10-Q 1 k50548e10vq.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, 2011
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 |  | Smaller reporting company o
|  |  |  | (Do not check if a smaller reporting company) |  |

Consumers Energy Company:

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

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 14, 2011:

CMS Energy Corporation: |  |  |  |
CMS Energy Common Stock, $0.01 par value |  |  |  |
(including 1,568,145 shares owned by Consumers Energy Company) |  |  | 253,356,241 |
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, 2011
TABLE OF CONTENTS

|  | Page
Glossary |  |  | 3 |
Filing Format |  |  | 8 |
Forward-Looking Statements and Information |  |  | 8 |
PART I — FINANCIAL INFORMATION |  |  |  |
Item 1. Consolidated Financial Statements (unaudited) |  |  |  |
CMS Energy |  |  | 32 |
Consumers |  |  | 40 |
Notes to the 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 |  |  | 78 |
Item 4. Controls and Procedures |  |  | 78 |
PART II — OTHER INFORMATION |  |  |  |
Item 1. Legal Proceedings |  |  | 79 |
Item 1A. Risk Factors |  |  | 79 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  |  | 79 |
Item 3. Defaults Upon Senior Securities |  |  | 80 |
Item 4. Removed and Reserved |  |  | 80 |
Item 5. Other Information |  |  | 80 |
Item 6. Exhibits |  |  | 81 |
Signatures |  |  | 82 |
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 Law |  | Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524
2010 Form 10-K |  | Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2010
ABATE |  | Association of Businesses Advocating Tariff Equity
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
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 (formerly known as CMS Field Services)
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
CKD |  | Cement kiln dust
Clean Air Act |  | Federal Clean Air Act, as amended
Clean Water Act |  | Federal Water Pollution Control Act, as amended
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 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

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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
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
Consumers |  | Consumers Energy Company, a wholly owned subsidiary of CMS Energy
CSAPR |  | Cross-State Air Pollution Rule, finalized in July 2011, which supersedes the EPA’s proposed Clean Air Transport Rule and replaces CAIR
Customer Choice Act |  | Customer Choice and Electricity Reliability Act, a Michigan statute
D.C. |  | District of Columbia
Detroit Edison |  | The Detroit Edison Company, a non-affiliated company
Dodd-Frank Act |  | Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010
DOE |  | U.S. Department of Energy
DOJ |  | U.S. Department of Justice
EBITDA |  | Earnings Before Interest, Taxes, Depreciation, and Amortization
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

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Exchange Act |  | Securities Exchange Act of 1934, as amended
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
FTR |  | Financial transmission right
GAAP |  | U.S. Generally Accepted Accounting Principles
GCR |  | Gas cost recovery
GWh |  | Gigawatt-hour (a unit of energy equal to one million kWh)
Health Care Acts |  | Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act
IRS |  | Internal Revenue Service
ISFSI |  | Independent spent fuel storage installation
kWh |  | Kilowatt-hour (a unit of energy equal to one thousand watt-hours)
Ludington |  | Ludington pumped-storage plant, jointly owned by Consumers and Detroit Edison
MACT |  | Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source; for existing sources, MACT is the average emission limitation achieved by the best performing 12 percent of existing sources or the average limitation achieved by the best performing five sources, depending on the number of sources in the category
MBT |  | Michigan Business Tax
MCIT |  | Michigan Corporate Income Tax
MD&A |  | Management’s Discussion and Analysis
MDEQ |  | Michigan Department of Environmental Quality

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MDL |  | A pending multi-district litigation case in Nevada
MGP |  | Manufactured gas plant
Midwest Energy Market |  | An energy market developed by MISO to provide day-ahead and real-time market information and centralized dispatch for market participants
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)
NOV |  | Notice of Violation
NPDES |  | National Pollutant Discharge Elimination System
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 |  | New York Mercantile Exchange
OPEB |  | Postretirement benefit plans other than pensions
Palisades |  | Palisades nuclear power plant, sold by Consumers to Entergy in 2007
Panhandle |  | Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline Gas Company, LLC, Pan Gas Storage Company, Panhandle Storage Company, and Panhandle Holding Company, a former wholly owned subsidiary of CMS Gas Transmission
PCB |  | Polychlorinated biphenyl
Pension Plan |  | Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle
PPA |  | Power purchase agreement
PSCR |  | Power supply cost recovery
PSD |  | Prevention of Significant Deterioration

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REC |  | Renewable energy credit established under the 2008 Energy Law
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
SERP |  | Supplemental Executive Retirement Plan
Smart Grid |  | Consumers’ grid modernization project, which includes the installation of smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing information technology system to manage the data and enable changes to key business processes
Superfund |  | Comprehensive Environmental Response, Compensation and Liability Act
Supplemental Environmental Projects |  | Environmentally beneficial projects that 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
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.
U.S. |  | United States
XBRL |  | eXtensible Business Reporting Language

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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’ debt securities and holders of such debt 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 2010 Form 10-K.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make may 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 economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’:

| ■ |  | 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;
| • |  | population changes in the geographic areas where CMS Energy and Consumers conduct business;

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| • |  | national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;
| • |  | 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 lawsuits 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, including impacts of CSAPR and MACT;
| ■ |  | CCBs;
| ■ |  | PCBs;
| ■ |  | cooling water intake or discharge from power plants or other industrial equipment;
| ■ |  | limitations on the use or construction of coal-fueled electric power plants;
| ■ |  | nuclear-related regulation;
| ■ |  | renewable portfolio standards and energy efficiency mandates;
| ■ |  | energy-related derivatives and hedges under the Dodd-Frank Act; and
| ■ |  | any other potential legislative changes, including changes to the ten-percent ROA limit;

| • |  | potentially 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 those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;
| • |  | potentially adverse or delayed regulatory treatment or permitting decisions concerning significant matters affecting CMS Energy or Consumers that are or could come before the MDEQ and/or EPA, including Bay Harbor;
| • |  | potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are or could come 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;
| ▪ |  | MISO energy and transmission costs;
| ▪ |  | costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and
| ▪ |  | Smart Grid program costs;

| ■ |  | 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 Consumers’ pilot electric and gas decoupling mechanisms;
| ■ |  | regulatory orders preventing or curtailing rights to self-implement rate requests;
| ■ |  | regulatory orders potentially requiring a refund of previously self-implemented rates;
| ■ |  | implementation of new energy legislation or revisions of existing regulations; and
| ■ |  | regulatory treatment of the DOE settlement;

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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 demand for electric generation supply to alternative energy suppliers;
| • |  | the ability of Consumers to recover its regulatory assets in full and in a timely manner;
| • |  | the effectiveness of Consumers’ electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues;
| • |  | the impact of 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 the Dodd-Frank Act and related regulations on CMS Energy and Consumers, including regulation of financial institutions such as EnerBank, whistleblower rules, and shareholder activity that is permitted or may be permitted under the Act;
| • |  | 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;
| • |  | changes in 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’ risk management policies, procedures, and strategies, including their 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;
| • |  | 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;

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| • |  | 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 and distribution or gas pipeline system constraints;
| • |  | potential disruption or interruption of facilities or operations due to accidents, war, cyber-attacks, or terrorism, and the ability to obtain or maintain insurance coverage for these events;
| • |  | the impact of an accident, explosion, or other physical disaster involving Consumers’ gas pipelines, gas storage fields, overhead or underground electrical lines, or other utility infrastructure;
| • |  | CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of scheduled or unscheduled generation or gas compression outages;
| • |  | technological developments in energy production, delivery, usage, and storage;
| • |  | achievement of capital expenditure and operating expense goals, including the 2011 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 the Health Care Acts on existing or future health care costs;
| • |  | 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 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;
| • |  | 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, Regulatory Matters; 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.
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 independent power producer. 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 and operates 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 “Growing Forward” business strategy has emphasized the key elements depicted below:

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Safe, excellent operations
The safety and security of employees, customers, and the general public remain a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. From 2007 to 2010, Consumers achieved a 63 percent reduction in the annual number of recordable safety incidents.
Customer Value
Consumers is undertaking a number of initiatives that reflect its intensified customer focus. Consumers’ planned investments in reliability are aimed at improving safety, reducing customer outage frequency, reducing repetitive outages, and increasing customer satisfaction. Consumers’ productivity improvements are expected to help keep annual base rate increases (excluding PSCR and GCR charges) at or below the average rate of inflation. Consumers considers these and other aspects of its customer value initiative to be important to its success.
Utility Investment
Consumers expects to make capital investments of $6.5 billion over the next five years, 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 other existing units.
Renewable energy projects are a major component of Consumers’ planned capital investments. Consumers expects to spend $600 million on renewable energy investments from 2011 through 2015. The 2008 Energy Law requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions. Consumers has historically included renewable resources as part of its portfolio, with about five percent of its present power supply coming from such renewable sources as hydroelectric, landfill gas, biomass, and wind. In May 2011, the MPSC issued an order approving Consumers’ amended renewable energy plan, with slight modifications. The amended plan reduces the renewable energy surcharge billed to customers in the future by an annual amount of $54 million. The reduction is a result of lower-than-anticipated costs to comply with the renewable energy requirements prescribed by the 2008 Energy Law.
In February 2011, Consumers and Detroit Edison together announced an $800 million maintenance and upgrade project at their jointly owned Ludington pumped-storage plant. The project, scheduled to begin in 2013 and extend through 2019, is expected to increase the capacity of Ludington by 16 percent, from its present level of 1,872 MW to about 2,172 MW, and increase the plant’s efficiency by five percent. Consumers expects its share of the project cost to total $400 million.
Consumers’ Smart Grid program, with a total project capital cost of $750 million, also represents a major capital investment. The deployment, planned for mid-2012, will include advanced metering infrastructure. Consumers has spent $97 million through 2010 on its Smart Grid program, and expects to spend an additional $267 million, following a phased approach, from 2011 through 2015.
Two additional major investment areas for Consumers are environmental spending and reliability improvements. Consumers expects its environmental investments to total $1.4 billion and its investments in system reliability to total $1.2 billion through 2015.

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Regulation
Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. Recent important regulatory events and developments are summarized below.

| • |  | 2010 Gas Rate Case: In August 2010, Consumers filed an application with the MPSC seeking an annual gas rate increase of $55 million, based on an 11 percent authorized return on equity. In January 2011, Consumers filed support for a self-implemented annual gas rate increase of $48 million. In February, Consumers reduced the proposed self-implemented increase to $29 million. The MPSC then issued an order delaying Consumers’ self-implementation. The MPSC approved a partial settlement agreement in May, authorizing a $31 million annual gas rate increase, based on a 10.5 percent authorized return on equity. Matters not yet addressed in this case include the decoupling mechanism, the Smart Grid program, and contributions to the low-income and energy efficiency fund.
| • |  | Electric Revenue Decoupling Mechanism: Consumers’ 2009 electric rate case order authorized an electric revenue decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended in the 2010 electric rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and conservation. In March 2011, Consumers filed its first reconciliation of the electric decoupling mechanism, requesting recovery of $27 million from customers for the period December 2009 through November 2010.
| • |  | 2011 Electric Rate Case: In June 2011, Consumers filed a new general electric rate case seeking a $195 million revenue increase, based on a 10.7 percent authorized return on equity.

Environmental regulation is another area of importance for CMS Energy and Consumers, and they are monitoring numerous legislative and regulatory initiatives to regulate greenhouse gases, as well as related litigation. The EPA has taken steps to regulate greenhouse gases under the Clean Air Act and is expected to issue final new source performance standards in May 2012 addressing greenhouse gas emissions from fossil-fueled electric generating units. The EPA is also expected to propose guidelines for states to regulate greenhouse gas emissions from existing sources.
During 2010, the EPA issued various proposals for regulating PCBs, CCBs, sulfur dioxide, and nitrogen oxides. Additionally, in March 2011, the EPA proposed a hazardous air pollutant rule that would establish MACT emission standards for mercury and other hazardous air pollutants. Under the proposed rule, some coal-fueled electric generating units would require additional controls for hazardous air pollutants. Also in March 2011, the EPA issued a proposed rule to regulate existing electric generating plant cooling water intake systems. In July 2011, the EPA finalized the CSAPR, which requires Michigan and 26 other states to improve air quality by reducing power plant emissions that allegedly contribute to ground-level ozone and fine particle pollution in other downwind states. This rule, which replaces CAIR, mandates emission reductions beginning in 2012. CMS Energy and Consumers are monitoring the MACT emission standards developments for potential effects on their operations and assessing the impact and cost of complying with the CSAPR.
Financial Performance in 2011 and Beyond
For the three months ended June 30, 2011, CMS Energy’s net income available to common stockholders was $100 million, and diluted earnings per share were $0.38. This compares with net income available to common stockholders of $80 million and diluted earnings per share of $0.32 for the three months ended June 30, 2010. For the six months ended June 30, 2011, CMS Energy’s net income available to common stockholders was $235 million, and diluted earnings per share were $0.90. This compares with net income available to common stockholders of $165 million and diluted earnings per share of $0.67 for the six months ended June 30, 2010. Among the factors contributing to CMS Energy’s improved

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performance for both the three months and the six months ended June 30, 2011 were benefits from electric and gas rate orders and increased gas deliveries, offset partially by decreased electric delivery revenues and higher depreciation, property taxes, and distribution and service restoration costs. A tax benefit resulting from the enactment of the MCIT in May 2011 was offset by the absence, in 2011, of an insurance settlement recovery recorded in 2010.
A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the “Results of Operations” section that follows this Executive Overview.
CMS Energy believes that economic conditions in Michigan have improved. Although Michigan’s economy continues to be affected by the recession and its impact on the state’s automotive industry, by high unemployment rates, and by a modestly shrinking population, there are indications that the recession has eased in Michigan. Consumers expects its electric sales to increase by about 1.7 percent annually through 2016, driven largely by the continued rise in industrial production. Consumers is projecting that its gas sales will decline by about one percent annually through 2016, due largely to energy efficiency and conservation.
As Consumers continues to seek fair and timely regulatory treatment, delivering customer value will remain a key strategic priority. To keep costs down for its utility customers, Consumers has set goals to achieve further annual productivity improvements. Additionally, Consumers will strive to give priority to capital investments that increase customer value or lower costs.
Consumers expects to continue to have sufficient capacity to fund its investment-based growth plans. CMS Energy also expects its sources of liquidity to remain sufficient to meet its cash requirements. CMS Energy and Consumers will continue to monitor developments in the financial and credit markets, as well as government policy responses to those developments, for potential implications for their businesses and their future financial needs.

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RESULTS OF OPERATIONS
CMS Energy’s Consolidated Results of Operations

In Millions, Except Per Share Amounts |
|  | Three Months Ended |  |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | Change |  |  | 2011 |  |  | 2010 |  |  | Change |
Net Income Available to Common Stockholders |  | $ | 100 |  |  | $ | 80 |  |  | $ | 20 |  |  | $ | 235 |  |  | $ | 165 |  |  | $ | 70 |
Basic Earnings Per Share |  | $ | 0.40 |  |  | $ | 0.35 |  |  | $ | 0.05 |  |  | $ | 0.94 |  |  | $ | 0.72 |  |  | $ | 0.22 |
Diluted Earnings Per Share |  | $ | 0.38 |  |  | $ | 0.32 |  |  | $ | 0.06 |  |  | $ | 0.90 |  |  | $ | 0.67 |  |  | $ | 0.23 |

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | Change |  |  | 2011 |  |  | 2010 |  |  | Change |
Electric Utility |  | $ | 85 |  |  | $ | 86 |  |  | $ | (1 | ) |  | $ | 150 |  |  | $ | 127 |  |  | $ | 23 |
Gas Utility |  |  | 5 |  |  |  | 1 |  |  |  | 4 |  |  |  | 93 |  |  |  | 67 |  |  |  | 26 |
Enterprises |  |  | 29 |  |  |  | 33 |  |  |  | (4 | ) |  |  | 32 |  |  |  | 42 |  |  |  | (10 | )
Corporate Interest and Other |  |  | (19 | ) |  |  | (24 | ) |  |  | 5 |  |  |  | (42 | ) |  |  | (54 | ) |  |  | 12 |
Discontinued Operations |  |  | — |  |  |  | (16 | ) |  |  | 16 |  |  |  | 2 |  |  |  | (17 | ) |  |  | 19 |
Net Income Available to Common Stockholders |  | $ | 100 |  |  | $ | 80 |  |  | $ | 20 |  |  | $ | 235 |  |  | $ | 165 |  |  | $ | 70 |

Presented in the following table are specific after-tax changes to net income available to common stockholders for the three and six months ended June 30, 2011 versus 2010:

In Millions |
|  | 2011 better/(worse) than 2010
|  | Three Months Ended |  | Six Months Ended
|  | June 30 |  | June 30
Electric and gas rate orders |  |  |  |  |  | $ | 29 |  |  |  |  |  |  |  |  |  |  | $ | 52 |  |  |  |  |
Gas sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weather |  | $ | 7 |  |  |  |  |  |  |  |  |  |  | $ | 23 |  |  |  |  |  |  |  |  |
Deliveries and decoupling benefit |  |  | 4 |  |  |  | 11 |  |  |  |  |  |  |  | 12 |  |  |  | 35 |  |  |  |  |
Electric sales and decoupling |  |  |  |  |  |  | (13 | ) |  |  |  |  |  |  |  |  |  |  | (4 | ) |  |  |  |
Distribution and service restoration costs |  |  |  |  |  |  | (13 | ) |  |  |  |  |  |  |  |  |  |  | (21 | ) |  |  |  |
Other, mainly depreciation and property tax |  |  |  |  |  |  | (11 | ) |  | $ | 3 |  |  |  |  |  |  |  | (19 | ) |  | $ | 43 |
Subsidiary earnings of enterprises segment |  |  |  |  |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  | (7 | )
Other, mainly lower corporate interest expense |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | 7 |
2010 insurance settlement recovery |  |  |  |  |  |  | (31 | ) |  |  |  |  |  |  |  |  |  |  | (31 | ) |  |  |  |
MCIT enactment |  |  |  |  |  |  | 32 |  |  |  |  |  |  |  |  |  |  |  | 32 |  |  |  |  |
Voluntary separation plan cost in 2010 |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  | 7 |  |  |  |  |
Other, mainly tax adjustments related to previously sold businesses |  |  |  |  |  |  | 16 |  |  |  | 17 |  |  |  |  |  |  |  | 19 |  |  |  | 27 |
Total change |  |  |  |  |  |  |  |  |  | $ | 20 |  |  |  |  |  |  |  |  |  |  | $ | 70 |

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Consumers’ Electric Utility Results of Operations

In Millions |
June 30 |  | 2011 |  |  | 2010 |  |  | Change |
Net Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 85 |  |  | $ | 86 |  |  | $ | (1 | )
Six months ended |  |  | 150 |  |  |  | 127 |  |  |  | 23 |

In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
Reasons for the change: |  | June 30, 2011 vs. 2010 |  |  | June 30, 2011 vs. 2010 |
Electric deliveries and rate increases |  | $ | (26 | ) |  | $ | 2 |
Power supply costs and related revenue |  |  | — |  |  |  | 10 |
Other income, net of expenses |  |  | (5 | ) |  |  | (7 | )
Maintenance and other operating expenses |  |  | 15 |  |  |  | 1 |
Depreciation and amortization |  |  | 10 |  |  |  | 24 |
General taxes |  |  | (5 | ) |  |  | (5 | )
Interest charges |  |  | 8 |  |  |  | 9 |
Income taxes |  |  | 2 |  |  |  | (11 | )
Total change |  | $ | (1 | ) |  | $ | 23 |

Electric deliveries and rate increases: For the three months ended June 30, 2011, electric delivery revenues decreased $26 million compared with 2010. This variance was due to the absence, in 2011, of $43 million of surcharges in 2010 to recover retirement benefit expenses and certain regulatory assets, and a $23 million decrease in sales revenue resulting from cooler weather and lower decoupling revenue, offset partially by a $40 million increase in revenues from a November 2010 rate increase. Overall, deliveries to end-use customers were 8.9 billion kWh in 2011, a decrease of 0.1 billion kWh, or 1.1 percent, compared with 2010.
For the six months ended June 30, 2011, electric delivery revenues increased $2 million compared with 2010. This variance was due to a $66 million increase in revenues from a November 2010 rate increase, offset largely by the absence, in 2011, of $61 million of surcharges in 2010 to recover retirement benefit expenses and certain regulatory assets, and a $3 million decrease in other revenues. Overall, deliveries to end-use customers were 18.3 billion kWh in 2011, an increase of 0.2 billion kWh, or 1.1 percent, compared with 2010.
Power supply costs and related revenue: For the six months ended June 30, 2011, PSCR revenue increased $10 million compared with 2010. This increase was due to the absence, in 2011, of a disallowance in 2010 of certain power supply costs in Consumers’ 2007 PSCR reconciliation case.
Other income, net of expenses: For the three months ended June 30, 2011, other income decreased $5 million compared with 2010, and for the six months ended June 30, 2011, other income decreased $7 million compared with 2010. These decreases were due primarily to a reduction in interest income recorded as a result of the declining balance of certain regulatory assets.
Maintenance and other operating expenses: For the three months ended June 30, 2011, maintenance and other operating expenses decreased $15 million compared with 2010. This variance was due primarily to the absence, in 2011, of $26 million of retirement benefit expenses that were recovered in revenue in 2010, offset partially by a $9 million increase in service restoration costs.
For the six months ended June 30, 2011, maintenance and other operating expenses decreased $1 million compared with 2010. The absence, in 2011, of $26 million of retirement benefit expenses that were recovered in revenue in 2010 and $6 million of voluntary separation plan expenses incurred in 2010 was offset largely by $22 million of higher service restoration costs, caused by a series of unusually severe

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storms, and $9 million of higher forestry and tree-trimming costs, plant maintenance, and other operating expenses.
Depreciation and amortization: For the three months ended June 30, 2011, depreciation and amortization expense decreased $10 million compared with 2010, and for the six months ended June 30, 2011, depreciation and amortization expense decreased $24 million compared with 2010. These decreases were due to lower amortization expense on certain regulatory assets, offset partially by higher depreciation expense from increased plant in service.
Interest charges: For the three months ended June 30, 2011, interest charges decreased $8 million compared with 2010, and for the six months ended June 30, 2011, interest charges decreased $9 million compared with 2010. These decreases resulted primarily from the absence, in 2011, of interest expense on a Michigan use tax assessment.
Income taxes: For the three months ended June 30, 2011, income taxes decreased $2 million compared with 2010, reflecting lower electric utility earnings. For the six months ended June 30, 2011, income taxes increased $11 million compared with 2010, reflecting higher electric utility earnings.
Consumers’ Gas Utility Results of Operations

In Millions |
June 30 |  | 2011 |  |  | 2010 |  |  | Change |
Net Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 5 |  |  | $ | 1 |  |  | $ | 4 |
Six months ended |  |  | 93 |  |  |  | 67 |  |  |  | 26 |

In Millions |
|  | Three Months Ended |  |  | Six Months Ended |
Reasons for the change: |  | June 30, 2011 vs. 2010 |  |  | June 30, 2011 vs. 2010 |
Gas deliveries and rate increases |  | $ | 19 |  |  | $ | 52 |
Other income, net of expense |  |  | (2 | ) |  |  | (4 | )
Maintenance and other operating expenses |  |  | (7 | ) |  |  | 5 |
Depreciation and amortization |  |  | (2 | ) |  |  | (5 | )
General taxes |  |  | (4 | ) |  |  | (6 | )
Interest charges |  |  | 3 |  |  |  | 3 |
Income taxes |  |  | (3 | ) |  |  | (19 | )
Total change |  | $ | 4 |  |  | $ | 26 |

Gas deliveries and rate increases: For the three months ended June 30, 2011, gas delivery revenues increased $19 million compared with 2010. This increase reflected higher customer usage, of which $11 million was due to colder weather in 2011. Gas deliveries, including miscellaneous transportation to end-use customers, were 45.6 bcf in 2011, an increase of 8.8 bcf, or 23.9 percent, compared with 2010.
For the six months ended June 30, 2011, gas delivery revenues increased $52 million compared with 2010. This increase reflected higher customer usage, of which $37 million was due to colder weather in 2011. Gas deliveries, including miscellaneous transportation to end-use customers, were 179.5 bcf in 2011, an increase of 23.6 bcf, or 15.1 percent, compared with 2010.
Maintenance and other operating expenses: For the three months ended June 30, 2011, maintenance and other operating expenses increased $7 million compared with 2010, due primarily to higher transmission and distribution operating expenses.
For the six months ended June 30, 2011, maintenance and other operating expenses decreased $5 million compared with 2010, due primarily to the absence, in 2011, of voluntary separation plan expenses incurred in 2010.

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##### Table of Contents

Income taxes: For the three months ended June 30, 2011, income taxes increased $3 million compared with 2010, and for the six months ended June 30, 2011, income taxes increased $19 million, reflecting higher gas utility earnings in 2011.
Enterprises Results of Operations

In Millions |
June 30 |  | 2011 |  |  | 2010 |  |  | Change |
Net Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | 29 |  |  | $ | 33 |  |  | $ | (4 | )
Six months ended |  |  | 32 |  |  |  | 42 |  |  |  | (10 | )

For the three months ended June 30, 2011, net income of the enterprises segment decreased $4 million compared with 2010, due to the absence, in 2011, of a $31 million insurance settlement recovery in 2010, offset largely by a $28 million income tax benefit resulting from the enactment of the MCIT in May 2011.
For the six months ended June 30, 2011, net income of the enterprises segment decreased $10 million compared with 2010, due to the absence, in 2011, of a $31 million insurance settlement recovery in 2010 and lower electric revenues of $7 million in 2011. These decreases were offset partially by a $28 million income tax benefit resulting from the enactment of the MCIT in May 2011.
For further details about the enactment of the MCIT, see Note 11, Income Taxes.
Corporate Interest and Other Results of Operations

In Millions |
June 30 |  | 2011 |  |  | 2010 |  |  | Change |
Net Loss Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |
Three months ended |  | $ | (19 | ) |  | $ | (24 | ) |  | $ | 5 |
Six months ended |  |  | (42 | ) |  |  | (54 | ) |  |  | 12 |

For the three months ended June 30, 2011, corporate interest and other net expenses decreased $5 million compared with 2010, due primarily to lower income tax expense resulting from the enactment of the MCIT in May 2011.
For the six months ended June 30, 2011, corporate interest and other net expenses decreased $12 million compared with 2010, due primarily to lower income tax expense resulting partially from the enactment of the MCIT in May 2011.
Discontinued Operations
For the three months ended June 30, 2011, the net loss recorded from discontinued operations was less than $1 million, compared with a loss from discontinued operations of $16 million in 2010 related to prior asset sales.
For the six months ended June 30, 2011, income of $2 million was recorded from discontinued operations due to a legal settlement, compared with a loss from discontinued operations of $17 million in 2010 related to prior asset sales.

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CASH POSITION, INVESTING, AND FINANCING
At June 30, 2011, CMS Energy had $994 million of consolidated cash and cash equivalents and $29 million of restricted cash and cash equivalents. At June 30, 2011, Consumers had $766 million of consolidated cash and cash equivalents and $28 million of restricted cash and cash equivalents.
Operating Activities
Presented in the following table are specific components of net cash provided by operating activities for the six months ended June 30, 2011 and 2010:

In Millions |
Six Months Ended June 30 |  | 2011 |  |  | 2010 |  |  | Change |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 236 |  |  | $ | 172 |  |  | $ | 64 |
Non-cash transactions1 |  |  | 480 |  |  |  | 539 |  |  |  | (59 | )
|  | $ | 716 |  |  | $ | 711 |  |  | $ | 5 |
Sale of gas purchased in the prior year |  |  | 514 |  |  |  | 474 |  |  |  | 40 |
Purchase of gas in the current year |  |  | (293 | ) |  |  | (274 | ) |  |  | (19 | )
Accounts receivable sales, net |  |  | — |  |  |  | (50 | ) |  |  | 50 |
Change in other core working capital2 |  |  | 232 |  |  |  | 299 |  |  |  | (67 | )
Postretirement benefits contributions |  |  | (39 | ) |  |  | (153 | ) |  |  | 114 |
Other changes in assets and liabilities, net |  |  | 86 |  |  |  | 41 |  |  |  | 45 |
Net cash provided by operating activities |  | $ | 1,216 |  |  | $ | 1,048 |  |  | $ | 168 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 245 |  |  | $ | 195 |  |  | $ | 50 |
Non-cash transactions1 |  |  | 473 |  |  |  | 398 |  |  |  | 75 |
|  | $ | 718 |  |  | $ | 593 |  |  | $ | 125 |
Sale of gas purchased in the prior year |  |  | 514 |  |  |  | 474 |  |  |  | 40 |
Purchase of gas in the current year |  |  | (293 | ) |  |  | (274 | ) |  |  | (19 | )
Accounts receivable sales, net |  |  | — |  |  |  | (50 | ) |  |  | 50 |
Change in other core working capital2 |  |  | 230 |  |  |  | 300 |  |  |  | (70 | )
Postretirement benefits contributions |  |  | (37 | ) |  |  | (143 | ) |  |  | 106 |
Other changes in assets and liabilities, net |  |  | 113 |  |  |  | 83 |  |  |  | 30 |
Net cash provided by operating activities |  | $ | 1,245 |  |  | $ | 983 |  |  | $ | 262 |

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

For the six months ended June 30, 2011, net cash provided by operating activities at CMS Energy increased $168 million compared with 2010. The increase was due primarily to the absence of Pension Plan contributions in 2011 and increased collections of accounts receivable.
For the six months ended June 30, 2011, net cash provided by operating activities at Consumers increased $262 million compared with 2010. The increase was due primarily to higher net income, the absence of Pension Plan contributions in 2011, and increased collections of accounts receivable.

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##### Table of Contents

Investing Activities
Presented in the following table are specific components of net cash used in investing activities for the six months ended June 30, 2011 and 2010:

In Millions |
Six Months Ended June 30 |  | 2011 |  |  | 2010 |  |  | Change |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | (399 | ) |  | $ | (424 | ) |  | $ | 25 |
Cash effect of deconsolidation of partnerships |  |  | — |  |  |  | (10 | ) |  |  | 10 |
Costs to retire property and other |  |  | (72 | ) |  |  | (56 | ) |  |  | (16 | )
Net cash used in investing activities |  | $ | (471 | ) |  | $ | (490 | ) |  | $ | 19 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | (394 | ) |  | $ | (423 | ) |  | $ | 29 |
Costs to retire property and other |  |  | (51 | ) |  |  | (21 | ) |  |  | (30 | )
Net cash used in investing activities |  | $ | (445 | ) |  | $ | (444 | ) |  | $ | (1 | )

For the six months ended June 30, 2011, net cash used in investing activities decreased $19 million at CMS Energy compared with 2010. This variance was due primarily to a decrease in capital expenditures and the absence, in 2011, of the cash effect of deconsolidating certain partnerships in 2010, offset partially by other investing activities, including CMS Energy’s contribution of $27 million to its SERP fund.
For the six months ended June 30, 2011, net cash used in investing activities increased $1 million at Consumers compared with 2010. A decrease in capital expenditures was offset largely by other investing activities, including Consumers’ contribution of $20 million to its SERP fund.
Financing Activities
Presented in the following table are specific components of net cash used in financing activities for the six months ended June 30, 2011 and 2010:

In Millions |
Six Months Ended June 30 |  | 2011 |  |  | 2010 |  |  | Change |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |
Issuance of FMBs, convertible senior notes, senior notes, and other debt |  | $ | 396 |  |  | $ | 366 |  |  | $ | 30 |
Retirement of long-term debt |  |  | (292 | ) |  |  | (352 | ) |  |  | 60 |
Common stock issued |  |  | 22 |  |  |  | 5 |  |  |  | 17 |
Payment of common stock dividends |  |  | (106 | ) |  |  | (69 | ) |  |  | (37 | )
Other financing activities |  |  | (20 | ) |  |  | (61 | ) |  |  | 41 |
Net cash used in financing activities |  | $ | — |  |  | $ | (111 | ) |  | $ | 111 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
Retirement of debt and other debt maturity payments |  | $ | (18 | ) |  | $ | (327 | ) |  | $ | 309 |
Payments of common stock dividends |  |  | (196 | ) |  |  | (168 | ) |  |  | (28 | )
Stockholder’s contribution from CMS Energy |  |  | 125 |  |  |  | 250 |  |  |  | (125 | )
Other financing activities |  |  | (16 | ) |  |  | (13 | ) |  |  | (3 | )
Net cash used in financing activities |  | $ | (105 | ) |  | $ | (258 | ) |  | $ | 153 |

For the six months ended June 30, 2011, net cash used in financing activities at CMS Energy decreased $111 million compared to 2010. The change was due primarily to an increase in net proceeds from borrowings and common stock issued by CMS Energy in 2011.
For the six months ended June 30, 2011, net cash used in financing activities at Consumers decreased $153 million compared with 2010. The change was due primarily to a decrease in debt retirements, offset partially by a decrease in stockholder’s contribution from CMS Energy.

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CAPITAL RESOURCES AND LIQUIDITY
CMS Energy uses dividends from its subsidiaries and external financing and capital transactions to invest in its utility and non-utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends may be restricted by certain terms included in its articles of incorporation, by provisions under the Federal Power Act and the Natural Gas Act, and by FERC requirements. For additional details on Consumers’ dividend restrictions, see Note 5, Financings, “Dividend Restrictions.” For the six months ended June 30, 2011, Consumers paid $196 million in common stock dividends to CMS Energy.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder’s contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other obligations.
CMS Energy’s and Consumers’ access to the financial and capital markets depends on their credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets and, barring major market dislocations or disruptions, they expect to continue to have such access. If access to these markets were to become diminished or otherwise restricted, however, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. CMS Energy and Consumers also had the following secured revolving credit facilities available at June 30, 2011:

In Millions
|  | Amount of |  |  | Amount |  |  | Letters of Credit |  |  | Amount |  |  | Expiration
|  | Facility |  |  | Borrowed |  |  | Outstanding |  |  | Available |  |  | Date
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revolving credit facility1 |  | $ | 550 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 547 |  |  | March 2016
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revolving credit facility2,3 |  | $ | 500 |  |  | $ | — |  |  | $ | 189 |  |  | $ | 311 |  |  | March 2016
Revolving credit facility3 |  |  | 150 |  |  |  | — |  |  |  | — |  |  |  | 150 |  |  | August 2013

1 |  | On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces CMS Energy’s revolving credit facility that was set to expire in 2012. Obligations under this facility are secured by Consumers common stock.
2 |  | On March 31, 2011, Consumers entered into a $500 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces Consumers’ revolving credit facility that was set to expire in 2012.
3 |  | Obligations under this facility are secured by FMBs of Consumers.

CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ revolving accounts receivable sales program, which allows it to transfer up to $250 million of accounts receivable as a secured borrowing. At June 30, 2011, $250 million of accounts receivable were eligible for transfer under this program.

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CMS Energy’s $550 million revolving credit agreement specifies a maximum debt-to-EBITDA ratio, as defined therein. Consumers’ $500 million revolving credit agreement specifies a maximum debt-to-capital ratio, as defined therein. CMS Energy and Consumers were each in compliance with these limits as of June 30, 2011, as presented in the following table:

|  |  |  |  |  |  |  |  |  | Ratio at |
Revolving Credit Agreement |  | Description |  | Maximum Limit |  |  | June 30, 2011 |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |
$550 million revolving credit agreement |  | Debt to EBITDA |  |  | 6.0 to 1.0 |  |  |  | 4.80 to 1.0 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |
$500 million revolving credit agreement |  | Debt to Capital |  |  | 0.65 to 1.0 |  |  |  | 0.50 to 1.0 |

Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. 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 fund their contractual obligations for 2011 and beyond.
Off-Balance-Sheet Arrangements
CMS Energy, Consumers, and certain of their subsidiaries also 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 the short-term and long-term energy needs of its customers through:

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

In 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 has been monitoring customer demand, fuel and power prices, and other market conditions, and has not set a timetable for a future decision about the project. Although the likelihood that the plant will be constructed has diminished significantly, in July 2011 the MDEQ granted Consumers an extension of the project’s air permit. Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, relying on additional market purchases, and continued operation of several existing generating units.
Renewable Energy Plan: Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Law. This law requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.5 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable energy resource. The law 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 renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. At June 30, 2011, the combination of these sources represented 84 percent of Consumers’ 2015 REC requirement.
To meet its renewable capacity requirements, Consumers expects to add more than 500 MW of owned or contracted renewable capacity by 2015. Through June 2011, Consumers has contracted for the purchase of 296 MW of nameplate capacity from renewable energy suppliers, which represents 59 percent of the 2015 renewable capacity requirement.
Consumers has secured more than 81,000 acres of land easements in Michigan’s Huron, Mason, and Tuscola Counties for the potential development of wind generation, and is now collecting wind speed and other meteorological data at those sites. Consumers has entered into construction and supply contracts as well as a contract to purchase wind turbine generators for the construction of a 100-MW wind park in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in late 2012. In July 2011, the Mason County Planning Commission voted in favor of granting a special

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land use permit for the construction of the Lake Winds Energy Park. The action by the Mason County Planning Commission has been appealed to the Mason County Zoning Board of Appeals. Consumers will also continue development of its 150-MW wind park in Tuscola County, Cross Winds Energy Park, scheduled for operation by late 2014, as well as seek other opportunities for wind generation development in support of the renewable capacity standards.
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 believes economic conditions have improved, and expects weather-adjusted electric deliveries to increase in 2011 by two percent compared with 2010.
Consumers expects average electric delivery growth of about 1.7 percent annually over the next five years. This increase reflects growth in electric demand, offset partially 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.

A decoupling mechanism was authorized by the MPSC in Consumers’ 2009 electric rate case order, subject to certain conditions, and extended in the 2010 electric rate case order. It allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and conservation. This mechanism reduces the volatility of Consumers’ electric utility revenue.
Electric ROA: The Customer Choice Act allows all of Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Law revised the Customer Choice Act by limiting alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At June 30, 2011, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 796 MW of generation service to ROA customers. Based on 2010 weather-adjusted retail sales, Consumers expects 2011 electric deliveries under the ROA program to be at a similar level to 2010.
Electric Transmission: In July 2011, FERC issued an order in a rulemaking proceeding concerning regional electric transmission planning and cost allocations. In a related matter, in July 2010, MISO filed a tariff revision with FERC proposing a cost allocation methodology for a new category of transmission projects. In December 2010, FERC approved MISO’s cost allocation proposal. Under this tariff revision, the cost of these new transmission projects will be spread proportionally across the Midwest Energy Market. Consumers believes that Michigan customers will bear additional costs under MISO’s tariff without receiving comparable benefits from these projects. In January 2011, Consumers, along with the Michigan Attorney General, ABATE, Detroit Edison, the Michigan Municipal Electric Association, and the Michigan Public Power Agency, filed a protest and request for rehearing with FERC, opposing the allocation methodology in the MISO tariff revision. Consumers expects to continue to recover transmission expenses, including those associated with the MISO tariff revision, through the PSCR process.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ electric rate cases, PSCR, electric revenue decoupling mechanism, uncollectible expense tracking mechanism, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning, renewable energy plan, energy optimization plan, and electric depreciation, see Note 4, Regulatory Matters, “Consumers’ Electric Utility.”

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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, and estimates that it will incur expenditures of $1.6 billion from 2011 through 2018 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/Cross-State Air Pollution Rule: In December 2008, a court decision remanded CAIR back to the EPA. Until the EPA finalized a new rule, CAIR remained in effect. In July 2011, the EPA released CSAPR, a final replacement rule for CAIR, which requires Michigan and 26 other states to improve air quality by reducing power plant emissions that allegedly contribute to ground-level ozone and fine particle pollution in other downwind states. This rule mandates emission reductions beginning in 2012. Consumers is analyzing this final rule to assess its impact on Consumers’ operations.
Electric Generating Unit MACT: In March 2011, the EPA proposed MACT emission standards for electric generating units, based on Section 112 of the Clean Air Act. Under the proposed rule, some coal-fueled electric generating units would require additional controls for hazardous air pollutants. Existing sources must meet the standards generally within three years of issuance of the final rule. The final rule is expected to be issued in November 2011.
Presently, Consumers’ strategy to comply with CSAPR, and with MACT in its present form, involves the installation of state-of-the-art emission control equipment; however, Consumers continues to evaluate CSAPR and MACT standards in conjunction with other EPA rulemakings. These rules could result in additional or accelerated environmental compliance costs related to Consumers’ fossil-fueled power plants and the retirement or mothballing of some or all of Consumers’ older, smaller generating units.
Greenhouse Gases: There are numerous legislative and regulatory initiatives at the state, regional, and national levels that involve the regulation of greenhouse gases. Consumers monitors and comments on these initiatives and also follows litigation involving greenhouse gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and timing of any final legislation.
In 2009, the U.S. Court of Appeals for the Second Circuit issued a decision that allowed states and private plaintiffs to bring lawsuits in the federal courts against utilities and others based on common law nuisance theories that challenged the defendants’ greenhouse gas emissions. This decision potentially allowed federal judges to impose caps on such emissions on a case-by-case basis without reference to any legislatively created standards. A group of utilities filed a petition with the U.S. Supreme Court, seeking review of the U.S. Court of Appeals decision. In June 2011, the U.S. Supreme Court reversed the decision of the U.S. Court of Appeals for the Second Circuit, agreeing with the position taken by the utility industry that the Clean Air Act displaces any common law actions to force greenhouse gas emissions reductions from fossil-based power plants.
In 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 NSR PSD and Title V Operating Permit programs. The EPA issued revised guidance on this rule in March 2011. Consumers does not expect that the rule will require it to incur significant expenditures for efficiency upgrades for modified or new facilities.
In December 2010, the EPA entered into a settlement agreement with certain states and environmental groups that puts it on a path to issue proposed new source performance standards in September 2011. This proposal will address greenhouse gas emissions for new fossil-fueled electric generating units and major modifications under Section 111(b) of the Clean Air Act. The EPA is expected to promulgate final standards by May 2012. On the same schedule, the EPA is expected to propose emissions guidelines for

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the states to regulate greenhouse gas emissions from existing sources under Section 111(d) of the Clean Air Act. Under the expected schedule, states will need to submit plans to the EPA within nine months of issuance of the final rule and guidelines. Consumers will continue to monitor this settlement and any proposed new source performance standards regulations.
In March 2011, the EPA issued a final rule that extends to September 30, 2011 the deadline for reporting 2010 greenhouse gas emissions data under the Greenhouse Gas Reporting Program. The original deadline was March 31, 2011. Consumers is prepared to comply with the final rule.
Litigation, as well as federal 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.
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 coal ash disposal areas could be closed and costly alternative arrangements for coal ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive. Consumers is unable to predict accurately the impacts from this wide range of possible outcomes, but significant expenditures are likely.
Water: In March 2011, the EPA issued a proposed rule to regulate existing electric generating plant cooling water intake systems. Consumers is evaluating this proposed rule and its potential impacts on Consumers’ plants. A final rule is expected in July 2012.
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. Consumers could incur substantial costs associated with the regulation of PCBs due to prior installation of electrical equipment potentially containing PCBs.
Other electric environmental matters could have a major impact on Consumers’ outlook. For additional details on other electric environmental matters, see Note 3, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies — Electric Environmental Matters.”

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Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries: Consumers believes economic conditions in Michigan have improved, and expects weather-adjusted gas deliveries to increase in 2011 by two percent compared with 2010. Over the next five years, Consumers expects average gas deliveries to decline about one percent annually, reflecting the predicted effects of energy efficiency programs and continued conservation. Actual delivery levels from year to year may vary from this trend due to:

| • |  | fluctuations in weather;
| • |  | use by independent power producers;
| • |  | availability and development of renewable energy sources;
| • |  | changes in gas prices;
| • |  | Michigan economic conditions, including population trends and housing activity;
| • |  | the price of competing energy sources or fuels; and
| • |  | energy efficiency and conservation.

A decoupling mechanism was authorized by the MPSC in Consumers’ 2009 gas rate case order, subject to certain conditions. It allows Consumers to adjust future gas rates to compensate for changes in sales volumes by class arising from the difference between the level of average sales per customer adopted in the order and actual average weather-adjusted sales per customer. The mechanism does not provide rate adjustments for changes in sales volumes arising from weather fluctuations. This mechanism mitigates the impacts of energy efficiency programs, conservation, and changes in economic conditions on its gas revenue.
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas rate case and GCR, see Note 4, Regulatory Matters, “Consumers’ Gas Utility.”
Gas Pipeline Safety: In response to the natural gas pipeline explosion that occurred in San Bruno, California in September 2010 and other recent events, the U.S. House of Representatives and the U.S. Senate have proposed bills stipulating stricter regulation of natural gas pipelines nationwide. These proposed bills affect both transmission and distribution pipelines. The proposed bills contain provisions mandating:

| • |  | the installation of automatic shutoff equipment in high consequence areas;
| • |  | redefinition of “high consequence areas”;
| • |  | increased civil penalties;
| • |  | prescribed notification and on-site incident response times;
| • |  | plans for safe management and replacement of cast iron pipelines;
| • |  | consideration of seismic activity;
| • |  | verification of maximum allowable operating pressure of all pipelines; and
| • |  | certain disclosures to homeowners and regulatory agencies.

Consumers continues to comply with laws and regulations governing natural gas pipeline safety. If these proposed laws are put into effect, Consumers could incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects that it would be able to recover the costs in rates, consistent with the recovery of other reasonable costs of complying with laws and regulations.
Gas Environmental Estimates: Consumers expects to incur response activity 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.”

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Consumers’ Other Outlook and Uncertainties
Smart Grid: Consumers’ grid modernization effort continues to move forward. The foundation of this effort is the installation of advanced metering and the infrastructure to support it. The installation will include smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing information technology systems to manage the data and enable changes to key business processes. Consumers expects to experience operational benefits upon the installation of smart meters. Smart meters are also 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 the relative immaturity of the technology, Consumers intends to continue its phased implementation approach. In mid-2012, Consumers plans to begin a larger-scale deployment to expand testing of the operations and systems of the selected advanced metering infrastructure network communications vendor.
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, or 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
EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. EnerBank represented one percent of CMS Energy’s net assets at June 30, 2011, and two percent of CMS Energy’s net income available to common stockholders for the six months ended June 30, 2011. The carrying value of EnerBank’s loan portfolio was $398 million at June 30, 2011. Its loan portfolio was funded primarily by deposit liabilities of $385 million. Twelve-month rolling average default rates on loans held by EnerBank have declined from 1.4 percent at December 31, 2010 to 1.1 percent at June 30, 2011. EnerBank expects the rate of loan defaults to level out at about 1.0 percent. CMS Energy is required to ensure that EnerBank remains well capitalized.
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, Regulatory Matters.

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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 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Operating Revenue |  | $ | 1,364 |  |  | $ | 1,340 |  |  | $ | 3,419 |  |  | $ | 3,307 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fuel for electric generation |  |  | 153 |  |  |  | 151 |  |  |  | 305 |  |  |  | 289 |
Purchased and interchange power |  |  | 303 |  |  |  | 314 |  |  |  | 603 |  |  |  | 592 |
Purchased power — related parties |  |  | 20 |  |  |  | 21 |  |  |  | 41 |  |  |  | 42 |
Cost of gas sold |  |  | 220 |  |  |  | 178 |  |  |  | 988 |  |  |  | 956 |
Maintenance and other operating expenses |  |  | 288 |  |  |  | 296 |  |  |  | 567 |  |  |  | 571 |
Depreciation and amortization |  |  | 122 |  |  |  | 131 |  |  |  | 284 |  |  |  | 303 |
General taxes |  |  | 51 |  |  |  | 41 |  |  |  | 118 |  |  |  | 107 |
Insurance settlement |  |  | — |  |  |  | (50 | ) |  |  | — |  |  |  | (50 | )
Gain on asset sales, net |  |  | — |  |  |  | (4 | ) |  |  | — |  |  |  | (4 | )
Total operating expenses |  |  | 1,157 |  |  |  | 1,078 |  |  |  | 2,906 |  |  |  | 2,806 |
Operating Income |  |  | 207 |  |  |  | 262 |  |  |  | 513 |  |  |  | 501 |
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 2 |  |  |  | 4 |  |  |  | 4 |  |  |  | 9 |
Allowance for equity funds used during construction |  |  | 2 |  |  |  | 2 |  |  |  | 3 |  |  |  | 3 |
Income from equity method investees |  |  | 2 |  |  |  | 2 |  |  |  | 6 |  |  |  | 5 |
Other income |  |  | 5 |  |  |  | 9 |  |  |  | 9 |  |  |  | 18 |
Other expense |  |  | (3 | ) |  |  | (3 | ) |  |  | (5 | ) |  |  | (5 | )
Total other income |  |  | 8 |  |  |  | 14 |  |  |  | 17 |  |  |  | 30 |
Interest Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on long-term debt |  |  | 99 |  |  |  | 98 |  |  |  | 199 |  |  |  | 196 |
Other interest expense |  |  | 6 |  |  |  | 20 |  |  |  | 12 |  |  |  | 28 |
Allowance for borrowed funds used during construction |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | ) |  |  | (2 | )
Total interest charges |  |  | 104 |  |  |  | 117 |  |  |  | 209 |  |  |  | 222 |
Income Before Income Taxes |  |  | 111 |  |  |  | 159 |  |  |  | 321 |  |  |  | 309 |
Income Tax Expense |  |  | 10 |  |  |  | 59 |  |  |  | 87 |  |  |  | 120 |
Income From Continuing Operations |  |  | 101 |  |  |  | 100 |  |  |  | 234 |  |  |  | 189 |
Income (Loss) From Discontinued Operations, Net of Tax Expense of $ —, $6, $1, and $5 |  |  | — |  |  |  | (16 | ) |  |  | 2 |  |  |  | (17 | )
Net Income |  |  | 101 |  |  |  | 84 |  |  |  | 236 |  |  |  | 172 |
Income Attributable to Noncontrolling Interests |  |  | 1 |  |  |  | 2 |  |  |  | 1 |  |  |  | 2 |
Net Income Attributable to CMS Energy |  |  | 100 |  |  |  | 82 |  |  |  | 235 |  |  |  | 170 |
Preferred Stock Dividends |  |  | — |  |  |  | 2 |  |  |  | — |  |  |  | 5 |
Net Income Available to Common Stockholders |  | $ | 100 |  |  | $ | 80 |  |  | $ | 235 |  |  | $ | 165 |

The accompanying notes are an integral part of these statements.

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In Millions, Except Per Share Amounts |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Net Income Attributable to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amounts Attributable to Continuing Operations |  | $ | 100 |  |  | $ | 96 |  |  | $ | 233 |  |  | $ | 182 |
Amounts Attributable to Discontinued Operations |  |  | — |  |  |  | (16 | ) |  |  | 2 |  |  |  | (17 | )
Net Income Available to Common Stockholders |  | $ | 100 |  |  | $ | 80 |  |  | $ | 235 |  |  | $ | 165 |
Income Attributable to Noncontrolling Interests |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amounts Attributable to Continuing Operations |  | $ | 1 |  |  | $ | 2 |  |  | $ | 1 |  |  | $ | 2 |
Amounts Attributable to Discontinued Operations |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income Attributable to Noncontrolling Interests |  | $ | 1 |  |  | $ | 2 |  |  | $ | 1 |  |  | $ | 2 |
Basic Earnings Per Average Common Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic Earnings from Continuing Operations |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.93 |  |  | $ | 0.80 |
Basic Earnings (Loss) from Discontinued Operations |  |  | — |  |  |  | (0.07 | ) |  |  | 0.01 |  |  |  | (0.08 | )
Basic Earnings Attributable to Common Stock |  | $ | 0.40 |  |  | $ | 0.35 |  |  | $ | 0.94 |  |  | $ | 0.72 |
Diluted Earnings Per Average Common Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Diluted Earnings from Continuing Operations |  | $ | 0.38 |  |  | $ | 0.39 |  |  | $ | 0.89 |  |  | $ | 0.74 |
Diluted Earnings (Loss) from Discontinued Operations |  |  | — |  |  |  | (0.07 | ) |  |  | 0.01 |  |  |  | (0.07 | )
Diluted Earnings Attributable to Common Stock |  | $ | 0.38 |  |  | $ | 0.32 |  |  | $ | 0.90 |  |  | $ | 0.67 |
Dividends Declared Per Common Share |  | $ | 0.21 |  |  | $ | 0.15 |  |  | $ | 0.42 |  |  | $ | 0.30 |

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CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

In Millions |
Six Months ended June 30 |  | 2011 |  |  | 2010 |
Cash Flows from Operating Activities |  |  |  |  |  |  |  |
Net Income |  | $ | 236 |  |  | $ | 172 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 284 |  |  |  | 303 |
Deferred income taxes and investment tax credit |  |  | 74 |  |  |  | 107 |
Postretirement benefits expense |  |  | 83 |  |  |  | 88 |
Other non-cash operating activities |  |  | 39 |  |  |  | 41 |
Postretirement benefits contributions |  |  | (39 | ) |  |  | (153 | )
Changes in other assets and liabilities: |  |  |  |  |  |  |  |
Decrease in accounts receivable, notes receivable, and accrued revenue |  |  | 215 |  |  |  | 178 |
Decrease in accrued power supply revenue |  |  | 15 |  |  |  | 22 |
Decrease in inventories |  |  | 204 |  |  |  | 230 |
Increase in accounts payable |  |  | 34 |  |  |  | 41 |
Decrease in accrued expenses |  |  | (36 | ) |  |  | (51 | )
Decrease in other current and non-current assets |  |  | 71 |  |  |  | 88 |
Increase (decrease) in other current and non-current liabilities |  |  | 36 |  |  |  | (18 | )
Net cash provided by operating activities |  |  | 1,216 |  |  |  | 1,048 |
Cash Flows from Investing Activities |  |  |  |  |  |  |  |
Capital expenditures (excludes assets placed under capital lease) |  |  | (399 | ) |  |  | (424 | )
Cost to retire property |  |  | (28 | ) |  |  | (20 | )
Cash effect of deconsolidation of partnerships |  |  | — |  |  |  | (10 | )
Other investing activities |  |  | (44 | ) |  |  | (36 | )
Net cash used in investing activities |  |  | (471 | ) |  |  | (490 | )
Cash Flows from Financing Activities |  |  |  |  |  |  |  |
Proceeds from issuance of long-term debt |  |  | 375 |  |  |  | 300 |
Proceeds from EnerBank notes, net |  |  | 21 |  |  |  | 66 |
Issuance of common stock |  |  | 22 |  |  |  | 5 |
Retirement of long-term debt |  |  | (292 | ) |  |  | (352 | )
Payment of common stock dividends |  |  | (106 | ) |  |  | (69 | )
Payment of preferred stock dividends |  |  | — |  |  |  | (5 | )
Payment of capital and finance lease obligations |  |  | (12 | ) |  |  | (12 | )
Other financing costs |  |  | (8 | ) |  |  | (44 | )
Net cash used in financing activities |  |  | — |  |  |  | (111 | )
Net Increase in Cash and Cash Equivalents, Including Assets Held for Sale |  |  | 745 |  |  |  | 447 |
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale |  |  | 2 |  |  |  | (1 | )
Net Increase in Cash and Cash Equivalents |  |  | 747 |  |  |  | 446 |
Cash and Cash Equivalents, Beginning of Period |  |  | 247 |  |  |  | 90 |
Cash and Cash Equivalents, End of Period |  | $ | 994 |  |  | $ | 536 |

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)

In Millions |
|  | June 30 |  |  | December 31 |
ASSETS |  | 2011 |  |  | 2010 |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 994 |  |  | $ | 247 |
Restricted cash and cash equivalents |  |  | 29 |  |  |  | 23 |
Accounts receivable and accrued revenue, less allowances of $25 in 2011 and 2010 |  |  | 719 |  |  |  | 981 |
Notes receivable |  |  | 57 |  |  |  | 70 |
Accounts receivable — related parties |  |  | 10 |  |  |  | 10 |
Accrued power supply revenue |  |  | — |  |  |  | 15 |
Inventories at average cost |  |  |  |  |  |  |  |
Gas in underground storage |  |  | 720 |  |  |  | 946 |
Materials and supplies |  |  | 106 |  |  |  | 104 |
Generating plant fuel stock |  |  | 143 |  |  |  | 125 |
Deferred property taxes |  |  | 133 |  |  |  | 180 |
Regulatory assets |  |  | 8 |  |  |  | 19 |
Assets held for sale |  |  | — |  |  |  | 2 |
Prepayments and other current assets |  |  | 37 |  |  |  | 37 |
Total current assets |  |  | 2,956 |  |  |  | 2,759 |
Plant, Property & Equipment (at cost) |  |  |  |  |  |  |  |
Plant, property & equipment, gross |  |  | 14,413 |  |  |  | 14,145 |
Less accumulated depreciation, depletion, and amortization |  |  | 4,802 |  |  |  | 4,646 |
Plant, property & equipment, net |  |  | 9,611 |  |  |  | 9,499 |
Construction work in progress |  |  | 644 |  |  |  | 570 |
Total plant, property & equipment |  |  | 10,255 |  |  |  | 10,069 |
Non-current Assets |  |  |  |  |  |  |  |
Regulatory assets |  |  | 2,050 |  |  |  | 2,093 |
Accounts and notes receivable, less allowances of $5 in 2011 and 2010 |  |  | 398 |  |  |  | 397 |
Investments |  |  | 52 |  |  |  | 49 |
Assets held for sale |  |  | — |  |  |  | 4 |
Other non-current assets |  |  | 234 |  |  |  | 245 |
Total non-current assets |  |  | 2,734 |  |  |  | 2,788 |
Total Assets |  | $ | 15,945 |  |  | $ | 15,616 |

The accompanying notes are an integral part of these statements.

36

##### Table of Contents

In Millions |
|  | June 30 |  |  | December 31 |
LIABILITIES AND EQUITY |  | 2011 |  |  | 2010 |
Current Liabilities |  |  |  |  |  |  |  |
Current portion of long-term debt, capital and finance lease obligations |  | $ | 1,123 |  |  | $ | 750 |
Accounts payable |  |  | 444 |  |  |  | 492 |
Accounts payable — related parties |  |  | 8 |  |  |  | 9 |
Accrued rate refunds |  |  | 43 |  |  |  | 19 |
Accrued interest |  |  | 107 |  |  |  | 102 |
Accrued taxes |  |  | 239 |  |  |  | 302 |
Deferred income taxes |  |  | 154 |  |  |  | 180 |
Regulatory liabilities |  |  | 1 |  |  |  | 22 |
Liabilities held for sale |  |  | — |  |  |  | 1 |
Other current liabilities |  |  | 122 |  |  |  | 144 |
Total current liabilities |  |  | 2,241 |  |  |  | 2,021 |
Non-current Liabilities |  |  |  |  |  |  |  |
Long-term debt |  |  | 6,184 |  |  |  | 6,448 |
Non-current portion of capital and finance lease obligations |  |  | 177 |  |  |  | 188 |
Regulatory liabilities |  |  | 1,860 |  |  |  | 1,988 |
Postretirement benefits |  |  | 1,136 |  |  |  | 1,135 |
Asset retirement obligations |  |  | 252 |  |  |  | 245 |
Deferred investment tax credit |  |  | 47 |  |  |  | 49 |
Deferred income taxes |  |  | 768 |  |  |  | 438 |
Other non-current liabilities |  |  | 278 |  |  |  | 267 |
Total non-current liabilities |  |  | 10,702 |  |  |  | 10,758 |
Commitments and Contingencies (Notes 3, 4, 5, 7, and 8) |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  |
Common stockholders’ equity |  |  |  |  |  |  |  |
Common stock, authorized 350.0 shares; outstanding 251.8 shares in 2011 and 249.6 shares in 2010 |  |  | 3 |  |  |  | 2 |
Other paid-in capital |  |  | 4,621 |  |  |  | 4,588 |
Accumulated other comprehensive loss |  |  | (38 | ) |  |  | (40 | )
Accumulated deficit |  |  | (1,628 | ) |  |  | (1,757 | )
Total common stockholders’ equity |  |  | 2,958 |  |  |  | 2,793 |
Noncontrolling interests |  |  | 44 |  |  |  | 44 |
Total equity |  |  | 3,002 |  |  |  | 2,837 |
Total Liabilities and Equity |  | $ | 15,945 |  |  | $ | 15,616 |

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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 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  | $ | 3 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |
Common stock issued |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |
At end of period |  |  | 3 |  |  |  | 2 |  |  |  | 3 |  |  |  | 2 |
Other Paid-in Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 4,599 |  |  |  | 4,564 |  |  |  | 4,588 |  |  |  | 4,560 |
Common stock issued |  |  | 22 |  |  |  | 6 |  |  |  | 28 |  |  |  | 10 |
Common stock reissued |  |  | — |  |  |  | — |  |  |  | 5 |  |  |  | — |
Common stock repurchased |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | (1 | )
At end of period |  |  | 4,621 |  |  |  | 4,569 |  |  |  | 4,621 |  |  |  | 4,569 |
Accumulated Other Comprehensive Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | (39 | ) |  |  | (31 | ) |  |  | (39 | ) |  |  | (32 | )
Retirement benefits liability adjustments1 |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 2 |
At end of period |  |  | (38 | ) |  |  | (30 | ) |  |  | (38 | ) |  |  | (30 | )
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Unrealized gain on investments1 |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
At end of period |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | )
At end of period |  |  | (38 | ) |  |  | (31 | ) |  |  | (38 | ) |  |  | (31 | )
Accumulated Deficit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | (1,675 | ) |  |  | (1,876 | ) |  |  | (1,757 | ) |  |  | (1,927 | )
Net income attributable to CMS Energy1 |  |  | 100 |  |  |  | 82 |  |  |  | 235 |  |  |  | 170 |
Common stock dividends declared |  |  | (53 | ) |  |  | (35 | ) |  |  | (106 | ) |  |  | (69 | )
Preferred stock dividends declared |  |  | — |  |  |  | (2 | ) |  |  | — |  |  |  | (5 | )
At end of period |  |  | (1,628 | ) |  |  | (1,831 | ) |  |  | (1,628 | ) |  |  | (1,831 | )
Preferred Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | — |  |  |  | 239 |  |  |  | — |  |  |  | 239 |
Noncontrolling Interests |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 44 |  |  |  | 44 |  |  |  | 44 |  |  |  | 97 |
Income attributable to noncontrolling interests1 |  |  | 1 |  |  |  | 2 |  |  |  | 1 |  |  |  | 2 |
Distributions and other changes in noncontrolling interests |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | ) |  |  | (54 | )
At end of period |  |  | 44 |  |  |  | 45 |  |  |  | 44 |  |  |  | 45 |
Total Equity |  | $ | 3,002 |  |  | $ | 2,993 |  |  | $ | 3,002 |  |  | $ | 2,993 |

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##### Table of Contents

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
1 Disclosure of Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 101 |  |  | $ | 84 |  |  | $ | 236 |  |  | $ | 172 |
Income attributable to noncontrolling interests |  |  | 1 |  |  |  | 2 |  |  |  | 1 |  |  |  | 2 |
Net income attributable to CMS Energy |  | $ | 100 |  |  | $ | 82 |  |  | $ | 235 |  |  | $ | 170 |
Retirement benefits liability: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability adjustments, net of tax of $ —, $ 2, $ — , and $1, respectively |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 2 |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain on investments, net of tax of $ — , $ — , $ — , and $ —, respectively |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Total Comprehensive Income |  | $ | 102 |  |  | $ | 83 |  |  | $ | 237 |  |  | $ | 172 |

The accompanying notes are an integral part of these statements.

39

##### Table of Contents

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Operating Revenue |  | $ | 1,303 |  |  | $ | 1,276 |  |  | $ | 3,291 |  |  | $ | 3,166 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fuel for electric generation |  |  | 138 |  |  |  | 125 |  |  |  | 267 |  |  |  | 250 |
Purchased and interchange power |  |  | 299 |  |  |  | 310 |  |  |  | 592 |  |  |  | 587 |
Purchased power — related parties |  |  | 19 |  |  |  | 20 |  |  |  | 40 |  |  |  | 41 |
Cost of gas sold |  |  | 197 |  |  |  | 163 |  |  |  | 950 |  |  |  | 909 |
Maintenance and other operating expenses |  |  | 273 |  |  |  | 281 |  |  |  | 538 |  |  |  | 543 |
Depreciation and amortization |  |  | 121 |  |  |  | 130 |  |  |  | 282 |  |  |  | 301 |
General taxes |  |  | 49 |  |  |  | 40 |  |  |  | 115 |  |  |  | 104 |
Total operating expenses |  |  | 1,096 |  |  |  | 1,069 |  |  |  | 2,784 |  |  |  | 2,735 |
Operating Income |  |  | 207 |  |  |  | 207 |  |  |  | 507 |  |  |  | 431 |
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 2 |  |  |  | 4 |  |  |  | 4 |  |  |  | 9 |
Allowance for equity funds used during construction |  |  | 2 |  |  |  | 2 |  |  |  | 3 |  |  |  | 3 |
Other income |  |  | 5 |  |  |  | 9 |  |  |  | 13 |  |  |  | 18 |
Other expense |  |  | (3 | ) |  |  | (3 | ) |  |  | (5 | ) |  |  | (5 | )
Total other income |  |  | 6 |  |  |  | 12 |  |  |  | 15 |  |  |  | 25 |
Interest Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on long-term debt |  |  | 63 |  |  |  | 60 |  |  |  | 126 |  |  |  | 123 |
Other interest expense |  |  | 5 |  |  |  | 19 |  |  |  | 9 |  |  |  | 25 |
Allowance for borrowed funds used during construction |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | ) |  |  | (2 | )
Total interest charges |  |  | 67 |  |  |  | 78 |  |  |  | 133 |  |  |  | 146 |
Income Before Income Taxes |  |  | 146 |  |  |  | 141 |  |  |  | 389 |  |  |  | 310 |
Income Tax Expense |  |  | 54 |  |  |  | 53 |  |  |  | 144 |  |  |  | 115 |
Net Income |  |  | 92 |  |  |  | 88 |  |  |  | 245 |  |  |  | 195 |
Preferred Stock Dividends |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Net Income Available to Common Stockholder |  | $ | 91 |  |  | $ | 87 |  |  | $ | 244 |  |  | $ | 194 |

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 |  | 2011 |  |  | 2010 |
Cash Flows from Operating Activities |  |  |  |  |  |  |  |
Net Income |  | $ | 245 |  |  | $ | 195 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 282 |  |  |  | 301 |
Deferred income taxes and investment tax credit |  |  | 82 |  |  |  | (22 | )
Postretirement benefits expense |  |  | 78 |  |  |  | 87 |
Other non-cash operating activities |  |  | 31 |  |  |  | 32 |
Postretirement benefits contributions |  |  | (37 | ) |  |  | (143 | )
Changes in other assets and liabilities: |  |  |  |  |  |  |  |
Decrease in accounts receivable, notes receivable, and accrued revenue |  |  | 207 |  |  |  | 186 |
Decrease in accrued power supply and gas revenue |  |  | 15 |  |  |  | 22 |
Decrease in inventories |  |  | 202 |  |  |  | 229 |
Increase in accounts payable |  |  | 42 |  |  |  | 35 |
Decrease in accrued expenses |  |  | (12 | ) |  |  | (13 | )
Decrease in other current and non-current assets |  |  | 68 |  |  |  | 92 |
Increase (decrease) in other current and non-current liabilities |  |  | 42 |  |  |  | (18 | )
Net cash provided by operating activities |  |  | 1,245 |  |  |  | 983 |
Cash Flows from Investing Activities |  |  |  |  |  |  |  |
Capital expenditures (excludes assets placed under capital lease) |  |  | (394 | ) |  |  | (423 | )
Cost to retire property |  |  | (28 | ) |  |  | (21 | )
Other investing activities |  |  | (23 | ) |  |  | — |
Net cash used in investing activities |  |  | (445 | ) |  |  | (444 | )
Cash Flows from Financing Activities |  |  |  |  |  |  |  |
Retirement of long-term debt |  |  | (18 | ) |  |  | (327 | )
Payment of common stock dividends |  |  | (196 | ) |  |  | (168 | )
Payment of preferred stock dividends |  |  | (1 | ) |  |  | (1 | )
Stockholder’s contribution |  |  | 125 |  |  |  | 250 |
Payment of capital and finance lease obligations |  |  | (12 | ) |  |  | (12 | )
Other financing costs |  |  | (3 | ) |  |  | — |
Net cash used in financing activities |  |  | (105 | ) |  |  | (258 | )
Net Increase in Cash and Cash Equivalents |  |  | 695 |  |  |  | 281 |
Cash and Cash Equivalents, Beginning of Period |  |  | 71 |  |  |  | 39 |
Cash and Cash Equivalents, End of Period |  | $ | 766 |  |  | $ | 320 |

The accompanying notes are an integral part of these statements.

41

##### Table of Contents

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)

In Millions |
|  | June 30 |  |  | December 31 |
ASSETS |  | 2011 |  |  | 2010 |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 766 |  |  | $ | 71 |
Restricted cash and cash equivalents |  |  | 28 |  |  |  | 23 |
Accounts receivable and accrued revenue, less allowances of $23 in 2011 and 2010 |  |  | 706 |  |  |  | 963 |
Notes receivable |  |  | 43 |  |  |  | 55 |
Accrued power supply revenue |  |  | — |  |  |  | 15 |
Accounts receivable — related parties |  |  | 1 |  |  |  | 1 |
Inventories at average cost |  |  |  |  |  |  |  |
Gas in underground storage |  |  | 720 |  |  |  | 941 |
Materials and supplies |  |  | 103 |  |  |  | 100 |
Generating plant fuel stock |  |  | 141 |  |  |  | 124 |
Deferred property taxes |  |  | 133 |  |  |  | 180 |
Regulatory assets |  |  | 8 |  |  |  | 19 |
Prepayments and other current assets |  |  | 30 |  |  |  | 27 |
Total current assets |  |  | 2,679 |  |  |  | 2,519 |
Plant, Property & Equipment (at cost) |  |  |  |  |  |  |  |
Plant, property & equipment, gross |  |  | 14,285 |  |  |  | 14,022 |
Less accumulated depreciation, depletion, and amortization |  |  | 4,747 |  |  |  | 4,593 |
Plant, property & equipment, net |  |  | 9,538 |  |  |  | 9,429 |
Construction work in progress |  |  | 640 |  |  |  | 566 |
Total plant, property & equipment |  |  | 10,178 |  |  |  | 9,995 |
Non-current Assets |  |  |  |  |  |  |  |
Regulatory assets |  |  | 2,050 |  |  |  | 2,093 |
Accounts and notes receivable |  |  | 13 |  |  |  | 22 |
Investments |  |  | 31 |  |  |  | 34 |
Other non-current assets |  |  | 150 |  |  |  | 176 |
Total non-current assets |  |  | 2,244 |  |  |  | 2,325 |
Total Assets |  | $ | 15,101 |  |  | $ | 14,839 |

The accompanying notes are an integral part of these statements.

42

##### Table of Contents

In Millions |
|  | June 30 |  |  | December 31 |
LIABILITIES AND EQUITY |  | 2011 |  |  | 2010 |
Current Liabilities |  |  |  |  |  |  |  |
Current portion of long-term debt, capital and finance lease obligations |  | $ | 362 |  |  | $ | 61 |
Accounts payable |  |  | 429 |  |  |  | 471 |
Accounts payable — related parties |  |  | 11 |  |  |  | 11 |
Accrued rate refunds |  |  | 43 |  |  |  | 19 |
Accrued interest |  |  | 75 |  |  |  | 74 |
Accrued taxes |  |  | 163 |  |  |  | 199 |
Deferred income taxes |  |  | 194 |  |  |  | 209 |
Regulatory liabilities |  |  | 1 |  |  |  | 22 |
Other current liabilities |  |  | 85 |  |  |  | 95 |
Total current liabilities |  |  | 1,363 |  |  |  | 1,161 |
Non-current Liabilities |  |  |  |  |  |  |  |
Long-term debt |  |  | 4,169 |  |  |  | 4,488 |
Non-current portion of capital and finance lease obligations |  |  | 177 |  |  |  | 188 |
Regulatory liabilities |  |  | 1,860 |  |  |  | 1,988 |
Postretirement benefits |  |  | 1,078 |  |  |  | 1,076 |
Asset retirement obligations |  |  | 251 |  |  |  | 244 |
Deferred investment tax credit |  |  | 47 |  |  |  | 49 |
Deferred income taxes |  |  | 1,617 |  |  |  | 1,289 |
Other non-current liabilities |  |  | 186 |  |  |  | 176 |
Total non-current liabilities |  |  | 9,385 |  |  |  | 9,498 |
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 |  |  | 2,957 |  |  |  | 2,832 |
Retained earnings |  |  | 511 |  |  |  | 463 |
Total common stockholder’s equity |  |  | 4,309 |  |  |  | 4,136 |
Preferred stock |  |  | 44 |  |  |  | 44 |
Total equity |  |  | 4,353 |  |  |  | 4,180 |
Total Liabilities and Equity |  | $ | 15,101 |  |  | $ | 14,839 |

43

##### Table of Contents

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

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  | $ | 841 |  |  | $ | 841 |  |  | $ | 841 |  |  | $ | 841 |
Other Paid-in Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 2,957 |  |  |  | 2,782 |  |  |  | 2,832 |  |  |  | 2,582 |
Stockholder’s contribution |  |  | — |  |  |  | 50 |  |  |  | 125 |  |  |  | 250 |
At end of period |  |  | 2,957 |  |  |  | 2,832 |  |  |  | 2,957 |  |  |  | 2,832 |
Accumulated Other Comprehensive Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | (15 | ) |  |  | (11 | ) |  |  | (16 | ) |  |  | (11 | )
Retirement benefits liability adjustments1 |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |
At end of period |  |  | (15 | ) |  |  | (11 | ) |  |  | (15 | ) |  |  | (11 | )
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 15 |  |  |  | 12 |  |  |  | 16 |  |  |  | 13 |
Unrealized loss on investments1 |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | )
At end of period |  |  | 15 |  |  |  | 11 |  |  |  | 15 |  |  |  | 11 |
At end of period |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Retained Earnings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of period |  |  | 512 |  |  |  | 382 |  |  |  | 463 |  |  |  | 389 |
Net income1 |  |  | 92 |  |  |  | 88 |  |  |  | 245 |  |  |  | 195 |
Common stock dividends declared |  |  | (92 | ) |  |  | (54 | ) |  |  | (196 | ) |  |  | (168 | )
Preferred stock dividends declared |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | )
At end of period |  |  | 511 |  |  |  | 415 |  |  |  | 511 |  |  |  | 415 |
Preferred Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning and end of period |  |  | 44 |  |  |  | 44 |  |  |  | 44 |  |  |  | 44 |
Total Equity |  | $ | 4,353 |  |  | $ | 4,132 |  |  | $ | 4,353 |  |  | $ | 4,132 |

The accompanying notes are an integral part of these statements.

44

##### Table of Contents

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
1 Disclosure of Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 92 |  |  | $ | 88 |  |  | $ | 245 |  |  | $ | 195 |
Retirement benefits liability: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retirement benefits liability adjustments, net of tax of $—, $— , $—, and $—, respectively |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized loss on investments, net of tax of $—, $— , $(1), and $—, respectively |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | (2 | )
Total Comprehensive Income |  | $ | 92 |  |  | $ | 87 |  |  | $ | 245 |  |  | $ | 193 |

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CMS Energy Corporation
Consumers Energy Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements have been prepared by CMS Energy and Consumers in accordance with GAAP 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 GAAP. 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 the 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 2010 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
New Accounting Standards Not Yet Effective
ASU 2011-05, Presentation of Comprehensive Income: This standard, effective January 1, 2012 for CMS Energy and Consumers, eliminates the option to report other comprehensive income and its components on the statement of changes in equity. Presently, both CMS Energy and Consumers use this option for their consolidated financial statements. Under the standard, entities will be required to present either a single continuous statement of comprehensive income, containing both net income and components of other comprehensive income, or two separate consecutive statements. This standard will affect only the presentation of comprehensive income in CMS Energy’s and Consumers’ consolidated financial statements.
ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs: This standard, effective January 1, 2012 for CMS Energy and Consumers, is the result of a joint project of the Financial Accounting Standards Board and the International Accounting Standards Board. The primary objective of the standard is to ensure that fair value has the same meaning under GAAP and International Financial Reporting Standards and to establish common fair value measurement guidance in the two sets of standards. The standard does not change the overall fair value model in GAAP, but it amends various fair value principles and establishes additional disclosure requirements. CMS Energy and Consumers are evaluating this standard, but they do not expect it to have a significant impact on their consolidated financial statements.
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.

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| • |  | 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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities, by level within the fair value hierarchy, reported at fair value on a recurring basis at June 30, 2011:

In Millions |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 875 |  |  | $ | 875 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 15 |  |  |  | 15 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 4 |  |  |  | 4 |  |  |  | — |  |  |  | — |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  |  | 90 |  |  |  | 90 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 26 |  |  |  | — |  |  |  | 26 |  |  |  | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts1 |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 3 |
Total2 |  | $ | 1,013 |  |  | $ | 984 |  |  | $ | 26 |  |  | $ | 3 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts3 |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 3 |
Total4 |  | $ | 7 |  |  | $ | 4 |  |  | $ | — |  |  | $ | 3 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 667 |  |  | $ | 667 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 14 |  |  |  | 14 |  |  |  | — |  |  |  | — |
CMS Energy common stock |  |  | 31 |  |  |  | 31 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 3 |  |  |  | 3 |  |  |  | — |  |  |  | — |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  |  | 59 |  |  |  | 59 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 17 |  |  |  | — |  |  |  | 17 |  |  |  | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 3 |
Total5 |  | $ | 794 |  |  | $ | 774 |  |  | $ | 17 |  |  | $ | 3 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 3 |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |
Total |  | $ | 3 |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |

1 |  | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements, which was less than $1 million at June 30, 2011.

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2 |  | At June 30, 2011, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets measured at fair value.
3 |  | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements and offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at June 30, 2011.
4 |  | At June 30, 2011, CMS Energy’s liabilities classified as Level 3 represented 43 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM.
5 |  | At June 30, 2011, Consumers’ assets classified as Level 3 represented less than one percent of Consumers’ total assets measured at fair value.

Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities, by level within the fair value hierarchy, reported at fair value on a recurring basis at December 31, 2010:

In Millions |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 183 |  |  | $ | 183 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 6 |  |  |  | 6 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 6 |  |  |  | 6 |  |  |  | — |  |  |  | — |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |
Mutual fund |  |  | 62 |  |  |  | 62 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 28 |  |  |  | — |  |  |  | 28 |  |  |  | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts1 |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Total2 |  | $ | 287 |  |  | $ | 258 |  |  | $ | 28 |  |  | $ | 1 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 6 |  |  | $ | 6 |  |  | $ | — |  |  | $ | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts3 |  |  | 4 |  |  |  | — |  |  |  | — |  |  |  | 4 |
Total4 |  | $ | 10 |  |  | $ | 6 |  |  | $ | — |  |  | $ | 4 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 19 |  |  | $ | 19 |  |  | $ | — |  |  | $ | — |
Restricted cash equivalents |  |  | 6 |  |  |  | 6 |  |  |  | — |  |  |  | — |
CMS Energy common stock |  |  | 34 |  |  |  | 34 |  |  |  | — |  |  |  | — |
Nonqualified deferred compensation plan assets |  |  | 4 |  |  |  | 4 |  |  |  | — |  |  |  | — |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |
Mutual fund |  |  | 39 |  |  |  | 39 |  |  |  | — |  |  |  | — |
State and municipal bonds |  |  | 17 |  |  |  | — |  |  |  | 17 |  |  |  | — |
Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Total5 |  | $ | 121 |  |  | $ | 103 |  |  | $ | 17 |  |  | $ | 1 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified deferred compensation plan liabilities |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |
Total |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |

1 |  | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements, which was less than $1 million at December 31, 2010.

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2 |  | At December 31, 2010, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets measured at fair value.
3 |  | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements and offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at December 31, 2010.
4 |  | At December 31, 2010, CMS Energy’s liabilities classified as Level 3 represented 40 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM.
5 |  | At December 31, 2010, Consumers’ assets classified as Level 3 represented one percent of Consumers’ total assets measured at fair value.

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, repurchase agreements collateralized by U.S. Treasury notes, and highly rated, short-term corporate debt securities.
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 net asset values 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 net asset value, 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 and

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Consumers have classified certain derivatives as Level 3 since the fair value measurements incorporate pricing assumptions that cannot be observed or confirmed through market transactions.
The most significant derivatives classified as Level 3 are an electricity sales agreement held by CMS ERM and FTRs held by Consumers. At December 31, 2010 and in prior periods, for the electricity sales agreement held by CMS ERM, quoted electricity prices were not available for the entire term of the agreement, and a proprietary forward pricing model was used to determine fair value. At June 30, 2011, quoted prices at the nearest active market were available for the entire term of the agreement. The agreement, however, remains classified as Level 3 since the pricing differential between the nearest active market in Ohio and the delivery point in Michigan cannot be confirmed with observable market transactions. There is no quoted pricing information for FTRs held by Consumers. Consumers determines the fair value of FTRs based on Consumers’ average historical settlements.
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 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. CMS Energy and Consumers monitor market conditions and may incorporate other data, such as credit default swap rates, in determining adjustments for credit risk as warranted. 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
Presented in the following tables are reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS Energy, which include Level 3 assets and liabilities at Consumers:

In Millions |
Three Months Ended June 30 |  | 2011 |  |  | 2010 |
Balance at April 1 |  | $ | (2 | ) |  | $ | (3 | )
Total losses included in earnings1 |  |  | (1 | ) |  |  | (2 | )
Total gains offset through regulatory accounting |  |  | 3 |  |  |  | 1 |
Settlements |  |  | — |  |  |  | (1 | )
Balance at June 30 |  | $ | — |  |  | $ | (5 | )
Unrealized losses included in earnings for the three months ended June 30 relating to assets and liabilities still held at June 301 |  | $ | — |  |  | $ | (2 | )

In Millions |
Six Months Ended June 30 |  | 2011 |  |  | 2010 |
Balance at January 1 |  | $ | (3 | ) |  | $ | (8 | )
Total gains included in earnings1 |  |  | — |  |  |  | 2 |
Total gains offset through regulatory accounting |  |  | 3 |  |  |  | 1 |
Settlements |  |  | — |  |  |  | — |
Balance at June 30 |  | $ | — |  |  | $ | (5 | )
Unrealized gains included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 301 |  | $ | 1 |  |  | $ | 2 |

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1 |  | 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.

Presented in the following tables are reconciliations of changes in the fair values of Level 3 assets and liabilities at Consumers:

|  | In Millions |
Three Months Ended June 30 |  | 2011 |  |  | 2010 |
Balance at April 1 |  | $ | — |  |  | $ | — |
Total gains offset through regulatory accounting |  |  | 3 |  |  |  | 1 |
Settlements |  |  | — |  |  |  | (1 | )
Balance at June 30 |  | $ | 3 |  |  | $ | — |

|  | In Millions |
Six Months Ended June 30 |  | 2011 |  |  | 2010 |
Balance at January 1 |  | $ | 1 |  |  | $ | — |
Total gains offset through regulatory accounting |  |  | 3 |  |  |  | 1 |
Settlements |  |  | (1 | ) |  |  | (1 | )
Balance at June 30 |  | $ | 3 |  |  | $ | — |

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
CMS Energy and Consumers had no nonrecurring fair value measurements during the six months ended June 30, 2011.
Presented in the following table are CMS Energy’s assets, by level within the fair value hierarchy, reported at fair value on a nonrecurring basis during the three months ended June 30, 2010:

In Millions |
|  | 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. CMS Energy had no other nonrecurring fair value measurements and Consumers had no nonrecurring fair value measurements during the six months ended June 30, 2010.
3: CONTINGENCIES AND COMMITMENTS
CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could have a material effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter.

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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 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 Colorado, Kansas, Missouri, and Wisconsin. The following provides more detail on these proceedings:

| • |  | In 2005, CMS Energy, CMS MST, and CMS Field Services were named 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 the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas allegedly purchased from defendants.

| • |  | 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 laws.

| • |  | 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 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992. Plaintiffs are seeking full refund damages.

| • |  | 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. 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 complaint in the U.S. District Court for the Eastern District of Michigan. In 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants’ motion to dismiss the Michigan complaint on statute-of-limitations grounds and all CMS Energy defendants have been dismissed from the Arandell (Michigan) action.

| • |  | Another class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. 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 CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is

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|  |  | seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001.

After removal to federal court, all of the cases described above were transferred to the MDL. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS Energy defendants remained parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. In 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case and the Arandell (Wisconsin) case was reinstated against CMS ERM. In July 2011, all claims against remaining CMS Energy defendants in the MDL cases were dismissed based on FERC preemption. Appeals are possible.
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 amount of CMS Energy’s possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could have a material adverse impact on CMS Energy’s liquidity, 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 MDEQ, 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 response activities, including constructing a leachate collection system in one area where CKD-impacted groundwater was entering Little Traverse Bay. 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 Administrative Order on Consent under Superfund, and the EPA approved a Removal Action Work Plan to address contamination issues. 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. Several augmentation measures were implemented and completed in 2009, with the remaining measure completed in 2010.
In May 2011, CMS Energy received approval from the EPA on a revised scope of remedies that CMS Energy had submitted in December 2010. CMS Energy is presently in negotiations with the MDEQ to finalize an agreement that will identify the remaining final remedies at the site. In December 2010, the MDEQ issued an NPDES permit that authorizes CMS Land to discharge treated leachate into Little Traverse Bay. This permit requires renewal every five years. Additionally, CMS Land has committed to investigate the potential for a deep injection well on the Bay Harbor site as an alternative long-term solution to the leachate disposal issue. In 2008, the MDEQ and the EPA granted permits for CMS Land or its wholly owned subsidiary, Beeland Group LLC, to construct and operate an off-site 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.
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. In October 2010, CMS Land and other parties received a demand for payment from the EPA in the amount of $7 million, plus interest, whereby the EPA is seeking recovery, as allowed under Superfund, of the EPA’s response costs incurred at the Bay Harbor site. CMS Land believes that this is not a valid claim and intends to dispute it.

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CMS Land and CMS Capital, the MDEQ, the EPA, and other parties continue to negotiate the long-term remedy for the Bay Harbor site, including:

| • |  | the disposal of leachate;

| • |  | the capping and excavation of CKD;

| • |  | the location and design of collection lines and upstream water diversion systems;

| • |  | application of criteria for various substances such as mercury; and

| • |  | other matters that are likely to affect the scope of response activities that CMS Land and CMS Capital may be obligated to undertake.

CMS Energy has recorded a cumulative charge related to Bay Harbor of $223 million, which includes accretion expense. At June 30, 2011, CMS Energy had a recorded liability of $88 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 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 at December 31, 2010. The undiscounted amount of the remaining obligation is $109 million. CMS Energy expects to pay $16 million during the remainder of 2011, $16 million in 2012, $7 million in 2013, $5 million in 2014, $4 million in 2015, and the remaining amount thereafter on long-term liquid disposal and operating and maintenance costs.
CMS Energy’s estimate of response activity 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 complete the present long-term water disposal strategy at a reasonable cost;

| • |  | delays in implementing the present long-term water disposal strategy;

| • |  | requirements to alter the present long-term water disposal strategy upon expiration of the NPDES permit if the MDEQ or EPA identify a more suitable alternative;

| • |  | an increase in the number of contamination areas;

| • |  | different remediation techniques;

| • |  | the nature and extent of contamination;

| • |  | inability to reach agreement with the MDEQ or the EPA over additional response activities;

| • |  | 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. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of 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 indicated in 2008 that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.

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Consumers’ Electric Utility Contingencies
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally 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, 2011, Consumers had a recorded liability of $2 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. In November 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party at the Kalamazoo River Superfund site. The notification claimed that the EPA has reason to believe Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. Consumers responded to the EPA in December 2010, stating that it has no information showing that it disposed of PCBs or arranged for disposal or treatment of PCB-containing material at portions of the site and requesting further information from the EPA before Consumers would commit to perform or finance cleanup activities at the site. In April 2011, Consumers received a follow-up letter from the EPA requesting that Consumers, as a potentially responsible party at the Kalamazoo River Superfund site, agree to participate in a removal action plan along with several other companies. The letter also indicated that under Sections 106 and 107 of Superfund, Consumers may be liable for reimbursement of the EPA’s costs and potential penalties for noncompliance with any unilateral order that the EPA may issue requiring performance under the removal action plan. The EPA has provided limited information regarding Consumers’ potential responsibility for contamination at the site and has not yet given an indication of the share of any cleanup costs for which Consumers could be held responsible. Consumers continues to investigate the EPA’s claim that it disposed of PCBs or arranged for disposal or treatment of PCB-containing material at portions of the site. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river.
Based on its experience, Consumers estimates that its share of the total liability for other 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, 2011, Consumers had a recorded liability of $2 million for its share of the total liability at these sites, 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, the 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

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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 review under the NSR. 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 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 Projects, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. The potential costs relating to these matters could be material and the extent of cost recovery cannot be reasonably estimated. Although Consumers cannot predict the financial impact or outcome of these matters, 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: The matters discussed in this section relate to Consumers’ previously owned nuclear generating plants.
At June 30, 2011, Consumers had a recorded liability of $163 million to the DOE to fund the disposal of spent nuclear fuel used before 1983. This balance comprised the principal amount of $44 million collected from customers for spent nuclear fuel disposal fees and $119 million of interest accrued on those collections. The liability, which was classified in long-term debt on CMS Energy’s and Consumers’ consolidated balance sheets, was to be paid to the DOE when it began 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.
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.
In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120 million. As part of this agreement, Consumers settled its $163 million liability to the DOE. Consumers will request that the MPSC determine the regulatory treatment of the $120 million settlement. In this filing, Consumers will propose that $85 million of the settlement should represent the recovery of its regulatory asset related to nuclear fuel storage costs at Big Rock. Certain other costs related to spent nuclear fuel were recovered from customers through rates, and the MPSC may determine that those amounts should be refunded to customers. If the MPSC concludes that Consumers may retain a portion of the settlement, Consumers will recognize that amount in earnings.
In its November 2010 electric rate order, the MPSC directed Consumers to establish, within six months of the date of the order, an independent trust fund for the amount payable to the DOE. Subsequent rate orders extended this six-month deadline. Following its settlement with the DOE, Consumers petitioned the MPSC to relieve it of the obligation to fund the trust.
As a result of the DOE settlement, Consumers may, under the terms of the purchase and sale agreement with Entergy, request termination of the letter of credit.

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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, 2011, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $28 million and $43 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, 2011, Consumers had a recorded liability of $28 million and a regulatory asset of $55 million that included $27 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.
Guarantees
Presented in the following table are CMS Energy’s guarantees at June 30, 2011:

In Millions |
|  | Issue |  |  | Expiration |  |  | Maximum |  |  | Carrying |
Guarantee Description |  | Date |  |  | Date |  |  | Obligation |  |  | Amount |
Indemnity obligations from asset sales and other agreements |  | Various |  |  | Various through June 2022 |  |  | $ | 512 | 1 |  | $ | 21 |
Guarantees and put options2 |  | Various |  |  | Various through March 2021 |  |  |  | 33 |  |  |  | 1 |

1 |  | The majority of this amount arises from stock and asset sale 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.
2 |  | At June 30, 2011, 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, 2011, the maximum obligation and carrying amounts for Consumers’ guarantees were less than $1 million.

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Presented in the following table is additional information regarding CMS Energy’s guarantees:

Guarantee Description |  | How Guarantee Arose |  | Events That Would Require Performance
Indemnity obligations from asset sales and other agreements |  | Stock and asset sale agreements |  | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances
Guarantees and put options |  | Normal operating activity |  | Nonperformance or non-payment by a subsidiary under a related contract
Guarantees and put options |  | 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
Michigan Single Business Tax: The State of Michigan is finalizing its audit of CMS Energy’s and Consumers’ combined Michigan single business tax returns for 2004 through 2007. The outcome of this audit could impact CMS Energy’s and Consumers’ net income. CMS Energy and Consumers are unable to estimate any potential earnings impact.
Other: In addition to the matters disclosed in this note and Note 4, Regulatory 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 matters, federal and state taxes, rates, licensing, employment, 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 condition, or liquidity.
4: REGULATORY MATTERS
Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of rate cases and proceedings could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.
Consumers’ Electric Utility
Electric Rate Cases: The MPSC, in its 2010 electric rate case order, authorized Consumers to increase its rates by $146 million annually, $4 million less than the rate increase self-implemented by Consumers in July 2010. In June 2011, the MPSC approved a settlement agreement, finding that no refund of self-implemented rates to customers is required.

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In June 2011, Consumers filed an application with the MPSC seeking an annual increase in revenue of $195 million, based on a 10.7 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. Presented in the following table are the components of the requested increase in revenue:

In Millions |
Components of the increase in revenue |  |  |  |
Investment in rate base |  | $ | 81 |
Recovery of depreciation and property taxes |  |  | 70 |
Impact of sales declines |  |  | 50 |
Reduced operating and maintenance costs |  |  | (4 | )
Cost of capital |  |  | (2 | )
Total |  | $ | 195 |

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.
PSCR Plan: In September 2010, Consumers submitted its 2011 PSCR plan to the MPSC. In accordance with its proposed plan, Consumers self-implemented the 2011 PSCR charge beginning in January 2011.
PSCR Reconciliation: Presented in the following table is the PSCR reconciliation filing pending with the MPSC:

PSCR Year |  | Date Filed |  |  | Net Underrecovery |  |  | PSCR Cost of Power Sold |
2010 |  | March 2011 |  |  | $ 15 million |  |  | $ 1.7 billion |

In June 2011, the MPSC issued an order approving Consumers’ 2009 PSCR reconciliation, as modified by the order, and authorized Consumers to include an underrecovery of $31 million in its 2010 PSCR reconciliation.
Electric Revenue Decoupling Mechanism: Consumers’ 2009 electric rate case order authorized an electric revenue decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended in the 2010 electric rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and conservation. Various parties have filed appeals concerning the electric decoupling mechanism.
In March 2011, Consumers filed its first reconciliation of the electric revenue decoupling mechanism with the MPSC, requesting recovery of $27 million from customers for the period December 2009 through November 2010. Other parties are opposing this recovery.
At June 30, 2011, Consumers had a $58 million non-current regulatory asset recorded for electric decoupling, which included the $27 million balance referred to above.
Uncollectible Expense Tracking Mechanism: In March 2011, Consumers filed its reconciliation of the uncollectible expense tracking mechanism with the MPSC, requesting recovery of $3 million from customers for November 2009 through November 2010, the entire period of the tracker. The uncollectible expense tracking mechanism, authorized by the MPSC in its November 2009 electric rate order, allowed future rates to be adjusted to collect or refund 80 percent of the difference between the level of electric uncollectible expense included in rates and actual uncollectible expense. During 2009, various parties filed appeals concerning the uncollectible expense tracking mechanism. In its 2010 electric rate order, the MPSC terminated the uncollectible expense tracking mechanism as of November 2010.

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Electric Operation and Maintenance Expenditures Show-Cause Order: In 2005, 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. In 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 had not refunded this amount to customers. 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 June 2011, the MPSC found that Consumers violated the 2005 order, but that customers were not affected significantly by the violation. The MPSC levied a $65,200 penalty on Consumers, but concluded that no refund was required.
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. 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 certain revenues collected during a statutory rate freeze from 2001 through 2003 should have been deposited in a decommissioning trust fund. The MPSC agreed that Consumers was entitled to recover $44 million of decommissioning costs, but concluded that Consumers had collected this amount previously through the rates 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. Consumers completed this refund in January 2011. 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.
Consumers paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and incurred $55 million for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. At June 30, 2011, Consumers had an $85 million regulatory asset recorded on its consolidated balance sheets for these costs. In July 2011, Consumers entered into a settlement agreement with the DOE related to the DOE’s failure to accept spent nuclear fuel. For further information, see Note 3, Contingencies and Commitments, “Nuclear Matters.”
Renewable Energy Plan: In 2010, Consumers filed with the MPSC its first annual report and reconciliation for its renewable energy plan, requesting approval of Consumers’ reconciliation of renewable energy plan costs for 2009. In June 2011, the Administrative Law Judge issued a proposal for decision, recommending that the MPSC issue an order finding that Consumers met its 2009 renewable portfolio standards and that actual 2009 renewable energy expenses and revenues fell within MPSC-authorized levels. The Administrative Law Judge also recommended, however, that the MPSC exclude from recovery through the renewable surcharge $3 million of capital expenditures, along with related carrying costs, that Consumers incurred prior to enactment of the 2008 Energy Law.
In May 2011, the MPSC issued an order approving Consumers’ amended renewable energy plan, with slight modifications. The amended plan reduces the renewable energy surcharge billed to customers by an annual amount of $54 million. The reduction is a result of lower-than-anticipated costs to comply with the renewable energy requirements prescribed by the 2008 Energy Law.
Consumers filed its second annual report and reconciliation with the MPSC in June 2011, requesting approval of its reconciliation of renewable energy plan costs for 2010.
Energy Optimization Plan: In May 2011, the MPSC issued an order approving Consumers’ reconciliation of energy optimization plan costs for 2009. The MPSC also authorized Consumers to collect $6 million from customers as an incentive payment for exceeding savings targets under both its

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gas and electric energy optimization plans during 2009. Consumers will collect the incentive over 12 months beginning June 2011.
In April 2011, Consumers filed with the MPSC its second annual report and reconciliation for its energy optimization plan, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2010. Consumers also requested approval to collect $8 million from customers as an incentive payment for exceeding savings targets under both its gas and electric energy optimization plans during 2010.
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. In June 2011, the MPSC approved a settlement agreement in this electric depreciation case, authorizing a $19 million increase in annual depreciation expense. The new depreciation rates will go into effect with a final order in Consumers’ next electric rate case.
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’ Gas Utility
Gas Rate Case: In August 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $55 million based on an 11 percent authorized return on equity. The filing requested recovery for investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers.
Consumers filed testimony and exhibits with the MPSC in January 2011, supporting a self-implemented annual gas rate increase of $48 million, subject to refund with interest. In February, Consumers filed a letter with the MPSC reducing the proposed self-implemented increase to $29 million. The MPSC then issued an order delaying Consumers’ self-implementation in order to give other parties to the proceeding an opportunity to respond to Consumers’ revised self-implementation filing.
In May 2011, the MPSC approved a partial settlement agreement authorizing Consumers to increase its rates by $31 million annually, based on a 10.5 percent authorized return on equity. Matters not yet addressed in this case include the decoupling mechanism, the Smart Grid program, and contributions to the low-income and energy efficiency fund. Presented in the following table are the components of the rate increase authorized by the MPSC and the rate increase originally requested by Consumers:

In Millions |
|  |  |  |  |  | Increase Originally |  |  |  |
|  | Increase Authorized |  |  | Requested by |  |  |  |
Components of the increase in revenue |  | by the MPSC |  |  | Consumers |  |  | Difference |
Investment in rate base |  | $ | 29 |  |  | $ | 30 |  |  | $ | (1 | )
Impact of sales declines |  |  | 15 |  |  |  | 4 |  |  |  | 11 |
Recovery of operating and maintenance costs |  |  | 2 |  |  |  | 16 |  |  |  | (14 | )
Cost of capital |  |  | (15 | ) |  |  | 5 |  |  |  | (20 | )
Total |  | $ | 31 |  |  | $ | 55 |  |  | $ | (24 | )

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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 Plan: In December 2010, Consumers submitted its 2011-2012 GCR plan to the MPSC. In accordance with its proposed plan, Consumers self-implemented the 2011-2012 GCR charge beginning in April 2011.
GCR Reconciliations: Presented in the following table are the GCR reconciliation filings pending with the MPSC:

GCR Year |  | Date Filed |  |  | Net Overrecovery |  |  | GCR Cost of Gas Sold |
2009-2010 |  | June 2010 |  |  | $ 1 million |  |  | $ 1.3 billion |
2010-2011 |  | June 2011 |  |  | 6 million |  |  | 1.2 billion |

5: FINANCINGS
Presented in the following table is a summary of major long-term debt transactions during the six months ended June 30, 2011:

|  | Principal |  |  |  |  |  |  | Issue/Retirement |  |  |  |
|  | (In Millions) |  |  | Interest Rate |  |  | Date |  |  | Maturity Date |
Debt Issuances |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Notes |  | $ | 250 |  |  |  | 2.75 | % |  | May 2011 |  |  | May 2014 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt bonds1 |  |  | 68 |  |  | Variable |  |  | May 2011 |  |  | April 2018 |
Tax-exempt bonds1 |  |  | 35 |  |  | Variable |  |  | May 2011 |  |  | April 2035 |
Total |  | $ | 353 |  |  |  |  |  |  |  |  |  |  |  |  |
Debt Retirements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt bonds1 |  | $ | 68 |  |  | Variable |  |  | May 2011 |  |  | April 2018 |
Tax-exempt bonds1 |  |  | 35 |  |  | Variable |  |  | May 2011 |  |  | April 2035 |
Total |  | $ | 103 |  |  |  |  |  |  |  |  |  |  |  |  |

1 |  | In May 2011, Consumers utilized the Michigan Strategic Fund for the issuance of $68 million and $35 million of tax-exempt Michigan Strategic Fund Variable Rate Limited Obligation Revenue Bonds. The initial interest rate, which resets weekly, was 0.26 percent for the $68 million bond issuance and 0.28 percent for the $35 million bond issuance. The bonds, which are backed by letters of credit and collateralized by FMBs, are subject to optional tender by the holders that would result in remarketing. Consumers used the proceeds to redeem $103 million of tax-exempt bonds in May 2011.

Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at June 30, 2011:

In Millions |
|  | Amount of |  |  | Amount |  |  | Letters of Credit |  |  | Amount |
Expiration Date |  | Facility |  |  | Borrowed |  |  | Outstanding |  |  | Available |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 20161 |  | $ | 550 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 547 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 20162, 3 |  | $ | 500 |  |  | $ | — |  |  | $ | 189 |  |  | $ | 311 |
August 9, 20133 |  |  | 150 |  |  |  | — |  |  |  | — |  |  |  | 150 |
September 21, 20114 |  |  | 30 |  |  |  | — |  |  |  | 30 |  |  |  | — |

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1 |  | On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces CMS Energy’s revolving credit facility that was set to expire in 2012. Obligations under this facility are secured by Consumers common stock.
|  | CMS Energy’s average borrowings during the six months ended June 30, 2011 totaled $11 million, with a weighted-average annual interest rate of 2.22 percent, representing LIBOR plus 2.00 percent
2 |  | On March 31, 2011, Consumers entered into a $500 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces Consumers’ revolving credit facility that was set to expire in 2012.
3 |  | Obligations under this facility are secured by FMBs of Consumers.
4 |  | 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. These transactions are accounted for as short-term secured borrowings. At June 30, 2011, $250 million of accounts receivable were eligible for transfer, and no accounts receivable had been transferred under the program. During the six months ended June 30, 2011, Consumers had no borrowings under this program.
Contingently Convertible Securities: Presented in the following table are the significant terms of CMS Energy’s contingently convertible securities at June 30, 2011:

|  |  |  |  |  | Outstanding |  |  | Adjusted |  |  | Adjusted |
Security |  | Maturity |  |  | (In Millions) |  |  | Conversion Price |  |  | Trigger Price |
2.875% senior notes |  |  | 2024 |  |  | $ | 288 |  |  | $ | 12.81 |  |  | $ | 15.37 |
5.50% senior notes |  |  | 2029 |  |  |  | 172 |  |  |  | 14.26 |  |  |  | 18.54 |

During 20 of the last 30 trading days ended June 30, 2011, the adjusted trigger-price contingencies were met for both series of the contingently convertible senior notes, and as a result, the senior notes are convertible at the option of the security holders for the three months ending September 30, 2011.
Presented in the following table are details about conversions of contingently convertible securities during the six months ended June 30, 2011:

3.375% contingently |  |  |  |  |  | Principal |  |  | Conversion Value |  |  | Common |  |  | Cash Paid on |
convertible senior notes |  | Conversion |  |  | Converted |  |  | per $1,000 of |  |  | Stock Issued |  |  | Settlement |
due 2023 |  | Date |  |  | (In Millions) |  |  | principal |  |  | on Settlement |  |  | (In Millions) |
Voluntary conversion |  | January 2011 |  |  | $ | 4 |  |  | $ | 1,994.21 |  |  |  | 197,472 |  |  | $ | 4 |

Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at June 30, 2011, payment of common stock dividends by CMS Energy was limited to $1.1 billion.
Under the provisions of its articles of incorporation, at June 30, 2011, Consumers had $452 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 2011, CMS Energy received $196 million of common stock dividends from Consumers.

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Issuance of Common Stock: On June 15, 2011, CMS Energy entered into a continuous equity offering program under which CMS Energy may sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $50 million. In June 2011, under this program, CMS Energy issued 762,925 shares of common stock at an average price of $19.66 per share, resulting in net proceeds of $15 million.
6: EARNINGS PER SHARE — CMS ENERGY
Presented in the following table are CMS Energy’s basic and diluted EPS computations based on income from continuing operations:

In Millions, Except Per Share Amounts |
|  | Three Months Ended |  | Six Months Ended |
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 101 |  |  | $ | 100 |  |  | $ | 234 |  |  | $ | 189 |
Less income attributable to noncontrolling interest |  |  | 1 |  |  |  | 2 |  |  |  | 1 |  |  |  | 2 |
Less preferred stock dividends |  |  | — |  |  |  | 2 |  |  |  | — |  |  |  | 5 |
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted |  | $ | 100 |  |  | $ | 96 |  |  | $ | 233 |  |  | $ | 182 |
Average Common Shares Outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares — basic |  |  | 250.3 |  |  |  | 228.2 |  |  |  | 250.2 |  |  |  | 228.1 |
Add dilutive contingently convertible securities |  |  | 11.3 |  |  |  | 19.3 |  |  |  | 11.0 |  |  |  | 19.5 |
Add dilutive non-vested stock awards and options |  |  | 0.3 |  |  |  | 0.1 |  |  |  | 0.3 |  |  |  | 0.1 |
Weighted average shares — diluted |  |  | 261.9 |  |  |  | 247.6 |  |  |  | 261.5 |  |  |  | 247.7 |
Income from Continuing Operations per Average Common Share Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.93 |  |  | $ | 0.80 |
Diluted |  |  | 0.38 |  |  |  | 0.39 |  |  |  | 0.89 |  |  |  | 0.74 |

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 common stock, exceeds the principal value of that security.
Stock Options and Warrants
For the three months and six months ended June 30, 2011, outstanding options to purchase 0.1 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.
Non-vested Stock Awards
CMS Energy’s non-vested stock awards are composed of participating and non-participating securities. The participating securities 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 non-vested stock awards are considered participating securities. As such, the participating non-vested stock awards were included in the computation of basic EPS. The non-participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non-participating securities are also forfeited. Accordingly, the non-participating awards and stock dividends were included in the computation of diluted EPS, but not basic EPS.

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Convertible Debentures
For each of the three and six months ended June 30, 2011 and 2010, CMS Energy’s 7.75 percent convertible subordinated debentures would have increased diluted earnings per share had they been included in the calculation. Using the if-converted method, the debentures would have had the following impacts on the calculation of diluted EPS:

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Increase to numerator from assumed reduction in interest expense |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
Increase to denominator from assumed conversion of debentures into common shares |  |  | 0.7 |  |  |  | 0.7 |  |  |  | 0.7 |  |  |  | 0.7 |

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. Presented in the following table are the cost or carrying amounts and fair values of CMS Energy’s and Consumers’ long-term financial instruments:

In Millions |
|  | June 30, 2011 |  |  | December 31, 2010 |
|  | Cost or |  |  |  |  |  |  | Cost or |  |  |  |
|  | Carrying |  |  |  |  |  |  | Carrying |  |  |  |
|  | Amount |  |  | Fair Value |  |  | Amount |  |  | Fair Value |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities held to maturity |  | $ | 7 |  |  | $ | 7 |  |  | $ | 5 |  |  | $ | 6 |
Securities available for sale |  |  | 115 |  |  |  | 116 |  |  |  | 90 |  |  |  | 90 |
Notes receivable1 |  |  | 398 |  |  |  | 417 |  |  |  | 386 |  |  |  | 407 |
Long-term debt2 |  |  | 7,283 |  |  |  | 8,074 |  |  |  | 7,174 |  |  |  | 7,861 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  | $ | 82 |  |  | $ | 107 |  |  | $ | 64 |  |  | $ | 90 |
Long-term debt3 |  |  | 4,507 |  |  |  | 4,892 |  |  |  | 4,525 |  |  |  | 4,891 |

1 |  | Includes current portion of notes receivable of $13 million at June 30, 2011 and $11 million at December 31, 2010.
2 |  | Includes current portion of long-term debt of $1,099 million at June 30, 2011 and $726 million at December 31, 2010.
3 |  | Includes current portion of long-term debt of $338 million at June 30, 2011 and $37 million at December 31, 2010.

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

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similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.
The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At June 30, 2011 and December 31, 2010, CMS Energy’s long-term debt included $103 million principal amount that was supported by third-party credit enhancements. This entire principal amount was at Consumers.
Presented in the following table are CMS Energy’s and Consumers’ investment securities:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | In Millions
|  | June 30, 2011 |  |  | December 31, 2010 |
|  |  |  |  |  | Unrealized |  |  | Unrealized |  |  | Fair |  |  |  |  |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |  |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
CMS Energy, including consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  | $ | 89 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 90 |  |  | $ | 62 |  |  | $ | — |  |  | $ | — |  |  | $ | 62 |
State and municipal bonds |  |  | 26 |  |  |  | — |  |  |  | — |  |  |  | 26 |  |  |  | 28 |  |  |  | — |  |  |  | — |  |  |  | 28 |
Held to maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  |  | 7 |  |  |  | — |  |  |  | — |  |  |  | 7 |  |  |  | 5 |  |  |  | 1 |  |  |  | — |  |  |  | 6 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual fund |  | $ | 58 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 59 |  |  | $ | 39 |  |  | $ | — |  |  | $ | — |  |  | $ | 39 |
State and municipal bonds |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 17 |  |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 17 |
CMS Energy common stock |  |  | 7 |  |  |  | 24 |  |  |  | — |  |  |  | 31 |  |  |  | 8 |  |  |  | 26 |  |  |  | — |  |  |  | 34 |

The mutual fund classified as available for sale is a short-term, fixed-income fund. During the six months ended June 30, 2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual fund. 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 primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds held by EnerBank.
Presented in the following table is a summary of the sales activity for CMS Energy’s and Consumers’ investment securities:

In Millions |
|  | Three months ended |  | Six months ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from sales of investment securities1 |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from sales of investment securities1 |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |

1 |  | 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.

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Presented in the following table are the fair values of the SERP state and municipal bonds by contractual maturity at June 30, 2011:

In Millions |
|  | CMS Energy, |  |  |  |
|  | including Consumers |  |  | Consumers |
Due one year or less |  | $ | 1 |  |  | $ | 1 |
Due after one year through five years |  |  | 10 |  |  |  | 7 |
Due after five years through ten years |  |  | 12 |  |  |  | 7 |
Due after ten years |  |  | 3 |  |  |  | 2 |
Total |  | $ | 26 |  |  | $ | 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 has been designated as an accounting hedge, 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 deferred as regulatory assets or liabilities and would not affect net income. No other subsidiaries of CMS Energy enter into coal purchase contracts.
Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion-related transmission charges. FTRs are accounted for as derivatives. Under regulatory accounting, all changes in fair value associated with these instruments are deferred as regulatory assets or liabilities until the instruments are settled.
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, 2011, CMS ERM held the following derivative contracts:

| • |  | a forward contract for the physical sale of 608 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants;

| • |  | futures contracts through 2011 as an economic hedge of 22 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.1 bcf of natural gas;

| • |  | forward contracts to purchase 2.5 bcf and sell 4.2 bcf of natural gas through 2012 in CMS ERM’s role as a marketer of natural gas for third-party producers; and

| • |  | an option to sell 305 GWh of electricity, and as an economic hedge, contracts to purchase 0.4 bcf of natural gas through 2011.

Presented in the following table are the fair values of CMS Energy’s and Consumers’ derivative instruments:

In Millions |
|  | Derivative Assets |  |  | Derivative Liabilities |
|  | Balance |  |  | Fair Value at |  |  | Balance |  |  | Fair Value at |
|  | Sheet |  |  | June 30, |  |  | December 31, |  |  | Sheet |  |  | June 30, |  |  | December 31, |
|  | Location |  |  | 2011 |  |  | 2010 |  |  | Location |  |  | 2011 |  |  | 2010 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts1 |  | Other assets |  | $ | 3 |  |  | $ | 1 |  |  | Other liabilities2 |  |  | $ | 3 |  |  | $ | 4 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other assets |  | $ | 3 |  |  | $ | 1 |  |  | Other liabilities |  |  | $ | — |  |  | $ | — |

1 |  | Assets and liabilities are presented gross and exclude the impact of offsetting derivative assets and liabilities under master netting agreements, which was less than $1 million at June 30, 2011 and December 31, 2010.
2 |  | 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, 2011 and December 31, 2010. CMS Energy presents these liabilities net of these impacts on its consolidated balance sheets.

Presented in the following table is the effect on CMS Energy’s and Consumers’ consolidated statements of income of their derivatives not designated as hedging instruments:

In Millions |
|  | Amount of Gain (Loss) on Derivatives Recognized in Income |
Location of Gain (Loss) on |  | Three Months Ended June 30 |  | Six Months Ended June 30
Derivatives Recognized in Income |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating revenue |  | $ | (1 | ) |  | $ | (2 | ) |  | $ | — |  |  | $ | 3 |
Fuel for electric generation |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |
Purchased and interchange power |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Total CMS Energy |  | $ | (1 | ) |  | $ | (2 | ) |  | $ | — |  |  | $ | 6 |

Consumers’ gains on FTRs deferred as regulatory liabilities were $3 million for the three months ended June 30, 2011 and $1 million for the three months ended June 30, 2010. These amounts were $3 million for the six months ended June 30, 2011 and $1 million for the six months ended June 30, 2010.

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CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were less than $1 million at June 30, 2011 and were $1 million at December 31, 2010.
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 its 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. 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.
At June 30, 2011, if counterparties within this industry concentration all failed to meet their contractual obligations, the loss to CMS Energy on contracts accounted for as derivatives would be less than $1 million.
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.
9: NOTES RECEIVABLE
EnerBank provides unsecured consumer installment loans for financing home improvements. These loans totaled $398 million, net of an allowance for loan losses of $5 million, at June 30, 2011, and $386 million, net of an allowance for loan losses of $5 million, at December 31, 2010. At June 30, 2011, $13 million of EnerBank’s loans were classified as current notes receivable and $385 million were classified as non-current notes receivable on CMS Energy’s consolidated balance sheets. At December 31, 2010, $11 million of EnerBank’s loans were classified as current notes receivable and $375 million were classified as non-current notes receivable on CMS Energy’s consolidated balance sheets.
The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loans losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

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Presented in the following table are the changes in the allowance for loan losses:

In Millions |
|  | Three months |  |  | Six months |
|  | ended |  |  | ended |
June 30 |  | 2011 |  |  | 2011 |
Allowance for loan losses, at beginning of period |  | $ | 5 |  |  | $ | 5 |
Charge-offs |  |  | (1 | ) |  |  | (2 | )
Recoveries |  |  | — |  |  |  | — |
Provision for loan losses |  |  | 1 |  |  |  | 2 |
Allowance for loan losses, at end of period |  | $ | 5 |  |  | $ | 5 |

Loans that are 30 days or more past due are considered delinquent. Presented in the following table is the delinquency status of EnerBank’s consumer loans at June 30, 2011:

In Millions |
Past Due |  | Past Due |  |  | Past Due |  |  | Total |  |  |  |  |  |  | Total |
30-59 Days |  | 60-89 Days |  |  | Over 90 Days |  |  | Delinquent |  |  | Current |  |  | Outstanding |
$ 1 |  | $ | 1 |  |  | $ | — |  |  | $ | 2 |  |  | $ | 396 |  |  | $ | 398 |

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10: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees.
Presented in the following tables are 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 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net periodic pension cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 12 |  |  | $ | 11 |  |  | $ | 24 |  |  | $ | 22 |
Interest expense |  |  | 25 |  |  |  | 25 |  |  |  | 50 |  |  |  | 49 |
Expected return on plan assets |  |  | (28 | ) |  |  | (23 | ) |  |  | (56 | ) |  |  | (46 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 15 |  |  |  | 13 |  |  |  | 31 |  |  |  | 26 |
Prior service cost |  |  | 2 |  |  |  | 1 |  |  |  | 3 |  |  |  | 3 |
Net periodic pension cost |  | $ | 26 |  |  | $ | 27 |  |  | $ | 52 |  |  | $ | 54 |
Regulatory adjustment1 |  |  | — |  |  |  | 21 |  |  |  | — |  |  |  | 23 |
Net periodic pension cost after regulatory adjustment |  | $ | 26 |  |  | $ | 48 |  |  | $ | 52 |  |  | $ | 77 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net periodic pension cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 11 |  |  | $ | 10 |  |  | $ | 23 |  |  | $ | 21 |
Interest expense |  |  | 25 |  |  |  | 24 |  |  |  | 49 |  |  |  | 48 |
Expected return on plan assets |  |  | (28 | ) |  |  | (22 | ) |  |  | (55 | ) |  |  | (45 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 16 |  |  |  | 13 |  |  |  | 31 |  |  |  | 25 |
Prior service cost |  |  | 2 |  |  |  | 1 |  |  |  | 3 |  |  |  | 3 |
Net periodic pension cost |  | $ | 26 |  |  | $ | 26 |  |  | $ | 51 |  |  | $ | 52 |
Regulatory adjustment1 |  |  | — |  |  |  | 21 |  |  |  | — |  |  |  | 23 |
Net periodic pension cost after regulatory adjustment |  | $ | 26 |  |  | $ | 47 |  |  | $ | 51 |  |  | $ | 75 |

1 |  | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. These regulatory adjustments were offset by surcharge revenues, resulting in no impact to net income for the periods presented.

CMS Energy’s and Consumers’ expected long-term rate of return on Pension Plan assets is eight percent. For the twelve months ended June 30, 2011, the actual return on Pension Plan assets was 19.5 percent, and for the twelve months ended June 30, 2010 the actual return was 14.2 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 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net periodic OPEB cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 6 |  |  | $ | 6 |  |  | $ | 13 |  |  | $ | 13 |
Interest expense |  |  | 19 |  |  |  | 20 |  |  |  | 38 |  |  |  | 41 |
Expected return on plan assets |  |  | (16 | ) |  |  | (14 | ) |  |  | (33 | ) |  |  | (29 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 8 |  |  |  | 8 |  |  |  | 16 |  |  |  | 16 |
Prior service cost |  |  | (5 | ) |  |  | (5 | ) |  |  | (10 | ) |  |  | (7 | )
Net periodic OBEB cost |  | $ | 12 |  |  | $ | 15 |  |  | $ | 24 |  |  | $ | 34 |
Regulatory adjustment1 |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 7 |
Net periodic OPEB cost after regulatory adjustment |  | $ | 12 |  |  | $ | 21 |  |  | $ | 24 |  |  | $ | 41 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net periodic OPEB cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 7 |  |  | $ | 6 |  |  | $ | 13 |  |  | $ | 13 |
Interest expense |  |  | 19 |  |  |  | 20 |  |  |  | 37 |  |  |  | 40 |
Expected return on plan assets |  |  | (16 | ) |  |  | (14 | ) |  |  | (31 | ) |  |  | (28 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | 8 |  |  |  | 8 |  |  |  | 16 |  |  |  | 16 |
Prior service cost |  |  | (5 | ) |  |  | (4 | ) |  |  | (10 | ) |  |  | (6 | )
Net periodic OPEB cost |  | $ | 13 |  |  | $ | 16 |  |  | $ | 25 |  |  | $ | 35 |
Regulatory adjustment1 |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 7 |
Net periodic OPEB cost after regulatory adjustment |  | $ | 13 |  |  | $ | 22 |  |  | $ | 25 |  |  | $ | 42 |

1 |  | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. These regulatory adjustments were offset by surcharge revenues, resulting in no impact to net income for the periods presented.

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11: INCOME TAXES
Presented in the following table is the difference between the effective income tax rate from continuing operations, excluding noncontrolling interests, and the statutory U.S. federal income tax rate:

Six Months Ended June 30 |  | 2011 |  |  | 2010 |
CMS Energy, Including Consumers |  |  |  |  |  |  |  |
U.S. federal income tax rate |  |  | 35.0 | % |  |  | 35.0 | %
Increase (decrease) in income taxes from: |  |  |  |  |  |  |  |
MCIT law change, net of federal expense |  |  | (9.9 | ) |  |  | — |
State and local income taxes, net of federal benefit |  |  | 3.5 |  |  |  | 4.0 |
Medicare Part D exempt income, net of law change |  |  | (1.1 | ) |  |  | — |
Income tax credit amortization |  |  | (0.6 | ) |  |  | (0.6 | )
Other, net |  |  | 0.3 |  |  |  | 0.7 |
Effective income tax rate |  |  | 27.2 | % |  |  | 39.1 | %
Consumers |  |  |  |  |  |  |  |
U.S. federal income tax rate |  |  | 35.0 | % |  |  | 35.0 | %
Increase (decrease) in income taxes from: |  |  |  |  |  |  |  |
State and local income taxes, net of federal benefit |  |  | 3.4 |  |  |  | 3.5 |
Medicare Part D exempt income, net of law change |  |  | (0.8 | ) |  |  | (1.0 | )
Plant basis differences |  |  | 0.2 |  |  |  | — |
Income tax credit amortization |  |  | (0.5 | ) |  |  | (0.5 | )
Other, net |  |  | (0.3 | ) |  |  | 0.1 |
Effective income tax rate |  |  | 37.0 | % |  |  | 37.1 | %

CMS Energy’s effective tax rate for the three months and the six months ended June 30, 2011, was materially reduced due to a one-time non-cash reduction in tax expense resulting from a change in Michigan tax law. In May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the MBT and the MCIT are income taxes for financial reporting purposes, for which deferred income tax assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT, the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers eliminated $134 million of net deferred tax assets associated with its utility book-tax temporary differences, recognizing a $134 million regulatory asset (not including the effects of income tax gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million of net deferred tax liabilities associated with its non-utility book-tax temporary differences, recognizing a $32 million deferred income tax benefit.
For the six months ended June 30, 2010, CMS Energy recognized deferred tax expense of $3 million to reflect the enactment of the Health Care Acts. The law change prospectively repealed the tax deduction for the portion of the health care costs reimbursed by the Medicare Part D subsidy for taxable years beginning after December 31, 2012.

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12: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate the performance of each segment based on its contribution to net income available to CMS Energy’s common stockholders. 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 EnerBank, corporate interest and other expenses, and discontinued operations.

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.

Presented in the following tables is financial information by reportable segment:

In Millions |
|  | Three Months Ended |  | Six Months Ended
June 30 |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Operating Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 949 |  |  | $ | 975 |  |  | $ | 1,846 |  |  | $ | 1,813 |
Gas utility |  |  | 354 |  |  |  | 301 |  |  |  | 1,445 |  |  |  | 1,353 |
Enterprises |  |  | 50 |  |  |  | 55 |  |  |  | 105 |  |  |  | 123 |
Other |  |  | 11 |  |  |  | 9 |  |  |  | 23 |  |  |  | 18 |
Total Operating Revenue — CMS Energy |  | $ | 1,364 |  |  | $ | 1,340 |  |  | $ | 3,419 |  |  | $ | 3,307 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 949 |  |  | $ | 975 |  |  | $ | 1,846 |  |  | $ | 1,813 |
Gas utility |  |  | 354 |  |  |  | 301 |  |  |  | 1,445 |  |  |  | 1,353 |
Total Operating Revenue — Consumers |  | $ | 1,303 |  |  | $ | 1,276 |  |  | $ | 3,291 |  |  | $ | 3,166 |
Net Income Available to Common Stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 85 |  |  | $ | 86 |  |  | $ | 150 |  |  | $ | 127 |
Gas utility |  |  | 5 |  |  |  | 1 |  |  |  | 93 |  |  |  | 67 |
Enterprises |  |  | 29 |  |  |  | 33 |  |  |  | 32 |  |  |  | 42 |
Discontinued operations |  |  | — |  |  |  | (16 | ) |  |  | 2 |  |  |  | (17 | )
Other |  |  | (19 | ) |  |  | (24 | ) |  |  | (42 | ) |  |  | (54 | )
Total Net Income Available to Common Stockholders — CMS Energy |  | $ | 100 |  |  | $ | 80 |  |  | $ | 235 |  |  | $ | 165 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Electric utility |  | $ | 85 |  |  | $ | 86 |  |  | $ | 150 |  |  | $ | 127 |
Gas utility |  |  | 5 |  |  |  | 1 |  |  |  | 93 |  |  |  | 67 |
Other |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Total Net Income Available to Common Stockholder — Consumers |  | $ | 91 |  |  | $ | 87 |  |  | $ | 244 |  |  | $ | 194 |

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In Millions |
|  | June 30, 2011 |  |  | December 31, 2010 |
Plant, Property, and Equipment, Gross |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |
Electric utility1 |  | $ | 10,184 |  |  | $ | 9,944 |
Gas utility1 |  |  | 4,086 |  |  |  | 4,063 |
Enterprises |  |  | 106 |  |  |  | 102 |
Other |  |  | 37 |  |  |  | 36 |
Total Plant, Property, and Equipment, Gross — CMS Energy |  | $ | 14,413 |  |  | $ | 14,145 |
Consumers |  |  |  |  |  |  |  |
Electric utility1 |  | $ | 10,184 |  |  | $ | 9,944 |
Gas utility1 |  |  | 4,086 |  |  |  | 4,063 |
Other |  |  | 15 |  |  |  | 15 |
Total Plant, Property, and Equipment, Gross — Consumers |  | $ | 14,285 |  |  | $ | 14,022 |
Assets |  |  |  |  |  |  |  |
CMS Energy, including Consumers |  |  |  |  |  |  |  |
Electric utility1 |  | $ | 9,831 |  |  | $ | 9,321 |
Gas utility1 |  |  | 4,581 |  |  |  | 4,614 |
Enterprises |  |  | 175 |  |  |  | 191 |
Other |  |  | 1,358 |  |  |  | 1,490 |
Total Assets — CMS Energy |  | $ | 15,945 |  |  | $ | 15,616 |
Consumers |  |  |  |  |  |  |  |
Electric utility1 |  | $ | 9,831 |  |  | $ | 9,321 |
Gas utility1 |  |  | 4,581 |  |  |  | 4,614 |
Other |  |  | 689 |  |  |  | 904 |
Total Assets — Consumers |  | $ | 15,101 |  |  | $ | 14,839 |

1 |  | 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
There have been no material changes to market risk as previously disclosed in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in the 2010 Form 10-K.
CONSUMERS
There have been no material changes to market risk as previously disclosed in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in the 2010 Form 10-K.
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.

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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 2010 Form 10-K, see Part I, Item 1, Note 3, Contingencies and Commitments, and Note 4, Regulatory 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 2010 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) |  | Unregistered Sales of Equity Securities

|  | None.

(c) |  | Issuer Repurchases of Equity Securities

Presented in the following table are CMS Energy’s repurchases of equity securities for the three months ended June 30, 2011:

|  |  |  |  |  |  |  |  |  |  |  |  |  | Maximum Number of |
|  |  |  |  |  |  |  |  |  | Total Number of Shares |  |  | Shares that May Yet Be |
|  | Total Number |  |  |  |  |  |  | Purchased as Part of |  |  | Purchased Under |
|  | of Shares |  |  | Average Price |  |  | Publicly Announced |  |  | Publicly Announced |
Period |  | Purchased1 |  |  | Paid per Share |  |  | Plans or Programs |  |  | Plans or Programs |
April 1 – 30, 2011 |  |  | 2,292 |  |  | $ | 19.70 |  |  |  | — |  |  |  | — |
May 1 – 31, 2011 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
June 1 – 30, 2011 |  |  | 3,402 |  |  |  | 19.71 |  |  |  | — |  |  |  | — |
Total |  |  | 5,694 |  |  | $ | 19.71 |  |  |  | — |  |  |  | — |

1 |  | Common shares were purchased to satisfy CMS Energy’s minimum statutory income tax withholding obligation for common shares that have vested under the performance incentive stock plan. Shares repurchased have a value based on the market price on the vesting date.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
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.

Exhibits |  |  |  | Description
4.1 |  | — |  | One Hundred Fifteenth Supplemental Indenture dated as of May 4, 2011 between Consumers and The Bank of New York Mellon, Trustee. (Exhibit 4.16.18 to Form S-3 filed June 15, 2011 and incorporated herein by reference)
4.2 |  | — |  | Twenty-Seventh Supplemental Indenture dated as of May 12, 2011 between CMS Energy and The Bank of New York Mellon, as Trustee. (Exhibit 4.1 to Form 8-K filed May 12, 2011 and incorporated herein by reference)
10.1 |  | — |  | Settlement Agreement between Consumers and United States to Resolve Claims Arising from Contract DE-CR01-83NE44374, entered into on July 11, 2011
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
101.INS1 |  | — |  | XBRL Instance Document
101.SCH1 |  | — |  | XBRL Taxonomy Extension Schema
101.CAL1 |  | — |  | XBRL Taxonomy Extension Calculation Linkbase
101.DEF1 |  | — |  | XBRL Taxonomy Extension Definition Linkbase
101.LAB1 |  | — |  | XBRL Taxonomy Extension Labels Linkbase
101.PRE1 |  | — |  | XBRL Taxonomy Extension Presentation Linkbase

1 |  | 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, 2011 |  | By: |  | /s/ Thomas J. Webb Thomas J. Webb |  |
|  |  |  | Executive Vice President and |  |
|  |  |  | Chief Financial Officer |  |
|  |  |  | CONSUMERS ENERGY COMPANY (Registrant) |  |
Dated: July 28, 2011 |  | By: |  | /s/ Thomas J. Webb Thomas J. Webb |  |
|  |  |  | Executive Vice President and |  |
|  |  |  | Chief Financial Officer |  |

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CMS ENERGY’S AND CONSUMERS’ EXHIBIT INDEX

Exhibits |  |  |  | Description
10.1 |  | — |  | Settlement Agreement between Consumers and United States to Resolve Claims Arising from Contract DE-CR01-83NE44374, entered into on July 11, 2011
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
101.INS1 |  | — |  | XBRL Instance Document
101.SCH1 |  | — |  | XBRL Taxonomy Extension Schema
101.CAL1 |  | — |  | XBRL Taxonomy Extension Calculation Linkbase
101.DEF1 |  | — |  | XBRL Taxonomy Extension Definition Linkbase
101.LAB1 |  | — |  | XBRL Taxonomy Extension Labels Linkbase
101.PRE1 |  | — |  | XBRL Taxonomy Extension Presentation Linkbase

1 |  | 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.”