10-Q 1 k49436e10vq.htm FORM 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010
OR

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

For the transition period from to

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CMS Energy Corporation: Yes þ No o Consumers Energy Company: Yes þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
CMS Energy Corporation: Yes þ No o Consumers Energy Company: Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
CMS Energy Corporation:

Large accelerated filer þ |  | Accelerated filer o |  | Non-Accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o

Consumers Energy Company:

Large accelerated filer o |  | Accelerated filer o |  | Non-Accelerated filer þ (Do not check if a smaller reporting company) |  | Smaller reporting company o

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 o No þ Consumers Energy Company: Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July 16, 2010:
CMS Energy Corporation:

CMS Energy Common Stock, $0.01 par value |  |  | 230,179,070

Consumers Energy Company:

Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation |  |  | 84,108,789

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CMS Energy Corporation
Consumers Energy Company
Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended
June 30, 2010
TABLE OF CONTENTS

|  | Page |
Glossary |  |  | 3 |
Filing Format |  |  | 7 |
Forward-Looking Statements and Information |  |  | 7 |
PART I — FINANCIAL INFORMATION |  |  |  |
Item 1. Financial Statements (unaudited) |  |  |  |
CMS Energy Corporation |  |  | 32 |
Consumers Energy Company |  |  | 40 |
Notes to Consolidated Financial Statements |  |  | 47 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  | 12 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |  |  | 82 |
Item 4. Controls and Procedures |  |  | 82 |
PART II — OTHER INFORMATION |  |  |  |
Item 1. Legal Proceedings |  |  | 82 |
Item 1A. Risk Factors |  |  | 82 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  |  | 83 |
Item 3. Defaults Upon Senior Securities |  |  | 83 |
Item 5. Other Information |  |  | 83 |
Item 6. Exhibits |  |  | 84 |
Signatures |  |  | 86 |
EX-10.1
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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

2008 Energy Legislation |  | Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524
2009 Form 10-K |  | Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2009
ALJ |  | Administrative Law Judge
AOC |  | Administrative Order on Consent
AOCL |  | Accumulated Other Comprehensive Loss
ASU |  | FASB Accounting Standards Update
Bay Harbor |  | A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor.
bcf |  | Billion cubic feet of gas
Beeland |  | Beeland Group LLC, a wholly owned subsidiary of CMS Land
Big Rock |  | Big Rock Point nuclear power plant, formerly owned by Consumers
CAIR |  | The Clean Air Interstate Rule
Cantera Gas Company |  | Cantera Gas Company LLC, a non-affiliated company
Cantera Natural Gas, Inc. |  | Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services
CCB |  | Coal combustion by-product
CEO |  | Chief Executive Officer
CFO |  | Chief Financial Officer
Chrysler |  | Chrysler LLC, a non-affiliated company
CKD |  | Cement kiln dust
Clean Air Act |  | Federal Clean Air Act, as amended
Clean Water Act |  | Federal Water Pollution Control Act
CMS Capital |  | CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
CMS Energy |  | CMS Energy Corporation, the parent of Consumers and CMS Enterprises
CMS Energy Common Stock or common stock |  | Common stock of CMS Energy, par value $0.01 per share
CMS Energy Trust I |  | A VIE and a wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy
CMS Enterprises |  | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM |  | CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises
CMS Field Services |  | CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission
CMS Gas Transmission |  | CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
CMS Land |  | CMS Land Company, a wholly owned subsidiary of CMS Capital

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CMS MST |  | CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004
CMS Oil and Gas |  | CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises
CMS Viron |  | CMS Viron Corporation, a wholly owned subsidiary of CMS ERM
Consumers |  | Consumers Energy Company, a wholly owned subsidiary of CMS Energy
Customer Choice Act |  | Customer Choice and Electricity Reliability Act, a Michigan statute
Detroit Edison |  | The Detroit Edison Company, a non-affiliated company
D.C. |  | District of Columbia
DOE |  | U.S. Department of Energy
DOJ |  | U.S. Department of Justice
EnerBank |  | EnerBank USA, a wholly owned subsidiary of CMS Capital
Entergy |  | Entergy Corporation, a non-affiliated company
EPA |  | U.S. Environmental Protection Agency
EPS |  | Earnings per share
Exchange Act |  | Securities Exchange Act of 1934, as amended
FASB |  | Financial Accounting Standards Board
FDIC |  | Federal Deposit Insurance Corporation
FERC |  | The Federal Energy Regulatory Commission
FLI Liquidating Trust |  | Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity
FMB |  | First mortgage bond
FOV |  | Finding of Violation
GAAP |  | U.S. Generally Accepted Accounting Principles
GCR |  | Gas cost recovery
Genesee |  | Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
GM |  | General Motors Corporation, a non-affiliated company
Grayling |  | Grayling Generating Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
GWh |  | Gigawatt-hour (a unit of energy equal to one million kilowatt-hours)
HYDRA-CO |  | HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises
IPP |  | Independent power producer or independent power production
IRS |  | Internal Revenue Service
ISFSI |  | Independent spent fuel storage installation
ITC |  | Income tax credit
kWh |  | Kilowatt-hour (a unit of energy equal to one thousand watt-hours)
LIBOR |  | The London Interbank Offered Rate

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Ludington |  | Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison
Marathon |  | Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company
MBT |  | Michigan Business Tax
MD&A |  | Management’s Discussion and Analysis
MDL |  | A pending multi-district litigation case in Nevada
MDNRE |  | Michigan Department of Natural Resources and Environment, which, effective January 17, 2010, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources
MGP |  | Manufactured gas plant
MISO |  | The Midwest Independent Transmission System Operator, Inc.
MPSC |  | Michigan Public Service Commission
MW |  | Megawatt (a unit of power equal to one million watts)
MWh |  | Megawatt-hour (a unit of energy equal to one million watt-hours)
NAV |  | Net asset value
NOMECO |  | CMS NOMECO Oil & Gas Co., a former wholly owned subsidiary of CMS Enterprises
NOV |  | Notice of Violation
NREPA |  | Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation
NSR |  | New Source Review, a construction-permitting program under the Clean Air Act
NYMEX |  | The New York Mercantile Exchange
OPEB |  | Postretirement benefit plans other than pensions
Palisades |  | Palisades nuclear power plant, formerly owned by Consumers
Panhandle |  | Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas Transmission
PCB |  | Polychlorinated biphenyl
Pension Plan |  | Trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers, and CMS Energy
PFD |  | Proposal for decision
PPA |  | Power purchase agreement
PSCR |  | Power supply cost recovery
PSD |  | Prevention of Significant Deterioration
QSPE |  | Qualifying special-purpose entity
REC |  | Renewable energy credit established under the 2008 Energy Legislation
RMRR |  | Routine maintenance, repair, and replacement
ROA |  | Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act
SEC |  | U.S. Securities and Exchange Commission

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SERP |  | Supplemental Executive Retirement Plan
SFAS |  | Statement of Financial Accounting Standards
Superfund |  | Comprehensive Environmental Response, Compensation and Liability Act
Supplemental Environmental Programs |  | Environmentally beneficial projects which a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform
T.E.S. Filer City |  | T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
Title V |  | A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S.
Trunkline |  | Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS Panhandle Holding, LLC
Trust Preferred Securities |  | Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts
TSU |  | Texas Southern University, a non-affiliated entity
Union |  | Utility Workers Union of America, AFL-CIO
U.S. |  | United States
VIE |  | Variable interest entity

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FILING FORMAT
This combined Form 10-Q is separately filed by CMS Energy and Consumers. Information in this combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ securities and holders of such securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.
This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the 2009 Form 10-K.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers 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 CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control the following, all of which are potentially significant:

| • |  | the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;
| • |  | the impact of the troubled economy, particularly in Michigan, and the risk of future volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their:

| • |  | revenues;
| • |  | capital expenditure programs and related earnings growth;
| • |  | ability to collect accounts receivable from customers;
| • |  | cost of capital and availability of capital; and
| • |  | Pension Plan and postretirement benefit plans assets and required contributions;

| • |  | changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;

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| • |  | population decline in the geographic areas where CMS Energy and Consumers conduct business;
| • |  | changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s and Consumers’ businesses or financial results, including the impact of any future regulations or laws regarding:

| • |  | carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system;
| • |  | criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants;
| • |  | CCBs;
| • |  | PCBs;
| • |  | cooling water discharge from power plants or other industrial equipment;
| • |  | limitations on the use or construction of coal-fueled electric power plants;
| • |  | renewable portfolio standards and energy efficiency mandates; and
| • |  | any other potential legislative changes, including changes to the ten-percent ROA limit;

| • |  | national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;
| • |  | adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;
| • |  | potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including:

| • |  | sufficient and timely recovery of:

| • |  | environmental and safety-related expenditures for coal-fueled plants and other utility properties;
| • |  | power supply and natural gas supply costs;
| • |  | operating and maintenance expenses;
| • |  | additional utility rate-based investments;
| • |  | costs associated with the proposed retirement and decommissioning of facilities;
| • |  | development costs of the proposed coal-fueled plant;
| • |  | MISO energy and transmission costs; and
| • |  | costs associated with energy efficiency investments and state or federally mandated renewable resource standards;

| • |  | actions of regulators with respect to expenditures subject to tracking mechanisms;
| • |  | actions of regulators to prevent or curtail shutoffs for non-paying customers;
| • |  | actions of regulators with respect to the implementation of the “pilot” decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order and the “pilot” decoupling mechanism described in the May 2010 MPSC gas rate case order;
| • |  | regulatory orders preventing or curtailing rights to self-implement rate requests;
| • |  | regulatory orders potentially requiring a refund of previously self-implemented rates; and
| • |  | implementation of new energy legislation or revisions of existing regulations;

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| • |  | potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times;
| • |  | loss of customer load to alternative energy suppliers;
| • |  | potentially adverse regulatory treatment concerning significant matters affecting CMS Energy or Consumers that are presently before the MDNRE, including Bay Harbor;
| • |  | the ability of Consumers to recover its regulatory assets in full and in a timely manner;
| • |  | the effectiveness of the electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues;
| • |  | the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE;
| • |  | the impact of expanded enforcement powers and investigation activities at FERC;
| • |  | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;
| • |  | effects of weather conditions, such as unseasonably warm weather during the winter, on sales;
| • |  | the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates;
| • |  | the credit ratings of CMS Energy or Consumers;
| • |  | the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;
| • |  | potential effects of financial reform legislation on regulation of energy derivatives and financial institutions such as EnerBank;
| • |  | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers, and the ability of Consumers to recover the costs of any such insurance from customers;
| • |  | 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, and their impact on CMS Energy’s and Consumers’ cash flows and working capital;
| • |  | the effectiveness of CMS Energy’s and Consumers’ strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities;
| • |  | changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program;

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| • |  | factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals;
| • |  | costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities;
| • |  | factors affecting 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;
| • |  | potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;
| • |  | technological developments in energy production, delivery, usage, and storage;
| • |  | achievement of capital expenditure and operating expense goals, including the 2010 capital expenditures forecast;
| • |  | the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections;
| • |  | potential effects of new federal health care legislation on current or future health care costs;
| • |  | the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures;
| • |  | CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages;
| • |  | adverse outcomes regarding tax positions;
| • |  | adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;
| • |  | the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;
| • |  | earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts;
| • |  | changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting;
| • |  | new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements;

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| • |  | a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and
| • |  | other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

For additional details regarding these and other uncertainties, see the “Outlook” section included in MD&A, Note 3, Contingencies and Commitments, Note 4, Utility Rate Matters, Note 10, Income Taxes, and Part II, Item 1A. Risk Factors.

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CMS Energy Corporation
Consumers Energy Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers. It 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 MD&A contained in the 2009 Form 10-K.
EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic IPP. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, owns power generation facilities.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services, electric distribution and generation, gas transmission, storage, and distribution, and other energy-related services. Their businesses are affected primarily by:

| • |  | regulation and regulatory matters;
| • |  | economic conditions;
| • |  | weather;
| • |  | energy commodity prices;
| • |  | interest rates; and
| • |  | CMS Energy’s and Consumers’ securities credit ratings.

During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.
Consumers’ forecast calls for capital investments of about $7 billion from 2010 through 2014, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional PPAs to complement existing generating sources; potential retirement or mothballing of older generating units; and continued operation of others.
In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession in Michigan, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers has not set a timetable for a future decision about the project.

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Consumers’ planned capital investments continue to include renewable energy projects. Consumers expects to spend $650 million on renewable energy investments through 2014. The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.
Consumers also intends to make a significant capital investment in its smart grid program, which will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers plans to follow a phased implementation approach and to conduct an operational pilot of the smart grid technology in 2011.
Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. In February 2010, the MPSC issued an order requiring that Consumers refund to customers $86 million collected during a rate freeze from 2001 to 2003; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed an appeal of this order. In May 2010, the MPSC issued a gas rate order authorizing Consumers to increase its gas rates by $66 million based on an authorized return on equity of 10.55 percent. The order also adopts a revenue decoupling mechanism. Further, in July 2010, Consumers self-implemented an electric rate increase in the annual amount of $150 million, subject to refund with interest. In its July 2010 order allowing Consumers to self-implement this increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of previous overcollections of self-implemented rate increases.
The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from alternative electric suppliers. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase the percentage from ten percent to 25 percent. At June 30, 2010, electric deliveries under the ROA program were at the ten percent limit.
Another area of importance for CMS Energy and Consumers is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in December 2009, the EPA issued an endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA also issued an Advance Notice of Proposed Rulemaking in April 2010, indicating that it is considering a variety of regulatory actions with respect to PCBs. In June 2010, the EPA proposed a range of alternatives for regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. In July 2010, the EPA released a proposed rule that would replace CAIR. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.

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CMS Energy will continue to focus its strategy on:

| • |  | investing in Consumers’ utility system;
| • |  | growing earnings and operating cash flow while controlling operating and fuel costs; and
| • |  | maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

In executing this strategy, CMS Energy and Consumers will need to overcome a Michigan economy that has been impacted adversely by the uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler, as well as by high unemployment rates. The financial market crisis, the effects of which became evident in a global economic downturn beginning in 2008, continues to result in a negative economic outlook in the near term. A range of possible outcomes exists due to the uncertain progress of economic recovery in Consumers’ service territory. Pressure on regulators to limit rate increases can be expected to mount if Michigan’s economy remains sluggish. Consumers expects that the electric and gas “pilot” decoupling mechanisms and the uncollectible expense tracking mechanism for electric customers adopted in recent MPSC rate orders will mitigate partially the impacts of these economic conditions on the electric and gas utilities. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they will continue to monitor developments in the financial and credit markets and government policy responses to those developments for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.

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RESULTS OF OPERATIONS
CMS Energy’s Consolidated Results of Operations

In Millions (except for per share amounts) |
Three months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Income Available to Common Stockholders |  | $ | 80 |  |  | $ | 75 |  |  | $ | 5 |
Basic Earnings Per Share |  | $ | 0.35 |  |  | $ | 0.33 |  |  | $ | 0.02 |
Diluted Earnings Per Share |  | $ | 0.32 |  |  | $ | 0.32 |  |  | $ | — |

In Millions |
Three months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Electric Utility |  | $ | 86 |  |  | $ | 67 |  |  | $ | 19 |
Gas Utility |  |  | 1 |  |  |  | 5 |  |  |  | (4 | )
Enterprises |  |  | 33 |  |  |  | (13 | ) |  |  | 46 |
Corporate Interest and Other |  |  | (24 | ) |  |  | (9 | ) |  |  | (15 | )
Discontinued Operations |  |  | (16 | ) |  |  | 25 |  |  |  | (41 | )
Net Income Available to Common Stockholders |  | $ | 80 |  |  | $ | 75 |  |  | $ | 5 |

For the three months ended June 30, 2010, net income available to common stockholders was $80 million, compared with $75 million for 2009. Specific after-tax changes to net income available to common stockholders for the three months ended June 30, 2010 versus 2009 are:

2010 over/(under) 2009
|  |  |  |  |  | (In Millions)
• |  |  | insurance settlement related to a previously sold investment |  | $ | 30 |
• |  |  | absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009 |  |  | 22 |
• |  |  | increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms |  |  | 18 |
• |  |  | other net increases at Consumers due to lower service restoration costs, outage costs, and other operating expenses |  |  | 15 |
• |  |  | increase in electric revenues due to weather |  |  | 11 |
• |  |  | absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation |  |  | (31 | )
• |  |  | absence of a gain on the retirement of debt recorded in 2009 |  |  | (18 | )
• |  |  | other net decreases, primarily from tax adjustments and impairments related to discontinued operations |  |  | (13 | )
• |  |  | decrease in gas revenue due to weather |  |  | (10 | )
• |  |  | decrease in electric and gas revenues due to unfavorable sales mix and economic conditions |  |  | (10 | )
• |  |  | other net decreases at Consumers, primarily higher depreciation expense and sales and use tax |  |  | (9 | )
Total change |  | $ | 5 |

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##### Table of Contents

In Millions (except for per share amounts) |
Six months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Income Available to Common Stockholders |  | $ | 165 |  |  | $ | 145 |  |  | $ | 20 |
Basic Earnings Per Share |  | $ | 0.72 |  |  | $ | 0.64 |  |  | $ | 0.08 |
Diluted Earnings Per Share |  | $ | 0.67 |  |  | $ | 0.62 |  |  | $ | 0.05 |

In Millions |
Six months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Electric Utility |  | $ | 127 |  |  | $ | 106 |  |  | $ | 21 |
Gas Utility |  |  | 67 |  |  |  | 64 |  |  |  | 3 |
Enterprises |  |  | 42 |  |  |  | (12 | ) |  |  | 54 |
Corporate Interest and Other |  |  | (54 | ) |  |  | (37 | ) |  |  | (17 | )
Discontinued Operations |  |  | (17 | ) |  |  | 24 |  |  |  | (41 | )
Net Income Available to Common Stockholders |  | $ | 165 |  |  | $ | 145 |  |  | $ | 20 |

For the six months ended June 30, 2010, net income available to common stockholders was $165 million, compared with $145 million for 2009. Specific after-tax changes to net income available to common stockholders for the six months ended June 30, 2010 versus 2009 are:

2010 over/(under) 2009
|  |  |  |  | (In Millions)
• |  |  | increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms |  | $ | 55 |
• |  |  | insurance settlement related to a previously sold investment |  |  | 30 |
• |  |  | absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009 |  |  | 22 |
• |  |  | other net increase at Consumers due to lower service restoration costs, outage costs, and other operating expenses |  |  | 21 |
• |  |  | other net increases, primarily higher mark-to-market gains and increased power demand at the enterprises segment |  |  | 8 |
• |  |  | increase in electric revenues due to weather |  |  | 7 |
• |  |  | absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation |  |  | (31 | )
• |  |  | decrease in electric and gas revenue due to unfavorable sales mix and economic conditions |  |  | (23 | )
• |  |  | decrease in gas revenue due to weather |  |  | (22 | )
• |  |  | absence of a gain on the retirement of debt recorded in 2009 |  |  | (18 | )
• |  |  | other net decreases, primarily from tax adjustments and impairments related to discontinued operations |  |  | (15 | )
• |  |  | decrease at Consumers due to costs associated with the voluntary separation plan |  |  | (7 | )
• |  |  | other net decreases at Consumers, primarily higher depreciation expense and sales and use tax |  |  | (7 | )
Total change |  | $ | 20 |

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##### Table of Contents

Consumers’ Electric Utility Results of Operations

In Millions |
June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Income Available to Common Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 86 |  |  | $ | 67 |  |  | $ | 19 |
Six months ended |  | $ | 127 |  |  | $ | 106 |  |  | $ | 21 |

|  | Three Months Ended |  |  | Six Months Ended |
Reasons for the change: |  | June 30, 2010 vs. 2009 |  |  | June 30, 2010 vs. 2009 |
Electric deliveries and rate increase |  | $ | 75 |  |  | $ | 101 |
Power supply costs and related revenue |  |  | (1 | ) |  |  | (11 | )
Other income, net of expenses |  |  | (5 | ) |  |  | (8 | )
Maintenance and other operating expenses |  |  | (28 | ) |  |  | (34 | )
Depreciation and amortization |  |  | (11 | ) |  |  | (12 | )
General taxes |  |  | 2 |  |  |  | — |
Interest charges |  |  | (4 | ) |  |  | (6 | )
Income taxes |  |  | (9 | ) |  |  | (9 | )
Total change |  | $ | 19 |  |  | $ | 21 |

Electric deliveries and rate increase: For the three months ended June 30, 2010, electric delivery revenues increased $75 million compared with 2009. The increase was due to $14 million of additional revenues resulting from the November 2009 rate order and other rate-related items of $21 million, which included the impacts of the decoupling mechanism that became effective in December 2009. Also contributing to the increase was $5 million from higher deliveries, which included the impact of favorable weather in 2010. These increases were offset partially by a $5 million decrease in revenues from an unfavorable sales mix. Overall, deliveries to end-use customers were 9.0 billion kWh, an increase of 0.6 billion kWh or 7.1 percent compared with 2009.
Additionally, surcharge revenues and related reserves increased $40 million for the three months ended June 30, 2010 compared with 2009, due to $26 million from the collection of regulatory assets related to retirement benefits, an $8 million increase related to the energy optimization program, and a $6 million increase in other surcharge revenue.
For the six months ended June 30, 2010, electric delivery revenues increased $101 million compared with 2009. The increase was due to $46 million of additional revenues resulting from the November 2009 rate order and other rate-related items of $37 million, which included the impacts of the decoupling mechanism that became effective in December 2009. These increases were offset partially by a $9 million decrease in revenues from an unfavorable sales mix, including the impact of customers switching from demand rates to energy only rates. Additionally, revenues decreased $17 million due to lower deliveries to Consumers’ high margin customers, offset partially by increases due to favorable weather in 2010. Overall, deliveries to end-use customers were 18.1 billion kWh, an increase of 0.7 billion kWh or 4.0 percent compared with 2009.
Additionally, surcharge revenues and related reserves increased $44 million for the six months ended June 30, 2010 compared with 2009, due to $26 million from the collection of regulatory assets related to retirement benefits, a $14 million increase related to the energy optimization program, and a $4 million increase in other surcharge revenue.

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##### Table of Contents

Power supply costs and related revenue: For the three months ended June 30, 2010, PSCR revenue decreased $1 million compared with 2009, due to a decrease in wholesale fuel recovery revenue.
For the six months ended June 30, 2010, PSCR revenue decreased $11 million compared with 2009, reflecting an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case.
Other income, net of expenses: For the three months ended June 30, 2010, other income decreased $5 million compared with 2009, and for the six months ended June 30, 2010, other income decreased $8 million compared with 2009. These decreases were due to a reduction in interest income recorded on certain regulatory assets and the absence in 2010 of a gain recognized on a sale of land in 2009.
Maintenance and other operating expenses: For the three months ended June 30, 2010, maintenance and other operating expenses increased $28 million compared with 2009. The increase was due to $26 million of higher retirement benefits expenses, which were recovered in revenue in 2010, and an $8 million increase associated with the energy optimization program. Also contributing to the increase was $6 million in uncollectible accounts expense. These increases were offset partially by a $5 million reduction in expenses for forestry and tree-trimming services and a $7 million decrease in service restoration expenses, health care costs, and other net operating expenses.
For the six months ended June 30, 2010, maintenance and other operating expenses increased $34 million compared with 2009. The increase was due to $26 million of higher retirement benefits expenses, which were recovered in revenue in 2010, a $14 million increase associated with the energy optimization program, and an $8 million increase in uncollectible accounts expense. Also contributing to the increase was $6 million of voluntary separation plan expenses in 2010. These increases were offset partially by a $7 million reduction in expenses for forestry and tree-trimming services and a $13 million decrease in service restoration expenses, health care costs, and other net operating expenses.
Depreciation and amortization: For the three months ended June 30, 2010, depreciation and amortization expense increased $11 million compared with 2009, and for the six months ended June 30, 2010, depreciation and amortization expense increased $12 million compared with 2009, due to higher depreciation expense from increased plant in service and higher amortization expense on certain regulatory assets.
General taxes: For the three months ended June 30, 2010, general taxes decreased $2 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.
Interest charges: For the three months ended June 30, 2010, interest charges increased $4 million compared with 2009. The increase resulted from interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies,” offset partially by lower debt levels in 2010.
For the six months ended June 30, 2010, interest charges increased $6 million compared with 2009. The increase resulted from interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” Also contributing to the increase was additional interest incurred as a result of an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case. These increases were offset partially by lower debt levels in 2010.

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##### Table of Contents

Income taxes: For each of the three and six months ended June 30, 2010, income taxes increased $9 million compared with 2009, due to higher electric utility earnings in 2010.
Consumers’ Gas Utility Results of Operations

In Millions |
June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Income Available to Common Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 1 |  |  | $ | 5 |  |  | $ | (4 | )
Six months ended |  | $ | 67 |  |  | $ | 64 |  |  | $ | 3 |

|  | Three Months Ended |  |  | Six Months Ended |
Reasons for the change: |  | June 30, 2010 vs. 2009 |  |  | June 30, 2010 vs. 2009 |
Gas deliveries and rate increase |  | $ | (2 | ) |  | $ | 19 |
Other income, net of expenses |  |  | 2 |  |  |  | 4 |
Maintenance and other operating expenses |  |  | (3 | ) |  |  | (9 | )
Depreciation and amortization |  |  | — |  |  |  | (1 | )
General taxes |  |  | 3 |  |  |  | 2 |
Interest charges |  |  | (5 | ) |  |  | (7 | )
Income taxes |  |  | 1 |  |  |  | (5 | )
Total change |  | $ | (4 | ) |  | $ | 3 |

Gas deliveries and rate increase: For the three months ended June 30, 2010, gas delivery revenues decreased $2 million compared with 2009. The decrease was due to lower deliveries of $9 million, which included the impact of milder weather. This decrease was offset partially by $1 million of additional revenue from the May 2010 rate order and a $6 million increase in surcharge revenues related to the energy optimization program. Gas deliveries, including miscellaneous transportation to end-use customers, were 36.8 bcf, a decrease of 4.0 bcf or 9.8 percent compared with 2009.
For the six months ended June 30, 2010, gas delivery revenues increased $19 million compared with 2009. The increase resulted from $28 million of additional revenue from the May 2010 rate order and $8 million from a favorable sales mix. Additionally, surcharge revenues were $16 million higher in 2010, due to a $13 million increase related to the energy optimization program and $3 million from the collection of regulatory assets related to retirement benefits. These increases were offset partially by lower deliveries of $33 million due to milder weather. Gas deliveries, including miscellaneous transportation to end-use customers, were 155.9 bcf, a decrease of 15.6 bcf or 9.1 percent compared with 2009.
Other income, net of expenses: For the three months ended June 30, 2010, other income increased $2 million compared with 2009, and for the six months ended June 30, 2010, other income increased $4 million compared with 2009. These increases were due to increased interest income related to secured borrowing agreements.
Maintenance and other operating expenses: For the three months ended June 30, 2010, maintenance and other operating expenses increased $3 million compared with 2009. The increase was due to additional expenses of $6 million related to the energy optimization program and a $3 million increase in uncollectible accounts expense. These increases were offset partially by a $6 million reduction in health care costs and other net operating expenses.

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##### Table of Contents

For the six months ended June 30, 2010, maintenance and other operating expenses increased $9 million compared with 2009. The increase was due to additional expenses of $13 million related to the energy optimization program, $4 million of voluntary separation plan expenses, and higher expenses of $3 million associated with retirement benefits, which were recovered in revenue in 2010. These increases were offset partially by lower uncollectible accounts expense of $3 million and an $8 million reduction in health care costs and other net operating expenses.
Depreciation and amortization: For the six months ended June 30, 2010, depreciation and amortization expense increased $1 million compared with 2009, due primarily to an increase in plant in service.
General taxes: For the three months ended June 30, 2010, general taxes decreased $3 million compared with 2009, resulting from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.”
For the six months ended June 30, 2010, general taxes decreased $2 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.
Interest charges: For the three months ended June 30, 2010, interest charges increased $5 million compared with 2009, and for the six months ended June 30, 2010, interest charges increased $7 million compared with 2009, due primarily to interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.”
Income taxes: For the three months ended June 30, 2010, income taxes decreased $1 million compared with 2009. The change reflects $2 million due to lower gas utility earnings in 2010, offset partially by a $1 million increase in MBT expense.
For the six months ended June 30, 2010, income taxes increased $5 million compared with 2009. The change reflects $2 million due to higher gas utility earnings in 2010 and a $3 million increase in MBT expense.

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##### Table of Contents

Enterprises Results of Operations

In Millions |
June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Income Available to Common Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 33 |  |  | $ | (13 | ) |  | $ | 46 |
Six months ended |  | $ | 42 |  |  | $ | (12 | ) |  | $ | 54 |

For the three months ended June 30, 2010, the enterprises segment reported net income of $33 million compared with a net loss of $13 million for the same period in 2009. The $46 million change reflects after-tax income of $30 million from the settlement of an insurance claim related to a previously sold South American investment and the absence of an environmental remediation charge of $22 million recorded in 2009 related to Bay Harbor. These items were offset partially by a net decrease of $6 million due to the absence of a gain recorded in 2009 on the expiration of an indemnity provided in connection with a previous asset sale, and the absence of benefits related to a 2009 legal settlement associated with a gas sales and purchase contract.
For the six months ended June 30, 2010, the enterprises segment reported net income of $42 million compared with a net loss of $12 million for the same period in 2009. The $54 million change reflects after-tax income of $30 million from the settlement of the insurance claim related to the previously sold South American investment and the absence of the environmental remediation charge of $22 million recorded in 2009 related to Bay Harbor. An additional increase of $8 million reflects increased demand for power at higher prices, higher income from equity-method investments, and a net increase in mark-to-market gains. These items were offset partially by a decrease of $6 million due to the absence of a gain recorded in 2009 on the expiration of an indemnity provided in connection with a previous asset sale, and the absence of benefits related to a 2009 legal settlement associated with a gas sales and purchase contract.
Corporate Interest and Other Results of Operations

In Millions |
June 30 |  | 2010 |  |  | 2009 |  |  | Change |
Net Loss Available to Common Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | (24 | ) |  | $ | (9 | ) |  | $ | (15 | )
Six months ended |  | $ | (54 | ) |  | $ | (37 | ) |  | $ | (17 | )

For the three months ended June 30, 2010, corporate interest and other net expenses increased $15 million compared with 2009 due to the absence of an $18 million gain recognized in 2009 on the early retirement of CMS Energy’s long-term debt, related parties, offset partially by $3 million of lower professional and administrative expenses.
For the six months ended June 30, 2010, corporate interest and other net expenses increased $17 million compared with 2009 due to the absence of an $18 million gain recognized in 2009 on the early retirement of CMS Energy’s long-term debt, related parties, offset partially by $1 million of lower professional and administrative expenses.
Discontinued Operations
For each of the three months and six months ended June 30, 2010, earnings from discontinued operations decreased $41 million compared with 2009. The decrease was due to the absence of a $28 million gain recognized in 2009 on the expiration of an indemnity provided in connection with a 2007 asset sale, the recognition in 2010 of $10 million in additional tax expense resulting from an IRS audit adjustment related to a 2003 asset sale, and a $3 million increase in a liability for a 2007 asset sale indemnity.

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##### Table of Contents

CAPITAL RESOURCES AND LIQUIDITY
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing opportunities, if needed. Recent major financing transactions and commitments are as follows:

| • |  | In January 2010, CMS Energy issued $300 million of 6.25 percent senior notes due 2020;
| • |  | In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040; and
| • |  | In June 2010, CMS Energy’s $239 million of 4.50 percent preferred stock and $139 million of 3.375 percent senior notes became convertible at the holders’ option for the third quarter of 2010.

Despite present market volatility, CMS Energy and Consumers expect to continue to have access to the financial and capital markets. Recent and upcoming credit renewals and maturities are as follows:

| • |  | In February 2010, Consumers renewed its accounts receivable sales program through February 2011;
| • |  | Consumers’ tax-exempt pollution control revenue bond maturities were $58 million in June 2010;
| • |  | Consumers’ $150 million revolving credit facility is planned for renewal in August 2010;
| • |  | Consumers’ $30 million Letter of Credit Reimbursement Agreement is planned for renewal in November 2010;
| • |  | Consumers’ FMBs maturities were $250 million in May 2010 and are $300 million in 2012;
| • |  | Consumers’ $500 million revolving credit facility is planned for renewal prior to its expiration in 2012;
| • |  | CMS Energy’s senior notes maturities are $67 million in August 2010, $214 million in 2011, and $150 million in 2012; and
| • |  | CMS Energy’s $550 million revolving credit facility is planned for renewal prior to its expiration in 2012.

CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 5, Financings.
Cash Position, Investing, and Financing
At June 30, 2010, CMS Energy had $558 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents. At June 30, 2010, Consumers had $342 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents.
CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $168 million in common stock dividends to CMS Energy for the six months ended June 30, 2010. For details on dividend restrictions, see Note 5, Financings.

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##### Table of Contents

Operating Activities: Specific components of net cash provided by operating activities for the six months ended June 30, 2010 and 2009 were:

In Millions |
Six months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
• Net income |  | $ | 172 |  |  | $ | 154 |  |  | $ | 18 |
• Non-cash transactions (a) |  |  | 539 |  |  |  | 436 |  |  |  | 103 |
|  | $ | 711 |  |  | $ | 590 |  |  | $ | 121 |
• Sale of gas purchased in the prior year |  |  | 474 |  |  |  | 576 |  |  |  | (102 | )
• Purchase of gas in the current year |  |  | (274 | ) |  |  | (293 | ) |  |  | 19 |
• Accounts receivable sales, net |  |  | (50 | ) |  |  | (170 | ) |  |  | 120 |
• Change in other core working capital (b) |  |  | 299 |  |  |  | 243 |  |  |  | 56 |
• Other changes in assets and liabilities, net |  |  | (112 | ) |  |  | (146 | ) |  |  | 34 |
Net cash provided by operating activities |  | $ | 1,048 |  |  | $ | 800 |  |  | $ | 248 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
• Net income |  | $ | 195 |  |  | $ | 171 |  |  | $ | 24 |
• Non-cash transactions (a) |  |  | 398 |  |  |  | 447 |  |  |  | (49 | )
|  | $ | 593 |  |  | $ | 618 |  |  | $ | (25 | )
• Sale of gas purchased in the prior year |  |  | 474 |  |  |  | 576 |  |  |  | (102 | )
• Purchase of gas in the current year |  |  | (274 | ) |  |  | (293 | ) |  |  | 19 |
• Accounts receivable sales, net |  |  | (50 | ) |  |  | (170 | ) |  |  | 120 |
• Change in other core working capital (b) |  |  | 300 |  |  |  | 247 |  |  |  | 53 |
• Other changes in assets and liabilities, net |  |  | (60 | ) |  |  | (125 | ) |  |  | 65 |
Net cash provided by operating activities |  | $ | 983 |  |  | $ | 853 |  |  | $ | 130 |

(a) |  | Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items.
(b) |  | Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable.

For the six months ended June 30, 2010, net cash provided by operating activities at CMS Energy increased $248 million compared with 2009. The increase was due to higher net income, net of non-cash transactions, at the enterprises segment and to changes affecting Consumers’ cash provided by operating activities described in the following paragraph.
For the six months ended June 30, 2010, net cash provided by operating activities at Consumers increased $130 million compared with 2009. The increase was due primarily to higher accounts receivable collections from customers in 2010.

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##### Table of Contents

Investing Activities: Specific components of cash used in investing activities for the six months ended June 30, 2010 and 2009 were:

In Millions
Six months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
• Capital expenditures |  | $ | (424 | ) |  | $ | (409 | ) |  | $ | (15 | )
• Cash effect of deconsolidation of partnerships |  |  | (10 | ) |  |  | — |  |  |  | (10 | )
• Costs to retire property and other |  |  | (56 | ) |  |  | (24 | ) |  |  | (32 | )
Net cash used in investing activities |  | $ | (490 | ) |  | $ | (433 | ) |  | $ | (57 | )
Consumers |  |  |  |  |  |  |  |  |  |  |  |
• Capital expenditures |  | $ | (423 | ) |  | $ | (404 | ) |  | $ | (19 | )
• Costs to retire property and other |  |  | (21 | ) |  |  | (16 | ) |  |  | (5 | )
Net cash used in investing activities |  | $ | (444 | ) |  | $ | (420 | ) |  | $ | (24 | )

For the six months ended June 30, 2010, net cash used in investing activities at CMS Energy increased $57 million compared with 2009. For the six months ended June 30, 2010, net cash used in investing activities at Consumers increased $24 million compared with 2009. Both increases reflect higher capital expenditures at Consumers.
Financing Activities: Specific components of net cash (used in) provided by financing activities for the six months ended June 30, 2010 and 2009 were:

In Millions
Six months ended June 30 |  | 2010 |  |  | 2009 |  |  | Change |
CMS Energy, including Consumers |  |  |  |  |  |  |  |
• Issuance of FMBs, convertible senior notes, senior notes, and other debt |  | $ | 421 |  |  | $ | 1,062 |  |  | $ | (641 | )
• Retirement of debt and other debt maturity payments |  |  | (407 | ) |  |  | (528 | ) |  |  | 121 |
• Payments of common and preferred stock dividends |  |  | (74 | ) |  |  | (63 | ) |  |  | (11 | )
• Other financing activities |  |  | (51 | ) |  |  | (26 | ) |  |  | (25 | )
Net cash (used in) provided by financing activities |  | $ | (111 | ) |  | $ | 445 |  |  | $ | (556 | )
Consumers |  |  |  |  |  |  |  |  |  |  |  |
• Issuance of FMBs |  | $ | — |  |  | $ | 500 |  |  | $ | (500 | )
• Retirement of debt and other debt maturity payments |  |  | (327 | ) |  |  | (218 | ) |  |  | (109 | )
• Stockholder’s contribution |  |  | 250 |  |  |  | 100 |  |  |  | 150 |
• Payments of common and preferred stock dividends |  |  | (169 | ) |  |  | (131 | ) |  |  | (38 | )
• Other financing activities |  |  | (12 | ) |  |  | (16 | ) |  |  | 4 |
Net cash (used in) provided by financing activities |  | $ | (258 | ) |  | $ | 235 |  |  | $ | (493 | )

For the six months ended June 30, 2010, net cash used in financing activities at CMS Energy totaled $111 million, and for the six months ended June 30, 2009, net cash provided by financing activities totaled $445 million. The $556 million change was due primarily to a decrease in net proceeds from borrowing.
For the six months ended June 30, 2010, net cash used in financing activities at Consumers totaled $258 million, and for the six months ended June 30, 2009, net cash provided by financing activities totaled $235 million. The $493 million change was due primarily to debt maturities and a decrease in net proceeds from borrowings, offset partially by a stockholder’s contribution from CMS Energy.
For additional details on long-term debt activity, see Note 5, Financings.

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##### Table of Contents

Retirement Benefits
The following table provides the most recent estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions for the next three years.

|  |  |  |  |  |  |  |  |  |  |  |  |  | In Millions
|  | Pension Cost |  |  | OPEB Cost |  |  | Pension Contribution |  |  | OPEB Contribution |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |
2010 |  | $ | 107 |  |  | $ | 61 |  |  | $ | 100 |  |  | $ | 71 |
2011 |  |  | 114 |  |  |  | 51 |  |  |  | 89 |  |  |  | 61 |
2012 |  |  | 110 |  |  |  | 48 |  |  |  | 142 |  |  |  | 51 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2010 |  | $ | 104 |  |  | $ | 63 |  |  | $ | 97 |  |  | $ | 70 |
2011 |  |  | 111 |  |  |  | 53 |  |  |  | 86 |  |  |  | 60 |
2012 |  |  | 107 |  |  |  | 50 |  |  |  | 137 |  |  |  | 50 |

In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.
In April 2010, Consumers reached an agreement with the Union on a new five-year contract for Union members. The agreement changed postretirement health benefits under the OPEB plan for qualifying retired employees. As a result, CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010.
For additional details on retirement benefits, see Note 9, Retirement Benefits.
Obligations And Commitments
Revolving Credit Facilities: For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 5, Financings.
Dividend Restrictions: For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 5, Financings.
Off-Balance-Sheet Arrangements
CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 3, Contingencies and Commitments, “Guarantees.”

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OUTLOOK
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see “Forward-Looking Statements and Information,” Note 3, Contingencies and Commitments, and Part II, Item 1A. Risk Factors.
Consumers’ Electric Utility Business Outlook and Uncertainties
Balanced Energy Initiative: Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through:

| • |  | energy efficiency;
| • |  | demand management;
| • |  | expanded use of renewable energy;
| • |  | development of new power plants and pursuit of additional PPAs to complement existing generating sources; and
| • |  | potential retirement or mothballing of older generating units.

In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers will monitor customer demand, fuel and power prices, and other market conditions, but has not set a timetable for a future decision about the project. Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, relying upon additional market purchases, as well as continued operation of several existing generating units; however, Consumers continues to believe that new clean coal generating capacity will be in the long-term best interests of its customers as part of a balanced energy portfolio.
Renewable Energy Plan: Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Legislation. This legislation requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.6 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable energy resource. The legislation also requires Consumers to obtain 500 MW of capacity from renewable energy resources by 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties.
Under its renewable energy plan, Consumers expects to secure its required RECs each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 40 percent of its long-term REC needs.
To meet its renewable capacity requirements, Consumers expects to add 500 MW of owned or contracted renewable capacity by 2015. Consumers has secured more than 75,000 acres of land easements in Michigan’s Mason, Huron, and Tuscola Counties for the potential development of wind generation, and is presently collecting wind speed and other meteorological data at those sites. Consumers has entered into a contract to purchase wind turbine generators for the construction of a 100 MW wind farm in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in late 2012. Consumers will continue to seek opportunities for wind generation development in support of the renewable capacity standards.

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In June 2010, Consumers executed agreements with four renewable energy suppliers for the purchase of 243 MW of capacity, which will generate an estimated 20 percent of Consumers’ long-term REC needs. In its July 2010 order, the MPSC approved these agreements, granting Consumers’ request to recover the full costs of these contracts from its customers. Various parties have made claims concerning certain aspects of Consumers’ decision to enter into these renewable energy contracts. Consumers plans to defend its actions.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from economic and financial instability in the automotive and real estate sectors.
Consumers expects weather-adjusted electric deliveries to increase in 2010 by two percent compared with 2009. Consumers’ outlook for 2010 includes continuing growth in deliveries to its largest customer, which produces energy-related components. Consumers has a long-term contract with this customer to provide electricity at a discounted rate for economic development purposes. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 2010 to be at a similar level to 2009. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of Michigan’s economic conditions.
Consumers expects economic conditions to stabilize by the end of 2010, resulting in annual electric delivery growth of about one percent on average through 2014. This reflects growth in electric deliveries offset by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:

| • |  | energy conservation measures and results of energy efficiency programs;
| • |  | fluctuations in weather; and
| • |  | changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity.

In its 2009 electric rate case order, the MPSC authorized Consumers to adopt a “pilot” decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which allows future rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. Consumers expects these mechanisms to reduce volatility of electric utility revenue.
Electric ROA: The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At June 30, 2010, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 781 MW of generation service to ROA customers.
In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase from ten percent to 25 percent the proportion of an electric utility’s sales for which service may be provided by an alternative electric supplier. Consumers is unable to predict the outcome of the proposed legislation.

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Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers continues to focus on complying with the Clean Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers estimates expenditures of $2.2 billion from 2010 through 2017 to comply with these regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters:
Clean Air Interstate Rule: At this time, CAIR remains in effect, pending EPA revision due to a December 2008 court decision. In July 2010, the EPA released a proposed rule that would replace CAIR. Consumers is examining this proposed rule and its potential effects on Consumers’ fleet. The EPA will accept comments on the proposal for 60 days following its publication in the Federal Register before publishing a final rule. In addition, Consumers is monitoring legislative initiatives in the U.S. Senate, which may lead to an alternative to the revised CAIR. Meanwhile, Consumers’ strategy to comply with CAIR involves the installation of state-of-the-art emission control equipment.
Federal Hazardous Air Pollutant Regulation: The EPA has initiated the development of a revised rule for electric generating unit hazardous air pollutants, such as mercury, based on Section 112 of the Clean Air Act. Consumers will have a better understanding of the potential impact of the proposed rule upon its release, which is expected in 2010. Existing sources must meet the standards generally within three years of issuance of the final rule.
Greenhouse Gases: In June 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act, which would require reductions in emissions of greenhouse gases, including carbon dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions, relative to 2005 levels, by three percent by 2012, 17 percent by 2020, and 42 percent by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities, which would mitigate some of the price impact to Consumers’ customers. Consumers believes Congress may eventually pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict.
In December 2009, the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in the U.S. Court of Appeals for the D.C. Circuit by numerous parties, the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. In April 2010, the EPA issued its final rule that regulates greenhouse gas emissions from motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act.
In May 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. The final rule, which numerous parties have challenged in the U.S. Court of Appeals for the D.C. Circuit, sets limits for greenhouse gas emissions that define when permits are required for new and existing industrial facilities under New Source Review PSD and Title V Operating Permit programs.
These laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase emission allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

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Coal Combustion By-Products: In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. Michigan already regulates CCBs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs, including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing ash disposal areas could be closed and costly alternative arrangements for ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive. Consumers is unable to predict accurately the full impacts from this wide range of possible outcomes, but significant expenditures are likely.
Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule this year.
Advance Notice of Proposed Rulemaking on PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase out equipment containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. Utilities could incur substantial costs associated with the regulation of PCBs due to the widespread use of electrical equipment containing PCBs.
Other electric environmental matters could have a major impact on Consumers’ outlook. For additional details on these and other electric environmental matters, see Note 3, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies — Electric Environmental Matters.”
Electric Transmission: In June 2010, FERC issued a Notice of Proposed Rulemaking to establish a closer link between regional electric transmission planning and cost allocations to ensure the construction of required transmission facilities. In a related matter, MISO filed a tariff revision with the FERC in July 2010, proposing a cost allocation methodology for new transmission projects. Consumers is unable to predict the financial impact or outcome of either of these proposals.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ PSCR, electric rate cases, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning proceedings, electric depreciation cases, renewable energy plan, and energy optimization plan, see Note 4, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”
Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries: Consumers expects 2010 weather-adjusted gas deliveries to decline by one percent compared with 2009, due to continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of two percent annually from 2011 through 2015, which includes expected effects of energy efficiency programs. Actual delivery levels from year to year may vary from this trend due to:

| • |  | fluctuations in weather;
| • |  | use by IPPs;
| • |  | availability and development of renewable energy sources;
| • |  | changes in gas prices;
| • |  | Michigan economic conditions including population trends and housing activity;

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| • |  | the price of competing energy sources or fuels; and
| • |  | energy efficiency and conservation.

In its 2009 gas rate case order, the MPSC authorized Consumers to adopt a decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. Consumers expects this mechanism to reduce volatility of gas utility revenue.
Gas Environmental Estimates: Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former MGP sites. For additional details, see Note 3, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ GCR, gas rate case, and gas depreciation case, see Note 4, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”
Enterprises Outlook and Uncertainties
The primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.
Trends, uncertainties, and other matters that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:

| • |  | indemnity and environmental remediation obligations at Bay Harbor;
| • |  | the outcome of certain legal proceedings;
| • |  | impacts of declines in electricity prices on the profitability of the enterprises segment’s generating units;
| • |  | representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with previous sales of assets;
| • |  | 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 various environmental laws, regulations, principles, practices, or in their interpretation; and
| • |  | economic conditions in Michigan, including population trends and housing activity.

For additional details regarding the enterprises segment’s uncertainties, see Note 3, Contingencies and Commitments.
Other Outlook and Uncertainties
Smart Grid: Consumers’ development of a smart grid continues to move forward. The foundation of the smart grid program is an advanced metering infrastructure. The program will include smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing systems to manage the data and enable changes to key business processes. It is intended to allow customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in lower peak capacity requirements. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach and intends to begin deployment of meters in late 2011.

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Health Care Reform: The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s tax expense for the six months ended June 30, 2010, and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.
Union Contract: In April 2010, the Union ratified a new five-year agreement with Consumers for operating, maintenance, and construction employees. Consumers’ previous Union agreement was to expire in June 2010.
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 3, Contingencies and Commitments and Note 4, Utility Rate Matters.
EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $296 million at June 30, 2010. Its loan portfolio was funded primarily by deposit liabilities of $280 million. Twelve-month rolling average default rates on loans held by EnerBank have declined slightly from 2.1 percent at December 31, 2009 to 1.9 percent at June 30, 2010. EnerBank expects the level of loan defaults to continue to decline in 2010 and return gradually to historical levels of about 1.0 percent.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 1, New Accounting Standards.

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CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)

In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Operating Revenue |  | $ | 1,340 |  |  | $ | 1,225 |  |  | $ | 3,307 |  |  | $ | 3,329 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fuel for electric generation |  |  | 151 |  |  |  | 118 |  |  |  | 289 |  |  |  | 253 |
Purchased and interchange power |  |  | 314 |  |  |  | 282 |  |  |  | 592 |  |  |  | 571 |
Purchased power — related parties |  |  | 21 |  |  |  | — |  |  |  | 42 |  |  |  | — |
Cost of gas sold |  |  | 178 |  |  |  | 208 |  |  |  | 956 |  |  |  | 1,171 |
Maintenance and other operating expenses |  |  | 296 |  |  |  | 306 |  |  |  | 571 |  |  |  | 575 |
Depreciation and amortization |  |  | 131 |  |  |  | 121 |  |  |  | 303 |  |  |  | 294 |
General taxes |  |  | 41 |  |  |  | 48 |  |  |  | 107 |  |  |  | 113 |
Insurance settlement |  |  | (50 | ) |  |  | — |  |  |  | (50 | ) |  |  | — |
Gain on asset sales, net |  |  | (4 | ) |  |  | (8 | ) |  |  | (4 | ) |  |  | (8 | )
Total operating expenses |  |  | 1,078 |  |  |  | 1,075 |  |  |  | 2,806 |  |  |  | 2,969 |
Operating Income |  |  | 262 |  |  |  | 150 |  |  |  | 501 |  |  |  | 360 |
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and dividends |  |  | 4 |  |  |  | 4 |  |  |  | 9 |  |  |  | 8 |
Allowance for equity funds used during construction |  |  | 2 |  |  |  | 2 |  |  |  | 3 |  |  |  | 3 |
Income (loss) from equity method investees |  |  | 2 |  |  |  | — |  |  |  | 5 |  |  |  | (1 | )
Other income |  |  | 9 |  |  |  | 39 |  |  |  | 18 |  |  |  | 51 |
Other expense |  |  | (3 | ) |  |  | (3 | ) |  |  | (5 | ) |  |  | (5 | )
Total other income (expense) |  |  | 14 |  |  |  | 42 |  |  |  | 30 |  |  |  | 56 |
Interest Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on long-term debt |  |  | 98 |  |  |  | 98 |  |  |  | 196 |  |  |  | 190 |
Other interest |  |  | 20 |  |  |  | 8 |  |  |  | 28 |  |  |  | 16 |
Allowance for borrowed funds used during construction |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | ) |  |  | (2 | )
Total interest charges |  |  | 117 |  |  |  | 105 |  |  |  | 222 |  |  |  | 204 |
Income Before Income Taxes |  |  | 159 |  |  |  | 87 |  |  |  | 309 |  |  |  | 212 |
Income Tax Expense |  |  | 59 |  |  |  | 32 |  |  |  | 120 |  |  |  | 82 |
Income From Continuing Operations |  |  | 100 |  |  |  | 55 |  |  |  | 189 |  |  |  | 130 |
Income (Loss) From Discontinued Operations, Net of Tax Expense of $6, $17, $5 and $16 |  |  | (16 | ) |  |  | 25 |  |  |  | (17 | ) |  |  | 24 |
Net Income |  |  | 84 |  |  |  | 80 |  |  |  | 172 |  |  |  | 154 |
Income Attributable to Noncontrolling Interests |  |  | 2 |  |  |  | 2 |  |  |  | 2 |  |  |  | 3 |
Net Income Attributable to CMS Energy |  |  | 82 |  |  |  | 78 |  |  |  | 170 |  |  |  | 151 |
Preferred Stock Dividends |  |  | 2 |  |  |  | 3 |  |  |  | 5 |  |  |  | 6 |
Net Income Available to Common Stockholders |  | $ | 80 |  |  | $ | 75 |  |  | $ | 165 |  |  | $ | 145 |

The accompanying notes are an integral part of these statements.

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##### Table of Contents

In Millions, Except Per Share Amounts
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Net Income Attributable to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amounts Attributable to Continuing Operations |  | $ | 96 |  |  | $ | 50 |  |  | $ | 182 |  |  | $ | 121 |
Amounts Attributable to Discontinued Operations |  |  | (16 | ) |  |  | 25 |  |  |  | (17 | ) |  |  | 24 |
Net Income Available to Common Stockholders |  | $ | 80 |  |  | $ | 75 |  |  | $ | 165 |  |  | $ | 145 |
Income Attributable to Noncontrolling Interests |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amounts Attributable to Continuing Operations |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 3 |
Amounts Attributable to Discontinued Operations |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income Attributable to Noncontrolling Interests |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 3 |
Basic Earnings Per Average Common Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic Earnings from Continuing Operations |  | $ | 0.42 |  |  | $ | 0.22 |  |  | $ | 0.80 |  |  | $ | 0.53 |
Basic Earnings (Loss) from Discontinued Operations |  |  | (0.07 | ) |  |  | 0.11 |  |  |  | (0.08 | ) |  |  | 0.11 |
Basic Earnings Attributable to Common Stock |  | $ | 0.35 |  |  | $ | 0.33 |  |  | $ | 0.72 |  |  | $ | 0.64 |
Diluted Earnings Per Average Common Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Diluted Earnings from Continuing Operations |  | $ | 0.39 |  |  | $ | 0.21 |  |  | $ | 0.74 |  |  | $ | 0.52 |
Diluted Earnings (Loss) from Discontinued Operations |  |  | (0.07 | ) |  |  | 0.11 |  |  |  | (0.07 | ) |  |  | 0.10 |
Diluted Earnings Attributable to Common Stock |  | $ | 0.32 |  |  | $ | 0.32 |  |  | $ | 0.67 |  |  | $ | 0.62 |
Dividends Declared Per Common Share |  | $ | 0.15 |  |  | $ | 0.125 |  |  | $ | 0.30 |  |  | $ | 0.25 |

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CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

In Millions |
Six Months Ended June 30 |  | 2010 |  |  | 2009 |
Cash Flows from Operating Activities |  |  |  |  |  |  |  |
Net Income |  | $ | 172 |  |  | $ | 154 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 303 |  |  |  | 294 |
Deferred income taxes and investment tax credit |  |  | 107 |  |  |  | 94 |
Postretirement benefits expense |  |  | 88 |  |  |  | 91 |
Allowance for equity funds used during construction |  |  | (3 | ) |  |  | (3 | )
Capital lease and other amortization |  |  | 20 |  |  |  | 19 |
Bad debt expense |  |  | 32 |  |  |  | 34 |
Gain on expiration of indemnification |  |  | — |  |  |  | (50 | )
Gain on extinguishment of long-term debt, related parties |  |  | — |  |  |  | (28 | )
Other non-cash operating activities |  |  | (8 | ) |  |  | (15 | )
Postretirement benefits contributions |  |  | (153 | ) |  |  | (232 | )
Changes in other assets and liabilities: |  |  |  |  |  |  |  |
Decrease in accounts receivable, notes receivable, and accrued revenue |  |  | 178 |  |  |  | 115 |
Decrease in accrued power supply revenue |  |  | 22 |  |  |  | 5 |
Decrease in inventories |  |  | 230 |  |  |  | 267 |
Increase (decrease) in accounts payable |  |  | 41 |  |  |  | (26 | )
Decrease in accrued expenses |  |  | (51 | ) |  |  | (5 | )
Decrease in other current and non-current assets |  |  | 88 |  |  |  | 104 |
Decrease in other current and non-current liabilities |  |  | (18 | ) |  |  | (18 | )
Net cash provided by operating activities |  |  | 1,048 |  |  |  | 800 |
Cash Flows from Investing Activities |  |  |  |  |  |  |  |
Capital expenditures (excludes assets placed under capital lease) |  |  | (424 | ) |  |  | (409 | )
Cost to retire property |  |  | (20 | ) |  |  | (25 | )
Proceeds from sale of assets |  |  | 3 |  |  |  | 7 |
Cash effect of deconsolidation of partnerships |  |  | (10 | ) |  |  | — |
Restricted cash and cash equivalents |  |  | (1 | ) |  |  | 6 |
Other investing activities |  |  | (38 | ) |  |  | (12 | )
Net cash used in investing activities |  |  | (490 | ) |  |  | (433 | )
Cash Flows from Financing Activities |  |  |  |  |  |  |  |
Proceeds from issuance of long-term debt |  |  | 300 |  |  |  | 973 |
Proceeds from EnerBank notes, net |  |  | 66 |  |  |  | 4 |
Issuance of common stock |  |  | 5 |  |  |  | 5 |
Retirement of long-term debt |  |  | (352 | ) |  |  | (443 | )
Payment of common stock dividends |  |  | (69 | ) |  |  | (57 | )
Payment of preferred stock dividends |  |  | (5 | ) |  |  | (6 | )
Payment of capital and finance lease obligations |  |  | (12 | ) |  |  | (12 | )
Other financing costs |  |  | (44 | ) |  |  | (19 | )
Net cash (used in) provided by financing activities |  |  | (111 | ) |  |  | 445 |
Net Increase in Cash and Cash Equivalents, Including Assets Held for Sale |  |  | 447 |  |  |  | 812 |
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale |  |  | (1 | ) |  |  | 4 |
Net Increase in Cash and Cash Equivalents |  |  | 446 |  |  |  | 816 |
Cash and Cash Equivalents, Beginning of Period |  |  | 90 |  |  |  | 207 |
Cash and Cash Equivalents, End of Period |  | $ | 536 |  |  | $ | 1,023 |

The accompanying notes are an integral part of these statements.

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35

##### Table of Contents

CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
ASSETS

|  | In Millions |
|  | June 30 |  |  | December 31 |
|  | 2010 |  |  | 2009 |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 536 |  |  | $ | 90 |
Restricted cash and cash equivalents |  |  | 22 |  |  |  | 32 |
Accounts receivable and accrued revenue, less allowances of $23 in 2010 and $23 in 2009 |  |  | 697 |  |  |  | 948 |
Notes receivable |  |  | 72 |  |  |  | 81 |
Accrued power supply revenue |  |  | 26 |  |  |  | 48 |
Accounts receivable — related parties |  |  | 8 |  |  |  | — |
Inventories at average cost |  |  |  |  |  |  |  |
Gas in underground storage |  |  | 842 |  |  |  | 1,043 |
Materials and supplies |  |  | 104 |  |  |  | 118 |
Generating plant fuel stock |  |  | 131 |  |  |  | 158 |
Deferred property taxes |  |  | 127 |  |  |  | 172 |
Regulatory assets |  |  | 19 |  |  |  | 19 |
Assets held for sale |  |  | 2 |  |  |  | 2 |
Prepayments and other current assets |  |  | 35 |  |  |  | 31 |
Total current assets |  |  | 2,621 |  |  |  | 2,742 |
Plant, Property & Equipment (at cost) |  |  |  |  |  |  |  |
Plant, property & equipment, gross |  |  | 13,727 |  |  |  | 13,716 |
Less accumulated depreciation, depletion, and amortization |  |  | 4,566 |  |  |  | 4,540 |
Plant, property & equipment, net |  |  | 9,161 |  |  |  | 9,176 |
Construction work in progress |  |  | 643 |  |  |  | 506 |
Total plant, property & equipment |  |  | 9,804 |  |  |  | 9,682 |
Non-current Assets |  |  |  |  |  |  |  |
Regulatory assets |  |  | 2,085 |  |  |  | 2,291 |
Notes receivable, less allowances of $5 in 2010 and $6 in 2009 |  |  | 286 |  |  |  | 269 |
Investments |  |  | 52 |  |  |  | 9 |
Assets held for sale |  |  | 6 |  |  |  | 9 |
Other non-current assets |  |  | 197 |  |  |  | 254 |
Total non-current assets |  |  | 2,626 |  |  |  | 2,832 |
Total Assets |  | $ | 15,051 |  |  | $ | 15,256 |

The accompanying notes are an integral part of these statements.

36

##### Table of Contents

LIABILITIES AND EQUITY

|  | In Millions |
|  | June 30 |  |  | December 31 |
|  | 2010 |  |  | 2009 |
Current Liabilities |  |  |  |  |  |  |  |
Current portion of long-term debt, capital and finance lease obligations |  | $ | 653 |  |  | $ | 694 |
Notes payable |  |  | — |  |  |  | 40 |
Accounts payable |  |  | 451 |  |  |  | 509 |
Accrued rate refunds |  |  | 12 |  |  |  | 21 |
Accounts payable — related parties |  |  | 9 |  |  |  | — |
Accrued interest |  |  | 101 |  |  |  | 96 |
Accrued taxes |  |  | 230 |  |  |  | 283 |
Deferred income taxes |  |  | 51 |  |  |  | 43 |
Regulatory liabilities |  |  | 111 |  |  |  | 145 |
Liabilities held for sale |  |  | 1 |  |  |  | — |
Other current liabilities |  |  | 117 |  |  |  | 123 |
Total current liabilities |  |  | 1,736 |  |  |  | 1,954 |
Non-current Liabilities |  |  |  |  |  |  |  |
Long-term debt |  |  | 5,883 |  |  |  | 5,895 |
Non-current portion of capital and finance lease obligations |  |  | 196 |  |  |  | 197 |
Regulatory liabilities |  |  | 1,943 |  |  |  | 1,991 |
Postretirement benefits |  |  | 1,276 |  |  |  | 1,460 |
Asset retirement obligations |  |  | 235 |  |  |  | 229 |
Deferred investment tax credit |  |  | 49 |  |  |  | 51 |
Deferred income taxes |  |  | 444 |  |  |  | 231 |
Other non-current liabilities |  |  | 296 |  |  |  | 310 |
Total non-current liabilities |  |  | 10,322 |  |  |  | 10,364 |
Commitments and Contingencies (Notes 3, 4, 5, 7 and 8) |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  |
Common stockholders’ equity |  |  |  |  |  |  |  |
Common stock, authorized 350.0 shares; outstanding 228.3 shares in 2010 and 227.9 shares in 2009 |  |  | 2 |  |  |  | 2 |
Other paid-in capital |  |  | 4,569 |  |  |  | 4,560 |
Accumulated other comprehensive loss |  |  | (31 | ) |  |  | (33 | )
Accumulated deficit |  |  | (1,831 | ) |  |  | (1,927 | )
Total common stockholders’ equity |  |  | 2,709 |  |  |  | 2,602 |
Preferred stock |  |  | 239 |  |  |  | 239 |
Noncontrolling interests |  |  | 45 |  |  |  | 97 |
Total equity |  |  | 2,993 |  |  |  | 2,938 |
Total Liabilities and Equity |  | $ | 15,051 |  |  | $ | 15,256 |

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##### Table of Contents

CMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)

|  | In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |
Other Paid-in Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 4,564 |  |  |  | 4,538 |  |  |  | 4,560 |  |  |  | 4,533 |
Common stock issued |  |  | 6 |  |  |  | 3 |  |  |  | 10 |  |  |  | 8 |
Common stock repurchased |  |  | (1 | ) |  |  | — |  |  |  | (1 | ) |  |  | — |
Conversion option on convertible debt |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | 11 |
At end of period |  |  | 4,569 |  |  |  | 4,552 |  |  |  | 4,569 |  |  |  | 4,552 |
Accumulated Other Comprehensive Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | (31 | ) |  |  | (27 | ) |  |  | (32 | ) |  |  | (27 | )
Retirement benefits liability adjustments (a) |  |  | 1 |  |  |  | — |  |  |  | 2 |  |  |  | — |
At end of period |  |  | (30 | ) |  |  | (27 | ) |  |  | (30 | ) |  |  | (27 | )
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | — |  |  |  | (4 | ) |  |  | — |  |  |  | — |
Unrealized gain on investments (a) |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | 1 |
At end of period |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | 1 |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | )
At end of period |  |  | (31 | ) |  |  | (27 | ) |  |  | (31 | ) |  |  | (27 | )
Accumulated Deficit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | (1,876 | ) |  |  | (1,990 | ) |  |  | (1,927 | ) |  |  | (2,031 | )
Net income attributable to CMS Energy (a) |  |  | 82 |  |  |  | 78 |  |  |  | 170 |  |  |  | 151 |
Common stock dividends declared |  |  | (35 | ) |  |  | (28 | ) |  |  | (69 | ) |  |  | (57 | )
Preferred stock dividends declared |  |  | (2 | ) |  |  | (3 | ) |  |  | (5 | ) |  |  | (6 | )
At end of period |  |  | (1,831 | ) |  |  | (1,943 | ) |  |  | (1,831 | ) |  |  | (1,943 | )
Preferred Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | 239 |  |  |  | 243 |  |  |  | 239 |  |  |  | 243 |
Noncontrolling Interests |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 44 |  |  |  | 96 |  |  |  | 97 |  |  |  | 96 |
Income attributable to noncontrolling interests (a) |  |  | 2 |  |  |  | 2 |  |  |  | 2 |  |  |  | 3 |
Distributions and other changes in noncontrolling interests |  |  | (1 | ) |  |  | (3 | ) |  |  | (54 | ) |  |  | (4 | )
At end of period |  |  | 45 |  |  |  | 95 |  |  |  | 45 |  |  |  | 95 |
Total Equity |  | $ | 2,993 |  |  | $ | 2,922 |  |  | $ | 2,993 |  |  | $ | 2,922 |

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##### Table of Contents

CMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)

|  | In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
(a) Disclosure of Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 84 |  |  | $ | 80 |  |  | $ | 172 |  |  | $ | 154 |
Income attributable to noncontrolling interests |  |  | 2 |  |  |  | 2 |  |  |  | 2 |  |  |  | 3 |
Net income attributable to CMS Energy |  | $ | 82 |  |  | $ | 78 |  |  | $ | 170 |  |  | $ | 151 |
Retirement benefits liability: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability adjustments, net of tax of $2, $-, $1, and $-, respectively |  |  | 1 |  |  |  | — |  |  |  | 2 |  |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain on investments, net of tax of $-, $-, $-, and $-, respectively |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | 1 |
Total Comprehensive Income |  | $ | 83 |  |  | $ | 83 |  |  | $ | 172 |  |  | $ | 152 |

The accompanying notes are an integral part of these statements.

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##### Table of Contents

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)

In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Operating Revenue |  | $ | 1,276 |  |  | $ | 1,182 |  |  | $ | 3,166 |  |  | $ | 3,216 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fuel for electric generation |  |  | 125 |  |  |  | 105 |  |  |  | 250 |  |  |  | 216 |
Purchased and interchange power |  |  | 310 |  |  |  | 280 |  |  |  | 587 |  |  |  | 564 |
Purchased power — related parties |  |  | 20 |  |  |  | 17 |  |  |  | 41 |  |  |  | 35 |
Cost of gas sold |  |  | 163 |  |  |  | 195 |  |  |  | 909 |  |  |  | 1,131 |
Maintenance and other operating expenses |  |  | 281 |  |  |  | 250 |  |  |  | 543 |  |  |  | 501 |
Depreciation and amortization |  |  | 130 |  |  |  | 118 |  |  |  | 301 |  |  |  | 288 |
General taxes |  |  | 40 |  |  |  | 46 |  |  |  | 104 |  |  |  | 107 |
Gain on asset sales, net |  |  | — |  |  |  | (3 | ) |  |  | — |  |  |  | (3 | )
Total operating expenses |  |  | 1,069 |  |  |  | 1,008 |  |  |  | 2,735 |  |  |  | 2,839 |
Operating Income |  |  | 207 |  |  |  | 174 |  |  |  | 431 |  |  |  | 377 |
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and dividends |  |  | 4 |  |  |  | 3 |  |  |  | 9 |  |  |  | 7 |
Allowance for equity funds used during construction |  |  | 2 |  |  |  | 2 |  |  |  | 3 |  |  |  | 3 |
Other income |  |  | 9 |  |  |  | 9 |  |  |  | 18 |  |  |  | 21 |
Other expense |  |  | (3 | ) |  |  | (2 | ) |  |  | (5 | ) |  |  | (4 | )
Total other income (expense) |  |  | 12 |  |  |  | 12 |  |  |  | 25 |  |  |  | 27 |
Interest Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on long-term debt |  |  | 60 |  |  |  | 65 |  |  |  | 123 |  |  |  | 124 |
Other interest |  |  | 19 |  |  |  | 5 |  |  |  | 25 |  |  |  | 10 |
Allowance for borrowed funds used during construction |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | ) |  |  | (2 | )
Total interest charges |  |  | 78 |  |  |  | 69 |  |  |  | 146 |  |  |  | 132 |
Income Before Income Taxes |  |  | 141 |  |  |  | 117 |  |  |  | 310 |  |  |  | 272 |
Income Tax Expense |  |  | 53 |  |  |  | 45 |  |  |  | 115 |  |  |  | 101 |
Net Income |  |  | 88 |  |  |  | 72 |  |  |  | 195 |  |  |  | 171 |
Preferred Stock Dividends |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | 1 |
Net Income Available to Common Stockholder |  | $ | 87 |  |  | $ | 72 |  |  | $ | 194 |  |  | $ | 170 |

The accompanying notes are an integral part of these statements.

40

##### Table of Contents

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)

|  |  |  |  |  | In Millions |
Six Months ended June 30 |  | 2010 |  |  | 2009 |
Cash Flows from Operating Activities |  |  |  |  |  |  |  |
Net Income |  | $ | 195 |  |  | $ | 171 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 301 |  |  |  | 288 |
Deferred income taxes and investment tax credit |  |  | (22 | ) |  |  | 46 |
Postretirement benefits expense |  |  | 87 |  |  |  | 89 |
Allowance for equity funds used during construction |  |  | (3 | ) |  |  | (3 | )
Capital lease and other amortization |  |  | 13 |  |  |  | 13 |
Bad debt expense |  |  | 29 |  |  |  | 30 |
Other non-cash operating activities |  |  | (7 | ) |  |  | (16 | )
Postretirement benefits contributions |  |  | (143 | ) |  |  | (225 | )
Changes in other assets and liabilities: |  |  |  |  |  |  |  |
Decrease in accounts receivable, notes receivable, and accrued revenue |  |  | 186 |  |  |  | 114 |
Decrease in accrued power supply revenue |  |  | 22 |  |  |  | 5 |
Decrease in inventories |  |  | 229 |  |  |  | 266 |
Increase (decrease) in accounts payable |  |  | 35 |  |  |  | (20 | )
Increase (decrease) in accrued expenses |  |  | (13 | ) |  |  | 4 |
Decrease in other current and non-current assets |  |  | 92 |  |  |  | 106 |
Decrease in other current and non-current liabilities |  |  | (18 | ) |  |  | (15 | )
Net cash provided by operating activities |  |  | 983 |  |  |  | 853 |
Cash Flows from Investing Activities |  |  |  |  |  |  |  |
Capital expenditures (excludes assets placed under capital lease) |  |  | (423 | ) |  |  | (404 | )
Cost to retire property |  |  | (21 | ) |  |  | (25 | )
Proceeds from sale of assets |  |  | — |  |  |  | 7 |
Restricted cash and cash equivalents |  |  | — |  |  |  | 2 |
Net cash used in investing activities |  |  | (444 | ) |  |  | (420 | )
Cash Flows from Financing Activities |  |  |  |  |  |  |  |
Proceeds from issuance of long-term debt |  |  | — |  |  |  | 500 |
Retirement of long-term debt |  |  | (327 | ) |  |  | (218 | )
Payment of common stock dividends |  |  | (168 | ) |  |  | (130 | )
Payment of preferred stock dividends |  |  | (1 | ) |  |  | (1 | )
Stockholder’s contribution |  |  | 250 |  |  |  | 100 |
Payment of capital and finance lease obligations |  |  | (12 | ) |  |  | (12 | )
Other financing costs |  |  | — |  |  |  | (4 | )
Net cash (used in) provided by financing activities |  |  | (258 | ) |  |  | 235 |
Net Increase in Cash and Cash Equivalents |  |  | 281 |  |  |  | 668 |
Cash and Cash Equivalents, Beginning of Period |  |  | 39 |  |  |  | 69 |
Cash and Cash Equivalents, End of Period |  | $ | 320 |  |  | $ | 737 |

The accompanying notes are an integral part of these statements.

41

##### Table of Contents

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
ASSETS

|  |  |  |  |  | In Millions |
|  | June 30 |  |  | December 31 |
|  | 2010 |  |  | 2009 |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 320 |  |  | $ | 39 |
Restricted cash and cash equivalents |  |  | 22 |  |  |  | 22 |
Accounts receivable and accrued revenue, less allowances of $20 in 2010 and $21 in 2009 |  |  | 679 |  |  |  | 935 |
Notes receivable |  |  | 62 |  |  |  | 79 |
Accrued power supply revenue |  |  | 26 |  |  |  | 48 |
Accounts receivable — related parties |  |  | 1 |  |  |  | 2 |
Inventories at average cost |  |  |  |  |  |  |  |
Gas in underground storage |  |  | 838 |  |  |  | 1,038 |
Materials and supplies |  |  | 100 |  |  |  | 111 |
Generating plant fuel stock |  |  | 130 |  |  |  | 148 |
Deferred property taxes |  |  | 127 |  |  |  | 172 |
Regulatory assets |  |  | 19 |  |  |  | 19 |
Prepayments and other current assets |  |  | 26 |  |  |  | 23 |
Total current assets |  |  | 2,350 |  |  |  | 2,636 |
Plant, Property & Equipment (at cost) |  |  |  |  |  |  |  |
Plant, property & equipment, gross |  |  | 13,607 |  |  |  | 13,352 |
Less accumulated depreciation, depletion, and amortization |  |  | 4,516 |  |  |  | 4,386 |
Plant, property & equipment, net |  |  | 9,091 |  |  |  | 8,966 |
Construction work in progress |  |  | 643 |  |  |  | 505 |
Total plant, property & equipment |  |  | 9,734 |  |  |  | 9,471 |
Non-current Assets |  |  |  |  |  |  |  |
Regulatory assets |  |  | 2,085 |  |  |  | 2,291 |
Investments |  |  | 27 |  |  |  | 29 |
Other non-current assets |  |  | 130 |  |  |  | 195 |
Total non-current assets |  |  | 2,242 |  |  |  | 2,515 |
Total Assets |  | $ | 14,326 |  |  | $ | 14,622 |

The accompanying notes are an integral part of these statements.

42

##### Table of Contents

LIABILITIES AND EQUITY

|  |  |  |  |  | In Millions |
|  | June 30 |  |  | December 31 |
|  | 2010 |  |  | 2009 |
Current Liabilities |  |  |  |  |  |  |  |
Current portion of long-term debt, capital and finance lease obligations |  | $ | 61 |  |  | $ | 365 |
Accounts payable |  |  | 432 |  |  |  | 490 |
Accrued rate refunds |  |  | 12 |  |  |  | 21 |
Accounts payable — related parties |  |  | 12 |  |  |  | 11 |
Accrued interest |  |  | 68 |  |  |  | 70 |
Accrued taxes |  |  | 273 |  |  |  | 277 |
Deferred income taxes |  |  | 165 |  |  |  | 206 |
Regulatory liabilities |  |  | 111 |  |  |  | 145 |
Other current liabilities |  |  | 86 |  |  |  | 86 |
Total current liabilities |  |  | 1,220 |  |  |  | 1,671 |
Non-current Liabilities |  |  |  |  |  |  |  |
Long-term debt |  |  | 4,043 |  |  |  | 4,063 |
Non-current portion of capital and finance lease obligations |  |  | 196 |  |  |  | 197 |
Regulatory liabilities |  |  | 1,943 |  |  |  | 1,991 |
Postretirement benefits |  |  | 1,218 |  |  |  | 1,396 |
Asset retirement obligations |  |  | 234 |  |  |  | 228 |
Deferred investment tax credit |  |  | 49 |  |  |  | 51 |
Deferred income taxes |  |  | 1,058 |  |  |  | 926 |
Other non-current liabilities |  |  | 233 |  |  |  | 241 |
Total non-current liabilities |  |  | 8,974 |  |  |  | 9,093 |
Commitments and Contingencies (Notes 3, 4, 5, 7 and 8) |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  |
Common stockholder’s equity |  |  |  |  |  |  |  |
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods |  |  | 841 |  |  |  | 841 |
Other paid-in capital |  |  | 2,832 |  |  |  | 2,582 |
Accumulated other comprehensive income |  |  | — |  |  |  | 2 |
Retained earnings |  |  | 415 |  |  |  | 389 |
Total common stockholder’s equity |  |  | 4,088 |  |  |  | 3,814 |
Preferred stock |  |  | 44 |  |  |  | 44 |
Total equity |  |  | 4,132 |  |  |  | 3,858 |
Total Liabilities and Equity |  | $ | 14,326 |  |  | $ | 14,622 |

43

##### Table of Contents

Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited)

|  | In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period (a) |  | $ | 841 |  |  | $ | 841 |  |  | $ | 841 |  |  | $ | 841 |
Other Paid-in Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 2,782 |  |  |  | 2,482 |  |  |  | 2,582 |  |  |  | 2,482 |
Stockholder’s contribution |  |  | 50 |  |  |  | 100 |  |  |  | 250 |  |  |  | 100 |
At end of period |  |  | 2,832 |  |  |  | 2,582 |  |  |  | 2,832 |  |  |  | 2,582 |
Accumulated Other Comprehensive Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | (11 | ) |  |  | (7 | ) |  |  | (11 | ) |  |  | (7 | )
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 12 |  |  |  | 7 |  |  |  | 13 |  |  |  | 6 |
Unrealized (loss) gain on investments (b) |  |  | (1 | ) |  |  | 3 |  |  |  | (2 | ) |  |  | 4 |
At end of period |  |  | 11 |  |  |  | 10 |  |  |  | 11 |  |  |  | 10 |
At end of period |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 3 |
Retained Earnings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 382 |  |  |  | 409 |  |  |  | 389 |  |  |  | 383 |
Net income (b) |  |  | 88 |  |  |  | 72 |  |  |  | 195 |  |  |  | 171 |
Common stock dividends declared |  |  | (54 | ) |  |  | (58 | ) |  |  | (168 | ) |  |  | (130 | )
Preferred stock dividends declared |  |  | (1 | ) |  |  | — |  |  |  | (1 | ) |  |  | (1 | )
At end of period |  |  | 415 |  |  |  | 423 |  |  |  | 415 |  |  |  | 423 |
Preferred Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | 44 |  |  |  | 44 |  |  |  | 44 |  |  |  | 44 |
Total Equity |  | $ | 4,132 |  |  | $ | 3,893 |  |  | $ | 4,132 |  |  | $ | 3,893 |

The accompanying notes are an integral part of these statements.

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|  | In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(b) Disclosure of Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 88 |  |  | $ | 72 |  |  | $ | 195 |  |  | $ | 171 |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized (loss) gain on investments, net of tax of $-, $-, $-, and $-, respectively |  |  | (1 | ) |  |  | 3 |  |  |  | (2 | ) |  |  | 4 |
Total Comprehensive Income |  | $ | 87 |  |  | $ | 75 |  |  | $ | 193 |  |  | $ | 175 |

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CMS Energy Corporation
Consumers Energy Company
notes to consolidated financial statements
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the U.S. CMS Energy and Consumers have reclassified certain prior period amounts to conform to the presentation in the current period. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations, and cash flows for the periods presented. The 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 2009 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
1: NEW ACCOUNTING STANDARDS
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140, codified through ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets: This standard, which was effective for CMS Energy and Consumers January 1, 2010, removes the concept of a QSPE from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. This standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing involvement with financial assets. Under this standard, transactions entered into under Consumers’ revolving accounts receivable sales program, discussed in Note 5, Financings, are accounted for as secured borrowings rather than as sales. CMS Energy and Consumers present outstanding amounts under the program as short-term debt collateralized by accounts receivable.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R), codified through ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities: This standard, which was effective for CMS Energy and Consumers January 1, 2010, amends the criteria used to determine which entity, if any, has a controlling financial interest in a VIE. It replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which entity (1) has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. This standard also requires ongoing assessments of whether an entity is the primary beneficiary of a VIE. Upon implementation of this guidance, CMS Energy concluded that it is the primary beneficiary of CMS Energy Trust I and consolidated the trust in its consolidated financial statements on January 1, 2010. CMS Energy also concluded that it is not the primary beneficiary of T.E.S. Filer City, Grayling, or Genesee and deconsolidated these partnerships in its consolidated financial statements on January 1, 2010. CMS Energy consolidated CMS Energy Trust I at the carrying value that

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would be recorded had this guidance been effective when CMS Energy initially became involved with CMS Energy Trust I. CMS Energy recorded its retained interest in the deconsolidated partnerships at the carrying value that would be recorded had this guidance been effective when CMS Energy initially became involved with the partnerships. CMS Energy and Consumers have chosen not to adjust previously reported balances. No cumulative effect adjustments were required. For additional details, see Note 11, Variable Interest Entities.
ASU No. 2010-06, Improving Disclosures about Fair Value Measurements: This standard expands the required quarterly disclosures about fair value measurements that are included in Note 2, Fair Value Measurements. The standard requires information on transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, it requires gross reporting of purchases, sales, issuances, and settlements in the reconciliation of Level 3 fair values, rather than reporting this activity as one net amount. The standard also clarifies certain existing disclosure requirements. This standard was effective for CMS Energy and Consumers January 1, 2010, except for the gross reporting of Level 3 fair value activity, which will be effective for CMS Energy and Consumers January 1, 2011. This standard does not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position, and did not result in any significant changes to the fair value disclosures.
2: FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:

| • |  | Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
| • |  | Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data.
| • |  | Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at June 30, 2010:

In Millions
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 465 |  |  | $ | 465 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 2 |  |  |  | 2 |  |  |  | — |  |  |  | — |
Mutual fund |  |  | 62 |  |  |  | 62 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 28 |  |  |  | — |  |  |  | 28 |  |  |  | — |
Derivative instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts (a) |  |  | 5 |  |  |  | 2 |  |  |  | 3 |  |  |  | — |
Total |  | $ | 572 |  |  | $ | 541 |  |  | $ | 31 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 5 |  |  | $ | 5 |  |  | $ | — |  |  | $ | — |
Derivative instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts (b) |  |  | 8 |  |  |  | 2 |  |  |  | 1 |  |  |  | 5 |
Total (c) |  | $ | 13 |  |  | $ | 7 |  |  | $ | 1 |  |  | $ | 5 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 260 |  |  | $ | 260 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
CMS Energy Common Stock |  |  | 27 |  |  |  | 27 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 4 |  |  |  | 4 |  |  |  | — |  |  |  | — |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |
Mutual fund |  |  | 39 |  |  |  | 39 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 17 |  |  |  | — |  |  |  | 17 |  |  |  | — |
Total |  | $ | 353 |  |  | $ | 336 |  |  | $ | 17 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |
Total |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |

(a) |  | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid to CMS ERM by other parties.
(b) |  | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.
(c) |  | At June 30, 2010, CMS Energy’s liabilities classified as Level 3 represented 38 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities are comprised primarily of an electricity sales agreement held by CMS ERM.

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The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2009:

In Millions
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 57 |  |  | $ | 57 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 12 |  |  |  | 12 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 49 |  |  |  | 49 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 27 |  |  |  | — |  |  |  | 27 |  |  |  | — |
Derivative instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts (a) |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Total |  | $ | 151 |  |  | $ | 123 |  |  | $ | 28 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 5 |  |  | $ | 5 |  |  | $ | — |  |  | $ | — |
Derivative instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts (b) |  |  | 9 |  |  |  | 1 |  |  |  | 1 |  |  |  | 7 |
Interest rate contracts |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Total (c) |  | $ | 15 |  |  | $ | 6 |  |  | $ | 1 |  |  | $ | 8 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 31 |  |  | $ | 31 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
CMS Energy Common Stock |  |  | 29 |  |  |  | 29 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 4 |  |  |  | 4 |  |  |  | — |  |  |  | — |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 30 |  |  |  | 30 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 16 |  |  |  | — |  |  |  | 16 |  |  |  | — |
Total |  | $ | 115 |  |  | $ | 99 |  |  | $ | 16 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |
Total |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |

(a) |  | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.
(b) |  | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.
(c) |  | At December 31, 2009, CMS Energy’s liabilities classified as Level 3 represented 53 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities are comprised primarily of an electricity sales agreement held by CMS ERM.

Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.

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Nonqualified Deferred Compensation Plan Assets: CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted NAVs provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP cash equivalents consist of a money market fund with daily liquidity, which invests in state and municipal securities.
The SERP invests in a short-term, fixed-income mutual fund that holds a variety of debt securities with average maturities of one to three years. The fund invests primarily in investment-grade debt securities but, in order to achieve its investment objective, it may invest a portion of its assets in high-yield securities, foreign debt, and derivative instruments. The fair value of the fund is determined using the daily published NAV, which is the basis for transactions to buy or sell shares in the fund.
The SERP state and municipal bonds are investment grade securities that are valued using a matrix pricing model that incorporates Level 2 market-based information. The fair value of the bonds is derived from various observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bond ratings, and general information on market movements normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other non-current assets on their Consolidated Balance Sheets. For additional details about SERP securities, see Note 7, Financial Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their non-qualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what is owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report these liabilities in Other non-current liabilities on their Consolidated Balance Sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors.
CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM that extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses an internally developed model to project future prices. This method incorporates a proprietary forward power pricing curve that is based on forward gas prices and an implied heat rate. CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model. Since the modeling technique is significant to the overall fair value measurement, this agreement is classified as Level 3.
For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent

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agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined within this paragraph are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For additional details about derivative contracts, see Note 8, Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:

In Millions
Three months ended June 30 |  | 2010 |  | 2009
Balance at April 1 |  | $ | (3 | ) |  | $ | (10 | )
Total losses included in earnings (a) |  |  | (1 | ) |  |  | — |
Purchases, sales, issuances, and settlements (net) |  |  | (1 | ) |  |  | (1 | )
Balance at June 30 |  | $ | (5 | ) |  | $ | (11 | )
Unrealized losses included in earnings for the three months ended June 30 relating to assets and liabilities still held at June 30 (a) |  | $ | (2 | ) |  | $ | (1 | )

In Millions
Six months ended June 30 |  | 2010 |  | 2009
Balance at January 1 |  | $ | (8 | ) |  | $ | (16 | )
Total gains included in earnings (a) |  |  | 3 |  |  |  | 6 |
Purchases, sales, issuances, and settlements (net) |  |  | — |  |  |  | (1 | )
Balance at June 30 |  | $ | (5 | ) |  | $ | (11 | )
Unrealized gains included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30 (a) |  | $ | 2 |  |  | $ | 4 |

(a) |  | CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Maintenance and other operating expenses on its Consolidated Statements of Income.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s assets reported at fair value on a nonrecurring basis during the three months ended June 30, 2010:

In Millions
|  |  |  |  |  |  |  |  |  |  |  |  |  | Gains
|  | Level 1 |  | Level 2 |  | Level 3 |  | (Losses)
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets held for sale |  | $ | — |  |  | $ | — |  |  | $ | 7 |  |  | $ | (4 | )

CMS Energy wrote down assets held for sale from their carrying amount of $11 million to their fair value at June 30, 2010 of $7 million, resulting in a loss of $4 million, which was recorded in earnings as part of discontinued operations. The fair value was determined based on a discounted cash flow technique. The reduction in fair value during the three months ended

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June 30, 2010 was due primarily to declines in forward electricity prices. Consumers did not have any nonrecurring fair value measurements during the three months ended June 30, 2010.
3: CONTINGENCIES AND COMMITMENTS
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation: In 2002, CMS Energy 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 cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, are named as defendants in various class action and individual lawsuits arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin. The following provides more detail on these proceedings:

| • |  | In 2005, CMS MST was served with a summons and complaint that named CMS Energy, CMS MST, and CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs, who allege they purchased natural gas from the defendants and others for their facilities, are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas.
| • |  | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas price reporting activities.
| • |  | 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.

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| • |  | A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new Arandell case in Michigan. The CMS Energy defendants filed a motion to dismiss the new Michigan case on statute-of-limitations grounds and that motion remains pending.
| • |  | Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.
| • |  | In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST, and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas between January 1, 2000 and December 31, 2001. This case is part of the MDL proceeding, but is not a class action.

After removal to federal court, the Learjet, Heartland, Breckenridge, both Arandell cases, Newpage, and J.P. Morgan cases were transferred to the MDL case. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS Energy defendants remain parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. It is expected that the plaintiffs in this case will appeal this decision after all claims against defendants have been dismissed. At this time, there is no pending appeal. In June 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case; the Arandell (Wisconsin) case was reinstated against CMS ERM; and the Arandell (Wisconsin) case was consolidated with the Newpage case. These two consolidated cases remain pending only against CMS ERM. Pending before the court in all of the MDL cases are the defendants’ renewed motions for summary judgment based on FERC preemption and the plaintiffs’ motion for leave to amend their complaint to add a federal Sherman Act antitrust claim. In all but the J.P. Morgan case, there are also pending plaintiffs’ motions for class certification. These motions are not yet decided.

| • |  | In 2005, 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. The defendants included CMS Energy, CMS MST, and CMS Field Services. In April 2010, the Tennessee Supreme Court dismissed all claims against all defendants.
| • |  | In 2006, CMS Energy and CMS MST were each served with a summons and complaint which named CMS Energy, CMS MST, and CMS Field Services as defendants in an action filed in Missouri state court, titled Missouri Public Service Commission v. Oneok, Inc., alleging violation of the Missouri antitrust law, fraud, and unjust enrichment. In 2009, all defendants were dismissed for lack of standing. The Missouri Court of Appeals affirmed the dismissals in late 2009. In February 2010, the plaintiff filed an application for leave to appeal with the Missouri Supreme Court, seeking to overturn the Missouri Court of Appeals decision. In April 2010, the Missouri Supreme Court granted review to hear the case. Oral argument on the appeal is scheduled for September 2010 in the Missouri Supreme Court.

These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the

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amount of CMS Energy’s possible loss would be based on widely varying models previously untested in this context. Defenses are being pursued vigorously, which could result in the dismissal of the cases completely, but CMS Energy is unable to predict the outcome of these matters. If the outcome is unfavorable, these cases could have a material adverse impact on CMS Energy’s financial condition and results of operations.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDNRE, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA agreed upon augmentation measures to address areas where pH measurements were not satisfactory. The augmentation measures were implemented and completed in 2009.
In 2008, the MDNRE and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. The legal proceeding was stayed in 2009 and can be renewed by either party at any time. CMS Land and CMS Capital continue to seek a lower cost long-term water disposal option including using deep injection wells, permitted discharge to surface water, and disposal with a local municipal water treatment facility.
Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. There is presently one lawsuit (Jankowski v. CMS Energy, CMS Capital, and CMS Land) pending that was filed in June 2010 in Emmet County Circuit Court in Michigan relating to such subjects.
CMS Land and CMS Capital, the MDNRE, the EPA, and other parties are negotiating the long-term remedy for the Bay Harbor sites, including:

| • |  | the disposal of leachate;
| • |  | the capping and excavation of CKD;
| • |  | the location and design of collection lines and upstream diversion of water;
| • |  | potential flow of leachate below the collection system;
| • |  | applicable criteria for various substances such as mercury; and
| • |  | other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.

CMS Energy has recorded a cumulative charge related to Bay Harbor of $180 million. At June 30, 2010, CMS Energy had a recorded liability of $70 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.32 percent and an inflation rate of one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $91 million. CMS Energy expects to pay $12 million during the remainder of 2010, $9 million in 2011, $7 million in 2012, $5 million in 2013, and the remaining amount thereafter on long-term liquid disposal and operating and maintenance costs.

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CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:

| • |  | inability to secure a suitable long-term water disposal option at a reasonable cost;
| • |  | further increases in water disposal costs under existing options;
| • |  | delays in developing a long-term water disposal option;
| • |  | an increase in the number of contamination areas;
| • |  | different remediation techniques;
| • |  | the nature and extent of contamination;
| • |  | continued inability to reach agreement with the MDNRE or the EPA over required remedial actions;
| • |  | delays in the receipt of requested permits;
| • |  | delays following the receipt of any requested permits due to legal appeals of third parties;
| • |  | additional or new legal or regulatory requirements; or
| • |  | new or different landowner claims.

Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
State Street Bank and TSU Litigation: In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of representations and warranties and seeking $9 million plus interest from CMS Viron. During the same year, CMS Viron filed a counterclaim, as well as third-party actions against TSU, Academic Capital Group, Inc., and Academic Services, Inc. for breach of contract and fiduciary duties and conversion. In December 2009, the jury rendered a verdict in favor of CMS Viron and a final judgment was rendered on January 15, 2010 awarding CMS Viron $8 million plus prejudgment interest from TSU and another $3 million plus prejudgment interest and attorneys’ fees against Academic Capital Group, Inc. and Academic Services, Inc., collectively. This verdict is affected by an agreement under which CMS Viron agreed to pay $3 million to State Street Bank regardless of the verdict. In addition, State Street Bank agreed to assign certain rights of indemnification under a lease agreement to CMS Viron in return for a two-thirds stake in any ultimate recovery from TSU. At June 30, 2010, CMS Energy had a recorded liability of $3 million for its potential obligation related to this matter.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F.T. Barr filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas, and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. In 2004, all parties signed a confidential settlement agreement that resolved claims between Barr and the defendants. The CMS Energy defendants reserved all defenses to any indemnity claim relating to the settlement.
In April 2009, certain Marathon entities filed a case in the U.S. District Court for the Southern District of Texas against CMS Enterprises for indemnification in connection with this matter. CMS Energy entities

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dispute Marathon’s claim, and are opposing it vigorously. CMS Energy entities also assert that Marathon has suffered minimal, if any, damages. CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.
Former NOMECO Employees’ Litigation: In June 2010, eight former employees of NOMECO filed a lawsuit in Ingham County Circuit Court in Michigan against CMS Energy and three Marathon entities (Richard Rulewicz, Trustee of the Richard Rulewicz Revocable Living Trust, et al. v. CMS Energy) alleging underpayment of the former employees’ overriding royalty payments related to the Alba field production in Equatorial Guinea, to which the plaintiffs claim to be entitled. CMS Oil and Gas sold its interests in the Alba field to Marathon in 2002. CMS Energy cannot predict the financial impact or outcome of this matter. CMS Energy believes that it may be entitled to full or partial indemnification from Marathon for monetary damages that may arise from this lawsuit.
CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. At June 30, 2010, Consumers had a recorded liability of $1 million, its estimated probable NREPA liability.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At June 30, 2010, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability.
The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. Any significant change in the underlying 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 its estimates of NREPA and Superfund liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received an NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. Consumers has responded formally to the NOV/FOV denying the allegations. In addition, in 2008, Consumers received an NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review. The EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits from the EPA or state regulatory agencies to modify

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their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters. Although the potential costs relating to these matters could be material and cost recovery cannot be reasonably estimated, Consumers expects that it would be able to recover some or all of the costs in rates, consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
Nuclear Matters:
DOE Litigation: In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the U.S. Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.
Nuclear Fuel Disposal Cost: Consumers has a recorded liability of $163 million for amounts it collected from customers before 1983 to fund the disposal of spent nuclear fuel. This amount, which includes interest of $119 million, is payable to the DOE when it begins to accept delivery of spent nuclear fuel. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy as security for this obligation.
CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site. At June 30, 2010, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $33 million and $48 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and customer rates.
At June 30, 2010, Consumers had a recorded liability of $33 million and a regulatory asset of $61 million that included $28 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at Consumers’ former MGP sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million annually over the next five years. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.

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CONSUMERS’ OTHER CONTINGENCIES
Michigan Sales/Use Tax: Consumers was audited recently by the State of Michigan and assessed $35 million in additional sales and use tax for the tax years 1997 through 2004. This assessment, which comprises tax and interest, relates to the denial of an industrial processing exemption from sales and use tax on certain of Consumers’ equipment and supply purchases. Consumers will contest the assessment in the Michigan Court of Claims. To do so, it must first pay the assessment so that a filing can be made in the Michigan Court of Claims. At June 30, 2010, Consumers had a recorded liability of $35 million related to this matter.
GUARANTEES
The following table describes CMS Energy’s guarantees at June 30, 2010:

In Millions
|  | Issue |  | Expiration |  | Maximum |  | Carrying
Guarantee Description |  | Date |  | Date |  | Obligation |  | Amount
Indemnity obligations from asset sales and other agreements |  | Various |  | Various through |  | $845 (a) |  | $12
|  |  |  | June 2022 |  |  |  |
Guarantees and put options (b) |  | Various |  | Various through |  | 36 |  | 1
|  |  |  | December 2011 |  |  |  |

(a) |  | The majority of this amount arises from stock and asset sales agreements under which CMS Energy or a subsidiary of CMS Energy, other than Consumers, indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to PPAs, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
(b) |  | At June 30, 2010, the carrying amount of CMS Land’s put option agreements with certain Bay Harbor property owners was $1 million. If CMS Land is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the put option agreement.

At June 30, 2010, the maximum obligation and carrying amounts for Consumers’ guarantees were less than $1 million.

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The following table provides additional information regarding CMS Energy’s guarantees:

|  |  |  | Events That Would Require
Guarantee Description |  | How Guarantee Arose |  | Performance
Indemnity obligations from asset sales and other agreements |  | Stock and asset sales agreements |  | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances
Surety bonds and other indemnity obligations |  | Normal operating activity, permits and licenses |  | Nonperformance
Guarantees and put options |  | Normal operating activity |  | Nonperformance or non-payment by a subsidiary under a related contract
|  | Bay Harbor remediation efforts |  | Owners exercising put options requiring CMS Land to purchase property

CMS Energy, Consumers, and certain other subsidiaries of CMS Energy also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note and Note 4, Utility Rate Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non-compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial position, or cash flows.
4: UTILITY RATE MATTERS
Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of specific rate cases and proceedings could have a material adverse effect on Consumers’ cash flows and results of operations.
CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR billing factor monthly in order to minimize the overrecovery or underrecovery amount in the annual PSCR reconciliation.

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PSCR Reconciliations: The following table summarizes the PSCR reconciliation filing pending with the MPSC:

|  |  |  |  |  | PSCR Cost of
PSCR Year |  | Date Filed |  | Net Underrecovery |  | Power Sold
2009 |  | March 2010 |  | $39 million (a) |  | $1.6 billion

(a) |  | In 2005, the MPSC approved an economic development discount for a large industrial customer to promote long-term investments in the industrial infrastructure of Michigan. It was determined in the November 2009 electric rate case order that recovery of this discount should be provided through the electric general rates that Consumers self-implemented in May 2009. That order, however, did not address the recovery of the power-supply component of the discount provided from January 2009 through self-implementation, which totaled $4 million. Consumers has requested recovery of this amount through its 2009 PSCR reconciliation.

In March 2010, the MPSC issued an order in Consumers’ 2007 PSCR reconciliation, disallowing PSCR recovery of $3 million of economic development discounts and $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell plant. The MPSC approved the 2007 PSCR reconciliation, as modified by the order, and authorized Consumers to include an underrecovery of $21 million in its 2008 PSCR plan. In April 2010, Consumers filed for a rehearing in its 2007 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of a $2 million economic development discount provided in 2007 to a large industrial customer. In June 2010, the MPSC denied Consumers’ petition for rehearing. In July 2010, Consumers filed a claim for appeal with the Michigan Court of Appeals regarding the MPSC’s decision to disallow recovery of the economic development discount. Consumers cannot predict the outcome of this proceeding.
In June 2010, the MPSC issued an order in Consumers’ 2008 PSCR reconciliation, disallowing the PSCR recovery of a $3 million economic development discount. The MPSC approved the 2008 PSCR reconciliation, as modified by the order, and authorized Consumers to include an overrecovery of $14 million in its 2009 PSCR reconciliation. In July 2010, Consumers filed for a rehearing in its 2008 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of the $3 million economic development discount. Consumers cannot predict the outcome of this proceeding.
PSCR Plan: In September 2009, Consumers submitted its 2010 PSCR Plan to the MPSC. Using the maximum PSCR factor proposed in its plan, Consumers self-implemented the 2010 PSCR charge beginning in January 2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of this proceeding.
Electric Rate Cases: The MPSC, through a final order and rehearing in Consumers’ 2009 electric rate case, directed Consumers to refund to customers the difference between the rates it self-implemented in May 2009 and the rates authorized in the order, plus interest, subject to a reconciliation proceeding. In February 2010, Consumers filed an application for the refund of $12 million to its customers beginning in September 2010. In May 2010, the MPSC Staff recommended a refund of $32 million. In June 2010, Consumers revised its proposed refund to $15 million. The MPSC issued an order in June 2010 that dispenses with the need for the ALJ’s PFD in this case, which will expedite the refund Consumers must make to its customers.
The MPSC’s order in Consumers’ 2009 electric rate case also adopted a “pilot” decoupling mechanism and an uncollectible expense tracking mechanism. Various parties have filed appeals concerning aspects of the MPSC order, including both of these ratemaking mechanisms. Two parties also seek to have the Michigan Supreme Court hear these appeals directly. Consumers cannot predict the outcome of these proceedings.

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In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $178 million based on an 11 percent authorized return on equity. The filing requested authority to recover new investments in system reliability, environmental compliance, and technology advancements. In June 2010, the MPSC Staff recommended a revenue increase of $90 million, based on a 10.35 percent return on equity. The MPSC Staff also recommended an additional revenue increase of $25 million (not included in the table below) if the MPSC denies Consumers’ request for a tracking mechanism for an economic development discount provided to a large industrial customer. In July 2010, Consumers self-implemented an annual electric rate increase of $150 million, subject to refund with interest. The $28 million reduction from Consumers’ requested rate increase reflects Consumers’ attempt to be responsive to concerns raised by the MPSC Staff and other intervenors, and to balance the need for investment in improved infrastructure to support economic recovery in Michigan and the resulting rate impacts on customers. The following table details the components of Consumers’ self-implemented electric rate increase and the increase recommended by the MPSC Staff:

|  |  |  |  |  |  |  | In Millions
|  |  |  |  |  | Increase |  |
|  | Consumers’ |  | Recommended |  |
|  | Self-Implemented |  | by the |  |
Components of the increase in revenue |  | Increase |  | MPSC Staff |  | Difference
Investment in rate base |  | $ | 106 |  |  | $ | 80 |  |  | $ | (26 | )
Recovery of operating and maintenance costs |  |  | 21 |  |  |  | 25 |  |  |  | 4 |
Return on equity |  |  | 18 |  |  |  | (19 | ) |  |  | (37 | )
Impact of sales declines |  |  | 5 |  |  |  | 4 |  |  |  | (1 | )
Total |  | $ | 150 |  |  | $ | 90 |  |  | $ | (60 | )

In its July 2010 order allowing Consumers to self-implement this increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of previous overcollections of self-implemented rate increases. Consumers cannot predict the financial impact or outcome of this electric rate case.
Electric Operation and Maintenance Expenditures Show-Cause Order: In December 2005, the MPSC authorized Consumers to increase its electric rates. In the same order, the MPSC ordered Consumers to spend certain amounts on future tree-trimming and line-clearing activities, as well as on the operation and maintenance of Consumers’ fossil-fueled power plants. At that time, the MPSC also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with interest if the specified amounts were not spent on these activities.
In October 2009, the MPSC issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC and that Consumers has not refunded this amount to customers. The order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subjected to applicable sanctions, and why the refunds required by that order have not yet occurred. Consumers’ response indicated that the total amount it spent on forestry and fossil-fueled plant operation and maintenance activity for the years 2006 through 2009 exceeded the total amounts included in rates for these activities.
In March 2010, the MPSC Staff requested that the MPSC find Consumers in violation of the December 2005 order and that the MPSC order Consumers to refund $27 million for failure to meet annual spending requirements during 2007 and 2008. Consumers filed a response, stating that it would be unreasonable and unlawful to order a refund of this amount and that Consumers’ expenditures were consistent with the MPSC’s orders. In March 2010, the ALJ’s PFD found Consumers’ expenditures to be prudent and that Consumers did not violate the December 2005 order. The ALJ recommended that the

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MPSC find that no violation of the December 2005 order occurred and that no refunds be made to customers. Consumers cannot predict the outcome of this proceeding.
Big Rock Decommissioning: The MPSC and FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning and Consumers provided $44 million of corporate contributions for decommissioning costs.
In an order issued in February 2010, the MPSC concluded that decommissioning surcharges collected during a statutory rate freeze from 2001 through 2003 should have been deposited in the decommissioning trust fund. The MPSC agreed that Consumers was entitled to a recovery of the $44 million decommissioning shortfall, but concluded that Consumers had collected this amount previously through the decommissioning surcharge in effect during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue collected in excess of decommissioning costs plus interest, over seven months beginning in July 2010. Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should be subject to refund. At June 30, 2010, Consumers had an $86 million regulatory liability recorded on its Consolidated Balance Sheets for this refund. Consumers cannot predict the outcome of this proceeding.
Consumers has paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and has incurred $55 million for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. Consumers is seeking recovery of these costs from the DOE. At June 30, 2010, Consumers had an $85 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
Electric Depreciation: In February 2010, Consumers filed an electric depreciation case related to its wholly owned electric utility property. As ordered by the MPSC, Consumers prepared a traditional cost-of-removal study, which supported a $46 million increase in annual depreciation expense.
Also in February 2010, Consumers filed an electric depreciation case for Ludington, the pumped storage plant jointly owned by Consumers and Detroit Edison. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation expense. Consumers’ share of this increase is $9 million annually. Consumers cannot predict the financial impact or outcome of these proceedings.
Renewable Energy Plan: In June 2010, Consumers filed its first annual report and reconciliation for its renewable energy plan with the MPSC, requesting approval of Consumers’ reconciliation of renewable energy plan costs for 2009.
Energy Optimization Plan: In April 2010, Consumers filed its first annual report and reconciliation for its energy optimization plan with the MPSC, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2009. Consumers also requested approval of the collection of a $6 million incentive payment for both its gas and electric energy optimization plans. During 2009, Consumers achieved 134 percent of its electric savings target and 132 percent of its gas savings target. These achievements qualify Consumers to earn the maximum incentive allowed by the MPSC, which is calculated as 15 percent of Consumers’ investment in energy savings.

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CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its GCR billing factor monthly in order to minimize the overrecovery or underrecovery amount in the annual GCR reconciliation.
GCR Reconciliations: The following table summarizes the GCR reconciliation filings pending with the MPSC:

|  |  |  |  |  | GCR Cost of
GCR Year |  | Date Filed |  | Net (Under)/Overrecovery |  | Gas Sold
2008-2009 |  | June 2009 |  | $(15) million |  | $1.8 billion
2009-2010 |  | June 2010 |  | $1 million |  | $1.3 billion

GCR Plans: In March 2010, the MPSC authorized Consumers to implement its 2009-2010 base GCR factor and generally approved Consumers’ plan with minor adjustments to Consumers’ current purchasing guidelines.
In December 2009, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2010-2011 GCR plan year. In April 2010, Consumers self-implemented its filed GCR plan. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.
Gas Rate Case: In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing requested authorization to implement an uncollectible expense tracking mechanism, Pension Plan and OPEB equalization mechanisms, as well as a revenue decoupling mechanism.
In November 2009, Consumers self-implemented a gas rate increase in the annual amount of $89 million. In May 2010, the MPSC issued its order in this case, authorizing Consumers to increase its rates by $66 million based on an authorized return on equity of 10.55 percent. The following table details the components of Consumers’ self-implemented gas rate increase and the increase authorized by the MPSC:

In Millions |
|  | Consumers’ |  |  | Increase |  |  |  |
|  | Self-Implemented |  |  | Authorized by |  |  |  |
Components of the increase in revenue |  | Increase |  |  | the MPSC |  |  | Difference |
Impact of sales declines |  | $ | 41 |  |  | $ | 28 |  |  | $ | (13 | )
Investment in rate base |  |  | 23 |  |  |  | 27 |  |  |  | 4 |
Recovery of operating and maintenance costs |  |  | 17 |  |  |  | 13 |  |  |  | (4 | )
Return on equity |  |  | 8 |  |  |  | (2 | ) |  |  | (10 | )
Total |  | $ | 89 |  |  | $ | 66 |  |  | $ | (23 | )

The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in November 2009 and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. At June 30, 2010, CMS Energy and Consumers had a recorded regulatory liability of $15 million related to this refund. CMS Energy and Consumers determined that the portion of the refund that was specifically identifiable with the first quarter of 2010 was not material and, accordingly, did not revise those financial statements.

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The May 2010 order also adopts a revenue decoupling mechanism, effective June 1, 2010, which, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. The order denied Consumers’ request to implement a gas uncollectible expense tracking mechanism and Pension Plan and OPEB equalization mechanisms.
Gas Depreciation: In September 2009, the MPSC ordered Consumers to adopt certain standard retirement units by January 1, 2010. Consumers estimates that the use of these standard retirement units will increase maintenance expense, and recovery of that expense, by $10 million annually. In May 2010, as ordered by the MPSC, Consumers implemented the new standard retirement units concurrently with the final rates approved in its gas rate case.
5: FINANCINGS
The following is a summary of significant long-term debt transactions during the six months ended June 30, 2010:

|  | Principal |  |  | Interest |  |  |  |  |  |  |
|  | (in millions) |  |  | Rate |  |  | Issue/Retirement Date |  |  | Maturity Date |
Debt Issuances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior notes |  | $ | 300 |  |  |  | 6.25 | % |  | January 2010 |  | February 2020
Debt Retirements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FMBs |  | $ | 250 |  |  |  | 4.00 | % |  | May 2010 |  | May 2010
Tax-exempt pollution control revenue bonds |  |  | 58 |  |  | Various |  | June 2010 |  | June 2010

In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040.
Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at June 30, 2010:

In Millions |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Letters of |  |  |  |
|  |  |  |  |  | Amount of |  |  | Amount |  |  | Credit |  |  | Amount |
Company |  | Expiration Date |  |  | Facility |  |  | Borrowed |  |  | Outstanding |  |  | Available |
CMS Energy (a) |  | April 2, 2012 |  | $ | 550 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 547 |
Consumers |  | March 30, 2012 |  |  | 500 |  |  |  | — |  |  |  | 335 |  |  |  | 165 |
Consumers (b) |  | November 30, 2010 |  |  | 30 |  |  |  | — |  |  |  | 30 |  |  |  | — |
Consumers |  | August 17, 2010 |  |  | 150 |  |  |  | — |  |  |  | — |  |  |  | 150 |

(a) |  | CMS Energy’s average borrowings during the six months ended June 30, 2010, totaled $2 million, with a weighted-average annual interest rate of 1.0 percent, at LIBOR plus 0.75 percent.
(b) |  | Secured revolving letter of credit facility.

Short-term Borrowings: Under Consumers’ revolving accounts receivable sales program, Consumers may transfer up to $250 million of accounts receivable, subject to certain eligibility requirements.

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Effective January 1, 2010, transactions entered into under this program are accounted for as secured borrowings rather than as sales. For additional details, see Note 1, New Accounting Standards. At June 30, 2010, $250 million of accounts receivable were eligible for transfer, and no accounts receivable had been transferred under the program.
Consumers’ average short-term borrowings during the six months ended June 30, 2010, totaled $1 million, with a weighted average annual interest rate of 0.2 percent.
Contingently Convertible Securities: At June 30, 2010, the significant terms of CMS Energy’s contingently convertible securities were as follows:

|  |  |  |  |  | Outstanding |  |  | Adjusted |  |  | Adjusted |
Security |  | Maturity |  |  | (In Millions) |  |  | Conversion Price |  |  | Trigger Price |
4.50% preferred stock (a) |  |  | — |  |  | $ | 239 |  |  | $ | 8.96 |  |  | $ | 10.75 |
3.375% senior notes (a) |  |  | 2023 |  |  |  | 139 |  |  |  | 9.67 |  |  |  | 11.60 |
2.875% senior notes |  |  | 2024 |  |  |  | 288 |  |  |  | 13.36 |  |  |  | 16.03 |
5.50% senior notes |  |  | 2029 |  |  |  | 173 |  |  |  | 14.46 |  |  |  | 18.80 |

(a) |  | During 20 of the last 30 trading days ended June 30, 2010, the adjusted trigger prices were met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending September 30, 2010.

During the three months ended June 30, 2010, no other trigger price contingencies were met that would have allowed the holders of the convertible securities to convert the securities to cash and equity.
In July 2010, 250,000 shares of 4.50 percent preferred stock and $8 million principal amount of 3.375 percent senior notes were tendered for conversion. The average conversion price per share, number of common shares to be issued, and cash to be paid on settlement are not yet determinable.
Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at June 30, 2010, payment of common stock dividends by CMS Energy was limited to $879 million.
Under the provisions of its articles of incorporation, at June 30, 2010, Consumers had $356 million of unrestricted retained earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.
For the six months ended June 30, 2010, CMS Energy received $168 million of common stock dividends from Consumers.

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6: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on Income from Continuing Operations:

In Millions, Except Per Share Amounts |
Three months ended June 30 |  | 2010 |  |  | 2009 |
Income Available to Common Stockholders |  |  |  |  |  |  |  |
Income from Continuing Operations |  | $ | 100 |  |  | $ | 55 |
Less Income Attributable to Noncontrolling Interests |  |  | (2 | ) |  |  | (2 | )
Less Preferred Dividends |  |  | (2 | ) |  |  | (3 | )
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted |  | $ | 96 |  |  | $ | 50 |
Average Common Shares Outstanding |  |  |  |  |  |  |  |
Weighted Average Shares — Basic |  |  | 228.2 |  |  |  | 226.9 |
Add dilutive impact of Contingently Convertible Securities |  |  | 19.3 |  |  |  | 7.6 |
Add dilutive Options and Warrants |  |  | 0.1 |  |  |  | 0.1 |
Weighted Average Shares — Diluted |  |  | 247.6 |  |  |  | 234.6 |
Income from Continuing Operations Per Average Common Share Available to Common Stockholders |  |  |  |  |  |  |  |
Basic |  | $ | 0.42 |  |  | $ | 0.22 |
Diluted |  | $ | 0.39 |  |  | $ | 0.21 |

In Millions, Except Per Share Amounts |
Six months ended June 30 |  | 2010 |  |  | 2009 |
Income Available to Common Stockholders |  |  |  |  |  |  |  |
Income from Continuing Operations |  | $ | 189 |  |  | $ | 130 |
Less Income Attributable to Noncontrolling Interests |  |  | (2 | ) |  |  | (3 | )
Less Preferred Dividends |  |  | (5 | ) |  |  | (6 | )
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted |  | $ | 182 |  |  | $ | 121 |
Average Common Shares Outstanding |  |  |  |  |  |  |  |
Weighted Average Shares — Basic |  |  | 228.1 |  |  |  | 226.8 |
Add dilutive impact of Contingently Convertible Securities |  |  | 19.5 |  |  |  | 7.2 |
Add dilutive Options and Warrants |  |  | 0.1 |  |  |  | 0.1 |
Weighted Average Shares — Diluted |  |  | 247.7 |  |  |  | 234.1 |
Income from Continuing Operations Per Average Common Share Available to Common Stockholders |  |  |  |  |  |  |  |
Basic |  | $ | 0.80 |  |  | $ | 0.53 |
Diluted |  | $ | 0.74 |  |  | $ | 0.52 |

Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s common stock, exceeds the principal value of that security. For additional details on contingently convertible securities, see Note 5, Financings.
Stock Options and Warrants: For each of the three and six months ended June 30, 2010, outstanding options to purchase 0.4 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of CMS Energy common stock. These stock options have the potential to dilute EPS in the future.

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Unvested Restricted Stock Awards: CMS Energy’s unvested restricted stock awards accrue cash dividends when common stockholders receive dividends. Since the recipient is not required to return the dividends to CMS Energy if the recipient forfeits the award, the unvested restricted stock awards are considered participating securities. As such, unvested restricted stock awards were included in the computation of basic EPS.
Convertible Debentures: For each of the three and six months ended June 30, 2010 and 2009, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:

| • |  | increased the numerator of diluted EPS by less than $1 million for the three months ended June 30, 2010, and by $2 million for the three months ended June 30, 2009, from an assumed reduction of interest expense, net of tax;
| • |  | increased the denominator of diluted EPS by 0.7 million shares for the three months ended June 30, 2010, and by 3.6 million shares for the three months ended June 30, 2009;
| • |  | increased the numerator of diluted EPS by $1 million for the six months ended June 30, 2010, and by $4 million for the six months ended June 30, 2009, from an assumed reduction of interest expense, net of tax; and
| • |  | increased the denominator of diluted EPS by 0.7 million shares for the six months ended June 30, 2010, and by 3.9 million shares for the six months ended June 30, 2009.

CMS Energy can revoke the conversion rights if certain conditions are met.
7: FINANCIAL INSTRUMENTS
The carrying amounts of CMS Energy’s and Consumers’ cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. The cost or carrying amounts and fair values of CMS Energy’s and Consumers’ long-term financial instruments were as follows:

In Millions |
|  | June 30, 2010 |  |  | December 31, 2009 |
|  | Cost or |  |  |  |  |  |  | Cost or |  |  |  |
|  | Carrying |  |  |  |  |  |  | Carrying |  |  |  |
|  | Amount |  |  | Fair Value |  |  | Amount |  |  | Fair Value |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities held to maturity |  | $ | 4 |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 4 |
Securities available for sale |  |  | 89 |  |  |  | 90 |  |  |  | 26 |  |  |  | 27 |
Notes receivable, net |  |  | 296 |  |  |  | 320 |  |  |  | 269 |  |  |  | 279 |
Long-term debt (a) |  |  | 6,511 |  |  |  | 7,178 |  |  |  | 6,567 |  |  |  | 7,013 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  | $ | 64 |  |  | $ | 83 |  |  | $ | 24 |  |  | $ | 45 |
Long-term debt (b) |  |  | 4,079 |  |  |  | 4,487 |  |  |  | 4,406 |  |  |  | 4,635 |

(a) |  | Includes current portion of long-term debt of $628 million at June 30, 2010 and $672 million at December 31, 2009.
(b) |  | Includes current portion of long-term debt of $36 million at June 30, 2010 and $343 million at December 31, 2009.

Notes receivable, net consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest

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rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates, as appropriate, information on the market prices of CMS Energy’s common stock.
The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At June 30, 2010, CMS Energy’s long-term debt included $240 million principal amount that was supported by third-party insurance or other credit enhancements. This entire principal amount was at Consumers. At December 31, 2009, CMS Energy’s long-term debt included $286 million principal amount that was supported by third-party insurance or other credit enhancements. Of this amount, $271 million principal amount was at Consumers.
The following table summarizes CMS Energy’s and Consumers’ investment securities:

In Millions |
|  | June 30, 2010 |  |  | December 31, 2009 |
|  |  |  |  |  | Unrealized |  |  | Unrealized |  |  | Fair |  |  |  |  |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |  |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  | $ | 62 |  |  | $ | — |  |  | $ | — |  |  | $ | 62 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal bonds |  |  | 27 |  |  |  | 1 |  |  |  | — |  |  |  | 28 |  |  |  | 26 |  |  |  | 1 |  |  |  | — |  |  |  | 27 |
Held to maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  |  | 4 |  |  |  | 1 |  |  |  | — |  |  |  | 5 |  |  |  | 4 |  |  |  | — |  |  |  | — |  |  |  | 4 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  | $ | 39 |  |  | $ | — |  |  | $ | — |  |  | $ | 39 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal bonds |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 17 |  |  |  | 16 |  |  |  | — |  |  |  | — |  |  |  | 16 |
CMS Energy Common Stock |  |  | 8 |  |  |  | 19 |  |  |  | — |  |  |  | 27 |  |  |  | 8 |  |  |  | 21 |  |  |  | — |  |  |  | 29 |

The mutual fund classified as available for sale is a short-term, fixed-income fund. Shares in this fund were acquired during the six months ended June 30, 2010. State and municipal bonds classified as available for sale consist of investment grade state and municipal bonds. Debt securities classified as held to maturity consist of state and municipal bonds and mortgage-backed securities held by EnerBank.
The following table summarizes the sales activity for CMS Energy’s and Consumers’ investment securities:

In Millions |
|  | Three months ended |  |  | Six months ended |
June 30 |  | 2010 |  |  | 2009 |  |  | 2010 |  |  | 2009 |
Proceeds from sales of investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  | $ | 1 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 3 |
Consumers |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 2 |

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All of the proceeds related to sales of state and municipal bonds that were held within the SERP and classified as available for sale. Realized losses on these sales were insignificant for both CMS Energy and Consumers during each period.
The fair values of the SERP state and municipal bonds by contractual maturity at June 30, 2010 were as follows:

In Millions |
|  | CMS Energy, |  |  |  |
|  | including |  |  |  |
|  | Consumers |  |  | Consumers |
Due one year or less |  | $ | — |  |  | $ | — |
Due after one year through five years |  |  | 10 |  |  |  | 6 |
Due after five years through ten years |  |  | 11 |  |  |  | 7 |
Due after ten years |  |  | 7 |  |  |  | 4 |
Total |  | $ | 28 |  |  | $ | 17 |

8: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, options, and swaps. In entering into these contracts, they follow established policies and procedures under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers enters into any derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each reporting period, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all changes in fair value are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 2, Fair Value Measurements.
Commodity Price Risk: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:

| • |  | they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh 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.

CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting fair value gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. No other subsidiaries of CMS Energy enter into coal purchase contracts.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. To manage

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commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as futures, options, and swaps. At June 30, 2010, CMS ERM held a forward contract for the physical sale of 743 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 36 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.5 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM held forward contracts to purchase 2.4 bcf and sell 2.0 bcf of natural gas through 2010 and a financial contract to sell 1.0 bcf of natural gas as an economic hedge of gas storage sales in 2011. At June 30, 2010, CMS ERM held financial contracts through 2010 as an economic hedge against tolling arrangements with a purchase of 260 GWh of electricity and a sale of 1.7 bcf of gas.
At June 30, 2010 and December 31, 2009, the fair value of Consumers’ derivative instruments was less than $1 million. The following table summarizes the fair values of CMS Energy’s derivative instruments:

In Millions
|  | Derivative Assets |  | Derivative Liabilities
|  |  |  |  |  | Fair Value |  |  |  |  |  | Fair Value
|  | Balance |  |  |  |  |  |  |  |  |  | Balance |  |  |  |
|  | Sheet |  | June 30, |  | December 31, |  | Sheet |  | June 30, |  | December 31,
|  | Location |  | 2010 |  | 2009 |  | Location |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts (a) |  | Other assets (b) |  | $ | 5 |  |  | $ | 1 |  |  | Other liabilities (c) |  | $ | 8 |  |  | $ | 9 |
Interest rate contracts (d) |  | Other assets |  |  | — |  |  |  | — |  |  | Other liabilities |  |  | — |  |  |  | 1 |
Total CMS Energy Derivatives |  |  |  |  |  | $ | 5 |  |  | $ | 1 |  |  |  |  |  |  | $ | 8 |  |  | $ | 10 |

(a) |  | Assets and liabilities are presented gross and exclude the impact of offsetting derivative assets and liabilities under master netting agreements, which was $1 million at June 30, 2010 and December 31, 2009.
(b) |  | Assets exclude the impact of offsetting cash margin deposits paid by other parties to CMS ERM, which was $2 million at June 30, 2010. CMS Energy presents these assets net of these impacts on its Consolidated Balance Sheets.
(c) |  | Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at June 30, 2010 and $1 million at December 31, 2009. CMS Energy presents these liabilities net of these impacts on its Consolidated Balance Sheets.
(d) |  | At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling. CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at June 30, 2010, in Income (loss) from equity method investees in its Consolidated Statements of Income. For additional details about the deconsolidation of Grayling, see Note 11, Variable Interest Entities.

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The following tables summarize the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income:

In Millions
|  | Location of Gain (Loss) |  | Amount of Gain (Loss)
|  | on Derivatives |  | on Derivatives
|  | Recognized in Income |  | Recognized in Income
Three months ended June 30 |  |  |  |  |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Operating Revenue |  | $ | (2 | ) |  | $ | (2 | )
|  | Other income |  |  | 1 |  |  |  | 1 |
Total CMS Energy |  |  |  |  |  | $ | (1 | ) |  | $ | (1 | )
Consumers |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other income |  | $ | 1 |  |  | $ | 1 |

In Millions
|  | Location of Gain (Loss) |  | Amount of Gain (Loss)
|  | on Derivatives |  | on Derivatives
|  | Recognized in Income |  | Recognized in Income
Six months ended June 30 |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Operating Revenue |  | $ | 3 |  |  | $ | 5 |
|  | Fuel for electric generation |  |  | 2 |  |  |  | (2 | )
|  | Cost of gas sold |  |  | — |  |  |  | (3 | )
|  | Cost of power purchased |  |  | 1 |  |  |  | — |
|  | Other income |  |  | 1 |  |  |  | 1 |
Foreign exchange contracts (a) |  | Other expense |  |  | — |  |  |  | (1 | )
Total CMS Energy |  |  |  |  |  | $ | 7 |  |  | $ | — |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other income |  | $ | 1 |  |  | $ | 1 |

(a) |  | This derivative loss relates to a foreign-exchange forward contract that CMS Energy settled in January 2009.

At June 30, 2010, none of CMS Energy’s derivative liabilities was subject to credit-risk-related contingency features. At December 31, 2009, CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were less than $1 million.
Credit Risk: CMS Energy’s swaps, options, and forward contracts contain credit risk, which is the risk that a counterparty will fail to meet its contractual obligations. CMS Energy reduces this risk through established policies and procedures. CMS Energy assesses credit quality by considering credit ratings, financial condition, and other available information for counterparties. A credit limit is established for each counterparty based on the evaluation of their credit quality. Exposure to potential loss under each contract is monitored and action is taken when appropriate.
CMS ERM enters into contracts primarily with companies in the electric and gas industry. This industry concentration may have a positive or negative impact on CMS Energy’s exposure to credit risk based on how similar changes in economic conditions, the weather, or other conditions affect these counterparties.

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CMS ERM reduces its credit risk exposure by using industry-standard agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.
The following table illustrates CMS Energy’s exposure to potential losses at June 30, 2010, if each counterparty within this industry concentration failed to meet its contractual obligations. This table includes contracts accounted for as derivatives. It does not include trade accounts receivable, derivative contracts that qualify for the normal purchases and sales exception, or other contracts that CMS Energy does not account for as derivatives.

In Millions
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net Exposure |  | Net Exposure
|  | Exposure |  |  |  |  |  |  |  |  |  | from |  | from
|  | Before |  |  |  |  |  |  |  |  |  | Investment |  | Investment
|  | Collateral |  |  |  |  |  |  |  |  |  | Grade |  | Grade
|  | (a) |  | Collateral Held |  | Net Exposure |  | Companies |  | Companies (%)
CMS Energy |  | $ | 3 |  |  | $ | 2 |  |  | $ | 1 |  |  | $ | — |  |  |  | — |

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

CMS Energy does not expect a material adverse effect on its Consolidated Balance Sheets and Consolidated Statements of Income as a result of counterparty nonperformance, given CMS Energy’s credit policies, current exposures, and credit reserves.

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9: RETIREMENT BENEFITS
CMS Energy and Consumers provide Pension Plan, OPEB, and other retirement benefit plans to employees.
The following tables show the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:

In Millions
|  | Pension
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2010 |  | 2009 |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 11 |  |  | $ | 10 |  |  | $ | 22 |  |  | $ | 20 |
Interest expense |  |  | 25 |  |  |  | 24 |  |  |  | 49 |  |  |  | 48 |
Expected return on plan assets |  |  | (23 | ) |  |  | (22 | ) |  |  | (46 | ) |  |  | (43 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 13 |  |  |  | 11 |  |  |  | 26 |  |  |  | 21 |
Prior service cost |  |  | 1 |  |  |  | 1 |  |  |  | 3 |  |  |  | 3 |
Net periodic cost |  | $ | 27 |  |  | $ | 24 |  |  | $ | 54 |  |  | $ | 49 |
Regulatory adjustment |  |  | 21 |  |  |  | — |  |  |  | 23 |  |  |  | — |
Net periodic cost after regulatory adjustment |  | $ | 48 |  |  | $ | 24 |  |  | $ | 77 |  |  | $ | 49 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 10 |  |  | $ | 10 |  |  | $ | 21 |  |  | $ | 20 |
Interest expense |  |  | 24 |  |  |  | 23 |  |  |  | 48 |  |  |  | 46 |
Expected return on plan assets |  |  | (22 | ) |  |  | (22 | ) |  |  | (45 | ) |  |  | (42 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 13 |  |  |  | 10 |  |  |  | 25 |  |  |  | 20 |
Prior service cost |  |  | 1 |  |  |  | 2 |  |  |  | 3 |  |  |  | 3 |
Net periodic cost |  | $ | 26 |  |  | $ | 23 |  |  | $ | 52 |  |  | $ | 47 |
Regulatory adjustments (a) |  |  | 21 |  |  |  | — |  |  |  | 23 |  |  |  | — |
Net periodic cost after regulatory adjustment |  | $ | 47 |  |  | $ | 23 |  |  | $ | 75 |  |  | $ | 47 |

(a) |  | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated.

CMS Energy’s and Consumers’ expected long-term rate of return on plan assets is eight percent. For the six months ended June 30, 2010, the actual return on Pension Plan assets was a negative 0.5 percent, and for 2009 the actual return was 21 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.

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In Millions
|  | OPEB
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2010 |  | 2009 |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 6 |  |  | $ | 7 |  |  | $ | 13 |  |  | $ | 13 |
Interest expense |  |  | 20 |  |  |  | 20 |  |  |  | 41 |  |  |  | 40 |
Expected return on plan assets |  |  | (14 | ) |  |  | (13 | ) |  |  | (29 | ) |  |  | (26 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 8 |  |  |  | 9 |  |  |  | 16 |  |  |  | 17 |
Prior service credit |  |  | (5 | ) |  |  | (3 | ) |  |  | (7 | ) |  |  | (5 | )
Net periodic cost |  | $ | 15 |  |  | $ | 20 |  |  | $ | 34 |  |  | $ | 39 |
Regulatory adjustment |  |  | 6 |  |  |  | — |  |  |  | 7 |  |  |  | — |
Net periodic cost after regulatory adjustment |  | $ | 21 |  |  | $ | 20 |  |  | $ | 41 |  |  | $ | 39 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 6 |  |  | $ | 6 |  |  | $ | 13 |  |  | $ | 12 |
Interest expense |  |  | 20 |  |  |  | 19 |  |  |  | 40 |  |  |  | 39 |
Expected return on plan assets |  |  | (14 | ) |  |  | (12 | ) |  |  | (28 | ) |  |  | (24 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 8 |  |  |  | 9 |  |  |  | 16 |  |  |  | 17 |
Prior service credit |  |  | (4 | ) |  |  | (3 | ) |  |  | (6 | ) |  |  | (5 | )
Net periodic cost |  | $ | 16 |  |  | $ | 19 |  |  | $ | 35 |  |  | $ | 39 |
Regulatory adjustments (a) |  |  | 6 |  |  |  | — |  |  |  | 7 |  |  |  | — |
Net periodic cost after regulatory adjustment |  | $ | 22 |  |  | $ | 19 |  |  | $ | 42 |  |  | $ | 39 |

(a) |  | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated.

In February 2010, the MPSC issued an order in Consumers’ GCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the six months ended June 30, 2010, Consumers collected $2 million of Pension Plan and $1 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $3 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $3 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of the equalization mechanism surcharge had no impact on net income for the six months ended June 30, 2010.
In April 2010, the MPSC issued an order in Consumers’ PSCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the six months ended June 30, 2010, Consumers collected $21 million of Pension Plan and $6 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $27 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $27 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of the equalization mechanism surcharge had no impact on net income for the six months ended June 30, 2010.

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CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010 to incorporate the effects of a new collective bargaining agreement reached between the Union and Consumers. The OPEB plan remeasurement decreased CMS Energy’s OPEB liability by $95 million, OPEB regulatory asset by $93 million, and AOCL by $2 million, and will result in a decrease in benefit costs of $14 million for 2010. The OPEB plan remeasurement decreased Consumers’ OPEB liability and OPEB regulatory asset by $93 million each, and will result in a decrease in benefit costs of $13 million for 2010. With the plan remeasurement, the discount rate was reduced from 6.0 percent at December 31, 2009 to 5.85 percent at April 30, 2010.
In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. In February 2010, CMS Energy contributed $17 million to its SERP fund, which included a contribution of $11 million by Consumers.
10: INCOME TAXES
The actual income tax expense on income from continuing operations, excluding income attributable to noncontrolling interests, differs from the amount computed by applying the statutory U.S. federal income tax rate as follows:

In Millions
Six months ended June 30 |  | 2010 |  | 2009
CMS Energy, including Consumers |  |  |  |  |  |  |  |
Income from continuing operations before income taxes |  | $ | 307 |  |  | $ | 209 |
Income tax expense at statutory 35% federal rate |  |  | 108 |  |  |  | 73 |
Increase (decrease) in income taxes from: |  |  |  |  |  |  |  |
Change in tax law, Medicare Part D subsidy |  |  | 3 |  |  |  | — |
ITC amortization |  |  | (2 | ) |  |  | (2 | )
Medicare Part D exempt income |  |  | (3 | ) |  |  | (3 | )
State and local income taxes, net of federal benefit |  |  | 12 |  |  |  | 13 |
Other, net |  |  | 2 |  |  |  | 1 |
Income tax expense |  | $ | 120 |  |  | $ | 82 |
Effective tax rate |  |  | 39.1 | % |  |  | 39.2 | %
Consumers |  |  |  |  |  |  |  |
Income from continuing operations before income taxes |  | $ | 310 |  |  | $ | 272 |
Income tax expense at statutory 35% federal rate |  |  | 108 |  |  |  | 95 |
Increase (decrease) in taxes from: |  |  |  |  |  |  |  |
ITC amortization |  |  | (2 | ) |  |  | (2 | )
Medicare Part D exempt income |  |  | (3 | ) |  |  | (3 | )
State and local income taxes, net of federal benefit |  |  | 11 |  |  |  | 8 |
Other, net |  |  | 1 |  |  |  | 3 |
Income tax expense |  | $ | 115 |  |  | $ | 101 |
Effective tax rate |  |  | 37.1 | % |  |  | 37.1 | %

The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy and Consumers decreased their deferred tax asset balances by $68 million, with CMS Energy recognizing deferred tax expense of $3 million and Consumers recognizing an increase to net regulatory tax assets of $65 million (not including the effects of ratemaking tax gross-ups). Therefore, this legislation had no effect on Consumers’ net income for the six months ended June 30, 2010.

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11: VARIABLE INTEREST ENTITIES
Entities that are VIEs must be consolidated if the reporting entity determines that it has a controlling financial interest. The entity that is required to consolidate the VIE is called the primary beneficiary. Variable interests are contractual, ownership, or other interests in an entity that change as the fair value of the VIE’s net assets, excluding variable interests, changes. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest.
Effective January 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment changed the criteria for identifying the primary beneficiary. Under the amended standard, the primary beneficiary is the entity that has both (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE.
As a result of adopting this amendment, effective January 1, 2010, CMS Energy has consolidated CMS Energy Trust I and deconsolidated three partnerships that it had previously consolidated.
CMS Energy has consolidated CMS Energy Trust I because CMS Energy is the variable interest holder that designed the entity and, through the design, has the power to direct the activities of CMS Energy Trust I that most significantly impact the trust’s economic performance. Through its guarantee, CMS Energy also has the obligation to absorb losses of CMS Energy Trust I. The sole assets of the trust consist of notes payable by CMS Energy, and the sole liabilities of the trust consist of Trust Preferred Securities. Upon consolidation, CMS Energy reduced its equity method investment by $5 million and its Long-term debt by $34 million. CMS Energy also recorded a $29 million liability for the mandatorily redeemable preferred securities issued by the trust. No gain or loss was recognized on the consolidation of CMS Energy Trust I.
CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and Genesee because CMS Energy determined that power is shared among unrelated parties, and that no one party has the power to direct the activities that most significantly impact the entities’ economic performance. The partners must agree on all major decisions for each of the partnerships. As a result, CMS Energy is not the primary beneficiary of these partnerships.

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The following table provides information about these partnerships:

|  | Nature of |  |
Name (Ownership Interest) |  | the Entity |  | Financing of Partnership
T.E.S. Filer City (50%) |  | Coal-fueled power generator |  | Non-recourse long-term debt that matured in December 2007.
Grayling (50%) |  | Wood waste- fueled power generator |  | Sale of revenue bonds that mature in November 2012 and bear interest at variable rates. The debt is recourse to the partnership, but not the individual partners, and secured by a letter of credit equal to the outstanding balance.
Genesee (50%) |  | Wood waste- fueled power generator |  | Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a CMS Energy guarantee capped at $3 million annually.

CMS Energy has operating and management contracts with Grayling and Genesee, and Consumers is the primary purchaser of power from each partnership through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow these facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each partnership shares with Consumers’ customers.
CMS Energy’s investment in these partnerships is included in Investments on the Consolidated Balance Sheets in the amount of $49 million as of June 30, 2010. The partnerships were consolidated at December 31, 2009. Total assets of the partnerships were $189 million and total liabilities were $92 million at December 31, 2009. The partnerships had third-party debt obligations totaling $70 million at December 31, 2009. Plant, property, and equipment serving as collateral for these obligations had a carrying value of $137 million at December 31, 2009. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except through outstanding letters of credit of $2 million and a guarantee of $3 million annually. CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is $6 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.
12: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income available to common stockholders of each segment. The reportable segments for CMS Energy and Consumers are:
CMS Energy:

| • |  | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;
| • |  | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan;
| • |  | enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and
| • |  | other, including corporate interest and other expenses and discontinued operations.

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Consumers:

| • |  | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;
| • |  | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and
| • |  | other, including a consolidated special-purpose entity for the sale of accounts receivable.

The following tables provide financial information by reportable segment:

|  | In Millions
|  | Three months ended |  | Six months ended
June 30 |  | 2010 |  | 2009 |  | 2010 |  | 2009
Operating Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 975 |  |  | $ | 848 |  |  | $ | 1,813 |  |  | $ | 1,660 |
Gas utility |  |  | 301 |  |  |  | 334 |  |  |  | 1,353 |  |  |  | 1,556 |
Enterprises |  |  | 55 |  |  |  | 37 |  |  |  | 123 |  |  |  | 101 |
Other |  |  | 9 |  |  |  | 6 |  |  |  | 18 |  |  |  | 12 |
Total Operating Revenue — CMS Energy |  | $ | 1,340 |  |  | $ | 1,225 |  |  | $ | 3,307 |  |  | $ | 3,329 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 975 |  |  | $ | 848 |  |  | $ | 1,813 |  |  | $ | 1,660 |
Gas utility |  |  | 301 |  |  |  | 334 |  |  |  | 1,353 |  |  |  | 1,556 |
Total Operating Revenue — Consumers |  | $ | 1,276 |  |  | $ | 1,182 |  |  | $ | 3,166 |  |  | $ | 3,216 |
Net Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 86 |  |  | $ | 67 |  |  | $ | 127 |  |  | $ | 106 |
Gas utility |  |  | 1 |  |  |  | 5 |  |  |  | 67 |  |  |  | 64 |
Enterprises |  |  | 33 |  |  |  | (13 | ) |  |  | 42 |  |  |  | (12 | )
Discontinued Operations |  |  | (16 | ) |  |  | 25 |  |  |  | (17 | ) |  |  | 24 |
Other |  |  | (24 | ) |  |  | (9 | ) |  |  | (54 | ) |  |  | (37 | )
Total Net Income Available to Common Stockholders — CMS Energy |  | $ | 80 |  |  | $ | 75 |  |  | $ | 165 |  |  | $ | 145 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 86 |  |  | $ | 67 |  |  | $ | 127 |  |  | $ | 106 |
Gas utility |  |  | 1 |  |  |  | 5 |  |  |  | 67 |  |  |  | 64 |
Total Net Income Available to Common Stockholder — Consumers |  | $ | 87 |  |  | $ | 72 |  |  | $ | 194 |  |  | $ | 170 |

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In Millions
|  | June 30, 2010 |  | December 31, 2009
Plant, Property, and Equipment, Gross |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |
Electric utility |  | $ | 9,717 |  |  | $ | 9,525 |
Gas utility |  |  | 3,875 |  |  |  | 3,812 |
Enterprises |  |  | 101 |  |  |  | 345 |
Other |  |  | 34 |  |  |  | 34 |
Total Plant, Property, and Equipment — CMS Energy |  | $ | 13,727 |  |  | $ | 13,716 |
Consumers |  |  |  |  |  |  |  |
Electric utility |  | $ | 9,717 |  |  | $ | 9,525 |
Gas utility |  |  | 3,875 |  |  |  | 3,812 |
Other |  |  | 15 |  |  |  | 15 |
Total Plant, Property, and Equipment — Consumers |  | $ | 13,607 |  |  | $ | 13,352 |
Assets |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |
Electric utility (a) |  | $ | 9,268 |  |  | $ | 9,157 |
Gas utility (a) |  |  | 4,407 |  |  |  | 4,594 |
Enterprises |  |  | 192 |  |  |  | 303 |
Other |  |  | 1,184 |  |  |  | 1,202 |
Total Assets — CMS Energy |  | $ | 15,051 |  |  | $ | 15,256 |
Consumers |  |  |  |  |  |  |  |
Electric utility (a) |  | $ | 9,268 |  |  | $ | 9,157 |
Gas utility (a) |  |  | 4,407 |  |  |  | 4,594 |
Other |  |  | 651 |  |  |  | 871 |
Total Assets — Consumers |  | $ | 14,326 |  |  | $ | 14,622 |

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

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Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk

CMS ENERGY
Quantitative and Qualitative Disclosures about Market Risk is contained in Part I, Item 2. MD&A, which is incorporated by reference herein.
CONSUMERS
Quantitative and Qualitative Disclosures about Market Risk is contained in Part I, Item 2. MD&A, which is incorporated by reference herein.

Item 4. |  | Controls and Procedures

CMS ENERGY
Disclosure Controls and Procedures: CMS Energy’s management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, CMS Energy’s CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in CMS Energy’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
CONSUMERS
Disclosure Controls and Procedures: Consumers’ management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Consumers’ CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in Consumers’ internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting
PART II. OTHER INFORMATION

Item 1. |  | Legal Proceedings

CMS Energy and Consumers are parties to various lawsuits and regulatory matters in the ordinary course of business. For information regarding material legal proceedings, including updates to information reported under Item 3 of Part I of the 2009 Form 10-K, see Part I, Item 1, Note 3, Contingencies and Commitments, and Note 4, Utility Rate Matters.

Item 1A. |  | Risk Factors

There have been no material changes to the Risk Factors as previously disclosed in Part I, Item 1A. Risk Factors, in the 2009 Form 10-K.

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Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities
On June 25, 2010, CMS Energy issued 228 shares of its Common Stock and paid $5,012 in cash in exchange for 100 shares of its 4.50 percent Cumulative Convertible Preferred Stock, Series B, tendered for conversion on June 8, 2010 in accordance with the terms and provisions of the Certificate of Designation of 4.50 percent Cumulative Convertible Preferred Stock dated as of December 20, 2004, corrected February 27, 2006. Such Common Stock shares were issued based on the conversion value of $84.75 per share. The foregoing issuance, an exchange of securities with an existing shareholder, was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
(c) Issuer Repurchases of Equity Securities
The following table shows CMS Energy’s repurchases of equity securities for the three months ended June 30, 2010:

|  |  |  |  |  |  |  |  |  | Total Number of |  | Maximum Number of
|  | Total |  | Average |  | Shares Purchased as |  | Shares that May Yet
|  | Number of |  | Price |  | Part of Publicly |  | Be Purchased Under
|  | Shares |  | Paid per |  | Announced Plans or |  | Publicly Announced
Period |  | Purchased* |  | Share |  | Programs |  | Plans or Programs
April 1, 2010 to April 30, 2010 |  |  | 1,695 |  |  | $ | 16.38 |  |  |  | — |  |  |  | — |
May 1, 2010 to May 31, 2010 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
June 1, 2010 to June 30, 2010 |  |  | 61,496 |  |  |  | 14.32 |  |  |  | — |  |  |  | — |
Total |  |  | 63,191 |  |  | $ | 14.38 |  |  |  | — |  |  |  | — |

* |  | CMS Energy repurchases certain restricted shares upon vesting under the performance incentive stock plan from participants in the performance incentive stock plan, equal to its minimum statutory income tax withholding obligation. Shares repurchased have a value based on the market price on the vesting date.

Item 3. |  | Defaults Upon Senior Securities

None.

Item 5. |  | Other Information

None.

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Item 6. |  | Exhibits

The agreements included as exhibits to this Form 10-Q filing are included solely to provide information regarding the terms of the agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers or other parties to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect. The statements were qualified by disclosures to the parties to each of the agreements and may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied to other investors. Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated.
The representations and warranties may not describe the actual state of affairs of the parties to each agreement. Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com and through the SEC’s website at www.sec.gov.

3.1 |  | CMS Energy Bylaws, amended and restated as of May 21, 2010 (Exhibit 3.1 to Form 8-K filed May 26, 2010 and incorporated herein by reference)
3.2 |  | Consumers Bylaws, amended and restated as of May 21, 2010 (Exhibit 3.2 to Form 8-K filed May 26, 2010 and incorporated herein by reference)
10.1 |  | CMS Energy’s Performance Incentive Stock Plan, effective February 3, 1988, amended and restated, effective August 1, 2010
12.1 |  | Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
12.2 |  | Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
31.1 |  | CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3 |  | Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.4 |  | Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  | CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 |  | Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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101.INS* |  | XBRL Instance Document
101.SCH* |  | XBRL Taxonomy Extension Schema
101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase
101.LAB* |  | XBRL Taxonomy Extension Labels Linkbase
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase

* |  | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” and not “filed”. The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.”

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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: July 28, 2010 | By: | /s/ Thomas J. Webb |
|  | Thomas J. Webb |
|  | Executive Vice President and Chief Financial Officer |
| CONSUMERS ENERGY COMPANY (Registrant) |
Dated: July 28, 2010 | By: | /s/ Thomas J. Webb |
|  | Thomas J. Webb |
|  | Executive Vice President and Chief Financial Officer |

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