnership, and to the Knowledge of CMS Holdings, the Owner
Participant and the Lessor, in connection with the execution and delivery of
this Agreement or the consummation by each of the Companies of the transactions
contemplated hereby, except those which the failure to obtain or make would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

          3.2 Capitalization.

          (a) Partnership and Owner Participant. Schedule 3.2(a) of the
Disclosure Letter sets forth for each of the Partnership and the Owner
Participant as of the date hereof and as of the Closing Date: (i) its
jurisdiction of formation; (ii) its authorized Equity Interests; (iii) the
number of its issued and outstanding Equity Interests; and (iv) the Equity
Interests that are


                                       6

<PAGE>

owned by the applicable Company. The Equity Interests of the Partnership that
are owned by CMS Midland and the Equity Interests of the Owner Participant that
are owned by CMS Holdings, as applicable, as set forth on Schedule 3.2(a) of the
Disclosure Letter, are owned free and clear of all Liens, other than Permitted
Liens and other than as set forth in Schedule 3.2(a) of the Disclosure Letter.
All the issued and outstanding Equity Interests in each of the Partnership and
the Owner Participant that are owned, directly or indirectly, by a Company, as
applicable, have been duly authorized and are validly issued and fully paid.

          (b) No Other Equity Interests. As of the date hereof, CMS Midland does
not own, directly or indirectly, any Equity Interests in any Person other than
the Partnership and, as of the Closing Date, CMS Midland will not own, directly
or indirectly, any Equity Interests in any Person other than the Partnership,
Alanna Holdings Corporation and Alanna Corporation. As of the date hereof, CMS
Holdings does not own, directly or indirectly, any Equity Interests in any
Person other than the Owner Participant and, as of the Closing Date, CMS
Holdings will not own, directly or indirectly, any Equity Interests in any
Person other than the Owner Participant, CMS Midland, Alanna Holdings
Corporation and Alanna Corporation.

          (c) Agreements with Respect to Shares and Equity Interests of the
Companies, the Partnership and the Owner Participant. Except (i) as set forth in
Schedule 3.2(c) of the Disclosure Letter, (ii) as provided for in the
Organizational Documents of the applicable Company, the Partnership or the Owner
Participant, as applicable, and (iii) as contemplated by Schedule 1.6 of the
Disclosure Letter, there are no:

               (A) subscriptions, options, warrants, calls, conversion,
          exchange, purchase right or other written contracts, rights,
          agreements or commitments of any kind obligating, directly or
          indirectly, a Company, or, to the Knowledge of CMS Midland, the
          Partnership or, to the Knowledge of CMS Holdings, the Owner
          Participant, as applicable, to issue, transfer, sell or otherwise
          dispose of, or cause to be issued, transferred, sold or otherwise
          disposed of, any Equity Interests of a Company, the Partnership or the
          Owner Participant, as applicable, or any securities convertible into
          or exchangeable for any such Equity Interests; or

               (B) agreements, partnership agreements, voting trusts, proxies or
          other agreements, instruments or understandings to which a Company or,
          to the Knowledge of CMS Midland, the Partnership or, to the Knowledge
          of CMS Holdings, the Owner Participant, as applicable, is a party, or
          by which a Company or, to the Knowledge of CMS Midland, the
          Partnership or, to the Knowledge of CMS Holdings, the Owner
          Participant, as applicable, is bound, relating to the voting of any
          shares of the Equity Interests of a Company, the Partnership or the
          Owner Participant, as applicable.

          3.3 Financial Statements. (a) Each of the Companies has provided to
Purchaser copies of its respective unaudited balance sheet as of December 31,
2005 and unaudited statement of operations for the year ended December 31, 2005
(each a "Company Financial Statement" and collectively, the "Companies Financial
Statements"). Each Company Financial Statement, as applicable, fairly presents
in all material respects the consolidated assets and liabilities of such
Company, as the case may be, as of December 31, 2005 and the results of
such Company's operations, as the case may be, for the period indicated (except
for normal and recurring year-end adjustments and for the absence of notes).


                                       7

<PAGE>

          (b) To the Knowledge of CMS Midland, the audited consolidated balance
sheet of the Partnership as of December 31, 2005 and the audited consolidated
statements of operations, statements of partners' equity and comprehensive
income (loss) and statements of cash flows of the Partnership for the year ended
December 31, 2005 (including the notes thereto) included in the Partnership's
Form 10-K for the fiscal year ended December 31, 2005 filed with the U.S.
Securities and Exchange Commission fairly present in all material respects the
consolidated assets and liabilities of the Partnership as of December 31, 2005
and the results of its operations and cash flows for the year ended December 31,
2005.

          (c) To the Knowledge of CMS Holdings, the audited statement of assets,
liabilities and capital of the Owner Participant as of December 31, 2004 and the
audited statement of revenues and expenses, statement of cash flows and
statement of changes in partners' deficit for the year ended December 31, 2004
(including the notes thereto) fairly present in all material respects the
assets, liabilities and capital of the Owner Participant as of December 31, 2004
and its revenues and expenses, changes in partners' deficit and cash flows for
the year ended December 31, 2004.

          3.4 Absence of Certain Changes or Events.

          (a) Since December 31, 2005 through the date hereof, except as set
forth in Schedule 3.4(a) of the Disclosure Letter, other than in connection with
the transactions contemplated by this Agreement, none of the Companies, or, to
the Knowledge of CMS Midland, the Partnership or, to the Knowledge of CMS
Holdings, the Owner Participant, has taken any of the actions set forth in
Sections 5.1(b) through 5.1(o), that, if taken after the execution and delivery
of this Agreement, would require the consent of Purchaser pursuant to Section
5.1.

          (b) Since December 31, 2005, there has not been any change, event,
condition, circumstance, occurrence or development which has had, or would
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

          (c) Since December 31, 2005, none of the Companies or, to the
Knowledge of CMS Midland, the Partnership or, to the Knowledge of CMS Holdings,
the Owner Participant has incurred any Liability that has had, or would
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

          3.5 Tax Matters. Except as set forth in Schedule 3.5 of the Disclosure
Letter, to the Knowledge of the applicable Company:

          (a) each of the Companies and, to the Knowledge of CMS Midland, the
Partnership and, to the Knowledge of CMS Holdings, the Owner Participant has (A)
filed (or there has been filed on its behalf) with the appropriate Governmental
Entity all Material Tax Returns required to have been filed by it, (B) duly paid
in full or made provision in accordance with GAAP (or there has been paid or
provision has been made on its behalf) for the payment of all Taxes shown as due
or payable on such Tax Returns and (C) included in such Tax Returns all
required disclosure of positions taken therein that could give rise to a
substantial underpayment penalty under Section 6662 of the Internal Revenue Code
of 1986, as amended (the "Code"), or any similar provision of state, local or
other Tax law;


                                       8

<PAGE>

          (b) no Material audits or other administrative proceedings or court
proceedings are, as of the date hereof, pending with regard to any Taxes or Tax
Returns of each of the Companies and, to the Knowledge of CMS Midland, the
Partnership and, to the Knowledge of CMS Holdings, the Owner Participant and
none of the Companies and, to the Knowledge of CMS Midland, the Partnership or,
to the Knowledge of CMS Holdings, the Owner Participant has been informed in
writing or orally of the planned commencement of any such audit or
administrative proceedings;

          (c) neither the Companies nor to the Knowledge of CMS Midland with
respect to the Partnership or to the Knowledge of CMS Holdings with respect to
the Owner Participant has waived the applicable statute of limitations for the
assessment or collection of any Material Taxes;

          (d) there are no Liens on any assets of any of the Companies or, to
the Knowledge of CMS Midland, the Partnership or, to the Knowledge of CMS
Holdings, the Owner Participant in connection with the failure to pay any
Material Tax, except to the extent of statutory Liens existing for any Taxes
accruing but not yet due and payable or which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established;

          (e) each of the Companies has made available to Purchaser complete and
accurate copies of all material income Tax Returns of such Company (or pro forma
Tax Returns if such Company was included in a consolidated or combined Tax
Return), for the years 2002, 2003, 2004, as filed or subsequently amended;

          (f) all material Taxes which (i) to the Knowledge of CMS Midland, the
Partnership, (ii) to the Knowledge of CMS Holdings, the Owner Participant or
(iii) the Companies have been required to collect or withhold have been duly
collected or withheld, and to the extent required, have been or will be duly
paid when due to the proper Governmental Entity;

          (g) none of the property of any of the Companies, to the Knowledge of
CMS Midland, the Partnership, or, to the Knowledge of CMS Holding, the Owner
Participant is (A) subject to a safe harbor lease (pursuant to Section 168(f)(8)
of the Code as in effect after the Economic Recovery Tax Act of 1981 and before
the Tax Reform Act of 1986) or (B) (other than the existing $200,000,000 of tax
exempt pollution control revenue refunding bonds outstanding with respect to the
Facility) "tax exempt use property" (within the meaning of Section 168(h) of the
Code) or "tax exempt bond financed property" (within the meaning of Section
168(g)(5) of the Code);


                                       9

<PAGE>

          (h) (i) neither of the Companies, or (ii) to the Knowledge of CMS
Midland, the Partnership, or (iii) to the Knowledge of CMS Holding, the Owner
Participant has been a party to a transaction that, after the Closing, will
cause the Companies, the Partnership or the Owner Participant, as applicable, to
recognize gain under either Section 355(d) or 355(e) of the Code;

          (i) CMS Midland is the "tax matters partner" for the Partnership;

          (j) no shareholder of the Companies is a foreign person as defined in
Section 1445 of the Code;

          (k) neither of the Companies has any liability for the Taxes of any
other Person under applicable law, as a transferee or successor, or otherwise;

          (l) no written claim is pending by any authority in a jurisdiction
where any of the Companies, the Partnership (subject to the Knowledge of CMS
Midland) or the Owner Participant (subject to the Knowledge of CMS Holdings)
does not file Tax Returns that such entity is or may be subject to taxation in
that jurisdiction;

          (m) neither of the Companies has engaged in any transaction that would
be reportable pursuant to Treasury Regulation Section 1.6011-4 that has not been
properly reported in its Tax Returns;

          (n) neither of the Companies nor to the Knowledge of CMS Midland with
respect to the Partnership or to the Knowledge of CMS Holdings with respect to
the Owner Participant will be required (i) to include any amount in income for
any taxable period (or portion thereof) beginning after the Closing Date as a
result of a change in accounting method for any prior taxable period or pursuant
to any agreement with any Governmental Entity or (ii) to include in any taxable
period (or portion thereof) beginning after the Closing Date any income that
accrued in a prior period but was not recognized in the prior period as a result
of the installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting or the cash method of
accounting;

          (o) as of December 31, 2005, the tax basis that CMS Midland had in its
equity interest in the Partnership for purposes of Section 731 of the Code was
not less than $175,000,000 and the capital account with respect to such equity
interest for purposes of Section 704(b) of the Code and the Treasury Regulations
thereto was not less than $175,000,000. As of December 31, 2005, the tax basis
that CMS Holdings had in its equity interest in the Owner Participant for
purposes of Section 731 of the Code was not less than negative $100,000,000
(disregarding the partner's share of partnership liabilities); and

          (p) as of December 31, 2005, the net operating losses of CMS Midland
that were available for a carryforward pursuant to Section 172 of the Code, were
not less than $20,000,000.

          3.6 Litigation. Except as set forth in Schedule 3.6 of the Disclosure
Letter, there is no action, claim, suit or other proceeding at law or in equity
pending or, to the Knowledge of the applicable Company, threatened against a
Company or affecting the assets or properties of a Company that, if adversely
determined, would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Except as set forth in Schedule
3.6 of the Disclosure Letter, to the Knowledge of CMS Midland with respect to
the


                                       10

<PAGE>

Partnership and to the Knowledge of CMS Holdings with respect to the Owner
Participant, there is no action, claim, suit or other proceeding at law or in
equity pending or threatened against the Partnership or the Owner Participant,
as applicable, or affecting its respective assets or properties that, if
adversely determined, would reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.

          3.7 Compliance with Laws.

          (a) Except as set forth in Schedule 3.7(a) of the Disclosure Letter,
neither of the Companies has been given notice of or been charged with any
violation of, or, to the Knowledge of the applicable Company, is in violation of
or is under investigation with respect to any violation of, any Law or
Governmental Order, except in each case for violations which would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as set forth in Schedule 3.7(a) of the
Disclosure Letter, to the Knowledge of CMS Midland with respect to the
Partnership and to the Knowledge of CMS Holdings with respect to the Owner
Participant, neither the Partnership nor the Owner Participant, as applicable,
has been given notice of or been charged with any violation of, or is in
violation of or is under investigation with respect to any violation of, any Law
or Governmental Order, except for violations which would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.

          (b) This Section 3.7 does not relate to Tax matters, which are instead
the subject of Section 3.5, employee benefits matters, which are instead the
subject of Section 3.8, Company Permits, which are instead the subject of
Section 3.9, or environmental matters, which are instead the subject of Section
3.12.

          3.8 Employee Benefits.

          (a) Schedule 3.8(a) of the Disclosure Letter contains a list of each
material bonus, incentive or deferred compensation, pension, retirement,
profit-sharing, savings, employment, consulting, compensation, stock purchase,
stock option, phantom stock or other equity-based compensation, severance pay,
termination, change-in-control, retention, salary continuation, vacation, sick
leave, disability, death benefit, group insurance, hospitalization, medical,
dental, life, loan, educational assistance, and other fringe benefit plans,
programs, agreements and arrangements maintained, to the Knowledge of CMS
Midland, by the Partnership or any trade or business, whether or not
incorporated, that together with the Partnership would be deemed a "single
employer" within the meaning of Section 4001 of ERISA (an "ERISA Affiliate") for
the benefit of any employee or former employee of the Partnership (collectively,
the "Partnership Plans").

          (b) With respect to each Partnership Plan, the Partnership has
provided or made available to Purchaser true and complete copies of the
following documents, to the extent applicable: (1) a copy of such Partnership
Plan (including all amendments thereto), (2) a copy of the annual report and
actuarial report, if required under ERISA or the Code, for the two (2) most
recently ended plan years, (3) a copy of the most recent summary plan
description, if required under ERISA, (4) if such Partnership Plan is funded
through a trust or any third party funding vehicle, a copy of the trust or other
funding agreement (including all amendments thereto) and


                                       11

<PAGE>

the most recent financial statements, and (5) the most recent determination or
opinion letter, as applicable, received from the Internal Revenue Service with
respect to such Partnership Plan if it is intended to qualify under Section
401(a) of the Code.

          (c) To the Knowledge of CMS Midland, each Partnership Plan has been
administered in all material respects in compliance with its terms and
applicable Law, including ERISA and the Code. To the Knowledge of CMS Midland,
there is no pending or threatened legal action, suit or claim relating to the
Partnership Plans (other than routine claims for benefits). To the Knowledge of
CMS Midland, each Partnership Plan which is intended to qualify under Section
401(a) of the Code is qualified in form and operation and has received a
favorable determination letter from the Internal Revenue Service and, to the
Knowledge of CMS Midland, no circumstances exist that could be expected to
result in the revocation of any such favorable determination or opinion letter,
as applicable. To the Knowledge of CMS Midland, each funding vehicle of a
Partnership Plan that is intended to be part of a voluntary employees'
beneficiary association within the meaning of Section 501(c)(9) of the Code has
(A) received an opinion letter from the Internal Revenue Service recognizing its
exempt status under Section 501(c)(9) of the Code and (B) filed a timely notice
with the Internal Revenue Service pursuant to Section 505(c) of the Code, and,
to the Knowledge of CMS Midland, no circumstances exist that could be expected
to result in the loss of the exempt status of such funding vehicle under Section
501(c)(9) of the Code.

          (d) To the Knowledge of CMS Midland, neither the Partnership nor any
ERISA Affiliate has ever maintained, contributed to, or had an obligation to
contribute to, a plan that is (i) subject to Title IV of ERISA or Section 412 of
the Code, (ii) a "multiemployer plan" within the meaning of Section 3(37) of
ERISA, (iii) maintained by more than one employer within the meaning of Section
413(c) of the Code, or (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA.

          (e) To the Knowledge of CMS Midland, all contributions or premiums to
each Partnership Plan required under the terms of such Partnership Plan or
applicable Law have been timely made. To the Knowledge of CMS Midland, all
Material liabilities or expenses of the Partnership in respect of any
Partnership Plan have been properly accrued on the most recent financial
statements of the Partnership in compliance with GAAP.

          (f) Except as set forth in Schedule 3.8(f) of the Disclosure Letter,
to the Knowledge of CMS Midland, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(either alone or in combination with another event) (i) entitle any current or
former employee or director of the Partnership to any payment or result in any
payment becoming due, increase the amount of any compensation due, or result in
the acceleration of the time of any payment due to any such person or (ii)
increase any benefits otherwise payable under any Partnership Plan or result in
the acceleration of the time of payment or vesting of any benefit under a
Partnership Plan.

          (g) To the Knowledge of CMS Midland, no Partnership Plan provides
benefits, including without limitation death or medical benefits (whether or not
insured), with respect to current or former employees of the Partnership beyond
their retirement or other termination of service, other than (i) coverage
mandated solely by applicable Law, (ii) death


                                       12
<PAGE>

benefits or retirement benefits under any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Partnership or (iv) benefits the
costs of which are borne entirely by the current or former employee or his or
her beneficiary. Except as otherwise provided by applicable Law or written
Partnership Plan terms, to the Knowledge of CMS Midland, there are no
restrictions on the rights of the Partnership to unilaterally amend or terminate
any such Partnership Plan at any time without incurring any material liability
pursuant to the terms thereof.

          (h) Neither of the Companies has any liabilities to any employees or
with respect to any employee benefit plans.

          (i) To the Knowledge of CMS Midland, neither the Partnership nor any
plan fiduciary of any Partnership Plan has engaged in any transaction in
violation of Section 406 of ERISA (for which transaction no exemption exists
under Section 408 of ERISA) or in any "prohibited transaction" as defined in
Section 4975(c)(1) of the Code (for which no exemption exists under Section
4975(c)(2) or 4975(d) of the Code.

          3.9 Permits.

          (a) Except as set forth in Schedule 3.9(a) of the Disclosure Letter,
each of the Companies and, to the Knowledge of CMS Midland, the Partnership and,
to the Knowledge of CMS Holdings, the Owner Participant has all Permits that are
necessary for it to conduct its operations in the manner in which they are
presently conducted, other than any such Permits the failure of which to have
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect (collectively, "Company Permits"). Except as set
forth in Schedule 3.9(a) of the Disclosure Letter, each Company Permit held by
the applicable Company is in full force and effect other than any failure to be
in full force and effect which would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Except as
set forth in Schedule 3.9(a) of the Disclosure Letter, to the Knowledge of CMS
Midland with respect to the Partnership and to the Knowledge of CMS Holdings
with respect to the Owner Participant, each Company Permit held by the
Partnership and the Owner Participant, as applicable, is in full force and
effect other than any failure to be in full force and effect which would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

          (b) This Section 3.9 does not relate to environmental matters, which
are instead the subject of Section 3.12.

          3.10 Tangible Property. Except as to CMS Midland as specified in
Schedule 3.10 of the Disclosure Letter, neither Company (i) now owns, controls
or possesses any tangible property (real or personal), or interest therein, and
(ii) has ever owned, controlled or possessed any tangible property (real or
personal), except, in each case, such property as is owned, controlled and
possessed by the Partnership, the Owner Participant or the Lessor, as the case
may be.


                                       13

<PAGE>

          3.11 Contracts.

          (a) Set forth in Schedule 3.11(a) of the Disclosure Letter is, as of
the date hereof, a list of the following agreements and contracts to which the
Companies or, to the Knowledge of CMS Midland, the Partnership or, to the
Knowledge of CMS Holdings, the Owner Participant is a party or by which any of
their respective properties or assets are bound, other than any insurance
policies covering the Companies, the Partnership or the Owner Participant or any
of their respective assets (the agreements and contracts set forth in Schedule
3.11(a) of the Disclosure Letter are referred to herein as the "Company Material
Contracts" and, as used in this Section 3.11, "Contracting Party" shall refer to
any Company, the Partnership or the Owner Participant party to such Company
Material Contract):

               (i) (A) all currently effective MCV Gas Contracts and MCV Gas
          Transportation Agreements (as each such term is defined in the MCV
          Partnership Agreement), (B) all currently effective Dow Contracts,
          other Backup Agreements, Consumers Contracts, Facilities Agreements,
          Transaction Documents and Financing Documents (as each such term is
          defined in Appendix A; in each case by trust where there are separate
          documents for each undivided interest transaction), (C) each
          assignment to The Dow Chemical Company ("Dow") of an --- interest in
          any MCV Gas Contract or MCV Transportation Contract and (D) each
          contract or agreement to which a Company is party in its individual
          capacity;

               (ii) all Operating Contracts providing for the payment by or to
          the Contracting Party in excess of $2,500,000 (the "Agreed Amount")
          per year, other than (x) any agreements with any Company or the
          Partnership or the Owner Participant to document certain intercompany
          loans or (y) any agreements among any Company, the Partnership or the
          Owner Participant for the provision of services and/or payment of
          costs, which are terminable by either party thereto upon not more than
          sixty (60) days' notice;

               (iii) all Trading Contracts which (A) provide for payment to or
          from the Contracting Party in excess of the Agreed Amount per year (or
          its equivalent as of the date of this Agreement in foreign currency if
          such agreement is denominated in foreign currency) or (B) have a
          notional amount in excess of the Agreed Amount;

               (iv) all contracts (other than Operating Contracts) requiring a
          future capital expenditure by the Contracting Party in excess of the
          Agreed Amount in any twelve-month period;

               (v) all contracts or agreements under which the Contracting Party
          is obligated to sell real or personal property having a value in
          excess of the Agreed Amount other than in the ordinary course of
          business;

               (vi) all shareholders, partnership, voting or similar agreements
          to which the Partnership or the Owner Participant is a party, by which
          the Partnership or the Owner Participant is bound or to which the
          Partnership or the Owner


                                       14

<PAGE>

          Participant is subject (other than any such agreements of the
          Partnership or the Owner Participant that is wholly owned, directly or
          indirectly, by any Company, or by which any such Person is bound);

               (vii) all contracts or agreements under which the Contracting
          Party (1) created, incurred, assumed or guaranteed (or may create,
          incur, assume or guarantee) indebtedness, (2) granted a Lien on its
          assets, whether tangible or intangible, to secure such indebtedness or
          (3) extended credit or advanced funds to any Person, in each case, in
          excess of the Agreed Amount;

               (viii) all executory contracts for the purchase or sale of any
          business, corporation, partnership, joint venture, association or
          other business organization or any division, assets, operating unit or
          product line thereof which have a purchase or sale price in excess of
          the Agreed Amount;

               (ix) to the Knowledge of the applicable Company, all contracts or
          agreements establishing any joint venture;

               (x) all agreements that grant a right of first refusal or similar
          right with respect to (A) any assets of the Contracting Party having a
          value in excess of the Agreed Amount or (B) any direct or indirect
          economic interest in the Contracting Party having a value in excess of
          the Agreed Amount;

               (xi) any contract or agreement providing for the use of material
          Intellectual Property which has an annual license payment or fee in
          excess of $500,000; and

               (xii) any other agreement not covered in clauses (i) through (xi)
          above that involves payment by or to the Contracting Party of more
          than the Agreed Amount annually or twice the Agreed Amount in the
          aggregate under such agreement, other than those that can be
          terminated without penalty in excess of 20% of the Agreed Amount to
          the Contracting Party upon not more than sixty (60) days' notice.

          (b) Except as set forth in Schedule 3.11(b)(i) of the Disclosure
Letter, the Companies have made available to Purchaser complete and correct
copies of all Company Material Contracts. Except as set forth in Schedule
3.11(b)(ii) of the Disclosure Letter, each Company Material Contract is (i) to
the Knowledge of the applicable Company with respect to Company Material
Contracts to which any of the Partnership, the Owner Participant or the Lessor
is a party, in full force and effect and (ii) the valid and binding obligation
of the Companies or, to the Knowledge of the applicable Company, the
Partnership, the Owner Participant and the Lessor, as the case may be, and, to
the Knowledge of the applicable Company, of each other party thereto, in each
case (x) except as limited by Laws affecting the enforcement of creditors'
rights generally or by general equitable principles and (y) with such exceptions
as would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except as set forth in Schedule 3.11(b)(ii) of
the Disclosure Letter, none of the Companies or, to the Knowledge of the
applicable Company, the Partnership,


                                       15

<PAGE>

the Owner Participant or the Lessor is in breach or default under any Company
Material Contract, which breach or default has not been waived, and, to the
Knowledge of the applicable Company, no other party to any Company Material
Contract is in breach or default, except in each case, for any breach or default
that would not reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect. To the Knowledge of CMS Midland, no "Lease
Default" or "Lease Event of Default" (as such defined terms are applicable)
exists under a Company Material Contract to which the Partnership is a party.

          3.12 Environmental Matters. Except as set forth in Schedule 3.12 of
the Disclosure Letter, or as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect:

          (a) each of the Companies and, to the Knowledge of the applicable
Company, the Partnership and the Lessor, are in compliance with all applicable
Environmental Laws, including having and complying with all terms and conditions
of all Permits required under applicable Environmental Laws or that are
necessary for them to conduct their operations in the manner in which they are
presently conducted and all such Permits are in full force and effect and not
subject to appeal or challenge;

          (b) none of the Companies or, to the Knowledge of the applicable
Company, the Partnership or the Lessor (i) has received from any Governmental
Entity any written notice of violation of, alleged violation of, non-compliance
with, or Liability or potential Liability pursuant to, any Environmental Law,
other than notices with respect to matters that have been resolved and for which
any Company or, to the Knowledge of the applicable Company, the Partnership or
the Lessor has no further obligations outstanding or (ii) is subject to any
outstanding Governmental Order, "consent order" or other agreement with regard
to any violation, noncompliance or Liability under any Environmental Law;

          (c) no judicial proceeding or governmental or administrative action is
pending under any applicable Environmental Law or relating to Hazardous
Substances to which any Company or, to the Knowledge of the applicable Company,
the Partnership or the Lessor is or has been a party;

          (d) none of the Companies or, to the Knowledge of the applicable
Company, the Partnership or the Lessor has received any written notice, claim or
demand from any Person, including any Governmental Entity, seeking costs of
response, damages or requiring remedial action relating to (i) any Release of
Hazardous Substances at, on or beneath any Company's, the Partnership's or the
Lessor's current facilities or (ii) a Release of Hazardous Substances at any
third party property to which Hazardous Substances generated by any Company, the
Partnership or the Lessor were sent for treatment or disposal; and

          (e) to the Knowledge of the applicable Company, each of the Companies,
the Partnership and the Lessor have made available to Purchaser true and correct
copies of all material audits, assessments, evaluations and similar reports or
documents in their possession relating to the environmental compliance or
condition of assets and facilities owned or operated by the Companies, the
Partnership or the Lessor.


                                       16

<PAGE>

     Notwithstanding any of the warranties contained elsewhere in this
Agreement, all environmental matters shall be governed exclusively by this
Section 3.12.

          3.13 Labor Matters.

          (a) Schedule 3.13(a) of the Disclosure Letter contains a list of all
collective bargaining agreements to which any Company or, to the Knowledge of
the applicable Company, the Partnership, the Owner Participant or the Lessor is
bound.

          (b) Except as set forth on Schedule 3.13(b) of the Disclosure Letter,
no employees of any Company or, to the Knowledge of the applicable Company, the
Partnership, the Owner Participant or the Lessor are represented by any labor
organization with respect to their employment with the Companies, the
Partnership, the Owner Participant or the Lessor, as applicable.

          (c) To the Knowledge of the applicable Company, there are no Material
labor union organizing activities with respect to any employees of any Company,
the Partnership, the Owner Participant or the Lessor.

          (d) Since January 1, 2004, there have been no pending or, to the
Knowledge of the applicable Company, threatened unfair labor practices, work
stoppages, slowdowns, strikes, lockouts, arbitrations, grievances, or other
labor disputes involving employees of any Company, or, to the Knowledge of the
applicable Company, the Partnership, the Owner Participant or the Lessor, in
each case, that is Material.

          3.14 Intellectual Property. Except as would not reasonably be expected
to have a Company Material Adverse Effect, (a) each of the Companies and, to the
Knowledge of the applicable Company, the Partnership and the Lessor owns, or has
the right to use, all patents, patent rights (including patent applications and
licenses), know-how, trade secrets, trademarks (including trademark
applications), trademark rights, trade names, trade name rights, service marks,
service mark rights, copyrights and other proprietary intellectual property
rights (collectively, "Intellectual Property") used in and necessary for the
conduct of the businesses of the Companies, the Partnership and the Lessor as
currently conducted, (b) to the Knowledge of the applicable Company, the use of
the Intellectual Property used in the businesses of the Companies, the
Partnership and the Lessor as currently conducted does not infringe or otherwise
violate the Intellectual Property rights of any third party, (c) to the
Knowledge of the applicable Company, no third party is challenging, infringing
or otherwise violating any right of any Company, the Partnership and the Lessor
in any Intellectual Property necessary for the conduct of the businesses of the
Companies, the Partnership and the Lessor as currently conducted, and (d) none
of the Companies or, to the Knowledge of the applicable Company, the Partnership
and the Lessor has received any written notice of any pending claim that
Intellectual Property used in and necessary for the conduct of the businesses of
the Companies, the Partnership and the Lessor as currently conducted infringes
or otherwise violates the Intellectual Property rights of any third party.


                                       17

<PAGE>

          3.15 Affiliate Contracts. Schedule 3.15 of the Disclosure Letter
contains a true and complete list of each material agreement or contract as of
the date hereof between (i) any Company, the Partnership, the Owner Participant
or the Lessor, on one hand and (ii) a Seller or any Affiliate thereof (other
than the Companies, the Partnership, the Owner Participant or the Lessor) on the
other (collectively, the "Affiliate Contracts").

          3.16 Insurance. Set forth on Schedule 3.16 of the Disclosure Letter is
a list of all material policies of insurance under which any Company's or, to
the Knowledge of CMS Midland, the Partnership's assets or business activities
are covered, including for each such policy the type of policy, the name of the
insured, the term of the policy, a description of the limits of such policy, the
basis of coverage and the deductibles. Except as set forth on Schedule 3.16 of
the Disclosure Letter, to the Knowledge of CMS Midland, the Partnership
maintains all policies of insurance to the extent required by any applicable
Financing Facility, except where the failure to maintain such policies of
insurance would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.

          3.17 Brokers and Finders. None of Seller, any Company or, to the
Knowledge of the applicable Company, the Partnership or the Owner Participant
has entered into any agreement or arrangement entitling any agent, broker,
investment banker, financial advisor or other firm or Person to any broker's or
finder's fee or any other commission or similar fee payable by any Company in
connection with any of the transactions contemplated by this Agreement, except
J.P. Morgan Securities Inc., whose fees and expenses are governed by Section
5.6.

          3.18 Absence of Certain Matters and Notices. There is no pending
matter concerning CMS Holdings that has been referred to an arbitrator pursuant
to Article X of the FMLP Partnership Agreement and no Notice of Dispute (as
defined in the FMLP Partnership Agreement) concerning CMS Holdings that is
pending.

                                   ARTICLE IV

                             WARRANTIES OF PURCHASER

     Except as set forth in the Purchaser Disclosure Schedules, Purchaser
warrants to the Company and to each Seller as follows in this Article IV:

          4.1 Organization and Qualification. Purchaser is a corporation, duly
formed, validly existing and in good standing under the laws of Delaware and has
full power and authority to own, lease and operate its assets and properties and
to conduct its business as presently conducted. Purchaser is duly qualified to
do business and in good standing as a foreign corporation in all jurisdictions
in which such qualification is necessary under applicable Law as a result of the
conduct of its business or the ownership of its properties, except for those
jurisdictions where failure to be so qualified or in good standing would not
reasonably be expected to have, individually or in the aggregate, a Purchaser
Material Adverse Effect.

          4.2 Authority; Non-Contravention; Statutory Approvals.

          (a) Authority. Purchaser has full corporate power and authority to
enter into this Agreement and, subject to receipt of the Purchaser Required
Statutory Approvals, to consummate the transactions contemplated hereby. The
execution, delivery and performance by


                                       18

<PAGE>

Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby have been duly and validly authorized by all
requisite action on the part of Purchaser, and no other proceedings or approvals
on the part of Purchaser are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Purchaser and, assuming the due authorization,
execution and delivery hereof by each other Party, constitutes the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as limited by Laws affecting the enforcement of
creditors' rights generally or by general equitable principles.

          (b) Non-Contravention. Except as set forth on Schedule 4.2(b) of the
Disclosure Letter, the execution and delivery of this Agreement by Purchaser do
not, and the consummation of the transactions contemplated hereby will not,
result in any Violation or result in the creation of any Lien upon any of the
properties or assets of Purchaser pursuant to any provision of (i) the
Organizational Documents of Purchaser; (ii) subject to obtaining the third-party
Consents set forth in Schedule 4.2(b) of the Disclosure Letter (the "Purchaser
Required Consents"), any lease, mortgage, indenture, note, bond, deed of trust,
or other instrument or agreement of any kind to which Purchaser is a party or by
which Purchaser may be bound; or (iii) subject to obtaining the Purchaser
Required Statutory Approvals, any Law, Permit or Governmental Order applicable
to Purchaser, other than in the case of clauses (i), (ii) and (iii) for any such
Violation or Lien which would not reasonably be expected to have, individually
or in the aggregate, a Purchaser Material Adverse Effect.

          (c) Statutory Approvals. Except for the filings or approvals (i) set
forth in Schedule 4.2(c) of the Disclosure Letter (the "Purchaser Required
Statutory Approvals") and (ii) as may be required due to the regulatory or
corporate status of Seller or the Companies, no Consent of any Governmental
Entity is required to be made or obtained by Purchaser in connection with the
execution and delivery of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby, except those which the failure to obtain or
make would not reasonably be expected to have, individually or in the aggregate,
a Purchaser Material Adverse Effect.

          4.3 Financing. Purchaser has, and will have at the Closing, available
cash and credit capacity, either in its accounts, through binding and
enforceable credit arrangements or borrowing facilities or otherwise, (i) to pay
the Purchase Price at the Closing, (ii) to pay all fees and expenses required to
be paid by Purchaser in connection with the transactions contemplated by this
Agreement, pursuant to Section 5.6 or otherwise, and (iii) to perform all of its
other obligations hereunder including, without limitation, its obligations under
Section 5.12 and the SEPA Payment Agreement (the "Financing Arrangements"), all
without any distributions from the Companies and neither of the Companies will
be required to assume or become liable for such Financing Arrangements prior to
the time immediately following the Closing. A description of the Financing
Arrangements is set forth on Schedule 4.3 of the Disclosure Letter. Prior to the
date of this Agreement, Purchaser has provided Seller with copies of all
documentation relating to the Financing Arrangements, including any commitment
letters for any of the foregoing, which Purchaser intends to utilize to make the
payments described in this Section 4.3. To the extent that this Agreement must
be in a form acceptable to a lender, such lender has approved this Agreement and
there are no other material contingencies to the lender's obligations under the
Financing Arrangements or otherwise.


                                       19

<PAGE>

          4.4 Litigation. Except as set forth in Schedule 4.4 of the Disclosure
Letter, there is no action, claim, suit or proceeding at law or in equity
pending or, to the Knowledge of Purchaser, threatened against Purchaser or any
of its Subsidiaries or affecting any of their respective assets or properties
that, if adversely determined, would reasonably be expected to have,
individually or in the aggregate, a Purchaser Material Adverse Effect. There are
no Governmental Orders of or by any Governmental Entity applicable to Purchaser
or any of its Subsidiaries except for such that would not reasonably be expected
to have, individually or in the aggregate, a Purchaser Material Adverse Effect.

          4.5 Investment Intention; Sufficient Investment Experience;
Independent Investigation. Purchaser is acquiring the Shares for its own
account, for investment purposes only and not with a view to the distribution
(as such term is used in Section 2(a)(11) of the United States Securities Act of
1933 (the "Securities Act")) thereof in a manner not permitted by the Securities
Act. Purchaser understands that the Shares have not been registered under the
Securities Act and, if and to the extent the Securities Act applies, cannot be
sold unless subsequently registered under the Securities Act or an exemption
from such registration is available and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws.
Purchaser has such knowledge and experience in financial and business matters
that it is capable of evaluating the Companies and the merits and risks of an
investment in the Shares. Purchaser has been given adequate opportunity to
examine all documents provided by, conduct due diligence and ask questions of,
and to receive answers from, Seller, the Companies and their respective
representatives concerning the Companies and Purchaser's investment in the
Shares. Purchaser acknowledges and affirms that it has completed its own
independent investigation, analysis and evaluation of the Companies, the
Partnership, the Owner Participant and the Lessor, that it has made all such
reviews and inspections of the business, assets, results of operations and
condition (financial or otherwise) of the Companies, the Partnership, the Owner
Participant and the Lessor as it has deemed necessary or appropriate, and that
in making its decision to enter into this Agreement and to consummate the
transactions contemplated hereby it has relied on its own independent
investigation, analysis, and evaluation of the Companies, the Partnership, the
Owner Participant and the Lessor and Seller's warranties set forth in Article II
and the Companies' warranties set forth in Article III.

          4.6 Brokers and Finders. Purchaser has not entered into any agreement
or arrangement entitling any agent, broker, investment banker, financial advisor
or other firm or Person to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by this
Agreement.

          4.7 Qualified for Permits. Purchaser is qualified to obtain any
Permits necessary for the operation by Purchaser of the Companies (including the
ownership of the Equity Interests in the Owner Participant and the Partnership)
as of the Closing in the same manner as the Companies are currently operated.


                                       20

<PAGE>

          4.8 No Knowledge of Seller or Company Breach. Neither Purchaser nor
any of its Affiliates has Knowledge of any material breach or inaccuracy of (i)
any warranty of Seller set forth in Article II hereof or (ii) any warranty of
the Companies set forth in Article III hereof.

          4.9 Environmental Review. Purchaser has completed its on-site review
of environmental matters.

                                    ARTICLE V

                                    COVENANTS

          5.1 Conduct of Business. After the date hereof and prior to the
Closing or earlier termination of this Agreement, except as set forth in
Schedule 5.1 of the Disclosure Letter and except (i) as contemplated in or
permitted by this Agreement, (ii) as may be required to comply with any Company
Material Contract (including any Financing Facility), (iii) in connection with
necessary or prudent repairs due to breakdown or casualty, or other actions
taken in response to a business emergency or other unforeseen operational
matters, (iv) in connection with necessary or prudent maintenance consistent
with manufacturer's recommendations and warranties, (v) as required by
applicable Law, or (vi) to the extent Purchaser shall otherwise consent, which
decision regarding consent shall be made promptly and which consent shall not be
unreasonably withheld, conditioned or delayed, Seller shall exercise the voting,
governance and contractual powers available to it to cause the Companies to and
each of the Companies shall, to the extent reasonably possible, exercise the
voting, governance and contractual powers available to the Companies to cause
the Partnership, the Owner Participant and the Lessor to (but subject in each
case to any contractual, fiduciary or similar obligation of Seller, any Company,
the Partnership, the Owner Participant or the Lessor):

          (a) conduct its businesses in the ordinary and usual course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use reasonable efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, creditors, lessors, employees and business associates;

          (b) not (i) amend its Organizational Documents other than amendments
which are ministerial in nature or not otherwise material; (ii) split, combine
or reclassify its outstanding Equity Interests; or (iii) repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities convertible
into or exchangeable or exercisable for any shares of its capital stock;

          (c) not issue, sell, or dispose of any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock, other than any issuance, sale or disposal, solely among each of the
Companies, the Partnership or the Lessor;

          (d) not incur any indebtedness other than (i) borrowings in the
ordinary course of business or (ii) borrowings under existing credit facilities
as such facilities may be amended or replaced;

          (e) not, other than (i) in the ordinary and usual course of business
or (ii) in the case of the Partnership or the Lessor, to the extent not
prohibited by a Financing Facility, make any commitments for or make capital
expenditures in excess of $2,500,000 individually or $5,000,000 in the
aggregate;


                                       21

<PAGE>

          (f) not, other than in the ordinary and usual course of business
consistent with past practice, make any acquisition of, or investment in, assets
or stock of any other Person or entity;

          (g) not, other than in the ordinary and usual course of business or in
the case of the Partnership or the Lessor, to the extent not prohibited by a
Financing Facility, sell, lease, license, encumber or otherwise dispose of any
of its assets in excess of $2,500,000 individually or $5,000,000 in the
aggregate;

          (h) not terminate, establish, adopt, enter into, make any new grants
or awards of stock-based compensation or other benefits under, amend or
otherwise materially modify any Partnership Plan or increase the salary, wage,
bonus or other compensation of any directors, officers or employees except (i)
for grants or awards to directors, officers and employees under existing
Partnership Plans in such amounts and on such terms as are consistent with past
practice, (ii) in the normal and usual course of business (which shall include
normal periodic performance reviews and related plans and the provision of
individual Partnership Plans consistent with past practice for newly hired,
appointed or promoted officers and employees) or (iii) for actions necessary to
satisfy existing contractual obligations under Partnership Plans;

          (i) not change any Material financial or Material Tax accounting
methods, policies, practices or elections, except as required by GAAP or the
Code, respectively;

          (j) not adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
(other than the Transaction);

          (k) not settle or compromise any material litigation requiring payment
of an amount in excess of the reserves established therefor, or waive, release
or assign any material claims, in each case other than in an amount not to
exceed $2,500,000 individually or $5,000,000 in the aggregate;

          (l) other than, in the case of the Partnership or the Lessor, to the
extent not prohibited by a Financing Facility, not (i) amend or modify any
Company Material Contract in any material respect, (ii) terminate any Company
Material Contract or (iii) enter into any contract, agreement or instrument that
would have been required to be set forth on Schedule 3.11(a) of the Disclosure
Letter had it been entered into prior to the date of this Agreement;

          (m) not amend, modify, terminate or enter into any Trading Contract
other than, in the case of the Partnership, (i) for fiscal year 2006
requirements, in the ordinary course of business consistent with past practice
and within written parameters established by the management committee of the
Partnership and (ii) for fiscal year 2007 requirements, in the ordinary course
of business consistent with past practice and within written parameters to be
established by such management committee after notice to, and consultation with,
the Purchaser;

          (n) unless not available on commercially reasonable terms, fail to
maintain insurance with financially responsible or nationally recognized
insurers in such amounts and against such risks and losses as are consistent
with the insurance maintained by it in the ordinary and usual course of
business; and


                                       22

<PAGE>

          (o) not commit to take any of the actions set forth in subsections
(b)-(n) of this Section 5.1.

          5.2 Regulatory Approvals.

          (a) Regulatory Approvals. Each Party shall cooperate and use
reasonable efforts to prepare and file as soon as practicable all applications,
notices, petitions, filings and other documents necessary to obtain, and shall
use reasonable efforts to obtain, the Seller Required Statutory Approvals and
the Purchaser Required Statutory Approvals. The Parties further agree to use
reasonable efforts (i) to take any act, make any undertaking or receive any
clearance or approval required by any Governmental Entity or applicable Law and
(ii) to satisfy any conditions imposed by any Governmental Entity, in each case,
in order to consummate the transaction contemplated hereby as soon as reasonably
possible. Each of the Parties shall (i) respond as promptly as practicable to
any inquiries or requests received from any Governmental Entity for additional
information or documentation and (ii) not enter into any agreement with any
Governmental Entity that would reasonably be expected to adversely affect the
Parties' ability to consummate the transactions contemplated by this Agreement,
except with the prior consent of the other Parties (which shall not be
unreasonably withheld or delayed).

          (b) Communications. The Parties shall promptly provide the other
Parties with copies of all filings made with, and inform one another of any
communications received from, any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.

          5.3 Required Consents. Seller and the Companies, on the one hand, and
Purchaser, on the other hand, agree to use reasonable efforts to obtain the
Company Required Consents and the Purchaser Required Consents, respectively, and
to cooperate with each other in connection with the foregoing.

          5.4 Access. After the date hereof and prior to the Closing, Seller and
the Companies agree that the Companies shall permit, and the Companies shall
exercise the voting, governance and contractual powers available to either of
them to cause (subject to any contractual, fiduciary or similar obligation of
the Companies), if possible, each of the Partnership and the Owner Participant
to permit, Purchaser and its respective employees, counsel, accountants and
other representatives to have reasonable access, upon reasonable advance notice,
during regular business hours, to the assets, employees, properties, books and
records, businesses and operations relating to the Companies, the Partnership or
the Owner Participant as Purchaser may reasonably request, provided, however,
that in no event shall Seller, the Companies, the Partnership or the Owner
Participant be obligated to provide any access or information (i) if Seller or
the Companies determine, in good faith after consultation with counsel, that
providing such access or information may violate applicable Law, cause Seller,
the Companies, the Partnership, the Owner Participant or the Lessor to breach a
confidentiality obligation to which it is bound or jeopardize any recognized
privilege available to Seller, the Companies, the Partnership, the Owner
Participant or the Lessor or (ii) to the extent set forth on Schedule 5.4 of


                                       23

<PAGE>

the Disclosure Letter. Purchaser agrees to indemnify and hold Seller, the
Companies, the Partnership, the Owner Participant and the Lessor harmless from
any and all claims and liabilities, including costs and expenses for loss,
injury to or death of any representative of Purchaser, and any loss, damage to
or destruction of any property owned by Seller, the Companies, the Partnership,
the Owner Participant or the Lessor or others (including claims or liabilities
for loss of use of any property) resulting directly or indirectly from the
action or inaction of any of the employees, counsel, accountants, advisors and
other representatives of Purchaser during any visit to the business or property
sites of the Companies, the Partnership, the Owner Participant or the Lessor
prior to the Closing Date, whether pursuant to this Section 5.4 or otherwise.
During any visit to the business or property sites of the Companies, the
Partnership, the Owner Participant or the Lessor, Purchaser shall, and shall
cause its employees, counsel, accountants, advisors and other representatives
accessing such properties to, comply with all applicable Laws and all of the
Companies', the Partnership's, the Owner Participant's or the Lessor's safety
and security procedures and conduct itself in a manner that could not be
reasonably expected to interfere with the operation, maintenance or repair of
the assets of the Companies, the Partnership, the Owner Participant or the
Lessor. Each Party shall, and shall cause its Affiliates and representatives to,
hold in strict confidence all documents and information concerning the other
furnished to it in connection with the transactions contemplated by this
Agreement in accordance with the Confidentiality Agreement.

          5.5 Publicity. Except as may be required by applicable Law or by
obligations pursuant to any listing agreement with or rules of any national
securities exchange, prior to the Closing, none of Seller, the Companies or
Purchaser or any of their respective Affiliates shall, without the express
written approval of Seller, the Companies and Purchaser, make any press release
or other public announcements concerning the transactions contemplated by this
Agreement, except as and to the extent that any such Party shall be so obligated
by applicable Law or pursuant to any such listing agreement or rules of any
national securities exchange, in which case the other Parties shall be advised
and the parties shall use reasonable efforts to cause a mutually agreeable
release or announcement to be issued. From and after the Closing, the
Confidentiality Agreement dated May 22, 2006 between Seller and GSO Capital
Partners LP (the "Seller CA") shall terminate and cease to be of any force and
effect.

          5.6 Fees and Expenses. (a) Except as provided in paragraph (b) below,
whether or not the Closing occurs, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement
(including, without limitation, any fees and expenses of investment bankers,
brokers, finders, counsel, advisors, experts or other agents, in each case,
incident to or in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (whether payable prior to, at or after the
Closing Date)) shall be paid by the party incurring such expenses; provided that
all such costs and expenses incurred by the Companies, the Partnership, the
Owner Participant or the Lessor on or prior to the Closing shall be paid by
Seller.

          (b) Other Transaction Expenses. Notwithstanding anything to the
contrary set forth in this Agreement, (i) Seller and Purchaser shall each pay
50% of any real property transfer or gains Tax, sales Tax, use Tax, stamp Tax,
stock transfer Tax or other similar Tax imposed on the transactions contemplated
by this Agreement, (ii) Purchaser shall pay any out-of-pocket fees,


                                       24

<PAGE>

costs and expenses incurred in connection with obtaining all Purchaser Required
Statutory Approvals and (iii) Seller shall pay any out-of-pocket fees, costs and
expenses incurred in connection with obtaining all Company Required Statutory
Approvals and Seller Required Statutory Approvals (other than the Parties' legal
fees and expenses which are the subject of paragraph (a) above).

          5.7 Indemnification of Directors and Officers.

          (a) Indemnification. From and after the Closing Date, Purchaser shall
cause each Company (and, for the avoidance of doubt, in the case of CMS Midland,
including its successor entities as contemplated by Schedule 1.6 of the
Disclosure Letter), to the fullest extent permitted under applicable Law, to
indemnify and hold harmless (and advance funds in respect of each of the
foregoing) each present and former employee, agent, director, officer or manager
of the respective Company and, to the extent appointed by such Company, the
Partnership or the Owner Participant, as the case may be (each, together with
such person's heirs, executors or administrators, an "Indemnified Person" and
collectively, the "Indemnified Persons"), against any costs or expenses
(including advancing attorneys' fees and expenses in advance of the final
disposition of any claim, suit, proceeding or investigation to each Indemnified
Person to the fullest extent permitted by law), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any actual or threatened claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative (an "Action"), arising
out of, relating to or in connection with any action or omission by such
Indemnified Person in his or her capacity as an employee, agent, director,
officer or manager occurring or alleged to have occurred whether before or after
the Closing Date (including acts or omissions in connection with such person's
service as an officer, director or other fiduciary in any entity if such service
was at the request or for the benefit of such Company, the Partnership or the
Owner Participant, as the case may be). In the event of any such Action,
Purchaser shall cooperate with the Indemnified Person in the defense of any such
Action.

          (b) Survival of Indemnification. To the fullest extent not prohibited
by Law, from and after the Closing Date, all rights to indemnification now
existing in favor of the Indemnified Persons with respect to their activities as
such prior to, on or after the Closing Date, as provided in each Company's (and,
for the avoidance of doubt, in the case of CMS Midland, including its successor
entities as contemplated by Schedule 1.6 of the Disclosure Letter), the
Partnership's and the Owner Participant's respective Organizational Documents or
indemnification agreements in effect on the date of such activities or otherwise
in effect on the date hereof, shall survive the Closing and shall continue in
full force and effect for a period of not less than six (6) years from the
Closing Date, provided that, in the event any claim or claims are asserted or
made within such survival period, all such rights to indemnification in respect
of any claim or claims shall continue until final disposition of such claim or
claims.

          (c) Insurance. For a period of six (6) years after the Closing Date,
Purchaser shall or shall use reasonable efforts to cause the Partnership to,
maintain in effect policies of directors' and officers' liability insurance
equivalent to those maintained by the Partnership prior to the Closing Date for
the benefit of those persons who are currently covered by such policies on terms
no less favorable than the terms of such current insurance coverage; provided,
however, that the Partnership will not be required to expend in any year an
amount in excess of two


                                       25

<PAGE>

hundred percent (200%) of the annual aggregate premiums currently paid by the
Partnership for such insurance; and provided, further, that, if the annual
premiums of such insurance coverage exceed such amount, Purchaser shall use
reasonable efforts to cause the Partnership to, obtain a policy with the best
coverage available, in the reasonable judgment of the board of directors of
Purchaser, for a cost not exceeding such amount.

          (d) Successors. If, after the Closing Date, any of the Companies or
Purchaser or any of their respective successors or assigns (i) consolidates with
or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or a
substantial portion of its properties and assets to any Person, then, and in
either such case, proper provisions shall be made so that the successors and
assigns of any of the Companies or Purchaser, as the case may be, shall assume
the obligations set forth in this Section 5.7.

          (e) Benefit. The provisions of this Section 5.7 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person, his or her
heirs, executors or administrators and his or her other representatives.

          5.8 Termination of Affiliate Contracts. Except as identified in
Schedule 5.8 of the Disclosure Letter, all Affiliate Contracts, including any
agreements or understandings (written or oral) with respect thereto, shall
survive the Closing without any further action on the part of the parties
thereto or the Parties.

          5.9 Further Assurances. Each of Seller, the Companies and Purchaser
agrees that, from time to time before and after the Closing Date, they will
execute and deliver, and each of the Companies shall use reasonable efforts to
cause the Partnership and the Owner Participant to execute and deliver, or use
reasonable efforts to cause their other respective Affiliates (including by
exercising the voting, governance and contractual powers available to cause, if
possible, each of the Partnership and the Owner Participant) to execute and
deliver such further instruments, and take, or cause their respective Affiliates
(including by exercising the voting, governance and contractual powers available
to cause, if possible, each of the Partnership and the Owner Participant) to
take, such other action, as may be reasonably necessary to carry out the
purposes and intents of this Agreement. Purchaser, the Companies and Seller
agree to use reasonable efforts to refrain from taking any action which could
reasonably be expected to materially delay the consummation of the Transaction.

          5.10 Supplements to Company Disclosure Schedules. Seller and the
Companies may, from time to time prior to the Closing by written notice to
Purchaser, supplement the Seller Disclosure Schedules or the Company Disclosure
Schedules or add a schedule or section to the Seller Disclosure Schedules or the
Company Disclosure Schedules with a corresponding reference to be added in this
Agreement (such added Schedule to be deemed a supplement hereunder) to disclose
any matter which, if occurring prior to the date hereof, would have been
required to be set forth or described on the Seller Disclosure Schedules or the
Company Disclosure Schedules or to correct any inaccuracy or breach in the
warranties made by Seller in this Agreement. Subject to this Section 5.10, none
of such supplements to the Seller Disclosure Schedules or the Company Disclosure
Schedules shall be deemed to cure the warranties to which such matters relate
with respect to satisfaction of the conditions set forth in


                                       26

<PAGE>

Section 6.2(b) hereof or otherwise affect any other term or condition contained
in this Agreement; provided, however, that unless Purchaser shall have delivered
a Breach Notice contemplated by Section 7.1(d) (to the extent Purchaser is
entitled to deliver such Breach Notice pursuant to the terms of this Agreement)
within ten (10) Business Days of the receipt by Purchaser of any supplement to
the Seller Disclosure Schedules or the Company Disclosure Schedules pursuant to
this Section 5.10, then Purchaser shall have waived any and all rights to
terminate this Agreement, pursuant to Section 7.1(d) or otherwise, arising out
of or relating to the contents of such supplement and the resulting breach or
breaches of the warranties and Purchaser shall be deemed to have accepted the
contents of such supplement for all purposes of this Agreement; and provided,
further, that, from and after the Closing, Seller shall have no liability
pursuant to this Agreement or for any matters arising out of or relating to any
of the matters disclosed on the Disclosure Letter, as supplemented or amended by
the Companies and Seller prior to the Closing.

          5.11 Change of Name.

          (a) Notwithstanding anything to the contrary contained herein, within
fifteen (15) Business Days after the Closing Date, the Purchaser shall have
caused CMS Midland and CMS Holdings to be renamed such that each such Company
does not include within its name "CMS". On or after the Closing Date, Purchaser
and its Affiliates shall not use existing or develop new stationery, business
cards and other similar items that bear the name or mark of "CMS Midland, Inc."
or "CMS Midland Holdings Company" or any similar derivation thereof in
connection with the businesses of the Companies.

          (b) The Parties acknowledge that any damage caused to Seller or any of
its Affiliates by reason of the breach by Purchaser or any of its Affiliates of
Section 5.11(a), in each case would cause irreparable harm that could not be
adequately compensated for in monetary damages alone; therefore, each Party
agrees that, in addition to any other remedies, at law or otherwise; Seller and
any of its Affiliates shall be entitled to an injunction issued by a court of
competent jurisdiction restraining and enjoining any violation by Purchaser or
any of its Affiliates of Section 5.11(a), and Purchaser further agrees that it
(x) will stipulate to the fact that Seller or any of its respective Affiliates,
as applicable, have been irreparably harmed by such violation and not oppose the
granting of such injunctive relief and (y) waive any requirement that Seller
post any bond or similar requirement in order for Seller to obtain the
injunctive relief contemplated by this Section 5.11(b).

          5.12 Financing. Notwithstanding anything contained in this Agreement
to the contrary, Purchaser expressly acknowledges and agrees that Purchaser's
obligations hereunder are not conditioned in any manner whatsoever upon
Purchaser obtaining any financing and any failure to fulfill any obligation
hereunder arising from the failure of Purchaser to obtain financing or the
unavailability of such financing shall be deemed to be intentional for purposes
hereof. Purchaser shall keep Seller apprised of all developments or changes
relating to the Financing Arrangements and the financing contemplated thereby.
If the Financing Arrangements shall cease to be in full force and effect at any
time or the lenders party thereto shall indicate any unwillingness to provide
the financing contemplated thereby, or for any reason Purchaser otherwise no
longer believes in good faith that it will be able to obtain the financing
contemplated thereby, then Purchaser shall promptly notify Seller and use best
efforts to obtain


                                       27
<PAGE>

replacement financing arrangements or commitment letters as soon as reasonably
practicable. Purchaser shall not, or permit any of its Subsidiaries or
Affiliates to, without the prior written consent of Seller, take any action or
enter into any transaction, including any merger, acquisition, joint venture,
disposition, lease, contract or debt or equity financing that would reasonably
be expected to impair, delay or prevent the financing contemplated by the
Financing Arrangements.

          5.13 Termination of Tax Sharing Agreements. Any and all existing Tax
sharing agreements or arrangements (written or unwritten, formal or informal,
including the Amended and Restated Agreement for the Allocation of Income Tax
Liabilities and Benefits dated as of January 1, 1994 to which CMS Energy, the
Companies and Seller, among others, are parties), providing for the allocation
or payment of Tax liabilities or payment for Tax benefits between a Company, the
Partnership or the Owner Participant, on the one hand, and any other Person, on
the other hand, shall be terminated as of the Closing Date and none of the
Companies, the Partnership or the Owner Participant will have any liability or
claims thereunder on or after the Closing Date. Purchaser shall be entitled to
written confirmation of such termination and extinguishment of liability and
claims from CMS Energy on behalf of itself and all affected non-Company parties
to such Tax sharing agreements and arrangements.

          5.14 Tax Matters.

               (a) Liability for Taxes. (i) Seller shall be liable for and pay
          (A) all Taxes imposed on any of the Companies, or for which any of the
          Companies may otherwise be liable, for any taxable year or period that
          ends on or before the Closing Date and, with respect to any Straddle
          Period, the portion of such Straddle Period ending on and including
          the Closing Date, (B) any Taxes by reason of the several liability of
          the Companies pursuant to Treasury Regulations Section 1.1502-6 or any
          analogous state, local or foreign law or regulation which is
          attributable to having been a member of any consolidated, affiliated,
          combined, unitary or similar group on or prior to the Closing Date and
          (C) any Taxes incurred by or imposed on Seller arising from the sale
          of the Companies by Seller; provided, however, that Seller shall not
          be liable for or pay (I) any Taxes shown as a liability or reserve on
          the Companies Financial Statements, (II) any Taxes imposed on any of
          the Companies or for which any of the Companies may otherwise be
          liable as a result of transactions occurring on the Closing Date that
          are properly allocable (based on, among other relevant factors,
          factors set forth in Treasury Regulations Section
          1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the
          Closing, and (III) notwithstanding anything to the contrary herein,
          any Taxes resulting from a sale of any of the Companies by Purchaser
          (Taxes described in this proviso, hereinafter "Excluded Taxes").
          Purchaser and Seller agree that, with respect to any transaction
          described in clause (II) of the preceding sentence, each of the
          Companies and all persons related to any of the Companies under
          Section 267(b) of the Code immediately after the Closing shall treat
          the transaction for all federal income Tax purposes (in accordance
          with Treasury Regulations Section 1.1502 76(b)(1)(ii)(B)), and (to the
          extent permitted) for other income Tax purposes, as occurring at the
          beginning of the day following the Closing Date. Seller shall be
          entitled to any refund of (or credit for) Taxes allocable to any
          taxable year or period that ends on or before the Closing Date and,
          with respect to any Straddle Period, the portion of such Straddle
          Period ending on and including the Closing Date.


                                       28

<PAGE>

               (ii) Purchaser shall be liable for and pay, and pursuant to
          Article VIII covenants to indemnify, defend and hold harmless the
          Seller Indemnified Parties from and against any and all Damages
          arising from, (A) all Taxes imposed any of the Companies, or for which
          any of the Companies may otherwise be liable, for any taxable year or
          period that begins after the Closing Date and, with respect to any
          Straddle Period, the portion of such Straddle Period beginning after
          the Closing Date and (B) any Excluded Taxes. Except as otherwise
          provided herein, Purchaser shall be entitled to any refund of (or
          credit for) Taxes allocable to any taxable year or period that begins
          after the Closing Date and, with respect to any Straddle Period, the
          portion of such Straddle Period beginning after the Closing Date.

               (iii) For purposes of paragraphs (a)(i) and (a)(ii), whenever it
          is necessary to determine the liability for Taxes of any of the
          Companies for a Straddle Period, the determination of the Taxes of any
          of the Companies for the portion of the Straddle Period ending on and
          including, and the portion of the Straddle Period beginning after, the
          Closing Date shall be determined by assuming that the Straddle Period
          consisted of two taxable years or periods, one which ended at the
          close of the Closing Date and the other which began at the beginning
          of the day following the Closing Date, and items of income, gain,
          deduction, loss or credit of any of the Companies for the Straddle
          Period shall be allocated between such two taxable years or periods on
          a "closing of the books basis" by assuming that the books of the
          Companies were closed at the close of the Closing Date; provided,
          however, that (I) transactions occurring on the Closing Date that are
          properly allocable (based on, among other relevant factors, factors
          set forth in Treasury Regulations Section 1.1502-76(b)(1)(ii)(B)) to
          the portion of the Closing Date after the Closing shall be allocated
          to the taxable year or period that is deemed to begin at the beginning
          of the day following the Closing Date, and (II) exemptions, allowances
          or deductions that are calculated on an annual basis, such as the
          deduction for depreciation, shall be apportioned between such two
          taxable years or periods on a daily basis.

               (iv) If, as a result of any action, suit, investigation, audit,
          claim, assessment or amended Tax Return, there is any change after the
          Closing Date in an item of income, gain, loss, deduction, credit or
          amount of Tax that results in an increase in a Tax liability for which
          Seller would otherwise be liable pursuant to paragraph (a)(i) of this
          Section 5.14, and such change results in or will result in a decrease
          in the Tax liability of any of the Companies, Purchaser or successor
          of any thereof for any taxable year or period beginning after the
          Closing Date or for the portion of any Straddle Period beginning after
          the Closing Date, Seller shall not be liable pursuant to such
          paragraph (a)(i) with respect to such increase to the extent of the
          present value (using a discount rate equal to the then "Federal
          mid-term rate," as that term is defined in Section 1274(d) of the
          Code) of such decrease (and, to the extent such increase in Tax
          liability is paid to a taxing


                                       29

<PAGE>

          authority by Seller or any Affiliate thereof, Purchaser shall pay
          Seller an amount equal to the present value of such decrease).
          Conversely, if, as a result of any action, suit, investigation, audit,
          claim, assessment or amended Tax Return, there is any change after the
          Closing Date in an item of income, gain, loss, deduction, credit or
          amount of Tax that results in an increase in a Tax liability for which
          Purchaser would otherwise be liable pursuant to paragraph (a)(ii) of
          this Section 5.14, and such change results in or will result in a
          decrease in the Tax liability of any of the Companies, Seller or
          successor of any thereof for any taxable year or period ending on or
          before the Closing Date or for the portion of any Straddle Period
          beginning before the Closing Date, Purchaser shall not be liable
          pursuant to such paragraph (a)(ii) with respect to such increase to
          the extent of the present value (using a discount rate equal to the
          then "Federal mid-term rate", as that term is defined in Section
          1274(d) of the Code) of such decrease (and, to the extent such
          increase in Tax liability is paid to a taxing authority by Purchaser
          or any Affiliate thereof, Seller shall pay Purchaser an amount equal
          to the present value of such decrease).

               (b) Tax Returns. (i) Seller shall file or cause to be filed when
          due (taking into account all extensions properly obtained all Tax
          Returns that are required to be filed by or with respect to any of the
          Companies for taxable years or periods ending on or before the Closing
          Date and Seller shall remit or cause to be remitted any Taxes due in
          respect of such Tax Returns, and Purchaser shall file or cause to be
          filed when due (taking into account all extensions properly obtained)
          all Tax Returns that are required to be filed by or with respect to
          any of the Companies for taxable years or periods ending after the
          Closing Date, and Purchaser shall remit or cause to be remitted any
          Taxes due in respect of such Tax Returns. Seller or Purchaser shall
          pay the other party for the Taxes for which Seller or Purchaser,
          respectively, is liable pursuant to paragraph (a) of this Section 5.14
          but which are payable with any Tax Return to be filed by the other
          party pursuant to this paragraph (b) upon the written request of the
          party entitled to payment, setting forth in detail the computation of
          the amount owed by Seller or Purchaser, as the case may be, but in no
          event earlier than 10 days prior to the due date for paying such Taxes
          without regard to any indemnification limitations set forth in Article
          VIII. If either Company has the right (contractually or under
          applicable Law) to review, provide comments with respect to, consent
          to the filing of or take any other action with respect to, any Tax
          Return required to be filed by or with respect to the Owner
          Participant or the Partnership, then (i) to the extent such Tax Return
          relates to a taxable year or period ending on or before the Closing
          Date, Seller shall control such Company's exercise of such right and
          (ii) to the extent such Tax Return relates to a Straddle Period,
          Purchaser shall control such Company's exercise of such right, but
          Seller shall be entitled to participate in such Company's exercise of
          such right.

               (ii) None of Purchaser or any Affiliate of Purchaser shall (or
          shall cause or permit any of the Companies to) (i) in the case of any
          Tax Return relating in whole or in part to any of the Companies with
          respect to any taxable year or period ending on or before the Closing
          Date (or with respect to any Straddle


                                       30

<PAGE>

          Period), amend, refile or otherwise modify (or grant an extension of
          any statute of limitation with respect to) such Tax Return or (ii) in
          the case of any Tax Return relating in whole or in part to the Owner
          Participant or the Partnership with respect to any taxable year or
          period ending on or before the Closing Date (or with respect to any
          Straddle Period), consent to, or otherwise exercise the rights of
          either Company (contractually or under applicable Law) with respect
          to, the amendment, refiling or other modification of (or the grant of
          any extension of any statute of limitation with respect to) any such
          Tax Return, in each case without the prior written consent of Seller,
          which consent may not be unreasonably withheld.

               (iii) Purchaser shall promptly cause each of the Companies to
          prepare and provide to Seller a package of Tax information materials
          (including, without limitation, (i) schedules and work papers and (ii)
          any Schedule K-1s delivered to the Companies by the Owner Participant
          or the Partnership, as the case may be) (the "Tax Package") required
          by Seller to enable Seller to prepare and file all Tax Returns
          required to be prepared and filed by it pursuant to paragraph (b)(i).
          The Tax Package shall be completed in accordance with past practice,
          including past practice as to providing such information and as to the
          method of computation of separate taxable income or other relevant
          measure of income of the Company. Purchaser shall cause the Tax
          Package to be delivered to Seller within 60 days after the Closing
          Date. To the extent requested by Purchaser, Seller shall provide
          reasonable assistance and guidance with respect to Purchaser's
          preparation of the Tax Package.

          (c) Contest Provisions. Purchaser shall promptly notify Seller in
writing upon receipt by Purchaser, any of its Affiliates, or any of the
Companies of notice of any pending or threatened federal, state, local or
foreign Tax audits, examinations or assessments which might affect the Tax
liabilities for which Seller may be liable pursuant to paragraph (a) of this
Section 5.14 (including, but not limited to, notice of any pending or threatened
audits, examinations or assessments involving the Owner Participant or the
Partnership which might affect the Tax liabilities for which Seller may be
liable pursuant to paragraph (a) of this Section 5.14). Seller shall have the
sole right to represent each of the Company's interests in any Tax audit or
administrative or court proceeding relating to taxable periods ending on or
before the Closing Date or otherwise relating to Taxes for which Seller may be
liable pursuant to paragraph (a) of this Section 5.14 (including, but not
limited to, the right to exercise any participation rights the Company may have
(either contractually or under applicable Law) in any Tax audit or
administrative or court proceeding involving the Owner Participant or the
Partnership which might affect the Tax liabilities for which Seller may be
liable pursuant to paragraph (a) of this Section 5.14), and to employ counsel of
its choice at its expense. In the case of a Straddle Period, Seller shall be
entitled to participate at its sole expense in any Tax audit or administrative
or court proceeding relating (in whole or in part) to Taxes attributable to the
portion of such Straddle Period ending on and including the Closing Date
(including any Tax audit or administrative or court proceeding involving the
Owner Participant or Partnership, to the extent either Company is entitled to
participate in such Tax audit or administrative or court proceeding (either
contractually or and under applicable Law)) and, with the written consent of
Purchaser, and at Seller's sole expense, may assume the entire control of such
audit or proceeding (or, in the case of any audit or proceeding involving the
Owner Participant or Partnership, the entire


                                       31

<PAGE>

participation by either Company in such audit or proceeding). None of Purchaser,
any of its Affiliates, or any of the Companies may settle any Tax claim (or
consent to or otherwise exercise the rights of either Company (contractually or
under applicable Law) with respect to the settlement of any Tax claim by the
Owner Participant or the Partnership) relating to Taxes for which Seller may be
liable pursuant to paragraph (a) of this Section 5.14 without the prior written
consent of Seller, which consent may be withheld in the sole discretion of
Seller.

          (d) Assistance and Cooperation. After the Closing Date, each of Seller
and Purchaser shall (and cause their respective Affiliates to):

               (i) assist the other party in preparing any Tax Returns which
          such other party is responsible for preparing and filing in accordance
          with paragraph (b) of this Section 5.14;

               (ii) cooperate fully in preparing for any audits of, or disputes
          with taxing authorities regarding, any Tax Returns of any of the
          Companies, the Owner Participant or the Partnership;

               (iii) make available to the other and to any taxing authority as
          reasonably requested all information, records, and documents relating
          to Taxes of each of the Companies, the Owner Participant or the
          Partnership;

               (iv) provide timely notice to the other in writing of any pending
          or threatened Tax audits or assessments of any of the Companies, the
          Owner Participant or the Partnership for taxable periods for which the
          other may have a liability under this Section 5.14;

               (v) furnish the other with copies of all correspondence received
          from any taxing authority in connection with any Tax audit or
          information request with respect to any such taxable period;

               (vi) timely sign and deliver such certificates or forms as may be
          necessary or appropriate to establish an exemption from (or otherwise
          reduce), or file Tax Returns or other reports with respect to, Taxes
          described in paragraph (a)(ii)(B) of this Section 5.6(b) (relating to
          sales, transfer and similar Taxes); and

               (vii) timely provide to the other powers of attorney or similar
          authorizations necessary to carry out the purposes of this Section
          5.14.

          5.15 Unwind Agreement. The Companies shall have been (i) completely
released from all liabilities to CMS Energy and its Affiliates under the Class I
Contracts and (ii) released from all liabilities to CMS Energy and its
Affiliates under the Class II Contracts to the extent exceeding $5,000,000 (and
a copy of such release shall have been provided to Purchaser).

          5.16 Books and Records. At the Closing, Seller shall deliver to
Purchaser copies or originals (where available) of the minute books for each
Company which are complete and correct in all material respects. As soon as
practicable following the Closing, Seller shall deliver or cause to be delivered
to Purchaser originals (where reasonably available, including


                                       32

<PAGE>

duplicate original counterparts held by former debt trustees and former counsel)
or copies of other books and records of the Companies, Seller and CMS Energy in
respect of the Partnership and the Owner Participant, in each case, listed on
any Schedule of the Disclosure Letter or otherwise made available for review by
Purchaser prior to the Closing in the electronic data room for "Project MCV"
maintained by Intralinks, Inc.

          5.17 FIRPTA Certificate. At the Closing, Purchaser shall have received
a certification of Seller's non-foreign status as set forth in Treasury
Regulations Section 1.1445-2(b).

                                   ARTICLE VI

                              CONDITIONS TO CLOSING

          6.1 Conditions to the Obligations of the Parties. The obligations of
the Parties to effect the Closing shall be subject to the satisfaction or waiver
(to the extent permitted by Law) by Purchaser and Seller, on or prior to the
Closing Date, of each of the following conditions precedent:

          (a) Statutory Approvals. The Seller Required Statutory Approvals and
the Purchaser Required Statutory Approvals set forth on Schedule 6.1(a) of the
Disclosure Letter shall have been obtained at or prior to the Closing Date and
the Seller Required Statutory Approvals shall not, individually or in the
aggregate, contain terms or conditions that have, or could reasonably be
expected to have, (i) a Company Material Adverse Effect or (ii) Purchaser
Material Adverse Effect.

          (b) No Injunction. No statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity which prohibits the
consummation of the transactions contemplated hereby and there shall be no order
or injunction of a court of competent jurisdiction in effect precluding or
prohibiting the consummation of the transactions contemplated hereby; provided,
however, that should any such order or injunction be entered into or in effect,
the parties shall use reasonable efforts (at the sole cost and expense of the
Party against which such order or injunction has been entered) to have any order
or injunction vacated or lifted.

          6.2 Conditions to the Obligation of Purchaser. The obligation of
Purchaser to effect the Closing shall be subject to the satisfaction or waiver
by Purchaser on or prior to the Closing Date of each of the following
conditions:

          (a) Performance of Obligations of Seller and the Companies. Each of
Seller and the Companies shall have performed in all Material respects its
respective agreements and covenants contained in or contemplated by this
Agreement which are required to be performed by it at or prior to the Closing.

          (b) Warranties. The warranties of Seller and the Companies set forth
in this Agreement shall be true and correct (i) on and as of the date hereof and
(ii) on and as of the Closing Date with the same effect as though such
warranties had been made on and as of the Closing Date (except for warranties
that expressly speak only as of a specific date or time which


                                       33

<PAGE>

need only be true and correct as of such date or time) except in each of cases
(i) and (ii) for such failures of warranties to be true and correct (without
giving effect to any materiality qualification or standard contained in any such
warranties) which would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect or a Seller Material Adverse
Effect.

          (c) Company Required Consents. The Company Required Consents, the
failure of which to obtain would be reasonably expected to have, individually or
in the aggregate, a Company Material Adverse Effect or a Seller Material Adverse
Effect, shall have been obtained.

          (d) Officer's Certificate. Purchaser shall have received a certificate
from an authorized officer of Seller, dated the Closing Date, to the effect
that, to the best of such officer's Knowledge, the conditions set forth in
Sections 6.2(a) and 6.2(b) have been satisfied.

          (e) Resignations of Certain Officers and Directors. Purchaser shall
have received the resignations or removals of the officers and directors and
other persons set forth on Schedule 6.2(e) of the Disclosure Letter from their
position as officer or director, or other management or employment position, of
the Companies, the Partnership or the Owner Participant set forth opposite the
name of such officer, director or person on Schedule 6.2(e) of the Disclosure
Letter.

          (f) Alanna Holding Corporation. CMS Midland shall have become (for
$1.00 of consideration) the record and beneficial owner of all shares of common
stock of Alanna Holdings Corporation presently held by CMS Energy and, in
connection therewith, CMS Midland shall have become a party to a stockholders
agreement in the form required by the Stockholder's Agreement dated as of June
14, 1990 to which CMS Energy is a party, and CMS Midland shall have assumed all
of CMS Energy's rights and obligations under such Stockholder's Agreement.

          (g) MCV2 and MCV Expansion. Purchaser shall have received an
instrument of assignment (which form is attached hereto as Exhibit C), pursuant
to which (i) CMS Generation Co. shall have assigned to Purchaser all its right,
title and interest in and to MCV2 and (ii) CMS Generation Co. shall have
assigned to Purchaser all its right, title and interest in and to MCV Expansion,
which instrument shall be effective at the Effective Time.

          (h) Closing Deliverables. Purchaser shall have received all documents
and other items required to be delivered by Seller to Purchaser pursuant to
Section 1.4.

          6.3 Conditions to the Obligation of Seller. The obligation of Seller
to effect the Closing shall be subject to the satisfaction or waiver by Seller
on or prior to the Closing Date of each of the following conditions:

          (a) Performance of Obligations of Purchaser. Purchaser shall have
performed in all Material respects its agreements and covenants contained in or
contemplated by this Agreement which are required to be performed by it at or
prior to the Closing.


                                       34

<PAGE>

          (b) Warranties. The warranties of Purchaser set forth in this
Agreement shall be true and correct (i) on and as of the date hereof and (ii) on
and as of the Closing Date with the same effect as though such warranties had
been made on and as of the Closing Date (except for warranties that expressly
speak only as of a specific date or time which need only be true and correct as
of such date or time) except in each of cases (i) and (ii) for such failures of
warranties to be true and correct (without giving effect to any materiality
qualification or standard contained in any such warranties) which would not
reasonably be expected to have, individually or in the aggregate, a Purchaser
Material Adverse Effect.

          (c) Purchaser Required Consents. The Purchaser Required Consents, the
failure of which to obtain would reasonably be expected to have, individually or
in the aggregate, a Purchaser Material Adverse Effect, shall have been obtained.

          (d) Officer's Certificate. Seller shall have received a certificate
from an authorized officer of Purchaser, dated the Closing Date, to the effect
that, to the best of such officer's Knowledge, the conditions set forth in
Sections 6.3(a) and 6.3(b) have been satisfied.

          (e) Demand Note. Seller shall have received a dividend of the
$10,000,000 demand note issued by Seller in favor of CMS Midland or such note
and the obligations thereunder shall have been cancelled without any payment by
Seller in respect thereof.

          (f) Closing Deliverables. Seller shall have received all documents and
other items required to be delivered by Purchaser to Seller pursuant to Section
1.4.

                                   ARTICLE VII

                                   TERMINATION

          7.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:

          (a) by the mutual written agreement of Purchaser, the Companies and
Seller;

          (b) by Purchaser or Seller, if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting the
consummation of the transactions contemplated hereby or (ii) an order, decree,
ruling or injunction shall have been entered permanently restraining, enjoining
or otherwise prohibiting the consummation of the transactions contemplated
hereby, and such order, decree, ruling or injunction shall have become final and
nonappealable;

          (c) by Purchaser or Seller, by written notice, if the Closing Date
shall not have occurred on or before December 31, 2006 (the "Termination Date");
provided, however, that the right to terminate the Agreement under this Section
7.1(c) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement shall have caused or resulted in the failure of
the Closing Date to occur on or before such date;


                                       35

<PAGE>

          (d) by Purchaser, so long as Purchaser is not then in breach of any of
its warranties, covenants or agreements hereunder, by written notice to Seller,
if there shall have been a breach of any warranty of Seller or the Companies, or
a breach of any covenant or agreement of Seller hereunder, which breaches would
be reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect, and such breach shall not have been remedied within
thirty (30) days after receipt by Seller and the Companies of notice in writing
from Purchaser (a "Breach Notice"), specifying the nature of such breach and
requesting that it be remedied or Purchaser shall not have received adequate
assurance of a cure of such breach within such thirty-day period; or

          (e) by Seller, so long as Seller or the Companies are not then in
breach of any of their warranties, covenants or agreements hereunder, by written
notice to Purchaser, if there shall have been a breach of any warranty, or a
breach of any covenant or agreement of Purchaser hereunder, which breaches would
reasonably be expected to have, individually or in the aggregate, a Purchaser
Material Adverse Effect, and such breach shall not have been remedied within
thirty (30) days after receipt by Purchaser of notice in writing from Seller,
specifying the nature of such breach and requesting that it be remedied or
Seller shall not have received adequate assurance of a cure of such breach
within such thirty-day period.

          7.2 Effect of Termination. No termination of this Agreement pursuant
to Section 7.1 shall be effective until notice thereof is given to the
non-terminating Parties specifying the provision hereof pursuant to which such
termination is made. Subject to Section 1.5 hereof, if validly terminated
pursuant to Section 7.1, this Agreement shall, subject to Section 8.1, become
wholly void and of no further force and effect without liability to any Party or
to any Affiliate, or their respective members or shareholders, directors,
officers, employees, agents, advisors or representatives, and following such
termination no Party shall have any liability under this Agreement or relating
to the transactions contemplated by this Agreement to any other Party; provided
that no such termination shall (i) relieve Purchaser, Seller or the Companies
from liability for fraud or any willful or intentional breach of any provision
of this Agreement prior to such termination or (ii) relieve Purchaser from any
liability for any breach of Purchaser's warranties contained in Section 4.3
(whether or not such breach is fraudulent, willful or intentional). If this
Agreement is terminated as provided in Section 7.1, Purchaser shall redeliver to
Seller or the Companies, as the case may be, and will cause its agents to
redeliver to Seller or the Companies, as the case may be, all documents,
workpapers and other materials of Seller, the Companies, the Partnership, the
Owner Participant and the Lessor relating to any of them and the transactions
contemplated hereby, whether obtained before or after the execution hereof, and
Purchaser shall comply with all of its obligations under the Confidentiality
Agreement.

                                  ARTICLE VIII

                               LIMITS OF LIABILITY

          8.1 Non-Survival of Warranties, Covenants and Agreements.

          (a) Except as expressly provided in Section 8.1(b), none of the
warranties, covenants or agreements of Purchaser, the Companies or Seller in
this Agreement shall survive the Closing, and no claim of any sort or on any
basis may be made by any Party in respect of any breach of any such warranty,
covenant or agreement after the Closing, and no breach thereof shall confer any
right of rescission of this Agreement. Except in respect of the warranties,


                                       36

<PAGE>

covenants and agreements referred to in Section 8.1(b) that survive the Closing
and except as otherwise provided for in this Agreement, the sole remedy that a
Party may have for a breach of any warranty, covenant or agreement of Purchaser,
the Companies or Seller in this Agreement shall be to terminate this Agreement
to the extent provided for under, and in accordance with the terms of, this
Agreement.

          (b) The warranties, covenants and agreements of Purchaser, Companies
and Seller in this Agreement shall survive as follows:

               (i) the warranties of Seller contained in Sections 2.2 (Company
          Capitalization; Right and Title to Interests), 2.3(a) (Authority) and
          2.6 (Composite PPA, etc.) hereof shall survive indefinitely;

               (ii) the warranties of the Companies contained in Sections 3.1(a)
          (Organization and Qualification), 3.1(b) (Authority) and 3.2
          (Capitalization) hereof shall survive indefinitely;

               (iii) the warranties of the Companies contained in Section 3.11
          (Contracts) shall survive through December 31, 2007;

               (iv) the warranties of Purchaser contained in Sections 4.2(a)
          (Authority) and 4.8 (No Knowledge of Seller or Company Breach) hereof
          shall survive indefinitely;

               (v) the covenants and agreements of Purchaser and Companies
          contained in Section 5.7 (Indemnification of Directors and Officers)
          hereof shall survive in accordance with their terms;

               (vi) the covenants and agreements of the Parties set forth in the
          last sentence of Section 5.4 (Access), Sections 5.6 (Fees and
          Expenses), 5.9 (Further Assurances) and 5.11 (Change of Name) hereof,
          Section 7.2 (Effect of Termination) hereof, Article VIII (Limits of
          Liability) hereof and Article X (General Provisions) hereof shall
          survive indefinitely;

               (vii) the covenants and agreements of the Parties contained in
          Sections 5.13 (Termination of Tax Sharing Agreements) and 5.14 (Tax
          Matters) hereof shall survive the Closing and shall not terminate
          until the Tax Statute of Limitations Date.

No claim or cause of action arising out of the inaccuracy or breach of any
warranty, covenant or agreement of Seller, the Companies or Purchaser may be
made following the termination of the applicable survival period referred to in
this Section 8.1(b). The Parties intend to change the statutory limitations and
agree that, after the Closing Date, with respect to Seller, the Companies and
Purchaser, any claim or cause of action against any of the Parties, or any of
their respective directors, officers, employees, Affiliates, successors,
permitted assigns, advisors, agents, or representatives based upon, directly or
indirectly, any of the warranties, covenants or agreements contained in this
Agreement, or any other agreement, document or instrument to be executed and
delivered in connection with this Agreement, may be brought only as expressly
provided in this Article VIII.


                                       37

<PAGE>

          (c) The liability of any Party in respect of which a notice of claim
is given under this Agreement shall (if such claim has not been previously
satisfied, settled or withdrawn) absolutely determine and any claim made therein
be deemed to have been withdrawn (and no new claim may be made in respect of the
facts, event, matter or circumstance giving rise to such withdrawn claim) unless
legal proceedings in respect of such claim shall have been commenced within six
(6) months of the date of service of such notice (or such other period as may be
agreed by the relevant Parties) and for this purpose proceedings shall not be
deemed to have commenced unless they shall have been properly issued and validly
served upon the relevant Party.

          8.2 Seller Indemnity. From and after the Closing Date and subject to
the provisions of this Article VIII, Seller agrees to indemnify, defend and hold
harmless the Purchaser Indemnified Parties, from and against any and all Damages
arising from breach of warranties of the Companies contained in Sections 3.1(a)
(Organization and Qualification), 3.1(b) (Authority), 3.2 (Capitalization) and
3.11 (Contracts) hereof, subject in each case to any limits on liability
contained in this Agreement. Sections 3.1(a), 3.1(b) and 3.2 of this Agreement
shall survive indefinitely and Section 3.11 hereof shall survive through
December 31, 2007 but Seller shall have no claim for indemnity, contribution or
subrogation against the Companies for any breach of such Sections or against any
officer of any Company that may have certified as to the matters specified in
such Sections.

          8.3 Purchaser Indemnity. From and after the Closing Date and subject
to the provisions of this Article VIII, Purchaser agrees to indemnify, defend
and hold harmless the Seller Indemnified Parties, from and against any and all
Damages arising from and after the Effective Time in connection with or relating
to the business and operation of the Companies, the Partnership, the Owner
Participant and the Lessor, arising out of or relating to conduct occurring from
and after the Effective Time only excluding Damages arising from and after the
Effective Time in connection with or relating to (i) the business and operations
of the Companies, the Partnership, the Owner Participant and the Lessor under
the Consumers Contracts or the Dow Contracts, (ii) MPSC Matters or (iii)
Specified Environmental Matters.

          8.4 Claim Process.

          (a) The party or parties making a claim for breach of warranty or
indemnification under this Agreement shall be, for the purposes of this
Agreement, referred to as the "Indemnified Party" and the party or parties
against whom such claims are asserted under this Agreement shall be, for the
purposes of this Agreement, referred to as the "Indemnifying Party".

          (b) In the event that: (i) any action, application, suit, demand,
claim or legal, administrative, arbitration or other alternative dispute
resolution proceeding, hearing or investigation (each, a "Proceeding") is
asserted or instituted by any Person other than the Parties or their Affiliates
which could give rise to Damages for which an Indemnifying Party could be liable
to an Indemnified Party under this Agreement (such Proceeding, a "Third Party
Claim") or


                                       38

<PAGE>

(ii) any Indemnified Party under this Agreement shall have a claim for Damages
under this Agreement which does not involve a Third Party Claim (such claim, a
"Direct Claim" and, together with Third Party Claims, "Claims"), the Indemnified
Party shall, promptly after it becomes aware of a Third Party Claim, or facts
supporting a Direct Claim, send to the Indemnifying Party a written notice
specifying the nature of such Proceeding and the amount or estimated amount
thereof (which amount or estimated amount shall not be conclusive of the final
amount, if any, of such Proceeding) (a "Claim Notice"), together with copies of
all notices and documents (including court papers) served on or received by the
Indemnified Party in the case of a Third Party Claim, provided that a delay in
notifying the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations under this Article VIII except to the extent that (and only to the
extent that) the Indemnifying Party shall have been materially prejudiced by
such failure to give such notice, in which case the Indemnifying Party shall be
relieved of its obligations under this Article VIII to the extent of such
material prejudice.

          (c) In the event of a Third Party Claim, the Indemnifying Party shall
have the right to defend the Indemnified Party against such Third Party Claim
and be entitled to appoint counsel of the Indemnifying Party's choice at the
expense of the Indemnifying Party to represent the Indemnified Party in
connection with such Proceeding (in which case the Indemnifying Party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by any Indemnified Party or any other costs or expenses with respect to
the defense of a Third Party Claim except as set forth below); provided that
such counsel is acceptable to the Indemnified Party, the Indemnified Party
acting reasonably. Notwithstanding an Indemnifying Party's election to defend
such Third Party Claim and appoint counsel to represent an Indemnified Party in
connection with a Third Party Claim, an Indemnified Party shall have the right
to employ separate counsel, but the Indemnifying Party shall bear the reasonable
fees, costs and expenses of such separate counsel only if (i) the use of counsel
selected by the Indemnifying Party to represent the Indemnified Party would
present such counsel with a conflict of interest or (ii) the Indemnifying Party
shall not have employed counsel to represent the Indemnified Party within a
reasonable time after notice of the institution of such Third Party Claim,
provided that, notwithstanding such failure to employ counsel within a
reasonable time, the Indemnifying Party shall have the right to assume the
defense of such Third Party Claim by appointment of counsel reasonably
acceptable to the Indemnified Party and shall thereafter cease to be responsible
for the fees and expenses of counsel appointed by the Indemnified Party. Nothing
in this Section 8.4(c) shall require the Indemnifying Party to be responsible
for the fees and expenses of more than one counsel at any time in connection
with the defense against a Third Party Claim. If requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and
its counsel in defending and contesting any Proceeding which the Indemnifying
Party defends, or, if appropriate and related to the Proceeding in question, in
making any counterclaim against the person asserting the Third Party Claim, or
any cross-complaint against any person. No Third Party Claim may be settled or
compromised (i) by the Indemnified Party without the prior written consent of
the Indemnifying Party or (ii) by the Indemnifying Party without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed), unless, in the case of this clause (ii), the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party (if such claim by the Indemnified Party for indemnification
is successful). In the event any Indemnified Party settles or compromises or
consents to the entry of any judgment with respect to any Third Party Claim
without the prior written consent of the Indemnifying Party (except in the event
the


                                       39

<PAGE>

Indemnifying Party unreasonably withheld or delayed its consent), each
Indemnified Party shall be deemed to have waived all rights against the
Indemnifying Party for indemnification under this Article VIII with respect to
such Third Party Claim.

          (d) In the event of a Direct Claim, the Indemnifying Party shall
notify the Indemnified Party within thirty (30) days of receipt of a Claim
Notice whether the Indemnifying Party disputes such claim. From and after the
delivery of a Claim Notice under this Agreement, at the reasonable request of
the Indemnifying Party, each Indemnified Party shall grant the Indemnifying
Party and its representatives reasonable access to the books, records,
employees, representatives and properties of such Indemnified Party to the
extent reasonably related to the matters to which the Claim Notice relates. If
the Indemnified Party is Purchaser, Purchaser shall cause each of the Companies,
and shall use reasonable efforts to cause each of the Partnership, the Owner
Participant and the Lessor, to grant to the Indemnifying Party the access
described in the immediately preceding sentence. All such access shall be
granted during normal business hours and shall be granted under conditions which
will not unreasonably interfere with the business and operations of the
Indemnified Party. The Indemnifying Party will not, and shall use reasonable
efforts to cause its representatives not to, use (except in connection with such
Claim Notice) or disclose to any third person other than the Indemnifying
Party's representatives (except as may be required by applicable Law) any
information obtained pursuant to this Section 8.4(d) which is designated as
confidential by an Indemnified Party.

          (e) If there shall be any conflicts between the provisions of this
Section 8.4 and Section 5.14(c) hereof, the provisions of such Section 5.14(c)
shall control with respect to Tax contests.

          8.5 Limitations on Claims.

          (a) Maximum Liability. Notwithstanding anything in this Agreement to
the contrary, but subject to the limitations set forth in this Section 8.5,
Section 10.10 hereof or otherwise in this Agreement, the aggregate amount of
Purchaser's or Seller's liability (in each case) pursuant to this Agreement and
the transactions contemplated hereby (in addition to Purchaser's obligation to
pay the Purchase Price in accordance with Article I hereof) shall not exceed the
amount of the Purchase Price plus any amounts paid by Purchaser under the SEPA
Payment Agreement and not otherwise reimbursed.

          (b) Additional Limitations.

               (i) The amount of any Damages incurred by the Indemnified Party
          shall be reduced by the net amount the Indemnified Party or any of its
          Affiliates recovers (after deducting all attorneys' fees, expenses and
          other costs of recovery) from any insurer or other party liable for
          such Damages (other than Seller). The Indemnified Party shall use
          reasonable efforts to effect any such recovery.

               (ii) The amount of any Damages incurred by the Indemnified Party
          shall be reduced by the amount of any Tax benefit to the Indemnified
          Party arising from the recognition of Damages.


                                       40

<PAGE>

               (iii) Any liability under this Agreement shall be determined
          without duplication of recovery by reason of the state of facts giving
          rise to such liability constituting a breach of more than one
          warranty, covenant or agreement.

               (iv) No recovery under this Agreement shall be available for
          Damages arising out of or relating to any inaccuracy or breach of any
          warranty of Seller or the Company to the extent Purchaser or any
          Affiliate of Purchaser had Knowledge of such breach or inaccuracy
          prior to the Closing.

               (v) No Party shall be entitled to recover Damages or obtain
          payment, reimbursement or restitution more than once in respect of any
          inaccuracy or breach of any provision of this Agreement. No liability
          shall attach to any Party under this Agreement to the extent the
          subject thereof has otherwise been made good or is compensated for.

               (vi) Seller's liability for all claims made under Section 8.2
          hereof with respect to breach of the warranties of the Companies
          contained in Section 3.11 (Contracts) shall be subject to the
          following limitations: (A) Seller shall have no liability for such
          claims until the aggregate amount of the Damages incurred (determined
          without regard to any materiality qualification or qualification with
          reference to Seller Material Adverse Effect or Company Material
          Adverse Effect) shall exceed $1,000,000, in which case Seller shall be
          liable only for the portion of the Damages exceeding such amount and
          (B) Seller's aggregate liability for all such Section 3.11-based
          claims shall not exceed 50% of the Purchase Price.

          (c) Limitation of Remedies.

               (i) Except for the warranties set forth in Articles II and III
          hereof, none of Seller, the Companies or their respective Affiliates
          nor any of their respective directors, officers, employees,
          subsidiaries, controlling persons, agents or representatives, makes or
          has made, and each of Seller, the Companies and their respective
          Affiliates and all of their respective directors, officers, employees,
          subsidiaries, controlling persons, agents or representatives hereby
          negate and disclaim, any other warranty, written or oral, statutory,
          express or implied, concerning the Shares, the business, assets or
          liabilities of any of the Companies, the Partnership, the Owner
          Participant, the Lessor, the transactions contemplated hereby, or any
          other matter in connection with Purchaser's investigation of the
          Companies, the Partnership, the Owner Participant and the Lessor.
          Purchaser has received and may continue to receive from Seller, the
          Companies and their respective representatives certain estimates,
          projections and other forecasts for the Companies, the Partnership and
          the Owner Participant and certain plan and budget information.
          Purchaser acknowledges that these estimates, projections, forecasts,
          plans and budgets and the assumptions on which they are based were
          prepared for specific purposes and may vary significantly from each
          other. Further, Purchaser acknowledges that there are uncertainties
          inherent in attempting to make such estimates, projections, forecasts,
          plans and budgets, that Purchaser is taking full responsibility for
          making its own evaluation of the


                                       41

<PAGE>

          adequacy and accuracy of all estimates, projections, forecasts, plans
          and budgets so furnished to it, and that Purchaser is not relying on
          any estimates, projections, forecasts, plans or budgets furnished by
          Seller, the Companies or their respective representatives, and
          Purchaser shall not hold any such person liable with respect thereto.
          Neither Seller nor the Companies make any representation or warranty
          with respect to any estimates, projections, forecasts, plans or
          budgets. Except as expressly provided in this Agreement, Purchaser
          acknowledges that none of Seller, the Companies, the Partnership, the
          Owner Participant, the Lessor and their respective Affiliates and none
          of their respective directors, officers, employees, subsidiaries,
          controlling persons, agents or representatives has made, and Seller
          and the Companies hereby expressly disclaim and negate, and Purchaser
          hereby expressly waives, any representation or warranty, express or
          implied, at common law, by statute or otherwise relating to, and
          Purchaser hereby expressly waives and relinquishes any and all rights,
          claims and causes of action against Seller, the Companies, the
          Partnership, the Owner Participant and the Lessor and their respective
          Affiliates and all of their respective directors, officers, employees,
          subsidiaries, controlling persons, agents or representatives in
          connection with, the accuracy, completeness or materiality of any
          information, data or other materials (written or oral) furnished to
          Purchaser or its Affiliates or representatives prior to, on or after
          the date hereof by or on behalf of Seller, the Companies, the
          Partnership, the Owner Participant and the Lessor. The provisions of
          this Section 8.5(c)(i) are intended to be for the benefit of, and be
          enforceable by, the respective Affiliates of Seller and the Companies,
          and directors, officers, employees, subsidiaries, controlling persons,
          agents and representatives of Seller, the Companies and their
          respective Affiliates.

               (ii) Except to the extent provided in Sections 5.12 and 10.12
          hereof, from and after the Closing, the rights expressly provided for
          in this Article VIII shall be the exclusive remedies of the Parties
          and their respective officers, directors, employees, Affiliates,
          agents, representatives, successors and assigns for any breach or
          inaccuracy of any warranty or breach of or noncompliance with any
          covenant or agreement contained in this Agreement and the parties
          shall not be entitled to a rescission of this Agreement or to any
          further indemnification or other rights or claims of any nature
          whatsoever (including under statute, regulation, common law, in equity
          or for negligence) in respect thereof, all of which the parties hereto
          hereby waive to the fullest extent permitted by law.

          8.6 Characterization of Payments for Damages. Purchaser and Seller
agree to treat any payment made under this Article VIII, to the maximum extent
permitted by applicable Law, as an adjustment to the Purchase Price for all Tax
purposes.


                                       42
<PAGE>

                                   ARTICLE IX

                         DEFINITIONS AND INTERPRETATION

          9.1 Defined Terms. The following terms are defined in the
corresponding Sections of this Agreement:

<TABLE>
<CAPTION>
Defined Term                             Section Reference
- ------------                             -----------------
<S>                                      <C>
Action                                   Section 5.7(a)
Affiliate Contracts                      Section 3.15
Agreed Amount                            Section 3.11(a)(ii)
Agreement                                Preamble
Breach Notice                            Section 7.1(d)
Claims                                   Section 8.4(b)
C&E Agreements                           Section 2.6
Claim Notice                             Section 8.4(b)
Closing                                  Section 1.3
Closing Date                             Section 1.3
CMS Holdings                             Preamble
CMS Holdings Shares                      Section 2.2
CMS Midland                              Preamble
CMS Midland Shares                       Section 2.2
Code                                     Section 3.5(a)
Companies                                Preamble
Company                                  Preamble
Company Financial Statements             Section 3.3
Company Material Contracts               Section 3.11(a)
Company Permits                          Section 3.9(a)
Company Required Consents                Section 3.1(c)
Company Required Statutory Approvals     Section 3.1(d)
Composite PPA                            Section 2.6
Contracting Party                        Section 3.11(a)
Direct Claim                             Section 8.4(b)
Disclosure Letter                        Article II
Dow                                      Section 3.11(a)(i)
ERISA Affiliate                          Section 3.8(a)
Excluded Taxes                           Section 5.14(a)(i)
Financing Arrangements                   Section 4.3
Indemnified Party                        Section 8.4(a)
Indemnified Person                       Section 5.7(a)
Indemnifying Party                       Section 8.4(a)
Intellectual Property                    Section 3.14
Owner Participant                        Recitals
Parties                                  Preamble
Partnership                              Recitals
Partnership Plans                        Section 3.8(a)
Proceeding                               Section 8.4(b)
Purchase Agreement Fee                   Section 1.5
Purchase Price                           Section 1.2
Purchaser                                Preamble
Purchaser Required Consents              Section 4.2(b)
Purchaser Required Statutory Approvals   Section 4.2(c)
</TABLE>


                                       43

<PAGE>

<TABLE>
<CAPTION>
Defined Term                             Section Reference
- ------------                             -----------------
<S>                                      <C>
Reg-Out Waiver Period                    Section 2.6
Securities Act                           Section 4.5
Seller                                   Preamble
Seller CA                                Section 5.5
Seller Required Consents                 Section 2.3(b)
Seller Required Statutory Approvals      Section 2.3(c)
SEPA Payment Agreement                   Section 1.4(c)
Shares                                   Section 2.2
Tax Package                              Section 5.14(b)(iii)
Termination Date                         Section 7.1(c)
Third Party Claim                        Section 8.4(b)
Transaction                              Section 1.1
Violation                                Section 2.3(b)
</TABLE>

          9.2 Definitions. Except as otherwise expressly provided in this
Agreement, or unless the context otherwise requires, whenever used in this
Agreement (including the Schedules), the following terms will have the meanings
indicated below:

          "Affiliate" means, with respect to any Person or group of Persons, a
     Person that directly or indirectly through one or more intermediaries,
     controls, is controlled by, or is under common control with such Person or
     group of Persons. "Control" (including the terms "controlled by" and "under
     common control with") means the possession, directly or indirectly, of the
     power to direct or cause the direction of the management policies of a
     Person, whether through the ownership of voting securities or other Equity
     Interests, by contract or credit arrangement, as trustee or executor, or
     otherwise. Solely for the purpose of the preceding sentence, a company is
     "directly controlled" by another company or companies holding shares
     carrying the majority of votes exercisable at a general meeting (or its
     equivalent) of the first mentioned company; and a particular company is
     "indirectly controlled" by a company or companies (hereinafter called the
     "parent company or companies") if a series of companies can be specified,
     beginning with the parent company or companies and ending with the
     particular company, so related that each company of the series except the
     parent company or companies is directly controlled by one or more of the
     preceding companies in the series.

          "Appendix A" means Appendix A to the Participation Agreement.

          "Business Day" means a day other than a Saturday, or Sunday or any
     other day on which banks are not required to be open or are authorized to
     close in New York, New York.

          "Class I Contracts" are items 1, 2, 4, 7 and 8 listed on Schedule A to
     the Unwind Agreement.

          "Class II Contracts" are (i) the Amended and Restated Investor Partner
     Tax Indemnification Agreement dated as of June 1, 1990 and (ii) items 3, 5
     (but only to the extent constituting a guaranty of such Amended and
     Restated Investor Partner Tax Indemnification Agreement) and 6 listed on
     Schedule A to the Unwind Agreement.


                                       44

<PAGE>

          "CMS Consent" means the Consent and Agreement dated as of June 1, 1990
     among Seller, the Partnership, the Lessor and certain other signatories
     thereto.

          "CMS Energy" means CMS Energy Corporation, a Michigan corporation and
     the parent entity of Seller.

          "Company Disclosure Schedules" means the Schedules setting forth
     certain disclosures of the Companies, or qualifications or exceptions to
     any of the Companies' warranties set forth in Article III, contained in the
     Disclosure Letter delivered simultaneously with the execution and delivery
     of this Agreement.

          "Company Material Adverse Effect" means any material adverse effect on
     (a) the business, assets, financial condition or results of operations of
     the Companies, the Partnership and the Owner Participant taken as a whole
     or (b) the ability of Seller to consummate the transactions contemplated by
     this Agreement or perform its obligations hereunder; provided, however,
     that (with respect to clause (a) of this definition) the term "Company
     Material Adverse Effect" shall not include effects that result from or are
     consequences of (i) changes in financial, securities or currency markets,
     changes in prevailing interest rates or foreign exchange rates, changes in
     general economic conditions, changes in electricity, gas or other fuel
     supply and transmission and transportation markets, including changes to
     market prices for electricity, steam, natural gas or other commodities, or
     effects of weather or meteorological events, (ii) changes in law, rule or
     regulation of any Governmental Entity or changes in regulatory conditions
     in the United States or any state in which the Companies, the Partnership
     or the Owner Participant operates, (iii) events or changes that are
     consequences of hostility, terrorist activity, acts of war or acts of
     public enemies, (iv) changes in accounting standards, principles or
     interpretations, (v) the negotiation, announcement, execution, delivery,
     consummation or pendency of this Agreement or the transactions contemplated
     by this Agreement or any action by Seller or its Affiliates contemplated by
     or required by this Agreement, or (vi) actions taken or not taken solely at
     the request of Purchaser.

          "Confidentiality Agreement" means, collectively, (i) the
     Confidentiality Agreement, dated as of June 12, 2006 among the Partnership,
     GSO Capital Partners LP and Rockland Capital Energy Investments LLC and
     (ii) the Seller CA.

          "Consent" means any consent, approval, authorization, order, filing,
     registration or qualification of, by or with any Person.

          "Consumers Contracts" means (i) the Consumers Contracts (as defined in
     Appendix A) and (ii) the Consumers Consent (as defined in Appendix A) as in
     effect on the date hereof.

          "Damages" means Liabilities, demands, claims, suits, actions, or
     causes of action, losses, costs, expenses, damages and judgments, whether
     or not resulting from third party claims (including reasonable fees and
     expenses of attorneys and accountants).


                                       45

<PAGE>

          "Dow Contracts" has the meaning specified in Appendix A as in effect
     on the date hereof.

          "Effective Time" means such time on the Closing Date at which the
     Transaction and the other transactions contemplated by this Agreement are
     consummated.

          "Environmental Law" means any foreign, federal, state, or local Law
     relating to (a) the treatment, disposal, emission, discharge, Release or
     threatened Release of Hazardous Substances or (b) the preservation and
     protection of the environment (including natural resources, air and surface
     or subsurface land or waters).

          "Equity Interests" means shares of capital stock or other equity
     interests.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
     amended.

          "Financing Facility" means debt instruments incurred by the
     Partnership, if any, and leveraged lease debt.

          "FMLP Partnership Agreement" means the Amended and Restated Agreement
     of Limited Partnership dated as of June 14, 1990 among the parties
     signatory thereto.

          "GAAP" means United States generally accepted accounting principles.

          "Governmental Entity" means any supranational, national, federal,
     state, municipal or local governmental or quasi-governmental or regulatory
     authority (including a national securities exchange or other
     self-regulatory body), agency, court, commission or other similar entity,
     domestic or foreign.

          "Governmental Order" means any order, decree, ruling, injunction,
     judgment or similar act of or by any Governmental Entity.

          "Hazardous Substance" means (a) any material, substance or waste
     (whether liquid, gaseous or solid) that (i) requires removal, remediation
     or reporting under any Environmental Law, or is listed, classified or
     regulated as a "hazardous waste" or "hazardous substance" (or other similar
     term) pursuant to any applicable Environmental Law or (ii) is regulated
     under applicable Environmental Laws as being, toxic, explosive, corrosive,
     flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
     hazardous and (b) any petroleum product or by-product, petroleum-derived
     substances wastes or breakdown products, asbestos or polychlorinated
     biphenyls.

          "Knowledge" when used with respect to the applicable Company, means
     the actual knowledge of any fact, circumstance or condition of those
     officers of such Company or its Affiliates set forth on Schedule 9.2(a) of
     the Disclosure Letter and to the extent set forth on Schedule 9.2(a) of the
     Disclosure Letter; when used with respect to CMS Midland, means the actual
     knowledge of any fact, circumstance or condition of those individuals set
     forth on Schedule 9.2(a) of the Disclosure Letter and to the extent set
     forth on Schedule 9.2(a) of the Disclosure Letter; when used with respect
     to CMS


                                       46

<PAGE>

     Holdings, means the actual knowledge of any fact, circumstance or condition
     of those individuals set forth on Schedule 9.2(a) of the Disclosure Letter
     and to the extent set forth on Schedule 9.2(a) of the Disclosure Letter;
     when used with respect to Seller, means the actual knowledge of any fact,
     circumstance or condition of those officers of Seller or its Affiliates set
     forth on Schedule 9.2(a) of the Disclosure Letter and to the extent set
     forth on Schedule 9.2(a) of the Disclosure Letter; and when used with
     respect to Purchaser, means the actual knowledge of any fact, circumstance
     or condition of those officers of Purchaser or its Affiliates set forth on
     Schedule 9.2(b) of the Disclosure Letter and to the extent set forth on
     Schedule 9.2(b) of the Disclosure Letter.

          "Law" means any law, statute, ordinance, regulation or rule of or by
     any Governmental Entity or any arbitrator.

          "Lessor" means Bank of America, N.A., as successor in interest to The
     Connecticut National Bank, not in its individual capacity but solely as
     Owner Trustee under the Trust Agreement.

          "Liabilities" means any and all known liabilities or indebtedness of
     any nature (whether direct or indirect, absolute or contingent, liquidated
     or unliquidated, due or to become due, accrued or unaccrued, matured or
     unmatured, asserted or unasserted, determined or determinable and whenever
     or however arising).

          "Lien" means any lien, claim, security interest, encumbrance or other
     adverse claim.

          "Material" when used with respect to the applicable Company, means
     material to CMS Midland and the Partnership, taken as a whole, or to CMS
     Holdings, the Owner Participant and the Lessor, taken as a whole, and when
     used with respect to Purchaser, means material to Purchaser and its
     Subsidiaries, taken as a whole.

          "MCV2" means MCV2 Development Company, a Michigan general partnership.

          "MCV Expansion" means Midland Cogeneration Venture Expansion, LLC, a
     Delaware limited liability company.

          "MCV Facility" means the 1,500 MW natural gas-fired, combined-cycle,
     cogeneration facility located in Midland County, Michigan operated by the
     Partnership.

          "MCV Partnership Agreement" means that certain Amended and Restated
     Limited Partnership Agreement of the Partnership, dated as of June 13,
     1988, by and among CMS Midland, Tempco I, Inc., Tempco II, Inc., Rofan
     Energy Inc., Micogen Limited Partnership, MEI Limited Partnership, Source
     Midland Limited Partnership, Coastal Midland, Inc. and C-E Midland Energy,
     Inc. in effect on the date hereof (including Amendment No. 4 thereto to be
     entered into on or about the date hereof).

          "MPSC Matters" means any past or future proceeding, order or
     settlement with respect to the MCV Facility or a Consumers Contract before
     any Governmental Entity involving the nature or extent of MPSC authority,
     the recovery in retail rates of costs under the Composite PPA or any past
     settlement, order or proceeding relating to the Composite PPA or recovery
     in rates of Composite PPA costs.


                                       47

<PAGE>

          "Operating Contract" means any contract or agreement (i) providing for
     the purchase, sale, supply, transportation, disposal or distribution of
     electricity, steam, fuel or any byproduct from electricity generation, (ii)
     for the operation and maintenance of any assets of the Companies and (iii)
     governing any Facility output or input.

          "Organizational Documents" means, with respect to any corporation, its
     articles or certificate of incorporation, memorandum or articles of
     association and by-laws or documents of similar substance; with respect to
     any limited liability company, its articles or certificate of organization,
     formation or association and its operating agreement or limited liability
     company agreement or documents of similar substance; with respect to any
     limited partnership, its certificate of limited partnership and partnership
     agreement or documents of similar substance; and with respect to any other
     entity, documents of similar substance to any of the foregoing.

          "Participation Agreement" means the Amended and Restated Participation
     Agreement (Trust 1) dated as of June 1, 1990 between the Partnership, the
     Owner Participant and certain other parties signatory thereto in effect on
     the date hereof.

          "Permits" means all permits, licenses, franchises, registrations,
     variances, authorizations, Consents, orders, certificates and approvals
     obtained from or otherwise made available by any Governmental Entity or
     pursuant to any Law.

          "Permitted Liens" means any Lien arising under the Organizational
     Documents of any of the Companies, the Partnership or the Owner
     Participant, as applicable.

          "Person" means any natural person, firm, partnership, association,
     corporation, company, joint venture, trust, business trust, Governmental
     Entity or other entity.

          "Purchaser Disclosure Schedules" means Schedules 4.2(b), 4.2(c), 4.3
     and 4.4 setting forth disclosures of Purchaser, or qualifications or
     exceptions to any of Purchaser's warranties set forth in Article IV
     delivered simultaneously with the execution and delivery of this Agreement
     by Purchaser.

          "Purchaser Indemnified Parties" means Purchaser, Purchaser's
     Affiliates, and their respective directors, officers, shareholders,
     attorneys, accountants, representatives, agents and employees, and their
     respective heirs, successors and assigns.

          "Purchaser Material Adverse Effect" means any material adverse effect
     on (a) the business, assets, financial condition or results of operations
     of Purchaser and its Subsidiaries taken as a whole or (b) the ability of
     Purchaser to consummate the transactions contemplated by this Agreement or
     perform its obligations hereunder.

          "RCA" means the Resource Conservation Agreement dated as of February
     12, 2004, by and between the Partnership and Seller.


                                       48

<PAGE>

          "RDA" means the Reduced Dispatched Agreement dated as of July 7, 2004,
     by and between the Partnership and Seller.

          "Release" means the release, spill, emission, leaking, pumping,
     pouring, emptying, escaping, dumping, injection, deposit, disposal,
     discharge, dispersal, leaching or migrating of any Hazardous Substance into
     the environment.

          "Seller Indemnified Parties" means Seller, Seller's Affiliates, and
     their respective directors, officers, shareholders, attorneys, accountants,
     representatives, agents and employees, and their respective heirs,
     successors and assigns.

          "Seller Material Adverse Effect" means, with respect to Seller, any
     material adverse effect on the ability of Seller to consummate the
     transactions contemplated by this Agreement or perform its obligations
     hereunder.

          "Seller Disclosure Schedules" means the Schedules setting forth
     certain disclosures of Seller, or qualifications or exceptions to any of
     Seller's warranties set forth in Article II, contained in the Disclosure
     Letter delivered simultaneously with the execution and delivery of this
     Agreement.

          "Specified Environmental Matters" means matters addressed in any
     environmental agreement or environmental indemnification agreement as in
     effect on the date hereof where Seller, CMS Energy and/or Dow has a hold
     harmless and indemnity obligation in respect of an environmental matter
     relating to the site of the MCV Facility, excluding, however, matters to
     the extent that such matters attributable to the business and operations of
     the Companies, the Partnership, the Owner Participant and/or the Lessor
     from and after the Effective Time.

          "Specified Rate" means the per annum rate of interest published as the
     "Prime Rate" in The Wall Street Journal determined as of the date the
     obligation to pay interest arises.

          "Straddle Period" shall mean any taxable year or period beginning on,
     or before and ending after the Closing Date.

          "Subsidiary" means, with respect to any Person (for the purposes of
     this definition, the "parent"), any other Person (other than a natural
     person), whether incorporated or unincorporated, of which at least a
     majority of the securities or ownership interests having by their terms
     ordinary voting power to elect a majority of the board of directors or
     other persons performing similar functions is directly or indirectly owned
     or controlled by the parent or by one or more of its respective
     Subsidiaries or by the parent and any one or more of its respective
     Subsidiaries.

          "Tax" or "Taxes" means federal, state, local or foreign income, gross
     receipts, property, sales, use, license, excise, environmental (including
     taxes under Code Section 59A), stamp, franchise, employment, payroll,
     withholding, social security (or similar), unemployment, property, personal
     property, alternative or add-on minimum, ad valorem, value added, transfer
     or excise tax, or any other tax, custom, duty, governmental fee or other
     like assessment or charge of any kind whatsoever, together with any
     interest or penalty, whether disputed or not, imposed by any Governmental
     Entity.


                                       49

<PAGE>

          "Tax Returns" means all tax returns, declarations, statements,
     reports, claims for refund, schedules, forms and information returns and
     any amendments, schedules or attachments to any of the foregoing relating
     to Taxes.

          "Tax Statute of Limitations Date" means the close of business on the
     45th day after the expiration of the applicable statute of limitations with
     respect to Taxes, including any extensions thereof (or if such date is not
     a Business Day, the next Business Day).

          "Trading Contract" means any swap, forward, option or hedging
     agreement relating to the purchase or sale of energy-related products and
     services.

          "Trust Agreement" means the Amended and Restated Trust Agreement dated
     as of March 1, 1990 between the Owner Participant and the Lessor.

          "Unwind Agreement" means the Unwind Agreement dated as of December 10,
     1991 among CMS Energy, Seller, the Companies and MEC Development Corp. and
     included as Schedule 9.2(c) of the Disclosure Letter.

          9.3 Interpretation. In this Agreement, unless otherwise specified, the
following rules of interpretation apply:

          (a) references to Sections, Schedules, Annexes, Exhibits and Parties
are references to sections or sub-sections, schedules, annexes and exhibits of,
and parties to, this Agreement;

          (b) the section and other headings contained in this Agreement are for
reference purposes only and do not affect the meaning or interpretation of this
Agreement;

          (c) words importing the singular include the plural and vice versa;

          (d) references to the word "including" do not imply any limitation;

          (e) the words "hereof", "herein" and "hereunder" and words of similar
import, when used in this Agreement, refer to this Agreement as a whole and not
to any particular provision of this Agreement; and

          (f) references to "$" or "dollars" refer to U.S. dollars.


                                       50

<PAGE>

                                    ARTICLE X

                               GENERAL PROVISIONS

          10.1 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given on if (a) delivered
personally, (b) mailed by certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery, or (d) sent by fax or telegram,
as follows:

          (a) if to Purchaser,

                    MCV Power Partners, Inc.
                    c/o GSO Capital Partners, LP
                    280 Park Avenue
                    11th Floor East Tower
                    New York, New York 10023
                    Fax: 212-503-6930
                    Telephone: 212-503-2100
                    Attention: D. Dwight Scott

                    with a copy to:

                    Rockland Capital Energy
                    Investments, LLC
                    2204 Timberlock Place, Suite 190
                    The Woodlands, TX 77380
                    Fax: 832-585-0104
                    Telephone: 832-585-0035
                    Attention: W. Scott Harlan

          (b) if to Seller,

                    Consumers Energy Company
                    One Energy Plaza
                    Jackson, MI 49201
                    Fax: (517) 788-0768
                    Telephone: (517) 788-1257
                    Attention: James E. Brunner

                    with a copy to:

                    Sidley Austin LLP
                    One South Dearborn
                    Chicago, IL 60603
                    Fax: (312) 853-7036
                    Telephone: (312) 853-7324
                    Attention: Andrew H. Shaw

          (c) if to CMS Midland,

                    CMS Midland Holdings Company
                    One Energy Plaza
                    Jackson, MI 49201
                    Fax: (517) 788-0768
                    Telephone: (517) 788-1257
                    Attention: James E. Brunner


                                       51

<PAGE>

                    with a copy to:

                    Sidley Austin LLP
                    One South Dearborn
                    Chicago, IL 60603
                    Fax: (312) 853-7036
                    Telephone: (312) 853-7324
                    Attention: Andrew H. Shaw

          (d) If to CMS Holdings,

                    CMS Midland Holdings Company
                    One Energy Plaza
                    Jackson, MI 49201
                    Fax: (517) 788-0768
                    Telephone: (517) 788-1257
                    Attention: James E. Brunner

                    with a copy to:

                    Sidley Austin LLP
                    One South Dearborn
                    Chicago, IL 60603
                    Fax: (312) 853-7036
                    Telephone: (312) 853-7324
                    Attention: Andrew H. Shaw

or, in each case, at such other address as may be specified in writing to the
other Parties.

     All such notices, requests, demands, waivers and other communications shall
be deemed to have been received, if by personal delivery, certified or
registered mail or next-day or overnight mail or delivery, on the day delivered
or, if by fax or telegram, on the next Business Day following the day on which
such fax or telegram was sent, provided that a copy is also sent by certified or
registered mail. For the purposes of this Section 10.1, notice to any of the
Companies shall not constitute notice to Seller, and vice versa.

          10.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective heirs, successors and permitted
assigns.

          10.3 Assignment; Successors; Third-Party Beneficiaries. (a) This
Agreement is not assignable by any Party without the prior written consent of
all of the other Parties and any attempt to assign this Agreement without such
consent shall be void and of no effect; provided, however, no consent shall be
required with respect to any merger or conversion contemplated in Schedule 1.6
of the Disclosure Letter.


                                       52

<PAGE>

          (b) This Agreement shall inure to the benefit of, and be binding on
and enforceable by and against, the successors and permitted assigns of the
respective Parties, whether or not so expressed.

          (c) This Agreement is intended for the benefit of the Parties hereto
and does not grant any rights to any third parties unless specifically stated
herein.

          10.4 Amendment; Waivers; etc. No amendment, modification or discharge
of this Agreement, and no waiver under this Agreement, shall be valid or binding
unless set forth in writing and duly executed by the Party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the Party
granting such waiver in any other respect or at any other time. The waiver by
any of the Parties of a breach of or a default under any of the provisions of
this Agreement, or any failure or delay to exercise any right or privilege under
this Agreement, shall not be construed as a waiver thereof or otherwise affect
any of such provisions, rights or privileges under this Agreement.

          10.5 Entire Agreement.

          (a) This Agreement (including the Schedules and Exhibits referred to
in or delivered under this Agreement, including the Disclosure Letter) and the
Confidentiality Agreement contains the entire agreement between the parties
relating to the subject matter of this Agreement to the exclusion of any terms
implied by law which may be excluded by contract and supersedes all prior
agreements and understandings, both written and oral, among the Parties with
respect to their subject matters. Each Party acknowledges that it has not been
induced to enter this Agreement by and, in agreeing to enter into this
Agreement, it has not relied on, any warranties except as expressly stated or
referred to in this Agreement.

          (b) The liability of a Party shall be limited or excluded as set out
in this Agreement if and to the extent such limitations or exclusions apply,
save in the event of fraud, fraudulent misrepresentation, death or personal
injury.

          10.6 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the Parties agree that the court
making such determination, to the greatest extent legally permissible, shall
have the power to reduce the scope, duration, area or applicability of the term
or provision, to delete specific words or phrases, or to replace any invalid,
void or unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.


                                       53

<PAGE>

          10.7 Counterparts. This Agreement may be executed and delivered
(including via facsimile) in several counterparts, each of which shall be deemed
an original and all of which shall together constitute one and the same
instrument.

          10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
ANY CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.

          10.9 Jurisdiction.

          (a) The courts of the State of New York are to have non-exclusive
jurisdiction to settle any dispute arising out of or in connection with this
Agreement. Any Proceedings shall be brought in the courts of the State of New
York sitting in the County of New York, the court of the United States of
America for the Southern District, and appellate courts having jurisdiction of
appeals from any of the foregoing. Each Party waives (and agrees not to raise)
any objection, on the ground of forum non conveniens or on any other ground, to
the taking of proceedings in such courts. Each Party also agrees that a judgment
against it in Proceedings brought in the State of New York shall be conclusive
and binding upon it and may be enforced in any other jurisdiction.

          (b) Each Party irrevocably submits and agrees to submit to the
jurisdiction of the courts of the State of New York sitting in the County of New
York, the court of the United States of America for the Southern District, and
appellate courts having jurisdiction of appeals from any of the foregoing.

          10.10 Limitation on Damages. No Party shall, under any circumstance,
have any liability to any other Party for any special, indirect, consequential
or punitive damages claimed by such other Party under the terms of or due to any
breach or non-performance of this Agreement, including lost profits, loss of
revenue or income, cost of capital, or loss of business reputation or
opportunity.

          10.11 Enforcement. The Parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not to be
performed in accordance with the terms hereof and that the Parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedies at law or in equity.

          10.12 No Right of Set-Off. Purchaser, for itself and its successors
and permitted assigns, hereby unconditionally and irrevocably waives any rights
of set-off, netting, offset, recoupment, or similar rights that such Purchaser
or any of its successors and permitted assigns has or may have with respect to
the payment of the Purchase Price or any other payments to be made by Purchaser
pursuant to this Agreement or any other document or instrument delivered by
Purchaser in connection herewith.


                                       54

<PAGE>

     IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the
date first above written.

                                        CONSUMERS ENERGY COMPANY


                                        By: /s/ Thomas J. Webb
                                            ------------------------------------
                                        Name: Thomas J. Webb
                                        Title: Executive Vice President and
                                               Chief Financial Officer


                                        CMS MIDLAND, INC.


                                        By: /s/ Thomas J. Webb
                                            ------------------------------------
                                        Name: Thomas J. Webb
                                        Title: Executive Vice President and
                                               Chief Financial Officer


                                        CMS MIDLAND HOLDINGS COMPANY


                                        By: /s/ Thomas J. Webb
                                            ------------------------------------
                                        Name: Thomas J. Webb
                                        Title: Executive Vice President and
                                               Chief Financial Officer


                                        MCV POWER PARTNERS, INC.


                                        By: /s/ D. Dwight Scott
                                            ------------------------------------
                                        Name: D. Dwight Scott
                                        Title: Vice President


                                       55
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>5
<FILENAME>k06781exv31wxay.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATION OF CEO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(a)
                         CERTIFICATION OF DAVID W. JOOS


I, David W. Joos, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
           Corporation;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer and I are responsible for
           establishing and maintaining disclosure controls and procedures (as
           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal
           control over financial reporting (as defined in Exchange Act Rules
           13a-15(f) and 15d-15(f)) for the registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
           such disclosure controls and procedures to be designed under our
           supervision, to ensure that material information relating to the
           registrant, including its consolidated subsidiaries, is made known to
           us by others within those entities, particularly during the period in
           which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
           caused such internal control over financial reporting to be designed
           under our supervision, to provide reasonable assurance regarding the
           reliability of financial reporting and the preparation of financial
           statements for external purposes in accordance with generally
           accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
           controls and procedures and presented in this report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the end of the period covered by this report based on such
           evaluation; and

                  d) Disclosed in this report any change in the registrant's
           internal control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

       5.  The registrant's other certifying officer and I have disclosed, based
           on our most recent evaluation of internal control over financial
           reporting, to the registrant's auditors and the audit committee of
           registrant's board of directors (or persons performing the equivalent
           functions):

                  a) All significant deficiencies and material weaknesses in the
           design or operation of internal control over financial reporting
           which are reasonably likely to adversely affect the registrant's
           ability to record, process, summarize and report financial
           information; and

                  b) Any fraud, whether or not material, that involves
           management or other employees who have a significant role in the
           registrant's internal control over financial reporting.


Dated:  August 4, 2006                        By:        /s/ David W. Joos
                                                    ----------------------------
                                                             David W. Joos
                                                             President and
                                                       Chief Executive Officer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>6
<FILENAME>k06781exv31wxby.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATION OF CFO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(b)

                         CERTIFICATION OF THOMAS J. WEBB


I, Thomas J. Webb, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
           Corporation;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer and I are responsible for
           establishing and maintaining disclosure controls and procedures (as
           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal
           control over financial reporting (as defined in Exchange Act Rules
           13a-15(f) and 15d--15(f)) for the registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
           such disclosure controls and procedures to be designed under our
           supervision, to ensure that material information relating to the
           registrant, including its consolidated subsidiaries, is made known to
           us by others within those entities, particularly during the period in
           which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
           caused such internal control over financial reporting to be designed
           under our supervision, to provide reasonable assurance regarding the
           reliability of financial reporting and the preparation of financial
           statements for external purposes in accordance with generally
           accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
           controls and procedures and presented in this report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the end of the period covered by this report based on such
           evaluation; and

                  d) Disclosed in this report any change in the registrant's
           internal control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

       5.  The registrant's other certifying officer and I have disclosed, based
           on our most recent evaluation of internal control over financial
           reporting, to the registrant's auditors and the audit committee of
           registrant's board of directors (or persons performing the equivalent
           functions):

                  a) All significant deficiencies and material weaknesses in the
           design or operation of internal control over financial reporting
           which are reasonably likely to adversely affect the registrant's
           ability to record, process, summarize and report financial
           information; and

                  b) Any fraud, whether or not material, that involves
           management or other employees who have a significant role in the
           registrant's internal control over financial reporting.


Dated:  August 4, 2006                      By         /s/ Thomas J. Webb
                                                 -------------------------------
                                                           Thomas J. Webb
                                                    Executive Vice President and
                                                      Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(C)
<SEQUENCE>7
<FILENAME>k06781exv31wxcy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATION OF CEO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(c)

                         CERTIFICATION OF DAVID W. JOOS


I, David W. Joos, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of Consumers
           Energy Company;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer and I are responsible for
           establishing and maintaining disclosure controls and procedures (as
           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal
           control over financial reporting (as defined in Exchange Act Rules
           13a-15(f) and 15d--15(f)) for the registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
           such disclosure controls and procedures to be designed under our
           supervision, to ensure that material information relating to the
           registrant, including its consolidated subsidiaries, is made known to
           us by others within those entities, particularly during the period in
           which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
           caused such internal control over financial reporting to be designed
           under our supervision, to provide reasonable assurance regarding the
           reliability of financial reporting and the preparation of financial
           statements for external purposes in accordance with generally
           accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
           controls and procedures and presented in this report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the end of the period covered by this report based on such
           evaluation; and

                  d) Disclosed in this report any change in the registrant's
           internal control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

       5.  The registrant's other certifying officer and I have disclosed, based
           on our most recent evaluation of internal control over financial
           reporting, to the registrant's auditors and the audit committee of
           registrant's board of directors (or persons performing the equivalent
           functions):

                  a) All significant deficiencies and material weaknesses in the
           design or operation of internal control over financial reporting
           which are reasonably likely to adversely affect the registrant's
           ability to record, process, summarize and report financial
           information; and

                  b) Any fraud, whether or not material, that involves
           management or other employees who have a significant role in the
           registrant's internal control over financial reporting.


Dated:  August 4, 2006                          By:       /s/ David W. Joos
                                                     ---------------------------
                                                            David W. Joos
                                                       Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(D)
<SEQUENCE>8
<FILENAME>k06781exv31wxdy.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATION OF CFO TO SECTION 302
<TEXT>
<PAGE>
                                                                 Exhibit (31)(d)

                         CERTIFICATION OF THOMAS J. WEBB


I, Thomas J. Webb, certify that:

       1.  I have reviewed this quarterly report on Form 10-Q of Consumers
           Energy Company;

       2.  Based on my knowledge, this report does not contain any untrue
           statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this report;

       3.  Based on my knowledge, the financial statements, and other financial
           information included in this report, fairly present in all material
           respects the financial condition, results of operations and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

       4.  The registrant's other certifying officer and I are responsible for
           establishing and maintaining disclosure controls and procedures (as
           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal
           control over financial reporting (as defined in Exchange Act Rules
           13a-15(f) and 15d-15(f)) for the registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
           such disclosure controls and procedures to be designed under our
           supervision, to ensure that material information relating to the
           registrant, including its consolidated subsidiaries, is made known to
           us by others within those entities, particularly during the period in
           which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
           caused such internal control over financial reporting to be designed
           under our supervision, to provide reasonable assurance regarding the
           reliability of financial reporting and the preparation of financial
           statements for external purposes in accordance with generally
           accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
           controls and procedures and presented in this report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the end of the period covered by this report based on such
           evaluation; and

                  d) Disclosed in this report any change in the registrant's
           internal control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

       5.  The registrant's other certifying officer and I have disclosed, based
           on our most recent evaluation of internal control over financial
           reporting, to the registrant's auditors and the audit committee of
           registrant's board of directors (or persons performing the equivalent
           functions):

                  a) All significant deficiencies and material weaknesses in the
           design or operation of internal control over financial reporting
           which are reasonably likely to adversely affect the registrant's
           ability to record, process, summarize and report financial
           information; and

                  b) Any fraud, whether or not material, that involves
           management or other employees who have a significant role in the
           registrant's internal control over financial reporting.


Dated:  August 4, 2006                        By     /s/ Thomas J. Webb
                                               ---------------------------------
                                                        Thomas J. Webb
                                                  Executive Vice President and
                                                    Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(A)
<SEQUENCE>9
<FILENAME>k06781exv32wxay.txt
<DESCRIPTION>CMS ENERGY CORPORATION'S CERTIFICATIONS TO SECTION 906
<TEXT>
<PAGE>
                                                                 Exhibit (32)(a)

                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report on Form 10-Q of CMS Energy Corporation
(the "Company") for the quarterly period ended June 30, 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:   August 4, 2006

  /s/ Thomas J. Webb
- -------------------------------------------
Name:   Thomas J. Webb
Title:  Executive Vice President and
        Chief Financial Officer
Date:   August 4, 2006

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(B)
<SEQUENCE>10
<FILENAME>k06781exv32wxby.txt
<DESCRIPTION>CONSUMERS ENERGY COMPANY'S CERTIFICATIONS TO SECTION 906
<TEXT>
<PAGE>
                                                                 Exhibit (32)(b)


                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report on Form 10-Q of Consumers Energy Company
(the "Company") for the quarterly period ended June 30, 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:   August 4, 2006

   /s/ Thomas J. Webb
- --------------------------------------------
Name:   Thomas J. Webb
Title:  Executive Vice President and
        Chief Financial Officer
Date:   August 4, 2006

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
