10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

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 (A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550	38-2726431
1-5611	Consumers Energy Company (A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550	38-0442310

Securities registered pursuant to Section 12(b) of the Act:

		Name of Each Exchange
Registrant	Title of Class	on Which Registered
CMS Energy Corporation	Common Stock, $.01 par value	New York Stock Exchange
CMS Energy Trust I	7.75% Quarterly Income Preferred Securities	New York Stock Exchange
Consumers Energy Company	Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

CMS Energy Corporation: Yes [X] No o Consumers Energy Company: Yes [X] No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

CMS Energy Corporation: Yes o No [X] Consumers Energy Company: Yes o No [X]

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.  Yes [X] No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

CMS Energy Corporation:

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. (Check One):

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

Consumers Energy Company:

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. (Check One):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	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 Exchange Act Rule 12b-2).

CMS Energy Corporation: Yes o No [X] Consumers Energy Company: Yes o No [X]

The aggregate market value of CMS Energy voting and non-voting common equity held by non-affiliates was $3.863 billion for the 224,583,688 CMS Energy Common Stock shares outstanding on June 30, 2007 based on the closing sale price of $17.20 for CMS Energy Common Stock, as reported by the New York Stock Exchange on such date.

There were 225,177,071 shares of CMS Energy Common Stock outstanding on February 19, 2008. On February 19, 2008, CMS Energy held all voting and non-voting common equity of Consumers.

Documents incorporated by reference: CMS Energy’s proxy statement and Consumers’ information statement relating to the 2008 annual meeting of shareholders to be held May 16, 2008, is incorporated by reference in Part III, except for the compensation and human resources committee report and audit committee report contained therein.

CMS Energy Corporation

And

Consumers Energy Company

Annual Reports on Form 10-K to the Securities and Exchange Commission for the Year Ended

December 31, 2007

This combined Form 10-K is separately filed by CMS Energy Corporation and Consumers Energy Company. Information in this combined Form 10-K relating to each individual registrant is filed by such registrant on its own behalf. Consumers Energy Company makes no representation regarding information relating to any other companies affiliated with CMS Energy Corporation other than its own subsidiaries. None of CMS Energy Corporation, CMS Enterprises Company nor any of CMS Energy’s other subsidiaries (other than Consumers Energy Company) has any obligation in respect of Consumers Energy Company’s debt securities and holders of such securities should not consider CMS Energy Corporation, CMS Enterprises Company nor any of CMS Energy’s subsidiaries (other than Consumers Energy Company and its own subsidiaries (in relevant circumstances)) financial resources or results of operations in making a decision with respect to Consumers Energy Company’s debt securities. Similarly, Consumers Energy Company has no obligation in respect of debt securities of CMS Energy Corporation.

TABLE OF CONTENTS

		Page
Glossary		4
PART I:
Item 1.	Business	11
Item 1A.	Risk Factors	25
Item 1B.	Unresolved Staff Comments	32
Item 2.	Properties	32
Item 3.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	37
PART II:
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6.	Selected Financial Data	38
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	CO-1
Item 9A.	Controls and Procedures	CO-1
Item 9B.	Other Information	CO-2
PART III:
Item 10.	Directors, Executive Officers and Corporate Governance	CO-3
Item 11.	Executive Compensation	CO-3
Item 12.	Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters	CO-4
Item 13.	Certain Relationships and Related Transactions, and Director Independence	CO-5
Item 14.	Principal Accountant Fees and Services	CO-5
PART IV:
Item 15.	Exhibits, Financial Statement Schedules	CO-5

2

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GLOSSARY

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

ABATE	Association of Businesses Advocating Tariff Equity
ABO	Accumulated Benefit Obligation. The liabilities of a pension plan based on service and pay to date. This differs from the Projected Benefit Obligation that is typically disclosed in that it does not reflect expected future salary increases.
AEI	Ashmore Energy International, a non-affiliated company
AFUDC	Allowance for Funds Used During Construction
ALJ	Administrative Law Judge
AMT	Alternative minimum tax
AOC	Administrative Order on Consent
AOCI	Accumulated Other Comprehensive Income
AOCL	Accumulated Other Comprehensive Loss
APB	Accounting Principles Board
APB Opinion No. 18	APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock”
APT	Australian Pipeline Trust
ARO	Asset retirement obligation
Bay Harbor	A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor.
bcf	One billion cubic feet of gas
Big Rock	Big Rock Point nuclear power plant
Big Rock ISFSI	Big Rock Independent Spent Fuel Storage Installation
Board of Directors	Board of Directors of CMS Energy
Broadway Gen Funding LLC	Broadway Gen Funding LLC, a non-affiliated company
Btu	British thermal unit; one Btu equals the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit
CAMR	Clean Air Mercury Rule
CEO	Chief Executive Officer
CFO	Chief Financial Officer
CFTC	Commodity Futures Trading Commission
City gate arrangement	The arrangement made for the point at which a local distribution company physically receives gas from a supplier or pipeline
CKD	Cement kiln dust
Clean Air Act	Federal Clean Air Act, as amended
CMS Capital	CMS Capital, L.L.C., a wholly owned subsidiary CMS Energy
CMS Energy	CMS Energy Corporation, the parent of Consumers and Enterprises
CMS Energy Common Stock or common stock	Common stock of CMS Energy, par value $.01 per share
CMS Electric and Gas	CMS Electric & Gas Company, L.L.C., a subsidiary of Enterprises
CMS ERM	CMS Energy Resource Management Company, formerly CMS MST, a subsidiary of Enterprises
CMS Field Services	CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission
CMS Gas Transmission	CMS Gas Transmission Company, a wholly owned subsidiary of Enterprises
CMS Generation	CMS Generation Co., a former wholly owned subsidiary of Enterprises

4

CMS International Ventures	CMS International Ventures LLC, a subsidiary of Enterprises
CMS Land	CMS Land Company, a wholly owned subsidiary of CMS Energy
CMS Midland	Midland Cogeneration Venture Group II, LLC, successor to CMS Midland Inc., formerly a subsidiary of Consumers that had a 49 percent ownership interest in the MCV Partnership
CMS MST	CMS Marketing, Services and Trading Company, a wholly owned subsidiary of Enterprises, whose name was changed to CMS ERM effective January 2004
CMS Oil and Gas	CMS Oil and Gas Company, formerly a subsidiary of Enterprises
Consumers	Consumers Energy Company, a subsidiary of CMS Energy
Court of Appeals	Michigan Court of Appeals
CPEE	Companhia Paulista de Energia Eletrica, in which CMS International Ventures formerly owned a 94 percent interest
Customer Choice Act	Customer Choice and Electricity Reliability Act, a Michigan statute enacted in June 2000
DCCP	Defined Company Contribution Plan
DC SERP	Defined Contribution Supplemental Executive Retirement Plan
Dekatherms/day	A measure of the heat content value of gas per day; one dekatherm/day is equivalent to 1,000,000 British thermal units (Btu) per day
Detroit Edison	The Detroit Edison Company, a non-affiliated company
DIG	Dearborn Industrial Generation, LLC, a wholly owned subsidiary of CMS Energy
DOE	U.S. Department of Energy
DOJ	U.S. Department of Justice
Dow	The Dow Chemical Company, a non-affiliated company
DTE Energy	DTE Energy Company, a non-affiliated company
EISP	Executive Incentive Separation Plan
EITF	Emerging Issues Task Force
EITF Issue 02-03	EITF Issue No. 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities”
EITF Issue 06-11	EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”
El Chocon	A 1,200 MW hydro power plant located in Argentina, in which CMS Generation formerly held a 17.2 percent ownership interest
Entergy	Entergy Corporation, a non-affiliated company
Enterprises	CMS Enterprises Company, a subsidiary of CMS Energy
EPA	U.S. Environmental Protection Agency
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FIN 14	FASB Interpretation No. 14, Reasonable Estimation of Amount of a Loss
FIN 46(R)	Revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities
FIN 47	FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
FIN 45	FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

5

FIN 48	FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109
First Mortgage Bond Indenture	The indenture dated as of September 1, 1945 between Consumers and The Bank of New York (ultimate successor to City Bank Farmers Trust Company), as Trustee, and as amended and supplemented
FMB	First Mortgage Bonds
FMLP	First Midland Limited Partnership, a partnership that holds a lessor interest in the MCV Facility
FSP	FASB Staff Position
FSP FIN 39-1	FASB Staff Position on FASB Interpretation No. 39-1, Amendment of FASB Interpretation No. 39
GAAP	Generally Accepted Accounting Principles
GasAtacama	GasAtacama Holding Limited, a limited liability partnership that manages GasAtacama S.A., which includes an integrated natural gas pipeline and electric generating plant in Argentina and Chile and Atacama Finance Company, in which CMS International Ventures formerly owned a 50 percent interest
GCR	Gas cost recovery
Goldfields	A pipeline business in Australia, in which CMS Energy formerly held a 39.7 percent ownership interest
GVK	GVK Facility, a 250 MW gas fired power plant located in South Central India, in which CMS Generation formerly held a 33 percent interest
GWh	Gigawatt hour (a unit of energy equal to one million kilowatt hours)
Hydra-Co	Hydra-Co Enterprises, Inc., a wholly owned subsidiary of Enterprises
ICSID	International Centre for the Settlement of Investment Disputes
IPP	Independent power producer
IRS	Internal Revenue Service
ISFSI	Independent spent fuel storage installation
ITC	Income tax credit
Jamaica	Jamaica Private Power Company, Limited, a 63 MW diesel-fueled power plant in Jamaica, in which CMS Generation formerly owned a 42 percent interest
Jorf Lasfar	A 1,356 MW coal-fueled power plant in Morocco, in which CMS Generation formerly owned a 50 percent interest
Jubail	A 240 MW natural gas cogeneration power plant in Saudi Arabia, in which CMS Generation formerly owned a 25 percent interest
kilovolts	One thousand volts (unit used to measure the difference in electrical pressure along a current)
kWh	Kilowatt-hour (a unit of energy equal to one thousand watt hours)
LS Power Group	LS Power Group, a non-affiliated company
Lucid Energy	Lucid Energy LLC, a non-affiliated company
Ludington	Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison
mcf	One thousand cubic feet of gas
MCV Facility	A natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership
MCV GP II	Successor of CMS Midland, Inc.
MCV Partnership	Midland Cogeneration Venture Limited Partnership

6

MCV PPA	The Power Purchase Agreement between Consumers and the MCV Partnership with a 35-year term commencing in March 1990, as amended, and as interpreted by the Settlement Agreement dated as of January 1, 1999 between the MCV Partnership and Consumers
MD&A	Management’s Discussion and Analysis
MDEQ	Michigan Department of Environmental Quality
MDL	Multidistrict Litigation
METC	Michigan Electric Transmission Company, LLC, a non-affiliated company owned by ITC Holdings Corporation and a member of MISO
Midwest Energy Market	An energy market developed by the MISO to provide day-ahead and real-time market information and centralized dispatch for market participants
MISO	Midwest Independent Transmission System Operator, Inc.
MMBtu	Million British Thermal Units
Moody’s	Moody’s Investors Service, Inc.
MPSC	Michigan Public Service Commission
MRV	Market-Related Value of Plan assets
MSBT	Michigan Single Business Tax
MW	Megawatt (a unit of power equal to one million watts)
MWh	Megawatt hour (a unit of energy equal to one million watt hours)
Neyveli	CMS Generation Neyveli Ltd, a 250 MW lignite-fired power station located in India, in which CMS International Ventures formerly owned a 50 percent interest
NMC	Nuclear Management Company LLC, formed in 1999 by Northern States Power Company (now Xcel Energy Inc.), Alliant Energy, Wisconsin Electric Power Company, and Wisconsin Public Service Company to operate and manage nuclear generating facilities owned by the utilities
NREPA	Michigan Natural Resources and Environmental Protection Act
NYMEX	New York Mercantile Exchange
OPEB	Postretirement benefit plans other than pensions
Palisades	Palisades nuclear power plant, formerly owned by Consumers
Panhandle	Panhandle Eastern Pipe Line Company, including its subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas Transmission
Parmelia	A business located in Australia comprised of a pipeline, processing facilities, and a gas storage facility, a former subsidiary of CMS Gas Transmission
PCB	Polychlorinated biphenyl
PDVSA	Petroleos de Venezuela S.A., a non-affiliated company
Peabody Energy	Peabody Energy Corporation, a non-affiliated company
Pension Plan	The trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers and CMS Energy
PowerSmith	A 124 MW natural gas power plant located in Oklahoma, in which CMS Generation formerly held a 6.25% limited partner ownership interest
PSCR	Power supply cost recovery
PUHCA	Public Utility Holding Company Act
PURPA	Public Utility Regulatory Policies Act of 1978
Quicksilver	Quicksilver Resources, Inc., a non-affiliated company

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RAKTL	Ronald A. Katz Technology Licensing L.P., a non-affiliated company
RCP	Resource Conservation Plan
Reserve Margin	The amount of unused available electric capacity at peak demand as a percentage of total electric capacity
ROA	Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act.
S&P	Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.
SEC	U.S. Securities and Exchange Commission
Section 10d(4) Regulatory Asset	Regulatory asset as described in Section 10d(4) of the Customer Choice Act, as amended
Securitization	A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special purpose entity affiliated with such utility
SENECA	Sistema Electrico del Estado Nueva Esparta C.A., a former subsidiary of CMS International Ventures
SERP	Supplemental Executive Retirement Plan
SFAS	Statement of Financial Accounting Standards
SFAS No. 5	SFAS No. 5, “Accounting for Contingencies”
SFAS No. 13	SFAS No. 13, “Accounting for Leases”
SFAS No. 71	SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation”
SFAS No. 87	SFAS No. 87, “Employers’ Accounting for Pensions”
SFAS No. 98	SFAS No. 98, “Accounting for Leases”
SFAS No. 106	SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”
SFAS No. 109	SFAS No. 109, “Accounting for Income Taxes”
SFAS No. 132(R)	SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”
SFAS No. 133	SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted”
SFAS No. 143	SFAS No. 143, “Accounting for Asset Retirement Obligations”
SFAS No. 144	SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
SFAS No. 157	SFAS No. 157, “Fair Value Measurement”
SFAS No. 158	SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)”
SFAS No. 159	SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment to FASB Statement No. 115”
SFAS No. 160	SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51”
Shuweihat	A power and desalination plant located in the United Arab Emirates, in which CMS Generation formerly owned a 20 percent interest
SLAP	Scudder Latin American Power Fund
SRLY	Separate Return Limitation Year

8

Stranded Costs	Costs incurred by utilities in order to serve their customers in a regulated monopoly environment, which may not be recoverable in a competitive environment because of customers leaving their systems and ceasing to pay for their costs. These costs could include owned and purchased generation and regulatory assets.
Superfund	Comprehensive Environmental Response, Compensation and Liability Act
Takoradi	A 200 MW open-cycle combustion turbine crude oil power plant located in Ghana, in which CMS Generation formerly owned a 90 percent interest
TAQA	Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and Electricity Authority, a non-affiliated company
Taweelah	Al Taweelah A2, a power and desalination plant of Emirates CMS Power Company located in the United Arab Emirates, in which CMS Generation formerly held a 40 percent interest
TGN	A natural gas transportation and pipeline business located in Argentina, in which CMS Gas Transmission owns a 23.54 percent interest
TRAC	Terminal Rental Adjustment Clause, a provision of a leasing agreement which permits or requires the rental price to be adjusted upward or downward by reference to the amount realized by the lessor under the agreement upon sale or other disposition of formerly leased property
Trunkline	CMS Trunkline Gas Company, LLC, formerly a subsidiary of CMS Panhandle Holdings, LLC
Trust Preferred Securities	Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts
TSR	Total shareholder return
TTT	Gas title transfer tracking fees and services
Union	Utility Workers Union of America, AFL-CIO
VEBA	VEBA employees’ beneficiary association trusts accounts established to set aside specifically employer contributed assets to pay for future expenses of the OPEB plan
Zeeland	A 935 MW gas-fired power plant located in Zeeland, Michigan

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PART I

ITEM 1. BUSINESS

GENERAL

CMS Energy

CMS Energy was formed in Michigan in 1987 and is an energy holding company operating through subsidiaries in the United States, primarily in Michigan. Its two principal subsidiaries are Consumers and Enterprises. Consumers is a public utility that provides electricity and/or natural gas to almost 6.5 million of Michigan’s 10 million residents and serves customers in all 68 counties of Michigan’s Lower Peninsula. Enterprises, through various subsidiaries and certain equity investments, is engaged primarily in domestic independent power production.

CMS Energy’s consolidated operating revenue was $6.464 billion in 2007, $6.126 billion in 2006, and $5.879 billion in 2005. CMS Energy manages its businesses by the nature of services each provides and operates principally in three business segments: electric utility, gas utility, and enterprises. See BUSINESS SEGMENTS in this Item 1 for further discussion of each segment.

Consumers

Consumers was formed in Michigan in 1968 and is the successor to a corporation organized in Maine in 1910 that conducted business in Michigan from 1915 to 1968. Consumers serves individuals and companies operating in the automotive, metal, chemical and food products industries as well as a diversified group of other industries. In 2007, Consumers served 1.8 million electric customers and 1.7 million gas customers.

Consumers’ consolidated operations account for a majority of CMS Energy’s total assets, income, and operating revenue. Consumers’ consolidated operating revenue was $6.064 billion in 2007, $5.721 billion in 2006, and $5.232 billion in 2005.

Consumers’ rates and certain other aspects of its business are subject to the jurisdiction of the MPSC and the FERC, as described in CMS ENERGY AND CONSUMERS REGULATION in this Item 1.

Consumers’ Properties — General:  Consumers owns its principal properties in fee, except that most electric lines and gas mains are located in public roads or on land owned by others and are accessed by Consumers pursuant to easements and other rights. Almost all of Consumers’ properties are subject to the lien of its First Mortgage Bond Indenture. For additional information on Consumers’ properties, see BUSINESS SEGMENTS — Consumers Electric Utility — Electric Utility Properties, and — Consumers Gas Utility — Gas Utility Properties as described later in this Item 1.

BUSINESS SEGMENTS

CMS Energy Financial Information

For further information with respect to operating revenue, net operating income, and identifiable assets and liabilities attributable to all of CMS Energy’s business segments and operations, see ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — SELECTED FINANCIAL INFORMATION, CONSOLIDATED FINANCIAL STATEMENTS and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Consumers Financial Information

For further information with respect to operating revenue, net operating income, and identifiable assets and liabilities attributable to Consumers’ electric and gas utility operations, see ITEM 8. CONSUMERS’ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — SELECTED FINANCIAL INFORMATION, CONSOLIDATED FINANCIAL STATEMENTS and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

11

Consumers Electric Utility

  Electric Utility Operations

Consumers’ electric utility operating revenue was $3.443 billion in 2007, $3.302 billion in 2006, and $2.701 billion in 2005. Consumers’ electric utility operations include the generation, purchase, distribution and sale of electricity. At year-end 2007, Consumers was authorized to provide service in 61 of the 68 counties of Michigan’s Lower Peninsula. Principal cities served include Battle Creek, Flint, Grand Rapids, Jackson, Kalamazoo, Midland, Muskegon and Saginaw. Consumers’ electric utility customer base comprises a mix of residential, commercial and diversified industrial customers, the largest segment of which is the automotive industry (which represents 5 percent of Consumers’ revenues). Consumers’ electric utility operations are not dependent upon a single customer, or even a few customers, and the loss of any one or even a few such customers is not reasonably likely to have a material adverse effect on its financial condition.

Consumers’ electric utility operations are seasonal. The summer months typically increase the use of electric energy, primarily due to the use of air conditioners and other cooling equipment. In 2007, Consumers’ electric deliveries were 39 billion kWh, which included ROA deliveries of 1 billion kWh. In 2006, Consumers’ electric deliveries were 38 billion kWh, which included ROA deliveries of 1 billion kWh.

Consumers’ 2007 summer peak demand was 8,183 MW excluding ROA loads and 8,391 MW including ROA loads. For the 2006-07 winter period, Consumers’ peak demand was 5,985 MW excluding ROA loads and 6,178 MW including ROA loads. Alternative electric suppliers were providing generation services to ROA customers of 315 MW at December 31, 2007 and 300 MW at December 31, 2006. Consumers had an 11 percent Reserve Margin target for summer 2007. Consumers owns or controls capacity necessary to supply approximately 118 percent of projected firm peak load for summer 2008.

In 2007, through the Midwest Energy Market, long-term purchase contracts, options, spot market and other seasonal purchases, Consumers purchased up to 3,979 MW of net capacity from others, which amounted to 49 percent of Consumers’ total system requirements.

12

  Electric Utility Properties

Generation: At December 31, 2007, Consumers’ electric generating system consisted of the following:

		2007			2007 Net
		Summer Net			Generation
	Size and Year	Demonstrated			(Millions
Name and Location (Michigan)	Entering Service	Capability (MW)			of kWh)
Coal Generation
J H Campbell 1 & 2 — West Olive	2 Units, 1962-1967		615			4,320
J H Campbell 3 — West Olive	1 Unit, 1980		765	(a)		3,540
D E Karn — Essexville	2 Units, 1959-1961		515			3,663
B C Cobb — Muskegon	2 Units, 1956-1957		312			2,151
J R Whiting — Erie	3 Units, 1952-1953		328			2,394
J C Weadock — Essexville	2 Units, 1955-1958		306			1,835
Total coal generation			2,841			17,903
Oil/Gas Generation
B C Cobb — Muskegon	3 Units, 1999-2000(b)		183			7
D E Karn — Essexville	2 Units, 1975-1977		1,276			215
Zeeland — Zeeland	1 Unit, 2002		—			—	(c)
Total oil/gas generation			1,459			222
Hydroelectric
Conventional Hydro Generation	13 Plants, 1906-1949		73			416
Ludington Pumped Storage	6 Units, 1973		955	(d)		(478	)(e)
Total hydroelectric			1,028			(62	)
Nuclear Generation
Palisades — South Haven	1 Unit, 1971		—			1,781	(f)
Gas/Oil Combustion Turbine
Various Plants	7 Plants, 1966-1971		345			19
Zeeland — Zeeland	2 Units, 2001		—			—	(c)
Total gas/Oil Combustion Turbine			345			19
Total owned generation			5,673			19,863
Purchased and Interchange Power
Capacity			3,627	(g)
Total			9,300

(a)  Represents Consumers’ share of the capacity of the J H Campbell 3 unit, net of the 6.69 percent ownership interest of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.

(b)	Cobb 1-3 are retired coal-fired units that were converted to gas-fired. Units were placed back into service in the years indicated.
(c)	Zeeland was purchased on December 21, 2007. It consists of two simple cycle combustion turbines and a combined cycle plant consisting of two combustion turbines and one steam turbine. The plant was not used by Consumers during 2007.
(d)	Represents Consumers’ 51 percent share of the capacity of Ludington. Detroit Edison owns 49 percent.
(e)	Represents Consumers’ share of net pumped storage generation. This facility electrically pumps water during off-peak hours for storage to generate electricity later during peak-demand hours.
(f)	Palisades was sold in April 2007 and Consumers entered into a 15-year power purchase agreement for all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW.

13

(g) Includes 1,240 MW of purchased contract capacity from the MCV Facility and 778 MW of purchased contract capacity from the Palisades plant.

Distribution: Consumers’ distribution system includes:

•  390 miles of high-voltage distribution radial lines operating at 120 kilovolts and above;

•  4,216 miles of high-voltage distribution overhead lines operating at 23 kilovolts and 46 kilovolts;

•  17 subsurface miles of high-voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts;

•  55,656 miles of electric distribution overhead lines;

•  9,780 miles of underground distribution lines; and

•  substations having an aggregate transformer capacity of 23,143,920 kilovoltamperes.

Consumers is interconnected to METC. METC owns an interstate high-voltage electric transmission system in Michigan and is interconnected with neighboring utilities as well as other transmission systems.

Fuel Supply: As shown in the following table, Consumers generated electricity primarily from coal and from its former ownership in nuclear power.

	Millions of kWh
Power Generated	2007			2006			2005			2004			2003
Coal		17,903			17,744			19,711			18,810			20,091
Nuclear		1,781			5,904			6,636			5,346			6,151
Oil		112			48			225			193			242
Gas		129			161			356			38			129
Hydro		416			485			387			445			335
Net pumped storage		(478	)		(426	)		(516	)		(538	)		(517	)
Total net generation		19,863			23,916			26,799			24,294			26,431

The cost of all fuels consumed, shown in the following table, fluctuates with the mix of fuel used.

	Cost per Million Btu
Fuel Consumed	2007		2006		2005		2004		2003
Coal	$	2.04	$	2.09	$	1.78	$	1.43	$	1.33
Oil		8.21		8.68		5.98		4.68		3.92
Gas		10.29		8.92		9.76		10.07		7.62
Nuclear		0.42		0.24		0.34		0.33		0.34
All Fuels(a)		2.07		1.72		1.64		1.26		1.16

(a) Weighted average fuel costs.

Consumers has four generating plant sites that burn coal. In 2007, these plants produced a combined total of 17,903 million kWh of electricity, which represents 90 percent of Consumers’ 19,863 million kWh baseload supply, the capacity used to serve a constant level of customer demand. These plants burned 9.4 million tons of coal in 2007. On December 31, 2007, Consumers had on hand a 50-day supply of coal.

Consumers has entered into coal supply contracts with various suppliers and associated rail transportation contracts for its coal-fired generating plants. Under the terms of these agreements, Consumers is obligated to take physical delivery of the coal and make payment based upon the contract terms. Consumers’ coal supply contracts expire through 2010 and total an estimated $376 million. Its coal transportation contracts expire through 2009 and total an estimated $263 million. Long-term coal supply contracts have accounted for approximately 60 to 90 percent of Consumers’ annual coal requirements over the last 10 years. Consumers believes that it is within the historical 60 to 90 percent range.

At December 31, 2007, Consumers had future unrecognized commitments to purchase capacity and energy under long-term power purchase agreements with various generating plants. These contracts require monthly capacity payments based on the plants’ availability or deliverability. These payments for 2008 through 2030 total an

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estimated $21.025 billion. This amount may vary depending upon plant availability and fuel costs. Consumers is obligated to pay capacity charges based upon the amount of capacity available at a given time, whether or not power is delivered to Consumers.

Consumers Gas Utility

  Gas Utility Operations

Consumers’ gas utility operating revenue was $2.621 billion in 2007, $2.374 billion in 2006, and $2.483 billion in 2005. Consumers’ gas utility operations purchase, transport, store, distribute and sell natural gas. Consumers is authorized to provide service in 46 of the 68 counties in Michigan’s Lower Peninsula. Principal cities served include Bay City, Flint, Jackson, Kalamazoo, Lansing, Pontiac and Saginaw, as well as the suburban Detroit area, where nearly 900,000 of Consumers’ gas customers are located. Consumers’ gas utility operations are not dependent upon a single customer, or even a few customers, and the loss of any one or even a few such customers is not reasonably likely to have a material adverse effect on its financial condition.

Consumers’ gas utility operations are seasonal. Consumers injects natural gas into storage during the summer months for use during the winter months when the demand for natural gas is higher. Peak demand occurs in the winter due to colder temperatures and the resulting use of heating fuels. In 2007, deliveries of natural gas sold through Consumers’ pipeline and distribution network totaled 347 bcf.

Gas Utility Properties: Consumers’ gas distribution and transmission system located throughout Michigan’s Lower Peninsula consists of:

•  26,404 miles of distribution mains;

•  1,669 miles of transmission lines;

•  7 compressor stations with a total of 162,000 installed horsepower; and

•  15 gas storage fields with an aggregate storage capacity of 308 bcf and a working storage capacity of 143 bcf.

Gas Supply: In 2007, Consumers purchased 67 percent of the gas it delivered from United States producers and 25 percent from Canadian producers. Authorized suppliers in the gas customer choice program supplied the remaining 8 percent of gas that Consumers delivered.

Consumers’ firm gas transportation agreements are with ANR Pipeline Company, Great Lakes Gas Transmission, L.P., Trunkline Gas Co., Panhandle Eastern Pipe Line Company, and Vector Pipeline. Consumers uses these agreements to deliver gas to Michigan for ultimate deliveries to market. Consumers’ firm transportation and city gate arrangements are capable of delivering over ninety percent of Consumers’ total gas supply requirements. As of December 31, 2007, Consumers’ portfolio of firm transportation from pipelines to Michigan is as follows:

	Volume
	(dekatherms/day)		Expiration
ANR Pipeline Company		50,000		March	2017
Great Lakes Gas Transmission, L.P.		100,000		March	2011
Great Lakes Gas Transmission, L.P.		50,000		March	2017
Trunkline Gas Company		290,000		October	2008
Trunkline Gas Company (starting 11/01/08)		240,000		October	2012
Panhandle Eastern Pipe Line Company		50,000		October	2008
Panhandle Eastern Pipe Line Company (starting 4/01/08)		50,000		October	2008
Panhandle Eastern Pipe Line Company (starting 4/01/09)		50,000		October	2009
Panhandle Eastern Pipe Line Company (starting 4/01/10)		50,000		October	2010
Panhandle Eastern Pipe Line Company (starting 4/01/11)		50,000		October	2011
Panhandle Eastern Pipe Line Company (starting 4/01/12)		50,000		October	2012
Panhandle Eastern Pipe Line Company (starting 11/01/08)		50,000		October	2013
Panhandle Eastern Pipe Line Company (starting 4/01/13)		50,000		October	2013
Vector Pipeline		50,000		March	2012

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Consumers purchases the balance of its required gas supply under incremental firm transportation contracts, firm city gate contracts and, as needed, interruptible transportation contracts. The amount of interruptible transportation service and its use vary primarily with the price for such service and the availability and price of the spot supplies being purchased and transported. Consumers’ use of interruptible transportation is generally in off-peak summer months and after Consumers has fully utilized the services under the firm transportation agreements.

Enterprises

Enterprises, through various subsidiaries and certain equity investments, is engaged primarily in domestic independent power production. Enterprises’ operating revenue included in Continuing Operations in our consolidated financial statements was $383 million in 2007, $438 million in 2006, and $693 million in 2005. Operating revenue included in Discontinued Operations in our consolidated financial statements was $235 million in 2007, $684 million in 2006, and $409 million in 2005.

In 2007, Enterprises made a significant change in business strategy by exiting the international marketplace and refocusing its business strategy to concentrate on its independent power business in the United States.

Independent Power Production

CMS Generation was formed in 1986. It invested in and operated non-utility power generation plants in the United States and abroad. The independent power production business segment’s operating revenue included in Continuing Operations in our consolidated financial statements was $41 million in 2007, $103 million in 2006, and $104 million in 2005. Operating revenue included in Discontinued Operations in our consolidated financial statements was $124 million in 2007, $437 million in 2006, and $211 million in 2005. In 2007, Enterprises sold CMS Generation and all of its international assets and power production facilities and transferred its domestic independent power plant operations to its subsidiary, Hydra-Co. For more information on the asset sales, see ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — NOTE 2. ASSET SALES, DISCONTINUED OPERATIONS AND IMPAIRMENT CHARGES — ASSET SALES.

Independent Power Production Properties: At December 31, 2007, CMS Energy had ownership interests in independent power plants totaling 1,199 gross MW or 1,078 net MW (net MW reflects that portion of the gross capacity in relation to CMS Energy’s ownership interest).

The following table details CMS Energy’s interest in independent power plants at December 31, 2007:

						Percentage of
						Gross Capacity
						Under Long-Term
		Ownership Interest		Gross Capacity		Contract
Location	Fuel Type	(%)		(MW)		(%)
California	Wood		37.8		36		100
Connecticut	Scrap tire		100		31		0
Michigan	Coal		50		70		100
Michigan	Natural gas		100		710		61
Michigan	Natural gas		100		224		0
Michigan	Wood		50		40		100
Michigan	Wood		50		38		100
North Carolina	Wood		50		50		0
Total					1,199

For information on capital expenditures, see ITEM 7. CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS — CAPITAL RESOURCES AND LIQUIDITY.

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Natural Gas Transmission

CMS Gas Transmission was formed in 1988 and owned, developed and managed domestic and international natural gas facilities. CMS Gas Transmission’s operating revenue included in Continuing Operations in our consolidated financial statements was less than $1 million in 2007, $1 million in 2006, and less than $1 million in 2005. Operating revenue included in Discontinued Operations in our consolidated financial statements was $3 million in 2007, $17 million in 2006, and $18 million in 2005.

In 2003, CMS Gas Transmission sold Panhandle to Southern Union Panhandle Corp. Also in 2003, CMS Gas Transmission sold CMS Field Services to Cantera Natural Gas, Inc. In 2004, CMS Gas Transmission sold its interest in Goldfields and its Parmelia business to APT.

In March 2007, CMS Gas Transmission sold a portfolio of its businesses in Argentina and its northern Michigan non-utility natural gas assets to Lucid Energy. In August 2007, CMS Gas Transmission sold its investment in GasAtacama to Endesa S.A. For more information on these asset sales, see ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — NOTE 2. ASSET SALES, DISCONTINUED OPERATIONS AND IMPAIRMENT CHARGES — ASSET SALES.

Natural Gas Transmission Properties: At December 31, 2007, CMS Gas Transmission had a 23.5 percent ownership interest in 3,362 miles of pipelines in Argentina which remain subject to a potential sale to the government of Argentina or other form of disposition.

Energy Resource Management

In 2004, CMS ERM changed its name from CMS Marketing, Services and Trading Company to CMS Energy Resource Management Company. Also, in 2004, CMS ERM discontinued its natural gas retail program as customer contracts expired.

CMS ERM purchases and sells energy commodities in support of CMS Energy’s generating facilities. In 2007, CMS ERM marketed approximately 38 bcf of natural gas and 2,687 GWh of electricity. Its operating revenue was $342 million in 2007, $334 million in 2006, and $589 million in 2005.

International Energy Distribution

The international energy distribution business segment’s operating revenue, all of which was reflected in Discontinued Operations in our consolidated financial statements, was $108 million in 2007, $230 million in 2006, and $180 million in 2005. In April 2007, CMS Energy sold its ownership interest in SENECA. In June 2007, CMS Energy sold CPEE. For more information on these asset sales, see ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — NOTE 2. ASSET SALES, DISCONTINUED OPERATIONS AND IMPAIRMENT CHARGES — ASSET SALES.

CMS ENERGY AND CONSUMERS REGULATION

CMS Energy is a public utility holding company that was previously exempt from registration under the PUHCA of 1935. The PUHCA of 1935 was repealed and replaced by the Energy Policy Act of 2005, effective February 8, 2006. CMS Energy, Consumers and their subsidiaries are subject to regulation by various federal, state, local and foreign governmental agencies, including those described in the following sections.

Michigan Public Service Commission

Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility rates, accounting, utility services, certain facilities and other matters.

The Michigan Attorney General, ABATE, and the MPSC staff typically intervene in MPSC proceedings concerning Consumers and appeal most significant MPSC orders. Certain appeals of the MPSC orders are pending in the Court of Appeals.

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Rate Proceedings: In 2005, the MPSC issued an order that established the electric authorized rate of return on common equity at 11.15 percent. During 2007, we filed an electric rate case with the MPSC requesting an 11.25 percent authorized rate of return, which is still pending. In August 2007, the MPSC approved a partial settlement agreement for our 2007 gas rate case, which established the gas authorized rate of return on common equity at 10.75 percent. This proceeding is still pending with the MPSC. In February 2008, we filed a gas rate case with the MPSC requesting an 11 percent authorized rate of return.

The PSCR and GCR processes allow for recovery of reasonable and prudent power supply and gas costs. The MPSC reviews these costs for reasonableness and prudency in annual plan proceedings and in plan reconciliation proceedings. For additional information, see ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTE 3 OF CMS ENERGY’S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINGENCIES) — CONSUMERS’ ELECRIC UTILITY RATE MATTERS and CONSUMERS’ GAS UTILITY RATE MATTERS and ITEM 8. CONSUMERS’ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTE 3 OF CONSUMERS’ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINGENCIES) — ELECTRIC RATE MATTERS and GAS RATE MATTERS.

MPSC Regulation and Michigan Legislation: Effective January 2002, the Customer Choice Act provided that all electric customers have the choice to buy generation service from an alternative electric supplier. The Customer Choice Act also imposed rate reductions, rate freezes and rate caps, which expired at the end of 2005. The Michigan legislature introduced several bills in December 2007 that would significantly reform the Customer Choice Act. For additional information regarding the Customer Choice Act, see ITEM 7. CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC UTILITY BUSINESS UNCERTAINTIES — ELECTRIC ROA and ITEM 7. CONSUMERS’ MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC BUSINESS UNCERTAINTIES — ELECTRIC ROA.

Consumers transports some of the natural gas it sells to customers through facilities owned by competitors including gas producers, marketers and others. Pursuant to a self implemented gas customer choice program that began in April 2003, all of Consumers’ gas customers are eligible to select an alternative gas commodity supplier.

Federal Energy Regulatory Commission

The FERC has exercised limited jurisdiction over several independent power plants in which Enterprises has ownership interests, as well as over CMS ERM and DIG. Among other things, FERC has jurisdiction over acquisitions, operation and disposal of certain assets and facilities, services provided and rates charged, and limited jurisdiction over other holding company matters with respect to CMS Energy. Some of Consumers’ gas business is also subject to regulation by the FERC, including a blanket transportation tariff pursuant to which Consumers may transport gas in interstate commerce.

The FERC also regulates certain aspects of Consumers’ electric operations including compliance with FERC accounting rules, wholesale rates, operation of licensed hydro-electric generating plants, transfers of certain facilities, and corporate mergers and issuance of securities.

The Energy Policy Act of 2005 modified the FERC’s responsibilities, which affects both Consumers and Enterprises. The new law repeals the PUHCA of 1935, streamlines electric transmission siting rules, promotes wholesale competition and investment, and requires mandatory electric supply reliability planning. In addition, the 2005 Act gave the FERC the authority to require a wide range of activities to improve the bulk power system’s reliability. During 2007, more than ninety new regulations in this area went into effect.

The FERC is currently in the process of establishing standards for ensuring a more reliable system of providing electricity throughout North America through increased regulation of generation owners and operators, load serving entities, and others.

Other Regulation

The Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to the FERC and the DOE’s Office of Fossil Fuels.

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Consumers’ pipelines are subject to the Natural Gas Pipeline Safety Act of 1968 and the Pipeline Safety Improvement Act of 2002, which regulate the safety of gas pipelines.

CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE

CMS Energy, Consumers and their subsidiaries are subject to various federal, state and local regulations for environmental quality, including air and water quality, waste management, zoning and other matters.

CMS Energy has a recorded a significant liability for its obligations associated with Bay Harbor. For additional information, see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTE 3 (CONTINGENCIES) OF CMS ENERGY’S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and ITEM 1A. RISK FACTORS.

Consumers has installed and is currently installing modern emission controls at its electric generating plants and has converted and is converting electric generating units to burn cleaner fuels. Consumers expects that the cost of future environmental compliance, especially compliance with clean air laws, will be significant because of EPA regulations and proposed regulations regarding nitrogen oxide, particulate-related emissions, and mercury. Consumers will spend $835 million through 2015 to comply with the Clean Air Interstate Rule and will spend $480 million through 2015 to comply with the State of Michigan’s proposed mercury plan.

Consumers completed the closure of an ash landfill at one plant in 2007 and is awaiting MDEQ certification of that closure. Consumers is also in the process of closing some older areas at an ash landfill at another plant. Construction, operation, and closure of a modern solid waste disposal area for ash can be expensive because of strict federal and state requirements. In order to significantly reduce ash field closure costs, Consumers has worked with others to use bottom ash and fly ash as part of a temporary and final cover for ash disposal areas instead of native materials, in cases where such use of bottom ash and fly ash is compatible with environmental standards. To reduce disposal volumes, Consumers sells coal ash for use as a Portland cement replacement in concrete products, as a filler for asphalt, as feedstock for the manufacture of Portland cement and for other environmentally compatible uses. The EPA has announced its intention to develop new nationwide standards for ash disposal areas. Consumers intends to work through industry groups to help ensure that any such regulations require only the minimum cost necessary to adhere to standards that are consistent with protection of the environment.

Consumers’ electric generating plants must comply with rules that significantly reduce the number of fish killed by plant cooling water intake systems. Consumers is studying options to determine the most cost-effective solutions for compliance.

Like most electric utilities, Consumers has PCB in some of its electrical equipment. During routine maintenance activities, Consumers identified PCB as a component in certain paint, grout and sealant materials at the Ludington Pumped Storage facility. Consumers removed and replaced part of the PCB material with non-PCB material. Consumers has proposed a plan to the EPA to deal with the remaining materials and is waiting for a response from the EPA.

Certain environmental regulations affecting CMS Energy and Consumers include, but are not limited to, the Clean Air Act Amendments of 1990 and Superfund. Superfund can require any individual or entity that may have owned or operated a disposal site, as well as transporters or generators of hazardous substances that were sent to such a site, to share in remediation costs for the site.

CMS Energy’s and Consumers’ current insurance program does not extend to cover the risks of certain environmental cleanup costs or environmental damages, such as claims for air pollution, damage to sites owned by CMS Energy or Consumers, and for some past PCB contamination, and for some long-term storage or disposal of pollutants.

For additional information concerning environmental matters, including estimated capital expenditures to reduce nitrogen oxide related emissions, see ITEM 7. CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC UTILITY BUSINESS UNCERTAINTIES — ELECTRIC ENVIRONMENTAL ESTIMATES and ITEM 7. CONSUMERS’ MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC BUSINESS UNCERTAINTIES — ELECTRIC ENVIRONMENTAL ESTIMATES.

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CMS ENERGY AND CONSUMERS COMPETITION

Electric Competition

Consumers’ electric utility business experiences actual and potential competition from many sources, both in the wholesale and retail markets, as well as in electric generation, electric delivery, and retail services.

Michigan’s Customer Choice Act gives all electric customers the right to buy generation service from an alternative electric supplier. In January 2006, the MPSC approved cost-based ROA distribution tariffs. A significant decrease in retail electric competition occurred in 2005 due to changes in market conditions, including increased uncertainty and volatility in fuel commodity prices. Energy market volatility continued into 2006. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers. This amount represents an increase of 5 percent compared to December 31, 2006, and is 4 percent of Consumers’ total distribution load. It is difficult to predict future ROA customer trends.

In addition to retail electric customer choice, Consumers has competition or potential competition from:

•  industrial customers relocating all or a portion of their production capacity outside Consumers’ service territory for economic reasons;

•  municipalities owning or operating competing electric delivery systems;

•  customer self-generation; and

•  adjacent utilities that extend lines to customers in contiguous service territories.

Consumers addresses this competition by monitoring activity in adjacent areas and enforcing compliance with MPSC and FERC rules, providing non-energy services, and providing tariff-based incentives that support economic development.

Consumers offers non-energy revenue-producing services to electric customers, municipalities and other utilities in an effort to offset costs. These services include engineering and consulting, construction of customer-owned distribution facilities, sales of equipment (such as transformers), power quality analysis, energy management services, meter reading, and joint construction for phone and cable. Consumers faces competition from many sources, including energy management services companies, other utilities, contractors, and retail merchandisers.

CMS ERM, a non-utility electric subsidiary, continues to focus on optimizing CMS Energy’s independent power production portfolio. CMS Energy’s independent power production business, a non-utility electric subsidiary, faces competition from generators, marketers and brokers, as well as other utilities marketing power at lower prices on the wholesale market.

For additional information concerning electric competition, see ITEM 7. CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC UTILITY BUSINESS UNCERTAINTIES and ITEM 7. CONSUMERS’ MANAGEMENT’S DISCUSSION AND ANALYSIS — OUTLOOK — ELECTRIC BUSINESS UNCERTAINTIES.

Gas Competition

Competition exists in various aspects of Consumers’ gas utility business, and is likely to increase. Competition comes from other gas suppliers taking advantage of direct access to Consumers’ customers and from alternative fuels and energy sources, such as propane, oil, and electricity.

INSURANCE

CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage similar to comparable companies in the same lines of business. The insurance policies are subject to terms, conditions, limitations and exclusions that might not fully compensate CMS Energy for all losses. A portion of each loss is generally assumed by CMS Energy in the form of deductibles and self-insured retentions that, in some cases, are substantial. As CMS Energy renews its policies it is possible that some of the current insurance coverage may not be renewed or obtainable on commercially reasonable terms due to restrictive insurance markets.

For a discussion of environmental insurance coverage, see ITEM 1. BUSINESS — CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE.

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EMPLOYEES

CMS Energy

At December 31, 2007, CMS Energy and its wholly owned subsidiaries, including Consumers, had 7,898 full-time equivalent employees. Included in the total are 3,475 employees who are covered by union contracts.

Consumers

At December 31, 2007, Consumers and its subsidiaries had 7,614 full-time equivalent employees. Included in the total are 3,147 full-time operating, maintenance and construction employees and 322 full-time and part-time call center employees who are represented by the Utility Workers Union of America.

CMS ENERGY EXECUTIVE OFFICERS (as of February 1, 2008)

Name	Age	Position	Period
David W. Joos	54	President and CEO of CMS Energy	2004-Present
		CEO of Consumers	2004-Present
		Chairman of the Board, CEO of Enterprises	2003-Present
		President, Chief Operating Officer of CMS Energy	2001-2004
		President, Chief Operating Officer of Consumers	2001-2004
		President, Chief Operating Officer of Enterprises	2001-2003
		Director of CMS Energy	2001-Present
		Director of Consumers	2001-Present
		Director of Enterprises	2000-Present
Thomas J. Webb	55	Executive Vice President, CFO of CMS Energy	2002-Present
		Executive Vice President, CFO of Consumers	2002-Present
		Executive Vice President, CFO of Enterprises	2002-Present
		Executive Vice President, CFO of CMS Generation	2006-5/2007
		Director of Enterprises	2002-Present
		Director of CMS Generation	2003-5/2007
James E. Brunner*	55	Senior Vice President and General Counsel of CMS Energy	11/2006-Present
		Senior Vice President and General Counsel of Consumers	11/2006-Present
		Senior Vice President and General Counsel of Enterprises	11/2007-Present
		Senior Vice President of Enterprises	2006-11/2007
		Senior Vice President of CMS Generation	2006-5/2007
		Senior Vice President, General Counsel and Chief Compliance Officer of CMS Energy	5/2006-11/2006
		Senior Vice President, General Counsel and Chief Compliance Officer of Consumers	5/2006-11/2006
		Senior Vice President, General Counsel and Interim Chief Compliance Officer of Consumers	2/2006-5/2006
		Senior Vice President and General Counsel of CMS Energy	2/2006-5/2006
		Senior Vice President and General Counsel of Consumers	2/2006-5/2006
		Vice President and General Counsel of Consumers	7/2004-2/2006
		Vice President of Consumers	2004
		Director of Enterprises	2006-Present

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Name	Age	Position	Period
John M. Butler **	43	Senior Vice President of CMS Energy	2006-Present
		Senior Vice President of Consumers	2006-Present
		Senior Vice President of Enterprises	2006-Present
		Senior Vice President of CMS Generation	2006-5/2007
David G. Mengebier	50	Senior Vice President and Chief Compliance Officer of CMS Energy	11/2006-Present
		Senior Vice President and Chief Compliance Officer of Consumers	11/2006-Present
		Senior Vice President of Enterprises	2003-Present
		Senior Vice President of CMS Energy	2001-11/2006
		Senior Vice President of Consumers	2001-11/2006
Thomas W. Elward	59	President, Chief Operating Officer of Enterprises	2003-Present
		President, CEO of CMS Generation	2002-5/2007
		Senior Vice President of Enterprises	2002-2003
		Director of Enterprises	2003-Present
		Director of CMS Generation	2002-5/2007
John G. Russell	50	President and Chief Operating Officer of Consumers	2004-Present
		Executive Vice President and President — Electric & Gas of Consumers	7/2004-10/2004
		Executive Vice President, President and CEO — Electric of Consumers	2001-2004
Glenn P. Barba	42	Vice President, Controller and Chief Accounting Officer of CMS Energy	2003-Present
		Vice President, Controller and Chief Accounting Officer of Consumers	2003-Present
		Vice President, Chief Accounting Officer and Controller of Enterprises	11/2007-Present
		Vice President and Chief Accounting Officer of Enterprises	2003-11/2007
		Vice President and Controller of Consumers	2002-2003

*	From 1993 until July 2004, Mr. Brunner was Assistant General Counsel of Consumers.
**	From 2002 until 2004, Mr. Butler was Global Compensation and Benefits Resource Center Director at Dow and from 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow.

There are no family relationships among executive officers and directors of CMS Energy.

The present term of office of each of the executive officers extends to the first meeting of the Board of Directors after the next annual election of Directors of CMS Energy (scheduled to be held on May 16, 2008).

CONSUMERS EXECUTIVE OFFICERS (as of February 1, 2008)

Name	Age	Position	Period
David W. Joos	54	President and CEO of CMS Energy	2004-Present
		CEO of Consumers	2004-Present
		Chairman of the Board, CEO of Enterprises	2003-Present
		President, Chief Operating Officer of CMS Energy	2001-2004
		President, Chief Operating Officer of Consumers	2001-2004
		President, Chief Operating Officer of Enterprises	2001-2003
		Director of CMS Energy	2001-Present
		Director of Consumers	2001-Present
		Director of Enterprises	2000-Present

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Name	Age	Position	Period
Thomas J. Webb	55	Executive Vice President, CFO of CMS Energy	2002-Present
		Executive Vice President, CFO of Consumers	2002-Present
		Executive Vice President, CFO of Enterprises	2002-Present
		Executive Vice President, CFO of CMS Generation	2006-5/2007
		Director of Enterprises	2002-Present
		Director of CMS Generation	2003-5/2007
James E. Brunner*	55	Senior Vice President and General Counsel of CMS Energy	11/2006-Present
		Senior Vice President and General Counsel of Consumers	11/2006-Present
		Senior Vice President and General Counsel of Enterprises	11/2007-Present
		Senior Vice President of Enterprises	2006-11/2007
		Senior Vice President of CMS Generation	2006-5/2007
		Senior Vice President, General Counsel and Chief Compliance Officer of CMS Energy	5/2006-11/2006
		Senior Vice President, General Counsel and Chief Compliance Officer of Consumers	5/2006-11/2006
		Senior Vice President, General Counsel and Interim Chief Compliance Officer of Consumers	2/2006-5/2006
		Senior Vice President and General Counsel of CMS Energy	2/2006-5/2006
		Senior Vice President and General Counsel of Consumers	2/2006-5/2006
		Vice President and General Counsel of Consumers	7/2004-2/2006
		Vice President of Consumers	2004
		Director of Enterprises	2006-Present
John M. Butler **	43	Senior Vice President of CMS Energy	2006-Present
		Senior Vice President of Consumers	2006-Present
		Senior Vice President of Enterprises	2006-Present
		Senior Vice President of CMS Generation	2006-5/2007
David G. Mengebier	50	Senior Vice President and Chief Compliance Officer of CMS Energy	11/2006-Present
		Senior Vice President and Chief Compliance Officer of Consumers	11/2006-Present
		Senior Vice President of Enterprises	2003-Present
		Senior Vice President of CMS Energy	2001-11/2006
		Senior Vice President of Consumers	2001-11/2006
John G. Russell	50	President and Chief Operating Officer of Consumers	2004-Present
		Executive Vice President and President — Electric & Gas of Consumers	7/2004-10/2004
		Executive Vice President, President and CEO — Electric of Consumers	2001-2004
William E. Garrity	59	Senior Vice President of Consumers	2005-Present
		Vice President of Consumers	1999-2005
Frank Johnson	59	Senior Vice President of Consumers	2001-Present
Paul N. Preketes	58	Senior Vice President of Consumers	1999-Present

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Name	Age	Position	Period
Glenn P. Barba	42	Vice President, Controller and Chief Accounting Officer of CMS Energy	2003-Present
		Vice President, Controller and Chief Accounting Officer of Consumers	2003-Present
		Vice President, Chief Accounting Officer and Controller of Enterprises	11/2007-Present
		Vice President and Chief Accounting Officer of Enterprises	2003-11/2007
		Vice President and Controller of Consumers	2002-2003

*	From 1993 until July 2004, Mr. Brunner was Assistant General Counsel of Consumers.
**	From 2002 until 2004, Mr. Butler was Global Compensation and Benefits Resource Center Director at Dow and from 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow.

There are no family relationships among executive officers and directors of Consumers.

The present term of office of each of the executive officers extends to the first meeting of the Board of Directors after the next annual election of Directors of Consumers (scheduled to be held on May 16, 2008).

AVAILABLE INFORMATION

CMS Energy’s internet address is www.cmsenergy.com. You can access free of charge on our website all of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act. Such reports are available soon after they are electronically filed with the SEC. Also on our website are our:

•  Corporate Governance Principles;

•  Codes of Conduct (Code of Business Conduct and Statement of Ethics);

•  Board committee charters (including the Audit Committee, the Compensation and Human Resources Committee, the Finance Committee and the Governance and Public Responsibility Committee); and

•  Articles of Incorporation (and amendments) and Bylaws.

We will provide this information in print to any shareholder who requests it.

You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC, 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address is http://www.sec.gov.

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ITEM 1A. RISK FACTORS

Actual results in future periods for CMS Energy and consolidated Consumers could differ materially from historical results and the forward-looking statements contained in this report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the following sections. The companies’ business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond the companies’ control. Additional risks and uncertainties not presently known or that the companies’ management currently believes to be immaterial may also adversely affect the companies. The risk factors described in the following sections, as well as the other information included in this annual report and in the other documents filed with the SEC, should be carefully considered before making an investment in securities of CMS Energy and Consumers. Risk factors of Consumers are also risk factors for CMS Energy.

Risks Related to CMS Energy

CMS Energy depends on dividends from its subsidiaries to meet its debt service obligations.

Due to its holding company structure, CMS Energy depends on dividends from its subsidiaries to meet its debt obligations. Restrictions contained in Consumers’ preferred stock provisions and other legal restrictions, such as certain terms in its articles of incorporation, limit Consumers’ ability to pay dividends or acquire its own stock from CMS Energy. At December 31, 2007, Consumers had $269 million of unrestricted retained earnings available to pay common stock dividends. If sufficient dividends are not paid to CMS Energy by its subsidiaries, CMS Energy may not be able to generate the funds necessary to fulfill its cash obligations, thereby adversely affecting its liquidity and financial condition.

CMS Energy has substantial indebtedness that could limit its financial flexibility and hence its ability to meet its debt service obligations.

As of December 31, 2007, CMS Energy had $1.891 billion aggregate principal amount of indebtedness, including $178 million of subordinated indebtedness relating to its convertible preferred securities. $4.374 billion of subsidiary debt is not included in the preceding total. In April 2007, CMS Energy entered into the Seventh Amended and Restated Credit Agreement providing revolving credit and commitments in the amount of $300 million, which was increased to $550 million in January 2008. As of December 31, 2007, there were $278 million of letters of credit outstanding under the Seventh Amended and Restated Credit Agreement. CMS Energy and its subsidiaries may incur additional indebtedness in the future.

The level of CMS Energy’s present and future indebtedness could have several important effects on its future operations, including, among others:

•  a significant portion of its cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness and will not be available for other purposes;

•  covenants contained in its existing debt arrangements require it to meet certain financial tests, which may affect its flexibility in planning for, and reacting to, changes in its business;

•  its ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate and other purposes may be limited;

•  it may be at a competitive disadvantage to its competitors that are less leveraged; and

•  its vulnerability to adverse economic and industry conditions may increase.

CMS Energy’s ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting its operations, many of which are beyond its control. CMS Energy cannot make assurances that its business will continue to generate sufficient cash flow from operations to service its indebtedness. If it is unable to generate sufficient cash flows from operations, it may be required to sell additional assets or obtain additional financing. CMS Energy cannot assure that additional financing will be available on commercially acceptable terms or at all.

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CMS Energy cannot predict the outcome of claims regarding its participation in the development of Bay Harbor or other litigation in which substantial monetary claims are involved.

As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, pursuant to 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 remedial actions, including removing abandoned buildings and equipment; consolidating, shaping and covering CKD piles with soil and vegetation; removing CKD from streams and beaches; and constructing a leachate collection system at an identified seep. Leachate is formed when water passes through CKD. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnifications entered into at the start of the project.

In September 2004, the MDEQ issued a notice of noncompliance after finding high-pH leachate in Lake Michigan adjacent to the property. The MDEQ also alleged higher than acceptable levels of heavy metals, including mercury, in the leachate flow.

In 2005, the EPA along with CMS Land and CMS Capital executed an AOC and approved a Removal Action Work Plan to address problems at Bay Harbor. Among other things, the plan called for the installation of collection trenches to capture high-pH leachate flow to the lake. Collection systems required under the plan have been installed and shoreline monitoring is ongoing. CMS Land and CMS Capital are required to address observed exceedances in pH, including required enhancements of the collection system. In May 2006, the EPA approved a pilot carbon dioxide enhancement plan to improve pH results in a specific area of the collection system. The enhanced system was installed in June 2006. CMS Land and CMS Capital also engaged in other enhancements of the installed collection systems.

In November 2007, the EPA sent CMS Land and CMS Capital a letter identifying three separate areas representing approximately 700 feet of shoreline in which the EPA claimed pH levels were unacceptable. The letter also took the position that CMS Land and CMS Capital are required to remedy the claimed noncompliance. CMS Land and CMS Capital submitted a formal objection to the EPA’s conclusions. In their objections, CMS Land and CMS Capital noted that the AOC did not require perfection and that over 97 percent of the measured pH levels were in the correct range. Further, the limited number of exceedances were not much above the pH nine level set by the AOC and posed no threat to the public health and safety. In addition, CMS Land and CMS Capital noted in their objection that the actions they had already taken fully complied with the terms of the AOC. In January 2008, the EPA advised CMS Land and CMS Capital that it had rejected their objections, and that CMS Land and CMS Capital were obligated to submit a plan to augment measures to collect high pH leachate under the terms of the November 2007 EPA letter as modified in the January 2008 letter. CMS Land and CMS Capital submitted a proposed augmentation plan in February 2008.

In February 2006, CMS Land and CMS Capital submitted to the EPA a proposed Remedial Investigation and Feasibility Study (RIFS) for one of the CKD piles known as the East Park CKD pile. A similar RIFS is planned to be submitted for the remaining CKD piles in 2008. The EPA approved a schedule for near-term activities, which includes consolidating certain CKD materials and installing collection trenches in the East Park leachate release area. In June 2006, the EPA approved an East Park CKD Removal Action Work Plan and Final Engineering Design for Consolidation. However, the EPA has not approved the RIFS for the East Park.

As a result of the installation of collection systems at the Bay Harbor sites, CMS Land and CMS Capital are collecting and treating 135,000 gallons of liquid per day and shipping it by truck for disposal at a nearby well and at a municipal wastewater treatment plant located in Traverse City, Michigan. To address both short term and longer-term disposal of liquid, CMS Land has filed two permit applications with the MDEQ and the EPA, the first to treat the collected leachate at the Bay Harbor sites before releasing the water to Lake Michigan and the second to dispose of it in a deep injection well in Alba, Michigan, that CMS Land or its affiliate would own and operate. In February 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate to construct and operate a deep injection well near Alba, Michigan in eastern Antrim County. Certain environmental groups and a local township have indicated they may challenge these permits before the agencies or the courts.

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CMS Land and CMS Capital, the MDEQ, and the EPA have ongoing discussions concerning the long-term remedy for the Bay Harbor sites. These negotiations are addressing, among other things, issues relating to the disposal of leachate, the location and design of collection lines and upstream diversion of water, potential flow of leachate below the collection system, applicable criteria for various substances such as mercury, and other matters that are likely to affect the scope of remedial work CMS Land and CMS Capital may be obliged to undertake. Negotiations have been ongoing for over a year, but CMS Land and CMS Capital have not been able to resolve these issues with the regulators and they remain pending.

CMS Land has entered into various access, purchase and settlement agreements with several of the affected landowners at Bay Harbor, and entered into a confidential settlement with one landowner to resolve a lawsuit filed by that landowner. We have received demands for indemnification relating to claims made by a property owner at Bay Harbor. CMS Land has purchased five unimproved lots and two lots with houses.

CMS Energy has recorded a cumulative charge of $140 million, which includes accretion expense, for its obligations. An adverse outcome of this matter could, depending on the size of any indemnification obligation or liability under environmental laws, have a potentially significant adverse effect on CMS Energy’s financial condition and liquidity and could negatively impact CMS Energy’s results of operations. CMS Energy cannot predict the financial impact or outcome of this matter.

CMS Energy retains contingent liabilities in connection with its asset sales.

The agreements CMS Energy enters into for the sale of assets customarily include provisions whereby it is required to:

•  retain specified preexisting liabilities such as for taxes, pensions, or environmental conditions;

•  indemnify the buyers against specified risks, including the inaccuracy of representations and warranties it makes; and

•  make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits or other reviews.

Many of these contingent liabilities can remain open for extended periods of time after the sales are closed. Depending on the extent to which the buyers may ultimately seek to enforce their rights under these contractual provisions, and the resolution of any disputes CMS Energy may have concerning them, these liabilities could have a material adverse effect on its financial condition, liquidity and future results of operations.

Risks Related to CMS Energy and Consumers

CMS Energy and Consumers have financing needs and they may be unable to obtain bank financing or access the capital markets.

CMS Energy and Consumers may be subject to liquidity demands pursuant to commercial commitments under guarantees, indemnities and letters of credit.

CMS Energy continues to explore financing opportunities to supplement its financial plan. These potential opportunities include: entering into leasing arrangements and refinancing and/or issuing new capital markets debt, preferred stock and/or common equity. CMS Energy cannot guarantee the capital markets’ acceptance of its securities or predict the impact of factors beyond its control, such as actions of rating agencies. If CMS Energy is unable to obtain bank financing or access the capital markets to incur or refinance indebtedness, there could be a material adverse effect upon its financial condition, liquidity or results of operations. Similarly, Consumers currently plans to seek funds through the capital markets and commercial lenders. Entering into new financings is subject in part to capital market receptivity to utility industry securities in general and to Consumers’ securities issuances in particular. Consumers cannot guarantee the capital markets’ acceptance of its securities or predict the impact of factors beyond its control, such as actions of rating agencies. If Consumers is unable to obtain bank financing or access the capital markets to incur or refinance indebtedness, there could be a material adverse effect upon its liquidity and operations.

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Certain of CMS Energy’s securities and those of its affiliates, including Consumers, are rated by various credit rating agencies. Any reduction or withdrawal of one or more of its credit ratings could have a material adverse impact on CMS Energy’s or Consumers’ ability to access capital on acceptable terms and maintain commodity lines of credit and could make its cost of borrowing higher. If it is unable to maintain commodity lines of credit, CMS Energy may have to post collateral or make prepayments to certain of its suppliers pursuant to existing contracts with them. In addition, certain bonds of Consumers are supported by municipal bond insurance policies, and the interest rates on those bonds have been affected by ratings downgrades of bond insurers. Further, any adverse developments to Consumers, which provides dividends to CMS Energy, that result in a lowering of Consumers’ credit ratings could have an adverse effect on CMS Energy’s credit ratings. CMS Energy and Consumers cannot guarantee that any of their current ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency.

Regulatory changes and other developments have resulted and could continue to result in increased competition in the domestic energy business. Generally, increased competition threatens market share in certain segments of CMS Energy’s business and can reduce its and Consumers’ profitability.

As of January 1, 2002, the Customer Choice Act allows all electric customers in Michigan the choice of buying electric generation service from Consumers or an alternative electric supplier. Consumers had experienced, and could experience in the future, a significant increase in competition for generation services due to ROA. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers. This amount represents 4 percent of Consumers’ total distribution load, which is down from a high of 12 percent in 2004. Consumers cannot predict the total amount of electric supply load that may be lost to competitor suppliers in the future.

Electric industry regulation could adversely affect CMS Energy’s and Consumers’ business, including their ability to recover costs from their customers.

Federal and state regulation of electric utilities has changed dramatically in the last two decades and could continue to change over the next several years. These changes could adversely affect CMS Energy’s and Consumers’ business, financial condition and profitability.

There are multiple proceedings pending before the FERC involving transmission rates, regional transmission organizations and electric bulk power markets and transmission. FERC is also reviewing the standards under which electric utilities are allowed to participate in wholesale power markets without price restrictions. CMS Energy and Consumers cannot predict the impact of these electric industry restructuring proceedings on their financial condition, liquidity or results of operations.

CMS Energy and Consumers could incur significant capital expenditures to comply with environmental standards and face difficulty in recovering these costs on a current basis.

CMS Energy, Consumers, and their subsidiaries are subject to costly and increasingly stringent environmental regulations. They expect that the cost of future environmental compliance, especially compliance with clean air and water laws, will be significant.

In March 2005, the EPA adopted the Clean Air Interstate Rule that requires additional coal-fired electric generating plant emission controls for nitrogen oxides and sulfur dioxide. Consumers plans to meet the nitrogen oxides requirements by installing equipment that reduces nitrogen oxides emissions and purchasing emissions allowances. Consumers also will meet the sulfur dioxide requirements by injecting a chemical that reduces sulfur dioxide emissions, installing scrubbers and purchasing emission allowances. Consumers plans to spend an additional $835 million for equipment installation through 2015.

In March 2005, the EPA issued the CAMR, which requires initial reductions of mercury emissions from coal-fired electric generating plants by 2010 and further reductions by 2018. Certain portions of the CAMR were appealed to the U.S. Court of Appeals for the District of Columbia by a number of states and other entities. The U.S. Court of Appeals for the District of Columbia decided the case on February 8, 2008, and determined that the

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rules developed by the EPA were not consistent with the Clean Air Act. CMS Energy and Consumers continue to monitor the development of federal regulations in this area.

In April 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. We are working with the MDEQ on the details of this plan; however, we have developed preliminary cost estimates and a mercury emissions reduction scenario based on our best knowledge of control technology options and initially proposed requirements. We estimate that costs associated with Phase I of the state’s mercury plan will be approximately $220 million by 2010 and an additional $200 million by 2015.

The EPA has alleged that some utilities have incorrectly classified plant modifications as “routine maintenance” rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, and 2006. Consumers believes that it has properly interpreted the requirements of “routine maintenance.” If the EPA finds that its interpretation is incorrect, Consumers could be required to install additional pollution controls at some or all of its coal-fired electric generating plants and pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants.

Several legislative proposals have been introduced in the United States Congress that would require reductions in emissions of greenhouse gases, including carbon dioxide. These laws, or similar state laws or rules, if enacted, could require Consumers to replace equipment, install additional equipment for pollution controls, purchase allowances, curtail operations, or take other steps.

CMS Energy and Consumers expect to collect fully from its customers, through the ratemaking process, these and other required environmental expenditures. However, if these expenditures are not recovered from customers in Consumers’ rates, CMS Energy and/or Consumers may be required to seek significant additional financing to fund these expenditures, which could strain their cash resources. We can give no assurances that CMS Energy and/or Consumers will have access to bank financing or capital markets to fund any such environmental expenditures.

Market performance and other changes may decrease the value of benefit plan assets, which then could require significant funding.

The performance of the capital markets affects the values of assets that are held in trust to satisfy future obligations under CMS Energy’s pension and postretirement benefit plans. CMS Energy has significant obligations in this area and holds significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below CMS Energy’s forecasted return rates. A decline in the market value of the assets may increase the funding requirements of these obligations. Also, changes in demographics, including increased number of retirements or changes in life expectancy assumptions may also increase the funding requirements of the obligations related to the pension and postretirement benefit plans. If CMS Energy is unable to successfully manage its pension and postretirement plan assets, its results of operations and financial position could be affected negatively.

Periodic reviews of the values of CMS Energy’s and Consumers’ assets could result in accounting charges.

CMS Energy and Consumers are required by GAAP to review periodically the carrying value of their assets, including those that may be sold. Market conditions, the operational characteristics of their assets and other factors could result in recording additional impairment charges for their assets, which could have an adverse effect on their stockholders’ equity and their access to additional financing. In addition, they may be required to record impairment charges at the time they sell assets, depending on the sale prices they are able to secure and other factors.

CMS Energy and Consumers may be adversely affected by regulatory investigations regarding “round-trip” trading by CMS MST as well as civil lawsuits regarding pricing information that CMS MST and CMS Field Services provided to market publications.

As a result of round-trip trading transactions (simultaneous, prearranged commodity trading transactions in which energy commodities were sold and repurchased at the same price) at CMS MST, CMS Energy is under

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investigation by the DOJ. CMS Energy received subpoenas in 2002 and 2003 from U.S. Attorneys’ Offices regarding investigations of those trades. CMS Energy responded to those subpoenas in 2003 and 2004.

In March 2004, the SEC approved a cease-and-desist order settling an administrative action against CMS Energy relating to round-trip trading. The order did not assess a fine and CMS Energy neither admitted nor denied the order’s findings.

CMS Energy and Consumers cannot predict the outcome of the investigations. It is possible that the outcome in one or more of the investigations could, affect adversely CMS Energy’s and Consumers’ financial condition, liquidity or results of operations.

CMS Energy and Consumers may be adversely affected by regulatory investigations and civil lawsuits regarding pricing information that CMS MST and CMS Field Services provided to market publications.

CMS Energy has notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications which compile and report index prices. CMS Energy is cooperating with an ongoing investigation by the DOJ regarding this matter. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy.

CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company are named as defendants in various lawsuits arising as a result of alleged false natural gas price reporting. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in Colorado, Kansas, Missouri, Tennessee, and Wyoming.

CMS Energy and Consumers cannot predict the outcome of the investigations. It is possible that the outcome in one or more of the investigations could affect adversely CMS Energy’s and Consumers’ financial condition, liquidity or results of operations.

CMS Energy’s and Consumers’ revenues and results of operations are subject to risks that are beyond their control, including but not limited to future terrorist attacks or related acts of war.

The cost of repairing damage to CMS Energy’s and Consumers’ facilities due to storms, natural disasters, wars, terrorist acts and other catastrophic events, in excess of insurance recoveries and reserves established for these repairs, may adversely impact their results of operations, financial condition and cash flows. The occurrence or risk of occurrence of future terrorist activity and the high cost or potential unavailability of insurance to cover this terrorist activity may impact their results of operations and financial condition in unpredictable ways. These actions could also result in disruptions of power and fuel markets. In addition, their natural gas distribution system and pipelines could be directly or indirectly harmed by future terrorist activity.

Consumers may not prevail in the exercise of its regulatory-out rights under the MCV PPA.

The MCV Partnership, which leases and operates the MCV Facility, contracted to sell electricity to Consumers for a 35-year period beginning in 1990. The cost that Consumers incurred under the MCV PPA exceeded the recovery amount allowed by the MPSC, including $39 million in 2007, until it exercised the regulatory-out provision in the MCV PPA in September 2007. This action limited its capacity and fixed energy payments to the MCV Partnership to the amounts that it collects from its customers. However, it uses the direct savings from the RCP, after allocating a portion to customers, to offset a portion of its capacity and fixed energy underrecoveries expense. The MCV Partnership has notified Consumers that it disputes its right to exercise the regulatory-out provision. Consumers believes that the provision is valid and fully effective, but cannot assure that it will prevail in the event of a proceeding on this issue.

As a result of our exercise of the regulatory-out provision, the MCV Partnership may, under certain circumstances, have the right to terminate or reduce the amount of capacity sold under the MCV PPA. If the MCV Partnership terminates the MCV PPA or reduces the amount of capacity sold under the MCV PPA, Consumers would seek to replace the lost capacity to maintain an adequate electric Reserve Margin. This could involve entering

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into a new power purchase agreement or entering into electric capacity contracts on the open market. Consumers cannot predict its ability to enter into such contracts at a reasonable price. Consumers also is unable to predict regulatory approval of the terms and conditions of such contracts, or that the MPSC would allow full recovery of its incurred costs.

CMS Energy and Consumers cannot predict the financial impact or outcome of these matters.

Consumers’ energy risk management strategies may not be effective in managing fuel and electricity pricing risks, which could result in unanticipated liabilities to Consumers or increased volatility of its earnings.

Consumers is exposed to changes in market prices for natural gas, coal, electricity and emission credits. Prices for natural gas, coal, electricity and emission credits may fluctuate substantially over relatively short periods of time and expose Consumers to commodity price risk. A substantial portion of Consumers’ operating expenses for its plants consists of the costs of obtaining these commodities. Consumers manages these risks using established policies and procedures, and it may use various contracts to manage these risks, including swaps, options, futures and forward contracts. No assurance can be made that these strategies will be successful in managing Consumers’ pricing risk, or that they will not result in net liabilities to Consumers as a result of future volatility in these markets.

Natural gas prices in particular have historically been volatile. Consumers routinely enters into contracts to offset its positions, such as hedging exposure to the risks of demand, market effects of weather and changes in commodity prices associated with its gas distribution business. These positions are taken in conjunction with the GCR mechanism, which allows Consumers to recover prudently incurred costs associated with those positions. However, Consumers does not always hedge the entire exposure of its operations from commodity price volatility. Furthermore, the ability to hedge exposure to commodity price volatility depends on liquid commodity markets. As a result, to the extent the commodity markets are illiquid, Consumers may not be able to execute its risk management strategies, which could result in greater open positions than preferred at a given time. To the extent that open positions exist, fluctuating commodity prices can improve or worsen CMS Energy’s and Consumers’ financial condition or results of operations.

Changes in taxation as well as inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energy’s and Consumers’ results of operations.

CMS Energy and Consumers are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. The tax obligations include income, real estate, sales and use taxes, employment-related taxes and ongoing issues related to these tax matters. The judgments include reserves for potential adverse outcomes regarding tax positions that have been taken that may be subject to challenge by IRS and/or other taxing authorities. Unfavorable settlements of any of the issues related to these reserves at CMS Energy or Consumers Energy could adversely affect their financial condition or results of operations.

Consumers is exposed to risks related to general economic conditions in its service territories.

Consumers’ electric and gas utility businesses are impacted by the economic cycles of the customers it serves. In its service territories in Michigan, the economy has been sluggish and hampered by negative developments in the manufacturing industry and limited growth in non-manufacturing sectors of the state’s economy. In the event economic conditions in Michigan or the region continue to decline, Consumers may experience reduced demand for electricity or natural gas that could result in decreased earnings and cash flow. In addition, economic conditions in its service territory impact its collections of accounts receivable and its financial results.

CMS Energy’s and Consumers’ energy sales and operations are impacted by seasonal factors and varying weather conditions from year to year.

Consumers’ electric and gas utility businesses are generally seasonal businesses. Demand for electricity is greater in the summer and winter months associated with cooling and heating, and demand for natural gas peaks in the winter heating season. Accordingly, its overall results in the future may fluctuate substantially on a seasonal

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basis. Mild temperatures during the summer cooling season and winter heating season will negatively impact CMS Energy’s and Consumers’ results of operations and cash flows.

Unplanned power plant outages may be costly for Consumers.

Unforeseen maintenance may be required to safely produce electricity. As a result of unforeseen maintenance, Consumers may be required to make spot market purchases of electricity that exceed its costs of generation. Its financial condition or results of operations may be negatively affected if it is unable to recover those increased costs.

Failure to implement successfully new processes and information systems could interrupt our operations.

CMS Energy and Consumers depend on numerous information systems for operations and financial information and billings. They are in the midst of a multi-year company-wide initiative to improve existing processes and implement new core information systems. Failure to implement successfully new processes and new core information systems could interrupt their operations.

Consumers may not be able to obtain an adequate supply of coal, which could limit its ability to operate its facilities.

Consumers is dependent on coal for much of its electric generating capacity. While Consumers has coal supply and transportation contracts in place, there can be no assurance that the counterparties to these agreements will fulfill their obligations to supply coal to Consumers. The suppliers under the agreements may experience financial or operational problems that inhibit their ability to fulfill their obligations to Consumers. In addition, suppliers under these agreements may not be required to supply coal to Consumers under certain circumstances, such as in the event of a natural disaster. If it is unable to obtain its coal requirements under existing or future coal supply and transportation contracts, Consumers may be required to purchase coal at higher prices, or it may be forced to make additional MWh purchases through other potentially higher cost generating resources in the Midwest energy market. Higher coal costs increase its working capital requirements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Descriptions of CMS Energy’s and Consumers’ properties are found in the following sections of Item 1, all of which are incorporated by reference in this Item 2:

•  BUSINESS — GENERAL — Consumers — Consumers’ Properties — General;

•  BUSINESS — BUSINESS SEGMENTS — Consumers Electric Utility — Electric Utility Properties;

•  BUSINESS — BUSINESS SEGMENTS — Consumers Gas Utility — Gas Utility Properties;

•  BUSINESS — BUSINESS SEGMENTS — Independent Power Production — Independent Power Production Properties; and

•  BUSINESS — BUSINESS SEGMENTS — Natural Gas Transmission — Natural Gas Transmission Properties.

ITEM 3. LEGAL PROCEEDINGS

CMS Energy, Consumers and some of their subsidiaries and affiliates are parties to certain routine lawsuits and administrative proceedings incidental to their businesses involving, for example, claims for personal injury and property damage, contractual matters, various taxes, and rates and licensing. For additional information regarding various pending administrative and judicial proceedings involving regulatory, operating and environmental matters, see ITEM 1. BUSINESS — CMS ENERGY AND CONSUMERS REGULATION, both CMS Energy’s and Consumers’ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS and both CMS Energy’s and

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Consumers’ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

CMS Energy

SEC REQUEST

On August 5, 2004, CMS Energy received a request from the SEC that CMS Energy voluntarily produce documents and data relating to the SEC’s inquiry into payments made to officials or relatives of officials of the government of Equatorial Guinea. On August 17, 2004, CMS Energy submitted its response, advising the SEC of the information and documentation it had available. On March 8, 2005, CMS Energy received a request from the SEC that CMS Energy voluntarily produce certain of such documents. The SEC subsequently issued a formal order of private investigation on this matter on August 1, 2005. CMS Energy and several other companies that have conducted business in Equatorial Guinea, received subpoenas from the SEC to provide documents regarding payments made to officials or relatives of officials of the government of Equatorial Guinea. CMS Energy is cooperating and will continue to produce documents responsive to the subpoena.

GAS INDEX PRICE REPORTING LITIGATION

Texas-Ohio Energy, Inc. filed a putative class action lawsuit in the United States District Court for the Eastern District of California in November 2003 against a number of energy companies engaged in the sale of natural gas in the United States (including CMS Energy). The complaint alleged defendants entered into a price-fixing scheme by engaging in activities to manipulate the price of natural gas in California. The complaint alleged violations of the federal Sherman Act, the California Cartwright Act, and the California Business and Professions Code relating to unlawful, unfair and deceptive business practices. The complaint sought both actual and exemplary damages for alleged overcharges, attorneys’ fees and injunctive relief regulating defendants’ future conduct relating to pricing and price reporting. In April 2004, a Nevada MDL panel ordered the transfer of the Texas-Ohio case to a pending MDL matter in the Nevada federal district court that at the time involved seven complaints originally filed in various state courts in California. These complaints make allegations similar to those in the Texas-Ohio case regarding price reporting. The court issued an order granting the defendants’ motion to dismiss on April 8, 2005 and entered a judgment in favor of the defendants on April 11, 2005. Texas-Ohio appealed the dismissal to the Ninth Circuit Court of Appeals.

While that appeal was pending, CMS Energy agreed to settle the Texas-Ohio case and three others cases originally filed in California federal courts (Fairhaven, Abelman Art Glass and Utility savings), for a total payment of $700,000. On September 10, 2007, the court entered an order granting final approval of the settlement and dismissing the CMS Energy defendants from these cases. On September 26, 2007, the Ninth Circuit Court of Appeals reversed the ruling of the trial judge in the Texas-Ohio case and held that the “filed rate doctrine” is not applicable to the claims. The Ninth Circuit Court of Appeals then remanded the case to the federal district court. While CMS Energy is no longer a party to the Texas-Ohio case, the Ninth Circuit Court of Appeals’ ruling may affect the positions of CMS Energy entities in other pending cases.

Commencing in or about February 2004, 15 state law complaints containing allegations similar to those made in the Texas-Ohio case, but generally limited to the California Cartwright Act and unjust enrichment, were filed in various California state courts against many of the same defendants named in the federal price manipulation cases discussed in the preceding paragraphs. In addition to CMS Energy, CMS MST is named in all 15 state law complaints. Cantera Gas Company and Cantera Natural Gas, LLC (erroneously sued as Cantera Natural Gas, Inc.) are named in all but one complaint.

In February 2005, these 15 separate actions, as well as nine other similar actions that were filed in California state court but do not name CMS Energy or any of its former or current subsidiaries, were ordered coordinated with pending coordinated proceedings in the San Diego Superior Court. The 24 state court complaints involving price reporting were coordinated as Natural Gas Antitrust Cases V. Plaintiffs in Natural Gas Antitrust Cases V were ordered to file a consolidated complaint, but a consolidated complaint was filed only for the two putative class action lawsuits. Pursuant to a ruling dated August 23, 2006, CMS Energy, Cantera Gas Company and Cantera Natural Gas, LLC were dismissed as defendants in the master class action and the 13 non-class actions, due to lack

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of personal jurisdiction. CMS MST remains a defendant in all of these actions. In September 2006, CMS MST reached an agreement in principle to settle the master class action for $7 million. In March 2007, CMS Energy paid $7 million into a trust fund account following preliminary approval of the settlement by the judge. On June 12, 2007, the court entered a judgment, final order and decree granting final approval to the class action settlement with CMS MST. Certain of the individual cases filed in the California State Court remain pending.

Samuel D. Leggett, et al v. Duke Energy Corporation, et al, a class action complaint brought on behalf of retail and business purchasers of natural gas in Tennessee, was filed in the Chancery Court of Fayette County, Tennessee in January 2005. The complaint contains claims for violations of the Tennessee Trade Practices Act based upon allegations of false reporting of price information by defendants to publications that compile and publish indices of natural gas prices for various natural gas hubs. The complaint seeks statutory full consideration damages and attorneys fees and injunctive relief regulating defendants’ future conduct. The defendants include CMS Energy, CMS MST and CMS Field Services. On August 10, 2005, certain defendants, including CMS MST, filed a motion to dismiss and CMS Energy and CMS Field Services filed a motion to dismiss for lack of personal jurisdiction. Defendants attempted to remove the case to federal court, but it was remanded to state court by a federal judge. On February 2, 2007, the state court granted defendants’ motion to dismiss the complaint. Plaintiffs filed a notice of appeal on April 4, 2007. Oral arguments were heard on November 8, 2007.

J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court in August 2005 against a number of energy companies, including CMS Energy, CMS MST and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act relating to reporting false natural gas trade information to publications that report trade information. Plaintiff is seeking statutory full consideration damages for its purchases of natural gas between January 1, 2000 and December 31, 2001. The case was removed to the United States District Court for the District of Kansas on September 8, 2005 and transferred to the MDL proceeding on October 13, 2005. A motion to remand the case back to Kansas state court was denied on April 21, 2006. The court issued an order granting the motion to dismiss on December 18, 2006, but later reversed the ruling on reconsideration and has now denied the defendants’ motion to dismiss. On September 7, 2007, the CMS Energy defendants filed an answer to the complaint.

On November 20, 2005, CMS MST was served with a summons and complaint which named CMS Energy, CMS MST and CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. Similar to the other actions that have been filed, the complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, defendants engaged in a scheme to violate the Kansas Restraint of Trade Act by knowingly reporting false or inaccurate information to the publications, thereby affecting the market price of natural gas. Plaintiffs, who allege they purchased natural gas from defendants and others for their facilities, are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas. On December 7, 2005, the case was removed to the United States District Court for the District of Kansas and later that month a motion was filed to transfer the case to the MDL proceeding. On January 6, 2006, plaintiffs filed a motion to remand the case to Kansas state court. On January 23, 2006, a conditional transfer order transferring the case to the MDL proceeding was issued. On February 7, 2006, plaintiffs filed an opposition to the conditional transfer order, and on June 20, 2006, the MDL Panel issued an order transferring the case to the MDL proceeding. The court issued an order dated August 3, 2006 denying the motion to remand the case to Kansas state court. Defendants filed a motion to dismiss, which was denied on July 27, 2007. On September 7, 2007, the CMS Energy defendants filed an answer to the complaint.

Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in May 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas price reporting activities. Plaintiffs are seeking full refund damages. The case was removed to the United States District Court for the District of Colorado on June 12, 2006, a conditional transfer order transferring the case to the MDL proceeding was entered on June 27, 2006, and an order transferring the case to the MDL proceeding was entered on October 17, 2006. The court issued an order dated December 4, 2006 denying the motion to remand the case back to Colorado state court. Defendants have filed a motion to dismiss. On August 21, 2007, the court granted the motion to dismiss by CMS Energy on the basis of a lack of jurisdiction. The other defendants remain in the case, and they filed an answer to the complaint on

34

September 7, 2007. The remaining CMS Energy defendants also filed a summary judgment motion which remains pending.

On October 30, 2006, CMS Energy and CMS MST were each served with a summons and complaint which named CMS Energy, CMS MST and CMS Field Services as defendants in an action filed in Missouri state court, titled Missouri Public Service Commission v. Oneok, Inc. The Missouri Public Service Commission purportedly is acting as an assignee of six local distribution companies, and it alleges that from at least January 2000 through at least October 2002, defendants knowingly reported false natural gas prices to publications that compile and publish indices of natural gas prices, and engaged in wash sales. The complaint contains claims for violation of the Missouri Anti-Trust Law, fraud and unjust enrichment. Defendants removed the case to Missouri federal court and then transferred it to the Nevada MDL proceeding. On October 30, 2007, the court granted the plaintiff’s motion to remand the case to state court in Missouri. The CMS Energy defendants will be filing an answer. A second action, Heartland Regional Medical Center, et al. v. Oneok Inc. et al., was filed in Missouri state court in March 2007 alleging violations of Missouri anti-trust laws. The second action is denoted as a class action. Defendants also removed this case to Missouri federal court, and it has been conditionally transferred to the Nevada MDL proceeding. Plaintiffs also filed a motion to remand this case back to state court but that motion has not yet been decided.

A class action complaint, Arandell Corp., et al v. XCEL Energy Inc., et al, was filed on or about December 15, 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. Defendants, including CMS Energy, CMS ERM and Cantera Gas Company, LLC, are alleged to have violated Wisconsin’s Anti-Trust statute by conspiring to manipulate natural gas prices. Plaintiffs are seeking full consideration damages, plus exemplary damages in an amount equal to three times the actual damages, and attorneys’ fees. The action was removed to Wisconsin federal district court and CMS Energy entered a special appearance for purpose of filing a motion to dismiss all the CMS Energy defendants due to lack of personal jurisdiction. That motion was filed on September 10, 2007. The court has not yet ruled on the motion. The court denied plaintiffs’ motion to remand the case back to Wisconsin state court, and the case has been transferred to the Nevada MDL proceeding.

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

ROUND-TRIP TRADING INVESTIGATIONS

From May 2000 through January 2002, CMS MST engaged in simultaneous, prearranged commodity trading transactions in which energy commodities were sold and repurchased at the same price. These transactions, referred to as round-trip trades, had no impact on previously reported consolidated net income, EPS or cash flows, but had the effect of increasing operating revenues and operating expenses by equal amounts.

CMS Energy is cooperating with an investigation by the DOJ concerning round-trip trading, which the DOJ commenced in May 2002. CMS Energy is unable to predict the outcome of this matter and what effect, if any, this investigation will have on its business. In March 2004, the SEC approved a cease-and-desist order settling an administrative action against CMS Energy related to round-trip trading. The order did not assess a fine and CMS Energy neither admitted to nor denied the order’s findings. The settlement resolved the SEC investigation involving CMS Energy and CMS MST. Also in March 2004, the SEC filed an action against three former employees related to round-trip trading at CMS MST. One of the individuals has settled with the SEC. CMS Energy is currently advancing legal defense costs for the remaining two individuals in accordance with existing indemnification policies. The two individuals filed a motion to dismiss the SEC action, which was denied.

QUICKSILVER RESOURCES, INC.

On November 1, 2001, Quicksilver sued CMS MST in Texas State Court in Fort Worth, Texas for breach of contract in connection with a Base Contract for Sale and Purchase of natural gas, pursuant to which Quicksilver agreed to sell, and CMS MST agreed to buy, natural gas. Quicksilver contended that a special provision in the contract requires CMS MST to pay Quicksilver 50 percent of the difference between $2.47/MMBtu and the index price each month. CMS MST disagrees with Quicksilver’s interpretation of the special provision and contends that it

35

has paid all monies owed for delivery of gas according to the contract. Quicksilver was seeking damages of approximately $126 million, plus prejudgment interest and attorneys’ fees, which in CMS Energy’s judgment was unsupported by the facts.

The trial commenced on March 19, 2007. The jury verdict awarded Quicksilver zero compensatory damages but $10 million in punitive damages. The jury found that CMS MST breached the contract and committed fraud but found no actual damage related to such a claim.

On May 15, 2007, the trial court vacated the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of approximately $24 million, net of tax. To preserve its appellate rights, CMS MST filed a motion to modify, correct or reform the judgment and a motion for a judgment contrary to the jury verdict with the trial court. The trial court dismissed these motions. CMS MST has filed a notice of appeal with the Texas Court of Appeals. Quicksilver has filed a notice of cross appeal.

Consumers

In February 2008, Consumers received a data request relating to an investigation FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations for pre-arranged released firm capacity on natural gas pipelines. Consumers will cooperate with the FERC in responding to the request. Consumers cannot predict the outcome of this matter.

CMS Energy and Consumers

SECURITIES CLASS ACTION SETTLEMENT

Beginning in May 2002, a number of complaints were filed against CMS Energy, Consumers and certain officers and directors of CMS Energy and its affiliates in the United States District Court for the Eastern District of Michigan. The cases were consolidated into a single lawsuit (the “Shareholder Action”), which generally sought unspecified damages based on allegations that the defendants violated United States securities laws and regulations by making allegedly false and misleading statements about CMS Energy’s business and financial condition, particularly with respect to revenues and expenses recorded in connection with round-trip trading by CMS MST. In January 2005, the court granted a motion to dismiss Consumers and three of the individual defendants, but denied the motions to dismiss CMS Energy and the 13 remaining individual defendants. In March 2006, the court conditionally certified a class consisting of “all persons who purchased CMS Common Stock during the period of October 25, 2000 through and including May 17, 2002 and who were damaged thereby.” The court excluded purchasers of CMS Energy’s 8.75 percent Adjustable Convertible Trust Securities (“ACTS”) from the class and, in response, a new class action lawsuit was filed on behalf of ACTS purchasers (the “ACTS Action”) against the same defendants named in the Shareholder Action. The settlement described in the following paragraph has resolved both the Shareholder and ACTS actions.

On January 3, 2007, CMS Energy and other parties entered into a Memorandum of Understanding (the “MOU”), subject to court approval, regarding settlement of the two class action lawsuits. The settlement was approved by a special committee of independent directors and by the full Board of Directors of CMS Energy. Both judged that it was in the best interests of shareholders to eliminate this business uncertainty. Under the terms of the MOU, the litigation was settled for a total of $200 million, including the cost of administering the settlement and any attorney fees the court awards. CMS Energy made a payment of approximately $123 million plus interest on the settlement amount on September 20, 2007. CMS Energy’s insurers paid $77 million, the balance of the settlement amount. In entering into the MOU, CMS Energy made no admission of liability under the Shareholder Action and the ACTS Action. The parties executed a Stipulation and Agreement of Settlement dated May 22, 2007 (“Stipulation”) incorporating the terms of the MOU. In accordance with the Stipulation, CMS Energy has paid approximately $1 million of the settlement amount to fund administrative expenses. On September 6, 2007, the court issued a final order approving the settlement. The remaining settlement amount was paid following the September 6, 2007 hearing.

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On October 5, 2007, two former officers of Consumers filed an appeal of the order approving the settlement of the shareholder litigation. Their principal complaint was with the exclusion of all present and former officers and their immediate families from participation in the settlement. The two former officers have resolved their objections to the terms of the settlement order. On December 12, 2007, their appeal was dismissed by the court.

ENVIRONMENTAL MATTERS

CMS Energy and Consumers, as well as their subsidiaries and affiliates, are subject to various federal, state and local laws and regulations relating to the environment. Several of these companies have been named parties to various actions involving environmental issues. Based on their present knowledge and subject to future legal and factual developments, they believe it is unlikely that these actions, individually or in total, will have a material adverse effect on their financial condition or future results of operations. For additional information, see both CMS Energy’s and Consumers’ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS and both CMS Energy’s and Consumers’ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

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

CMS Energy

During the fourth quarter of 2007, CMS Energy did not submit any matters to a vote of security holders.

Consumers

During the fourth quarter of 2007, Consumers did not submit any matters to a vote of security holders.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

CMS Energy

Market prices for CMS Energy’s Common Stock and related security holder matters are contained in ITEM 7. CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS and ITEM 8. CMS ENERGY’S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — NOTE 17 OF CMS ENERGY’S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED) which is incorporated by reference herein. At February 19, 2008, the number of registered holders of CMS Energy Common Stock totaled 47,647, based upon the number of record holders. In January 2003, CMS Energy suspended dividends on its common stock. On January 26, 2007, CMS Energy’s Board of Directors reinstated a quarterly dividend on CMS Energy Common Stock of $0.05 per share. On January 25, 2008, CMS Energy’s Board of Directors increased the quarterly dividend on CMS Energy Common Stock to $0.09 per share. Information regarding securities authorized for issuance under equity compensation plans is included in our definitive proxy statement, which is incorporated by reference herein.

Consumers

Consumers’ common stock is privately held by its parent, CMS Energy, and does not trade in the public market. Consumers paid cash dividends on its common stock of $94 million in February 2007, $41 million in May 2007, $41 million in August 2007, and $75 million in November 2007. Consumers paid cash dividends on its common stock of $40 million in February 2006, $31 million in August 2006, and $76 million in November 2006.

Issuer Repurchases of Equity Securities

The table below shows our repurchases of equity securities for the three months ended December 31, 2007:

					Total Number of		Maximum Number of
					Shares Purchased		Shares That May Yet
	Total Number				as Part of Publicly		Be Purchased Under
	of Shares		Average Price		Announced		Publicly Announced
Period	Purchased*		Paid per Share		Plans or Programs		Plans or Programs
October 1, 2007 to October 31, 2007		—		—		—		—
November 1, 2007 to November 30, 2007		1,062	$	16.97		—		—
December 1, 2007 to December 31, 2007		1,233	$	17.09		—		—

* We repurchase certain restricted shares upon vesting under the Performance Incentive Stock Plan (“Plan”) from participants in the Plan, equal to our minimum statutory income tax withholding obligation. Shares repurchased have a value based on the market price on the vesting date.

ITEM 6. SELECTED FINANCIAL DATA

CMS Energy

Selected financial information is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — CMS ENERGY’S SELECTED FINANCIAL INFORMATION, which is incorporated by reference herein.

Consumers

Selected financial information is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — CONSUMERS’ SELECTED FINANCIAL INFORMATION, which is incorporated by reference herein.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CMS Energy

Management’s discussion and analysis of financial condition and results of operations is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS, which is incorporated by reference herein.

Consumers

Management’s discussion and analysis of financial condition and results of operations is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — CONSUMERS’ MANAGEMENT’S DISCUSSION AND ANALYSIS, which is incorporated by reference herein.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CMS Energy

Quantitative and Qualitative Disclosures About Market Risk is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — CMS ENERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS — CRITICAL ACCOUNTING POLICIES — ACCOUNTING FOR FINANCIAL AND DERIVATIVE INSTRUMENTS, TRADING ACTIVITIES, AND MARKET RISK INFORMATION, which is incorporated by reference herein.

Consumers

Quantitative and Qualitative Disclosures About Market Risk is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CONSUMERS’ MANAGEMENT’S DISCUSSION AND ANALYSIS — CRITICAL ACCOUNTING POLICIES — ACCOUNTING FOR FINANCIAL AND DERIVATIVE INSTRUMENTS AND MARKET RISK INFORMATION, which is incorporated by reference herein.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	Page
Index to Financial Statements:
CMS Energy Corporation
Selected Financial Information	CMS - 2
Management’s Discussion and Analysis Forward-Looking Statements and Information	CMS - 3
Executive Overview	CMS - 4
Results of Operations	CMS - 6
Critical Accounting Policies	CMS - 15
Capital Resources and Liquidity	CMS - 21
Outlook	CMS - 25
Implementation of New Accounting Standards	CMS - 32
New Accounting Standards Not Yet Effective	CMS - 33
Consolidated Financial Statements
Consolidated Statements of Income (Loss)	CMS - 35
Consolidated Statements of Cash Flows	CMS - 37
Consolidated Balance Sheets	CMS - 39
Consolidated Statements of Common Stockholders’ Equity	CMS - 41
Notes to Consolidated Financial Statements:
1. Corporate Structure and Accounting Policies	CMS - 44
2. Asset Sales, Discontinued Operations and Impairment Charges	CMS - 51
3. Contingencies	CMS - 56
4. Financings and Capitalization	CMS - 68
5. Earnings Per Share	CMS - 72
6. Financial and Derivative Instruments	CMS - 73
7. Retirement Benefits	CMS - 77
8. Asset Retirement Obligations	CMS - 83
9. Income Taxes	CMS - 85
10. Stock Based Compensation	CMS - 88
11. Leases	CMS - 90
12. Property, Plant, and Equipment	CMS - 92
13. Equity Method Investments	CMS - 93
14. Jointly Owned Regulated Utility Facilities	CMS - 96
15. Reportable Segments	CMS - 96
16. Consolidation of Variable Interest Entities	CMS - 99
17. Quarterly Financial and Common Stock Information (Unaudited)	CMS - 99
Reports of Independent Registered Public Accounting Firms	CMS - 101

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	Page
Consumers Energy Company
Selected Financial Information	CE - 2
Management’s Discussion and Analysis
Forward-Looking Statements and Information	CE - 3
Executive Overview	CE - 4
Results of Operations	CE - 6
Critical Accounting Policies	CE - 12
Capital Resources and Liquidity	CE - 16
Outlook	CE - 20
Implementation of New Accounting Standards	CE - 26
New Accounting Standards Not Yet Effective	CE - 27
Consolidated Financial Statements
Consolidated Statements of Income (Loss)	CE - 29
Consolidated Statements of Cash Flows	CE - 30
Consolidated Balance Sheets	CE - 32
Consolidated Statements of Common Stockholder’s Equity	CE - 34
Notes to Consolidated Financial Statements:
1. Corporate Structure and Accounting Policies	CE - 37
2. Asset Sales and Impairment Charges	CE - 43
3. Contingencies	CE - 45
4. Financings and Capitalization	CE - 53
5. Financial and Derivative Instruments	CE - 55
6. Retirement Benefits	CE - 57
7. Asset Retirement Obligations	CE - 63
8. Income Taxes	CE - 65
9. Stock Based Compensation	CE - 68
10. Leases	CE - 70
11. Property, Plant, and Equipment	CE - 72
12. Jointly Owned Regulated Utility Facilities	CE - 73
13. Reportable Segments	CE - 73
14. Quarterly Financial and Common Stock Information (Unaudited)	CE - 75
Reports of Independent Registered Public Accounting Firms	CE - 76

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2007 Consolidated Financial Statements

CMS-1

CMS Energy Corporation

SELECTED FINANCIAL INFORMATION

				2007			2006			2005			2004			2003
Operating revenue (in millions)	($		)		6,464			6,126			5,879			5,154			5,232
Earnings from equity method investees (in millions)	($		)		40			89			125			115			164
Income (loss) from continuing operations (in millions)	($		)		(126	)		(133	)		(141	)		112			—
Cumulative effect of change in accounting (in millions)	($		)		—			—			—			(2	)		(24	)
Income (loss) from discontinued operations (in millions)(a)	($		)		(89	)		54			57			11			(19	)
Net income (loss) (in millions)	($		)		(215	)		(79	)		(84	)		121			(43	)
Net income (loss) available to common stockholders (in millions)	($		)		(227	)		(90	)		(94	)		110			(44	)
Average common shares outstanding (in thousands)					222,644			219,857			211,819			168,553			150,434
Net income (loss) from continuing operations per average common share
CMS Energy — Basic	($		)		(0.62	)		(0.66	)		(0.71	)		0.59			(0.01	)
— Diluted	($		)		(0.62	)		(0.66	)		(0.71	)		0.58			(0.01	)
Cumulative effect of change in accounting per average common share
CMS Energy — Basic	($		)		—			—			—			(0.01	)		(0.16	)
— Diluted	($		)		—			—			—			(0.01	)		(0.16	)
Net income (loss) per average common share
CMS Energy — Basic	($		)		(1.02	)		(0.41	)		(0.44	)		0.65			(0.30	)
— Diluted	($		)		(1.02	)		(0.41	)		(0.44	)		0.64			(0.30	)
Cash provided by (used in) operations (in millions)	($		)		27			686			598			353			(250	)
Capital expenditures, excluding acquisitions and capital lease additions (in millions)	($		)		1,263			670			593			525			535
Total assets (in millions)(b)	($		)		14,196			15,371			16,041			15,872			13,838
Long-term debt, excluding current portion (in millions)(b)	($		)		5,385			6,200			6,778			6,414			5,981
Long-term debt-related parties, excluding current portion (in millions)	($		)		178			178			178			504			684
Non-current portion of capital leases and finance lease obligations (in millions)	($		)		225			42			308			315			58
Total preferred stock (in millions)	($		)		294			305			305			305			305
Cash dividends declared per common share	($		)		0.20			—			—			—			—
Market price of common stock at year-end	($		)		17.38			16.70			14.51			10.45			8.52
Book value per common share at year-end	($		)		9.46			10.03			10.53			10.62			9.84
Number of employees at year-end (full-time equivalents)					7,898			8,640			8,713			8,660			8,411
Electric Utility Statistics
Sales (billions of kWh)					39			38			39			38			38
Customers (in thousands)					1,799			1,797			1,789			1,772			1,754
Average sales rate per kWh		(c	)		8.65			8.46			6.73			6.88			6.91
Gas Utility Statistics
Sales and transportation deliveries (bcf)					340			309			350			385			380
Customers (in thousands)(c)					1,710			1,714			1,708			1,691			1,671
Average sales rate per mcf	($		)		10.66			10.44			9.61			8.04			6.72

(a)	Prior year amounts have been reclassified to discontinued operations.
(b)	Until their sale in November 2006, we were the primary beneficiary of the MCV Partnership and the FMLP. As a result, we consolidated their assets, liabilities and activities into our consolidated financial statements through the date of sale and for the years ended December 31, 2005 and 2004. These partnerships had third party obligations totaling $482 million at December 31, 2005 and $582 million at December 31, 2004. Property, plant and equipment serving as collateral for these obligations had a carrying value of $224 million at December 31, 2005 and $1.426 billion at December 31, 2004.
(c)	Excludes off-system transportation customers.

CMS-2

CMS Energy Corporation

Management’s Discussion and Analysis

This MD&A is a consolidated report of CMS Energy. The terms “we” and “our” as used in this report refer to CMS Energy and its subsidiaries as a consolidated entity, except where it is clear that such term means only CMS Energy.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-K and other written and oral statements that we make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our intention with the use of words such as “may,” “could,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” and other similar words is to identify forward-looking statements that involve risk and uncertainty. We designed this discussion of potential risks and uncertainties to highlight important factors that may impact our business and financial outlook. We have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause our actual results to differ materially from the results anticipated in these statements. Such factors include our inability to predict or control:

•  the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of such market conditions on the Pension Plan, interest rates, and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates, and the energy industry,

•  market perception of the energy industry, CMS Energy, Consumers, or any of their affiliates,

•  factors affecting utility and diversified energy operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints,

•  the impact of any future regulations or laws regarding carbon dioxide and other greenhouse gas emissions,

•  national, regional, and local economic, competitive, and regulatory policies, conditions and developments,

•  adverse regulatory or legal decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with such decisions, including but not limited to those that may affect Bay Harbor,

•  potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant questions currently or potentially before the MPSC, including:

•  recovery of Clean Air Act capital and operating costs and other environmental and safety-related expenditures,

•  recovery of power supply and natural gas supply costs when fuel prices are fluctuating,

•  timely recognition in rates of additional equity investments and additional operation and maintenance expenses at Consumers,

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

•  adequate and timely recovery of higher MISO energy and transmission costs,

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

•  recovery of Palisades plant sale-related costs,

•  timely recovery of costs associated with energy efficiency investments and any state or federally mandated renewables resource standards,

•  approval of the Balanced Energy Initiative, and

•  authorization of a new clean coal plant,

CMS-3

•  the effects on our ability to purchase capacity to serve our customers and fully recover the cost of these purchases, if the owners of the MCV Facility exercise their right to terminate the MCV PPA,

•  the ability of Consumers to prevail in the exercise of its regulatory out rights under the MCV PPA,

•  adverse consequences due to the assertion of indemnity or warranty claims or future assertion of such claims, with respect to previously owned assets and businesses, including claims related to attempts by the governments of Equatorial Guinea and Morocco to assess taxes on past operations or transactions,

•  the ability of Consumers to recover Big Rock decommissioning funding shortfalls and nuclear fuel storage costs due to the DOE’s failure to accept spent nuclear fuel on schedule, including the outcome of pending litigation with the DOE,

•  federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of our market-based sales authorizations in wholesale power markets without price restrictions,

•  energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity and certain related products due to lower or higher demand, shortages, transportation problems, or other developments,

•  our ability to collect accounts receivable from our customers,

•  earnings volatility resulting from the GAAP requirement that we apply mark-to-market accounting on certain energy commodity contracts and interest rate swaps,

•  the effect on our utility and utility revenues of the direct and indirect impacts of the continued economic downturn in Michigan,

•  potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for such events,

•  technological developments in energy production, delivery, and usage,

•  achievement of capital expenditure and operating expense goals,

•  changes in financial or regulatory accounting principles or policies,

•  changes in tax laws or new IRS interpretations of existing or past tax laws,

•  changes in federal or state regulations or laws that could have an impact on our business,

•  the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims resulting from the investigation by the DOJ regarding round-trip trading and price reporting,

•  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,

•  credit ratings of CMS Energy or Consumers, and

•  other business or investment considerations that may be disclosed from time to time in CMS Energy’s or Consumers’ SEC filings, or in other publicly issued written documents.

For additional information regarding these and other uncertainties, see the “Outlook” section included in this MD&A, Note 3, Contingencies, and Item 1A. Risk Factors.

EXECUTIVE OVERVIEW

CMS Energy is an energy company operating primarily in Michigan. We are the parent holding company of Consumers and Enterprises. Consumers is a combination electric and gas utility company serving in Michigan’s Lower Peninsula. Enterprises, through various subsidiaries and equity investments, is engaged primarily in

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domestic independent power production. We manage our businesses by the nature of services each provides and operate principally in three business segments: electric utility, gas utility, and enterprises.

We earn our revenue and generate cash from operations by providing electric and natural gas utility services, electric power generation, and gas distribution, transmission, and storage. Our businesses are affected primarily by:

•  weather, especially during the normal heating and cooling seasons,

•  economic conditions, primarily in Michigan,

•  regulation and regulatory issues that affect our electric and gas utility operations,

•  energy commodity prices,

•  interest rates, and

•  our debt credit rating.

During the past several years, our business strategy has emphasized improving our consolidated balance sheet and maintaining focus on our core strength: utility operations and service. Consistent with our commitment to our utility business, we invested $650 million in Consumers during 2007.

We completed the sale of our international Enterprises assets in 2007, resulting in gross cash proceeds of $1.491 billion. We used the proceeds to retire debt and to invest in our utility business.

We also made important progress at Consumers to reduce business risk and to meet the future needs of our customers. We sold Palisades to Entergy in April 2007 for $380 million, and received $363 million after various closing adjustments. The sale improved our cash flow, reduced our nuclear operating and decommissioning risk, and increased our financial flexibility to support other utility investments.

In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership may, under certain circumstances, have the right to terminate or reduce the amount of capacity sold under the MCV PPA, which could affect our need to build or purchase additional generating capacity. The MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision.

In May 2007, we filed with the MPSC our Balanced Energy Initiative, which is a comprehensive plan to meet customer energy needs over the next 20 years. The plan is designed to meet the growing customer demand for electricity with energy efficiency, demand management, expanded use of renewable energy, and development of new power plants to complement existing generating sources. In September 2007, we filed with the MPSC the second phase of our Balanced Energy Initiative, which contains our plan for construction of a new 800 MW clean coal plant at an existing site located near Bay City, Michigan.

In December 2007, we purchased a 935 MW natural gas-fired power plant located in Zeeland, Michigan from Broadway Gen Funding LLC, an affiliate of LS Power Group, for $519 million. This plant fits in with our Balanced Energy Initiative as it will help provide the capacity we need to meet the growing needs of our customers.

We took an important step in our business plan in 2007 by reinstating a quarterly dividend of $0.05 per share on our common stock, after a four-year suspension. We paid $45 million in common stock dividends in 2007. In January 2008, we increased the quarterly dividend on our common stock to $0.09 per share.

In September 2007, we also resolved a long-outstanding litigation issue by settling two class action lawsuits related to round-trip trading by CMS MST. We believe that eliminating this business uncertainty was in the best interests of our shareholders.

We also restructured our investment in DIG. In November 2007, we negotiated the termination of certain electricity sales agreements in order to eliminate future losses under those agreements. We recorded a liability and recognized a loss of $279 million in 2007, representing the cost to terminate the agreements. In February 2008, we closed the transaction and paid $275 million. Resolving the issues associated with the unfavorable supply contracts allows us to maximize future benefits from our DIG investment.

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In the future, we will focus our strategy on:

•  continuing investment in our utility business,

•  growing earnings while controlling operating costs and parent debt, and

•  maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

As we execute our strategy, we will need to overcome a sluggish Michigan economy that has been hampered by negative developments in Michigan’s automotive industry and limited growth in the non-manufaturing sectors of the state’s economy. While the recent sub-prime mortgage market weakness has disrupted financial markets and the U.S. economy, it has not impacted materially our financial condition. We will continue to monitor developments for potential impacts on our business.

RESULTS OF OPERATIONS

CMS Energy Consolidated Results of Operations

Years Ended December 31	2007			2006			2005
	In Millions (Except for Per Share Amounts)
Net Loss Available to Common Stockholders	$	(227	)	$	(90	)	$	(94	)
Basic Loss Per Share	$	(1.02	)	$	(0.41	)	$	(0.44	)
Diluted Loss Per Share	$	(1.02	)	$	(0.41	)	$	(0.44	)

Years Ended December 31	2007			2006			Change			2006			2005			Change
	In Millions
Electric Utility	$	196		$	199		$	(3	)	$	199		$	153		$	46
Gas Utility		87			37			50			37			48			(11	)
Enterprises		(391	)		(227	)		(164	)		(227	)		(217	)		(10	)
Corporate Interest and Other		(30	)		(153	)		123			(153	)		(135	)		(18	)
Discontinued Operations		(89	)		54			(143	)		54			57			(3	)
Net Loss Available to Common Stockholders	$	(227	)	$	(90	)	$	(137	)	$	(90	)	$	(94	)	$	4

For 2007, our net loss was $227 million compared with a net loss of $90 million for 2006. The increase in net loss was due to the termination of contracts at CMS ERM. Further increasing the net loss were charges related to the exit from our international businesses, the absence of earnings from these businesses, and additional Bay Harbor environmental remediation expenses. The increase in losses was partially offset by increased earnings at our utility primarily due to the positive effects of rate orders and increased sales. Further reducing the year-over-year change were the absence of the shareholder settlement liability recorded in 2006 and the absence of activities related to our former interest in the MCV Partnership.

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Specific changes to net loss available to common stockholders for 2007 versus 2006 are:

	In Millions
• costs incurred by CMS ERM due to the rescission of a contract with Quicksilver and the termination of certain electricity sales agreements,	$	(217	)
• impact from discontinued operations as losses recorded on the disposal of international businesses in 2007 replaced earnings recorded for these businesses in 2006,		(143	)
• reduction in earnings from equity method investees primarily due to the absence of earnings from international businesses sold in 2007,		(32	)
• additional environmental remediation expenses at Bay Harbor,		(29	)
• additional taxes at our corporate and Enterprises segments as the absence of tax benefits associated with the resolution of an IRS income tax audit in 2006 more than offset the net tax benefits associated with the sale of international businesses recorded in 2007,		(16	)
• absence of a 2006 net charge resulting from our agreement to settle shareholder class action lawsuits,		80
• absence of activities related to our former interest in the MCV Partnership including asset impairments and mark-to-market activities,		60
• earnings from non-MCV-related mark-to-market activity primarily at CMS ERM, as mark-to-market gains in 2007 replaced losses in 2006,		49
• increase in combined net earnings at our gas utility and electric utility, primarily due to the positive effects of MPSC gas rate orders and increased weather-related deliveries,		47
• decrease in non-MCV-related asset impairment charges, net of insurance reimbursement, and		38
• additional increase at Enterprises and corporate primarily due to gains on the sale of international businesses in 2007, a reduction in interest expense, and increased interest income.		26
Total change	$	(137	)

For 2006, our net loss was $90 million compared with a net loss of $94 million for 2005. The improvement is primarily due to increased net income at our electric utility, as the positive effects of regulatory actions, the return of open access customers, and favorable tax adjustments more than offset the negative impacts of increased operating expenses and milder summer weather. The improvements at the electric utility were essentially negated by earnings reductions or increased losses at our other segments. At our Enterprises segment, the negative impacts of mark-to-market valuation losses and the net loss on the sale of our investment in the MCV Partnership more than offset the reduction in asset impairment charges. At our gas utility, net income decreased as the benefits derived from lower operating costs and a gas rate increase authorized by the MPSC in November 2006 were more than offset by lower, weather-driven sales. At our corporate interest and other segment, the cost of our agreement to settle the shareholder class action lawsuits more than offset reduced corporate expenditures.

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Specific changes to net loss available to common stockholders for 2006 versus 2005 are:

		In Millions
•	decrease in asset impairment charges as the $385 million impairment related to the MCV Partnership recorded in 2005 exceeded the $169 million impairment related to GasAtacama recorded in 2006,	$	216
•	increase from Enterprises due to favorable arbitration and property tax awards,		48
•	increase in earnings from our electric utility primarily due to an increase in revenue from an electric rate order, the return to full service-rates of customers previously using alternative energy suppliers, and the expiration of rate caps in December 2005 partially offset by higher operating expense and lower deliveries due to milder weather,		46
•	decrease in Enterprise and corporate interest and other expenses primarily due to an insurance reimbursement received for previously incurred legal expenses, and a reduction in debt retirement charges and other expenses,		26
•	lower incremental environmental remediation expenses recorded in 2006 related to our involvement in Bay Harbor,		20
•	decrease in earnings from mark-to-market valuation adjustments primarily at the MCV Partnership and CMS ERM as losses recorded in 2006 replaced gains recorded in 2005,		(203	)
•	net charge resulting from our agreement to settle shareholder class action lawsuits,		(80	)
•	net loss on the sale of our investment in the MCV Partnership including the negative impact of the associated impairment charge recorded in 2006 and the positive impact of the recognition of certain derivative instruments,		(41	)
•	decrease in various corporate and Enterprises tax benefits as the absence of tax benefits recorded in 2005 related to the American Jobs Creation Act more than offset benefits recorded in 2006, primarily related to the restoration and utilization of income tax credits due to the resolution of an IRS income tax audit,		(14	)
•	decrease in earnings from our gas utility primarily due to a reduction in deliveries resulting from increased customer conservation efforts and warmer weather in 2006 partially offset by other gas revenue associated with pipeline capacity optimization and a reduction in operation and maintenance expenses, and		(11	)
•	reduced earnings from discontinued operations as the positive impact of an arbitration award and a reduction of contingent liabilities recorded in 2005 exceeded income recorded in 2006 from the favorable resolution of certain accrued liabilities.		(3	)
Total change		$	4

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Electric Utility Results of Operations

Years Ended December 31	2007		2006		Change			2006		2005		Change
	In Millions
Net income	$	196	$	199	$	(3	)	$	199	$	153	$	46
Reasons for the change:
Electric deliveries					$	18						$	193
Surcharge revenue						6							61
Palisades revenue to PSCR						(136	)						—
Power supply costs and related revenue						(17	)						57
Other operating expenses, other income, and non-commodity revenue						159							(236	)
Regulatory return on capital expenditures						5							22
General taxes						(15	)						(7	)
Interest charges						(18	)						(34	)
Income taxes						(5	)						(10	)
Total change					$	(3	)					$	46

Electric deliveries: For 2007, electric delivery revenues increased $18 million versus 2006, as deliveries to end-use customers were 38.8 billion kWh, an increase of 0.3 billion kWh or 0.8 percent versus 2006. The increase in electric deliveries was primarily due to favorable weather, which resulted in an increase in electric delivery revenues of $14 million. The increase also reflects $2 million of additional revenue from the inclusion of the Zeeland power plant in rates and $2 million related to the return of additional former ROA customers.

For 2006, electric delivery revenues increased by $193 million over 2005 despite the fact that electric deliveries to end-use customers were 38.5 billion kWh, a decrease of 0.4 billion kWh or 1.2 percent versus 2005. The decrease in deliveries was primarily due to milder summer weather compared with 2005, which resulted in a decrease in revenue of $16 million. However, despite these lower electric deliveries, electric delivery revenues increased $160 million due to an approved electric rate order in December 2005 and $49 million related to the return of additional former ROA customers.

Surcharge Revenue: For 2007, the $6 million increase in surcharge revenue was primarily due to a surcharge that we started collecting in the first quarter of 2006 that the MPSC authorized under Section 10d(4) of the Customer Choice Act. The surcharge factors increased in January 2007 pursuant to an MPSC order. This surcharge increased electric delivery revenue by $13 million in 2007 versus 2006. Partially offsetting this increase was a decrease in the collection of Customer Choice Act transition costs, due to the expiration of the surcharge period for our large commercial and industrial customers. The absence of this surcharge decreased electric delivery revenue by $7 million in 2007 versus 2006.

In the first quarter of 2006, we started collecting the surcharge that the MPSC authorized under Section 10d(4) of the Customer Choice Act. This surcharge increased electric delivery revenue by $51 million in 2006 versus 2005. In addition, in the first quarter of 2006, we started collecting customer choice transition costs from our residential customers that increased electric delivery revenue by $12 million in 2006 versus 2005. Reductions in other surcharges decreased electric delivery revenue by $2 million in 2006 versus 2005.

Palisades Revenue to PSCR: Consistent with the MPSC order related to the April 2007 sale of Palisades, $136 million of revenue related to Palisades was designated toward recovery of PSCR costs.

Power Supply Costs and Related Revenue: For 2007, PSCR revenue decreased by $17 million versus 2006. This decrease primarily reflects amounts excluded from recovery in the 2006 PSCR reconciliation case. The decrease also reflects the absence, in 2007, of an increase in Power Supply Revenue associated with the 2005 PSCR reconciliation case.

For 2006, PSCR revenue increased $57 million versus 2005. The increase was due to the absence, in 2006, of rate caps which allowed us to record power supply revenue to offset fully our power supply costs. Our ability to recover these power supply costs resulted in an $82 million increase in electric revenue in 2006 versus 2005. Additionally, electric revenue increased $9 million in 2006 versus 2005 primarily due to the return of former

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special-contract customers to full-service rates in 2006. Partially offsetting these increases was the absence, in 2006, of deferrals of transmission and nitrogen oxides allowance expenditures related to our capped customers recorded in 2005. These costs were not fully recoverable due to the application of rate caps, so we deferred them for recovery under Section 10d(4) of the Customer Choice Act. In December 2005, the MPSC approved the recovery of these costs. For 2005, deferrals of these costs were $34 million.

Other Operating Expenses, Other Income, and Non-Commodity Revenue: For 2007, other operating expenses decreased $150 million, other income increased $21 million, and non-commodity revenue decreased $12 million versus 2006.

The decrease in other operating expenses was primarily due to lower operating and maintenance expense. Operating and maintenance expense decreased primarily due to the sale of Palisades in April 2007. Also contributing to the decrease was the absence, in 2007, of costs incurred in 2006 related to a planned refueling outage at Palisades, and lower overhead line maintenance and storm restoration costs. These decreases were partially offset by increased depreciation and amortization expense due to higher plant in service and greater amortization of certain regulatory assets.

Other income increased in 2007 versus 2006 primarily due to higher interest income on short-term cash investments. The increase in short-term cash investments was primarily due to proceeds from the Palisades sale. Non-commodity revenue decreased in 2007 versus 2006 primarily due to lower transmission services revenue.

For 2006, other operating expenses increased $236 million versus 2005. The increase in other operating expenses reflects higher operating and maintenance, customer service, depreciation and amortization, and pension and benefit expenses. Operating and maintenance expense increased primarily due to costs related to a planned refueling outage at Palisades, and higher tree trimming and storm restoration costs.

Regulatory Return on Capital Expenditures: For 2007, the return on capital expenditures in excess of our depreciation base increased income by $5 million versus 2006. The increase reflects the equity return on the regulatory asset authorized by the MPSC’s December 2005 order which provided for the recovery of $333 million of Section 10d(4) costs over five years.

For 2006, the return on capital expenditures in excess of our depreciation base increased income by $22 million versus 2005.

General Taxes: For 2007, the $15 million increase in general taxes versus 2006 was primarily due to higher property tax expense, reflecting higher millage rates and lower property tax refunds versus 2006.

For 2006, the $7 million increase in general taxes versus 2005 reflects higher MSBT expense, partially offset by property tax refunds.

Interest Charges: For 2007, interest charges increased $18 million versus 2006. The increase was primarily due to interest on amounts to be refunded to customers as a result of the sale of Palisades as ordered by the MPSC.

For 2006, interest charges increased $34 million versus 2005 primarily due to lower capitalized interest and interest expense related to an IRS income tax audit settlement. In 2005, we capitalized $33 million of interest in connection with the MPSC’s December 2005 order in our Section 10d(4) Regulatory Asset case. The IRS income tax settlement in 2006 recognized that our taxable income for prior years was higher than originally filed, resulting in interest on the tax liability for these prior years.

Income Taxes: For 2007, income taxes increased $5 million versus 2006 primarily due to the absence, in 2007, of a $4 million income tax benefit from the restoration and utilization of income tax credits resulting from the resolution of an IRS income tax audit.

For 2006, income taxes increased $10 million versus 2005 primarily due to higher earnings by the electric utility, partially offset by the resolution of an IRS income tax audit, which resulted in a $4 million income tax benefit caused by the restoration and utilization of income tax credits. Further reducing the increase in income taxes was $5 million of income tax benefits, primarily reflecting the tax treatment of items related to property, plant and equipment as required by past MPSC orders.

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Gas Utility Results of Operations

Years Ended December 31	2007		2006		Change			2006		2005		Change
	In Millions
Net income	$	87	$	37	$	50		$	37	$	48	$	(11	)
Reasons for the change:
Gas deliveries					$	10						$	(61	)
Gas rate increase						81							14
Gas wholesale and retail services, other gas revenues, and other income						14							24
Other operating expenses						(19	)						7
General taxes and depreciation						(11	)						(10	)
Interest charges						4							(6	)
Income taxes						(29	)						21
Total change					$	50						$	(11	)

Gas Deliveries: For 2007, gas delivery revenues increased by $10 million versus 2006 as gas deliveries, including miscellaneous transportation to end-use customers, were 300 bcf, an increase of 18 bcf or 6.4 percent. The increase in gas deliveries was primarily due to colder weather, partially offset by lower system efficiency.

In 2006, gas delivery revenues decreased by $61 million versus 2005 as gas deliveries, including miscellaneous transportation to end-use customers, were 282 bcf, a decrease of 36 bcf or 11.3 percent. The decrease in gas deliveries was primarily due to warmer weather in 2006 versus 2005 and increased customer conservation efforts in response to higher gas prices.

Gas Rate Increase: In November 2006, the MPSC issued an order authorizing an annual rate increase of $81 million. In August 2007, the MPSC issued an order authorizing an annual rate increase of $50 million. As a result of these orders, gas revenues increased $81 million for 2007 versus 2006.

In May 2006, the MPSC issued an interim gas rate order authorizing an $18 million annual rate increase. In November 2006, the MPSC issued an order authorizing an annual increase of $81 million. As a result of these orders, gas revenues increased $14 million for 2006 versus 2005.

Gas Wholesale and Retail Services, Other Gas Revenues, and Other Income: For 2007, the $14 million increase in gas wholesale and retail services, other gas revenue and other income primarily reflects higher interest income on short-term cash investments. The increase in short-term cash investments was primarily due to proceeds from the Palisades sale.

For 2006, the $24 million increase in gas wholesale and retail services, other gas revenues, and other income primarily reflects higher pipeline revenues and higher pipeline capacity optimization in 2006 versus 2005.

Other Operating Expenses: For 2007, other operating expenses increased $19 million versus 2006 primarily due to higher uncollectible accounts expense and payments, beginning in November 2006, to a fund that provides energy assistance to low-income customers.

For 2006, other operating expenses decreased $7 million versus 2005 primarily due to lower operating expenses, partially offset by higher customer service and pension and benefit expenses.

General Taxes and Depreciation: For 2007, general taxes and depreciation increased $11 million versus 2006. The increase in general taxes reflects higher property tax expense due to higher millage rates and lower property tax refunds versus 2006. The increase in depreciation expense is primarily due to higher plant in service.

For 2006, general taxes and depreciation expense increased $10 million versus 2005. The increase in depreciation expense was primarily due to higher plant in service. The increase in general taxes reflects higher MSBT expense, partially offset by lower property tax expense.

Interest Charges: For 2007, interest charges decreased $4 million reflecting lower average debt levels and a lower average interest rate versus 2006.

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For 2006, interest charges increased $6 million primarily due to higher interest expense on our GCR overrecovery balance and an IRS income tax audit settlement. The settlement recognized that Consumers’ taxable income for prior years was higher than originally filed, resulting in interest on the tax liability for these prior years.

Income Taxes: For 2007, income taxes increased $29 million versus 2006 primarily due to higher earnings by the gas utility.

For 2006, income taxes decreased $21 million versus 2005 primarily due to lower earnings by the gas utility. Also contributing to the decrease was the absence, in 2006, of the write-off of general business credits of $2 million that expired in 2005, and the resolution, in 2006, of an IRS income tax audit, which resulted in a $3 million income tax benefit caused by the restoration and utilization of income tax credits. Further reducing the increase in income taxes was $5 million of income tax benefits, primarily reflecting the tax treatment of items related to property, plant and equipment as required by past MPSC orders.

Enterprises Results of Operations

Years Ended December 31	2007			2006			Change			2006			2005			Change
	In Millions
Net loss	$	(391	)	$	(227	)	$	(164	)	$	(227	)	$	(217	)	$	(10	)
Reasons for the change:
Operating revenues							$	(9	)							$	(253	)
Cost of gas and purchased power								36									128
Earnings from equity method investees								(48	)								(37	)
Gain (loss) on sale of assets, net								21									(6	)
Operation and maintenance								(7	)								19
Electric sales contract termination								(279	)								—
General taxes, depreciation, and other income, net								20									7
Asset impairment charges, net of insurance reimbursement								29									(216	)
Environmental remediation								(35	)								31
Fixed charges								14									(9	)
Minority interest								(7	)								(2	)
Income taxes								41									103
The MCV Partnership								60									225
Total change							$	(164	)							$	(10	)

Operating Revenues: For 2007, operating revenues decreased $9 million versus 2006 primarily due to decreased third-party gas sales of $52 million, the write-off of $40 million of derivative assets associated with the Quicksilver contract that was voided by the trial judge in May 2007, $18 million in mark-to-market losses related to the amendment of an electricity sales agreement, and the absence of third-party financial settlements of $16 million in 2007 all at CMS ERM. Also contributing to the decrease in operating revenues was the absence of third-party tolling revenue of $17 million at DIG in 2007. These decreases were partially offset by an increase in mark-to-market gains of $89 million on power and gas contracts versus 2006 and increased power sales of $45 million at CMS ERM.

For 2006, operating revenues decreased $253 million versus 2005 primarily due to lower revenue of $102 million at CMS ERM related to mark-to-market losses on power and gas contracts, compared with gains on such items in 2005. In addition, CMS ERM had lower third-party power sales of $53 million, decreased sales to MISO of $22 million, and decreased financial revenue of $76 million resulting from the termination of prepaid gas contracts.

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Cost of Gas and Purchased Power: For 2007, cost of gas and purchased power decreased $36 million versus 2006. The decrease was primarily due to lower power purchases from MISO of $26 million at CMS ERM and a decrease in the cost of gas sold of $10 million due to lower gas prices.

For 2006, cost of gas and purchased power decreased by $128 million versus 2005. The decrease was primarily due to decreases in the cost of gas sold of $93 million resulting from lower gas prices partially offset by increased usage, and decreases in third-party wholesale purchased power of $61 million resulting from the implementation of the MISO market all at CMS ERM, and a decrease in transmission costs of $3 million at DIG. These decreases were partially offset by power purchases from MISO of $29 million at CMS ERM.

Earnings from Equity Method Investees: For 2007, equity earnings decreased $48 million versus 2006. The decrease was due to the absence of $61 million of earnings associated with our investments in Africa, the Middle East and India that were sold in May 2007 and $6 million of earnings associated with our investments in Argentina and Chile that were sold in March and August 2007. Also contributing to the decrease was a $5 million reduction in earnings from our former investment in GasAtacama due to the shortage of gas from Argentina. These decreases were partially offset by the absence, in 2007, of a $20 million provision for higher foreign taxes in Argentina and an increase of $4 million in earnings from our remaining assets in Argentina.

For 2006, equity earnings decreased $37 million versus 2005. The decrease was primarily due to the establishment of tax reserves totaling $23 million related to foreign investments, higher tax expense primarily at Jorf Lasfar of $5 million due to lower tax relief and lower earnings at Shuweihat of $1 million due to higher operating and maintenance costs.

Gain (Loss) on Sale of Assets, Net: For 2007, the net gain on asset sales was $21 million. The net gain consisted of a $34 million gain on the sale of our equity investment in El Chocon to Endesa S.A., and $5 million in gains on the sale of other assets, partially offset by a $13 million net loss on the sale of our equity investments in Africa, the Middle East and India to TAQA and a $5 million net loss on the sale of our Argentine and Michigan assets to Lucid Energy.

For 2006, there were no gains or losses on asset sales. In 2005, we had gains on the sale of GVK and SLAP totaling $6 million.

For a discussion of the 2006 sale of our interest in the MCV Partnership, see “The MCV Partnership” in this section. For additional information, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

Operation and Maintenance: For 2007, operation and maintenance expenses increased $7 million versus 2006 due to the absence of a favorable 2006 arbitration settlement related to DIG of $20 million and increased maintenance expense of $2 million, partially offset by the reduction of $6 million in expenses associated with assets sold during 2007, the reimbursement of $3 million in arbitration costs at CMS Gas Transmission in 2007 and the absence of $6 million in losses on the termination of prepaid gas contracts in 2006.

For 2006, operation and maintenance expenses decreased $19 million versus 2005 due to a favorable arbitration settlement related to DIG of $20 million and a $3 million reduction in losses on the termination of prepaid gas contracts. These decreases were partially offset by increased expenditures related to prospecting initiatives in North America of $4 million.

Electric Sales Contract Termination: For 2007, CMS ERM recorded a charge of $279 million related to the termination of electricity sales agreements. For additional information, see the Enterprises Outlook section included in this MD&A.

General Taxes, Depreciation, and Other Income, Net: For 2007, the net of general tax expense, depreciation and other income contributed to a $20 million increase in operating income versus 2006. Other income increased due to gains of $8 million recognized on the rebalancing of SERP investments and the absence, in 2007, of $4 million of accretion expense related to prepaid gas contracts at CMS ERM recorded in 2006, and general tax expense and depreciation decreased $8 million due to the sale of assets in 2007.

For 2006, the net of general tax expense, depreciation, and other income contributed to a $7 million increase in operating income versus 2005. Other income increased due to a decrease in accretion expense of $13 million related

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to the prepaid gas contracts at CMS ERM, partially offset by an increase of $4 million in general tax expense and depreciation and the absence, in 2006, of a $2 million favorable settlement recorded at CMS Gas Transmission in 2005.

Asset Impairment Charges, Net of Insurance Reimbursement: For 2007, asset impairment charges decreased $29 million versus 2006. For 2007, we recorded net impairment charges of $187 million that included $262 million for the reduction in fair value of our investments in TGN, Jamaica, GasAtacama and PowerSmith, and a $75 million credit to recognize a prior insurance award associated with our ownership interest in TGN. For 2006, we recorded a $214 million charge for the reduction in the fair value of our former equity investment in GasAtacama and related notes receivable and other impairment charges of $2 million at Enterprises. For additional information, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

For 2006, asset impairment charges increased $216 million versus 2005 primarily due to 2006 charges of $214 million recorded for the impairment of our former equity investment in GasAtacama and related notes receivable, and $2 million of other impairment charges.

For a discussion of asset impairment charges related to our former interest in the MCV Partnership, see “The MCV Partnership” in this section.

Environmental Remediation: Our environmental remediation charges relate to our projections of future costs associated with Bay Harbor. These charges were $44 million in 2007, $9 million in 2006, and $40 million in 2005. Total remediation charges including accretion expense were $140 million. For additional information, see Note 3, Contingencies.

Fixed Charges: For 2007, fixed charges decreased $14 million versus 2006 due to lower interest expense on subsidiary debt of $12 million resulting from asset sales in 2007. Also contributing to the decrease was the absence, in 2007, of $2 million of interest expense at DIG related to an arbitration settlement recorded in 2006.

For 2006, fixed charges increased $9 million versus 2005 due to higher interest expense of $7 million resulting from an increase in subsidiary debt and $2 million in higher interest expense at DIG related to an arbitration settlement.

Minority Interest: The allocation of profits to minority owners decreases our net income, and the allocation of losses to minority owners increases our net income. For 2007, minority owners shared in a portion of increased earnings at our subsidiaries versus 2006. This was primarily due to increased earnings and gains due to asset sales.

For 2006, minority owners shared in a portion of increased earnings at our subsidiaries versus 2005. This was primarily due to increased earnings, partially offset by losses from asset impairments.

Income Taxes: For 2007, income tax expense decreased $41 million versus 2006. The decrease reflects $93 million in lower tax expenses resulting from higher net losses in 2007 versus 2006 and $27 million of tax benefits primarily related to lower tax reserves in 2007. These benefits were partially offset by $79 million of tax expense on earnings associated with the recognition of previously deferred foreign earnings of subsidiaries.

For 2006, income tax expense decreased $103 million versus 2005. The decrease reflects $119 million in lower tax expenses resulting from higher net losses in 2006 versus 2005 and $23 million of tax benefit related to higher deferred foreign earnings of subsidiaries and resolution of an IRS income tax audit of $8 million, primarily for the restoration and utilization of income tax credits. These benefits were partially offset by the absence of $30 million of income tax benefit related to the American Jobs Creation Act recorded in 2005 and $17 million of tax expense primarily related to higher tax reserves in 2006.

The MCV Partnership: We sold our ownership interests in the MCV Partnership in November 2006. As a result, we have condensed its consolidated results of operations for the years 2005, 2006 and 2007 for discussion purposes.

In 2006, our share of the MCV Partnership’s loss was $60 million, net of tax and minority interest. This was primarily due to mark-to-market losses and the net impact of the sale transaction, including asset impairment charges. These losses were partially offset by operating income and a property tax refund received in 2006. For additional information, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

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For 2006 versus 2005, our share of the MCV Partnership’s earnings increased by $225 million, net of tax, primarily due to the absence of a 2005 impairment charge to property, plant and equipment at the MCV Partnership. This increase was partially offset by the recognition of mark-to-market losses in 2006 versus mark-to-market gains in 2005.

Corporate Interest and Other Net Expenses

Years Ended December 31	2007			2006			Change		2006			2005			Change
	In Millions
Net loss	$	(30	)	$	(153	)	$	123	$	(153	)	$	(135	)	$	(18	)

For 2007, corporate interest and other net expenses were $30 million, a decrease of $123 million versus 2006. The $123 million decrease primarily reflects the absence, in 2007, of a charge for the settlement of our shareholder class action lawsuits partially offset by the absence of an insurance reimbursement received in June 2006. Also contributing to the decrease was the reduction of tax expense in 2007 related to the sale of our international operations. Partially offsetting the decrease is the absence, in 2007, of a tax benefit due to the resolution of an IRS income tax audit.

For 2006, corporate interest and other net expenses were $153 million, an increase of $18 million versus 2005. The increase reflects an $80 million after tax net charge recorded in 2006 as a result of our agreement to settle shareholder class action lawsuits. Also contributing to the increase was the recognition of a portion of the reduction in fair value in our investment in GasAtacama. Partially offsetting the increase was the 2006 resolution of an IRS income tax audit, which resulted in an income tax benefit primarily for the restoration and utilization of income tax credits. Further offsetting the increase were lower early debt retirement premiums, and the receipt of insurance proceeds for previously incurred legal expenses.

Discontinued Operations: For 2007, the net loss from discontinued operations was $89 million versus $54 million of net income in 2006. The $143 million change is primarily due to the net loss on the disposal of international businesses in 2007, which replaced earnings recorded for these businesses in 2006.

For 2006, we recorded $54 million in net income versus $57 million in net income in 2005. The $3 million reduction in net income is primarily due to the absence of income from the favorable resolution of certain accrued contingent liabilities in 2006 associated with previously disposed businesses.

CRITICAL ACCOUNTING POLICIES

The following accounting policies and related information are important to an understanding of our results of operations and financial condition and should be considered an integral part of our MD&A. For additional accounting policies, see Note 1, Corporate Structure and Accounting Policies.

Use of Estimates and Assumptions

In preparing our consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. We use accounting estimates for asset valuations, depreciation, amortization, financial and derivative instruments, employee benefits, indemnifications and contingencies. Actual results may differ from estimated results due to changes in the regulatory environment, competition, foreign exchange, regulatory decisions, lawsuits, and other factors.

Contingencies: We record a liability for contingencies when we conclude that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We consider all relevant factors in making these assessments.

Income Taxes: The amount of income taxes we pay is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in proposed assessments. Our estimate of the potential outcome of any uncertain tax issue is highly judgmental. We believe we have provided adequately for these exposures; however, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, our judgment as to

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our ability to recover our deferred tax assets may change. We believe our valuation allowances related to our deferred tax assets are adequate, but future results may include favorable or unfavorable adjustments. As a result, our effective tax rate may fluctuate significantly over time. On January 1, 2007, we adopted FIN 48, the FASB’s interpretation on the recognition and measurement of uncertain tax positions. For additional details, see the “Implementation of New Accounting Standards” section included in this MD&A.

Long-Lived Assets and Equity Method Investments: Our assessment of the recoverability of long-lived assets and equity method investments involves critical accounting estimates. We periodically perform tests of impairment if certain triggering events occur or if there has been a decline in value that may be other than temporary. Of our total assets, recorded at $14.196 billion at December 31, 2007, 62 percent represent long-lived assets and equity method investments that are subject to this type of analysis. We base our evaluations of impairment on such indicators as:

•  the nature of the assets,

•  projected future economic benefits,

•  regulatory and political environments,

•  historical and future cash flow and profitability measurements, and

•  other external market conditions and factors.

The estimates we use can change over time, which could have a material impact on our consolidated financial statements. For additional details, see Note 1, Corporate Structure and Accounting Policies — “Impairment of Long-Lived Assets and Equity Method Investments.”

Discontinued Operations

We determined that certain consolidated subsidiaries met the criteria of assets held for sale under SFAS No. 144. At December 31, 2006, these subsidiaries included certain Argentine businesses, a majority of our Michigan non-utility businesses, CMS Energy Brasil S.A., Takoradi, SENECA, and certain associated holding companies. There were no assets classified as held for sale at December 31, 2007. For additional details, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

Accounting for the Effects of Industry Regulation

Our involvement in a regulated industry requires us to use SFAS No. 71 to account for the effects of the regulators’ decisions that impact the timing and recognition of our revenues and expenses. As a result, we may defer or recognize revenues and expenses differently than a non-regulated entity.

For example, we may record as regulatory assets items that a non-regulated entity normally would expense if the actions of the regulator indicate such expenses will be recovered in future rates. Conversely, we may record as regulatory liabilities items that non-regulated entities may normally recognize as revenues if the actions of the regulator indicate they will require that such revenues be refunded to customers. Judgment is required to determine the recoverability of items recorded as regulatory assets and liabilities. At December 31, 2007, we had $2.059 billion recorded as regulatory assets and $2.137 billion recorded as regulatory liabilities.

Our PSCR and GCR cost recovery mechanisms also give rise to probable future revenues that will be recovered from customers or past overrecoveries that will be refunded to customers through the ratemaking process. Underrecoveries are included in Accrued power supply and gas revenue and overrecoveries are included in Accrued rate refunds on our Consolidated Balance Sheets. At December 31, 2007, we had $45 million recorded as regulatory assets for underrecoveries of power supply costs and $19 million recorded as regulatory liabilities for overrecoveries of gas costs.

For additional details, see Note 1, Corporate Structure and Accounting Policies - “Utility Regulation.”

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Financial and Derivative Instruments, Trading Activities, and Market Risk Information

Financial Instruments: Debt and equity securities classified as available-for-sale are reported at fair value determined from quoted market prices. Unrealized gains and losses resulting from changes in fair value of available-for-sale debt and equity securities are reported, net of tax, in equity as part of AOCL. Unrealized losses are excluded from earnings unless the related changes in fair value are determined to be other than temporary.

Derivative Instruments: We use the criteria in SFAS No. 133 to determine if we need to account for certain contracts as derivative instruments. These criteria are complex and often require significant judgment in applying them to specific contracts. If a contract is a derivative and does not qualify for the normal purchases and sales exception under SFAS No. 133, it is recorded on our consolidated balance sheet at its fair value. Each quarter, we adjust the resulting asset or liability to reflect any change in the fair value of the contract, a practice known as marking the contract to market. For additional details on our derivatives, see Note 6, Financial and Derivative Instruments.

To determine the fair value of our derivatives, we use information from external sources, such as quoted market prices and other valuation information. For certain contracts, this information is not available and we use mathematical models to value our derivatives. These models use various inputs and assumptions, including commodity market prices and volatilities, as well as interest rates and contract maturity dates. The fair values we calculate for our derivatives may change significantly as commodity prices and volatilities change. The cash returns we actually realize on our derivatives may be different from the results that we estimate using models. If necessary, our calculations of fair value include reserves to reflect the credit risk of our counterparties.

The types of contracts we typically classify as derivatives are interest rate swaps, forward contracts for electricity and gas, option contracts for electricity and gas, gas futures, and electric swaps. Most of our commodity purchase and sale contracts are not subject to derivative accounting under SFAS No. 133 because:

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

Our coal purchase contracts are not derivatives because there is not an active market for the coal we 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 mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other CMS Energy subsidiaries, the resulting mark-to-market impact on earnings could be material.

Derivative Contracts Associated with Equity Investments: In May 2007, we sold our ownership interest in businesses in the Middle East, Africa, and India. Certain of these businesses held interest rate contracts and foreign exchange contracts that were derivatives. Before the sale, we recorded our share of the change in fair value of these contracts in AOCL if the contracts qualified for cash flow hedge accounting; otherwise, we recorded our share in Earnings from Equity Method Investees.

At the date of the sale, we had accumulated a net loss of $13 million, net of tax, in AOCL representing our share of mark-to-market gains and losses from cash flow hedges held by the equity method investees. After the sale, we reclassified this amount and recognized it in earnings as a reduction of the gain on the sale. For additional details on the sale of our interest in these equity method investees, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

CMS ERM Contracts: In order to support CMS Energy’s ongoing operations, CMS ERM enters into contracts to purchase and sell electricity and natural gas in the future. These forward contracts will result in physical delivery of the commodity at a contracted price. These contracts are generally long-term in nature and are classified as non-trading contracts.

To manage commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as swaps, options, and futures. CMS ERM also uses these types of instruments

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to manage commodity price risks associated with generation assets owned by CMS Energy and its subsidiaries. These financial contracts are classified as trading contracts.

Certain of CMS ERM’s non-trading and trading contracts qualify as derivatives. We include the fair value of these derivatives in either Price risk management assets or Price risk management liabilities on our Consolidated Balance Sheets. The following tables provide a summary of these contracts at December 31, 2007:

	Non-
	Trading			Trading			Total
	In Millions
Fair value of contracts outstanding at December 31, 2006	$	31		$	(68	)	$	(37	)
Fair value of new contracts when entered into during the period(a)		—			(1	)		(1	)
Contracts realized or otherwise settled during the period(b)		(6	)		74			68
Other changes in fair value(c)		(43	)		(10	)		(53	)
Fair value of contracts outstanding at December 31, 2007	$	(18	)	$	(5	)	$	(23	)

(a)	Reflects premiums paid (received) for new contracts.
(b)	CMS ERM terminated certain trading gas contracts during 2007. CMS ERM had recorded derivative liabilities, representing cumulative unrealized mark-to-market losses, associated with these contracts. Therefore, upon the termination of those contracts, the fair value of CMS ERM’s trading contracts increased significantly.
(c)	Reflects changes in the fair value of contracts over the period, as well as increases or decreases to credit reserves. The fair value of CMS ERM’s non-trading electric and gas contracts decreased significantly during 2007 for two reasons. First, a natural gas contract with Quicksilver was prospectively rescinded by court action. CMS ERM had recorded a derivative asset for this contract, representing cumulative unrealized mark-to-market gains. See Note 3, Contingencies, “Other Contingencies — Quicksilver Resources, Inc.” for additional details. In addition, CMS ERM recorded a derivative liability of $18 million related to the amendment of an electricity sales agreement. For additional details of this amendment, see the “Outlook” section included in this MD&A.

				Fair Value of Non-Trading Contracts at December 31, 2007
	Total			Maturity (in years)
Source of Fair Value	Fair Value			Less than 1			1 to 3			4 to 5			Greater than 5
	In Millions
Prices actively quoted	$	—		$	—		$	—		$	—		$	—
Prices obtained from external sources or based on models and other valuation methods		(18	)		(2	)		(6	)		(5	)		(5	)
Total	$	(18	)	$	(2	)	$	(6	)	$	(5	)	$	(5	)

				Fair Value of Trading Contracts at
				December 31, 2007
	Total			Maturity (in years)
Source of Fair Value	Fair Value			Less than 1			1 to 3		4 to 5		Greater than 5
	In Millions
Prices actively quoted	$	1		$	—		$	1	$	—	$	—
Prices obtained from external sources or based on models and other valuation methods		(6	)		(6	)		—		—		—
Total	$	(5	)	$	(6	)	$	1	$	—	$	—

Market Risk Information: We are exposed to market risks including, but not limited to, changes in interest rates, commodity prices, and equity security prices. We may use various contracts to limit our exposure to these

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risks, including swaps, options, futures, and forward contracts. We enter into these risk management contracts using established policies and procedures, under the direction of two different committees: an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers.

These contracts contain credit risk, which is the risk that our counterparties will fail to meet their contractual obligations. We reduce this risk through established credit policies, such as evaluating our counterparties’ credit quality and setting collateral requirements as necessary. If terms permit, we use standard agreements that allow us to net positive and negative exposures associated with the same counterparty. Given these policies, our current exposures, and our credit reserves, we do not expect a material adverse effect on our financial position or future earnings because of counterparty nonperformance.

The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from our financial instruments, including our derivative contracts, assuming a hypothetical adverse change in market rates or prices of 10 percent. Potential losses could exceed the amounts shown in the sensitivity analyses if changes in market rates or prices exceed 10 percent.

Interest Rate Risk: We are exposed to interest rate risk resulting from issuing fixed-rate and variable-rate financing instruments, and from interest rate swap agreements. We use a combination of these instruments to manage this risk as deemed appropriate, based upon market conditions. These strategies are designed to provide and maintain a balance between risk and the lowest cost of capital.

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

December 31	2007		2006
	In Millions
Variable-rate financing — before-tax annual earnings exposure	$	2	$	4
Fixed-rate financing — potential reduction in fair value(a)		172		193

(a) Fair value reduction could only be realized if we transferred all of our fixed-rate financing to other creditors.

At December 31, 2007, Consumers had $131 million in variable auction rate tax exempt bonds, insured by monoline insurers, that are subject to rate reset every 35 days. The subprime mortgage problems have put monoline insurers’ credit ratings at risk of downgrade by rating agencies. This risk of downgrade could cause the interest rates on these bonds to rise. Consumers does not expect its interest rate risk exposure regarding these bonds to be material. Consumers is continuing to monitor the situation and its alternatives.

Commodity Price Risk: Operating in the energy industry, we are exposed to commodity price risk, which arises from fluctuations in the price of electricity, natural gas, coal, and other commodities. Commodity prices are influenced by a number of factors, including weather, changes in supply and demand, and liquidity of commodity markets. In order to manage commodity price risk, we enter into non-trading derivative contracts, such as forward purchase and sale contracts for electricity and natural gas. We also enter into trading derivative contracts, including options and swaps for electricity and gas. For additional details on these contracts, see Note 6, Financial and Derivative Instruments.

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

December 31	2007		2006
	In Millions
Potential reduction in fair value:
Trading contracts
Electricity-related contracts		4		2
Gas-related contracts		1		—

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Investment Securities Price Risk: Our investments in debt and equity securities are exposed to changes in interest rates and price fluctuations in equity markets. The following table shows the potential effect of adverse changes in interest rates and fluctuations in equity prices on our available-for-sale investments.

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

December 31	2007		2006
	In Millions
Potential reduction in fair value of available-for-sale equity securities (primarily SERP investments):	$	6	$	6

For additional details on market risk and derivative activities, see Note 6, Financial and Derivative Instruments.

Pension and OPEB

Pension: We have external trust funds to provide retirement pension benefits to our employees under a non-contributory, defined benefit Pension Plan. On September 1, 2005, the defined benefit Pension Plan was closed to new participants and we implemented the qualified DCCP, which provides an employer contribution of 5 percent of base pay to the existing Employees’ Savings Plan. An employee contribution is not required to receive the plan’s employer cash contribution. All employees hired on or after September 1, 2005 participate in this plan as part of their retirement benefit program. Previous cash balance pension plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance pension plan were discontinued as of that date.

401(k): We resumed the employer’s match in CMS Energy Common Stock in our 401(k) savings plan on January 1, 2005. On September 1, 2005, we increased the employer match from 50 percent to 60 percent on eligible contributions up to the first six percent of an employee’s wages.

Beginning May 1, 2007, the CMS Energy Common Stock Fund was no longer an investment option available for investments in the 401(k) savings plan and the employer match was no longer in CMS Energy Common Stock. Participants had an opportunity to reallocate investments in the CMS Energy Common Stock Fund to other plan investment alternatives prior to November 1, 2007. In November 2007, the remaining shares in the CMS Energy Common Stock Fund were sold and the sale proceeds were reallocated to other plan investment options.

OPEB: We provide postretirement health and life benefits under our OPEB plan to qualifying retired employees.

In accordance with SFAS No. 158, we record liabilities for pension and OPEB on our consolidated balance sheet at the present value of the future obligations, net of any plan assets. We use SFAS No. 87 to account for pension expense and SFAS No. 106 to account for other postretirement benefit expense. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including:

•  life expectancies,

•  present-value discount rates,

•  expected long-term rate of return on plan assets,

•  rate of compensation increases, and

•  anticipated health care costs.

A change in these assumptions could change significantly our recorded liabilities and associated expenses.

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The following table provides an estimate of our pension cost, OPEB cost, and cash contributions for the next three years:

Expected Costs	Pension Cost		OPEB Cost		Contributions
	In Millions
2008	$	106	$	27	$	49
2009		112		25		49
2010		116		24		133

Actual future pension cost and contributions will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in the Pension Plan.

Lowering the expected long-term rate of return on the Pension Plan assets by 0.25 percent (from 8.25 percent to 8.00 percent) would increase estimated pension cost for 2008 by $3 million. Lowering the discount rate by 0.25 percent (from 6.40 percent to 6.15 percent) would increase estimated pension cost for 2008 by $1 million.

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

Accounting for Asset Retirement Obligations

We are required to record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. We have legal obligations to remove some of our assets at the end of their useful lives. We calculate the fair value of ARO liabilities using an expected present value technique that reflects assumptions about costs, inflation, and profit margin that third parties would consider to assume the obligation. No market risk premium was included in our ARO fair value estimate since a reasonable estimate could not be made.

If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Generally, our gas transmission and electric and gas distribution assets have indeterminate lives and retirement cash flows that cannot be determined. However, we have recorded an ARO for our obligation to cut, purge, and cap abandoned gas distribution mains and gas services at the end of their useful lives. We have not recorded a liability for assets that have insignificant cumulative disposal costs, such as substation batteries. For additional details, see Note 8, Asset Retirement Obligations.

Capital Resources and Liquidity

Factors affecting our liquidity and capital requirements include:

•  results of operations,

•  capital expenditures,

•  energy commodity and transportation costs,

•  contractual obligations,

•  regulatory decisions,

•  debt maturities,

•  credit ratings,

•  working capital needs, and

•  collateral requirements.

During the summer months, we buy natural gas and store it for resale during the winter heating season. Although our prudent natural gas costs are recoverable from our customers, the storage of natural gas as inventory requires additional liquidity due to the lag in cost recovery.

Our cash management plan includes controlling operating expenses and capital expenditures and evaluation of market conditions for financing opportunities, if needed.

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

•  our current level of cash and revolving credit facilities,

•  our anticipated cash flows from operating and investing activities, and

•  our ability to access secured and unsecured borrowing capacity in the capital markets, if necessary.

In the second quarter of 2007, Moody’s and S&P upgraded the long-term credit ratings of CMS Energy and Consumers and revised the rating outlook to stable from positive.

Cash Position, Investing, and Financing

Our operating, investing, and financing activities meet consolidated cash needs. At December 31, 2007, we had $382 million of consolidated cash, which includes $34 million of restricted cash and $7 million from entities consolidated pursuant to FIN 46(R).

Our primary ongoing source of cash is dividends and other distributions from our subsidiaries. For the year ended December 31, 2007, Consumers paid $251 million in common stock dividends to CMS Energy. For details on dividend restrictions, see Note 4, Financings and Capitalization.

Our cash flow statements include amounts related to discontinued operations through the date of disposal. The sale of our discontinued operations and their related cash flows will have no material adverse effect on our liquidity, as we used the proceeds of these sales to invest in our utility business and to reduce debt. For additional details on discontinued operations, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

Summary of Consolidated Statements of Cash Flows:

	2007			2006			2005
	In Millions
Net cash provided by (used in):
Operating activities	$	27		$	686		$	598
Investing activities		658			(749	)		(493	)
Net cash provided by (used in) operating and investing activities		685			(63	)		105
Financing activities		(690	)		(434	)		74
Effect of exchange rates on cash		2			1			(1	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	(3	)	$	(496	)	$	178

Operating Activities:

2007: Net cash provided by operating activities was $27 million, a decrease of $659 million versus 2006. In addition to a decrease in earnings, cash provided by operating activities decreased primarily as result of the following:

•  absence, in 2007, of the sale of accounts receivable,

•  payments made to fund our Pension Plan and to settle a shareholder class action lawsuit,

•  refunds to customers of excess Palisades decommissioning funds, and

•  reduced cash distributions from international investments sold during 2007 and other timing differences.

These decreases were partially offset by:

•  a decrease in expenditures for gas inventory, as the milder winter in 2006 allowed us to accumulate more gas in our storage facilities, and

•  the absence of the release of the MCV Partnership gas supplier funds on deposit due to the sale of our interest in the MCV Partnership in 2006.

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For additional details on excess Palisades decommissioning funds, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

2006: Net cash provided by operating activities was $686 million, an increase of $88 million versus 2005. Cash provided by operating activities increased primarily as result of the following:

•  decreases in accounts receivable primarily due to the collection of receivables in 2006 reflecting higher gas prices billed during the latter part of 2005 and reduced billings in the latter part of 2006 due to milder weather,

•  reduced inventory purchases,

•  cash proceeds from the sale of excess sulfur dioxide allowances, and

•  a return of funds formerly held as collateral under certain gas hedging arrangements.

These increases were partially offset by decreases in the MCV Partnership gas supplier funds on deposit as a result of refunds to suppliers from decreased exposure due to declining gas prices in 2006.

Investing Activities:

2007: Net cash provided by investing activities was $658 million, an increase of $1.407 billion versus 2006. This increase was primarily due to proceeds from asset sales and the related dissolution of our nuclear decommissioning trust funds. These changes were partially offset by an increase in capital expenditures primarily due to the purchase of the Zeeland power plant.

2006: Net cash used in investing activities was $749 million, an increase of $256 million versus 2005. This was primarily due to cash relinquished from the sale of assets, the absence of short-term investment proceeds, an increase in capital expenditures and cost to retire property, and an increase in non-current notes receivable. This activity was offset by the release of restricted cash in February 2006, which we used to extinguish long-term debt - related parties.

For additional details on asset sales, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

Financing Activities:

2007: Net cash used in financing activities was $690 million, an increase of $256 million versus 2006. This was primarily due to an increase in net debt retirements and the payment of common stock dividends.

2006: Net cash used in financing activities was $434 million, an increase of $508 million versus 2005. This was due to an increase in net retirement of long-term debt of $269 million combined with a decrease in proceeds from common stock issuances of $287 million.

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

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Obligations and Commitments

Contractual Obligations: The following table summarizes our contractual cash obligations for each of the periods presented. The table shows the timing of the obligations and their expected effect on our liquidity and cash flow in future periods. The table excludes all amounts classified as current liabilities on our Consolidated Balance Sheets, other than the current portion of long-term debt and capital and finance leases.

			Payments Due
			Less Than		One to		Three to		More Than
Contractual Obligations at December 31, 2007	Total		One Year		Three Years		Five Years		Five Years
	In Millions
Long-term debt(a)	$	6,077	$	542	$	1,078	$	1,146	$	3,311
Long-term debt — related parties(a)		178		—		—		—		178
Interest payments on long-term debt(b)		2,736		330		593		457		1,356
Capital and finance leases(c)		255		30		48		44		133
Interest payments on capital and finance leases(d)		139		14		27		24		74
Operating leases(e)		207		26		45		42		94
Purchase obligations(f)		21,286		2,502		2,897		2,275		13,612
Total contractual obligations	$	30,878	$	3,444	$	4,688	$	3,988	$	18,758

(a)	Principal amounts due on outstanding debt obligations, current and long-term, at December 31, 2007. For additional details on long-term debt, see Note 4, Financings and Capitalization.
(b)	Currently scheduled interest payments on both variable and fixed rate long-term debt and long-term debt — related parties, current and long-term. Variable interest payments are based on contractual rates in effect at December 31, 2007.
(c)	Principal portion of lease payments under our capital and finance leases, comprised mainly of leased service vehicles, leased office furniture, and certain power purchase agreements.
(d)	Imputed interest on the capital leases.
(e)	Minimum noncancelable lease payments under our leases of railroad cars, certain vehicles, and miscellaneous office buildings and equipment, which are accounted for as operating leases.
(f)	Long-term contracts for purchase of commodities and services. These obligations include operating contracts used to assure adequate supply with generating facilities that meet PURPA requirements. These commodities and services include:

•  natural gas and associated transportation,

•  electricity, and

•  coal and associated transportation.

Our purchase obligations include long-term power purchase agreements with various generating plants, which require us to make monthly capacity payments based on the plants’ availability or deliverability. These payments will approximate $58 million per month during 2008. If a plant is not available to deliver electricity, we will not be obligated to make these payments for that period. For additional details on power supply costs, see “Electric Utility Results of Operations” within this MD&A and Note 3, Contingencies, “Consumers’ Electric Utility Rate Matters — Power Supply Costs.”

Revolving Credit Facilities: For details on our revolving credit facilities, see Note 4, Financings and Capitalization.

Off-Balance Sheet Arrangements: CMS Energy and certain of its subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnifications, surety bonds, letters of credit, and financial and performance guarantees. Indemnifications are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum amount of potential payments we would be required to make under a

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number of these indemnities is not estimable. At December 31, 2007, we have an $88 million liability in connection with indemnities related to the sale of certain subsidiaries reflected on our Consolidated Balance Sheets.

We provide guarantees and surety bonds on behalf of certain non-consolidated entities, improving their ability to transact business. In addition, we have provided financial guarantees to certain property owners in connection with the Bay Harbor remediation effort. We monitor these obligations and believe it is unlikely that we will incur any material losses associated with these guarantees. For additional details on these and other guarantee arrangements, see Note 3, Contingencies, “Other Contingencies — Guarantees and Indemnifications.”

Sale of Accounts Receivable: Under a revolving accounts receivable sales program, Consumers may sell up to $325 million of certain accounts receivable. This program provides less expensive funding that unsecured debt. For additional details, see Note 4, Financings and Capitalization.

Capital Expenditures: For planning purposes, we forecast capital expenditures over a three-year period. We review these estimates and may revise them, periodically, due to a number of factors including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital. The following is a summary of our estimated capital expenditures, including lease commitments, for 2008 through 2010:

Years Ending December 31	2008		2009		2010
	In Millions
Electric utility operations(a)(b)	$	684	$	717	$	783
Gas utility operations(b)		234		263		232
Enterprises		28		55		26
Total	$	946	$	1,035	$	1,041

(a)	These amounts include estimates for capital expenditures that may be required by revisions to the Clean Air Act’s national air quality standards or potential renewable energy programs.
(b)	These amounts include estimates for capital expenditures related to information technology projects, facility improvements, and vehicle leasing.

OUTLOOK

Corporate Outlook

Our business strategy will focus on making continued investment in our utility business, further reducing parent debt, and growing earnings while controlling operating costs.

Our primary focus with respect to our utility business will be to continue to invest in our utility system to enable us to meet our customer commitments, to comply with increasing environmental performance standards, and to maintain adequate supply and capacity. Our primary focus with respect to our non-utility businesses will be to optimize cash flow and to maximize the value of our remaining assets.

ELECTRIC UTILITY BUSINESS OUTLOOK

Growth: In 2007, electric deliveries grew about one percent over 2006 levels. In 2008, we project electric deliveries to decline one-quarter of a percent compared to 2007 levels. This outlook assumes a small decline in industrial economic activity, the cancellation of one wholesale customer contract, and normal weather conditions throughout the year.

We expect electric deliveries to grow one percent annually over the next five years. This outlook assumes a modestly growing customer base and a stabilizing Michigan economy after 2008. This growth rate, which reflects a long-range expected trend includes both full-service sales and delivery service to customers who choose to buy generation service from an alternative electric supplier, but excludes transactions with other wholesale market participants and other electric utilities. Growth from year to year may vary from this trend due to customer response to the following:

•  energy conservation measures,

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•  fluctuations in weather conditions, and

•  changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities.

Electric Customer Revenue Outlook: Closures and restructuring of automotive manufacturing facilities and related suppliers and the sluggish housing market have hampered Michigan’s economy. The Michigan economy also has had facility closures in the non-manufacturing sector and limited growth. Although our electric utility results are not dependent upon a single customer, or even a few customers, those in the automotive sector represented five percent of our total 2007 electric revenue. We cannot predict the financial impact of the Michigan economy on our electric customer revenue.

Electric Reserve Margin: To reduce the risk of high power supply costs during peak demand periods and to achieve our Reserve Margin target, we purchase electric capacity and energy contracts for the physical delivery of electricity primarily in the summer months and to a lesser extent in the winter months. We have purchased capacity and energy contracts covering a portion of our Reserve Margin requirements for 2008 through 2010. We are currently planning for a Reserve Margin of 13.7 percent for summer 2008, or supply resources equal to 113.7 percent of projected firm summer peak load. Of the 2008 supply resources target, we expect 93 percent to come from our electric generating plants and long-term power purchase contracts, with other contractual arrangements making up the remainder. We expect capacity costs for these electric capacity and energy contracts to be $21 million for 2008.

In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA, which could affect our Reserve Margin status. The MCV PPA represents approximately 13 percent of our 2008 expected supply resources. For additional details, see “The MCV PPA” within this MD&A.

Electric Transmission Expenses: In 2008, we expect transmission rates charged to us to increase by $42 million due primarily to a 33 percent increase in METC transmission rates. This increase was included in our 2008 PSCR plan filed with the MPSC in September 2007.

In September 2007, the FERC approved a proposal to include 100 percent of the costs of network upgrades associated with new generator interconnections in the rates of certain MISO transmission owners, including METC. Previously, those transmission owners shared interconnection network upgrade costs with generators. Consumers, Detroit Edison, the MPSC, and other parties filed a request for rehearing of the FERC order.

21st Century Electric Energy Plan: In January 2007, the then chairman of the MPSC proposed initiatives to the governor of Michigan for the use of more renewable energy resources by all load-serving entities such as Consumers, the creation of an energy efficiency program, and a procedure for reviewing proposals to construct new generation facilities. The January proposal indicated that Michigan will need new base-load capacity by 2015. The proposed initiatives will require changes to current legislation.

Balanced Energy Initiative: In response to the 21st Century Electric Energy Plan, we filed with the MPSC a “Balanced Energy Initiative” that provides a comprehensive energy resource plan to meet our projected short-term and long-term electric power requirements. The filing requests the MPSC to rule that the Balanced Energy Initiative represents a reasonable and prudent plan for the acquisition of necessary electric utility resources. Implementation of the Balanced Energy Initiative will require legislative repeal or significant reform of the Customer Choice Act.

In September 2007, we filed with the MPSC an updated Balanced Energy Initiative, which includes our plan to build an 800 MW advanced clean coal plant at our Karn/Weadock Generating complex near Bay City, Michigan. We expect to use 500 MW of the plant’s output to serve Consumers’ customers and to commit the remaining 300 MW to others. We expect the plant to begin operating in 2015. We estimate our share of the cost at $1.6 billion including financing costs. Construction of the proposed new clean coal plant is contingent upon obtaining environmental permits and MPSC approval.

The Michigan Attorney General filed a motion with the MPSC to dismiss the Balanced Energy Initiative case, claiming that the MPSC lacks jurisdiction over the matter, which the ALJ denied. The Michigan Attorney General and another intervenor have filed an appeal of that decision with the MPSC.

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Proposed Energy Legislation: There are various bills introduced and being considered in the U.S. Congress and the Michigan legislature relating to mandatory renewable energy standards. If enacted, these bills generally would require electric utilities either to acquire a certain percentage of their power from renewable sources or pay fees, or purchase allowances in lieu of having the resources. Also in December 2007, several bills were introduced in the Michigan legislature that would reform the Customer Choice Act, introduce energy efficiency programs, modify the timing of rate increase requests, amend customer rate design and provide for other regulatory changes. We cannot predict whether any of these bills will be enacted or what form the final legislation might take.

Power Plant Purchase: In December 2007, we purchased a 935 MW gas-fired power plant located in Zeeland, Michigan for $519 million from Broadway Gen Funding LLC, an affiliate of LS Power Group. The power plant will help meet the growing energy needs of our customers.

ELECTRIC UTILITY BUSINESS UNCERTAINTIES

Several electric business trends and uncertainties may affect our financial condition and future results of operations. These trends and uncertainties have, had, or are reasonably expected to have, a material impact on revenues and income from continuing electric operations.

Electric Environmental Estimates: Our operations are subject to various state and federal environmental laws and regulations. We have been able to recover our costs to operate our facilities in compliance with these laws and regulations in customer rates.

Clean Air Act: Compliance with the federal Clean Air Act and resulting state and federal regulations continues to be a major focus for us. The State of Michigan’s Nitrogen Oxides Implementation Plan requires significant reductions in nitrogen oxides emissions. From 1998 to present, we have incurred $786 million in capital expenditures to comply with this plan, including installing selective catalytic reduction control technology on three of our coal-fired electric generating units. We have also installed low nitrogen oxides burners on a number of our coal-fired electric generating units.

Clean Air Interstate Rule: In March 2005, the EPA adopted the Clean Air Interstate Rule that requires additional coal-fired electric generating plant emission controls for nitrogen oxides and sulfur dioxide. We plan to meet the nitrogen oxides requirements by:

•  operating our selective catalytic reduction control technology units throughout the year,

•  completing the installation of a fourth selective catalytic reduction control unit,

•  installing low nitrogen oxides burners, and

•  purchasing emission allowances.

We plan to meet the sulfur dioxide requirements by injecting a chemical that reduces sulfur dioxide emissions, installing scrubbers and purchasing emission allowances. We plan to spend an additional $835 million for equipment installation through 2015, which we expect to recover in customer rates. The key assumptions in the capital expenditure estimate include:

•  construction commodity prices, especially construction material and labor,

•  project completion schedules and spending plans,

•  cost escalation factor used to estimate future years’ costs of 3.2 percent, and

•  an AFUDC capitalization rate of 7.9 percent.

We will need to purchase additional nitrogen oxides emission allowances through 2011 at an estimated cost of $3 million per year. We will also need to purchase additional sulfur dioxide emission allowances in 2012 and 2013 at an estimated cost of $10 million per year. We expect to recover emissions allowance costs from our customers through the PSCR process.

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The Clean Air Interstate Rule was appealed to the U.S. Court of Appeals for the District of Columbia by a number of utilities and other companies. A decision is expected in 2008. We cannot predict the outcome of these appeals.

State and Federal Mercury Air Rules: In March 2005, the EPA issued the CAMR, which requires initial reductions of mercury emissions from coal-fired electric generating plants by 2010 and further reductions by 2018. Certain portions of the CAMR were appealed to the U.S. Court of Appeals for the District of Columbia by a number of states and other entities. The U.S. Court of Appeals for the District of Columbia decided the case on February 8, 2008, and determined that the rates developed by the EPA were not consistent with the Clean Air Act. We continue to monitor the development of federal regulation in this area.

In April 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. We are working with the MDEQ on the details of this plan; however, we have developed preliminary cost estimates and a mercury emissions reduction scenario based on our best knowledge of control technology options and initially proposed requirements. We estimate that costs associated with Phase I of the state’s mercury plan will be approximately $280 million by 2010 and an additional $200 million by 2015. The key assumptions in the capital expenditure estimate are the same as those stated for the Clean Air Interstate Rule.

The following table outlines the proposed state mercury plan:

	Phase I	Phase II
Proposed State Mercury Rule	30% reduction by 2010	90% reduction by 2015

Routine Maintenance Classification: The EPA has alleged that some utilities have incorrectly classified plant modifications as “routine maintenance” rather than seeking permits from the EPA to modify their plants. We responded to information requests from the EPA on this subject in 2000, 2002, and 2006. We believe that we have properly interpreted the requirements of “routine maintenance.” If the EPA finds that our interpretation is incorrect, we could be required to install additional pollution controls at some or all of our coal-fired electric generating plants and pay fines. Additionally, we would need to assess the viability of continuing operations at certain plants. We cannot predict the financial impact or outcome of this issue.

Greenhouse Gases: Several legislative proposals have been introduced in the United States Congress that would require reductions in emissions of greenhouse gases, including carbon dioxide. These laws, or similar state laws or rules, if enacted could require us to replace equipment, install additional equipment for pollution controls, purchase allowances, curtail operations, or take other steps. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material, and cost recovery cannot be assured, we expect to have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

To the extent that greenhouse gas emission reduction rules come into effect, the mandatory emissions reduction requirements could have far-reaching and significant implications for the energy sector. We cannot estimate the effect of federal or state greenhouse gas policy on our future consolidated results of operations, cash flows, or financial position due to the uncertain nature of the policies. However, we will continue to monitor greenhouse gas policy developments and assess and respond to their potential implications for our business operations.

Water: In March 2004, the EPA issued rules that govern electric generating plant cooling water intake systems. The rules require significant reduction in the number of fish harmed by operating equipment. EPA compliance options in the rule were challenged in court. In January 2007, the court rejected many of the compliance options favored by industry and remanded the bulk of the rule back to the EPA for reconsideration. The court’s ruling is expected to increase significantly the cost of complying with this rule. However, the cost to comply will not be known until the EPA’s reconsideration is complete. At this time, the EPA is developing rules to implement the court’s decision. The rules are expected to be released for public comment in late 2008.

For additional details on electric environmental matters, see Note 3, Contingencies, “Consumers’ Electric Utility Contingencies — Electric Environmental Matters.”

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Electric ROA: The Customer Choice Act allows all of our electric customers to buy electric generation service from us or from an alternative electric supplier. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers. This is 4 percent of our total distribution load and represents an increase of 5 percent of ROA load compared to December 31, 2006.

In November 2004, the MPSC issued an order allowing us to recover Stranded Costs incurred in 2002 and 2003 through a surcharge applied to ROA customers. Since the MPSC order, we have experienced a downward trend in ROA customers. If this trend continues, it may require legislative or regulatory assistance to recover fully our 2002 and 2003 Stranded Costs.

Electric Rate Case: During 2007, we filed applications with the MPSC seeking an 11.25 percent authorized return on equity and an annual increase in revenues of $269 million. The filings sought recovery of the costs associated with increased plant investment, including the purchase of the Zeeland power plant, increased equity investment, higher operation and maintenance expenses, recovery of transaction costs from the sale of Palisades, and the approval of an energy efficiency program.

In December 2007, the MPSC approved a rate increase of $70 million related to the purchase of the Zeeland power plant. For additional details and material changes relating to the restructuring of the electric utility industry and electric rate matters, see Note 3, Contingencies, “Consumers’ Electric Utility Rate Matters.”

The MCV PPA: The MCV Partnership, which leases and operates the MCV Facility, contracted to sell electricity to Consumers for a 35-year period beginning in 1990. In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision. We believe that the provision is valid and fully effective and have not recorded any reserves, but we cannot predict whether we would prevail in the event of litigation on this issue.

As a result of our exercise of the regulatory-out provision, the MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA or reduce the amount of capacity sold under the MCV PPA. If the MCV Partnership terminates or reduces the amount of capacity sold under the MCV PPA, we will seek to replace the lost capacity to maintain an adequate electric Reserve Margin. This could involve entering into a new power purchase agreement and (or) entering into electric capacity contracts on the open market. We cannot predict whether we could enter into such contracts at a reasonable price. We are also unable to predict whether we would receive regulatory approval of the terms and conditions of such contracts, or whether the MPSC would allow full recovery of our incurred costs.

To comply with a prior MPSC order, we made a filing in May 2007 with the MPSC requesting a determination as to whether it wished to reconsider the amount of the MCV PPA payments that we recover from customers. In May 2007, the MCV Partnership also filed an application with the MPSC seeking approval to increase our recovery of costs incurred under the MCV PPA. We cannot predict the financial impact or outcome of these matters. For additional details on the MCV PPA, see Note 3, Contingencies, “Other Consumers’ Electric Utility Contingencies - The MCV PPA.”

Sale of Nuclear Assets: In April 2007, we sold Palisades to Entergy for $380 million and received $363 million after various closing adjustments. We also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. In addition, we paid the NMC, the former operator of Palisades, $7 million in exit fees and forfeited our $5 million investment in the NMC. The MPSC order approving the Palisades transaction allowed us to recover the book value of Palisades. As a result, we are crediting proceeds in excess of book value of $66 million to our customers through the end of 2008. After closing adjustments, which are subject to MPSC review, proceeds in excess of the book value were $77 million. Recovery of our transaction costs of $28 million, which includes the NMC exit fees and investment forfeiture, is presently under review by the MPSC in our current electric rate case.

Entergy assumed responsibility for the future decommissioning of Palisades and for storage and disposal of spent nuclear fuel at Palisades and the Big Rock ISFSI sites. We transferred $252 million in trust fund assets to Entergy. We are crediting excess decommissioning funds of $189 million to our retail customers through the end of

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2008. Modification to the terms of the transaction allowed us immediate access to additional excess decommissioning trust funds of $123 million. The distribution of these funds is currently under review by the

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MPSC in our electric rate case filing. For additional details on the sale of Palisades and the Big Rock ISFSI, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

As part of the transaction, we entered into a 15-year power purchase agreement under which Entergy sells us all of the plant’s output up to its current annual average capacity of 798 MW. Because of the Palisades power purchase agreement and our continuing involvement with the Palisades assets, we accounted for the disposal of Palisades as a financing for accounting purposes and not a sale. For additional details on the Palisades financing, see Note 11, Leases.

GAS UTILITY BUSINESS OUTLOOK

Growth: In 2008, we project that gas deliveries will remain flat, on a weather-adjusted basis, relative to 2007 levels due to continuing conservation and overall economic conditions in Michigan. We expect gas deliveries to decline by less than one-half of one percent annually over the next five years. Actual gas deliveries in future periods may be affected by:

•  fluctuations in weather conditions,

•  use by independent power producers,

•  availability of renewable energy sources,

•  changes in gas commodity prices,

•  Michigan economic conditions,

•  the price of competing energy sources or fuels,

•  gas consumption per customer, and

•  improvements in gas appliance efficiency.

GAS UTILITY BUSINESS UNCERTAINTIES

Several gas business trends and uncertainties may affect our future financial results and financial condition. These trends and uncertainties could have a material impact on future revenues and income from gas operations.

Gas Environmental Estimates: We expect to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plant sites. For additional details, see Note 3, Contingencies, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”

Gas Cost Recovery: The GCR process is designed to allow us to recover all of our purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices for prudency in annual plan and reconciliation proceedings. For additional details on GCR, see Note 3, Contingencies, “Consumers’ Gas Utility Rate Matters — Gas Cost Recovery.”

Gas Depreciation: In June 2007, the MPSC issued its final order in a generic ARO accounting case and modified the filing requirement for our next gas depreciation case. The original filing requirement date was changed from 90 days after the issuance of that order to no later than August 1, 2008. Additionally, we have been ordered to use 2007 data and prepare a cost-of-removal depreciation study with five alternatives using the MPSC’s prescribed methods. We cannot predict the outcome of the analysis.

If a final order in our next gas depreciation case is not issued concurrently with a final order in a general gas rate case, the MPSC may incorporate the results of the depreciation case into general gas rates through a surcharge, which may be either positive or negative.

2007 Gas Rate Case: In February 2007, we filed an application with the MPSC seeking an 11.25 percent authorized return on equity as part of an $88 million annual increase in our gas delivery and transportation rates. In August 2007, the MPSC approved a partial settlement agreement authorizing an annual rate increase of $50 million, including an authorized return on equity of 10.75 percent. On September 25, 2007, the MPSC reopened the record in the case to allow all interested parties to be heard concerning the approval of an energy efficiency program, which

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we proposed in our original filing. Hearings on this matter were held in February 2008. We expect the MPSC to issue a final order in the second quarter of 2008. If approved in total, this would result in an additional rate increase of $9 million for implementation of the energy efficiency program.

2008 Gas Rate Case: In February 2008, we filed an application with the MPSC for an annual gas rate increase of $91 million and an 11 percent authorized return on equity.

ENTERPRISES OUTLOOK

In 2007, we completed the sale of our international assets. Our primary focus with respect to our remaining non-utility businesses is to optimize cash flow and maximize the value of these assets.

In connection with the sale of our Argentine and Michigan assets to Lucid Energy in March 2007, we entered into agreements that grant Lucid Energy:

•  an option to buy CMS Gas Transmission’s ownership interest in TGN, subject to the rights of other third parties,

•  the rights to certain proceeds that may be awarded and received by CMS Gas Transmission in connection with certain legal proceedings, including an ICSID arbitration award, and

•  the rights to proceeds that Enterprises will receive if it sells its interest in CMS Generation San Nicolas Company.

Under these agreements, we have assigned our rights to certain awards or proceeds that we may receive in the future. Of the total consideration received in the sale, we allocated $32 million to these agreements and recorded this amount as a deferred credit on our Consolidated Balance Sheets. Due to the settlement of certain legal proceedings in 2007, a portion of CMS Gas Transmission’s obligations under these agreements has been satisfied. Accordingly, we recognized $17 million of the deferred credit as a gain.

For details on the ICSID arbitration award, see Note 3, Contingencies.

Uncertainties: Trends and uncertainties that could have a material impact on our consolidated income, cash flows, or balance sheet and credit improvement include:

•  the impact of indemnity and environmental remediation obligations at Bay Harbor,

•  the outcome of certain legal proceedings,

•  the impact of representations, warranties, and related indemnities in connection with the sales of our international assets, and

•  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.

CMS ERM Electricity Sales Agreements: CMS ERM was a party to three electricity sales agreements, under which it provided up to 300 MW of electricity at fixed prices. CMS ERM satisfied its obligations under these agreements by using electricity generated by DIG or by purchasing electricity from the market. Because the price of natural gas has increased substantially in recent years, the prices that were charged under these agreements did not reflect DIG’s cost to generate or CMS ERM’s cost to purchase electricity from the market. Therefore, these agreements negatively impacted DIG’s and CMS ERM’s financial performance.

In November 2007, CMS ERM, DIG, and CMS Energy reached an agreement to terminate two of these electricity sales agreements in order to eliminate future losses under those contracts. As consideration for agreeing to terminate the agreements, CMS ERM paid the customers $275 million upon closing the transaction in February 2008. We recorded a liability for the future payment and other termination costs and recognized a loss of $279 million in 2007, representing the cost to terminate the agreements. As a result of terminating these agreements, CMS ERM and DIG have reduced their long-term electric capacity supply obligations by 260 MW. CMS ERM will market the capacity and energy that was previously committed under these agreements into the merchant market either through third party agreements or directly with the MISO.

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Also in November 2007, CMS ERM executed an amendment of the remaining electricity sales agreement, which was effective upon the closing of the transaction. The purpose of the amendment is to optimize production planning and ensure optimal use of available resources. The amendment establishes a minimum amount of contract capacity to be provided under the agreement, and adds a minimum and maximum amount of electricity to be delivered to the customer. As amended, this electricity sales agreement is a derivative instrument. Upon signing the amendment in 2007, we recorded our minimum obligation under the contract on our Consolidated Balance Sheets at its fair value and recognized the resulting mark-to-market loss of $18 million in earnings. For additional details on accounting for this derivative, see Note 6, Financial and Derivative Instruments.

OTHER OUTLOOK

Advanced Metering Infrastructure: We are developing an advanced meter system that will provide more frequent information about our customer energy usage and notification of service interruptions. The system will allow customers to make decisions about energy efficiency and conservation, provide other customer benefits, and reduce costs. We anticipate developing integration software and piloting new technology over the next two years. We expect capital expenditures for this project over the next seven years to be approximately $800 million. Over the long-term, we do not expect this project to significantly impact rates.

Software Implementation: We are implementing an integrated business software system for finance, purchasing/supply chain, customer billing, human resources and payroll, and utility asset construction and maintenance work management. We expect the new business software, scheduled to be in production in the first half of 2008, to improve customer service, reduce risk, and increase flexibility. Including work done to date, we expect to incur $175 million in operating expenses and capital expenditures for the initial implementation.

Michigan Public Service Commission: During the third quarter of 2007, the Michigan governor appointed a new MPSC chairperson and a new MPSC commissioner. We have several significant cases pending MPSC review and approval. For additional detail on these cases, see Note 3, Contingencies, “Consumers’ Electric Utility Rate Matters” and “Consumers’ Gas Utility Rate Matters.”

Litigation and Regulatory Investigation: We are the subject of an investigation by the DOJ regarding round-trip trading transactions by CMS MST. Also, we are named as a party in various litigation matters including, but not limited to, several lawsuits regarding alleged false natural gas price reporting and price manipulation. Additionally, the SEC is investigating the actions of former CMS Energy subsidiaries in relation to Equatorial Guinea. For additional details regarding these and other matters, see Note 3, Contingencies and Item 3. Legal Proceedings.

Michigan Tax Legislation: In July 2007, the Michigan governor signed Senate Bill 94, the Michigan Business Tax Act, which imposed a business income tax of 4.95 percent and a modified gross receipts tax of 0.8 percent. The bill provided for a number of tax credits and incentives geared toward those companies investing and employing in Michigan. The Michigan Business Tax, which was effective January 1, 2008, replaced the state’s Single Business Tax that expired on December 31, 2007. In September 2007, the Michigan governor signed House Bill 5104, allowing additional deductions in future years against the business income portion of the tax. These future deductions are phased in over a 15-year period, beginning in 2015. As a result, our consolidated net deferred tax liability of $122 million, recorded due to the Michigan Business Tax enactment, was offset by a net deferred tax asset of $122 million. In December 2007, the Michigan governor signed House Bill 5408, replacing the expanded sales tax for certain services with a 21.99 percent surcharge on the business income tax and the modified gross receipts tax. Therefore, the total tax rates imposed under the Michigan Business Tax are 6.04 percent for the business income tax and 0.98 percent for the modified gross receipts tax. We expect to recover the taxes that we pay from our customers, but we cannot predict the timeliness of such recovery.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R): In September 2006, the FASB issued SFAS No. 158. Phase one of this standard, implemented in December 2006, required us to recognize the funded

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status of our defined benefit postretirement plans on our Consolidated Balance Sheets at December 31, 2006. Phase two requires that we change our plan measurement date from November 30 to December 31, effective for the year ending December 31, 2008. The implementation of phase two of this standard will not have a material effect on our consolidated financial statements.

FIN 48, Accounting for Uncertainty in Income Taxes: This interpretation, which we adopted on January 1, 2007, provides a two-step approach for the recognition and measurement of uncertain tax positions taken, or expected to be taken, by a company on its income tax returns. The first step is to evaluate the tax position to determine if, based on management’s best judgment, it is greater than 50 percent likely that we will sustain the tax position. The second step is to measure the appropriate amount of the benefit to recognize. This is done by estimating the potential outcomes and recognizing the greatest amount that has a cumulative probability of at least 50 percent. FIN 48 requires interest and penalties, if applicable, to be accrued on differences between tax positions recognized in our consolidated financial statements and the amount claimed, or expected to be claimed, on the tax return.

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as unitary and combined income tax returns in several states. CMS Energy and its subsidiaries also file separate company income tax returns in several states. The only significant state tax paid by CMS Energy is in Michigan. However, since the Michigan Single Business Tax was not an income tax, it was not part of the FIN 48 analysis. For the U.S. federal income tax return, CMS Energy completed examinations by federal taxing authorities for its taxable years prior to 2002. The federal income tax returns for the years 2002 through 2006 are open under the statute of limitations, with 2002 through 2005 currently under examination.

As a result of the implementation of FIN 48, we recorded a charge for additional uncertain tax benefits of $11 million, which was accounted for as a reduction of our beginning retained earnings. Included in this amount was an increase in our valuation allowance of $100 million, decreases to tax reserves of $61 million and a decrease to deferred tax liabilities of $28 million. As of December 31, 2007, remaining uncertain tax benefits that would reduce our effective tax rate in future years are $8 million. We are not expecting any other material changes to our uncertain tax positions over the next twelve months.

We have reflected a net interest liability of $2 million related to our uncertain income tax positions on our Consolidated Balance Sheets as of December 31, 2007. We have not accrued any penalties with respect to uncertain tax benefits. We recognize accrued interest and penalties, where applicable, related to uncertain tax benefits as part of income tax expense.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS No. 157, Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, effective for us on January 1, 2008. The standard provides a revised definition of fair value and establishes a framework for measuring fair value. Under the standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly exchange between market participants. The standard does not expand the use of fair value, but it requires new disclosures about the impact and reliability of fair value measurements. The standard will also eliminate the existing prohibition against recognizing “day one” gains and losses on derivative instruments. We currently do not hold any derivatives that would involve day one gains or losses. The standard is to be applied prospectively, except that limited retrospective application is required for three types of financial instruments, none of which we currently hold. We do not believe that the implementation of this standard will have a material effect on our consolidated financial statements.

In February 2008, the FASB issued a one-year deferral of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recorded or disclosed at fair value on a recurring basis. Under this partial deferral, SFAS No. 157 will not be effective until January 1, 2009 for fair value measurements in the following areas:

•  AROs,

•  most of the nonfinancial assets and liabilities acquired in a business combination, and

•  fair value measurements performed in conjunction with impairment analyses.

CMS-33

SFAS No. 157 remains effective January 1, 2008 for our derivative instruments, available-for-sale investment securities, and long-term debt fair value disclosures.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment to FASB Statement No. 115: In February 2007, the FASB issued SFAS No. 159, effective for us on January 1, 2008. This standard gives us the option to measure certain financial instruments and other items at fair value, with changes in fair value recognized in earnings. We do not expect to elect the fair value option for any financial instruments or other items.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51: In December 2007, the FASB issued SFAS No. 160, effective for us January 1, 2009. Ownership interests in subsidiaries held by third parties, which are currently referred to as minority interests, will be presented as noncontrolling interests and shown separately on our Consolidated Balance Sheets within equity. Any changes in our ownership interests while control is retained will be treated as equity transactions. In addition, this standard requires presentation and disclosure of the allocation between controlling and noncontrolling interests’ income from continuing operations, discontinued operations, and comprehensive income and a reconciliation of changes in the consolidated statement of equity during the reporting period. The presentation and disclosure requirements of the standard will be applied retrospectively for all periods presented. All other requirements will be applied prospectively. We are evaluating the impact SFAS No. 160 will have on our consolidated financial statements.

FSP FIN 39-1, Amendment of FASB Interpretation No. 39: In April 2007, the FASB issued FSP FIN 39-1, effective for us on January 1, 2008. This standard will permit us to offset the fair value of derivative instruments with cash collateral received or paid for those derivative instruments executed with the same counterparty under a master netting arrangement. The decision to offset derivative positions under master netting arrangements remains an accounting policy choice. We have elected to offset our derivative fair values under master netting arrangements, but we currently record cash collateral amounts separately. As a result of offsetting the collateral amounts under this standard, we expect that both our total assets and total liabilities will be reduced by an immaterial amount. There will be no impact on earnings from adopting this standard. The standard is to be applied retrospectively for all periods presented in our consolidated financial statements.

EITF Issue 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards: In June 2007, the FASB ratified EITF Issue 06-11, effective for us on a prospective basis beginning January 1, 2008. EITF Issue 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards. We do not believe that implementation of this standard will have a material effect on our consolidated financial statements.

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CMS Energy Corporation

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

	Years Ended December 31
	2007			2006			2005
	In Millions
Operating Revenue	$	6,464		$	6,126		$	5,879
Earnings from Equity Method Investees		40			89			125
Operating Expenses
Fuel for electric generation		422			711			644
Fuel costs mark-to-market at the MCV Partnership		—			204			(200	)
Purchased and interchange power		1,407			709			441
Cost of gas sold		2,273			2,131			2,296
Electric sales contract termination		279			—			—
Other operating expenses		976			1,136			1,030
Maintenance		201			297			230
Depreciation and amortization		540			550			504
General taxes		222			151			226
Asset impairment charges, net of insurance recoveries		204			459			1,184
Gain on asset sales, net		(21	)		(79	)		(6	)
		6,503			6,269			6,349
Operating Income (Loss)		1			(54	)		(345	)
Other Income (Deductions)
Interest and dividends		96			76			60
Regulatory return on capital expenditures		31			26			4
Foreign currency gain (loss), net		1			—			(5	)
Other income		40			31			33
Other expense		(39	)		(21	)		(45	)
		129			112			47
Fixed Charges
Interest on long-term debt		382			448			458
Interest on long-term debt — related parties		14			15			29
Other interest		48			27			14
Capitalized interest		(6	)		(10	)		(38	)
Preferred dividends of subsidiaries		2			5			5
		440			485			468
Loss Before Income Taxes		(310	)		(427	)		(766	)
Income Tax Benefit		(195	)		(188	)		(180	)
Loss Before Minority Interests (Obligations), Net		(115	)		(239	)		(586	)
Minority Interests (Obligations), Net		11			(106	)		(445	)
Loss From Continuing Operations		(126	)		(133	)		(141	)
Income (Loss) From Discontinued Operations, Net of Tax (Tax Benefit) of $(1), $32, and $20		(89	)		54			57
Net Loss		(215	)		(79	)		(84	)
Preferred Dividends		11			11			10
Redemption Premium on Preferred Stock		1			—			—
Net Loss Available to Common Stockholders	$	(227	)	$	(90	)	$	(94	)

CMS-35

	Years Ended December 31
	2007			2006			2005
	In Millions, Except Per
	Share Amounts
CMS Energy
Net Loss
Net Loss Available to Common Stockholders	$	(227	)	$	(90	)	$	(94	)
Basic Earnings (Loss) Per Average Common Share
Loss from Continuing Operations	$	(0.62	)	$	(0.66	)	$	(0.71	)
Gain (Loss) from Discontinued Operations		(0.40	)		0.25			0.27
Net Loss Attributable to Common Stock	$	(1.02	)	$	(0.41	)	$	(0.44	)
Diluted Earnings (Loss) Per Average Common Share
Loss from Continuing Operations	$	(0.62	)	$	(0.66	)	$	(0.71	)
Gain (Loss) from Discontinued Operations		(0.40	)		0.25			0.27
Net Loss Attributable to Common Stock	$	(1.02	)	$	(0.41	)	$	(0.44	)
Dividends Declared Per Common Share	$	0.20		$	—		$	—

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31
	2007			2006			2005
	In Millions
Cash Flows from Operating Activities
Net loss	$	(215	)	$	(79	)	$	(84	)
Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization, net of nuclear decommissioning of $4, $6,  and $6		545			576			525
Deferred income taxes and investment tax credit		(221	)		(271	)		(199	)
Minority obligations, net		(10	)		(100	)		(440	)
Asset impairment charges, net of insurance recoveries		204			459			1,184
Postretirement benefits expense		131			131			112
Electric sales contract termination		279			—			—
Shareholder class action settlement expense		—			125			—
Fuel costs mark-to-market at the MCV Partnership		—			204			(200	)
Regulatory return on capital expenditures		(31	)		(26	)		(4	)
Capital lease and other amortization		55			44			40
Bad debt expense		37			28			23
Loss (gain) on the sale of assets		112			(79	)		(20	)
Earnings from equity method investees		(40	)		(89	)		(125	)
Cash distributions from equity method investees		18			75			108
Postretirement benefits contributions		(184	)		(69	)		(63	)
Shareholder class action settlement payment		(125	)		—			—
Changes in other assets and liabilities:
Decrease (increase) in accounts receivable and accrued revenues		(451	)		75			(246	)
Decrease (increase) in accrued power supply and gas revenue		99			(91	)		(65	)
Increase in inventories		(10	)		(105	)		(245	)
Increase (decrease) in accounts payable		(45	)		(43	)		170
Increase (decrease) in accrued expenses		(31	)		39			8
Increase (decrease) in the MCV Partnership gas supplier funds on deposit		—			(147	)		173
Decrease (increase) in other current and non-current assets		41			56			(38	)
Increase (decrease) in other current and non-current liabilities		(131	)		(27	)		(16	)
Net cash provided by operating activities		27			686			598
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)		(1,263	)		(670	)		(593	)
Cost to retire property		(28	)		(78	)		(27	)
Restricted cash and restricted short-term investments		49			124			(151	)
Investments in nuclear decommissioning trust funds		(1	)		(21	)		(6	)
Proceeds from nuclear decommissioning trust funds		333			22			39
Purchases of available-for-sale SERP investments		(68	)		(4	)		(2	)
Proceeds from available-for-sale SERP investments		64			6			3
Proceeds from short-term investments		—			—			295
Purchase of short-term investments		—			—			(186	)
Maturity of the MCV Partnership restricted investment securities held-to-maturity		—			130			318
Purchase of the MCV Partnership restricted investment securities held-to-maturity		—			(131	)		(270	)
Proceeds from sale of assets		1,717			69			61
Cash relinquished from sale of assets		(113	)		(148	)		—
Decrease (increase) in non-current notes receivable		(32	)		(50	)		1
Other investing		—			2			25
Net cash provided by (used in) investing activities		658			(749	)		(493	)

CMS-37

	Years Ended December 31
	2007			2006			2005
	In Millions
Cash Flows from Financing Activities
Proceeds from notes, bonds, and other long-term debt	$	515		$	100		$	1,385
Issuance of common stock		15			8			295
Retirement of bonds and other long-term debt		(1,095	)		(493	)		(1,509	)
Redemption of preferred stock		(32	)		—			—
Payment of common stock dividends		(45	)		—			—
Payment of preferred stock dividends		(11	)		(11	)		(11	)
Payment of capital lease and financial lease obligations		(20	)		(26	)		(29	)
Debt issuance costs, financing fees, and other		(17	)		(12	)		(57	)
Net cash provided by (used in) financing activities		(690	)		(434	)		74
Effect of Exchange Rates on Cash		2			1			(1	)
Net Increase (Decrease) in Cash and Cash Equivalents		(3	)		(496	)		178
Cash and Cash Equivalents, Beginning of Period		351			847			669
Cash and Cash Equivalents, End of Period	$	348		$	351		$	847
Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized)	$	432		$	487		$	454
Income taxes paid (net of refunds of $- , $2, and $11)		14			98			3
Non-cash transactions
Other assets placed under capital lease	$	229		$	7		$	12

The accompanying notes are an integral part of these statements.

CMS-38

CMS ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31
	2007		2006
	In Millions
ASSETS
Plant and Property (At cost)
Electric utility	$	8,555	$	8,504
Gas utility		3,467		3,273
Enterprises		391		453
Other		34		33
		12,447		12,263
Less accumulated depreciation, depletion and amortization		4,166		5,194
		8,281		7,069
Construction work-in-progress		447		639
		8,728		7,708
Investments
Enterprises		6		556
Other		5		10
		11		566
Current Assets
Cash and cash equivalents at cost, which approximates market		348		249
Restricted cash at cost, which approximates market		34		71
Accounts receivable and accrued revenue, less allowances of $21 in 2007 and $25 in 2006		837		502
Notes receivable		68		48
Accrued power supply and gas revenue		45		156
Accounts receivable and notes receivable — related parties		2		62
Inventories at average cost
Gas in underground storage		1,123		1,129
Materials and supplies		86		87
Generating plant fuel stock		125		126
Regulatory assets — postretirement benefits		19		19
Deferred income taxes		—		155
Deferred property taxes		158		150
Assets held for sale		—		239
Price risk management assets		1		45
Prepayments and other		38		105
		2,884		3,143
Non-current Assets
Regulatory Assets
Securitized costs		466		514
Postretirement benefits		921		1,131
Customer Choice Act		149		190
Other		504		497
Nuclear decommissioning trust funds		—		602
Deferred income taxes		99		—
Notes receivable, less allowances of $31 in 2007 and $50 in 2006		170		137
Notes receivable — related parties, less allowance of $50 in 2006		—		125
Assets held for sale		—		412
Price risk management assets		1		19
Other		263		327
		2,573		3,954
Total Assets	$	14,196	$	15,371

CMS-39

	December 31
	2007			2006
	In Millions
STOCKHOLDERS’ INVESTMENT AND LIABILITIES
Capitalization
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 225.1 shares and 222.8 shares, respectively	$	2		$	2
Other paid-in capital		4,480			4,468
Accumulated other comprehensive loss		(144	)		(318	)
Retained deficit		(2,208	)		(1,918	)
		2,130			2,234
Preferred stock of subsidiary		44			44
Preferred stock		250			261
Long-term debt		5,385			6,200
Long-term debt — related parties		178			178
Non-current portion of capital and finance lease obligations		225			42
		8,212			8,959
Minority Interests		53			52
Current Liabilities
Current portion of long-term debt, capital and finance lease obligations		722			563
Notes payable		1			2
Accounts payable		432			481
Accrued rate refunds		19			37
Accounts payable — related parties		1			2
Accrued interest		103			126
Accrued taxes		308			301
Regulatory liabilities		164			—
Deferred income taxes		41			—
Electric sales contract termination liability		279			—
Argentine currency impairment reserve		197			—
Legal settlement liability		—			200
Liabilities held for sale		—			144
Price risk management liabilities		9			70
Other		201			230
		2,477			2,156
Non-current Liabilities
Regulatory Liabilities
Regulatory liabilities for cost of removal		1,127			1,166
Income taxes, net		533			539
Other regulatory liabilities		313			249
Postretirement benefits		858			1,066
Deferred income taxes		—			123
Deferred investment tax credit		58			62
Asset retirement obligation		198			498
Liabilities held for sale		—			59
Price risk management liabilities		16			31
Other		351			411
		3,454			4,204
Commitments and Contingencies (Notes 3, 4, 6, 9 and 11)
Total Stockholders’ Investment and Liabilities	$	14,196		$	15,371

The accompanying notes are an integral part of these statements.

CMS-40

CMS Energy Corporation

Consolidated Statements of Common Stockholders’ Equity

	Years Ended December 31
	2007			2006			2005			2007			2006			2005
	Number of Shares in Thousands									In Millions
Common Stock
At beginning and end of period										$	2		$	2		$	2
Other Paid-in Capital
At beginning of period		222,783			220,497			194,997			4,468			4,436			4,140
Common stock repurchased		(318	)		(98	)		(88	)		(5	)		(2	)		(1	)
Common stock reacquired		(19	)		(59	)		—			—			—			—
Common stock issued		2,339			2,375			25,493			30			33			296
Common stock reissued		361			68			95			6			1			1
Redemption of preferred stock		—			—			—			(19	)		—			—
At end of period		225,146			222,783			220,497			4,480			4,468			4,436
Accumulated Other Comprehensive Loss
Retirement benefits liability
At beginning of period											(23	)		(19	)		(17	)
Retirement benefits liability adjustments(a)											—			3			(2	)
Net gain arising during the period(a)											7			—			—
Amortization of net actuarial loss(a)											1			—			—
Adjustment to initially apply FASB Statement No. 158											—			(7	)		—
At end of period											(15	)		(23	)		(19	)
Investments
At beginning of period											14			9			9
Unrealized gain on investments(a)											1			5			—
Reclassification adjustments included in net loss(a)											(15	)		—			—
At end of period											—			14			9
Derivative instruments
At beginning of period											(12	)		35			(9	)
Unrealized gain (loss) on derivative instruments(a)											(3	)		(15	)		51
Reclassification adjustments included in net loss(a)											14			(32	)		(7	)
At end of period											(1	)		(12	)		35
Foreign currency translation
At beginning of period											(297	)		(313	)		(319	)
Sale of Argentine assets(a)											128			—			—
Sale of Brazilian assets(a)											36			—			—
Other foreign currency translations(a)											5			16			6
At end of period											(128	)		(297	)		(313	)
At end of period											(144	)		(318	)		(288	)
Retained Deficit
At beginning of period											(1,918	)		(1,828	)		(1,734	)
Adjustment to initially apply FIN 48											(18	)		—			—
Net loss(a)											(215	)		(79	)		(84	)
Preferred stock dividends declared											(11	)		(11	)		(10	)
Common stock dividends declared											(45	)		—			—
Redemption of preferred stock(a)											(1	)		—			—
At end of period											(2,208	)		(1,918	)		(1,828	)
Total Common Stockholders’ Equity										$	2,130		$	2,234		$	2,322

CMS-41

	Years Ended December 31
	2007			2006			2005
	In Millions
(a) Disclosure of Comprehensive Loss:
Net loss	$	(215	)	$	(79	)	$	(84	)
Retirement benefits liability:
Retirement benefits liability adjustments, net of tax (tax benefit) of $1 in 2006 and $(1) in 2005		—			3			(2	)
Net gain arising during the period, net of tax of $5		7			—			—
Amortization of net actuarial loss, net of tax of $-		1			—			—
Investments:
Unrealized gain on investments, net of tax of $- in 2007 and $2 in 2006		1			5			—
Reclassification adjustments included in net loss, net of tax benefit of $(7)		(15	)		—			—
Derivative instruments:
Unrealized gain (loss) on derivative instruments, net of tax (tax benefit)
of $2 in 2007, $(11) in 2006, and $29 in 2005		(3	)		(15	)		51
Reclassification adjustments included in net loss, net of tax (tax benefit) of $7 in 2007, $(19) in 2006, and $(9) in 2005		14			(32	)		(7	)
Foreign currency translation:
Sale of Argentine assets, net of tax of $68		128			—			—
Sale of Brazilian assets, net of tax of $20		36			—			—
Other foreign currency translations, net of tax of $2 in 2007, $9 in 2006, and $- in 2005		5			16			6
Redemption of preferred stock, net of tax benefit of $1		(1	)		—			—
Total Comprehensive Loss	$	(42	)	$	(102	)	$	(36	)

The accompanying notes are an integral part of these statements.

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CMS-43

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1: CORPORATE STRUCTURE AND ACCOUNTING POLICIES

Corporate Structure: CMS Energy is an energy company operating primarily in Michigan. We are the parent holding company of Consumers and Enterprises. Consumers is a combination electric and gas utility company serving in Michigan’s Lower Peninsula. Enterprises, through various subsidiaries and equity investments, is engaged primarily in domestic independent power production. We manage our businesses by the nature of services each provides and operate principally in three business segments: electric utility, gas utility, and enterprises.

Principles of Consolidation: The consolidated financial statements include CMS Energy, Consumers, Enterprises, and all other entities in which we have a controlling financial interest or are the primary beneficiary, in accordance with FIN 46(R). We use the equity method of accounting for investments in companies and partnerships that are not consolidated, where we have significant influence over operations and financial policies, but are not the primary beneficiary. We eliminate intercompany transactions and balances.

Use of Estimates: We prepare our consolidated financial statements in conformity with U.S. GAAP. We are required to make estimates using assumptions that may affect the reported amounts and disclosures. Actual results could differ from those estimates.

We record estimated liabilities for contingencies in our consolidated financial statements when it is probable that a liability has been incurred, and when the amount of loss can be reasonably estimated. For additional details, see Note 3, Contingencies.

Revenue Recognition Policy: We recognize revenues from deliveries of electricity and natural gas, and from the transportation, processing, and storage of natural gas when services are provided. We record unbilled revenues for the estimated amount of energy delivered to customers but not yet billed. We record sales tax on a net basis and exclude it from revenues. We recognize revenues on sales of marketed electricity, natural gas, and other energy products at delivery. For trading and non-trading energy contracts that qualify as derivatives, we recognize changes in the fair value of those contracts (mark-to-market gains and losses) in earnings as the changes occur.

Accounting for Legal Fees: We expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed. This policy also applies to fees incurred on behalf of employees and officers related to indemnification agreements; such fees are billed directly to us.

Accounting for MISO Transactions: MISO requires that we submit hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. Consumers and CMS ERM account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, and net transactions across all MISO energy market locations. We record net purchases in a single hour in “Purchased and interchange power” and net sales in a single hour in “Operating Revenue” in the Consolidated Statements of Income (Loss). We record net sale billing adjustments when we receive invoices. We record expense accruals for future net purchases adjustments based on historical experience, and reconcile accruals to actual expenses when we receive invoices.

Capitalized Interest: We capitalize interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Capitalization of interest is limited to the actual interest cost incurred. Consumers capitalizes AFUDC on regulated construction projects and includes these amounts in plant in service.

Cash Equivalents and Restricted Cash: Cash equivalents are all liquid investments with an original maturity of three months or less.

At December 31, 2007, our restricted cash on hand was $34 million. We classify restricted cash dedicated for repayment of Securitization bonds as a current asset, as the related payments occur within one year.

Collective Bargaining Agreements: At December 31, 2007, the Utility Workers of America Union represented 46 percent of Consumers’ employees. The Union represents Consumers’ operating, maintenance, construction, and call center employees.

CMS-44

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Determination of Pension MRV of Plan Assets: We determine the MRV for pension plan assets, as defined in SFAS No. 87, as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into MRV until future years. We reflect each year’s assets gain or loss in MRV in equal amounts over a five-year period beginning on the date the original amount was determined. We use the MRV in the calculation of net pension cost.

Earnings Per Share: We calculate basic and diluted EPS using the weighted-average number of shares of common stock and dilutive potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted EPS, includes the effects of dilutive stock options, warrants and convertible securities. We compute the effect on potential common stock using the treasury stock method or the if-converted method, as applicable. Diluted EPS excludes the impact of antidilutive securities, which are those securities resulting in an increase in EPS or a decrease in loss per share. For EPS computation, see Note 5, Earnings Per Share.

Financial and Derivative Instruments: We record debt and equity securities classified as available-for-sale at fair value determined primarily from quoted market prices. On a specific identification basis, we report unrealized gains and losses from changes in fair value of certain available-for-sale debt and equity securities, net of tax, in equity as part of AOCL. We exclude unrealized losses from earnings unless the related changes in fair value are determined to be other than temporary. We reflected unrealized gains and losses on our nuclear decommissioning investments as regulatory liabilities on our Consolidated Balance Sheets.

In accordance with SFAS No. 133, if a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on our Consolidated Balance Sheets at its fair value. If a derivative qualifies for cash flow hedge accounting, we report changes in its fair value in AOCL; otherwise, we report the changes in earnings.

For additional details regarding financial and derivative instruments, see Note 6, Financial and Derivative Instruments.

Goodwill: Goodwill is the excess of the purchase price over the fair value of the net assets of acquired companies. We test goodwill annually for impairment. We eliminated our goodwill in 2007 with the sale of several Enterprises businesses.

The changes in the carrying amount of goodwill at the Enterprises segment for the years ended December 31, 2006 and 2007 are included in the following table:

	In Millions
Balance at January 1, 2006	$	27
Currency translation adjustment		(1	)
Balance at December 31, 2006	$	26
Currency translation adjustment		2
Sale of CMS Energy Brasil S.A.		(28	)
Balance at December 31, 2007	$	—

Impairment of Long-Lived Assets and Equity Method Investments: We periodically perform tests of impairment if certain triggering events occur, or if there has been a decline in value that may be other than temporary.

A long-lived asset held-in-use is evaluated for impairment by calculating the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the carrying amount, we recognize an impairment loss equal to the amount by which the carrying amount exceeds the fair value. We estimate the fair value of the asset using quoted market prices, market prices of similar assets, or discounted future cash flow analyses.

We also assess our equity method investments for impairment whenever there has been a decline in value that is other than temporary. This assessment requires us to determine the fair values of our equity method investments. We determine fair value using valuation methodologies, including discounted cash flows, and we assess the ability of the

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investee to sustain an earnings capacity that justifies the carrying amount of the investment. We record an impairment if the fair value is less than the carrying value and the decline in value is considered to be other than temporary.

For additional details, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

International Operations and Foreign Currency: Our subsidiaries and affiliates whose functional currency is not the U.S. dollar translate their assets and liabilities into U.S. dollars at the exchange rates in effect at the end of the fiscal period. We translate revenue and expense accounts of such subsidiaries and affiliates into U.S. dollars at the average exchange rates that prevailed during the period. We show these foreign currency translation adjustments in the stockholders’ equity section on our Consolidated Balance Sheets. We include exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those that are hedged, in determining net income.

We completed the sale of our international assets in 2007. For additional details, see Note 2, Asset Sales, Discontinued Operations, and Impairment Charges.

Inventory: We use the weighted-average cost method for valuing working gas, recoverable cushion gas in underground storage facilities, and materials and supplies inventory. We also use this method for valuing coal inventory, and we classify these costs as generating plant fuel stock on our Consolidated Balance Sheets.

We classify emission allowances as materials and supplies inventory and use the average cost method to remove amounts from inventory as the emission allowances are used to generate power.

Maintenance and Depreciation: We charge property repairs and minor property replacement to maintenance expense. We use the direct expense method to account for planned major maintenance activities. We charge planned major maintenance activities to operating expense unless the cost represents the acquisition of additional components or the replacement of an existing component. We capitalize the cost of plant additions and replacements.

We depreciate utility property using a composite method, in which we apply a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas divisions. We perform depreciation studies periodically to determine appropriate group lives. The composite depreciation rates for our properties are as follows:

Years Ended December 31	2007			2006			2005
Electric utility property		3.0	%		3.1	%		3.1%
Gas utility property		3.6	%		3.6	%		3.6%
Other property		8.7	%		8.2	%		7.6%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other Income and Other Expense: The following tables show the items we report in Other income and Other expense:

Years Ended December 31	2007		2006		2005
	In Millions
Other income
Interest and dividends — related parties	$	—	$	8	$	9
Gain on SERP investment		22		—		—
Return on stranded and security costs		6		5		6
MCV Partnership emmission allowance sales		—		8		2
Electric restructuring return		2		4		6
Gain on investment		7		1		—
Settlement of contingent liability		—		—		3
Refund of surety bond premium		—		1		—
All other		3		4		7
Total other income	$	40	$	31	$	33

Years Ended December 31	2007			2006			2005
	In Millions
Other expense
Accretion expense	$	—		$	(4	)	$	(18	)
Loss on SERP investment		—			—			(2	)
Loss on reacquired and extinguished debt		(22	)		(5	)		(16	)
Abandoned Midland project		(8	)		—			—
Derivative loss on debt tender offer		(3	)		—			—
Civic and political expenditures		(2	)		(2	)		(2	)
Donations		—			(9	)		—
All other		(4	)		(1	)		(7	)
Total other expense	$	(39	)	$	(21	)	$	(45	)

Property, Plant, and Equipment: We record property, plant, and equipment at original cost when placed into service. When regulated assets are retired, or otherwise disposed of in the ordinary course of business, we charge the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. We recognize gains or losses on the retirement or disposal of non-regulated assets in income. For additional details, see Note 8, Asset Retirement Obligations and Note 12, Property, Plant, and Equipment. Cost of removal collected from our customers, but not spent, is recorded as a regulatory liability.

We capitalize AFUDC on regulated major construction projects. AFUDC represents the estimated cost of debt and a reasonable return on equity funds used to finance construction additions. We record the offsetting credit of AFUDC capitalized as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component in the Consolidated Statements of Income (Loss). When construction is completed and the property is placed in service, we depreciate and recover the capitalized AFUDC from our customers over the life of the related asset. The following table shows our electric, gas and common composite AFUDC capitalization rates:

Years Ended December 31	2007			2006			2005
Composite AFUDC capitalization rate		7.4	%		7.5	%		7.6%

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Reclassifications: We have reclassified certain prior-period amounts on our Consolidated Financial Statements to conform to the presentation for the current period. These reclassifications did not affect consolidated net loss or cash flows for the periods presented. The most significant of these reclassifications is related to certain subsidiaries reclassified as “held for sale” on our Consolidated Balance Sheets and activities of those subsidiaries as Income (Loss) From Discontinued Operations in our Consolidated Statements of Income (Loss). For additional details, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges, “Discontinued Operations.”

Trade Receivables and Notes Receivable: Accounts receivable are primarily composed of trade receivables and unbilled receivables. We record our accounts receivable at cost which approximates fair value. Unbilled receivables were $490 million in 2007 and $355 million in 2006. We establish an allowance for uncollectible accounts and loan losses based on historical losses and management’s assessment of existing economic conditions, customer trends, and other factors. We assess late payment fees on trade receivables based on contractual past-due terms established with customers. We charge accounts deemed uncollectible to operating expense.

Unamortized Debt Premium, Discount, and Expense: We capitalize premiums, discounts, and costs of long-term debt and amortize those costs over the terms of the debt issues. For the non-regulated portions of our businesses, we expense any refinancing costs as incurred. For the regulated portions of our businesses, if we refinance debt, we capitalize any remaining unamortized premiums, discounts, and expenses and amortize them over the terms of the newly issued debt.

Utility Regulation: Consumers is subject to the actions of the MPSC and FERC and prepare its consolidated financial statements in accordance with the provisions of SFAS No. 71. As a result, Consumers may defer or recognize revenues and expenses differently than a non-regulated entity. For example, Consumers may record as regulatory assets items that a non-regulated entity normally would expense if the actions of the regulator indicate such expenses will be recovered in future rates. Conversely, Consumers may record as regulatory liabilities items that non-regulated entities may normally recognize as revenues if the actions of the regulator indicate they will require that such revenues be refunded to customers.

We reflect the following regulatory assets and liabilities, which include both current and non-current amounts, on our Consolidated Balance Sheets at December 31, 2007.

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December 31	End of Recovery Period	2007		2006
	In Millions
Assets Earning a Return:
Customer Choice Act	2010	$	149	$	190
Unamortized debt costs	2035		74		86
Stranded Costs	See Note 3		68		65
Electric restructuring implementation plan	2008		14		40
Manufactured gas plant sites (Note 3)	2016		33		15
Abandoned Midland project	n/a		—		9
Other(a)	various		50		21
Assets Not Earning a Return:
SFAS No. 158 transition adjustment (Note 7)	various		851		1,038
Securitized costs (Note 4)	2015		466		514
Postretirement benefits (Note 7)	2011		89		112
ARO (Note 8)	n/a		85		177
Big Rock nuclear decommissioning and	n/a		129		35
related costs (Note 3)
Manufactured gas plant sites (Note 3)	n/a		17		41
Palisades sales transaction costs (Note 2)	n/a		28		—
Other(a)	2011		6		8
Total regulatory assets(b)		$	2,059	$	2,351
Palisades refund — Current (Note 2)(c)		$	164	$	—
Cost of removal (Note 8)			1,127		1,166
Income taxes, net (Note 9)			533		539
ARO (Note 8)			141		180
Palisades refund — Noncurrent (Note 2)(c)			140		—
Other(a)			32		69
Total regulatory liabilities(b)		$	2,137	$	1,954

(a)	At December 31, 2007 and 2006, other regulatory assets include a gas inventory regulatory asset and OPEB and pension expense incurred in excess of the MPSC-approved amount. Consumers will recover these regulatory assets from its customers by 2011. Other regulatory liabilities include liabilities related to the sale of sulfur dioxide allowances and AFUDC collected in excess of the MPSC-approved amount.
(b)	At December 31, 2007, we classified $19 million of regulatory assets as current regulatory assets and $2.040 billion of regulatory assets as non-current regulatory assets. At December 31, 2006, we classified $19 million of regulatory assets as current regulatory assets and $2.332 billion of regulatory assets as non-current regulatory assets. At December 31, 2007, we classified $164 million of regulatory liabilities as current regulatory liabilities and $1.973 billion of regulatory liabilities as non-current regulatory liabilities. At December 31, 2006, all of our regulatory liabilities represented non-current regulatory liabilities.
(c)	The MPSC order approving the Palisades and Big Rock ISFSI transaction requires that Consumers credits $255 million of excess proceeds and decommissioning amounts to its retail customers beginning in June 2007 through December 2008. The current portion of regulatory liabilities for Palisades refunds represents the remaining portion of this obligation, plus interest. There are additional excess sales proceeds and

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decommissioning fund balances above the amount in the MPSC order. The non-current portion of regulatory liabilities for Palisades refunds represents this obligation, plus interest. For additional details on the sale of Palisades and the Big Rock ISFSI, see Note 2, Asset Sales, Discountinued Operations, and Impairment Charges.

The PSCR and GCR cost recovery mechanisms also represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process. Underrecoveries are included in Accrued power supply and gas revenue and overrecoveries are included in Accrued rate refunds on our Consolidated Balance Sheets. For additional details on PSCR, see Note 3, Contingencies, “Consumers’ Electric Utility Rate Matters — Power Supply Costs” and for additional details on GCR, see Note 3, Contingencies, “Consumers’ Gas Utility Rate Matters — Gas Cost Recovery.”

We reflect the following regulatory assets and liabilities for underrecoveries and overrecoveries on our Consolidated Balance Sheets:

Years Ended December 31	2007		2006
	In Millions
Regulatory Assets for PSCR and GCR
Underrecoveries of power supply costs	$	45	$	156
Regulatory Liabilities for PSCR and GCR
Overrecoveries of gas	$	19	$	37

New Accounting Standards Not Yet Effective: SFAS No. 157, Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, effective for us on January 1, 2008. The standard provides a revised definition of fair value and establishes a framework for measuring fair value. Under the standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly exchange between market participants. The standard does not expand the use of fair value, but it requires new disclosures about the impact and reliability of fair value measurements. The standard will also eliminate the existing prohibition against recognizing “day one” gains and losses on derivative instruments. We currently do not hold any derivatives that would involve day one gains or losses. The standard is to be applied prospectively, except that limited retrospective application is required for three types of financial instruments, none of which we currently hold. We do not believe that the implementation of this standard will have a material effect on our consolidated financial statements.

In February 2008, the FASB issued a one-year deferral of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recorded or disclosed at fair value on a recurring basis. Under this partial deferral, SFAS No. 157 will not be effective until January 1, 2009 for fair value measurements in the following areas:

•  AROs,

•  most of the nonfinancial assets and liabilities acquired in a business combination, and

•  fair value measurements performed in conjunction with impairment analyses.

SFAS No. 157 remains effective January 1, 2008 for our derivative instruments, available-for-sale investment securities, and long-term debt fair value disclosures.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment to FASB Statement No. 115: In February 2007, the FASB issued SFAS No. 159, effective for us on January 1, 2008. This standard gives us the option to measure certain financial instruments and other items at fair value, with changes in fair value recognized in earnings. We do not expect to elect the fair value option for any financial instruments or other items.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51: In December 2007, the FASB issued SFAS No. 160, effective for us January 1, 2009. Ownership interests in

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subsidiaries held by third parties, which are currently referred to as minority interests, will be presented as noncontrolling interests and shown separately on our Consolidated Balance Sheets within equity. Any changes in our ownership interests while control is retained will be treated as equity transactions. In addition, this standard requires presentation and disclosure of the allocation between controlling and noncontrolling interests’ income from continuing operations, discontinued operations, and comprehensive income and a reconciliation of changes in the consolidated statement of equity during the reporting period. The presentation and disclosure requirements of the standard will be applied retrospectively for all periods presented. All other requirements will be applied prospectively. We are evaluating the impact SFAS No. 160 will have on our consolidated financial statements.

FSP FIN 39-1, Amendment of FASB Interpretation No. 39: In April 2007, the FASB issued FSP FIN 39-1, effective for us on January 1, 2008. This standard will permit us to offset the fair value of derivative instruments with cash collateral received or paid for those derivative instruments executed with the same counterparty under a master netting arrangement. The decision to offset derivative positions under master netting arrangements remains an accounting policy choice. We have elected to offset our derivative fair values under master netting arrangements, but we currently record cash collateral amounts separately. As a result of offsetting the collateral amounts under this standard, we expect that both our total assets and total liabilities will be reduced by an immaterial amount. There will be no impact on earnings from adopting this standard. The standard is to be applied retrospectively for all periods presented in our consolidated financial statements.

EITF Issue 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards: In June 2007, the FASB ratified EITF Issue 06-11, effective for us on a prospective basis beginning January 1, 2008. EITF Issue 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards. We do not believe that implementation of this standard will have a material effect on our consolidated financial statements.

2: ASSET SALES, DISCONTINUED OPERATIONS AND IMPAIRMENT CHARGES

Asset Sales

The impacts of our asset sales are included in Gain on asset sales, net and Income (Loss) from Discontinued Operations in our Consolidated Statements of Income (Loss).

The following table summarizes our 2007 asset sales:

							Disposal of
				Continuing			Discontinued
				Operations			Operations
		Cash		Pretax			Pretax
Month sold	Business	Proceeds		Gain (Loss)			Gain (Loss)
		In Millions
March	El Chocon(a)	$	50	$	34		$	—
March	Argentine/Michigan businesses(b)		130		(5	)		(278	)
April	Palisades(c)		333		—			—
April	SENECA(d)		106		—			46
May	Middle East, Africa, and India businesses(e)		792		(15	)		96
June	CMS Energy Brasil S.A.(f)		201		—			3
August	GasAtacama(g)		80		—			—
October	Jamaica(h)		14		1			—
Various	Other		11		6			—
	Total	$	1,717	$	21		$	(133	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(a)	We sold our interest in El Chocon to Endesa, S.A.
(b)	We completed the sale of a portfolio of our businesses in Argentina and our northern Michigan non-utility natural gas assets to Lucid Energy. We also entered into agreements that grant Lucid Energy:

•  an option to buy CMS Gas Transmission’s ownership interest in TGN, subject to the rights of other third parties,

•  the rights to certain proceeds that may be awarded and received by CMS Gas Transmission in connection with certain legal proceedings, including an ICSID arbitration award, and

•  the rights to proceeds that Enterprises will receive if it sells its interest in CMS Generation San Nicolas Company.

	Under these agreements, we have assigned our rights to certain awards or proceeds that we may receive in the future. Of the total consideration received in the sale, we allocated $32 million to these agreements and recorded this amount as a deferred credit on our Consolidated Balance Sheets. Due to the settlement of certain legal proceedings in 2007, a portion of CMS Gas Transmission’s obligations under these agreements has been satisfied. Accordingly, we recognized $17 million of the deferred credit as a gain.
	For details on the ICSID arbitration award, see Note 3, Contingencies.
(c)	In April 2007, we sold Palisades to Entergy for $380 million, and received $363 million after various closing adjustments such as working capital and capital expenditure adjustments and nuclear fuel usage and inventory adjustments. We also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. Because of the sale of Palisades, we paid the NMC, the former operator of Palisades, $7 million in exit fees and forfeited our $5 million investment in the NMC.
	Entergy assumed responsibility for the future decommissioning of Palisades and for storage and disposal of spent nuclear fuel located at Palisades and the Big Rock ISFSI sites. At closing, we transferred $252 million in decommissioning trust fund balances to Entergy. We are presently crediting excess decommissioning funds, which totaled $189 million to our retail customers through the end of 2008. Modification to the terms of the transaction allowed us immediate access to additional excess decommissioning trust funds of $123 million. The distribution of these funds is currently under review by the MPSC in our electric rate case filing. We have recorded this obligation, plus interest, as a regulatory liability on our Consolidated Balance Sheets.
	The MPSC order approving the Palisades transaction allows us to recover the book value of Palisades. As a result, we are presently crediting proceeds in excess of book value of $66 million to our retail customers through the end of 2008. After closing adjustments, which are subject to MPSC review, proceeds in excess of the book value were $77 million. We recorded the excess proceeds as a regulatory liability on our Consolidated Balance Sheets. Recovery of our transaction costs of $28 million, which includes the NMC exit fees and investment forfeiture, is presently under review by the MPSC in our current electric rate case. We recorded these costs as a regulatory asset on our Consolidated Balance Sheets as recovery is probable.
	We accounted for the disposal of Palisades as a financing for accounting purposes and thus we recognized no gain on the Consolidated Statements of Income (Loss). We accounted for the remaining non-real estate assets and liabilities associated with the transaction as a sale. For additional details on the Palisades finance obligation, see Note 11, Leases.
(d)	We sold our ownership interest in SENECA and certain associated generating equipment to PDVSA, which is owned by the Bolivarian Republic of Venezuela.
(e)	We sold our ownership interest in businesses in the Middle East, Africa, and India to TAQA. Gross proceeds from the sale included $792 million in cash proceeds and TAQA’s assumption of $108 million in debt. Businesses included in the sale were Takoradi, Taweelah, Shuweihat, Jorf Lasfar, Jubail, and Neyveli.
(f)	We sold CMS Energy Brasil S.A. to CPFL Energia S.A., a Brazilian utility. Gross proceeds included $201 million in cash proceeds and CPFL Energia S.A.’s assumption of a $10 million tax liability.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(g)	We sold our investment in GasAtacama to Endesa S.A.
(h)	We sold our investment in Jamaica to AEI.

For the year ended December 31, 2006, we sold the following assets:

				Continuing
				Operations
		Gross Cash		Pretax
Month sold	Business/Project	Proceeds		Gain
		In Millions
October	Land in Ludington, Michigan(a)	$	6	$	2
November	MCV GP II(b)		61		77
Various	Other		2		—
	Total	$	69	$	79

(a)	We sold 36 parcels of land near Ludington, Michigan. Consumers held a majority share of the land, which we co-owned with DTE Energy.
(b)	In November 2006, we sold all of our interests in the Consumers’ subsidiaries that held the MCV Partnership and the MCV Facility to an affiliate of GSO Capital Partners and Rockland Capital Energy Investments.

Because of the MCV PPA, the transaction is a sale and leaseback for accounting purposes. SFAS No. 98 specifies the accounting required for a seller’s sale and simultaneous leaseback involving real estate. We have continuing involvement with the MCV Partnership through an existing guarantee associated with the future operations of the MCV Facility. As a result, we accounted for the MCV Facility as a financing for accounting purposes and not a sale. The value of the finance obligation was based on an allocation of the transaction proceeds to the fair values of the net assets sold and fair value of the MCV Facility under the financing. The total proceeds of $61 million (excluding $3 million of selling expenses) were less than the fair value of the net assets sold. As a result, there were no proceeds remaining to allocate to the MCV Facility; therefore, we recorded no finance obligation.

The transaction resulted in an after-tax loss of $41 million, which includes a reclassification of $30 million of AOCI into earnings, an $80 million impairment charge on the MCV Facility, an $8 million gain on the removal of our interests in the MCV Partnership and the MCV Facility, and $1 million benefit in general taxes. Upon the sale of our interests in the MCV Partnership and the FMLP, we were no longer the primary beneficiary of these entities and the entities were deconsolidated.

For the year ended December 31, 2005, we sold the following assets:

				Continuing
				Operations
		Gross Cash		Pretax
Month sold	Business/Project	Proceeds		Gain
		In Millions
February	GVK	$	21	$	4
April	SLAP		23		2
April	Gas turbine and auxiliary equipment		15		—
Various	Other		2		—
	Total	$	61	$	6

Discontinued Operations

In accordance with SFAS No. 144, our consolidated financial statements have been reclassified for all periods presented to reflect the operations, assets and liabilities of our consolidated subsidiaries that meet the criteria of

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discontinued operations. The assets and liabilities of these subsidiaries have been classified as “Assets held for sale” and “Liabilities held for sale” on our December 31, 2006 Consolidated Balance Sheets. Subsidiaries classified as “held for sale” at December 31, 2006 include our Argentine businesses, a majority of our Michigan non-utility gas businesses, CMS Energy Brasil S.A., SENECA, Takoradi, and certain associated holding companies. At December 31, 2007, there were no subsidiaries classified as “held for sale” due to the completion of these sales in the first and second quarters of 2007.

The major classes of assets and liabilities “held for sale” on our December 31, 2006 Consolidated Balance Sheet are as follows:

	In Millions
Assets
Cash	$	102
Accounts receivable, net		105
Notes receivable		110
Goodwill		25
Investments		33
Property, plant and equipment, net		233
Other		43
Total assets	$	651
Liabilities
Accounts payable	$	82
Accrued taxes		30
Minority interest		40
Other		51
Total liabilities	$	203

Our discontinued operations contain the activities of the subsidiaries classified as “held for sale” as well as those disposed of for the year ended December 31, 2007 and are a component of our Enterprises business segment. We reflect the following amounts in the Income (Loss) From Discontinued Operations line in our Consolidated Statements of Income (Loss):

Years Ended December 31	2007			2006		2005
	In Millions
Revenues	$	235		$	684	$	409
Discontinued operations:
Pretax income (loss) from discontinued operations	$	(90	)	$	86	$	77
Income tax expense (benefit)		(1	)		32		20
Income (Loss) From Discontinued Operations	$	(89	)(a)	$	54	$	57

(a)

Includes a loss on disposal of our Argentine and northern Michigan non-utility assets of $278 million ($171 million after-tax and after minority interest), a gain on disposal of SENECA of $46 million ($33 million after-tax and after minority interest), a gain on disposal of our ownership interest in businesses in the Middle East, Africa, and India of $96 million ($62 million after-tax), and a gain on disposal of CMS Energy Brasil S.A. of $3 million ($2 million after-tax).

Income (Loss) From Discontinued Operations includes a provision for anticipated closing costs and a portion of CMS Energy’s parent company interest expense. Interest expense of $7 million for 2007, $17 million for 2006, and $16 million for 2005 has been allocated based on the net book value of the asset to be sold divided by CMS Energy’s total capitalization of each discontinued operation multiplied by CMS Energy’s interest expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Impairment Charges

The table below summarizes our asset impairments:

Years Ended December 31	2007		2006		2005
	In Millions
Asset impairments:
Enterprises:
TGN(a)	$	140	$	—	$	—
GasAtacama(b)		35		239		—
Jamaica(c)		22		—		—
PowerSmith(d)		5		—		—
Prairie State(e)		2		—		—
MCV Partnership(f)		—		218		1,184
Other		—		2		—
Total asset impairments	$	204	$	459	$	1,184

(a)	In the first quarter of 2007, we recorded a $215 million impairment charge to recognize the reduction in fair value of our investment in TGN, a natural gas business in Argentina. The impairment included a cumulative net foreign currency translation loss of approximately $197 million.
	In December 2005, certain insurance underwriters paid $75 million to CMS Gas Transmission in respect of their insurance obligations resulting from the non-payment of the ICSID award. We recorded this payment as a deferred credit on our Consolidated Balance Sheets because of a contingent obligation to refund the proceeds if the arbitration decision was annulled. In September 2007, the contingent repayment obligation was eliminated by agreement and a separate arbitration panel ruling on the annulment issue upheld the prior ICSID award. As a result, we recognized the $75 million deferred credit in Asset impairment charges, net of insurance recoveries on our Consolidated Statements of Income (Loss). For additional details on this settlement, see Note 3, Contingencies, “Other Contingencies — Argentina.”
(b)	In August 2006, a major gas supplier notified GasAtacama that it would no longer deliver gas to GasAtacama due to the Argentine government’s decision to increase the cost of its gas exports using a special tax. We performed an impairment analysis of our investment in GasAtacama and concluded that there had been a decline in fair value that was other than temporary. We recorded an impairment charge in the third quarter of 2006. As a result, our consolidated net income was reduced by $169 million, net of tax and minority interest.
	In the second quarter of 2007, we recorded a further impairment charge to reflect expected proceeds from the pending sale of our investment in GasAtacama.
(c)	In the first quarter of 2007, we recorded an impairment charge to reflect the fair value of our investment in an electric generating plant in Jamaica by discounting a set of probability-weighted streams of future operating cash flows.
(d)	In the first quarter of 2007, we recorded an impairment charge to reflect the fair value of our investment in PowerSmith as determined in sale negotiations.
(e)	In the second quarter of 2007, we recorded an impairment charge to reflect our withdrawal from the co-development of Prairie State with Peabody Energy because it did not meet our investment criteria.
(f)	In November 2006, we recorded an impairment charge of $218 million to recognize the reduction in fair value of the MCV Facility’s real estate assets. The result was an $80 million reduction to our consolidated net income after considering tax effects and minority interest.
	In the third quarter of 2005, based on forecasts for higher natural gas prices, the MCV Partnership determined an impairment analysis considering revised forward natural gas price assumptions was required. The MCV Partnership determined the fair value of its fixed assets by discounting a set of probability-weighted streams of future operating cash flows. The carrying value of the MCV Partnership’s fixed assets exceeded the estimated

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fair value resulting in impairment charges of $1.159 billion to recognize the reduction in fair value of the MCV Facility’s fixed assets and $25 million of interest capitalized during the construction of the MCV Facility. Our 2005 consolidated net income was reduced by $385 million, after considering tax effects and minority interest.

We report our interests in the MCV Partnership as a component of our “Enterprises” business segment.

3: CONTINGENCIES

DOJ Investigation: From May 2000 through January 2002, CMS MST engaged in simultaneous, prearranged commodity trading transactions in which energy commodities were sold and repurchased at the same price. These transactions, referred to as round-trip trades, had no impact on previously reported consolidated net income, EPS or cash flows, but had the effect of increasing operating revenues and operating expenses by equal amounts. CMS Energy is cooperating with an investigation by the DOJ concerning round-trip trading, which the DOJ commenced in May 2002. CMS Energy is unable to predict the outcome of this matter and what effect, if any, this investigation will have on its business.

SEC Investigation and Settlement: In March 2004, the SEC approved a cease-and-desist order settling an administrative action against CMS Energy related to round-trip trading. The order did not assess a fine and CMS Energy neither admitted to nor denied the order’s findings. The settlement resolved the SEC investigation involving CMS Energy and CMS MST. Also in March 2004, the SEC filed an action against three former employees related to round-trip trading at CMS MST. One of the individuals has settled with the SEC. CMS Energy is currently advancing legal defense costs for the remaining two individuals in accordance with existing indemnification policies. The two individuals filed a motion to dismiss the SEC action, which was denied.

Securities Class Action Settlement: Beginning in May 2002, a number of complaints were filed against CMS Energy, Consumers and certain officers and directors of CMS Energy and its affiliates in the United States District Court for the Eastern District of Michigan. The cases were consolidated into a single lawsuit (the “Shareholder Action”), which generally seeks unspecified damages based on allegations that the defendants violated United States securities laws and regulations by making allegedly false and misleading statements about CMS Energy’s business and financial condition, particularly with respect to revenues and expenses recorded in connection with round-trip trading by CMS MST. In January 2005, the court granted a motion to dismiss Consumers and three of the individual defendants, but denied the motions to dismiss CMS Energy and the 13 remaining individual defendants. In March 2006, the court conditionally certified a class consisting of “all persons who purchased CMS Common Stock during the period of October 25, 2000 through and including May 17, 2002 and who were damaged thereby.” The court excluded purchasers of CMS Energy’s 8.75 percent Adjustable Convertible Trust Securities (“ACTS”) from the class and, in response, a new class action lawsuit was filed on behalf of ACTS purchasers (the “ACTS Action”) against the same defendants named in the Shareholder Action. The settlement described in the following paragraph has resolved both the Shareholder and ACTS Actions.

On January 3, 2007, CMS Energy and other parties entered into a Memorandum of Understanding (the “MOU”), subject to court approval, regarding settlement of the two class action lawsuits. The settlement was approved by a special committee of independent directors and by the full Board of Directors. Both judged that it was in the best interests of shareholders to eliminate this business uncertainty. Under the terms of the MOU, the litigation was settled for a total of $200 million, including the cost of administering the settlement and any attorney fees the court awards. CMS Energy made a payment of approximately $123 million plus interest on the settlement amount on September 20, 2007. CMS Energy’s insurers paid $77 million, the balance of the settlement amount. In entering into the MOU, CMS Energy made no admission of liability under the Shareholder Action and the ACTS Action. The parties executed a Stipulation and Agreement of Settlement dated May 22, 2007 (“Stipulation”) incorporating the terms of the MOU. In accordance with the Stipulation, CMS Energy paid approximately $1 million of the settlement amount to fund administrative expenses. On September 6, 2007, the court issued a final order approving the settlement. The remaining settlement amount was paid following the September 6, 2007 hearing.

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Gas Index Price Reporting Investigation: 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 November 2003, and CMS Energy completed its response to this request in May 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business. The CFTC filed a civil injunctive action against two former CMS Field Services employees in Oklahoma federal district court on February 1, 2005. The action alleged the two engaged in reporting false natural gas trade information, and sought to prohibit these acts, compel compliance with the Commodities Exchange Act, and impose monetary penalties. The court entered separate consent orders with respect to each of the two individuals, one dated April 18, 2007 and one dated June 25, 2007, resolving this litigation. The consent orders prohibit each of the individuals from engaging in certain activities and further provide civil monetary penalties in the amount of $100,000 for one individual and $25,000 for the other individual. Pursuant to agreements with each of the individuals, CMS Energy has paid $95,000 of the $100,000 amount and $22,000 of the $25,000 amount, with the remaining amounts paid by the individuals themselves.

Gas Index Price Reporting Litigation: CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company are named as defendants in various lawsuits arising as a result of claimed inaccurate natural gas price reporting. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin. CMS MST has settled a master class action suit in California state court for $7 million. The CMS Energy defendants have also settled four class action suits originally filed in California federal court. The other cases in several state jurisdictions remain pending. We cannot predict the financial impact or outcome of these matters.

Katz Technology Litigation: In June 2007, RAKTL filed a lawsuit in the United States District Court for the Eastern District of Michigan against CMS Energy and Consumers alleging patent infringement. RAKTL claimed that automated customer service, bill payment services and gas leak reporting offered to our customers and accessed through toll free numbers infringe on patents held by RAKTL. On January 15, 2008, Consumers and CMS Energy reached an agreement in principle with RAKTL to settle the litigation. We expect to finalize the terms of the settlement and license by late February 2008. We believe any settlement with RAKTL will be immaterial.

Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, pursuant to 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 remedial actions, including removing abandoned buildings and equipment; consolidating, shaping and covering CKD piles with soil and vegetation; removing CKD from streams and beaches; and constructing a leachate collection system at an identified seep. Leachate is formed when water passes through CKD. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnifications entered into at the start of the project.

In September 2004, the MDEQ issued a notice of noncompliance after finding high-pH leachate in Lake Michigan adjacent to the property. The MDEQ also alleged higher than acceptable levels of heavy metals, including mercury, in the leachate flow.

In 2005, the EPA along with CMS Land and CMS Capital executed an AOC and approved a Removal Action Work Plan to address problems at Bay Harbor. Among other things, the plan called for the installation of collection trenches to capture high-pH leachate flow to the lake. Collection systems required under the plan have been installed and shoreline monitoring is ongoing. CMS Land and CMS Capital are required to address observed exceedances in pH, including required enhancements of the collection system. In May 2006, the EPA approved a pilot carbon dioxide enhancement plan to improve pH results in a specific area of the collection system. The

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enhanced system was installed in June 2006. CMS Land and CMS Capital also engaged in other enhancements of the installed collection systems.

In November 2007, the EPA sent CMS Land and CMS Capital a letter identifying three separate areas representing approximately 700 feet of shoreline in which the EPA claimed pH levels were unacceptable. The letter also took the position that CMS Land and CMS Capital are required to remedy the claimed noncompliance. CMS Land and CMS Capital submitted a formal objection to the EPA’s conclusions. In their objections, CMS Land and CMS Capital noted that the AOC did not require perfection and that over 97 percent of the measured pH levels were in the correct range. Further, the limited number of exceedances were not much above the pH nine level set by the AOC and posed no threat to the public health and safety. In addition, CMS Land and CMS Capital noted in their objection that the actions they had already taken fully complied with the terms of the AOC. In January 2008, the EPA advised CMS Land and CMS Capital that it had rejected their objections, and that CMS Land and CMS Capital were obligated to submit a plan to augment measures to collect high pH leachate under the terms of the November 2007 EPA letter as modified in the January 2008 letter. CMS Land and CMS Capital submitted a proposed augmentation plan in February 2008.

In February 2006, CMS Land and CMS Capital submitted to the EPA a proposed Remedial Investigation and Feasibility Study (RIFS) for one of the CKD piles known as the East Park CKD pile. A similar RIFS is planned to be submitted for the remaining CKD piles in 2008. The EPA approved a schedule for near-term activities, which includes consolidating certain CKD materials and installing collection trenches in the East Park leachate release area. In June 2006, the EPA approved an East Park CKD Removal Action Work Plan and Final Engineering Design for Consolidation. However, the EPA has not approved the RIFS for the East Park.

As a result of the installation of collection systems at the Bay Harbor sites, CMS Land and CMS Capital are collecting and treating 135,000 gallons of liquid per day and shipping it by truck for disposal at a nearby well and at a municipal wastewater treatment plant located in Traverse City, Michigan. To address both short term and longer-term disposal of liquid, CMS Land has filed two permit applications with the MDEQ and the EPA, the first to treat the collected leachate at the Bay Harbor sites before releasing the water to Lake Michigan and the second to dispose of it in a deep injection well in Alba, Michigan, that CMS Land or its affiliate would own and operate. In February 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate to construct and operate a deep injection well near Alba, Michigan in eastern Antrim County. Certain environmental groups and a local township have indicated they may challenge these permits before the agencies or the courts.

CMS Land and CMS Capital, the MDEQ, and the EPA have ongoing discussions concerning the long-term remedy for the Bay Harbor sites. These negotiations are addressing, among other things, issues relating to the disposal of leachate, the location and design of collection lines and upstream diversion of water, potential flow of leachate below the collection system, applicable criteria for various substances such as mercury, and other matters that are likely to affect the scope of remedial work CMS Land and CMS Capital may be obliged to undertake. Negotiations have been ongoing for over a year, but CMS Land and CMS Capital have not been able to resolve these issues with the regulators and they remain pending.

CMS Land has entered into various access, purchase and settlement agreements with several of the affected landowners at Bay Harbor, and entered into a confidential settlement with one landowner to resolve a lawsuit filed by that landowner. We have received demands for indemnification relating to claims made by a property owner at Bay Harbor. CMS Land has purchased five unimproved lots and two lots with houses.

CMS Energy has recorded cumulative charges, including accretion expense, related to this matter of $140 million ($44 million of which was recorded in 2007). Several factors contributed to the need to revise remediation cost estimates in 2007. One of the major components of the revised remediation cost related to the disposal of collected liquid as discussed in preceding paragraphs. There has been a delay in the receipt of the Alba well permits from the schedule originally anticipated by CMS Land and CMS Capital, who also received an unfavorable response from the regulators concerning the plan to treat and release the leachate to Lake Michigan.

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Also, CMS Energy is recognizing a higher cost for operating and maintaining the existing collection system. In addition, CMS Land and CMS Capital have been unable to reach an agreement with the MDEQ and the EPA over the scope of necessary remedial work. Furthermore, the EPA’s issuance in November 2007 of its order requiring augmentation and accelerated actions regarding the high pH leachate recovery system caused CMS Land and CMS Capital to reconsider and modify their plans regarding the scope and schedule of the leachate collection systems and related shoreline work.

At December 31, 2007, CMS Energy has a recorded liability of $80 million for its remaining obligations. We calculated this liability based on discounted projected costs, using a discount rate of 4.45 percent and an inflation rate of 1 percent on annual operating and maintenance costs. We used the interest rate for 30-year U.S. Treasury securities for the discount rate. The undiscounted amount of the remaining obligation is $94 million. We expect to pay $18 million in 2008, $16 million in 2009, $9 million in 2010 and in 2011, and the remaining expenditures as part of long-term liquid disposal and operating and maintenance costs. Any significant change in circumstances or assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, continued inability to reach agreement with the MDEQ or EPA over required remedial actions, delays in the receipt of requested permits, delays following the receipt of any requested permits due to legal appeals of third parties, additional or new legal or regulatory requirements, or new or different landowner claims, could impact our estimate of remedial action costs and the timing of the expenditures. An adverse outcome of this matter could, depending on the size of any indemnification obligation or liability under environmental laws, have a potentially significant adverse effect on CMS Energy’s financial condition and liquidity and could negatively impact CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.

Consumers’ Electric Utility Contingencies

Electric Environmental Matters: Our operations are subject to environmental laws and regulations. Generally, we have been able to recover the costs to operate our facilities in compliance with these laws and regulations in customer rates.

Cleanup and Solid Waste: Under the NREPA, we will ultimately incur investigation and response activity costs at a number of sites. We believe that these costs will be recoverable in rates under current ratemaking policies.

We are a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. However, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on our experience, we estimate that our share of the total liability for most of our known Superfund sites will be between $1 million and $10 million. At December 31, 2007, we have recorded a liability for the minimum amount of our estimated probable Superfund liability in accordance with FIN 14.

The timing of payments related to our investigation and response activities at our Superfund and NREPA sites is uncertain. Any significant change in assumptions, such as different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect our estimate of response activity costs and the timing of our payments.

Ludington PCB: In October 1998, during routine maintenance activities, we identified PCB as a component in certain paint, grout, and sealant materials at Ludington. We removed and replaced part of the PCB material with non-PCB material. Since proposing a plan to deal with the remaining materials, we have had several conversations with the EPA. The EPA has proposed a rule that would allow us to leave the material in place, subject to certain restrictions. We are not able to predict when the EPA will issue a final ruling. We cannot predict the financial impact or outcome of this matter.

Electric Utility Plant Air Permit Issues: In April 2007, we received a Notice of Violation (NOV) /Finding of Violation (FOV) from the EPA alleging that fourteen of our utility boilers exceeded visible emission limits in their associated air permits. The utility boilers are located at the D.E. Karn/J.C. Weadock Generating Complex, J.H.

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Campbell Plant, B.C. Cobb Electric Generating Station and J.R. Whiting Plant, which are all located in Michigan. We have formally responded to the NOV/FOV denying the allegations and are awaiting the EPA’s response to our submission. We cannot predict the financial impact or outcome of this matter.

Litigation: In 2003, a group of eight PURPA qualifying facilities (the plaintiffs) filed a lawsuit in Ingham County Circuit Court. The lawsuit alleged that we incorrectly calculated the energy charge payments made under power purchase agreements. The judge deferred to the primary jurisdiction of the MPSC, dismissing the circuit court case without prejudice. In February 2005, the MPSC issued an order in the 2004 PSCR plan case concluding that we have been correctly administering the energy charge calculation methodology. The plaintiffs have an appeal of the MPSC order pending with the Court of Appeals. We believe we have been performing the calculation in the manner prescribed by the power purchase agreements and have not recorded any reserves. We cannot predict the financial impact or outcome of this matter.

Consumers’ Electric Utility Rate Matters

Electric ROA: The Customer Choice Act allows electric utilities to recover their net Stranded Costs. In November 2004, the MPSC approved recovery of our Stranded Costs incurred from 2002 through 2003 plus interest through the period of collection. At December 31, 2007, we had a regulatory asset for Stranded Costs of $68 million. We collect these Stranded Costs through a surcharge on ROA customers. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers, which represents an increase of 5 percent of ROA load compared to December 31, 2006. However, since the MPSC order, we have experienced a downward trend in ROA customers. This trend has affected negatively our ability to recover these Stranded Costs in a timely manner. If this trend continues, it may require legislative or regulatory assistance to recover fully our 2002 and 2003 Stranded Costs.

Power Supply Costs: The PSCR process allows recovery of reasonable and prudent power supply costs. The MPSC reviews these costs for reasonableness and prudency in annual plan proceedings and in plan reconciliation proceedings. The following table summarizes our PSCR reconciliation filings with the MPSC:

Power Supply Cost Recovery Reconciliation
			Net Under-	PSCR Cost
PSCR Year	Date Filed	Order Date	recovery	of Power Sold	Description of Net Underrecovery
2005 Reconciliation	March 2006	July 2007	$36 million	$1.081 billion	MPSC approved the recovery of our $36 million underrecovery, including interest, related to our commercial and industrial customers.
2006 Reconciliation	March 2007	Pending	$105 million(a)	$1.490 billion	Underrecovery relates to our increased METC costs and coal supply costs, certain increased sales, and other cost increases beyond those included in the 2006 PSCR plan filings.

(a) $99 million as recommended by a February 2008 ALJ Proposal for Decision. In a separate matter, this ALJ also recommended that we refund $62 million in proceeds from the sale of excess sulfur dioxide allowances. In accordance with FERC regulations, we previously reserved these proceeds as a regulatory liability pending final direction on disposition of the proceeds from the MPSC.

2007 PSCR Plan: In December 2006, the MPSC issued a temporary order allowing us to implement our 2007 PSCR monthly factor on January 1, 2007, as filed. The order also allowed us to include prior year underrecoveries and overrecoveries in future PSCR plans. In September 2007, the ALJ recommended in his Proposal for Decision that we reduce our underrecoveries to reflect the refund of all proceeds from the sale of sulfur dioxide allowances,

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which totaled $62 million. Our PSCR plan proposed to refund 50 percent of proceeds to customers. We reserved all proceeds, excluding interest, as a regulatory liability as discussed in the preceding paragraph.

2008 PSCR Plan: In September 2007, we submitted our 2008 PSCR plan filing to the MPSC. The plan proposed recovery of estimated 2007 PSCR underrecoveries of $84 million. We self-implemented a 2008 PSCR charge in January 2008.

We expect to recover fully all of our PSCR costs. When we are unable to collect these costs as they are incurred, there is a negative impact on our cash flows from electric utility operations. We cannot predict the financial impact or outcome of these proceedings.

Electric Rate Case: In 2007, we filed applications with the MPSC seeking an 11.25 percent authorized return on equity and an annual increase in revenues of $269 million. We presently have an authorized return on equity of 11.15 percent. In July 2007, we filed an amended application for rate relief, which seeks the following:

•  recovery of the purchase of the Zeeland power plant,

•  approval to remove the costs associated with Palisades,

•  approval of a plan for the distribution of additional excess proceeds from the sale of Palisades to customers, effectively offsetting the partial and immediate rate relief for up to nine months, and

•  partial and immediate rate relief associated with 2007 capital investments, a $400 million equity infusion into Consumers, and increased distribution system operation and maintenance costs including employee pension and health care costs.

In December 2007, the MPSC approved a rate increase of $70 million related to the purchase of the Zeeland power plant. The MPSC also stated that our interim request that sought the removal of costs associated with Palisades and the approval of a plan to distribute excess proceeds from the sale of Palisades to customers should be addressed in the final electric rate case order. Furthermore, the MPSC denied our request for the approval of partial and immediate rate relief associated with capital investments, changes in the capital structure, and increased operation and maintenance expenses.

When we are unable to include increased costs and investments in rates in a timely manner, there is a negative impact on our cash flows from electric utility operations. We cannot predict the financial impact or the outcome of this proceeding.

Other Consumers’ Electric Utility Contingencies

The MCV PPA: The MCV Partnership, which leases and operates the MCV Facility, contracted to sell 1,240 MW of electricity to Consumers under a 35-year power purchase agreement that began in 1990. We estimate that capacity and energy payments under the MCV PPA, excluding RCP savings, will range from $650 million to $750 million annually, assuming successful exercise of the regulatory-out provision in the MCV PPA. We purchased capacity and energy, net of the MCV RCP replacement energy and benefits, under the MCV PPA of $464 million in 2007, $411 million in 2006, and $352 million in 2005.

Regulatory-out Provision in the MCV PPA: Until we exercised the regulatory-out provision in the MCV PPA in September 2007, the cost that we incurred under the MCV PPA exceeded the recovery amount allowed by the MPSC. The regulatory-out provision limits our capacity and fixed energy payments to the MCV Partnership to the amounts that we collect from our customers. Cash underrecoveries of our capacity and fixed energy payments were $39 million in 2007. Savings from the RCP, after allocation of a portion to customers, offset some of our capacity and fixed energy underrecoveries expense.

As a result of our exercise of the regulatory-out provision, the MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA, or reduce the amount of capacity sold under the

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MCV PPA from 1,240 MW to 806 MW, which could affect our electric Reserve Margin. The MCV Partnership has until February 25, 2008 to notify us of its intention to terminate the MCV PPA, at which time the MCV Partnership must specify the termination date. We have not yet received any notification of termination; however, the MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision. We believe that the provision is valid and fully effective and have not recorded any reserves, but we cannot predict whether we would prevail in the event of litigation on this issue.

We expect the MPSC to review our exercise of the regulatory-out provision and the likely consequences of such action. It is possible that in the event that the MCV Partnership terminates performance under the MCV PPA, prior orders could limit recovery of replacement power costs to the amounts that the MPSC authorized for recovery under the MCV PPA. Depending on the cost of replacement power, this could result in our costs exceeding the recovery amount allowed by the MPSC. We cannot predict the financial impact or outcome of these matters.

To comply with a prior MPSC order, we made a filing in May 2007 with the MPSC requesting a determination as to whether it wished to reconsider the amount of the MCV PPA payments that we recover from customers. The MCV Partnership also filed an application with the MPSC requesting the elimination of the 88.7 percent availability cap on the amount of capacity and fixed energy charges that we are allowed to recover from our customers. We cannot predict the financial impact or outcome of these matters.

Nuclear Matters: Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big Rock. In December 2000, funding of the Big Rock trust fund stopped because the MPSC-authorized decommissioning surcharge collection period expired. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, we provided $45 million of corporate contributions for decommissioning costs. This amount excludes the $30 million payment to Entergy to assume ownership and responsibility for the Big Rock ISFSI and additional corporate contributions for nuclear fuel storage costs of $54 million, due to the DOE’s failure to accept spent nuclear fuel on schedule. We plan to seek recovery from the MPSC for decommissioning and other related expenditures and we have a $129 million regulatory asset recorded on our Consolidated Balance Sheets.

Nuclear Fuel Disposal Cost: We deferred payment for disposal of spent nuclear fuel burned before April 7, 1983. Our DOE liability is $159 million at December 31, 2007. This amount includes interest, which is payable upon the first delivery of spent nuclear fuel to the DOE. We recovered, through electric rates, the amount of this liability, excluding a portion of interest. In conjunction with the sale of Palisades and the Big Rock ISFSI, we retained this obligation and provided a $155 million letter of credit to Entergy as security for this obligation.

DOE Litigation: In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which we and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.

A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. We filed our complaint in December 2002. If our litigation against the DOE is successful, we plan to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during our ownership of Palisades and Big Rock. We cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during our ownership of Palisades and Big Rock.

Consumers’ Gas Utility Contingencies

Gas Environmental Matters: We expect to incur investigation and remediation costs at a number of sites under the Michigan Natural Resources and Environmental Protection Act, a Michigan statute that covers environmental activities including remediation. These sites include 23 former manufactured gas plant facilities.

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We operated the facilities on these sites for some part of their operating lives. For some of these sites, we have no current ownership or may own only a portion of the original site. In December 2005, we estimated our remaining costs to be between $29 million and $71 million, based on 2005 discounted costs, using a discount rate of three percent. The discount rate represented a 10-year average of U.S. Treasury bond rates reduced for increases in the consumer price index. We expect to fund most of these costs through proceeds from insurance settlements and MPSC-approved rates.

From January 1, 2006 to December 31, 2007, we spent a total of $12 million for MGP response activities. At December 31, 2007, we have a liability of $17 million and a regulatory asset of $50 million, which includes $33 million of deferred MGP expenditures. The timing of payments related to the remediation of our manufactured gas plant sites is uncertain. Annual response activity costs are expected to range between $4 million and $6 million per year over the next five years. Any significant change in assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect our estimate of response activity costs and the timing of our payments.

Gas Title Transfer Tracking Fees and Services: In November 2007, we reached an agreement in principle with Duke Energy Corporation, Dynegy Incorporated, Reliant Energy Resources Incorporated and FERC Staff to settle the TTT proceeding. The terms of the agreement include the payment of $2 million in total refunds to all TTT customers and a reduced rate for future TTT transactions.

FERC Investigation: In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers will cooperate with the FERC in responding to the request. Consumers cannot predict the financial impact or outcome of this matter.

Consumers’ Gas Utility Rate Matters

Gas Cost Recovery: The GCR process is designed to allow us to recover all of our purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices for prudency in annual plan and reconciliation proceedings.

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

Gas Cost Recovery Reconciliation
			Net Over-	GCR Cost
GCR Year	Date Filed	Order Date	recovery	of Gas Sold	Description of Net Overrecovery
2005-2006	June 2006	April 2007	$3 million	$1.8 billion	The net overrecovery includes $1 million interest income through March 2006, which resulted from a net underrecovery position during most of the GCR period.
2006-2007	June 2007	Pending	$5 million	$1.7 billion	The total overrecovery amount reflects an overrecovery of $1 million plus $4 million in accrued interest owed to customers.

GCR plan for year 2005-2006: In November 2005, the MPSC issued an order for our 2005-2006 GCR Plan year. The order approved a settlement agreement and established a fixed price cap of $10.10 per mcf for December 2005 through March 2006. We were able to maintain our GCR billing factor below the authorized level for that period. The order was appealed to the Michigan Court of Appeals by one intervenor. In January 2008, the Michigan Court of Appeals affirmed the MPSC’s order for our 2005-2006 GCR Plan year.

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GCR plan for year 2006-2007: In August 2006, the MPSC issued an order for our 2006-2007 GCR Plan year. The order approved a settlement agreement that allowed a base GCR ceiling factor of $9.48 per mcf for April 2006 through March 2007. We were able to maintain our GCR billing factor below the authorized level for that period.

GCR plan for year 2007-2008: In July 2007, the MPSC issued an order for our 2007-2008 GCR plan year. The order approved a settlement agreement that allowed a base GCR ceiling factor of $8.47 per mcf for April 2007 through March 2008, subject to a quarterly ceiling price adjustment mechanism. To date, we have been able to maintain our GCR billing factor below the authorized level.

The GCR billing factor is adjusted monthly in order to minimize the over or underrecovery amounts in our annual GCR reconciliation. Our GCR billing factor for February 2008 is $7.69 per mcf.

GCR plan for year 2008-2009: In December 2007, we filed an application with the MPSC seeking approval of a GCR plan for our 2008-2009 GCR Plan year. Our request proposed the use of a GCR factor consisting of:

•  a base GCR ceiling factor of $8.17 per mcf, plus

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

2007 Gas Rate Case: In February 2007, we filed an application with the MPSC seeking an 11.25 percent authorized return on equity as part of an $88 million annual increase in our gas delivery and transportation rates. In August 2007, the MPSC approved a partial settlement agreement authorizing an annual rate increase of $50 million, including an authorized return on equity of 10.75 percent. In September  2007, the MPSC reopened the record in the case to allow all interested parties to be heard concerning the approval of an energy efficiency program, which we proposed in our original filing. Hearings on this matter were held in February 2008. We expect the MPSC to issue a final order in the second quarter of 2008. If approved in total, this would result in an additional rate increase of $9 million for implementation of the energy efficiency program.

2008 Gas Rate Case: In February 2008, we filed an application with the MPSC for an annual gas rate increase of $91 million and an 11 percent authorized return on equity.

Other Contingencies

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

In January 2002, the Republic of Argentina enacted the Public Emergency and Foreign Exchange System Reform Act. This law repealed the fixed exchange rate of one U.S. dollar to one Argentine peso, converted all dollar-denominated utility tariffs and energy contract obligations into pesos at the same one-to-one exchange rate, and directed the Government of Argentina to renegotiate such tariffs.

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

The ICSID Convention provides that either party may seek annulment of the award based upon five possible grounds specified in the ICSID Convention. ICSID formally registered Argentina’s Application for Annulment in September 2005. In December 2005, certain insurance underwriters paid $75 million to CMS Gas Transmission in respect of their insurance obligations resulting from non-payment of the ICSID arbitration award. We recorded this payment as a deferred credit on our Consolidated Balance Sheets because of a contingent obligation to refund the proceeds if the arbitration decision was annulled. In March 2007, we sold our Argentine businesses and the rights to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

receive any proceeds from the ICSID award and certain claims against political risk insurance to Lucid Energy for $130 million. Under the sale, we retained the rights to $75 million in proceeds previously received from political risk insurance insurers.

In September 2007, the contingent repayment obligation was eliminated by agreement. Later that month, a separate arbitration panel ruling on the annulment issue upheld the prior ICSID award. As a result, we recognized the $75 million deferred credit in Asset impairment charges, net of insurance recoveries on our Consolidated Statements of Income (Loss). For more information on the sale of our Argentine assets to Lucid Energy, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges, “Asset Sales.”

Quicksilver Resources, Inc.: Quicksilver sued CMS MST for breach of contract in connection with a base contract for sale and purchase of natural gas. The contract outlines Quicksilver’s agreement to sell, and CMS MST’s agreement to buy, natural gas. Quicksilver believes that it is entitled to more payments for natural gas than it has received. CMS MST disagrees with Quicksilver’s analysis and believes that it has paid all amounts owed for delivery of gas according to the contract. Quicksilver was seeking damages of up to approximately $126 million, plus prejudgment interest and attorney fees.

The trial commenced on March 19, 2007. The jury verdict awarded Quicksilver zero compensatory damages but $10 million in punitive damages. The jury found that CMS MST breached the contract and committed fraud but found no actual damage related to such a claim.

On May 15, 2007, the trial court vacated the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of approximately $24 million, net of tax. To preserve its appellate rights, CMS MST filed a motion to modify, correct or reform the judgment and a motion for a judgment contrary to the jury verdict with the trial court. The trial court dismissed these motions. CMS MST has filed a notice of appeal with the Texas Court of Appeals. Quicksilver has filed a notice of cross appeal.

Star Energy: In 2000, a Michigan trial judge granted Star Energy, Inc. and White Pine Enterprises, LLC a judgment in an action filed in 1999 that claimed Terra Energy Ltd., a former CMS Oil and Gas subsidiary, violated an oil and gas lease and other arrangements by failing to drill wells it had committed to drill. A jury then awarded the plaintiffs an $8 million award. The Court of Appeals reversed the damages award and granted Terra Energy Ltd. a new trial on damages only. The trial was set for August 2007, but the parties reached a settlement before trial. As a result, CMS Energy recorded a charge in the second quarter of 2007 of $3 million, net of tax.

T.E.S. Filer City Air Permit Issue: In January 2007, we received a Notice of Violation from the EPA alleging that T.E.S. Filer City, a generating facility in which we have a 50 percent partnership interest, exceeded certain air permit limits. The EPA recently issued a notice levying a penalty of $0.1 million. We cannot predict the financial impact or outcome of this issue.

Equatorial Guinea Tax Claim: In 2004, we received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnification claim relates to the sale of our oil, gas and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that we owe it $142 million in taxes in connection with that sale. CMS Energy and its tax advisors 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 Equatorial Guinea government still intends to pursue its claim. We cannot predict the financial impact or outcome of this matter.

Moroccan Tax Claim: In February 2007, CMS Energy sold its interest in Jorf Lasfar. As part of the sale, CMS Energy agreed to indemnify the purchaser for any tax assessments attributable to tax years prior to the sale. In December 2007, the Moroccan government concluded its audit of JLEC for tax years 2002 through 2005 for which the government has presented its preliminary findings but not yet issued an assessment. CMS Energy is participating in discussions with the Moroccan tax authorities but at this time cannot predict the financial impact or outcome of this matter.

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CMS ERM Electricity Sales Agreements: CMS ERM was a party to three electricity sales agreements, under which it provided up to 300 MW of electricity at fixed prices. CMS ERM satisfied its obligations under these agreements by using electricity generated by DIG or by purchasing electricity from the market. Because the price of natural gas has increased substantially in recent years, the prices that were charged under these agreements did not reflect DIG’s cost to generate or CMS ERM’s cost to purchase electricity from the market. Therefore, these agreements negatively impacted DIG’s and CMS ERM’s financial performance.

In November 2007, CMS ERM, DIG, and CMS Energy reached an agreement to terminate two of these electricity sales agreements in order to eliminate future losses under those contracts. As consideration for agreeing to terminate the agreements, CMS ERM paid the customers $275 million upon closing the transaction in February 2008. We recorded a liability for the future payment and other termination costs and recognized a loss of $279 million in 2007, representing the cost to terminate the agreements. As a result of terminating these agreements, CMS ERM and DIG have reduced their long-term electric capacity supply obligations by 260 MW. CMS ERM will market the capacity and energy that was previously committed under these agreements into the merchant market either through third party agreements or directly with the MISO.

Also in November 2007, CMS ERM executed an amendment of the remaining electricity sales agreement, which was effective upon the closing of the transaction. The purpose of the amendment is to optimize production planning and ensure optimal use of available resources. The amendment establishes a minimum amount of contract capacity to be provided under the agreement, and adds a minimum and maximum amount of electricity to be delivered to the customer. As amended, this electricity sales agreement is a derivative instrument. Upon signing the amendment in 2007, we recorded our minimum obligation under the contract on our consolidated balance sheet at its fair value and recognized the resulting mark-to-market loss of $18 million in earnings. For additional details on accounting for this derivative, see Note 6, Financial and Derivative Instruments.

Guarantees and Indemnifications: FIN 45 requires the guarantor, upon issuance of a guarantee, to recognize a liability for the fair value of the obligation it undertakes in issuing the guarantee.

The following table describes our guarantees at December 31, 2007:

						FIN 45
			Maximum			Carrying
Guarantee Description	Issue Date	Expiration Date	Obligation			Amount
	In Millions
Indemnifications from asset sales and other agreements	Various	Indefinite	$	1,446	(a)	$	88	(a)
Surety bonds and other indemnifications	Various	Indefinite		24			—
Guarantees and put options	Various	Various through September 2027		99	(b)		1

(a)

The majority of this amount arises from provisions in stock and asset sales agreements under which we indemnify the purchaser for losses resulting from claims related to tax disputes, claims related to power purchase agreements and the failure of title to the assets or stock sold by us to the purchaser. As of December 31, 2007, we have an $88 million liability in connection with indemnities related to the sale of certain subsidiaries. We believe the likelihood of loss for the remaining indemnifications to be remote.

(b)

Maximum obligation includes $85 million related to the MCV Partnership’s non-performance under a steam and electric power agreement with Dow. We sold our interests in the MCV Partnership and the FMLP. The sales agreement calls for the purchaser, an affiliate of GSO Capital Partners and Rockland Capital Energy Investments, to pay $85 million, subject to certain reimbursement rights, if Dow terminates an agreement under which the MCV Partnership provides it steam and electric power. This agreement expires in March 2016, subject to certain terms and conditions. The purchaser secured its reimbursement obligation with an irrevocable letter of credit of up to $85 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides additional information regarding our guarantees:

Guarantee Description	How Guarantee Arose	Events That Would Require Performance
Indemnifications from asset sales and other agreements	Stock and asset sales agreements	Findings of misrepresentation, breach of warranties, tax claims and other specific events or circumstances
Surety bonds and other indemnifications	Normal operating activity, permits and licenses	Nonperformance
Guarantees and put options	Normal operating activity Agreement to provide power and steam to Dow, Bay Harbor remediation efforts	Nonperformance or non-payment by a subsidiary under a related contract, MCV Partnership’s nonperformance or non-payment under a related contract, Owners exercising put options requiring us to purchase property

At December 31, 2007, certain contracts contained provisions allowing us to recover, from third parties, amounts paid under the guarantees. For example, if we are required to purchase a property under a put option agreement, we may sell the property to recover the amount paid under the option.

In addition to the indemnities and guarantees discussed in the preceding tables where we have identified a maximum potential obligation amount or carrying amount, we also enter into various agreements containing tax and other indemnification provisions for which we are unable to estimate the maximum potential obligation. We consider the likelihood that we would be required to perform or incur significant losses related to these indemnities to be remote.

Other: In addition to the matters disclosed within this Note, Consumers and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contractual matters, environmental issues, federal and state taxes, rates, licensing, and other matters.

We have accrued estimated losses for certain contingencies discussed within this Note. Resolution of these contingencies is not expected to have a material adverse impact on our financial position, liquidity, or future results of operations.

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4: FINANCINGS AND CAPITALIZATION

Long-term debt at December 31 follows:

	Interest Rate (%)			Maturity	2007			2006
					In Millions
CMS Energy Corporation
Senior notes		9.875		2007	$	—		$	289
		8.900		2008		—			260
		7.500		2009		—			409
		7.750		2010		300			300
		8.500		2011		300			300
		6.300		2012		150			150
		Variable	(a)	2013		150			—
		6.875		2015		125			125
		6.550		2017		250			—
		3.375	(b)	2023		150			150
		2.875	(b)	2024		288			288
						1,713			2,271
Other						—			1
Total — CMS Energy Corporation						1,713			2,272
Consumers Energy Company
First mortgage bonds		4.250		2008		250			250
		4.800		2009		200			200
		4.400		2009		150			150
		4.000		2010		250			250
		5.000		2012		300			300
		5.375		2013		375			375
		6.000		2014		200			200
		5.000		2015		225			225
		5.500		2016		350			350
		5.150		2017		250			250
		5.650		2020		300			300
		5.650		2035		145			147
		5.800		2035		175			175
						3,170			3,172
Senior notes		6.375		2008		159			159
		6.875		2018		180			180
Securitization bonds		5.442	(c)	2008-2015		309			340
Nuclear fuel disposal liability				(d)		159			152
Tax-exempt pollution control revenue bonds		Various		2010-2035		161			161
Total — Consumers Energy Company						4,138			4,164
Other Subsidiaries						236			328
Total principal amount outstanding						6,087			6,764
Current amounts						(692	)		(550	)
Net unamortized discount						(10	)		(14	)
Total long-term debt					$	5,385		$	6,200

(a) The variable rate senior notes bear interest at three-month LIBOR plus 95 basis points (6.1925 percent at December 31, 2007).

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(b)	Contingently convertible notes. See the “Contingently Convertible Securities” section in this Note for further discussion of the conversion features.
(c)	Represents the weighted average interest rate at December 31, 2007 (5.384 percent at December 31, 2006).
(d)	The maturity date is uncertain.

Financings: The following is a summary of significant long-term debt transactions during 2007:

	Principal
	(In millions)		Interest Rate (%)			Issue/Retirement Date	Maturity Date
Debt Issuances
CMS Energy
Senior notes	$	250		6.55	%	July 2007	July 2017
Senior notes		150		Variable		July 2007	January 2013
Total	$	400
Debt Retirements:
CMS Energy
Senior notes	$	260		8.90	%	June 2007	July 2008
Senior notes		409		7.50	%	July and August 2007	January 2009
Senior notes		289		9.875	%	October 2007	October 2007
Enterprises
CMS Generation
Investment Co. IV
Bank Loan		108		Variable		May 2007	December 2008
Total	$	1,066

First Mortgage Bonds: Consumers secures its FMBs by a mortgage and lien on substantially all of its property. Its ability to issue FMBs is restricted by certain provisions in the first mortgage bond indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in the first mortgage bond indenture include achieving a two-times interest coverage ratio and having sufficient unfunded net property additions.

Securitization Bonds: Certain regulatory assets collateralize securitization bonds. The bondholders have no recourse to our other assets. Through Consumers’ rate structure, we bill customers for securitization surcharges to fund the payment of principal, interest, and other related expenses. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or creditors of its affiliates. Securitization surcharges totaled $48 million in 2007 and $50 million in 2006.

Long-Term Debt — Related Parties: CMS Energy formed a statutory wholly-owned business trust for the sole purpose of issuing preferred securities and lending the gross proceeds to itself. The sole assets of the trust consists of the debentures described in the following table. These debentures have terms similar to those of the mandatorily redeemable preferred securities the trust issued. We determined that we do not hold the controlling financial interest in our trust preferred security structure. Accordingly, this entity is reflected in Long-term debt — related parties on our Consolidated Balance Sheets.

The following is a summary of Long-term debt — related parties at December 31:

Debenture and related party	Interest Rate (%)		Maturity		2007		2006
					In Millions
Convertible subordinated debentures, CMS Energy Trust I		7.75		2027	$	178	$	178

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In the event of default, holders of the Trust Preferred Securities would be entitled to exercise and enforce the trust’s creditor rights against us, which may include acceleration of the principal amount due on the debentures. We have issued certain guarantees with respect to payments on the preferred securities. These guarantees, when taken together with our obligations under the debentures, related indenture and trust documents, provide full and unconditional guarantees for the trust’s obligations under the preferred securities.

Debt Maturities: At December 31, 2007, the aggregate annual contractual maturities for long-term debt and long-term debt — related parties for the next five years are:

	Payments Due
	2008		2009		2010		2011		2012
	In Millions
Long-term debt and long-term debt — related parties	$	542	$	414	$	664	$	642	$	504

Regulatory Authorization for Financings: The FERC has authorized Consumers to issue up to $1.0 billion of secured and unsecured short-term securities for general corporate purposes. The remaining availability is $500 million at December 31, 2007.

The FERC has also authorized Consumers to issue up to $2.5 billion of secured and unsecured long-term securities for the following:

•  up to $1.5 billion of new issuance for general corporate purposes and

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

All of the new issuance availability remains ($1.5 billion) and the refinancing availability remaining is $500 million at December 31, 2007.

The authorizations are for the period ending June 30, 2008. Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements.

Revolving Credit Facilities: The following secured revolving credit facilities with banks are available at December 31, 2007:

						Outstanding
		Amount of		Amount		Letters of		Amount
Company	Expiration Date	Facility		Borrowed		Credit		Available
	In Millions
CMS Energy(a)	April 2, 2012	$	300	$	—	$	278	$	22
Consumers(b)	March 30, 2012		500		—		203		297
Consumers(c)	November 28, 2008		200		NA		185		15

(a)	In January 2008, the lenders increased the commitments for CMS Energy’s credit facility from $300 million to $550 million.
(b)	In January 2008, $185 million of letters of credit were cancelled, resulting in the amount of credit available of $482 million under this facility.
(c)	Secured revolving letter of credit facility.

Dividend Restrictions: Under provisions of our senior notes indenture, at December 31, 2007, payment of common stock dividends was limited to $363 million.

Under the provisions of its articles of incorporation, at December 31, 2007, Consumers had $269 million of unrestricted retained earnings available to pay common stock dividends. Provisions of the Federal Power Act and the Natural Gas Act effectively restrict dividends to the amount of Consumers’ retained earnings. For the year ended December 31, 2007, CMS Energy received $251 million of common stock dividends from Consumers.

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Sale of Accounts Receivable: Under a revolving accounts receivable sales program, we sell certain accounts receivable to a wholly owned, consolidated, bankruptcy-remote special-purpose entity. In turn, the special purpose entity may sell an undivided interest in up to $325 million of the receivables. The special purpose entity sold no receivables at December 31, 2007 and $325 million at December 31, 2006. The purchaser of the receivables has no recourse against our other assets for failure of a debtor to pay when due and no right to any receivables not sold. We have neither recorded a gain or loss on the receivables sold nor retained interest in the receivables sold. We continue to service the receivables sold to the special purpose entity. We have not recorded a servicing asset in connection with our accounts receivable sales program. The following table summarizes certain cash flows under our accounts receivable sales program:

Years Ended December 31	2007			2006
	In Millions
Net cash flow as a result of accounts receivable financing	$	(325	)	$	—
Collections from customers	$	5,881		$	5,684

Capitalization: The authorized capital stock of CMS Energy consists of:

•  350 million shares of CMS Energy Common Stock, par value $0.01 per share, and

•  10 million shares of CMS Energy Preferred Stock, par value $0.01 per share.

Preferred Stock: Details about our outstanding preferred stock follow:

	Number of Shares
December 31	2007		2006		2007		2006
					In Millions
Preferred stock
4.50% convertible,
Authorized 10,000,000 shares(a)		5,000,000		5,000,000	$	250	$	250
Preferred subsidiary interest(b)						—		11
Total preferred stock					$	250	$	261

(a)	See the “Contingently Convertible Securities” section in this Note for further discussion of the convertible preferred stock.
(b)	In February 2007, we repurchased our non-voting preferred subsidiary interest of $11 million and redeemed it for a cash payment of $32 million. We reversed the original $19 million addition to paid-in-capital and charged a $1 million redemption premium to retained deficit.

Preferred Stock of Subsidiary: Details about Consumers’ preferred stock outstanding follow:

			Optional
			Redemption		Number of Shares
December 31	Series		Price		2007		2006		2007		2006
									In Millions
Preferred stock
Cumulative $100 par value, Authorized 7,500,000 shares, with no mandatory redemption	$	4.16	$	103.25		68,451		68,451	$	7	$	7
	$	4.50	$	110.00		373,148		373,148		37		37
Total Preferred stock of subsidiary									$	44	$	44

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Contingently Convertible Securities: At December 31, 2007, the significant terms of our contingently convertible securities were as follows:

					Adjusted		Adjusted
			Outstanding		Conversion		Trigger
Security	Maturity		(In millions)		Price		Price
4.50% preferred stock		—	$	250	$	9.78	$	11.73
3.375% senior notes		2023	$	150	$	10.55	$	12.66
2.875% senior notes		2024	$	288	$	14.58	$	17.49

On or after December 5, 2008, we will have the right to cause the 4.50 percent preferred stock to be converted if the closing price of our common stock remains at or above $12.71 for 20 of any 30 consecutive trading days. The holders of the 3.375 percent senior notes have the right to require us to purchase the notes at par on July 15, 2008, 2013, and 2018. The holders of the 2.875 percent senior notes have the right to require us to purchase the notes at par on December 1, 2011, 2014, and 2019.

The securities become convertible for a calendar quarter if the price of our common stock remains at or above the trigger price for 20 of 30 consecutive trading days ending on the last trading day of the previous quarter. The trigger price at which these securities become convertible is 120 percent of the conversion price. The conversion and trigger prices are subject to adjustment under certain circumstances, including payments or distributions to our common stockholders. The conversion and trigger price adjustment is made when the cumulative change in conversion and trigger prices is one percent or more.

All of our contingently convertible securities, if converted, require us to pay cash up to the principal (or par) amount of the securities. Any conversion value in excess of that amount is paid in shares of our common stock.

During December 2007, the trigger price contingency was met for our 4.50 percent preferred stock and our 3.375 percent senior notes. As a result, these securities are convertible at the option of the security holders during the three months ended March 31, 2008. In December 2007, one security holder notified us of its intention to convert 2,000 shares of 4.50 percent preferred stock. As of February 2008, no other security holders have notified us of their intention to convert these securities.

The 3.375 percent senior notes are convertible on demand and are classified as current liabilities.

5: EARNINGS PER SHARE

The following table presents our basic and diluted EPS computations based on Loss from Continuing Operations:

Years Ended December 31	2007			2006			2005
	In Millions, Except
	per Share Amounts
Loss Available to Common Stockholders
Loss from Continuing Operations	$	(126	)	$	(133	)	$	(141	)
Less Preferred Dividends and Redemption Premiums		(12	)		(11	)		(10	)
Loss from Continuing Operations Available to Common Stockholders — Basic and Diluted		(138	)		(144	)		(151	)
Average Common Shares Outstanding Applicable to Basic and Diluted EPS
Weighted Average Shares — Basic and Diluted		222.6			219.9			211.8
Loss Per Average Common Share Available to Common Stockholders
Basic	$	(0.62	)	$	(0.66	)	$	(0.71	)
Diluted	$	(0.62	)	$	(0.66	)	$	(0.71	)

Contingently Convertible Securities: There was no impact on diluted EPS from our contingently convertible securities for the years ended December 31, 2007, 2006 and 2005. When we have positive income from continuing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

operations, our contingently convertible securities dilute EPS to the extent that the conversion value, which is based on the average market price of our common stock, exceeds the principal or par value. Had there been positive income from continuing operations, our contingently convertible securities would have contributed an additional 19.7 million shares to the calculation of diluted EPS for 2007, 11.3 million shares for 2006, and 10.9 million shares for 2005. For additional details on our contingently convertible securities, see Note 4, Financings and Capitalization.

Stock Options, Warrants and Restricted Stock: For the year ended December 31, 2007, there was no impact on diluted EPS from 1.1 million shares of unvested restricted stock awards or from options and warrants to purchase 0.3 million shares of common stock. Since the exercise price was greater than the average market price of our common stock, there was no impact to diluted EPS from additional options and warrants to purchase 0.7 million shares of common stock. These stock options have the potential to dilute EPS in the future.

Convertible Debentures: For the years ended December 31, 2007, 2006, and 2005, there was no impact on diluted EPS from our 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:

•  increased the numerator of diluted EPS by $9 million from an assumed reduction of interest expense, net of tax, and

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

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

6: FINANCIAL AND DERIVATIVE INSTRUMENTS

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

The book value and fair value of our long-term debt instruments follows:

	2007				2006
December 31	Book Value		Fair Value		Book Value		Fair Value
	In Millions
Long-term debt(a)	$	6,077	$	6,287	$	6,750	$	6,946
Long-term debt — related parties		178		173		178		155

(a) Includes current maturities of $692 million at December 31, 2007 and $550 million at December 31, 2006. Settlement of long-term debt is generally not expected until maturity.

A summary of our available-for-sale investment securities follows:

	2007								2006
			Unrealized		Unrealized		Fair				Unrealized		Unrealized			Fair
December 31	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
	In Millions
Nuclear decommissioning investments:
Equity securities	$	—	$	—	$	—	$	—	$	140	$	150	$	(4	)	$	286
Debt securities		—		—		—		—		307		4		(2	)		309
SERP:
Equity securities		62		—		—		62		36		21		—			57
Debt securities		13		—		—		13		13		—		—			13

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of available-for-sale debt securities by contractual maturity at December 31, 2007 is as follows:

	In Millions
Due after one year through five years	$	5
Due after five years through ten years		7
Due after ten years		1
Total	$	13

During 2007, the proceeds from sales of SERP securities were $64 million, and $23 million of gross gains and $1 million of gross losses were realized. Net gains of $15 million, net of tax of $7 million, were reclassified from AOCL and included in net loss. The proceeds from sales of SERP securities were $6 million during 2006 and $3 million during 2005. Gross gains and losses were immaterial in 2006 and 2005.

Derivative Instruments: In order to limit our exposure to certain market risks, we may enter into various risk management contracts, such as swaps, options, futures, and forward contracts. These contracts, used primarily to limit our exposure to changes in interest rates and commodity prices, are classified as either non-trading or trading. We enter into these contracts using established policies and procedures, under the direction of two different committees: an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers.

The contracts we use to manage market risks may qualify as derivative instruments that are subject to derivative and hedge accounting under SFAS No. 133. If a contract is a derivative and does not qualify for the normal purchases and sales exception under SFAS No. 133, it is recorded on our consolidated balance sheet at its fair value. Each quarter, we adjust the resulting asset or liability to reflect any change in the fair value of the contract, a practice known as marking the contract to market. If a derivative qualifies for cash flow hedge accounting treatment, we report changes in its fair value (gains or losses) in AOCL; otherwise, we report the gains and losses in earnings.

For a derivative instrument to qualify for cash flow hedge accounting:

•  the relationship between the derivative instrument and the forecasted transaction being hedged must be formally documented at inception,

•  the derivative instrument must be highly effective in offsetting the hedged transaction’s cash flows, and

•  the forecasted transaction being hedged must be probable.

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

To determine the fair value of our derivatives, we use information from external sources, such as quoted market prices and other valuation information. For certain contracts, this information is not available and we use mathematical models to value our derivatives. These models use various inputs and assumptions, including commodity market prices and volatilities, as well as interest rates and contract maturity dates. The cash returns we actually realize on these contracts may be different from the results that we estimate using models. If necessary, our calculations of fair value include reserves to reflect the credit risk of our counterparties.

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

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

Our coal purchase contracts are not derivatives because there is not an active market for the coal we 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 mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other CMS Energy subsidiaries, the resulting mark-to-market impact on earnings could be material.

The following table summarizes our derivative instruments:

December 31	2007								2006
			Fair			Unrealized						Fair			Unrealized
Derivative Instruments	Cost		Value			Loss			Cost			Value			Gain (Loss)
	In Millions
CMS ERM derivative contracts:
Non-trading electric/gas contracts(a)	$	—	$	(18	)	$	(18	)	$	—		$	31		$	31
Trading electric/gas contracts(b)		—		(5	)		(5	)		(11	)		(68	)		(57	)
Derivative contracts associated with equity investments in:
Shuweihat(c)		—		—			—			—			(14	)		(14	)
Taweelah(c)		—		—			—			(35	)		(11	)		24
Jorf Lasfar(c)		—		—			—			—			(5	)		(5	)
Other		—		—			—			—			1			1

(a)	The fair value of CMS ERM’s non-trading electric and gas contracts decreased significantly during 2007 for two reasons. First, a natural gas contract with Quicksilver was prospectively rescinded by court action. CMS ERM had recorded a derivative asset for this contract, representing cumulative unrealized mark-to-market gains. See Note 3, Contingencies, “Other Contingencies — Quicksilver Resources, Inc.” for additional details. In addition, CMS ERM recorded a derivative liability of $18 million related to the amendment of an electricity sales agreement. See Note 3, Contingencies, “Other Contingencies — CMS ERM Electricity Sales Agreements” for additional details.
(b)	The fair value of CMS ERM’s trading electric and gas contracts increased significantly during 2007 due to the termination of certain gas contracts. CMS ERM had recorded derivative liabilities, representing cumulative unrealized mark-to-market losses, associated with these contracts.
(c)	We sold our equity investments in Shuweihat, Taweelah, and Jorf Lasfar in May 2007. Therefore, we no longer reflect our share of the fair value of the derivatives contracts held by these businesses in our consolidated financial statements.

We record the fair value of the derivative contracts held by CMS ERM in either Price risk management assets or Price risk management liabilities on our Consolidated Balance Sheets. At December 31, 2006, the fair value of derivative contracts associated with our equity investments was included in Investments — Enterprises on our Consolidated Balance Sheets.

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CMS ERM Contracts: In order to support CMS Energy’s ongoing operations, CMS ERM enters into contracts to purchase and sell electricity and natural gas in the future. These forward contracts will result in physical delivery of the commodity at a contracted price. These contracts are generally long-term in nature and are classified as non-trading contracts.

To manage commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as swaps, options, and futures. CMS ERM also uses these types of instruments to manage commodity price risk associated with generation assets owned by CMS Energy and its subsidiaries. These financial contracts are classified as trading contracts.

Changes in the fair value of CMS ERM’s non-trading and trading contracts are recorded in earnings as a component of Operating Revenue. For trading contracts, these gains and losses are recorded net in accordance with EITF Issue 02-03.

Derivative Contracts Associated with Equity Investments: In May 2007, we sold our ownership interest in businesses in the Middle East, Africa, and India. Certain of these businesses held interest rate contracts and foreign exchange contracts that were derivatives. Before the sale, we recorded our share of the change in fair value of these contracts in AOCL if the contracts qualified for cash flow hedge accounting; otherwise, we recorded our share in Earnings from Equity Method Investees.

At the date of the sale, we had accumulated a net loss of $13 million, net of tax, in AOCL representing our share of mark-to-market gains and losses from cash flow hedges held by the equity method investees. After the sale, we reclassified this amount and recognized it in earnings as a reduction of the gain on the sale. For additional details on the sale of our interest in these equity method investees, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges.

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

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 our exposure to credit risk based on how these counterparties are affected by similar changes in economic conditions, the weather, or other conditions. CMS ERM reduces its credit risk exposure by using industry-standard agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.

The following table illustrates our exposure to potential losses at December 31, 2007, if each counterparty within this industry concentration failed to meet its contractual obligations. This table includes contracts accounted for as financial instruments. It does not include trade accounts receivable, derivative contracts that qualify for the normal purchases and sales exception under SFAS No. 133, or other contracts that are not accounted for as derivatives.

							Net Exposure		Net Exposure
	Exposure						from Investment		from Investment
	Before		Collateral		Net		Grade		Grade
	Collateral(a)		Held		Exposure		Companies		Companies (%)
	(In Millions)
CMS ERM	$	1	$	—	$	1	$	1		100	%

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

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

7: RETIREMENT BENEFITS

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

•  a non-contributory, qualified defined benefit Pension Plan (closed to new non-union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005),

•  a qualified cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005,

•  a non-contributory, qualified DCCP for employees hired on or after September 1, 2005,

•  benefits to certain management employees under a non-contributory, nonqualified defined benefit SERP (closed to new participants as of March 31, 2006),

•  benefits to certain management employees under a non-contributory, nonqualified DC SERP hired on or after April 1, 2006,

•  health care and life insurance benefits under OPEB,

•  benefits to a selected group of management under a non-contributory, nonqualified EISP, and

•  a contributory, qualified defined contribution 401(k) plan.

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

In April 2007, we sold Palisades to Entergy. Employees transferred to Entergy as a result of the sale no longer participate in our retirement benefit plans. We recorded a net decrease of $16 million in pension SFAS No. 158 regulatory assets with a corresponding reduction of $16 million in pension liabilities on our Consolidated Balance Sheets. We also recorded a net decrease of $15 million in OPEB regulatory SFAS No. 158 assets with a corresponding reduction of $15 million in OPEB liabilities. The following table shows the net adjustment:

	Pension		OPEB
Plan liability transferred to Entergy	$	38	$	20
Trust assets transferred to Entergy		22		5
Net adjustment	$	16	$	15

On September 1, 2005, we implemented the DCCP. The DCCP provides an employer contribution of 5 percent of base pay to the existing employees’ 401(k) plan. No employee contribution is required in order to receive the plan’s employer contribution. All employees hired on and after September 1, 2005 participate in this plan. Cash balance pension plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance pension plan were discontinued as of that date. The DCCP expense was $2 million for each of the years ended December 31, 2007 and December 31, 2006.

SERP: SERP benefits are paid from a trust established in 1988. SERP is not a qualified plan under the Internal Revenue Code. SERP trust earnings are taxable and trust assets are included in our consolidated assets. Trust assets were $95 million at December 31, 2007 and $71 million at December 31, 2006. The assets are classified as Other non-current assets on our Consolidated Balance Sheets. The ABO for SERP was $83 million at December 31, 2007 and $78 million at December 31, 2006. A contribution of $25 million was made to the trust in December 2007.

On April 1, 2006, we implemented a DC SERP and froze further new participation in the defined benefit SERP. The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. Our contributions to the plan, if any, will be

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placed in a grantor trust. Trust assets were less than $1 million at December 31, 2007 and 2006. The assets are classified as Other non-current assets on our Consolidated Balance Sheets. The DC SERP expense was less than $1 million for the years ended December 31, 2007 and 2006.

401(k): The employer’s match for the 401(k) savings plan is 60 percent on eligible contributions up to the first six percent of an employee’s wages. The total 401(k) savings plan cost was $14 million for the year ended December 31, 2007 and $15 million for the year ended December 31, 2006.

Beginning May 1, 2007, the CMS Energy Common Stock Fund was no longer an investment option available for investments in the 401(k) savings plan and the employer match was no longer in CMS Energy Common Stock. Participants had an opportunity to reallocate investments in the CMS Energy Common Stock Fund to other plan investment alternatives prior to November 1, 2007. In November 2007, the remaining shares in the CMS Energy Common Stock Fund were sold and the sale proceeds were reallocated to other plan investment options.

EISP: We implemented a nonqualified EISP in 2002 to provide flexibility in separation of employment by officers, a selected group of management, or other highly compensated employees. Terms of the plan may include payment of a lump sum, payment of monthly benefits for life, payment of premiums for continuation of health care, or any other legally permissible term deemed to be in our best interest to offer. The EISP expense was $1 million for each of the years ended December 31, 2007 and 2006. The ABO for the EISP was $4 million at December 31, 2007 and $5 million at December 31, 2006.

OPEB: The OPEB plan covers all regular full-time employees who are covered by the employee health care plan on a company-subsidized basis the day before they retire from the company at age 55 or older and who have at least 10 full years of applicable continuous service. Regular full-time employees who qualify for a pension plan disability retirement and have 15 years of applicable continuous service are also eligible. Starting in 2007, we used two health care trend rates: one for retirees under 65 and the other for retirees 65 and over. The two health care trend rates recognize that prescription drug costs are increasing at a faster pace than other medical claim costs and that prescription drug costs make up a larger portion of expenses for retirees age 65 and over. Retiree health care costs were based on the assumption that costs would increase 9.0 percent for those under 65 and 10.5 percent for those over 65 in 2007. The 2008 rate of increase for OPEB health costs for those under 65 is expected to be 8.0 percent and for those over 65 is expected to be 9.5 percent. The rate of increase is expected to slow to 5 percent for those under 65 by 2011 and for those over 65 by 2013 and thereafter.

The health care cost trend rate assumption affects the estimated costs recorded. A one percentage point change in the assumed health care cost trend assumption would have the following effects:

	One Percentage		One Percentage
	Point Increase		Point Decrease
	(In Millions)
Effect on total service and interest cost component	$	21	$	(17	)
Effect on postretirement benefit obligation	$	208	$	(176	)

Upon adoption of SFAS No. 106, at the beginning of 1992, we recorded a liability of $466 million for the accumulated transition obligation and a corresponding regulatory asset for anticipated recovery in utility rates. For additional details, see Note 1, Corporate Structure and Accounting Policies, “Utility Regulation.” The MPSC authorized recovery of the electric utility portion of these costs in 1994 over 18 years and the gas utility portion in 1996 over 16 years.

SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R): In September 2006, the FASB issued SFAS No. 158. This standard requires us to recognize the funded status of our defined benefit postretirement plans on our Consolidated Balance Sheets at December 31, 2006. SFAS No. 158 also requires us to recognize changes in the funded status of our plans in the year in which the changes occur. In addition, the standard requires that we change our plan measurement date from November 30 to December 31, effective December 31, 2008. We do not believe

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that implementation of this provision of the standard will have a material effect on our consolidated financial statements.

Assumptions: The following tables recap the weighted-average assumptions used in our retirement benefits plans to determine benefit obligations and net periodic benefit cost:

Weighted average for benefit obligations:

	Pension & SERP						OPEB
Years Ended December 31	2007		2006		2005		2007		2006		2005
Discount rate(a)		6.40%		5.65%		5.75%		6.50%		5.65%		5.75%
Expected long-term rate of return on plan assets(b)		8.25%		8.25%		8.50%		7.75%		7.75%		8.00%
Mortality table(c)		2000		2000		2000		2000		2000		2000
Rate of compensation increase:
Pension		4.00%		4.00%		4.00%
SERP		5.50%		5.50%		5.50%

Weighted average for net periodic benefit cost:

	Pension & SERP						OPEB
Years Ended December 31	2007		2006		2005		2007		2006		2005
Discount rate(a)		5.65%		5.75%		5.75%		5.65%		5.75%		5.75%
Expected long-term rate of return on plan assets(b)		8.25%		8.50%		8.75%		7.75%		8.00%		8.25%
Mortality table(c)		2000		2000		2000		2000		2000		2000
Rate of compensation increase:
Pension		4.00%		4.00%		3.50%
SERP		5.50%		5.50%		5.50%

(a)	The discount rate represents the market rate for high-quality AA-rated corporate bonds with durations corresponding to the expected durations of the benefit obligations and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension plans.
(b)	We determine our long-term rate of return by considering historical market returns, the current and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. We consider the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal is to determine a long-term rate of return that can be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, we review for reasonableness and appropriateness of the forecasted returns for various classes of assets used to construct an expected return model.
(c)	We utilize the Combined Healthy RP-2000 Table from the 2000 Group Annuity Mortality Tables.

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CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Costs: The following tables recap the costs and other changes in plan assets and benefit obligations incurred in our retirement benefits plans:

	Pension & SERP
Years Ended December 31	2007			2006			2005
	In Millions
Net periodic pension cost
Service cost	$	50		$	51		$	44
Interest expense		91			88			83
Expected return on plan assets		(79	)		(85	)		(97	)
Amortization of:
Net loss		46			43			35
Prior service cost		7			7			6
Net periodic pension cost		115			104			71
Regulatory adjustment(a)		(22	)		(11	)		—
Net periodic pension cost after regulatory adjustment	$	93		$	93		$	71

	OPEB
Years Ended December 31	2007			2006			2005
	In Millions
Net periodic OPEB cost
Service cost	$	25		$	23		$	23
Interest expense		69			64			61
Expected return on plan assets		(62	)		(57	)		(54	)
Amortization of:
Net loss		22			20			20
Prior service credit		(10	)		(10	)		(9	)
Net periodic OPEB cost		44			40			41
Regulatory adjustment(a)		(6	)		(2	)		—
Net periodic OPEB cost after regulatory adjustment		38			38		$	41

(a) Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated pursuant to SFAS No. 87 and SFAS No. 106. These adjustments are deferred as a regulatory asset and will be included in future rate cases. The pension regulatory asset had a balance of $33 million at December 31, 2007 and $11 million at December 31, 2006. The OPEB regulatory asset had a balance of $8 million at December 31, 2007 and $2 million at December 31, 2006.

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized into net periodic benefit cost over the next fiscal year from the regulatory asset is $43 million and from AOCL is $2 million. The estimated net loss and prior service credit for OPEB plans that will be amortized into net periodic benefit cost over the next fiscal year from the regulatory asset is zero and from AOCL is $1 million.

We amortize gains and losses in excess of 10 percent of the greater of the benefit obligation and the MRV over the average remaining service period. The estimated time of amortization of gains and losses is 13 years for pension and 14 years for OPEB. Prior service cost amortization is established in the years in which they first occur, and are based on the same amortization period in all future years until fully recognized. The estimated time of amortization of new prior service costs is 13 years for pension and 11 years for OPEB.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reconciliations: The following table reconciles the funding of our retirement benefits plans with our retirement benefits plans’ liability:

	Pension Plan						SERP						OPEB
Years Ended December 31	2007			2006			2007			2006			2007			2006
	In Millions
Benefit obligation at beginning of period	$	1,576		$	1,510		$	92		$	91		$	1,243		$	1,136
Service cost		49			49			1			2			25			23
Interest cost		86			83			5			5			69			64
Actuarial loss (gain)		30			51			1			(2	)		(128	)		70
Palisades sale		(38	)		—			—			—			(20	)		—
Benefits paid		(138	)		(117	)		(4	)		(4	)		(53	)		(50	)
Benefit obligation at end of period(a)		1,565			1,576			95			92			1,136			1,243
Plan assets at fair value at beginning of period		1,040			1,018			—			—			798			714
Actual return on plan assets		89			126			—			—			55			73
Company contribution		109			13			4			4			52			58
Palisades sale		(22	)		—			—			—			(5	)		—
Actual benefits paid(b)		(138	)		(117	)		(4	)		(4	)		(48	)		(47	)
Plan assets at fair value at end of period		1,078			1,040			—			—			852			798
Funded status at end of measurement period		(487	)		(536	)		(95	)		(92	)		(284	)		(445	)
Additional VEBA Contributions or Non-Trust Benefit Payments		—			—			—			—			12			14
Funded status at December 31(c)	$	(487	)	$	(536	)	$	(95	)	$	(92	)	$	(272	)	$	(431	)

(a)	The Medicare Prescription Drug, Improvement and Modernization Act of 2003 establishes a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy, which is tax-exempt, to sponsors of retiree health care benefit plans that provide a benefit that is actuarially equivalent to Medicare Part D. The Medicare Part D annualized reduction in net OPEB cost was $28 million for 2007 and 2006. The reduction includes $7 million for the years ended December 31, 2007 and December 31, 2006 in capitalized OPEB costs.
(b)	We received $4 million in 2007 and $3 million in 2006 for Medicare Part D Subsidy payments.
(c)	Liabilities for retirement benefits are $850 million non-current and $4 million current for year ended December 31, 2007 and $1.055 billion non-current and $4 million current for year ended December 31, 2006.

The following table provides pension ABO in excess of plan assets:

Years Ended December 31	2007		2006
	In Millions
Pension ABO	$	1,231	$	1,240
Fair value of pension plan assets		1,078		1,040
Pension ABO in excess of Pension Plan assets	$	153	$	200

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SFAS No. 158 Recognized: The following table recaps the amounts recognized in SFAS No. 158 regulatory assets and AOCL that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets, see Note 1, Corporate Structure and Accounting Policies, “Utility Regulation.”

	Pension & SERP				OPEB
Years Ended December 31	2007		2006		2007			2006
	In Millions
Regulatory assets
Net loss	$	636	$	676	$	265		$	416
Prior service cost (credit)		39		45		(89	)		(99	)
AOCI
Net loss (gain)		46		46		(22	)		(11	)
Prior service cost (credit)		3		4		(3	)		(4	)
Total amounts recognized in regulatory assets and AOCL	$	724	$	771	$	151		$	302

Plan Assets: The following table recaps the categories of plan assets in our retirement benefits plans:

	Pension						OPEB
November 30	2007			2006			2007			2006
Asset Category:
Fixed Income		30	%		28	%		34	%		37	%
Equity Securities		60	%		62	%		66	%		63	%
Alternative Strategy		10	%		10	%		—			—

We contributed $50 million to our OPEB plan in 2007 and we plan to contribute $49 million to our OPEB plan in 2008. Of the $50 million OPEB contribution during 2007, $25 million was contributed to the 401(h) component of the qualified pension plan and the remaining $25 million was contributed to the VEBA trust accounts. We contributed $109 million to our Pension Plan in 2007 and we do not plan to contribute to our Pension Plan in 2008.

We established a target asset allocation for our Pension Plan assets of 60 percent equity, 30 percent fixed income, and 10 percent alternative strategy investments to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the Standard & Poor’s 500 Index, with lesser allocations to the Standard & Poor’s Mid Cap and Small Cap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of both government and corporate issuers as well as high-yield and global bond funds. Alternative strategies are diversified across absolute return investment approaches and global tactical asset allocation. We use annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

We established union and non-union VEBA trusts to fund our future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers, and through direct contributions from the non-utility subsidiaries. We invest the equity portions of the union and non-union health care VEBA trusts in a Standard & Poor’s 500 Index fund. We invest the fixed-income portion of the union health care VEBA trust in domestic investment grade taxable instruments. We invest the fixed-income portion of the non-union health care VEBA trust in a diversified mix of domestic tax-exempt securities. The investment selections of each VEBA trust are influenced by the tax consequences, as well as the objective of generating asset returns that will meet the medical and life insurance costs of retirees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SFAS No. 132(R) Benefit Payments: The expected benefit payments for each of the next five years and the five-year period thereafter are as follows:

	Pension		SERP		OPEB(a)
	In Millions
2008	$	64	$	4	$	57
2009		71		4		60
2010		78		4		62
2011		88		4		65
2012		101		4		66
2013-2017		664		22		364

(a) OPEB benefit payments are net of employee contributions and expected Medicare Part D prescription drug subsidy payments. The subsidies to be received are estimated to be $6 million for 2008 and 2009, $7 million for 2010, $8 million for 2011 and 2012 and $50 million combined for 2013 through 2017.

8: ASSET RETIREMENT OBLIGATIONS

SFAS No. 143, Accounting for Asset Retirement Obligations: This standard requires us to record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. No market risk premium was included in our ARO fair value estimate since a reasonable estimate could not be made. If a five percent market risk premium were assumed, our ARO liability at December 31, 2007 would increase by $10 million.

If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is to be recognized when a reasonable estimate of fair value can be made. Historically, our gas transmission and electric and gas distribution assets have indeterminate lives and retirement cash flows that cannot be determined. During 2007, however, we implemented a new fixed asset accounting system that facilitates ARO accounting estimates for gas distribution mains and services. The new system enabled us to calculate a reasonable estimate of the fair value of the cost to cut, purge, and cap abandoned gas distribution mains and services at the end of their useful lives. We recorded a $101 million ARO liability and an asset of equal value at December 31, 2007. We have not recorded a liability for assets that have insignificant cumulative disposal costs, such as substation batteries.

FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations: This Interpretation clarified the term “conditional asset retirement obligation” used in SFAS No. 143. The term refers to a legal obligation to perform an asset retirement activity in which the timing or method of settlement are conditional on a future event. We determined that abatement of asbestos included in our plant investments and the cut, purge, and cap of abandoned gas distribution mains and services qualify as conditional AROs, as defined by FIN 47.

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The following table lists the assets that we have legal obligations to remove at the end of their useful life and that we have an ARO liability recorded:

	In Service
ARO Description	Date	Long-Lived Assets
December 31, 2007
JHCampbell intake/discharge water line	1980	Plant intake/discharge water line
Closure of coal ash disposal areas	Various	Generating plants coal ash areas
Closure of wells at gas storage fields	Various	Gas storage fields
Indoor gas services equipment relocations	Various	Gas meters located inside structures
Asbestos abatement	1973	Electric and gas utility plant
Gas distribution cut, purge & cap	Various	Gas distribution mains & services
Natural gas-fired power plant	1997	Gas fueled power plant
Close gas treating plant and gas wells	Various	Gas transmission and storage

No assets have been restricted for purposes of settling AROs.

	ARO											ARO
	Liability									Cash flow		Liability
ARO Description	12/31/05		Incurred		Settled(a)			Accretion		Revisions		12/31/06
	In Millions
Palisades-decommission	$	375	$	—	$	—		$	26	$	—	$	401
Big Rock-decommission		27		—		(28	)		3		—		2
JHCampbell intake line		—		—		—			—		—		—
Coal ash disposal areas		54		—		(2	)		5		—		57
Wells at gas storage fields		1		—		—			—		—		1
Indoor gas services relocations		1		—		—			—		—		1
Asbestos abatement		36		—		(3	)		2		—		35
Gas distribution cut, purge, cap		—		—		—			—		—		—
Natural gas-fired power plant		1		—		—			—		—		1
Close gas treating plant and gas wells		1		—		—			1		—		2
Total	$	496	$	—	$	(33	)	$	37	$	—	$	500	(b)

	ARO												ARO
	Liability										Cash flow		Liability
ARO Description	12/31/06			Incurred		Settled(a)			Accretion		Revisions		12/31/07
	In Millions
Palisades-decommission	$	401		$	—	$	(410	)	$	7	$	2	$	—
Big Rock-decommission		2			—		(3	)		1		—		—
JHCampbell intake line		—			—		—			—		—		—
Coal ash disposal areas		57			—		(4	)		6		—		59
Wells at gas storage fields		1			—		—			—		—		1
Indoor gas services relocations		1			—		—			—		—		1
Asbestos abatement		35			—		(1	)		2		—		36
Gas distribution cut, purge, cap		—			101		—			—		—		101
Natural gas-fired power plant		1			—		(1	)		—		—		—
Close gas treating plant and gas wells		2			—		(2	)		—		—		—
Total	$	500	(b)	$	101	$	(421	)	$	16	$	2	$	198

(a) Cash payments of $5 million in 2007 and $33 million in 2006 are included in the Other current and non-current liabilities line in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. In

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April 2007, we sold Palisades to Entergy and paid Entergy to assume ownership and responsibility for the Big Rock ISFSI. Our AROs related to Palisades and the Big Rock ISFSI ended with the sale, and we removed the related ARO liabilities from our Consolidated Balance Sheets. We also removed the Big Rock ARO related to the plant in the second quarter of 2007 due to the completion of decommissioning.

(b)

We reclassified $2 million in ARO liabilities to Noncurrent liabilities held for sale on our Consolidated Balance Sheets at December 31, 2006. These AROs were subsequently settled as a result of the sale of our businesses in Argentina and our northern Michigan non-utility natural gas assets to Lucid Energy.

9: INCOME TAXES

CMS Energy and its subsidiaries file a consolidated federal income tax return. Income taxes generally are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

We use deferred tax accounting for temporary differences. These occur when there are differences between the book and tax carrying amounts of assets and liabilities. ITC has been deferred and is being amortized over the estimated service lives of the related properties. We use ITC to reduce current income taxes payable.

AMT paid generally becomes a tax credit that we can carry forward indefinitely to reduce regular tax liabilities in future periods when regular taxes paid exceed the tax calculated for AMT. At December 31, 2007, we had AMT credit carryforwards of $267 million that do not expire, and tax loss carryforwards of $995 million that expire from 2023 through 2026, including SRLY tax loss carryforwards of $15 million that expire from 2018 through 2020. We do not believe that a valuation allowance is required, as we expect to use the loss carryforwards prior to their expiration. In addition, we had general business credit carryforwards of $17 million that expire from 2008 through 2027, and capital loss carryforwards of $18 million that expire in 2011. We have provided $9 million of valuation allowances for these items. It is reasonably possible that further adjustments will be made to the valuation allowance within one year. We recorded a benefit of $188 million for a future Michigan deduction, granted as part of the Michigan Business Tax legislation of 2007, offset by a federal tax benefit of $66 million, for a net benefit of $122 million, as discussed within this Note.

The significant components of income tax expense (benefit) on continuing operations consisted of:

Years Ended December 31	2007			2006			2005
	(In Millions)
Current income taxes:
Federal	$	229		$	133		$	82
Federal income tax benefit of operating loss carryforwards		(209	)		(31	)		(70	)
State and local		1			—			(3	)
Foreign		—			(2	)		—
	$	21		$	100		$	9
Deferred income taxes:
Federal	$	(212	)	$	(281	)	$	(149	)
Federal tax benefit of American Jobs Creation Act of 2004		—			—			(30	)
State		—			—			—
Foreign		—			(3	)		3
	$	(212	)	$	(284	)	$	(176	)
Deferred ITC, net		(4	)		(4	)		(13	)
Tax benefit	$	(195	)	$	(188	)	$	(180	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Current tax expense reflects the settlement of income tax audits for prior years, as well as the provision for the current year’s income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in our consolidated financial statements. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences.

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which can result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We believe that our accrued tax liabilities at December 31, 2007 are adequate for all years.

The principal components of deferred income tax assets (liabilities) recognized on our Consolidated Balance Sheets are as follows:

December 31	2007			2006
	(In Millions)
Current Assets and (Liabilities):
Tax loss and credit carryforwards	$	—		$	150
Deferred charges		107			44
Employee benefits		8			10
Other		48			—
Current Assets	$	163		$	204
Gas inventory		(204	)		—
Other		—			(49	)
Current Liabilities	$	(204	)	$	(49	)
Net Current Asset/(Liability)	$	(41	)	$	155
Noncurrent Assets and (Liabilities):
Tax loss and credit carryforwards	$	761		$	717
SFAS No. 109 regulatory liability		207			189
Reserves and accruals		92			—
Currency translation adjustment		77			159
Foreign investments inflation indexing		23			42
Nuclear decommissioning (including unrecovered costs)		—			57
Employee benefits		64			28
Other		—			—
Noncurrent Assets	$	1,224		$	1,192
Valuation allowance		(32	)		(72	)
Net Noncurrent Asset	$	1,192		$	1,120
Property	$	(840	)	$	(790	)
Securitized costs		(180	)		(177	)
Gas inventory		—			(168	)
Nuclear decommisioning (including unrecovered costs)		(18	)		—
Other		(55	)		(108	)
Noncurrent Liabilities	$	(1,093	)	$	(1,243	)
Net Noncurrent Asset/(Liability)	$	99		$	(123	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The actual income tax expense (benefit) on continuing operations differs from the amount computed by applying the statutory federal tax rate of 35 percent to income (loss) before income taxes as follows:

Years Ended December 31	2007			2006			2005
	(In Millions)
Income (loss) from continuing operations before income taxes
Domestic	$	(124	)	$	(118	)	$	(451	)
Foreign		(197	)		(203	)		130
Total		(321	)		(321	)		(321	)
Statutory federal income tax rate		x 35	%		x 35	%		x 35	%
Expected income tax expense (benefit)		(112	)		(112	)		(112	)
Increase (decrease) in taxes from:
Property differences		9			13			18
Income tax effect of foreign investments		47			(29	)		(32	)
AJCA foreign dividends benefit		—			—			(30	)
ITC amortization		(4	)		(4	)		(4	)
State and local income taxes, net of federal benefit		—			—			(2	)
Medicare Part D exempt income		(10	)		(10	)		(6	)
Tax exempt income		(1	)		(3	)		(3	)
Tax contingency reserves		—			(15	)		(5	)
Valuation allowance		(121	)		23			—
IRS Settlement/Credit Restoration		—			(49	)		—
Other, net		(3	)		(2	)		(4	)
Recorded income tax benefit	$	(195	)	$	(188	)	$	(180	)
Effective tax rate		60.7	%		58.6	%		56.1	%

As of December 31, 2006, U.S. income taxes were not recorded on the undistributed earnings of foreign subsidiaries that had been or were intended to be reinvested indefinitely. During the first quarter of 2007, we announced we had signed agreements or plans to sell substantially all of our foreign assets or subsidiaries. These sales resulted in the recognition in 2007 of $71 million of U.S. income tax expense associated with the change in our assumption regarding permanent reinvestment of these undistributed earnings, with $46 million of this amount reflected in income from continuing operations and $25 million in discontinued operations. Additionally, gains on the sales of our international investments resulted in the release of $121 million of valuation allowance during 2007.

In June 2006, the IRS concluded its audit of CMS Energy and its subsidiaries and adjusted taxable income for the years ended December 31, 1987 through December 31, 2001. The overall cumulative increase to taxable income related primarily to the disallowance of the simplified service cost method with respect to certain self-constructed utility assets, resulting in a deferral of these expenses to future years. Reduction of our income tax provision is primarily due to the restoration and utilization of previously written off income tax credits. The years 2002 through 2006 are currently open under the statute of limitations and 2002 through 2005 are currently under audit by the IRS.

The American Jobs Creation Act (AJCA) of 2004 created a one-time opportunity to receive a tax benefit for U.S. corporations that reinvest, in the U.S., dividends received in a year (2005 for CMS Energy) from controlled foreign corporations. During 2005, we repatriated $370 million of foreign earnings that qualified for the tax benefit. The repatriated earnings provided net tax benefits of $45 million in 2005, with $30 million of this amount reflected in income from continuing operations and $15 million in discontinued operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On January 1, 2007 we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. As a result of the implementation of FIN 48, we recorded a charge for additional uncertain tax benefits of $11 million, which was accounted for as a reduction of our beginning retained earnings. Included in this amount was an increase in our valuation allowance of $100 million, decreases to tax reserves of $61 million and a decrease to deferred tax liabilities of $28 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	(In Millions)
Balance at January 1, 2007	$	151
Reductions for prior year tax positions		(101	)
Additions for prior year tax positions		1
Additions for current year tax positions		—
Statute lapses		—
Settlements		—
Balance at December 31, 2007	$	51

Included in the balance at December 31, 2007, are $43 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2007, remaining uncertain tax benefits that would reduce our effective tax rate in future years are $8 million. We are not expecting any other material changes to our uncertain tax positions over the next twelve months.

We have reflected a net interest liability of $2 million related to our uncertain income tax positions on our Consolidated Balance Sheets as of December 31, 2007. We have not accrued any penalties with respect to uncertain tax benefits. We recognize accrued interest and penalties, where applicable, related to uncertain tax benefits as part of income tax expense.

Michigan Business Tax Act: In July 2007, the Michigan governor signed Senate Bill 94, the Michigan Business Tax Act, which imposed a business income tax of 4.95 percent and a modified gross receipts tax of 0.8 percent. The bill provided for a number of tax credits and incentives geared toward those companies investing and employing in Michigan. The Michigan Business Tax, which was effective January 1, 2008, replaced the state’s Single Business Tax that expired on December 31, 2007. In September 2007, the Michigan governor signed House Bill 5104, allowing additional deductions in future years against the business income portion of the tax. These future deductions are phased in over a 15-year period, beginning in 2015. As a result, our consolidated net deferred tax liability of $122 million, recorded due to the Michigan Business Tax enactment, was offset by a net deferred tax asset of $122 million. In December 2007, the Michigan governor signed House Bill 5408, replacing the expanded sales tax for certain services with a 21.99 percent surcharge on the business income tax and the modified gross receipts tax. Therefore, the total tax rates imposed under the Michigan Business Tax are 6.04 percent for the business income tax and 0.98 percent for the modified gross receipts tax.

10: STOCK BASED COMPENSATION

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

All grants under the Plan for 2007, 2006, and 2005 were in the form of total shareholder return (TSR) restricted stock and time-lapse restricted stock. Restricted stock recipients receive shares of CMS Energy’s Common Stock that have full dividend and voting rights. TSR restricted stock vesting is contingent on meeting a three-year service requirement and specific market conditions. Half of the market condition is based on the achievement of specified

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levels of total shareholder return over a three-year period and half is based on a comparison of our total shareholder return with the median shareholders’ return of a peer group over the same three-year period. Depending on the performance of the market, a recipient may earn a total award ranging from 0 percent to 150 percent of the initial grant. Time-lapse restricted stock vests after a service period of five years for awards granted prior to 2004 and three years for awards granted in 2004 and thereafter. Restricted stock awards granted to officers in 2006 and 2005 were entirely TSR restricted stock. Awards granted to officers in 2007 were 80 percent TSR restricted stock and 20 percent time-lapsed restricted stock.

All restricted stock awards are subject to forfeiture if employment terminates before vesting. However, if certain minimum service requirements are met or are waived by action of the Compensation and Human Resources Committee of the Board of Directors, restricted shares may vest fully upon retirement or disability and vest fully if control of CMS Energy changes, as defined by the Plan. The Plan also allows for stock options, stock appreciation rights, phantom shares, and performance units, none of which were granted in 2007, 2006, or 2005.

Shares awarded or subject to stock options, phantom shares, and performance units may not exceed 6 million shares from June 2004 through May 2009, nor may such awards to any recipient exceed 250,000 shares in any fiscal year. We may issue awards of up to 3,677,930 shares of common stock under the Plan at December 31, 2007. Shares for which payment or exercise is in cash, as well as forfeited shares or stock options, may be awarded or granted again under the Plan.

The following table summarizes restricted stock activity under the Plan:

				Weighted-Average
	Number of			Grant Date
Restricted Stock	Shares			Fair Value
Nonvested at December 31, 2006		1,902,438		$	12.10
Granted(a)		721,870		$	14.18
Vested(a)		(923,329	)	$	16.21
Forfeited		(19,525	)	$	13.41
Nonvested at December 31, 2007		1,681,454		$	13.52

(a) During 2007, we granted 411,600 TSR shares and 105,020 time-lapse shares of restricted stock. In addition, we granted 205,250 shares that immediately vested as a result of achieving 150 percent of the market conditions on our 2004 TSR restricted stock grant. The fair value at the date of grant in 2004 was $9.73. We excluded the impact of these shares from the weighted-average grant date fair value for the 2007 shares granted.

We expense the awards’ fair value over the required service period. As a result, we recognize all compensation expense for share-based awards that have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. We calculate the fair value of time-lapse restricted stock based on the price of our common stock on the grant date. The fair value of TSR restricted stock awards was calculated on the award grant date using a Monte Carlo simulation. Expected volatilities were based on the historical volatility of the price of CMS Energy Common Stock. The risk-free rate for each valuation was based on the three-year U.S. Treasury yield at the award grant date. The following table summarizes the significant assumptions used to estimate the fair value of the TSR restricted stock awards:

	2007			2006			2005
Expected Volatility		19.11	%		20.51	%		48.70	%
Expected Dividend Yield		1.20	%		0.00	%		0.00	%
Risk-free rate		4.59	%		4.82	%		4.14	%

The total fair value of shares vested was $15 million in 2007, $4 million in 2006, and $4 million in 2005. Compensation expense related to restricted stock was $10 million in 2007, $9 million in 2006, and $4 million in

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2005. The total related income tax benefit recognized in income was $3 million in 2007, $3 million in 2006, and $2 million in 2005. At December 31, 2007, there was $7 million of total unrecognized compensation cost related to restricted stock. We expect to recognize this cost over a weighted-average period of 1.4 years.

The following table summarizes stock option activity under the Plan:

	Options
	Outstanding,
	Fully Vested,					Weighted-Average		Aggregate
	and			Weighted-Average		Remaining		Intrinsic
Stock Options	Exercisable			Exercise Price		Contractual Term		Value
								(In millions)
Outstanding at December 31, 2006		2,913,270		$	20.29		4.7 years	$	(10	)
Granted		—			—
Exercised		(900,400	)	$	8.14
Cancelled or Expired		(798,965	)	$	32.14
Outstanding at December 31, 2007		1,213,905		$	21.51		3.8 years	$	(5	)

Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are exercisable upon grant, and expire up to ten years and one month from the grant date. We issue new shares when recipients exercise stock options. The total intrinsic value of stock options exercised was $9 million in 2007, $1 million in 2006, and $2 million in 2005. Cash received from exercise of these stock options was $7 million in 2007.

Since we have utilized tax loss carryforwards, we were not able to realize the excess tax benefits upon exercise of stock options and vesting of restricted stock. Therefore, we did not recognize the related excess tax benefits in equity. As of December 31, 2007, we have $15 million of unrealized excess tax benefits.

The following table summarizes the weighted average grant date fair value:

Years Ended December 31	2007		2006		2005
Weighted average grant date fair value
Restricted stock granted	$	14.18	$	13.84	$	15.61
Stock options granted(a)		—		—		—

(a) No stock options were granted in 2007, 2006, or 2005.

SFAS No. 123(R) requires companies to use the fair value of employee stock options and similar awards at the grant date to value the awards. SFAS No. 123(R) was effective for us on January 1, 2006. We elected to adopt the modified prospective method recognition provisions of this Statement instead of retrospective restatement. We adopted the fair value method of accounting for share-based awards effective December 2002. Therefore, SFAS No. 123(R) did not have a significant impact on our results of operations when it became effective.

11: LEASES

We lease various assets, including service vehicles, railcars, gas pipeline capacity and buildings. In accordance with SFAS No. 13, we account for a number of our power purchase agreements as capital and operating leases.

Operating leases for coal-carrying railcars have lease terms expiring over the next 15 years. These leases contain fair market value extension and buyout provisions, with some providing for predetermined extension period rentals. Capital leases for our vehicle fleet operations have a maximum term of 120 months and TRAC end-of-life provisions.

We have capital leases for gas transportation pipelines to the Karn generating complex and Zeeland power plant. The capital lease for the gas transportation pipeline into the Karn generating complex has a term of 15 years with a provision to extend the contract from month to month. The capital lease for the gas transportation pipeline to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Zeeland power plant has a lease term of 12 years with a renewal provision at the end of the contract. The remaining term of our long-term power purchase agreements range between 5 and 22 years. Most of our power purchase agreements contain provisions at the end of the initial contract terms to renew the agreements annually.

Consumers is authorized by the MPSC to record both capital and operating lease payments as operating expense and recover the total cost from our customers. The following table summarizes our capital and operating lease expenses:

Years Ended December 31	2007			2006			2005
	(In Millions)
Capital lease expense	$	34		$	15		$	14
Operating lease expense		23			19			18
Income from subleases		(2	)		(2	)		(2	)

Minimum annual rental commitments under our non-cancelable leases at December 31, 2007 are:

	Capital		Finance
	Leases		Lease(b)		Operating
	(In Millions)
2008	$	21	$	13	$	26
2009		16		13		24
2010		15		13		21
2011		13		13		21
2012		14		13		21
2013 and thereafter		53		122		94
Total minimum lease payments(a)		132		187	$	207
Less imputed interest		64		—
Present value of net minimum lease payments		68		187
Less current portion		17		13
Non-current portion	$	51	$	174

(a)

Minimum payments have not been reduced by minimum sublease rentals of $3 million due in the future under noncancelable subleases.

(b)

In April 2007, we sold Palisades to Entergy and entered into a 15-year power purchase agreement to buy all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. We provided $30 million in security to Entergy for our power purchase agreement obligation in the form of a letter of credit. We estimate that capacity and energy payments under the Palisades power purchase agreement will average $300 million annually. Our total purchases of capacity and energy under the Palisades power purchase agreement were $180 million in 2007.

Because of the Palisades power purchase agreement and our continuing involvement with the Palisades assets, we accounted for the disposal of Palisades as a financing and not a sale. SFAS No. 98 specifies the accounting required for a seller’s sale and simultaneous leaseback involving real estate. We have continuing involvement with Palisades through security provided to Entergy for our power purchase agreement obligation and our DOE liability and other forms of involvement. As a result, we accounted for the Palisades plant, which is the real estate asset subject to the leaseback, as a financing for accounting purposes and not a sale. As a financing, no gain on the sale of Palisades was recognized in the Consolidated Statements of Income (Loss). We accounted for the remaining non-real estate assets and liabilities associated with the transaction as a sale.

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As a financing, the Palisades plant remains on our Consolidated Balance Sheets and we continue to depreciate it. We recorded the related proceeds as a finance obligation with payments recorded to interest expense and the finance obligation based on the amortization of the obligation over the life of the Palisades power purchase agreement. The value of the finance obligation was based on an allocation of the transaction proceeds to the fair values of the net assets sold and fair value of the Palisades plant asset under the financing. Total charges under the financing were $10 million in 2007.

12: PROPERTY, PLANT, AND EQUIPMENT

The following table is a summary of our property, plant, and equipment:

	Estimated
	Depreciable
December 31	Life in Years		2007		2006
			(In Millions)
Electric:
Generation		13-85	$	3,328	$	3,573
Distribution		12-75		4,496		4,425
Other		7-40		438		421
Capital and finance leases(a)				293		85
Gas:
Underground storage facilities(b)		30-65		267		263
Transmission		15-75		570		465
Distribution		40-75		2,286		2,216
Other		7-50		320		300
Capital leases(a)				24		29
Enterprises:
IPP		3-40		378		415
CMS Gas Transmission		3-40		—		25
CMS Electric and Gas		2-30		2		2
Other		4-25		11		11
Other:		7-71		34		33
Construction work-in-progress				447		639
Less accumulated depreciation, depletion, and amortization(c)				4,166		5,194
Net property, plant, and equipment(d)			$	8,728	$	7,708

(a)	Capital and finance leases presented in this table are gross amounts. Accumulated amortization of capital and finance leases was $62 million at December 31, 2007 and $59 million at December 31, 2006. Additions were $229 million during 2007, which includes $197 million related to assets under the Palisades finance lease. Retirements and adjustments were $26 million during 2007. Additions were $7 million and Retirements and adjustments were $6 million during 2006.
(b)	Includes unrecoverable base natural gas in underground storage of $26 million at December 31, 2007 and December 31, 2006, which is not subject to depreciation.
(c)	At December 31, 2007, accumulated depreciation, depletion, and amortization included $3.992 billion from our utility plant assets and $174 million from other plant assets. At December 31, 2006, accumulated depreciation, depletion, and amortization included $5.017 billion from our utility plant assets and $177 million from other plant assets.

CMS-92

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(d) At December 31, 2007, utility plant additions, including capital leases, were $1.303 billion and utility plant retirements, including other plant adjustments, were $1.094 billion. At December 31, 2006, utility plant additions were $470 million and utility plant retirements, including other plant adjustments, were $82 million.

Included in net property, plant and equipment are intangible assets. The following table summarizes our intangible assets:

	Amortization		2007				2006
December 31	Life in				Accumulated				Accumulated
Description	years		Gross Cost		Amortization		Gross Cost		Amortization
			In Millions
Software development		7-15	$	207	$	170	$	204	$	153
Rights of way		50-75		116		32		114		31
Leasehold improvements		various		19		16		19		15
Franchises and consents		various		14		5		19		10
Other intangibles		various		20		14		23		14
Total			$	376	$	237	$	379	$	223

Pretax amortization expense related to these intangible assets was $21 million for the year ended December 31, 2007, $23 million for the year ended December 31, 2006 and $21 million for the year ended December 31, 2005. Amortization of intangible assets is forecasted to range between $12 million and $22 million per year over the next five years.

Asset Acquisition: In December 2007, we purchased a 935 MW gas-fired power plant located in Zeeland, Michigan for $519 million from an affiliate of LS Power Group. The original cost of the plant was $350 million and the plant acquisition adjustment was $213 million. This results in an increase to property, plant, and equipment of $519 million, net of $44 million of accumulated depreciation. The purchase also increased capital leases by $12 million. For additional details on the Zeeland finance lease, see Note 11, Leases.

13: EQUITY METHOD INVESTMENTS

We account for certain investments in other companies, partnerships, and joint ventures using the equity method, in accordance with APB Opinion No. 18, when we have significant influence, typically when ownership is more than 20 percent but less than a majority. Earnings from equity method investments was $40 million in 2007, $89 million in 2006, and $125 million in 2005. The amount of consolidated retained earnings that represents undistributed earnings from these equity method investments was $22 million as of December 31, 2007, $14 million as of December 31, 2006, and $17 million as of December 31, 2005.

If assets or income from continuing operations associated with any of our equity method investments exceeds 10 percent of our consolidated assets or income, then summarized financial data of that subsidiary must be presented in our notes. If assets or income from continuing operations associated with any of our equity method investments exceeds 20 percent of our consolidated assets or income, then separate audited financial statements must be presented as an exhibit to our Form 10-K.

At December 31, 2007, no equity method investments exceeded the 10 percent threshold. At December 31, 2006, and December 31, 2005, Jorf Lasfar exceeded the 10 percent threshold and no equity method investments exceeded the 20 percent threshold.

CMS-93

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Income Statement Data

	Year Ended
	December 31, 2007
	Total(b)
	(In Millions)
Operating revenue	$	598
Operating expenses		448
Operating income		150
Other expense, net		69
Net income	$	81

	Year Ended
	December 31, 2006
	Jorf
	Lasfar(a)		Total(b)
	(In Millions)
Operating revenue	$	482	$	2,093
Operating expenses		317		1,600
Operating income		165		493
Other expense, net		57		252
Net income	$	108	$	241

	Year Ended
	December 31, 2005
	Jorf
	Lasfar(a)		Total(b)
	(In Millions)
Operating revenue	$	508	$	2,058
Operating expenses		340		1,530
Operating income		168		528
Other expense, net		56		243
Net income	$	112	$	285

CMS-94

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Balance Sheet Data

	December 31, 2007
	Total(b)
	(In Millions)
Assets
Current assets	$	7
Property, plant and equipment, net		6
Other assets		177
	$	190
Liabilities
Current liabilities	$	4
Long-term debt and other non-current liabilities		—
Equity		186
	$	190

	December 31, 2006
	Jorf
	Lasfar(a)		Total(b)
Assets
Current assets	$	239	$	794
Property, plant and equipment, net		15		2,946
Other assets		1,047		1,527
	$	1,301	$	5,267
Liabilities
Current liabilities	$	272	$	818
Long-term debt and other non-current liabilities		403		3,124
Equity		626		1,325
	$	1,301	$	5,267

(a)	We sold our investment in Jorf Lasfar in 2007. At December 31, 2006 our investment in Jorf Lasfar was $313 million. Our share of net income from Jorf Lasfar was $16 million for the period January 1, 2007 through May 1, 2007, $54 million for the year ended December 31, 2006, and $56 million for the year ended December 31, 2005.
(b)	Amounts include financial data from our international equity method investments through the date of sale.

CMS-95

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14: JOINTLY OWNED REGULATED UTILITY FACILITIES

We have investments in jointly owned regulated utility facilities, as shown in the following table:

	Ownership						Accumulated				Construction
	Share		Net Investment(a)				Depreciation				Work in Progress
December 31	(%)		2007		2006		2007		2006		2007		2006
	(In Millions)
Campbell Unit 3		93.3	$	664	$	262	$	337	$	370	$	44	$	353
Ludington		51.0		65		68		104		95		1		1
Distribution		Various		89		98		44		47		5		4

(a) Net investment is the amount of utility plant in service less accumulated depreciation.

We include our share of the direct expenses of the jointly owned plants in operating expenses. We share operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. We are required to provide only our share of financing for the jointly owned utility facilities.

15: REPORTABLE SEGMENTS

Our reportable segments consist of business units defined by the products and services they offer. We evaluate performance based on the net income of each segment. These reportable segments are:

•  electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan through our subsidiary, Consumers,

•  gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan through our subsidiary, Consumers, and

•  enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production.

Accounting policies of our segments are as described in the summary of significant accounting policies. Our consolidated financial statements reflect the assets, liabilities, revenues, and expenses of the individual segments when appropriate. We allocate accounts among the segments when common accounts are attributable to more than one segment. The allocations are based on certain measures of business activities, such as revenue, labor dollars, customers, other operation and maintenance expense, construction expense, leased property, taxes or functional surveys. For example, customer receivables are allocated based on revenue, and pension provisions are allocated based on labor dollars.

We account for inter-segment sales and transfers at current market prices and eliminate them in consolidated net income (loss) by segment. The “Other” segment includes corporate interest and other expenses, and certain deferred income taxes. We have reclassified certain amounts in 2006 and 2005 to include CMS Capital results in the Other segment.

CMS-96

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables provide financial information by reportable segment:

Years Ended December 31	2007			2006			2005
	(In Millions)
Operating Revenues
Electric utility	$	3,443		$	3,302		$	2,695
Gas utility		2,621			2,373			2,483
Enterprises		383			438			693
Other		17			13			8
	$	6,464		$	6,126		$	5,879
Earnings from Equity Method Investees
Enterprises	$	39		$	87		$	124
Other		1			2			1
	$	40		$	89		$	125
Depreciation, Depletion, and Amortization
Electric utility	$	397		$	380		$	292
Gas utility		127			122			117
Enterprises		12			44			93
Other		4			4			2
	$	540		$	550		$	504
Interest Charges
Electric utility	$	192		$	164		$	132
Gas utility		69			73			68
Enterprises		9			66			69
Other		168			177			194
	$	438		$	480		$	463
Income Tax Expense (Benefit)
Electric utility	$	100		$	95		$	85
Gas utility		47			18			39
Enterprises		(183	)		(145	)		(203	)
Other		(159	)		(156	)		(101	)
	$	(195	)	$	(188	)	$	(180	)
Net Income (Loss) Available to Common Stockholders
Electric utility	$	196		$	199		$	153
Gas utility		87			37			48
Enterprises		(391	)		(227	)		(217	)
Discontinued operations(a)		(89	)		54			57
Other		(30	)		(153	)		(135	)
	$	(227	)	$	(90	)	$	(94	)

CMS-97

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Years Ended December 31	2007		2006		2005
	(In Millions)
Investments in equity method investees
Enterprises	$	6	$	556	$	698
Other		5		10		13
	$	11	$	566	$	711
Total Assets
Electric utility(b)	$	8,492	$	8,516	$	7,755
Gas utility(b)		4,102		3,950		3,609
Enterprises		986		1,947		3,616
Other		616		958		1,061
	$	14,196	$	15,371	$	16,041
Capital Expenditures(c)
Electric utility	$	1,319	$	462	$	384
Gas utility		168		172		168
Enterprises		5		42		50
Other		—		1		3
	$	1,492	$	677	$	605

Geographic Areas(d)

	2007			2006			2005
	(In Millions)
United States
Operating revenue	$	6,462		$	6,123		$	5,877
Operating income (loss)		151			85			(468	)
Total Assets	$	14,191		$	14,123		$	14,675
International
Operating revenue	$	2		$	3		$	2
Operating income (loss)		(150	)		(139	)		123
Total Assets	$	5		$	1,248		$	1,366

(a)	Amounts include an income tax benefit of $1 million for December 31, 2007, and income tax expense of $32 million for December 31, 2006 and $20 million for December 31, 2005.
(b)	Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.
(c)	Amounts include purchase of nuclear fuel and capital lease additions. Amounts also include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.
(d)	Revenues are based on the country location of customers.

CMS-98

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16: CONSOLIDATION OF VARIABLE INTEREST ENTITIES

We are the primary beneficiary of three variable interest entities through our 50 percent ownership interests in the following partnerships:

•  T.E.S. Filer City Station Limited Partnership,

•  Grayling Generating Station Limited Partnership, and

•  Genesee Power Station Limited Partnership.

Additionally, we have operating and management contracts with these partnerships and we are the primary purchaser of power from each partnership through long-term power purchase agreements. Collectively, these interests make us the primary beneficiary of these entities, and we consolidated them for all periods presented. The partnerships have third-party obligations totaling $83 million at December 31, 2007 and $97 million at December 31, 2006. Property, plant, and equipment serving as collateral for these obligations have a carrying value of $180 million at December 31, 2007 and $157 million at December 31, 2006. Other than through outstanding letters of credit and guarantees of $5 million, the creditors of these partnerships do not have recourse to the general credit of CMS Energy.

17: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)

	2007
Quarters Ended	March 31			June 30			Sept. 30		Dec. 31(d)
	(In Millions, Except Per Share Amounts)
Operating revenue	$	2,189		$	1,319		$	1,282	$	1,674
Operating income (loss)		(24	)		7			212		(194	)
Income (loss) from continuing operations		(33	)		(55	)		84		(122	)
Income (loss) from discontinued operations(a)		(178	)		91			—		(2	)
Net income (loss)		(211	)		36			84		(124	)
Preferred dividends		3			3			2		3
Redemption premium on preferred stock		1			—			—		—
Net income (loss) available to common stockholders		(215	)		33			82		(127	)
Income (loss) from continuing operations per average common share — basic		(0.17	)		(0.26	)		0.37		(0.56	)
Income (loss) from continuing operations per average common share — diluted		(0.17	)		(0.26	)		0.34		(0.56	)
Basic earnings (loss) per average common share(b)		(0.97	)		0.15			0.37		(0.57	)
Diluted earnings (loss) per average common share(b)		(0.97	)		0.15			0.34		(0.57	)
Common stock prices(c)
High		18.21			18.93			17.90		17.91
Low		16.00			16.78			15.48		16.06

CMS-99

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

	2006
Quarters Ended	March 31			June 30		Sept. 30			Dec. 31(e)
	(In Millions, Except Per Share Amounts)
Operating revenue	$	1,897		$	1,219	$	1,288		$	1,722
Operating income (loss)		(21	)		69		(27	)		(75	)
Income (loss) from continuing operations		(33	)		63		(112	)		(51	)
Income from discontinued operations(a)		9			12		11			22
Net income (loss)		(24	)		75		(101	)		(29	)
Preferred dividends		3			3		2			3
Net income (loss) available to common stockholders		(27	)		72		(103	)		(32	)
Income (loss) from continuing operations per average common share — basic		(0.16	)		0.27		(0.52	)		(0.25	)
Income (loss) from continuing operations per average common share — diluted		(0.16	)		0.26		(0.52	)		(0.25	)
Basic earnings (loss) per average common share(b)		(0.12	)		0.33		(0.47	)		(0.15	)
Diluted earnings (loss) per average common share(b)		(0.12	)		0.31		(0.47	)		(0.15	)
Common stock prices(c)
High		15.22			13.66		14.79			16.95
Low		12.95			12.46		12.92			14.55

(a)	Net of tax.
(b)	Sum of the quarters may not equal the annual loss per share due to changes in shares outstanding.
(c)	Based on New York Stock Exchange composite transactions.
(d)	The quarter ended December 31, 2007, includes a $181 million net after-tax charge resulting from an electricity sales agreement termination. For additional details, see Note 3, Contingencies — “Other Contingencies.”
(e)	The quarter ended December 31, 2006 includes a $41 million net loss on the sale of our investment in the MCV Partnership, including the associated asset impairment charge. The quarter also includes an $80 million net after-tax charge resulting from our agreement to settle shareholder class action lawsuits. For additional details, see Note 2, Asset Sales, Discontinued Operations and Impairment Charges and Note 3, Contingencies.

CMS-100

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income (loss), of cash flows, and of common stockholders’ equity present fairly, in all material respects, the financial position of CMS Energy Corporation and its subsidiaries at December 31, 2007, and the results of their operations and their cash flows for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the Index at Item 15(a)2 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

As discussed in note 9 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain income tax provisions in 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/  PricewaterhouseCoopers LLP

Detroit, Michigan

February 20, 2008

CMS-101

Report of Independent Registered Public Accounting Firm

To the Partners and the Management Committee of

Midland Cogeneration Venture Limited Partnership:

In our opinion, the accompanying balance sheets and the related statements of operations, of partners’ equity (deficit) and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Midland Cogeneration Venture Limited Partnership at November 21, 2006 and December 31, 2005, and the results of its operations and its cash flows for the period ended November 21, 2006 and the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

Detroit, Michigan

February 19, 2007

CMS-102

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of CMS Energy Corporation

We have audited the accompanying consolidated balance sheets of CMS Energy Corporation (a Michigan Corporation) as of December 31, 2006, and the related consolidated statements of income (loss), common stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2006. Our audits also included the financial statement schedules as it relates to 2006 and 2005 listed in the Index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of Midland Cogeneration Venture Limited Partnership, a former 49% owned variable interest entity which has been consolidated through the date of sale, November 21, 2006 (Note 2), which statements reflect total revenues constituting 8.9% in 2006 and 10.1% in 2005 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for the periods indicated above for Midland Cogeneration Venture Limited Partnership is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CMS Energy Corporation at December 31, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 7 to the consolidated financial statements, in 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” As discussed in Note 10 to the consolidated financial statements, in 2006, the Company adopted FASB Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment.”

/s/ Ernst & Young LLP

Detroit, Michigan

February 21, 2007, except for “Discontinued

Operations” in Note 2 as to which the date

is February 20, 2008

CMS-103

2007 CONSOLIDATED FINANCIAL STATEMENTS

CE-1

CONSUMERS ENERGY COMPANY

SELECTED FINANCIAL INFORMATION

				2007		2006		2005			2004			2003
Operating revenue (in millions)	($		)		6,064		5,721		5,232			4,711			4,435
Earnings from equity method investees (in millions)	($		)		—		1		1			1			42
												—
Income (loss) before cumulative effect of change in accounting principle (in millions)	($		)		312		186		(96	)		280			196
Cumulative effect of change in accounting (in millions)	($		)		—		—		—			(1	)		—
Net income (loss) (in millions)	($		)		312		186		(96	)		279			196
Net income (loss) available to common stockholder (in millions)	($		)		310		184		(98	)		277			194
Cash provided by operations (in millions)	($		)		442		473		639			595			5
Capital expenditures, excluding capital lease additions (in millions)	($		)		1,258		646		572			508			486
Total assets (in millions)(a)	($		)		13,401		12,845		13,178			12,811			10,745
Long-term debt, excluding current portion (in millions)(a)	($		)		3,692		4,127		4,303			4,000			3,583
Long-term debt — related parties, excluding current portion (in millions)	($		)		—		—		—			326			506
Non-current portion of capital and finance lease obligations (in millions)	($		)		225		42		308			315			58
Total preferred stock (in millions)	($		)		44		44		44			44			44
Number of preferred shareholders at year-end					1,641		1,728		1,823			1,931			2,032
Book value per common share at year-end	($		)		43.37		35.17		33.03			28.68			24.51
Number of full-time equivalent employees at year-end					7,614		8,026		8,114			8,050			7,947
Electric statistics
Sales (billions of kWh)					39		38		39			38			38
Customers (in thousands)					1,799		1,797		1,789			1,772			1,754
Average sales rate per kWh		(c	)		8.65		8.46		6.73			6.88			6.91
Gas Utility Statistics
Sales and transportation deliveries (bcf)					340		309		350			385			380
Customers (in thousands)(b)					1,710		1,714		1,708			1,691			1,671
Average sales rate per mcf	($		)		10.66		10.44		9.61			8.04			6.72

(a)

Until their sale in November 2006 , we were the primary beneficiary of both the MCV Partnership and the FMLP. As a result, we consolidated their assets, liabilities and activities into our consolidated financial statements as of and for the years ended December 31, 2005 and 2004. These partnerships had third party obligations totaling $482 million at December 31, 2005 and $582 million at December 31, 2004. Property, plant and equipment serving as collateral for these obligations had a carrying value of $224 million at December 31, 2005 and $1.426 billion at December 31, 2004.

(b)

Excludes off-system transportation customers.

CE-2

Consumers Energy Company

Consumers Energy Company

Management’s Discussion and Analysis

In this MD&A, Consumers Energy, which includes Consumers Energy Company and all of its subsidiaries, is at times referred to in the first person as “we,” “our” or “us.”

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-K and other written and oral statements that we make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our intention with the use of words such as “may,” “could,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” and other similar words is to identify forward-looking statements that involve risk and uncertainty. We designed this discussion of potential risks and uncertainties to highlight important factors that may impact our business and financial outlook. We have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause our actual results to differ materially from the results anticipated in these statements. Such factors include our inability to predict and (or) control:

•  the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of such market conditions on the Pension Plan, interest rates, and access to the capital markets, including availability of financing to Consumers, CMS Energy, or any of their affiliates, and the energy industry,

•  market perception of the energy industry, Consumers, CMS Energy, or any of their affiliates,

•  factors affecting utility and diversified energy operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints,

•  the impact of any future regulations or laws regarding carbon dioxide and other greenhouse gas emissions,

•  national, regional, and local economic, competitive, and regulatory policies, conditions and developments,

•  adverse regulatory or legal decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with such decisions,

•  potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant questions currently or potentially before the MPSC, including:

•  recovery of Clean Air Act capital and operating costs and other environmental and safety-related expenditures,

•  recovery of power supply and natural gas supply costs,

•  timely recognition in rates of additional equity investments and additional operation and maintenance expenses at Consumers,

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

•  adequate and timely recovery of higher MISO energy and transmission costs,

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

•  timely recovery of costs associated with energy efficiency investments and any state or federally mandated renewables resource standard,

•  recovery of Palisades sale related costs,

•  approval of the Balanced Energy Initiative, and

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•  authorization of a new clean coal plant.

•  the effects on our ability to purchase capacity to serve our customers and fully recover the cost of these purchases, if the owners of the MCV Facility exercise their right to terminate the MCV PPA,

•  our ability to prevail in the exercise of our regulatory out rights under the MCV PPA,

•  our ability to recover Big Rock decommissioning funding shortfalls and nuclear fuel storage costs due to the DOE’s failure to accept spent nuclear fuel on schedule, including the outcome of pending litigation with the DOE,

•  federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of our market-based sales authorizations in wholesale power markets without price restrictions,

•  energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity and certain related products due to lower or higher demand, shortages, transportation problems, or other developments,

•  our ability to collect accounts receivable from our customers,

•  earnings volatility resulting from the GAAP requirement that we apply mark-to-market accounting on certain energy commodity contracts and interest rate swaps,

•  the effect on our utility and utility revenues of the direct and indirect impacts of the continued economic downturn in Michigan,

•  potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for such events,

•  technological developments in energy production, delivery, and usage,

•  achievement of capital expenditure and operating expense goals,

•  changes in financial or regulatory accounting principles or policies,

•  changes in tax laws or new IRS interpretations of existing or past tax laws,

•  changes in federal or state regulations or laws that could have an impact on our business,

•  the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations or claims,

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

•  credit ratings of Consumers or CMS Energy, and

•  other business or investment considerations that may be disclosed from time to time in Consumers’ or CMS Energy’s SEC filings, or in other publicly issued written documents.

For additional information regarding these and other uncertainties, see the “Outlook” section included in this MD&A, Note 3, Contingencies, and Item 1A. Risk Factors.

EXECUTIVE OVERVIEW

Consumers, a subsidiary of CMS Energy, a holding company, is a combination electric and gas utility company serving in Michigan’s Lower Peninsula. Our customer base includes a mix of residential, commercial, and diversified industrial customers.

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We manage our business by the nature of services each provides and operate principally in two business segments: electric utility and gas utility. Our electric utility operations include the generation, purchase, distribution, and sale of electricity. Our gas utility operations include the purchase, transportation, storage, distribution, and sale of natural gas.

We earn our revenue and generate cash from operations by providing electric and natural gas utility services, electric power generation, gas distribution, transmission, and storage, and other energy related services. Our businesses are affected primarily by:

•  weather, especially during the normal heating and cooling seasons,

•  economic conditions,

•  regulation and regulatory issues,

•  energy commodity prices,

•  interest rates, and

•  our debt credit rating.

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

We sold Palisades to Entergy in April 2007 for $380 million, and received $363 million after various closing adjustments. We also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. We entered into a 15-year power purchase agreement with Entergy for 100 percent of the plant’s current electric output. The sale improved our cash flow, reduced our nuclear operating and decommissioning risk, and increased our financial flexibility to support other utility investments. The MPSC order approving the transaction requires that we credit $255 million of excess proceeds and decommissioning amounts to our retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $134 million above the amount in the MPSC order. The distribution of these additional amounts has not yet been addressed by the MPSC.

In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership may, under certain circumstances, have the right to terminate or reduce the amount of capacity sold under the MCV PPA, which could affect our need to build or purchase additional generating capacity. The MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision.

In May 2007, we filed with the MPSC our Balanced Energy Initiative, which is a comprehensive plan to meet customer energy needs over the next 20 years. The plan is designed to meet the growing customer demand for electricity with energy efficiency, demand management, expanded use of renewable energy, and development of new power plants to complement existing generating sources. In September 2007, we filed with the MPSC the second phase of our Balanced Energy Initiative, which contains our plan for construction of a new 800 MW clean coal plant at an existing site located near Bay City, Michigan.

In December 2007, we purchased a 935 MW natural gas-fired power plant located in Zeeland, Michigan from Broadway Gen Funding LLC, an affiliate of LS Power Group, for $519 million. This plant fits in with our Balanced Energy Initiative as it will help provide the capacity we need to meet the growing needs of our customers.

In the future, we will continue to focus on:

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

•  growing earnings while controlling operating and fuel costs,

•  managing cash flow issues, and

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•  maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

As we execute our strategy, we will need to overcome a sluggish Michigan economy that has been hampered by negative developments in Michigan’s automotive industry and limited growth in the non-manufacturing sectors of the state’s economy. While the recent sub-prime mortgage market weakness has disrupted financial markets and the U.S. economy, it has not impacted materially our financial condition. We will continue to monitor developments for potential impacts on our business.

RESULTS OF OPERATIONS

Net Income (Loss) Available to Common Stockholder

Years Ended December 31	2007		2006			Change			2006			2005			Change
	In Millions
Electric	$	196	$	199		$	(3	)	$	199		$	153			46
Gas		87		37			50			37			48			(11	)
Other (Includes The MCV Partnership interest)		27		(52	)		79			(52	)		(299	)		247
Net Income (Loss) Available to Common Stockholder	$	310	$	184		$	126		$	184		$	(98	)	$	282

For 2007, our net income available to our common stockholder was $310 million, compared to $184 million for 2006. In 2006, we sold our ownership interest in the MCV Partnership. Accordingly, in 2007, we are no longer experiencing mark-to-market losses on certain long-term gas contracts and associated financial hedges at the MCV Partnership. The increase in 2007 also reflects higher net income from our gas utility due to colder weather, and gas rate increases authorized in November 2006 and August 2007. Partially offsetting these gains was a small decrease in electric net income, influenced by several factors, including regulatory disallowances in 2007, higher property taxes, and higher electric deliveries.

Specific changes to net income available to our common stockholder for 2007 versus 2006 are:

		In Millions
•	lower operating and maintenance costs primarily due to the sale of Palisades in April 2007,	$	82
•	decrease in losses from our ownership interest in the MCV Partnership primarily due to the absence, in 2007, of mark-to-market losses on certain long-term gas contracts and financial hedges,		60
•	increase in gas delivery revenue primarily due to the MPSC’s November 2006 and August 2007 gas rate orders,		47
•	decrease in other income tax adjustments primarily due to higher expected utilization of capital loss carryforwards,		14
•	increase in electric revenue primarily due to favorable weather and higher surcharge revenue,		16
•	increase in gas delivery revenue primarily due to colder weather,		12
•	decrease due to electric revenue being used to offset costs incurred under our power purchase agreement with Entergy,		(88	)
•	increase in general taxes, primarily due to higher property tax expense,		(14	)
•	increase in interest charges, and		(7	)
•	other net increases to income.		4
Total change		$	126

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For 2006, our net income available to our common stockholder was $184 million, compared to a net loss available to our common stockholder of $98 million for 2005. The increase was primarily due to the absence of a 2005 impairment charge to property, plant, and equipment at the MCV Partnership partially offset by charges related to the sale of the MCV Partnership recorded in 2006. For additional details on the impairment and sale of the MCV Facility, see Note 2, Asset Sales and Impairment Charges. The increase also reflects higher net income from our electric utility, primarily due to increased revenue resulting from an electric rate order, the expiration of rate caps on our residential customers, and the return of former ROA customers to full-service rates. Partially offsetting these increases were higher operating and maintenance costs at our electric utility, and a reduction in net income from our gas utility. Lower, weather-driven sales at our gas utility exceeded the benefits from lower operating costs and a gas rate increase authorized by the MPSC in November of 2006.

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

		In Millions
•	the net impact of activities associated with the MCV Partnership as the absence of a 2005 impairment charge and improved operations in 2006 more than offset the negative effects of mark-to-market activity and charges related to the sale of our interest in the MCV Partnership,	$	225
•	increase in electric delivery revenue primarily due to a December 2005 electric rate order,		165
•	increase in earnings due to the expiration of rate caps that, in 2005, would not allow us to recover fully our power supply costs from our residential customers,		37
•	increase in gas wholesale and retail services and other gas revenue associated with pipeline capacity optimization,		16
•	increase in return on electric utility capital expenditures in excess of depreciation base as allowed by the Customer Choice Act,		14
•	decrease in income taxes primarily due to an IRS audit settlement,		14
•	increase in operating expenses primarily due to higher depreciation and amortization expense, higher electric maintenance expense, and higher customer service expense,		(101	)
•	decrease in gas delivery revenue primarily due to lower, weather-driven sales,		(31	)
•	increase in operating expenses primarily due to costs related to a planned refueling outage at our Palisades nuclear plant,		(29	)
•	increase in interest charges, and		(20	)
•	increase in general tax expense, primarily due to higher property tax expense.		(8	)
Total change		$	282

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Electric Utility Results of Operations

Years Ended December 31	2007		2006		Change			2006		2005		Change
					In Millions
Net income	$	196	$	199	$	(3	)	$	199	$	153	$	46
Reasons for the change:
Electric deliveries					$	18						$	193
Surcharge revenue						6							61
Palisades revenue to PSCR						(136	)						—
Power supply costs and related revenue						(17	)						57
Other operating expenses, other income, and non-commodity revenue						159							(236	)
Regulatory return on capital expenditures						5							22
General taxes						(15	)						(7	)
Interest charges						(18	)						(34	)
Income taxes						(5	)						(10	)
Total change					$	(3	)					$	46

Electric deliveries: For 2007, electric delivery revenues increased $18 million versus 2006, as deliveries to end-use customers were 38.8 billion kWh, an increase of 0.3 billion kWh or 0.8 percent versus 2006. The increase in electric deliveries was primarily due to favorable weather, which resulted in an increase in electric delivery revenues of $14 million. The increase also reflects $2 million of additional revenue from the inclusion of the Zeeland power plant in rates and $2 million related to the return of additional former ROA customers.

For 2006, electric delivery revenues increased by $193 million over 2005 despite the fact that electric deliveries to end-use customers were 38.5 billion kWh, a decrease of 0.4 billion kWh or 1.2 percent versus 2005. The decrease in deliveries was primarily due to milder summer weather compared with 2005, which resulted in a decrease in revenue of $16 million. However, despite these lower electric deliveries, electric delivery revenues increased $160 million due to an approved electric rate order in December 2005 and $49 million related to the return of additional former ROA customers.

Surcharge revenue: For 2007, the $6 million increase in surcharge revenue was primarily due to a surcharge that we started collecting in the first quarter of 2006 that the MPSC authorized under Section 10d(4) of the Customer Choice Act. The surcharge factors increased in January 2007 pursuant to an MPSC order. This surcharge increased electric delivery revenue by $13 million in 2007 versus 2006. Partially offsetting this increase was a decrease in the collection of Customer Choice Act transition costs, due to the expiration of the surcharge period for our large commercial and industrial customers. The absence of this surcharge decreased electric delivery revenue by $7 million in 2007 versus 2006.

In the first quarter of 2006, we started collecting the surcharge that the MPSC authorized under Section 10d(4) of the Customer Choice Act. This surcharge increased electric delivery revenue by $51 million in 2006 versus 2005. In addition, in the first quarter of 2006, we started collecting customer choice transition costs from our residential customers that increased electric delivery revenue by $12 million in 2006 versus 2005. Reductions in other surcharges decreased electric delivery revenue by $2 million in 2006 versus 2005.

Palisades revenue to PSCR: Consistent with the MPSC order related to the April 2007 sale of Palisades, $136 million of revenue related to Palisades was designated toward recovery of PSCR costs.

Power supply costs and related revenue: For 2007, PSCR revenue decreased by $17 million versus 2006. This decrease primarily reflects amounts excluded from recovery in the 2006 PSCR reconciliation case. The

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decrease also reflects the absence, in 2007, of an increase in Power Supply Revenue associated with the 2005 PSCR reconciliation case.

For 2006, PSCR revenue increased $57 million versus 2005. The increase was due to the absence, in 2006, of rate caps which allowed us to record power supply revenue to offset fully our power supply costs. Our ability to recover these power supply costs resulted in an $82 million increase in electric revenue in 2006 versus 2005. Additionally, electric revenue increased $9 million in 2006 versus 2005 primarily due to the return of former special-contract customers to full-service rates in 2006. Partially offsetting these increases was the absence, in 2006, of deferrals of transmission and nitrogen oxides allowance expenditures related to our capped customers recorded in 2005. These costs were not fully recoverable due to the application of rate caps, so we deferred them for recovery under Section 10d(4) of the Customer Choice Act. In December 2005, the MPSC approved the recovery of these costs. For 2005, deferrals of these costs were $34 million.

Other operating expenses, other income, and non-commodity revenue: For 2007, other operating expenses decreased $150 million, other income increased $21 million, and non-commodity revenue decreased $12 million versus 2006.

The decrease in other operating expenses was primarily due to lower operating and maintenance expense. Operating and maintenance expense decreased primarily due to the sale of Palisades in April 2007. Also contributing to the decrease was the absence, in 2007, of costs incurred in 2006 related to a planned refueling outage at Palisades, and lower overhead line maintenance and storm restoration costs. These decreases were partially offset by increased depreciation and amortization expense due to higher plant in service and greater amortization of certain regulatory assets.

Other income increased in 2007 versus 2006 primarily due to higher interest income on short-term cash investments. The increase in short-term cash investments was primarily due to proceeds from the Palisades sale and equity infusions from CMS Energy. Non-commodity revenue decreased in 2007 versus 2006 primarily due to lower transmission services revenue.

For 2006, other operating expenses increased $236 million versus 2005. The increase in other operating expenses reflects higher operating and maintenance, customer service, depreciation and amortization, and pension and benefit expenses. Operating and maintenance expense increased primarily due to costs related to a planned refueling outage at Palisades, and higher tree trimming and storm restoration costs.

Regulatory return on capital expenditures: For 2007, the return on capital expenditures in excess of our depreciation base increased income by $5 million versus 2006. The increase reflects the equity return on the regulatory asset authorized by the MPSC’s December 2005 order which provided for the recovery of $333 million of Section 10d(4) costs over five years.

For 2006, the return on capital expenditures in excess of our depreciation base increased income by $22 million versus 2005.

General taxes: For 2007, the $15 million increase in general taxes versus 2006 was primarily due to higher property tax expense, reflecting higher millage rates and lower property tax refunds versus 2006.

For 2006, the $7 million increase in general taxes versus 2005 reflects higher MSBT expense, partially offset by property tax refunds.

Interest charges: For 2007, interest charges increased $18 million versus 2006. The increase was primarily due to interest on amounts to be refunded to customers as a result of the sale of Palisades as ordered by the MPSC.

For 2006, interest charges increased $34 million versus 2005 primarily due to lower capitalized interest and interest expense related to an IRS income tax audit settlement. In 2005, we capitalized $33 million of interest in connection with the MPSC’s December 2005 order in our Section 10d(4) Regulatory Asset case. The IRS income tax settlement in 2006 recognized that our taxable income for prior years was higher than originally filed, resulting in interest on the tax liability for these prior years.

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Income taxes: For 2007, income taxes increased $5 million versus 2006 primarily due to the absence, in 2007, of a $4 million income tax benefit from the restoration and utilization of income tax credits resulting from the resolution of an IRS income tax audit.

For 2006, income taxes increased $10 million versus 2005 primarily due to higher earnings by the electric utility, partially offset by the resolution of an IRS income tax audit, which resulted in a $4 million income tax benefit caused by the restoration and utilization of income tax credits. Further reducing the increase in income taxes was $5 million of income tax benefits, primarily reflecting the tax treatment of items related to property, plant and equipment as required by past MPSC orders.

Gas Utility Results of Operations

Years Ended December 31	2007		2006		Change			2006		2005		Change
					In Millions
Net income	$	87	$	37	$	50		$	37	$	48	$	(11	)
Reasons for the change:
Gas deliveries					$	10						$	(61	)
Gas rate increase						81							14
Gas wholesale and retail services, other gas revenues, and other income						14							24
Other operating expenses						(19	)						7
General taxes and depreciation						(11	)						(10	)
Interest charges						4							(6	)
Income taxes						(29	)						21
Total change					$	50						$	(11	)

Gas deliveries: For 2007, gas delivery revenues increased by $10 million versus 2006 as gas deliveries, including miscellaneous transportation to end-use customers, were 300 bcf, an increase of 18 bcf or 6.4 percent. The increase in gas deliveries was primarily due to colder weather, partially offset by lower system efficiency.

In 2006, gas delivery revenues decreased by $61 million versus 2005 as gas deliveries, including miscellaneous transportation to end-use customers, were 282 bcf, a decrease of 36 bcf or 11.3 percent. The decrease in gas deliveries was primarily due to warmer weather in 2006 versus 2005 and increased customer conservation efforts in response to higher gas prices.

Gas rate increase: In November 2006, the MPSC issued an order authorizing an annual rate increase of $81 million. In August 2007, the MPSC issued an order authorizing an annual rate increase of $50 million. As a result of these orders, gas revenues increased $81 million for 2007 versus 2006.

In May 2006, the MPSC issued an interim gas rate order authorizing an $18 million annual rate increase. In November 2006, the MPSC issued an order authorizing an annual increase of $81 million. As a result of these orders, gas revenues increased $14 million for 2006 versus 2005.

Gas wholesale and retail services, other gas revenues, and other income: For 2007, the $14 million increase in gas wholesale and retail services, other gas revenue and other income primarily reflects higher interest income on short-term cash investments. The increase in short-term cash investments was primarily due to proceeds from the Palisades sale and equity infusions from CMS Energy.

For 2006, the $24 million increase in gas wholesale and retail services, other gas revenues, and other income primarily reflects higher pipeline revenues and higher pipeline capacity optimization in 2006 versus 2005.

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Other operating expenses: For 2007, other operating expenses increased $19 million versus 2006 primarily due to higher uncollectible accounts expense and payments, beginning in November 2006, to a fund that provides energy assistance to low-income customers.

For 2006, other operating expenses decreased $7 million versus 2005 primarily due to lower operating expenses, partially offset by higher customer service and pension and benefit expenses.

General taxes and depreciation: For 2007, general taxes and depreciation increased $11 million versus 2006. The increase in general taxes reflects higher property tax expense due to higher millage rates and lower property tax refunds versus 2006. The increase in depreciation expense is primarily due to higher plant in service.

For 2006, general taxes and depreciation expense increased $10 million versus 2005. The increase in depreciation expense was primarily due to higher plant in service. The increase in general taxes reflects higher MSBT expense, partially offset by lower property tax expense.

Interest charges: For 2007, interest charges decreased $4 million reflecting lower average debt levels and a lower average interest rate versus 2006.

For 2006, interest charges increased $6 million primarily due to higher interest expense on our GCR overrecovery balance and an IRS income tax audit settlement. The settlement recognized that Consumers’ taxable income for prior years was higher than originally filed, resulting in interest on the tax liability for these prior years.

Income taxes: For 2007, income taxes increased $29 million versus 2006 primarily due to higher earnings by the gas utility.

For 2006, income taxes decreased $21 million versus 2005 primarily due to lower earnings by the gas utility. Also contributing to the decrease was the absence, in 2006, of the write-off of general business credits of $2 million that expired in 2005, and the resolution, in 2006, of an IRS income tax audit, which resulted in a $3 million income tax benefit caused by the restoration and utilization of income tax credits. Further reducing the increase in income taxes was $5 million of income tax benefits, primarily reflecting the tax treatment of items related to property, plant and equipment as required by past MPSC orders.

Other Nonutility Results of Operations

Years Ended December 31	2007		2006			Change		2006			2005			Change
	In Millions
Net income (loss)	$	27	$	(52	)	$	79	$	(52	)	$	(299	)	$	247

For 2007, net income from other nonutility operations was $27 million, an increase of $79 million versus 2006. In late 2006, we sold our ownership interest in the MCV Partnership. Accordingly, in 2007, the increase in earnings primarily reflects the absence, in 2007, of mark-to-market losses on certain long-term gas contracts and associated financial hedges at the MCV Partnership. Also contributing to the increase was lower income tax expense, reflecting higher expected utilization of capital loss carryforwards. See Note 8, Income Taxes, for further details.

For 2006, other nonutility operations were a net loss of $52 million, an increase of $247 million versus 2005. The change is primarily due to a $225 million increase in earnings related to our ownership interest in the MCV Partnership, primarily due to the absence of a 2005 impairment charge to property, plant, and equipment at the MCV Partnership. Partially offsetting this increase were charges related to the sale of the MCV Partnership recorded in 2006 and mark-to-market losses on the MCV Partnership’s long-term gas contracts and associated hedges (which partially reduced gains recorded in 2005).

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CRITICAL ACCOUNTING POLICIES

The following accounting policies and related information are important to an understanding of our results of operations and financial condition and should be considered an integral part of our MD&A. For additional accounting policies, see Note 1, Corporate Structure and Accounting Policies.

Use of Estimates and Assumptions

In preparing our consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. We use accounting estimates for asset valuations, depreciation, amortization, financial and derivative instruments, employee benefits, indemnifications and contingencies. Actual results may differ from estimated results due to changes in the regulatory environment, competition, regulatory decisions, lawsuits, and other factors.

Contingencies: We record a liability for contingencies when we conclude that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We consider all relevant factors in making these assessments.

Long-Lived Assets and Investments: Our assessment of the recoverability of long-lived assets and investments involves critical accounting estimates. We periodically perform tests of impairment if certain conditions triggering events occur or if there has been a decline in value that may be other than temporary. Of our total assets, recorded at $13.401 billion at December 31, 2007, 64 percent represent long-lived assets and investments that are subject to this type of analysis. We base our evaluations of impairment on such indicators as:

•  the nature of the assets,

•  projected future economic benefits,

•  regulatory and political environments,

•  historical and future cash flow and profitability measurements, and

•  other external market conditions and factors.

The estimates we use can change over time, which could have a material impact on our consolidated financial statements. For additional details, see Note 1, Corporate Structure and Accounting Policies — “Impairment of Investments and Long-Lived Assets.”

Accounting for the Effects of Industry Regulation

Our involvement in a regulated industry requires us to use SFAS No. 71 to account for the effects of the regulators’ decisions that impact the timing and recognition of our revenues and expenses. As a result, we may defer or recognize revenues and expenses differently than a non-regulated entity.

For example, we may record as regulatory assets items that a non-regulated entity normally would expense if the actions of the regulator indicate such expenses will be recovered in future rates. Conversely, we may record as regulatory liabilities items that non-regulated entities may normally recognize as revenues if the actions of the regulator indicate they will require that such revenues be refunded to customers. Judgment is required to determine the recoverability of items recorded as regulatory assets and liabilities. At December 31, 2007, we had $2.059 billion recorded as regulatory assets and $2.137 billion recorded as regulatory liabilities.

Our PSCR and GCR cost recovery mechanisms also give rise to probable future revenues that will be recovered from customers or past overrecoveries that will be refunded to customers through the ratemaking process. Underrecoveries are included in Accrued power supply and gas revenue and overrecoveries are included in Accrued rate refunds on our Consolidated Balance Sheets. At December 31, 2007, we had $45 million recorded as regulatory assets for underrecoveries of power supply costs and $19 million recorded as regulatory liabilities for overrecoveries of gas costs.

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For additional details, see Note 1, Corporate Structure and Accounting Policies — “Utility Regulation.”

Accounting for Financial and Derivative Instruments and Market Risk Information

Financial Instruments: Debt and equity securities classified as available-for-sale are reported at fair value determined from quoted market prices. Unrealized gains and losses resulting from changes in fair value of available-for-sale debt and equity securities are reported, net of tax, in equity as part of AOCI. Unrealized losses are excluded from earnings unless the related changes in fair value are determined to be other than temporary.

Derivative Instruments: We use the criteria in SFAS No. 133 to determine if we need to account for certain contracts as derivative instruments. These criteria are complex and often require significant judgment in applying them to specific contracts. If a contract is a derivative and does not qualify for the normal purchases and sales exception under SFAS No. 133, it is recorded on our consolidated balance sheet at its fair value. Each quarter, we adjust the resulting asset or liability to reflect any change in the fair value of the contract, a practice known as marking the contract to market. For additional details on our derivatives, see Note 5, Financial and Derivative Instruments.

To determine the fair value of our derivatives, we use information from external sources, such as quoted market prices and other valuation information. For certain contracts, this information is not available and we use mathematical models to value our derivatives. These models use various inputs and assumptions, including commodity market prices and volatilities, as well as interest rates and contract maturity dates. The fair values we calculate for our derivatives may change significantly as commodity prices and volatilities change. The cash returns we actually realize on our derivatives may be different from the results that we estimate using models. If necessary, our calculations of fair value include reserves to reflect the credit risk of our counterparties.

The types of contracts we typically classify as derivatives are interest rate swaps and gas supply options. Most of our commodity purchase and sale contracts are not subject to derivative accounting under SFAS No. 133 because:

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

Our coal purchase contracts are not derivatives because there is not an active market for the coal we purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. Under regulatory accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income.

Market Risk Information: We are exposed to market risks including, but not limited to, changes in interest rates, commodity prices, and equity security prices. We may use various contracts to limit our exposure to these risks, including swaps, options, and forward contracts. We enter into these risk management contracts using established policies and procedures, under the direction of two different committees: an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers.

These contracts contain credit risk, which is the risk that our counterparties will fail to meet their contractual obligations. We reduce this risk through established credit policies, such as evaluating our counterparties’ credit quality and setting collateral requirements as necessary. If terms permit, we use standard agreements that allow us to net positive and negative exposures associated with the same counterparty. Given these policies, our current exposures, and our credit reserves, we do not expect a material adverse effect on our financial position or future earnings because of counterparty nonperformance.

The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from our financial instruments, including our derivative contracts, assuming a hypothetical adverse change in market rates or

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prices of 10 percent. Potential losses could exceed the amounts shown in the sensitivity analyses if changes in market rates or prices exceed 10 percent.

Interest Rate Risk: We are exposed to interest rate risk resulting from issuing fixed-rate and variable-rate financing instruments, and from interest rate swap agreements. We use a combination of these instruments to manage this risk as deemed appropriate, based upon market conditions. These strategies are designed to provide and maintain a balance between risk and the lowest cost of capital.

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

December 31	2007		2006
	In Millions
Variable-rate financing — before tax annual earnings exposure	$	1	$	3
Fixed-rate financing — potential reduction in fair value(a)		116		134

(a)  Fair value reduction could only be realized if we transferred all of our fixed-rate financing to other creditors.

At December 31, 2007, we had $131 million in variable auction rate tax exempt bonds, insured by monoline insurers, that are subject to rate reset every 35 days. The subprime mortgage problems have put monoline insurers’ credit ratings at risk of downgrade by rating agencies. This risk of downgrade could cause the interest rates on these bonds to rise. We do not expect our interest rate risk exposure regarding these bonds to be material. We are continuing to monitor the situation and our alternatives

Commodity Price Risk: Operating in the energy industry, we are exposed to commodity price risk, which arises from fluctuations in the price of electricity, natural gas, coal, and other commodities. Commodity prices are influenced by a number of factors, including weather, changes in supply and demand, and liquidity of commodity markets. In order to manage commodity price risk, we may enter into various non-trading derivative contracts, such as gas supply call and put options. As of December 31, 2007, we did not hold any such contracts.

Investment Securities Price Risk: Our investments in debt and equity securities are exposed to changes in interest rates and price fluctuations in equity markets. The following table shows the potential effect of adverse changes in interest rates and fluctuations in equity prices on our available-for-sale investments.

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

December 31	2007		2006
	In Millions
Potential reduction in fair value of available-for-sale equity securities (SERP investments and investment in CMS Energy common stock)	$	7	$	6

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

Pension and OPEB

Pension: We have external trust funds to provide retirement pension benefits to our employees under a non-contributory, defined benefit Pension Plan. On September 1, 2005, the defined benefit Pension Plan was closed to new participants and we implemented the qualified DCCP, which provides an employer contribution of 5 percent of base pay to the existing Employees’ Savings Plan. An employee contribution is not required to receive the plan’s employer cash contribution. All employees hired on or after September 1, 2005 participate in this plan as part of their retirement benefit program. Previous cash balance pension plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance pension plan were discontinued as of that date.

401(k): We resumed the employer’s match in CMS Energy Common Stock in our 401(k) savings plan on January 1, 2005. On September 1, 2005, we increased the employer match from 50 percent to 60 percent on eligible contributions up to the first six percent of an employee’s wages.

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Beginning May 1, 2007, the CMS Energy Common Stock Fund was no longer an investment option available for investments in the 401(k) savings plan and the employer match was no longer in CMS Energy Common Stock. Participants had an opportunity to reallocate investments in the CMS Energy Common Stock Fund to other plan investment alternatives prior to November 1, 2007. In November 2007, the remaining shares in the CMS Energy Common Stock Fund were sold and the sale proceeds were reallocated to other plan investment options.

OPEB: We provide postretirement health and life benefits under our OPEB plan to qualifying retired employees.

In accordance with SFAS No. 158, we record liabilities for pension and OPEB on our consolidated balance sheet at the present value of the future obligations, net of any plan assets. We use SFAS No. 87 to account for pension expense and SFAS No. 106 to account for other postretirement benefit expense. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including:

•  life expectancies,

•  present-value discount rates,

•  expected long-term rate of return on plan assets,

•  rate of compensation increases, and

•  anticipated health care costs.

A change in these assumptions could change significantly our recorded liabilities and associated expenses.

The following table provides an estimate of our pension cost, OPEB cost, and cash contributions for the next three years:

Expected Costs	Pension Cost		OPEB Cost		Contributions
	In Millions
2008	$	103	$	29	$	48
2009		109		28		48
2010		112		26		129

Actual future pension cost and contributions will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in the Pension Plan.

Lowering the expected long-term rate of return on the Pension Plan assets by 0.25 percent (from 8.25 percent to 8.00 percent) would increase estimated pension cost for 2008 by $3 million. Lowering the discount rate by 0.25 percent (from 6.40 percent to 6.15 percent) would increase estimated pension cost for 2008 by $1 million.

For additional details on postretirement benefits, see Note 6, Retirement Benefits.

Accounting For Asset Retirement Obligations

We are required to record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. We have legal obligations to remove some of our assets at the end of their useful lives. We calculate the fair value of ARO liabilities using an expected present value technique, that reflects assumptions about costs, inflation, and profit margin that third parties would consider to assume the obligation. No market risk premium was included in our ARO fair value estimate since a reasonable estimate could not be made.

If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Generally, our gas transmission and electric and gas distribution assets have indeterminate lives and retirement cash flows that cannot be determined. However, we have recorded an ARO for our obligation to cut, purge, and cap abandoned gas distribution mains and gas services at the end of their useful lives. We have not recorded a liability

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for assets that have insignificant cumulative disposal costs, such as substation batteries. For additional details, see Note 7, Asset Retirement Obligations.

Related Party Transactions

We enter into a number of significant transactions with related parties. These transactions include:

•  purchase and sale of electricity from and to Enterprises,

•  payment of parent company overhead costs to CMS Energy, and

•  investment in CMS Energy Common Stock.

Transactions involving the power supply purchases from certain affiliates of Enterprises are based upon avoided costs under PURPA and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry allocation methodologies.

For additional details on related party transactions, see Note 1, Corporate Structure and Accounting Policies, “Related Party Transactions.”

Capital Resources and Liquidity

Factors affecting our liquidity and capital requirements include:

•  results of operations,

•  capital expenditures,

•  energy commodity and transportation costs,

•  contractual obligations,

•  regulatory decisions,

•  debt maturities,

•  credit ratings,

•  working capital needs, and

•  collateral requirements.

During the summer months, we buy natural gas and store it for resale during the winter heating season. Although our prudent natural gas costs are recoverable from our customers, the storage of natural gas as inventory requires additional liquidity due to the lag in cost recovery.

Our cash management plan includes controlling operating expenses and capital expenditures and evaluation of market conditions for financing opportunities, if needed.

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

•  our current level of cash and revolving credit facilities,

•  our anticipated cash flows from operating and investing activities, and

•  our ability to access secured and unsecured borrowing capacity in the capital markets, if necessary.

In the second quarter of 2007, Moody’s and S&P upgraded our long-term credit ratings and revised our rating outlook to stable from positive.

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Cash Position, Investing, and Financing

Our operating, investing, and financing activities meet consolidated cash needs. At December 31, 2007, we had $220 million of consolidated cash, which includes $25 million of restricted cash.

Summary of Cash Flows:

	2007			2006			2005
	In Millions
Net cash provided by (used in):
Operating activities	$	442		$	473		$	639
Investing activities		(585	)		(672	)		(661	)
Net cash used in operating and investing activities		(143	)		(199	)		(22	)
Financing activities		301			(180	)		267
Net Increase (Decrease) in Cash and Cash Equivalents	$	158		$	(379	)	$	245

Operating Activities:

2007: Net cash provided by operating activities was $442 million, a decrease of $31 million versus 2006. This decrease was driven by the following:

•  the absence, in 2007, of the sale of accounts receivable,

•  a payment to fund our Pension Plan,

•  refunds to customers of excess Palisades decommissioning funds, and

•  other timing differences.

These decreases were partially offset by increased earnings and:

•  the absence, in 2007, of tax payments made to the parent related to the 2006 IRS income tax audit,

•  the absence of the release of the MCV Partnership gas supplier funds on deposit due to the sale of our interest in the MCV Partnership in 2006, and

•  a decrease in expenditures for gas inventory as the milder winter in 2006 allowed us to accumulate more gas in our storage facilities.

For additional details on the excess Palisades decommissioning funds, see Note 2, Asset Sales and Impairment Charges.

2006: Net cash provided by operating activities was $473 million, a decrease of $166 million versus 2005. This decrease was driven by the following:

•  decreases in the MCV Partnership gas supplier funds on deposit resulting in refunds to suppliers from decreased exposure to declining gas prices in 2006,

•  income tax payments to the parent related to the 2006 IRS income tax audit, and

•  decreases in accounts payable mainly due to payments for higher-priced gas that were accrued at December 31, 2005.

These decreases were partially offset by:

•  a decrease in accounts receivable due to the collection of receivables in 2006 reflecting higher gas prices billed during the latter part of 2005 and reduced billings in the latter part of 2006 due to milder weather, and

•  reduced inventory purchases.

Investing Activities:

2007: Net cash used in investing activities was $585 million, a decrease of $87 million versus 2006. This decrease was primarily due to proceeds from the sale of Palisades and the related dissolution of our nuclear

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decommissioning trust funds. This decrease was partially offset by an increase in capital expenditures primarily due to the purchase of the Zeeland power plant.

2006: Net cash used in investing activities was $672 million, an increase of $11 million versus 2005. This increase was due to cash relinquished from the sale of assets, an increase in capital expenditures and cost to retire property and a decrease in net proceeds from investments. These changes were partially offset by a decrease in restricted cash and restricted short-term investments. Cash restricted in 2005 was released in February 2006, which we used to extinguish long-term debt — related parties.

Financing Activities:

2007: Net cash provided by financing activities was $301 million, an increase of $481 million versus 2006. This increase was primarily due to an increase of $450 million in contributions from the parent and a decrease in retirement of long-term debt. These changes were partially offset by an increase in common stock dividend payments of $104 million.

2006: Net cash used in financing activities was $180 million, an increase of $447 million versus 2005. This increase was due to a decrease of $500 million in contributions from the parent and an increase in net retirement of long-term debt. These changes were partially offset by a decrease in common stock dividend payments of $130 million.

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

Obligations and Commitments

Contractual Obligations: The following table summarizes our contractual cash obligations for each of the periods presented. The table shows the timing of the obligations and their expected effect on our liquidity and cash flow in future periods. The table excludes all amounts classified as current liabilities on our Consolidated Balance Sheets, other than the current portion of long-term debt and capital and finance leases.

	Payments Due
Contractual Obligations			Less Than		One to		Three to		More Than
at December 31, 2007	Total		One Year		Three Years		Five Years		Five Years
	In Millions
Long-term debt(a)	$	4,132	$	440	$	727	$	376	$	2,589
Interest payments on long-term debt(b)		1,712		198		342		298		874
Capital and finance leases(c)		255		30		48		44		133
Interest payments on capital and finance leases(d)		139		14		27		24		74
Operating leases(e)		204		25		44		42		93
Purchase obligations(f)		21,286		2,502		2,897		2,275		13,612
Purchase obligations — related parties(f)		1,492		78		154		154		1,106
Total contractual obligations	$	29,220	$	3,287	$	4,239	$	3,213	$	18,481

(a)	Principal amounts due on outstanding debt obligations, current and long-term, at December 31, 2007. For additional details on long-term debt, see Note 4, Financings and Capitalization.
(b)	Currently scheduled interest payments on both variable and fixed rate long-term debt, current and long-term. Variable interest payments are based on contractual rates in effect at December 31, 2007.
(c)	Principal portion of lease payments under our capital and finance leases, comprised mainly of leased service vehicles, leased office furniture, and certain power purchase agreements.
(d)	Imputed interest on the capital leases.
(e)	Minimum noncancelable lease payments under our leases of railroad cars, certain vehicles, and miscellaneous office buildings and equipment, which are accounted for as operating leases.

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(f) Long-term contracts for purchase of commodities and services. These obligations include operating contracts used to assure adequate supply with generating facilities that meet PURPA requirements. These commodities and services include:

•  natural gas and associated transportation,

•  electricity, and

•  coal and associated transportation.

Our purchase obligations include long-term power purchase agreements with various generating plants, which require us to make monthly capacity payments based on the plants’ availability or deliverability. These payments will approximate $62 million per month during 2008. If a plant is not available to deliver electricity, we will not be obligated to make these payments for that period. For additional details on power supply costs, see “Electric Utility Results of Operations” within this MD&A and Note 3, Contingencies, “Electric Rate Matters — Power Supply Costs.”

Revolving Credit Facilities: For details on our revolving credit facilities, see Note 4, Financings and Capitalization.

Dividend Restrictions: For details on dividend restrictions, see Note 4, Financings and Capitalization.

Off-Balance Sheet Arrangements: We enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnifications, surety bonds, letters of credit, and financial and performance guarantees. Indemnifications are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum amount of potential payments we would be required to make under a number of these indemnities is not estimable. We provide guarantees on behalf of certain non-consolidated entities, improving their ability to transact business. We monitor these obligations and believe it is unlikely that we will incur any material losses associated with these guarantees. For additional details on these arrangements, see Note 3, Contingencies, “Other Contingencies — Guarantees and Indemnifications.”

Sale of Accounts Receivable: Under a revolving accounts receivable sales program, we may sell up to $325 million of certain accounts receivable. This program provides a lower cost source of funding compared with unsecured debt. For additional details, see Note 4, Financings and Capitalization.

Capital Expenditures: For planning purposes, we forecast capital expenditures over a three-year period. We review these estimates and may revise them, periodically, due to a number of factors including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital. The following is a summary of our estimated capital expenditures, including lease commitments, for 2008 through 2010:

Years Ending December 31	2008		2009		2010
	In Millions
Construction	$	523	$	589	$	575
Clean Air(a)		112		135		94
Cost of Removal		44		56		48
New Customers		83		84		116
Other(b)		156		116		182
Total	$	918	$	980	$	1,015
Electric utility operations(a)(b)	$	684	$	717	$	783
Gas utility operations(b)		234		263		232
Total	$	918	$	980	$	1,015

(a)	These amounts include estimates for capital expenditures that may be required by revisions to the Clean Air Act’s national air quality standards or potential renewable energy programs.
(b)	These amounts include estimates for capital expenditures related to information technology projects, facility improvements, and vehicle leasing.

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OUTLOOK

Corporate Outlook

Our business strategy will focus on continuing to invest in our utility system to enable us to meet our customer commitments, to comply with increasing environmental performance standards, and to maintain adequate supply and capacity.

ELECTRIC BUSINESS OUTLOOK

Growth: In 2007, electric deliveries grew about one percent over 2006 levels. In 2008, we project electric deliveries to decline one-quarter of a percent compared to 2007 levels. This outlook assumes a small decline in industrial economic activity, the cancellation of one wholesale customer contract, and normal weather conditions throughout the year.

We expect electric deliveries to grow one percent annually over the next five years. This outlook assumes a modestly growing customer base and a stabilizing Michigan economy after 2008. This growth rate, which reflects a long-range expected trend includes both full-service sales and delivery service to customers who choose to buy generation service from an alternative electric supplier, but excludes transactions with other wholesale market participants and other electric utilities. Growth from year to year may vary from this trend due to customer response to the following:

•  energy conservation measures,

•  fluctuations in weather conditions, and

•  changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities.

Electric Customer Revenue Outlook: Closures and restructuring of automotive manufacturing facilities and related suppliers and the sluggish housing market have hampered Michigan’s economy. The Michigan economy also has had facility closures in the non-manufacturing sector and limited growth. Although our electric utility results are not dependent upon a single customer, or even a few customers, those in the automotive sector represented five percent of our total 2007 electric revenue. We cannot predict the financial impact of the Michigan economy on our electric customer revenue.

Electric Reserve Margin: To reduce the risk of high power supply costs during peak demand periods and to achieve our Reserve Margin target, we purchase electric capacity and energy contracts for the physical delivery of electricity primarily in the summer months and to a lesser extent in the winter months. We have purchased capacity and energy contracts covering a portion of our Reserve Margin requirements for 2008 through 2010. We are currently planning for a Reserve Margin of 13.7 percent for summer 2008, or supply resources equal to 113.7 percent of projected firm summer peak load. Of the 2008 supply resources target, we expect 93 percent to come from our electric generating plants and long-term power purchase contracts, with other contractual arrangements making up the remainder. We expect capacity costs for these electric capacity and energy contracts to be $21 million for 2008.

In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA, which could affect our Reserve Margin status. The MCV PPA represents approximately 13 percent of our 2008 expected supply resources. For additional details, see “The MCV PPA” within this MD&A.

Electric Transmission Expenses: In 2008, we expect transmission rates charged to us to increase by $42 million due primarily to a 33 percent increase in METC transmission rates. This increase was included in our 2008 PSCR plan filed with the MPSC in September 2007.

In September 2007, the FERC approved a proposal to include 100 percent of the costs of network upgrades associated with new generator interconnections in the rates of certain MISO transmission owners, including METC.

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Previously, those transmission owners shared interconnection network upgrade costs with generators. Consumers, Detroit Edison, the MPSC, and other parties filed a request for rehearing of the FERC order.

21st Century Electric Energy Plan: In January 2007, the then chairman of the MPSC proposed initiatives to the governor of Michigan for the use of more renewable energy resources by all load-serving entities such as Consumers, the creation of an energy efficiency program, and a procedure for reviewing proposals to construct new generation facilities. The January proposal indicated that Michigan will need new base-load capacity by 2015. The proposed initiatives will require changes to current legislation.

Balanced Energy Initiative: In response to the 21st Century Electric Energy Plan, we filed with the MPSC a “Balanced Energy Initiative” that provides a comprehensive energy resource plan to meet our projected short-term and long-term electric power requirements. The filing requests the MPSC to rule that the Balanced Energy Initiative represents a reasonable and prudent plan for the acquisition of necessary electric utility resources. Implementation of the Balanced Energy Initiative will require legislative repeal or significant reform of the Customer Choice Act.

In September 2007, we filed with the MPSC an updated Balanced Energy Initiative, which includes our plan to build an 800 MW advanced clean coal plant at our Karn/Weadock Generating complex near Bay City, Michigan. We expect to use 500 MW of the plant’s output to serve Consumers’ customers and to commit the remaining 300 MW to others. We expect the plant to begin operating in 2015. We estimate our share of the cost at $1.6 billion including financing costs. Construction of the proposed new clean coal plant is contingent upon obtaining environmental permits and MPSC approval.

The Michigan Attorney General filed a motion with the MPSC to dismiss the Balanced Energy Initiative case, claiming that the MPSC lacks jurisdiction over the matter, which the ALJ denied. The Michigan Attorney General and another intervenor have filed an appeal of that decision with the MPSC.

Proposed Energy Legislation: There are various bills introduced and being considered in the U.S. Congress and the Michigan legislature relating to mandatory renewable energy standards. If enacted, these bills generally would require electric utilities either to acquire a certain percentage of their power from renewable sources or pay fees, or purchase allowances in lieu of having the resources. Also in December 2007, several bills were introduced in the Michigan legislature that would reform the Customer Choice Act, introduce energy efficiency programs, modify the timing of rate increase requests, amend customer rate design and provide for other regulatory changes. We cannot predict whether any of these bills will be enacted or what form the final legislation might take.

Power Plant Purchase: In December 2007, we purchased a 935 MW gas-fired power plant located in Zeeland, Michigan for $519 million from Broadway Gen Funding LLC, an affiliate of LS Power Group. The power plant will help meet the growing energy needs of our customers.

ELECTRIC BUSINESS UNCERTAINTIES

Several electric business trends and uncertainties may affect our financial condition and future results of operations. These trends and uncertainties have, had, or are reasonably expected to have, a material impact on revenues and income from continuing electric operations.

Electric Environmental Estimates: Our operations are subject to various state and federal environmental laws and regulations. We have been able to recover our costs to operate our facilities in compliance with these laws and regulations in customer rates.

Clean Air Act: Compliance with the federal Clean Air Act and resulting state and federal regulations continues to be a major focus for us. The State of Michigan’s Nitrogen Oxides Implementation Plan requires significant reductions in nitrogen oxides emissions. From 1998 to present, we have incurred $786 million in capital expenditures to comply with this plan, including installing selective catalytic reduction control technology on three of our coal-fired electric generating units. We have also installed low nitrogen oxides burners on a number of our coal-fired electric generating units.

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Clean Air Interstate Rule: In March 2005, the EPA adopted the Clean Air Interstate Rule that requires additional coal-fired electric generating plant emission controls for nitrogen oxides and sulfur dioxide. We plan to meet the nitrogen oxides requirements by:

•  operating our selective catalytic reduction control technology units throughout the year,

•  completing the installation of a fourth selective catalytic reduction control unit,

•  installing low nitrogen oxides burners, and

•  purchasing emission allowances.

We plan to meet the sulfur dioxide requirements by injecting a chemical that reduces sulfur dioxide emissions, installing scrubbers and purchasing emission allowances. We plan to spend an additional $835 million for equipment installation through 2015, which we expect to recover in customer rates. The key assumptions in the capital expenditure estimate include:

•  construction commodity prices, especially construction material and labor,

•  project completion schedules and spending plans,

•  cost escalation factor used to estimate future years’ costs of 3.2 percent, and

•  an AFUDC capitalization rate of 7.9 percent.

We will need to purchase additional nitrogen oxides emission allowances through 2011 at an estimated cost of $3 million per year. We will also need to purchase additional sulfur dioxide emission allowances in 2012 and 2013 at an estimated cost of $10 million per year. We expect to recover emissions allowance costs from our customers through the PSCR process.

The Clean Air Interstate Rule was appealed to the U.S. Court of Appeals for the District of Columbia by a number of utilities and other companies. A decision is expected in 2008. We cannot predict the outcome of these appeals.

State and Federal Mercury Air Rules: In March 2005, the EPA issued the CAMR, which requires initial reductions of mercury emissions from coal-fired electric generating plants by 2010 and further reductions by 2018. Certain portions of the CAMR were appealed to the U.S. Court of Appeals for the District of Columbia by a number of states and other entities. The U.S. Court of Appeals for the District of Columbia decided the case on February 8, 2008, and determined that the rules developed by the EPA were not consistent with the Clean Air Act. We continue to monitor the development of federal regulations in this area.

In April 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. We are working with the MDEQ on the details of this plan; however, we have developed preliminary cost estimates and a mercury emissions reduction scenario based on our best knowledge of control technology options and initially proposed requirements. We estimate that costs associated with Phase I of the state’s mercury plan will be approximately $280 million by 2010 and an additional $200 million by 2015. The key assumptions in the capital expenditure estimate are the same as those stated for the Clean Air Interstate Rule.

The following table outlines the proposed state mercury plan:

	Phase I	Phase II
Proposed State Mercury Rule	30% reduction by 2010	90% reduction by 2015

Routine Maintenance Classification: The EPA has alleged that some utilities have incorrectly classified plant modifications as “routine maintenance” rather than seeking permits from the EPA to modify their plants. We responded to information requests from the EPA on this subject in 2000, 2002, and 2006. We believe that we have properly interpreted the requirements of “routine maintenance.” If the EPA finds that our interpretation is incorrect, we could be required to install additional pollution controls at some or all of our coal-fired electric generating plants and pay fines. Additionally, we would need to assess the viability of continuing operations at certain plants. We cannot predict the financial impact or outcome of this issue.

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Greenhouse Gases: Several legislative proposals have been introduced in the United States Congress that would require reductions in emissions of greenhouse gases, including carbon dioxide. These laws, or similar state laws or rules, if enacted could require us to replace equipment, install additional equipment for pollution controls, purchase allowances, curtail operations, or take other steps. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material, and cost recovery cannot be assured, we expect to have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

To the extent that greenhouse gas emission reduction rules come into effect, the mandatory emissions reduction requirements could have far-reaching and significant implications for the energy sector. We cannot estimate the effect of federal or state greenhouse gas policy on our future consolidated results of operations, cash flows, or financial position due to the uncertain nature of the policies. However, we will continue to monitor greenhouse gas policy developments and assess and respond to their potential implications for our business operations.

Water: In March 2004, the EPA issued rules that govern electric generating plant cooling water intake systems. The rules require significant reduction in the number of fish harmed by operating equipment. EPA compliance options in the rule were challenged in court. In January 2007, the court rejected many of the compliance options favored by industry and remanded the bulk of the rule back to the EPA for reconsideration. The court’s ruling is expected to increase significantly the cost of complying with this rule. However, the cost to comply will not be known until the EPA’s reconsideration is complete. At this time, the EPA is developing rules to implement the court’s decision. The rules are expected to be released for public comment in late 2008.

For additional details on electric environmental matters, see Note 3, Contingencies, “Electric Contingencies — Electric Environmental Matters.”

Electric ROA: The Customer Choice Act allows all of our electric customers to buy electric generation service from us or from an alternative electric supplier. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers. This is 4 percent of our total distribution load and represents an increase of 5 percent of ROA load compared to December 31, 2006.

In November 2004, the MPSC issued an order allowing us to recover Stranded Costs incurred in 2002 and 2003 through a surcharge applied to ROA customers. Since the MPSC order, we have experienced a downward trend in ROA customers. If this trend continues, it may require legislative or regulatory assistance to recover fully our 2002 and 2003 Stranded Costs.

Electric Rate Case: During 2007, we filed applications with the MPSC seeking an 11.25 percent authorized return on equity and an annual increase in revenues of $269 million. The filings sought recovery of the costs associated with increased plant investment, including the purchase of the Zeeland power plant, increased equity investment, higher operation and maintenance expenses, recovery of transaction costs from the sale of Palisades, and the approval of an energy efficiency program.

In December 2007, the MPSC approved a rate increase of $70 million related to the purchase of the Zeeland power plant. For additional details and material changes relating to the restructuring of the electric utility industry and electric rate matters, see Note 3, Contingencies, “Electric Rate Matters.”

The MCV PPA: The MCV Partnership, which leases and operates the MCV Facility, contracted to sell electricity to Consumers for a 35-year period beginning in 1990. In September 2007, we exercised the regulatory-out provision in the MCV PPA, thus limiting the amount we pay the MCV Partnership for capacity and fixed energy to the amount recoverable from our customers. The MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision. We believe that the provision is valid and fully effective and have not recorded any reserves, but we cannot predict whether we would prevail in the event of litigation on this issue.

As a result of our exercise of the regulatory-out provision, the MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA or reduce the amount of capacity sold under the MCV PPA. If the MCV Partnership terminates or reduces the amount of capacity sold under the MCV PPA, we will

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seek to replace the lost capacity to maintain an adequate electric Reserve Margin. This could involve entering into a new power purchase agreement and (or) entering into electric capacity contracts on the open market. We cannot predict whether we could enter into such contracts at a reasonable price. We are also unable to predict whether we would receive regulatory approval of the terms and conditions of such contracts, or whether the MPSC would allow full recovery of our incurred costs.

To comply with a prior MPSC order, we made a filing in May 2007 with the MPSC requesting a determination as to whether it wished to reconsider the amount of the MCV PPA payments that we recover from customers. In May 2007, the MCV Partnership also filed an application with the MPSC seeking approval to increase our recovery of costs incurred under the MCV PPA. We cannot predict the financial impact or outcome of these matters. For additional details on the MCV PPA, see Note 3, Contingencies, “Other Electric Contingencies — The MCV PPA.”

Sale of Nuclear Assets: In April 2007, we sold Palisades to Entergy for $380 million and received $363 million after various closing adjustments. We also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. In addition, we paid the NMC, the former operator of Palisades, $7 million in exit fees and forfeited our $5 million investment in the NMC. The MPSC order approving the Palisades transaction allowed us to recover the book value of Palisades. As a result, we are crediting proceeds in excess of book value of $66 million to our customers through the end of 2008. After closing adjustments, which are subject to MPSC review, proceeds in excess of the book value were $77 million. Recovery of our transaction costs of $28 million, which includes the NMC exit fees and investment forfeiture, is presently under review by the MPSC in our current electric rate case.

Entergy assumed responsibility for the future decommissioning of Palisades and for storage and disposal of spent nuclear fuel at Palisades and the Big Rock ISFSI sites. We transferred $252 million in trust fund assets to Entergy. We are crediting excess decommissioning funds of $189 million to our retail customers through the end of 2008. Modification to the terms of the transaction allowed us immediate access to additional excess decommissioning trust funds of $123 million. The distribution of these funds is currently under review by the MPSC in our electric rate case filing. For additional details on the sale of Palisades and the Big Rock ISFSI, see Note 2, Asset Sales and Impairment Charges.

As part of the transaction, we entered into a 15-year power purchase agreement under which Entergy sells us all of the plant’s output up to its current annual average capacity of 798 MW. Because of the Palisades power purchase agreement and our continuing involvement with the Palisades assets, we accounted for the disposal of Palisades as a financing for accounting purposes and not a sale. For additional details on the Palisades financing, see Note 10, Leases.

GAS BUSINESS OUTLOOK

Growth: In 2008, we project that gas deliveries will remain flat, on a weather-adjusted basis, relative to 2007 levels due to continuing conservation and overall economic conditions in Michigan. We expect gas deliveries to decline by less than one-half of one percent annually over the next five years. Actual gas deliveries in future periods may be affected by:

•  fluctuations in weather conditions,

•  use by independent power producers,

•  availability of renewable energy sources,

•  changes in gas commodity prices,

•  Michigan economic conditions,

•  the price of competing energy sources or fuels,

•  gas consumption per customer, and

•  improvements in gas appliance efficiency.

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Consumers Energy Company

GAS BUSINESS UNCERTAINTIES

Several gas business trends and uncertainties may affect our future financial results and financial condition. These trends and uncertainties could have a material impact on future revenues and income from gas operations.

Gas Environmental Estimates: We expect to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plant sites. For additional details, see Note 3, Contingencies, “Gas Contingencies - Gas Environmental Matters.”

Gas Cost Recovery: The GCR process is designed to allow us to recover all of our purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices for prudency in annual plan and reconciliation proceedings. For additional details on GCR, see Note 3, Contingencies, “Gas Rate Matters — Gas Cost Recovery.”

Gas Depreciation: In June 2007, the MPSC issued its final order in a generic ARO accounting case and modified the filing requirement for our next gas depreciation case. The original filing requirement date was changed from 90 days after the issuance of that order to no later than August 1, 2008. Additionally, we have been ordered to use 2007 data and prepare a cost-of-removal depreciation study with five alternatives using the MPSC’s prescribed methods. We cannot predict the outcome of the analysis.

If a final order in our next gas depreciation case is not issued concurrently with a final order in a general gas rate case, the MPSC may incorporate the results of the depreciation case into general gas rates through a surcharge, which may be either positive or negative.

2007 Gas Rate Case: In February 2007, we filed an application with the MPSC seeking an 11.25 percent authorized return on equity as part of an $88 million annual increase in our gas delivery and transportation rates. In August 2007, the MPSC approved a partial settlement agreement authorizing an annual rate increase of $50 million, including an authorized return on equity of 10.75 percent. On September 25, 2007, the MPSC reopened the record in the case to allow all interested parties to be heard concerning the approval of an energy efficiency program, which we proposed in our original filing. Hearings on this matter were held in February 2008. We expect the MPSC to issue a final order in the second quarter of 2008. If approved in total, this would result in an additional rate increase of $9 million for implementation of the energy efficiency program.

2008 Gas Rate Case: In February 2008, we filed an application with the MPSC for an annual gas rate increase of $91 million and an 11 percent authorized return on equity.

OTHER OUTLOOK

Advanced Metering Infrastructure: We are developing an advanced meter system that will provide more frequent information about our customer energy usage and notification of service interruptions. The system will allow customers to make decisions about energy efficiency and conservation, provide other customer benefits, and reduce costs. We anticipate developing integration software and piloting new technology over the next two years. We expect capital expenditures for this project over the next seven years to be approximately $800 million. Over the long-term, we do not expect this project to significantly impact rates.

Software Implementation: We are implementing an integrated business software system for finance, purchasing/supply chain, customer billing, human resources and payroll, and utility asset construction and maintenance work management. We expect the new business software, scheduled to be in production in the first half of 2008, to improve customer service, reduce risk, and increase flexibility. Including work done to date, we expect to incur $175 million in operating expenses and capital expenditures for the initial implementation.

Michigan Public Service Commission: During the third quarter of 2007, the Michigan governor appointed a new MPSC chairperson and a new MPSC commissioner. We have several significant cases pending MPSC review and approval. For additional detail on these cases, see Note 3, Contingencies, “Electric Rate Matters” and “Gas Rate Matters.”

CE-25

Consumers Energy Company

Litigation and Regulatory Investigation: CMS Energy is the subject of various investigations resulting from round-trip trading transactions by CMS MST, including an investigation by the DOJ. For additional details regarding this investigation and litigation, see Note 3, Contingencies.

Michigan Tax Legislation: In July 2007, the Michigan governor signed Senate Bill 94, the Michigan Business Tax Act, which imposed a business income tax of 4.95 percent and a modified gross receipts tax of 0.8 percent. The bill provided for a number of tax credits and incentives geared toward those companies investing and employing in Michigan. The Michigan Business Tax, which was effective January 1, 2008, replaced the state’s Single Business Tax that expired on December 31, 2007. In September 2007, the Michigan governor signed House Bill 5104, allowing additional deductions in future years against the business income portion of the tax. These future deductions are phased in over a 15-year period, beginning in 2015. As a result, our net deferred tax liability of $165 million, recorded due to the Michigan Business Tax enactment, was offset by a net deferred tax asset of $165 million. In December 2007, the Michigan governor signed House Bill 5408, replacing the expanded sales tax for certain services with a 21.99 percent surcharge on the business income tax and the modified gross receipts tax. Therefore, the total tax rates imposed under the Michigan Business Tax are 6.04 percent for the business income tax and 0.98 percent for the modified gross receipts tax. We expect to recover the taxes that we pay from our customers, but we cannot predict the timeliness of such recovery.

Implementation of New Accounting Standards

SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R): In September 2006, the FASB issued SFAS No. 158. Phase one of this standard, implemented in December 2006, required us to recognize the funded status of our defined benefit postretirement plans on our Consolidated Balance Sheets at December 31, 2006. Phase two requires that we change our plan measurement date from November 30 to December 31, effective for the year ending December 31, 2008. The implementation of phase two of this standard will not have a material effect on our consolidated financial statements.

FIN 48, Accounting for Uncertainty in Income Taxes: This interpretation, which we adopted on January 1, 2007, provides a two-step approach for the recognition and measurement of uncertain tax positions taken, or expected to be taken, by a company on its income tax returns. The first step is to evaluate the tax position to determine if, based on management’s best judgment, it is greater than 50 percent likely that we will sustain the tax position. The second step is to measure the appropriate amount of the benefit to recognize. This is done by estimating the potential outcomes and recognizing the greatest amount that has a cumulative probability of at least 50 percent. FIN 48 requires interest and penalties, if applicable, to be accrued on differences between tax positions recognized in our consolidated financial statements and the amount claimed, or expected to be claimed, on the tax return.

Consumers joins in the filing of a consolidated U.S. federal income tax return as well as unitary and combined income tax returns in several states. Consumers and its subsidiaries also file separate company income tax returns in several states. The only significant state tax paid by Consumers or any of its subsidiaries is in Michigan. However, since the Michigan Single Business Tax was not an income tax, it was not part of the FIN 48 analysis. The IRS has completed its audits for all the consolidated federal returns, of which Consumers is a member, for years through 2001. The federal income tax returns for the years 2002 through 2006 are open under the statute of limitations, with 2002 through 2005 currently under examination.

As a result of the implementation of FIN 48, we recorded a charge for additional uncertain tax benefits of $5 million, accounted for as a reduction of our beginning retained earnings. Included in this amount was an increase in our valuation allowance of $7 million, increases to tax reserves of $55 million and a decrease to deferred tax liabilities of $57 million. Since all our remaining uncertain tax benefits relate only to timing issues, at December 31, 2007, there are no uncertain benefits that would reduce our effective tax rate in future years. We are not expecting any other material changes to our uncertain tax positions over the next twelve months.

CE-26

Consumers Energy Company

Due to the consolidated net operating loss position, we have reflected no interest related to our uncertain income tax positions on our Balance Sheet as of December 31, 2007, nor have we accrued any penalties. We recognize accrued interest and penalties, where applicable, related to uncertain tax benefits as part of income tax expense.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

SFAS No. 157, Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, effective for us on January 1, 2008. The standard provides a revised definition of fair value and establishes a framework for measuring fair value. Under the standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly exchange between market participants. The standard does not expand the use of fair value, but it requires new disclosures about the impact and reliability of fair value measurements. The standard will also eliminate the existing prohibition against recognizing “day one” gains and losses on derivative instruments. We currently do not hold any derivatives that would involve day one gains or losses. The standard is to be applied prospectively, except that limited retrospective application is required for three types of financial instruments, none of which we currently hold. We do not believe that the implementation of this standard will have a material effect on our consolidated financial statements.

In February 2008, the FASB issued a one-year deferral of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recorded or disclosed at fair value on a recurring basis. Under this partial deferral, SFAS No. 157 will not be effective until January 1, 2009 for fair value measurements in the following areas:

•  AROs,

•  most of the nonfinancial assets and liabilities acquired in a business combination, and

•  fair value measurements performed in conjunction with impairment analyses.

SFAS No. 157 remains effective January 1, 2008 for our derivative instruments, available-for-sale investment securities, and long-term debt fair value disclosures.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment to FASB Statement No. 115: In February 2007, the FASB issued SFAS No. 159, effective for us on January 1, 2008. This standard gives us the option to measure certain financial instruments and other items at fair value, with changes in fair value recognized in earnings. We do not expect to elect the fair value option for any financial instruments or other items.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51: In December 2007, the FASB issued SFAS No. 160, effective for us January 1, 2009. Ownership interests in subsidiaries held by third parties, which are currently referred to as minority interests, will be presented as noncontrolling interests and shown separately on our Consolidated Balance Sheets within equity. Any changes in our ownership interests while control is retained will be treated as equity transactions. In addition, this standard requires presentation and disclosure of the allocation between controlling and noncontrolling interests’ income from continuing operations, discontinued operations, and comprehensive income and a reconciliation of changes in the consolidated statement of equity during the reporting period. The presentation and disclosure requirements of the standard will be applied retrospectively for all periods presented. All other requirements will be applied prospectively. We are evaluating the impact SFAS No. 160 will have on our consolidated financial statements.

EITF Issue 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards: In June 2007, the FASB ratified EITF Issue 06-11, effective for us on a prospective basis beginning January 1, 2008. EITF Issue 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards. We do not believe that implementation of this standard will have a material effect on our consolidated financial statements.

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Consumers Energy Company

CONSUMERS ENERGY COMPANY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

	Years Ended December 31
	2007			2006			2005
	In Millions
Operating Revenue	$	6,064		$	5,721		$	5,232
Earnings from Equity Method Investees		—			1			1
Operating Expenses
Fuel for electric generation		385			672			605
Fuel costs mark-to-market at the MCV
Partnership		—			204			(200	)
Purchased and interchange power		1,370			647			347
Purchased power — related parties		79			74			68
Cost of gas sold		1,918			1,770			1,844
Other operating expenses		808			895			841
Maintenance		183			284			218
Depreciation and amortization		524			527			484
General taxes		217			150			214
Asset impairment charges		—			218			1,184
Gain on asset sales, net		(2	)		(79	)		—
		5,482			5,362			5,605
Operating Income (Loss)		582			360			(372	)
Other Income (Deductions)
Interest and dividends		69			62			45
Interest and dividends — related parties		1			—			—
Regulatory return on capital expenditures		31			26			4
Other income		32			20			20
Other expense		(14	)		(12	)		(15	)
		119			96			54
Interest Charges
Interest on long-term debt		234			281			289
Interest on long-term debt — related parties		2			5			16
Other interest		34			13			5
Capitalized interest		(6	)		(10	)		(38	)
		264			289			272
Income (Loss) Before Income Taxes		437			167			(590	)
Income Tax Expense (Benefit)		125			91			(47	)
Income (Loss) Before Minority Obligations, Net		312			76			(543	)
Minority Obligations, Net		—			(110	)		(447	)
Net Income (Loss)		312			186			(96	)
Preferred Stock Dividends		2			2			2
Net Income (Loss) Available to Common Stockholder	$	310		$	184		$	(98	)

The accompanying notes are an integral part of these statements.

CE-29

Consumers Energy Company

CONSUMERS ENERGY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31
	2007			2006			2005
	In Millions
Cash Flows from Operating Activities
Net income (loss)	$	312		$	186		$	(96	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization (includes nuclear decommissioning of $4, $6 and $6)		524			527			484
Deferred income taxes and investment tax credit		55			(113	)		(225	)
Regulatory return on capital expenditures		(31	)		(26	)		(4	)
Minority obligations, net		—			(110	)		(447	)
Fuel costs mark-to-market at the MCV Partnership		—			204			(200	)
Asset impairment charges		—			218			1,184
Postretirement benefits expense		124			122			107
Capital lease and other amortization		44			37			34
Bad debt expense		33			30			24
Gain on sale of assets		(2	)		(79	)		—
Earnings from equity method investees		—			(1	)		(1	)
Postretirement benefits contributions		(173	)		(68	)		(62	)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, notes receivable and accrued revenue		(442	)		24			(229	)
Decrease (increase) in accrued power supply and gas revenue		99			(91	)		(65	)
Increase in inventories		(5	)		(114	)		(235	)
Increase (decrease) in accounts payable		(23	)		(32	)		154
Increase (decrease) in accrued expenses		(15	)		35			(13	)
Increase (decrease) in accrued taxes		80			(101	)		146
Increase (decrease) in the MCV Partnership gas supplier funds on deposit		—			(147	)		173
Increase in other current and non-current assets		(5	)		(51	)		(20	)
Increase (decrease) in other current and non-current liabilities		(133	)		23			(70	)
Net cash provided by operating activities		442			473			639
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)		(1,258	)		(646	)		(572	)
Cost to retire property		(28	)		(78	)		(27	)
Restricted cash and restricted short-term investments		32			126			(162	)
Investments in nuclear decommissioning trust funds		(1	)		(21	)		(6	)
Proceeds from nuclear decommissioning trust funds		333			22			39
Purchases of available-for-sale SERP investments		(31	)		(2	)		(1	)
Proceeds from available-for-sale SERP investments		29			3			2
Proceeds from short-term investments		—			—			145
Purchase of short-term investments		—			—			(141	)
Maturity of the MCV Partnership restricted investment securities held-to-maturity		—			130			318
Purchase of the MCV Partnership restricted investment securities held-to-maturity		—			(131	)		(270	)
Cash proceeds from sale of assets		337			69			2
Cash relinquished from sale of assets		—			(148	)		—
Other investing		2			4			12
Net cash used in investing activities		(585	)		(672	)		(661	)

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Consumers Energy Company

	Years Ended December 31
	2007			2006			2005
	In Millions
Cash Flows from Financing Activities
Proceeds from issuance of long term debt		—			—			910
Retirement of long-term debt		(34	)		(217	)		(1,028	)
Payment of common stock dividends		(251	)		(147	)		(277	)
Payment of capital and finance lease obligations		(20	)		(26	)		(29	)
Stockholder’s contribution, net		650			200			700
Payment of preferred stock dividends		(1	)		(2	)		(2	)
Increase (decrease) in notes payable		(42	)		15			27
Debt issuance and financing costs		(1	)		(3	)		(34	)
Net cash provided by (used in) financing activities		301			(180	)		267
Net Increase (Decrease) in Cash and Cash Equivalents		158			(379	)		245
Cash and Cash Equivalents, Beginning of Period		37			416			171
Cash and Cash Equivalents, End of Period	$	195		$	37		$	416
Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized)	$	242		$	279		$	250
Income taxes paid (net of refunds, $98, $39, and $8)		—			306			35
Non-cash transactions
Other assets placed under capital lease	$	229		$	7		$	12

The accompanying notes are an integral part of these statements.

CE-31

Consumers Energy Company

CONSUMERS ENERGY COMPANY

CONSOLIDATED BALANCE SHEETS

	December 31
	2007		2006
	In Millions
ASSETS
Plant and Property (at cost)
Electric	$	8,555	$	8,504
Gas		3,467		3,273
Other		15		15
		12,037		11,792
Less accumulated depreciation, depletion, and amortization		3,993		5,018
		8,044		6,774
Construction work-in-progress		447		639
		8,491		7,413
Investments
Stock of affiliates		32		36
Other		—		5
		32		41
Current Assets
Cash and cash equivalents at cost, which approximates market		195		37
Restricted cash at cost, which approximates market		25		57
Accounts receivable and accrued revenue, less allowances of $16 in 2007 and $14 in 2006		810		389
Notes receivable		67		46
Accrued power supply and gas revenue		45		156
Accounts receivable — related parties		4		5
Inventories at average cost
Gas in underground storage		1,123		1,129
Materials and supplies		79		81
Generating plant fuel stock		100		105
Deferred property taxes		158		150
Regulatory assets — postretirement benefits		19		19
Prepayments and other		28		50
		2,653		2,224
Non-current Assets
Regulatory assets
Securitized costs		466		514
Postretirement benefits		921		1,131
Customer Choice Act		149		190
Other		504		497
Nuclear decommissioning trust funds		—		602
Other		185		233
		2,225		3,167
Total Assets	$	13,401	$	12,845

The accompanying notes are an integral part of these statements.

CE-32

Consumers Energy Company

	December 31
	2007		2006
	In Millions
STOCKHOLDER’S INVESTMENT AND LIABILITIES
Capitalization
Common stockholder’s equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods	$	841	$	841
Paid-in capital		2,482		1,832
Accumulated other comprehensive income		—		15
Retained earnings		324		270
		3,647		2,958
Preferred stock		44		44
Long-term debt		3,692		4,127
Non-current portion of capital and finance lease obligations		225		42
		7,608		7,171
Current Liabilities
Current portion of long-term debt, capital and finance lease obligations		470		44
Notes payable — related parties		—		42
Accounts payable		403		421
Accrued rate refunds		19		37
Accounts payable — related parties		13		18
Accrued interest		65		62
Accrued taxes		353		295
Deferred income taxes		151		11
Regulatory liabilities		164		—
Other		150		184
		1,788		1,114
Non-current Liabilities
Deferred income taxes		713		847
Regulatory liabilities
Regulatory liabilities for cost of removal		1,127		1,166
Income taxes, net		533		539
Other regulatory liabilities		313		249
Postretirement benefits		813		993
Asset retirement obligations		198		497
Deferred investment tax credit		58		62
Other		250		207
		4,005		4,560
Commitments and Contingencies (Notes 3, 4, 5, 8, and 10)
Total Stockholder’s Investment and Liabilities	$	13,401	$	12,845

CE-33

Consumers Energy Company

CONSUMERS ENERGY COMPANY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY

	Years Ended December 31
	2007			2006			2005
	In Millions
Common Stock
At beginning and end of period(a)	$	841		$	841		$	841
Other Paid-in Capital
At beginning of period		1,832			1,632			932
Stockholder’s contribution		650			200			700
At end of period		2,482			1,832			1,632
Accumulated Other Comprehensive Income
Retirement benefits liability
At beginning of period		(8	)		(2	)		(1	)
Retirement benefits liability adjustments(b)		—			—			(1	)
Net loss arising during the period(b)		(7	)		—			—
Adjustment to initially apply FASB Statement No. 158, net of tax		—			(6	)		—
At end of period		(15	)		(8	)		(2	)
Investments
At beginning of period		23			18			12
Unrealized gain (loss) on investments(b)		(1	)		5			6
Reclassification adjustments included in net income (loss)(b)		(7	)		—			—
At end of period		15			23			18
Derivative instruments
At beginning of period		—			56			20
Unrealized gain (loss) on derivative instruments(b)		—			(21	)		53
Reclassification adjustments included in net income (loss)(b)		—			(35	)		(17	)
At end of period		—			—			56
Total Accumulated Other Comprehensive Income		—			15			72
Retained Earnings
At beginning of period		270			233			608
Adjustment to initially apply FIN 48		(5	)		—			—
Net income (loss)(b)		312			186			(96	)
Cash dividends declared — Common Stock		(251	)		(147	)		(277	)
Cash dividends declared — Preferred Stock		(2	)		(2	)		(2	)
At end of period		324			270			233
Total Common Stockholder’s Equity	$	3,647		$	2,958		$	2,778

The accompanying notes are an integral part of these statements.

CE-34

Consumers Energy Company

	Years Ended December 31
	2007			2006			2005
	In Millions
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented.
(b) Disclosure of Comprehensive Income (Loss):
Net income (loss)	$	312		$	186		$	(96	)
Retirement benefits liability
Retirement benefits liability adjustment, net of tax benefit of $—		—			—			(1	)
Net loss arising during the period, net of tax benefit of $(4)		(7	)		—			—
Investments
Unrealized gain (loss) on investments, net of tax (tax benefit) of $(1) in 2007, $2 in 2006, and $3 in 2005		(1	)		5			6
Reclassification adjustments included in net income (loss), net of tax benefit of $(3)		(7	)		—			—
Derivative instruments
Unrealized gain (loss) on derivative instruments, net of tax (tax benefit) of $(11) in 2006, and $28 in 2005		—			(21	)		53
Reclassification adjustments included in net income (loss), net of tax benefit of $(19) in 2006, and $(10) in 2005		—			(35	)		(17	)
Total Comprehensive Income (Loss)	$	297		$	135		$	(55	)

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CE-36

Consumers Energy Company

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1: CORPORATE STRUCTURE AND ACCOUNTING POLICIES

Corporate Structure: Consumers, a subsidiary of CMS Energy, a holding company, is a combination electric and gas utility company serving Michigan’s Lower Peninsula. Our customer base includes a mix of residential, commercial, and diversified industrial customers. We manage our business by the nature of services each provides and operate principally in two business segments: electric utility and gas utility.

Principles of Consolidation: The consolidated financial statements include Consumers, and all other entities in which we have a controlling financial interest or are the primary beneficiary, in accordance with FIN 46(R). We use the equity method of accounting for investments in companies and partnerships that are not consolidated, where we have significant influence over operations and financial policies, but are not the primary beneficiary. We eliminate intercompany transactions and balances.

Use of Estimates: We prepare our consolidated financial statements in conformity with U.S. GAAP. We are required to make estimates using assumptions that may affect the reported amounts and disclosures. Actual results could differ from those estimates.

We record estimated liabilities for contingencies in our consolidated financial statements when it is probable that a liability was incurred and when the amount of loss can be reasonably estimated. For additional details, see Note 3, Contingencies.

Revenue Recognition Policy: We recognize revenues from deliveries of electricity and natural gas, and from the storage of natural gas when services are provided. We record unbilled revenues for the estimated amount of energy delivered to customers but not yet billed. We record sales tax on a net basis and exclude it from revenues.

Accounting for Legal Fees: We expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed. This policy also applies to fees incurred on behalf of employees and officers related to indemnification agreements; such fees are billed directly to us.

Accounting for MISO Transactions: MISO requires that we submit hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. We account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, and net transactions across all MISO energy market locations. We record net purchases in a single hour in “Purchased and interchange power” and net sales in a single hour in “Operating Revenue” in the Consolidated Statements of Income (Loss). We record expense accruals for future net purchases adjustments based on historical experience, and reconcile accruals to actual expenses when we receive invoices.

Capitalized Interest: We capitalize interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Capitalization of interest is limited to the actual interest cost incurred. Our regulated businesses capitalize AFUDC on regulated construction projects and include these amounts in plant in service.

Cash Equivalents and Restricted Cash: Cash equivalents are all liquid investments with an original maturity of three months or less.

At December 31, 2007, our restricted cash on hand was $25 million. We classify restricted cash dedicated for repayment of Securitization bonds as a current asset, as the related payments occur within one year.

Collective Bargaining Agreements: At December 31, 2007, the Utility Workers of America Union represented approximately 46 percent of our employees. The Union represents Consumers’ operating, maintenance, and construction employees and our call center employees.

Determination of Pension MRV of Plan Assets: We determine the MRV for pension plan assets, as defined in SFAS No. 87, as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not

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be admitted into MRV until future years. We reflect each year’s assets gain or loss in MRV in equal amounts over a five-year period beginning on the date the original amount was determined. We use the MRV in the calculation of net pension cost.

Financial and Derivative Instruments: We record debt and equity securities classified as available-for-sale at fair value determined primarily from quoted market prices. On a specific identification basis, we report unrealized gains and losses from changes in fair value of certain available-for-sale debt and equity securities, net of tax, in equity as part of AOCI. We exclude unrealized losses from earnings unless the related changes in fair value are determined to be other than temporary. We reflected unrealized gains and losses on our nuclear decommissioning investments as regulatory liabilities on our Consolidated Balance Sheets.

In accordance with SFAS No. 133, if a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on our Consolidated Balance Sheets at its fair value. If a derivative qualifies for cash flow hedge accounting, we report changes in its fair value in AOCI; otherwise, we report the changes in earnings.

For additional details regarding financial and derivative instruments, see Note 5, Financial and Derivative Instruments.

Impairment of Investments and Long-Lived Assets: We periodically perform tests of impairment if certain triggering events occur, or if there has been a decline in value that may be other than temporary.

A long-lived asset held-in-use is evaluated for impairment by calculating the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the carrying amount, we recognize an impairment loss equal to the amount by which the carrying amount exceeds the fair value. We estimate the fair value of the asset using quoted market prices, market prices of similar assets, or discounted future cash flow analyses.

We also assess our investments for impairment whenever there has been a decline in value that is other than temporary. This assessment requires us to determine the fair values of our investments. We determine fair value using valuation methodologies, including discounted cash flows and the ability of the investee to sustain an earnings capacity that justifies the carrying amount of the investment. We record an impairment if the fair value is less than the carrying value and the decline in value is considered to be other than temporary.

For additional details, see Note 2, Asset Sales and Impairment Charges.

Inventory: We use the weighted average cost method for valuing working gas and recoverable cushion gas in underground storage facilities and materials and supplies inventory. We also use this method for valuing coal inventory and classify these costs as generating plant fuel stock on our Consolidated Balance Sheets.

We classify emission allowances as materials and supplies inventory and use the average cost method to remove amounts from inventory as the emission allowances are used to generate power.

Maintenance and Depreciation: We charge property repairs and minor property replacement to maintenance expense. We use the direct expense method to account for planned major maintenance activities. We charge planned major maintenance activities to operating expense unless the cost represents the acquisition of additional components or the replacement of an existing component. We capitalize the cost of plant additions and replacements.

We depreciate utility property using a composite method, in which we apply a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas divisions. We

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perform depreciation studies periodically to determine appropriate group lives. The composite depreciation rates for our properties are as follows:

Years Ended December 31	2007		2006		2005
Electric utility property		3.0%		3.1%		3.1%
Gas utility property		3.6%		3.6%		3.6%
Other property		8.7%		8.2%		7.6%

Other Income and Other Expense: The following tables show the components of Other income and Other expense:

Years Ended December 31	2007		2006		2005
	In Millions
Other income
Electric restructuring return	$	2	$	4	$	6
Return on stranded and security costs		6		5		6
MCV Partnership emmission allowance sales		—		8		2
Gain on SERP investment		10		—		—
Gain on investment		7		—		—
Gain on stock		4		1		1
All other		3		2		5
Total other income	$	32	$	20	$	20

Years Ended December 31	2007			2006			2005
	In Millions
Other expense
Loss on reacquired debt	$	—		$	—		$	(6	)
Civic and political expenditures		(2	)		(2	)		(2	)
Donations		—			(9	)		—
Abandoned Midland Project		(8	)		—			—
Loss on SERP investment		—			—			(1	)
All other		(4	)		(1	)		(6	)
Total other expense	$	(14	)	$	(12	)	$	(15	)

Property, Plant, and Equipment: We record property, plant, and equipment at original cost when placed into service. When regulated assets are retired, or otherwise disposed of in the ordinary course of business, we charge the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. We recognize gains or losses on the retirement or disposal of non-regulated assets in income. For additional details, see Note 7, Asset Retirement Obligations and Note 11, Property, Plant, and Equipment. Cost of removal collected from our customers, but not spent, is recorded as a regulatory liability.

We capitalize AFUDC on regulated major construction projects. AFUDC represents the estimated cost of debt and a reasonable return on equity funds used to finance construction additions. We record the offsetting credit of AFUDC capitalized as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component in the Consolidated Statements of Income (Loss). When construction is completed and the property is placed in service, we depreciate and recover the capitalized AFUDC from our

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customers over the life of the related asset. The following table shows our electric, gas and common composite AFUDC capitalization rates:

Years Ended December 31	2007			2006			2005
AFUDC capitalization rate		7.4	%		7.5	%		7.6	%

Reclassifications:  We have reclassified certain prior-period amounts on our Consolidated Financial Statements to conform to the presentation for the current period. These reclassifications did not affect consolidated net income or cash flow for the periods presented.

Related Party Transactions: We recorded income and expense from related parties as follows:

Description	Related Party	2007			2006			2005
		In Millions
Type of Income:
Income from our investments in related party trusts	Consumers’ affiliated Trust Preferred Securities Companies	$	—		$	—		$	1
Dividend Income	CMS Energy		1			—			—
Type of Expense:
Electric generating capacity and energy	Affiliates of Enterprises		(79	)		(74	)		(68	)
Interest expense on long-term debt	Consumers’ affiliated Trust Preferred Securities Companies		—			(1	)		(15	)
Interest expense on note payable	CMS Energy		(2	)		(4	)		(1	)
Overhead expense(a)	CMS Energy		(1	)		(1	)		(1	)
Gas transportation(b)	CMS Bay Area Pipeline, L.L.C.		(1	)		(4	)		(4	)

(a)	We base our related party transactions on regulated prices, market prices, or competitive bidding. We pay overhead costs to CMS Energy based on an industry allocation methodology, such as the Massachusetts Formula.
(b)	CMS Bay Area Pipeline, L.L.C. was sold to Lucid Energy in March 2007.

We own 1.8 million shares of CMS Energy Common Stock with a fair value of $32 million at December 31, 2007. For additional details on our investment in CMS Energy Common Stock, see Note 5, Financial and Derivative Instruments.

Trade Receivables: Accounts receivable is primarily composed of trade receivables and unbilled receivables. We record our accounts receivable at cost which approximates fair value. Unbilled receivables were $490 million in 2007 and $355 million in 2006. We establish an allowance for uncollectible accounts based on historical losses and management’s assessment of existing economic conditions, customer trends, and other factors. We assess late payment fees on trade receivables based on contractual past-due terms established with customers. We charge accounts deemed uncollectible to operating expense.

Unamortized Debt Premium, Discount, and Expense: We capitalize premiums, discounts, and costs of long-term debt and amortize those costs over the terms of the debt issues. For the non-regulated portions of our businesses, we expense any refinancing costs as incurred. For the regulated portions of our businesses, if we refinance debt, we capitalize any remaining unamortized premiums, discounts, and expenses and amortize them over the terms of the newly issued debt.

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Utility Regulation: We are subject to the actions of the MPSC and FERC and prepare our consolidated financial statements in accordance with the provisions of SFAS No. 71. As a result, we may defer or recognize revenues and expenses differently than a non-regulated entity. For example, we may record as regulatory assets items that a non-regulated entity normally would expense if the actions of the regulator indicate such expenses will be recovered in future rates. Conversely, we may record as regulatory liabilities items that non-regulated entities may normally recognize as revenues if the actions of the regulator indicate they will require that such revenues be refunded to customers.

We reflect the following regulatory assets and liabilities, which include both current and non-current amounts, on our Consolidated Balance Sheets at December 31, 2007.

	End of
	Recovery
December 31	Period	2007		2006
	In Millions
Assets Earning a Return:
Customer Choice Act	2010	$	149	$	190
Unamortized debt costs	2035		74		86
Stranded Costs	See Note 3		68		65
Electric restructuring implementation plan	2008		14		40
Manufactured gas plant sites (Note 3)	2016		33		15
Abandoned Midland project	n/a		—		9
Other(a)	various		50		21
Assets Not Earning a Return:
SFAS No. 158 transition adjustment (Note 6)	various		851		1,038
Securitized costs (Note 4)	2015		466		514
Postretirement benefits (Note 6)	2011		89		112
ARO (Note 7)	n/a		85		177
Big Rock nuclear decommissioning and related costs (Note 3)	n/a		129		35
Manufactured gas plant sites (Note 3)	n/a		17		41
Palisades sales transaction costs (Note 2)	n/a		28		—
Other(a)	2011		6		8
Total regulatory assets(b)		$	2,059	$	2,351
Palisades refund — Current (Note 2)(c)		$	164	$	—
Cost of removal (Note 7)			1,127		1,166
Income taxes, net (Note 8)			533		539
ARO (Note 7)			141		180
Palisades refund — Noncurrent (Note 2)(c)			140		—
Other(a)			32		69
Total regulatory liabilities(b)		$	2,137	$	1,954

(a) At December 31, 2007 and 2006, other regulatory assets include a gas inventory regulatory asset and OPEB and pension expense incurred in excess of the MPSC-approved amount. We will recover these regulatory assets from our customers by 2011. Other regulatory liabilities include liabilities related to the sale of sulfur dioxide allowances and AFUDC collected in excess of the MPSC-approved amount.

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(b)

At December 31, 2007, we classified $19 million of regulatory assets as current regulatory assets and $2.040 billion of regulatory assets as non-current regulatory assets. At December 31, 2006, we classified $19 million of regulatory assets as current regulatory assets and $2.332 billion of regulatory assets as non-current regulatory assets. At December 31, 2007, we classified $164 million of regulatory liabilities as current regulatory liabilities and $1.973 billion of regulatory liabilities as non-current regulatory liabilities. At December 31, 2006, all of our regulatory liabilities represented non-current regulatory liabilities.

(c)

The MPSC order approving the Palisades and Big Rock ISFSI transaction requires that we credit $255 million of excess proceeds and decommissioning amounts to our retail customers beginning in June 2007 through December 2008. The current portion of regulatory liabilities for Palisades refunds represents the remaining portion of this obligation, plus interest. There are additional excess sales proceeds and decommissioning fund balances above the amount in the MPSC order. The non-current portion of regulatory liabilities for Palisades refunds represents this obligation, plus interest. For additional details on the sale of Palisades and the Big Rock ISFSI, see Note 2, Asset Sales and Impairment Charges.

Our PSCR and GCR cost recovery mechanisms also represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process. Underrecoveries are included in Accrued power supply and gas revenue and overrecoveries are included in Accrued rate refunds on our Consolidated Balance Sheets. For additional details on PSCR, see Note 3, Contingencies, “Electric Rate Matters — Power Supply Costs” and for additional details on GCR, see Note 3, Contingencies, “Gas Rate Matters — Gas Cost Recovery.”

We reflect the following regulatory assets and liabilities for underrecoveries and overrecoveries on our Consolidated Balance Sheets:

Years Ended December 31	2007		2006
	In Millions
Regulatory Assets for PSCR and GCR
Underrecoveries of power supply costs	$	45	$	156
Regulatory Liabilities for PSCR and GCR
Overrecoveries of gas costs	$	19	$	37

New Accounting Standards Not Yet Effective: SFAS No. 157, Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, effective for us on January 1, 2008. The standard provides a revised definition of fair value and establishes a framework for measuring fair value. Under the standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly exchange between market participants. The standard does not expand the use of fair value, but it requires new disclosures about the impact and reliability of fair value measurements. The standard will also eliminate the existing prohibition against recognizing “day one” gains and losses on derivative instruments. We currently do not hold any derivatives that would involve day one gains or losses. The standard is to be applied prospectively, except that limited retrospective application is required for three types of financial instruments, none of which we currently hold. We do not believe that the implementation of this standard will have a material effect on our consolidated financial statements.

In February 2008, the FASB issued a one-year deferral of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recorded or disclosed at fair value on a recurring basis. Under this partial deferral, SFAS No. 157 will not be effective until January 1, 2009 for fair value measurements in the following areas:

•  AROs,

•  most of the nonfinancial assets and liabilities acquired in a business combination, and

•  fair value measurements performed in conjunction with impairment analyses.

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SFAS No. 157 remains effective January 1, 2008 for our derivative instruments, available-for-sale investment securities, and long-term debt fair value disclosures.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment to FASB Statement No. 115: In February 2007, the FASB issued SFAS No. 159, effective for us on January 1, 2008. This standard gives us the option to measure certain financial instruments and other items at fair value, with changes in fair value recognized in earnings. We do not expect to elect the fair value option for any financial instruments or other items.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51: In December 2007, the FASB issued SFAS No. 160, effective for us January 1, 2009. Ownership interests in subsidiaries held by third parties, which are currently referred to as minority interests, will be presented as noncontrolling interests and shown separately on our Consolidated Balance Sheets within equity. Any changes in our ownership interests while control is retained will be treated as equity transactions. In addition, this standard requires presentation and disclosure of the allocation between controlling and noncontrolling interests’ income from continuing operations, discontinued operations, and comprehensive income and a reconciliation of changes in the consolidated statement of equity during the reporting period. The presentation and disclosure requirements of the standard will be applied retrospectively for all periods presented. All other requirements will be applied prospectively. We are evaluating the impact SFAS No. 160 will have on our consolidated financial statements.

EITF Issue 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards: In June 2007, the FASB ratified EITF Issue 06-11, effective for us on a prospective basis beginning January 1, 2008. EITF Issue 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards. We do not believe that implementation of this standard will have a material effect on our consolidated financial statements.

2:  ASSET SALES AND IMPAIRMENT CHARGES

Asset Sales

Gross cash proceeds from the sale of assets totaled $337 million in 2007 and $69 million in 2006. The impacts of our asset sales are included in Gain on asset sales, net in our Consolidated Statements of Income (Loss).

For the year ended December 31, 2007, we sold the following assets:

		Pretax		After-tax
Month sold	Business/Project	Gain		Gain
		In Millions
April	Palisades(a)	$	—	$	—
Various	Other		2		1
	Total gain on asset sales	$	2	$	1

(a) Sale of Nuclear Assets: In April 2007, we sold Palisades to Entergy for $380 million, and received $363 million after various closing adjustments such as working capital and capital expenditure adjustments and nuclear fuel usage and inventory adjustments. We also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. Because of the sale of Palisades, we paid the NMC, the former operator of Palisades, $7 million in exit fees and forfeited our $5 million investment in the NMC.

Entergy assumed responsibility for the future decommissioning of Palisades and for storage and disposal of spent nuclear fuel located at Palisades and the Big Rock ISFSI sites. At closing, we transferred $252 million in decommissioning trust fund balances to Entergy. We are presently crediting excess decommissioning funds,

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which totaled $189 million to our retail customers through the end of 2008. Modification to the terms of the transaction allowed us immediate access to additional excess decommissioning trust funds of $123 million. The distribution of these funds is currently under review by the MPSC in our electric rate case filing. We have recorded this obligation, plus interest, as a regulatory liability on our Consolidated Balance Sheets.

The MPSC order approving the Palisades transaction allows us to recover the book value of Palisades. As a result, we are presently crediting proceeds in excess of book value of $66 million to our retail customers through the end of 2008. After closing adjustments, which are subject to MPSC review, proceeds in excess of the book value were $77 million. We recorded the excess proceeds as a regulatory liability on our Consolidated Balance Sheets. Recovery of our transaction costs of $28 million, which includes the NMC exit fees and investment forfeiture, is presently under review by the MPSC in our current electric rate case. We recorded these costs as a regulatory asset on our Consolidated Balance Sheets as recovery is probable.

We accounted for the disposal of Palisades as a financing for accounting purposes and thus we recognized no gain on the Consolidated Statements of Income (Loss). We accounted for the remaining non-real estate assets and liabilities associated with the transaction as a sale. For additional details on the Palisades finance obligation, see Note 10, Leases.

For the year ended December 31, 2006, we sold the following assets:

		Pretax		After-tax
Month sold	Business/Project	Gain		Gain
		In Millions
October	Land in Ludington, Michigan(a)	$	2	$	2
November	MCV GP II(b)		77		38
	Total gain on asset sales	$	79	$	40

(a)	We sold 36 parcels of land near Ludington, Michigan. We held a majority share of the land, which we co-owned with DTE Energy. Our portion of the proceeds was $6 million.
(b)	In November 2006, we sold all of our interests in the Consumers’ subsidiaries that held the MCV Partnership and the MCV Facility to an affiliate of GSO Capital Partners and Rockland Capital Energy Investments.

Because of the MCV PPA, the transaction is a sale and leaseback for accounting purposes. SFAS No. 98 specifies the accounting required for a seller’s sale and simultaneous leaseback involving real estate. We have continuing involvement with the MCV Partnership through an existing guarantee associated with the future operations of the MCV Facility. As a result, we accounted for the MCV Facility as a financing for accounting purposes and not a sale. The value of the finance obligation was based on an allocation of the transaction proceeds to the fair values of the net assets sold and fair value of the MCV Facility under the financing. The total proceeds of $61 million (excluding $3 million of selling expenses) were less than the fair value of the net assets sold. As a result, there were no proceeds remaining to allocate to the MCV Facility; therefore, we recorded no finance obligation.

The transaction resulted in an after-tax loss of $41 million, which includes a reclassification of $30 million of AOCI into earnings, an $80 million impairment charge on the MCV Facility, an $8 million gain on the removal of our interests in the MCV Partnership and the MCV Facility, and $1 million benefit in general taxes. Upon the sale of our interests in the MCV Partnership and the FMLP, we were no longer the primary beneficiary of these entities and the entities were deconsolidated.

Impairment Charges

In November 2006, we recorded an impairment charge of $218 million to recognize the reduction in fair value of the MCV Facility’s real estate assets. The result was an $80 million reduction to our consolidated net income after considering tax effects and minority interest.

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In the third quarter of 2005, based on forecasts for higher natural gas prices, the MCV Partnership determined an impairment analysis considering revised forward natural gas price assumptions was required. The MCV Partnership determined the fair value of its fixed assets by discounting a set of probability-weighted streams of future operating cash flows. The carrying value of the MCV Partnership’s fixed assets exceeded the estimated fair value resulting in impairment charges of $1.159 billion to recognize the reduction in fair value of the MCV Facility’s fixed assets and $25 million of interest capitalized during the construction of the MCV Facility. Our 2005 consolidated net income was reduced by $385 million, after considering tax effects and minority interest.

We report our interests in the MCV Partnership as a component of our “other” business segment.

3:  CONTINGENCIES

DOJ Investigation: From May 2000 through January 2002, CMS MST engaged in simultaneous, prearranged commodity trading transactions in which energy commodities were sold and repurchased at the same price. These transactions referred to as round-trip trades, had no impact on previously reported consolidated net income, earnings per share or cash flows, but had the effect of increasing operating revenues and operating expenses by equal amounts. CMS Energy is cooperating with an investigation by the DOJ concerning round-trip trading, which the DOJ commenced in May 2002. CMS Energy is unable to predict the outcome of this matter and what effect, if any, this investigation will have on its business.

SEC Investigation and Settlement: In March 2004, the SEC approved a cease-and-desist order settling an administrative action against CMS Energy related to round-trip trading. The order did not assess a fine and CMS Energy neither admitted to nor denied the order’s findings. The settlement resolved the SEC investigation involving CMS Energy and CMS MST. Also in March 2004, the SEC filed an action against three former employees related to round-trip trading at CMS MST. One of the individuals has settled with the SEC. CMS Energy is currently advancing legal defense costs for the remaining two individuals in accordance with existing indemnification policies. The two individuals filed a motion to dismiss the SEC action, which was denied.

Securities Class Action Settlement: Beginning in May 2002, a number of complaints were filed against CMS Energy, Consumers and certain officers and directors of CMS Energy and its affiliates in the United States District Court for the Eastern District of Michigan. The cases were consolidated into a single lawsuit (the “Shareholder Action”), which generally seeks unspecified damages based on allegations that the defendants violated United States securities laws and regulations by making allegedly false and misleading statements about CMS Energy’s business and financial condition, particularly with respect to revenues and expenses recorded in connection with round-trip trading by CMS MST. In January 2005, the court granted a motion to dismiss Consumers and three of the individual defendants, but denied the motions to dismiss CMS Energy and the 13 remaining individual defendants. In March 2006, the court conditionally certified a class consisting of “all persons who purchased CMS Common Stock during the period of October 25, 2000 through and including May 17, 2002 and who were damaged thereby.” The court excluded purchasers of CMS Energy’s 8.75 percent Adjustable Convertible Trust Securities (“ACTS”) from the class and, in response, a new class action lawsuit was filed on behalf of ACTS purchasers (the “ACTS Action”) against the same defendants named in the Shareholder Action. The settlement described in the following paragraph has resolved both the Shareholder and ACTS Actions.

On January 3, 2007, CMS Energy and other parties entered into a Memorandum of Understanding (the “MOU”), subject to court approval, regarding settlement of the two class action lawsuits. The settlement was approved by a special committee of independent directors and by the full Board of Directors. Both judged that it was in the best interests of shareholders to eliminate this business uncertainty. Under the terms of the MOU, the litigation was settled for a total of $200 million, including the cost of administering the settlement and any attorney fees the court awards. CMS Energy made a payment of approximately $123 million plus interest on the settlement amount on September 20, 2007. CMS Energy’s insurers paid $77 million, the balance of the settlement amount. In entering into the MOU, CMS Energy made no admission of liability under the Shareholder Action and the ACTS Action. The

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parties executed a Stipulation and Agreement of Settlement dated May 22, 2007 (“Stipulation”) incorporating the terms of the MOU. In accordance with the Stipulation, CMS Energy paid approximately $1 million of the settlement amount to fund administrative expenses. On September 6, 2007, the court issued a final order approving the settlement. The remaining settlement amount was paid following the September 6, 2007 hearing.

Katz Technology Litigation: In June 2007, RAKTL filed a lawsuit in the United States District Court for the Eastern District of Michigan against CMS Energy and Consumers alleging patent infringement. RAKTL claimed that automated customer service, bill payment services and gas leak reporting offered to our customers and accessed through toll free numbers infringe on patents held by RAKTL. On January 15, 2008, Consumers and CMS Energy reached an agreement in principle with RAKTL to settle the litigation. We expect to finalize the terms of the settlement and license by late February 2008. We believe any settlement with RAKTL will be immaterial.

Electric Contingencies

Electric Environmental Matters: Our operations are subject to environmental laws and regulations. Generally, we have been able to recover the costs to operate our facilities in compliance with these laws and regulations in customer rates.

Cleanup and Solid Waste: Under the NREPA, we will ultimately incur investigation and response activity costs at a number of sites. We believe that these costs will be recoverable in rates under current ratemaking policies.

We are a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. However, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on our experience, we estimate that our share of the total liability for most of our known Superfund sites will be between $1 million and $10 million. At December 31, 2007, we have recorded a liability for the minimum amount of our estimated probable Superfund liability in accordance with FIN 14.

The timing of payments related to our investigation and response activities at our Superfund and NREPA sites is uncertain. Any significant change in assumptions, such as different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect our estimate of response activity costs and the timing of our payments.

Ludington PCB: In October 1998, during routine maintenance activities, we identified PCB as a component in certain paint, grout, and sealant materials at Ludington. We removed and replaced part of the PCB material with non-PCB material. Since proposing a plan to deal with the remaining materials, we have had several conversations with the EPA. The EPA has proposed a rule that would allow us to leave the material in place, subject to certain restrictions. We are not able to predict when the EPA will issue a final ruling. We cannot predict the financial impact or outcome of this matter.

Electric Utility Plant Air Permit Issues: In April 2007, we received a Notice of Violation (NOV) /Finding of Violation (FOV) from the EPA alleging that fourteen of our utility boilers exceeded visible emission limits in their associated air permits. The utility boilers are located at the D.E. Karn/J.C. Weadock Generating Complex, J.H. Campbell Plant, B.C. Cobb Electric Generating Station and J.R. Whiting Plant, which are all located in Michigan. We have formally responded to the NOV/FOV denying the allegations and are awaiting the EPA’s response to our submission. We cannot predict the financial impact or outcome of this matter.

Litigation: In 2003, a group of eight PURPA qualifying facilities (the plaintiffs) filed a lawsuit in Ingham County Circuit Court. The lawsuit alleged that we incorrectly calculated the energy charge payments made under power purchase agreements. The judge deferred to the primary jurisdiction of the MPSC, dismissing the circuit court case without prejudice. In February 2005, the MPSC issued an order in the 2004 PSCR plan case concluding

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that we have been correctly administering the energy charge calculation methodology. The plaintiffs have an appeal of the MPSC order pending with the Court of Appeals. We believe we have been performing the calculation in the manner prescribed by the power purchase agreements and have not recorded any reserves. We cannot predict the financial impact or outcome of this matter.

Electric Rate Matters

Electric ROA: The Customer Choice Act allows electric utilities to recover their net Stranded Costs. In November 2004, the MPSC approved recovery of our Stranded Costs incurred from 2002 through 2003 plus interest through the period of collection. At December 31, 2007, we had a regulatory asset for Stranded Costs of $68 million. We collect these Stranded Costs through a surcharge on ROA customers. At December 31, 2007, alternative electric suppliers were providing 315 MW of generation service to ROA customers, which represents an increase of 5 percent of ROA load compared to December 31, 2006. However, since the MPSC order, we have experienced a downward trend in ROA customers. This trend has affected negatively our ability to recover these Stranded Costs in a timely manner. If this trend continues, it may require legislative or regulatory assistance to recover fully our 2002 and 2003 Stranded Costs.

Power Supply Costs: The PSCR process allows recovery of reasonable and prudent power supply costs. The MPSC reviews these costs for reasonableness and prudency in annual plan proceedings and in plan reconciliation proceedings. The following table summarizes our PSCR reconciliation filings with the MPSC:

Power Supply Cost Recovery Reconciliation

			Net Under-	PSCR Cost
PSCR Year	Date Filed	Order Date	recovery	of Power Sold	Description of Net Underrecovery
2005 Reconciliation	March 2006	July 2007	$36 million	$1.081 billion	MPSC approved the recovery of our $36 million underrecovery, including interest, related to our commercial and industrial customers.
2006 Reconciliation	March 2007	Pending	$105 million(a)	$1.490 billion	Underrecovery relates to our increased METC costs and coal supply costs, certain increased sales, and other cost increases beyond those included in the 2006 PSCR plan filings.

(a) $99 million as recommended by a February 2008 ALJ Proposal for Decision. In a separate matter, this ALJ also recommended that we refund $62 million in proceeds from the sale of excess sulfur dioxide allowances. In accordance with FERC regulations, we previously reserved these proceeds as a regulatory liability pending final direction on disposition of the proceeds from the MPSC.

2007 PSCR Plan: In December 2006, the MPSC issued a temporary order allowing us to implement our 2007 PSCR monthly factor on January 1, 2007, as filed. The order also allowed us to include prior year underrecoveries and overrecoveries in future PSCR plans. In September 2007, the ALJ recommended in his Proposal for Decision that we reduce our underrecoveries to reflect the refund of all proceeds from the sale of sulfur dioxide allowances,

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which totaled $62 million. Our PSCR plan proposed to refund 50 percent of proceeds to customers. We reserved all proceeds, excluding interest, as a regulatory liability as discussed in the preceding paragraph.

2008 PSCR Plan: In September 2007, we submitted our 2008 PSCR plan filing to the MPSC. The plan proposed recovery of estimated 2007 PSCR underrecoveries of $84 million. We self-implemented a 2008 PSCR charge in January 2008.

We expect to recover fully all of our PSCR costs. When we are unable to collect these costs as they are incurred, there is a negative impact on our cash flows from electric utility operations. We cannot predict the financial impact or outcome of these proceedings.

Electric Rate Case: In 2007, we filed applications with the MPSC seeking an 11.25 percent authorized return on equity and an annual increase in revenues of $269 million. We presently have an authorized return on equity of 11.15 percent. In July 2007, we filed an amended application for rate relief, which seeks the following:

•  recovery of the purchase of the Zeeland power plant,

•  approval to remove the costs associated with Palisades,

•  approval of a plan for the distribution of additional excess proceeds from the sale of Palisades to customers, effectively offsetting the partial and immediate rate relief for up to nine months, and

•  partial and immediate rate relief associated with 2007 capital investments, a $400 million equity infusion into Consumers, and increased distribution system operation and maintenance costs including employee pension and health care costs.

In December 2007, the MPSC approved a rate increase of $70 million related to the purchase of the Zeeland power plant. The MPSC also stated that our interim request that sought the removal of costs associated with Palisades and the approval of a plan to distribute excess proceeds from the sale of Palisades to customers should be addressed in the final electric rate case order. Furthermore, the MPSC denied our request for the approval of partial and immediate rate relief associated with capital investments, changes in the capital structure, and increased operation and maintenance expenses.

When we are unable to include increased costs and investments in rates in a timely manner, there is a negative impact on our cash flows from electric utility operations. We cannot predict the financial impact or the outcome of this proceeding.

Other Electric Contingencies

The MCV PPA: The MCV Partnership, which leases and operates the MCV Facility, contracted to sell 1,240 MW of electricity to Consumers under a 35-year power purchase agreement that began in 1990. We estimate that capacity and energy payments under the MCV PPA, excluding RCP savings, will range from $650 million to $750 million annually, assuming successful exercise of the regulatory-out provision in the MCV PPA. We purchased capacity and energy, net of the MCV RCP replacement energy and benefits, under the MCV PPA of $464 million in 2007, $411 million in 2006, and $352 million in 2005.

Regulatory-out Provision in the MCV PPA: Until we exercised the regulatory-out provision in the MCV PPA in September 2007, the cost that we incurred under the MCV PPA exceeded the recovery amount allowed by the MPSC. The regulatory-out provision limits our capacity and fixed energy payments to the MCV Partnership to the amounts that we collect from our customers. Cash underrecoveries of our capacity and fixed energy payments were $39 million in 2007. Savings from the RCP, after allocation of a portion to customers, offset some of our capacity and fixed energy underrecoveries expense.

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As a result of our exercise of the regulatory-out provision, the MCV Partnership may, under certain circumstances, have the right to terminate the MCV PPA, or reduce the amount of capacity sold under the MCV PPA from 1,240 MW to 806 MW, which could affect our electric Reserve Margin. The MCV Partnership has until February 25, 2008 to notify us of its intention to terminate the MCV PPA, at which time the MCV Partnership must specify the termination date. We have not yet received any notification of termination; however, the MCV Partnership has notified us that it disputes our right to exercise the regulatory-out provision. We believe that the provision is valid and fully effective and have not recorded any reserves, but we cannot predict whether we would prevail in the event of litigation on this issue.

We expect the MPSC to review our exercise of the regulatory-out provision and the likely consequences of such action. It is possible that in the event that the MCV Partnership terminates performance under the MCV PPA, prior orders could limit recovery of replacement power costs to the amounts that the MPSC authorized for recovery under the MCV PPA. Depending on the cost of replacement power, this could result in our costs exceeding the recovery amount allowed by the MPSC. We cannot predict the financial impact or outcome of these matters.

To comply with a prior MPSC order, we made a filing in May 2007 with the MPSC requesting a determination as to whether it wished to reconsider the amount of the MCV PPA payments that we recover from customers. The MCV Partnership also filed an application with the MPSC requesting the elimination of the 88.7 percent availability cap on the amount of capacity and fixed energy charges that we are allowed to recover from our customers. We cannot predict the financial impact or outcome of these matters.

Nuclear Matters: Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big Rock. In December 2000, funding of the Big Rock trust fund stopped because the MPSC-authorized decommissioning surcharge collection period expired. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, we provided $45 million of corporate contributions for decommissioning costs. This amount excludes the $30 million payment to Entergy to assume ownership and responsibility for the Big Rock ISFSI and additional corporate contributions for nuclear fuel storage costs of $54 million, due to the DOE’s failure to accept spent nuclear fuel on schedule. We plan to seek recovery from the MPSC for decommissioning and other related expenditures and we have a $129 million regulatory asset recorded on our Consolidated Balance Sheets.

Nuclear Fuel Disposal Cost: We deferred payment for disposal of spent nuclear fuel burned before April 7, 1983. Our DOE liability is $159 million at December 31, 2007. This amount includes interest, which is payable upon the first delivery of spent nuclear fuel to the DOE. We recovered, through electric rates, the amount of this liability, excluding a portion of interest. In conjunction with the sale of Palisades and the Big Rock ISFSI, we retained this obligation and provided a $155 million letter of credit to Entergy as security for this obligation.

DOE Litigation: In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which we and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.

A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. We filed our complaint in December 2002. If our litigation against the DOE is successful, we plan to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during our ownership of Palisades and Big Rock. We cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during our ownership of Palisades and Big Rock.

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Gas Contingencies

Gas Environmental Matters: We expect to incur investigation and remediation costs at a number of sites under the Michigan Natural Resources and Environmental Protection Act, a Michigan statute that covers environmental activities including remediation. These sites include 23 former manufactured gas plant facilities. We operated the facilities on these sites for some part of their operating lives. For some of these sites, we have no current ownership or may own only a portion of the original site. In December 2005, we estimated our remaining costs to be between $29 million and $71 million, based on 2005 discounted costs, using a discount rate of three percent. The discount rate represented a 10-year average of U.S. Treasury bond rates reduced for increases in the consumer price index. We expect to fund most of these costs through proceeds from insurance settlements and MPSC-approved rates.

From January 1, 2006 to December 31, 2007, we spent a total of $12 million for MGP response activities. At December 31, 2007, we have a liability of $17 million and a regulatory asset of $50 million, which includes $33 million of deferred MGP expenditures. The timing of payments related to the remediation of our manufactured gas plant sites is uncertain. Annual response activity costs are expected to range between $4 million and $6 million per year over the next five years. Any significant change in assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect our estimate of response activity costs and the timing of our payments.

Gas Title Transfer Tracking Fees and Services: In November 2007, we reached an agreement in principle with Duke Energy Corporation, Dynegy Incorporated, Reliant Energy Resources Incorporated and FERC Staff to settle the TTT proceeding. The terms of the agreement include the payment of $2 million in total refunds to all TTT customers and a reduced rate for future TTT transactions.

FERC Investigation: In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers will cooperate with the FERC in responding to the request. Consumers cannot predict the financial impact or outcome of this matter.

Gas Rate Matters

Gas Cost Recovery: The GCR process is designed to allow us to recover all of our purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices for prudency in annual plan and reconciliation proceedings.

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

Gas Cost Recovery Reconciliation

			Net Over-	GCR Cost
GCR Year	Date Filed	Order Date	recovery	of Gas Sold	Description of Net Overrecovery
2005-2006	June 2006	April 2007	$3 million	$1.8 billion	The net overrecovery includes $1 million interest income through March 2006, which resulted from a net underrecovery position during most of the GCR period.
2006-2007	June 2007	Pending	$5 million	$1.7 billion	The total overrecovery amount reflects an overrecovery of $1 million plus $4 million in accrued interest owed to customers.

GCR plan for year 2005-2006: In November 2005, the MPSC issued an order for our 2005-2006 GCR Plan year. The order approved a settlement agreement and established a fixed price cap of $10.10 per mcf for December

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2005 through March 2006. We were able to maintain our GCR billing factor below the authorized level for that period. The order was appealed to the Michigan Court of Appeals by one intervenor. In January 2008, the Michigan Court of Appeals affirmed the MPSC’s order for our 2005-2006 GCR Plan year.

GCR plan for year 2006-2007: In August 2006, the MPSC issued an order for our 2006-2007 GCR Plan year. The order approved a settlement agreement that allowed a base GCR ceiling factor of $9.48 per mcf for April 2006 through March 2007. We were able to maintain our GCR billing factor below the authorized level for that period.

GCR plan for year 2007-2008: In July 2007, the MPSC issued an order for our 2007-2008 GCR plan year. The order approved a settlement agreement that allowed a base GCR ceiling factor of $8.47 per mcf for April 2007 through March 2008, subject to a quarterly ceiling price adjustment mechanism. To date, we have been able to maintain our GCR billing factor below the authorized level.

The GCR billing factor is adjusted monthly in order to minimize the over- or underrecovery amounts in our annual GCR reconciliation. Our GCR billing factor for February 2008 is $7.69 per mcf.

GCR plan for year 2008-2009: In December 2007, we filed an application with the MPSC seeking approval of a GCR plan for our 2008-2009 GCR Plan year. Our request proposed the use of a GCR factor consisting of:

•  a base GCR ceiling factor of $8.17 per mcf, plus

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

2007 Gas Rate Case: In February 2007, we filed an application with the MPSC seeking an 11.25 percent authorized return on equity as part of an $88 million annual increase in our gas delivery and transportation rates. In August 2007, the MPSC approved a partial settlement agreement authorizing an annual rate increase of $50 million, including an authorized return on equity of 10.75 percent. In September  2007, the MPSC reopened the record in the case to allow all interested parties to be heard concerning the approval of an energy efficiency program, which we proposed in our original filing. Hearings on this matter were held in February 2008. We expect the MPSC to issue a final order in the second quarter of 2008. If approved in total, this would result in an additional rate increase of $9 million for implementation of the energy efficiency program.

2008 Gas Rate Case: In February 2008, we filed an application with the MPSC for an annual gas rate increase of $91 million and an 11 percent authorized return on equity.

Other Contingencies

Guarantees and Indemnifications: FIN 45 requires the guarantor, upon issuance of a guarantee, to recognize a liability for the fair value of the obligation it undertakes in issuing the guarantee.

The following table describes our guarantees at December 31, 2007:

		Expiration	Maximum
Guarantee Description	Issue Date	Date	Obligation
		In Millions
Surety bonds and other indemnifications	Various	Various	$	1	(a)
Guarantee	January 1987	March 2016		85	(b)

(a)	In the normal course of business, we issue surety bonds and indemnities to third parties to facilitate commercial transactions. We would be required to pay a counterparty if it incurs losses due to a breach of contract terms or nonperformance under the contract.
(b)	At December 31, 2007, only our guarantee to provide power and steam to Dow contained provisions reimbursing us for payments made under the guarantee. The purchaser of our interest in the MCV Partnership and FMLP, an affiliate of GSO Capital Partners and Rockland Capital Energy Investments,

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agreed to pay us $85 million, subject to certain reimbursement rights, if Dow terminates the agreement under which the MCV Partnership provides it steam and electric power. This agreement expires in March 2016, subject to certain terms and conditions. The purchaser secured its reimbursement obligation with an irrevocable letter of credit of up to $85 million. At December 31, 2007, the guarantee liability recorded for surety bonds and indemnities and for the guarantee to provide power and steam to Dow was immaterial.

We enter into various agreements containing tax and other indemnification provisions in connection with a variety of transactions. While we are unable to estimate the maximum potential obligation related to these indemnities, we consider the likelihood that we would be required to perform or incur significant losses related to these indemnities and the guarantees listed in the preceding tables to be remote.

Other: In addition to the matters disclosed within this Note, we are party to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contractual matters, environmental issues, federal and state taxes, rates, licensing, and other matters.

We have accrued estimated losses for certain contingencies discussed within this Note. Resolution of these contingencies is not expected to have a material adverse impact on our financial position, liquidity, or future results of operations.

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4:  FINANCINGS AND CAPITALIZATION

Long-term debt at December 31 follows:

	Interest Rate (%)			Maturity	2007			2006
					(In Millions)
First mortgage bonds		4.250		2008	$	250		$	250
		4.800		2009		200			200
		4.400		2009		150			150
		4.000		2010		250			250
		5.000		2012		300			300
		5.375		2013		375			375
		6.000		2014		200			200
		5.000		2015		225			225
		5.500		2016		350			350
		5.150		2017		250			250
		5.650		2020		300			300
		5.650		2035		145			147
		5.800		2035		175			175
						3,170			3,172
Senior notes		6.375		2008		159			159
		6.875		2018		180			180
Securitization bonds		5.442	(a)	2008-2015		309			340
Nuclear fuel disposal liability				(b)		159			152
Tax-exempt pollution control revenue bonds		Various		2010-2035		161			161
Total principal amount outstanding						4,138			4,164
Current amounts						(440	)		(31	)
Net unamortized discount						(6	)		(6	)
Total long-term debt					$	3,692		$	4,127

(a)	Represents the weighted average interest rate at December 31, 2007 (5.384 percent at December 31, 2006).
(b)	The maturity date is uncertain.

First Mortgage Bonds: We secure our FMBs by a mortgage and lien on substantially all of our property. Our ability to issue FMBs is restricted by certain provisions in the first mortgage bond indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in our first mortgage bond indenture include achieving a two-times interest coverage ratio and having sufficient unfunded net property additions.

Securitization Bonds: Certain regulatory assets collateralize securitization bonds. The bondholders have no recourse to our other assets. Through our rate structure, we bill customers for securitization surcharges to fund the payment of principal, interest, and other related expenses. The surcharges collected are remitted to a trustee and are not available to our creditors or creditors of our affiliates. Securitization surcharges totaled $48 million in 2007 and $50 million in 2006.

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Debt Maturities: At December 31, 2007, the aggregate annual contractual maturities for long-term debt for the next five years are:

	Payments Due
	2008		2009		2010		2011		2012
	(In Millions)
Long-term debt	$	440	$	384	$	343	$	37	$	339

Regulatory Authorization for Financings: The FERC has authorized us to issue up to $1.0 billion of secured and unsecured short-term securities for general corporate purposes. The remaining availability is $500 million at December 31, 2007.

The FERC has also authorized us to issue up to $2.5 billion of secured and unsecured long-term securities for the following:

•  up to $1.5 billion of new issuance for general corporate purposes and

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

All of the new issuance availability remains ($1.5 billion) and the refinancing availability remaining is $500 million at December 31, 2007.

The authorizations are for the period ending June 30, 2008. Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements.

Revolving Credit Facilities: The following secured revolving credit facilities with banks are available at December 31, 2007:

							Outstanding
			Amount of		Amount		Letters of		Amount
Company	Expiration Date		Facility		Borrowed		Credit		Available
			(In Millions)
Consumers(a)		March 30, 2012	$	500	$	—	$	203	$	297
Consumers(b)		November 28, 2008		200		NA		185		15

(a)	In January 2008, $185 million of letters of credit were cancelled, resulting in the amount of credit available of $482 million under this facility.
(b)	Secured revolving letter of credit facility.

Dividend Restrictions: Under the provisions of our articles of incorporation, at December 31, 2007, we had $269 million of unrestricted retained earnings available to pay common stock dividends. Provisions of the Federal Power Act and the Natural Gas Act effectively restrict dividends to the amount of our retained earnings. During 2007, we paid $251 million in common stock dividends to CMS Energy.

Sale of Accounts Receivable: Under a revolving accounts receivable sales program, we sell certain accounts receivable to a wholly owned, consolidated, bankruptcy-remote special-purpose entity. In turn, the special purpose entity may sell an undivided interest in up to $325 million of the receivables. The special purpose entity sold no receivables at December 31, 2007 and $325 million at December 31, 2006. The purchaser of the receivables has no recourse against our other assets for failure of a debtor to pay when due and no right to any receivables not sold. We have neither recorded a gain or loss on the receivables sold nor retained any interest in the receivables sold. We continue to service the receivables sold to the special purpose entity. We have not recorded a servicing asset in connection with our accounts receivable sales program.

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

Years Ended December 31	2007			2006
	(In Millions)
Net cash flow as a result of accounts receivable financing	$	(325	)	$	—
Collections from customers	$	5,881		$	5,684

Preferred Stock: Details about our outstanding preferred stock follow:

			Optional
			Redemption		Number of Shares
December 31	Series		Price		2007		2006		2007		2006
									(In Millions)
Preferred stock
Cumulative $100 par value, Authorized 7,500,000 shares, with no mandatory redemption	$	4.16	$	103.25		68,451		68,451	$	7	$	7
	$	4.50	$	110.00		373,148		373,148		37		37
Total Preferred stock									$	44	$	44

5: FINANCIAL AND DERIVATIVE INSTRUMENTS

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

The book value and fair value of our long-term debt instruments follows:

	2007				2006
	Book		Fair		Book		Fair
December 31	Value		Value		Value		Value
	In Millions
Long-term debt(a)	$	4,132	$	4,099	$	4,158	$	4,111

(a) Includes current maturities of $440 million at December 31, 2007 and $31 million at December 31, 2006. Settlement of long-term debt is generally not expected until maturity.

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The summary of our available-for-sale investment securities follows:

	2007								2006
			Unrealized		Unrealized		Fair				Unrealized		Unrealized			Fair
December 31	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
	In Millions
Common stock of CMS Energy(a)	$	8	$	24	$	—	$	32	$	10	$	26	$	—		$	36
Nuclear decommissioning investments:
Equity securities		—		—		—		—		140		150		(4	)		286
Debt securities		—		—		—		—		307		4		(2	)		309
SERP:
Equity securities		35		—		—		35		17		9		—			26
Debt securities		7		—		—		7		6		—		—			6

(a) At December 31, 2007, we held 1.8 million shares, and at December 31, 2006, we held 2.2 million shares of CMS Energy Common Stock.

The fair value of available-for-sale debt securities by contractual maturity at December 31, 2007 is as follows:

	(In Millions)
Due after one year through five years	$	3
Due after five years through ten years		4
Total	$	7

During 2007, the proceeds from sales of SERP securities were $29 million, and $11 million of gross gains and $1 million of gross losses were realized. Net gains of $7 million, net of tax of $3 million, were reclassified from AOCI and included in net income. The proceeds from sales of SERP securities were $3 million during 2006 and $2 million during 2005. Gross gains and losses were immaterial in 2006 and 2005.

Derivative Instruments: In order to limit our exposure to certain market risks, we may enter into various risk management contracts, such as swaps, options, and forward contracts. These contracts, used primarily to limit our exposure to changes in interest rates and commodity prices, are entered into for non-trading purposes. We enter into these contracts using established policies and procedures, under the direction of two different committees: an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers.

The contracts we use to manage market risks may qualify as derivative instruments that are subject to derivative and hedge accounting under SFAS No. 133. If a contract is a derivative and does not qualify for the normal purchases and sales exception under SFAS No. 133, it is recorded on our consolidated balance sheet at its fair value. Each quarter, we adjust the resulting asset or liability to reflect any change in the fair value of the contract, a practice known as marking the contract to market. If a derivative qualifies for cash flow hedge accounting treatment, we report changes in its fair value (gains or losses) in AOCI; otherwise, we report the gains and losses in earnings.

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

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

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

•  there is not an active market for the commodity.

Our coal purchase contracts are not derivatives because there is not an active market for the coal we purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. Under regulatory accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income.

At December 31, 2007, the fair value of our derivative contracts was immaterial.

6: RETIREMENT BENEFITS

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

•  a non-contributory, qualified defined benefit Pension Plan (closed to new non-union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005),

•  a qualified cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005,

•  a non-contributory, qualified DCCP for employees hired on or after September 1, 2005,

•  benefits to certain management employees under a non-contributory, nonqualified defined benefit SERP (closed to new participants as of March 31, 2006),

•  benefits to certain management employees under a non-contributory, nonqualified DC SERP hired on or after April 1, 2006,

•  health care and life insurance benefits under OPEB,

•  benefits to a selected group of management under a non-contributory, nonqualified EISP, and

•  a contributory, qualified defined contribution 401(k) plan.

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

In April 2007, we sold Palisades to Entergy. Employees transferred to Entergy as a result of the sale no longer participate in our retirement benefit plans. We recorded a net decrease of $16 million in pension SFAS No. 158 regulatory assets with a corresponding reduction of $16 million in pension liabilities on our Consolidated Balance Sheets. We also recorded a net decrease of $15 million in OPEB regulatory SFAS No. 158 assets with a corresponding reduction of $15 million in OPEB liabilities. The following table shows the net adjustment:

	Pension		OPEB
Plan liability transferred to Entergy	$	38	$	20
Trust assets transferred to Entergy		22		5
Net adjustment	$	16	$	15

On September 1, 2005, we implemented the DCCP. The DCCP provides an employer contribution of 5 percent of base pay to the existing employees’ 401(k) plan. No employee contribution is required in order to receive the plan’s employer contribution. All employees hired on and after September 1, 2005 participate in this plan. Cash balance pension plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance pension plan were discontinued as of that date. The DCCP expense was $2 million for each of the years ended December 31, 2007 and December 31, 2006.

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SERP: SERP benefits are paid from a trust established in 1988. SERP is not a qualified plan under the Internal Revenue Code. SERP trust earnings are taxable and trust assets are included in our consolidated assets. Consumers trust assets were $53 million at December 31, 2007 and $32 million at December 31, 2006. The assets are classified as Other non-current assets on our Consolidated Balance Sheets. The ABO for SERP was $48 million at December 31, 2007 and $37 million at December 31, 2006. A contribution of $21 million was made to the trust in December 2007.

On April 1, 2006, we implemented a DC SERP and froze further new participation in the defined benefit SERP. The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. Our contributions to the plan, if any, will be placed in a grantor trust. Trust assets were less than $1 million at December 31, 2007 and 2006. The assets are classified as Other non-current assets on our Consolidated Balance Sheets. The DC SERP expense was less than $1 million for the years ended December 31, 2007 and 2006.

401(k): The employer’s match for the 401(k) savings plan is 60 percent on eligible contributions up to the first six percent of an employee’s wages. The total 401(k) savings plan cost was $14 million for the years ended December 31, 2007 and December 31, 2006.

Beginning May 1, 2007, the CMS Energy Common Stock Fund was no longer an investment option available for investments in the 401(k) savings plan and the employer match was no longer in CMS Energy Common Stock. Participants had an opportunity to reallocate investments in the CMS Energy Common Stock Fund to other plan investment alternatives prior to November 1, 2007. In November 2007, the remaining shares in the CMS Energy Common Stock Fund were sold and the sale proceeds were reallocated to other plan investment options.

EISP: We implemented a nonqualified EISP in 2002 to provide flexibility in separation of employment by officers, a selected group of management, or other highly compensated employees. Terms of the plan may include payment of a lump sum, payment of monthly benefits for life, payment of premiums for continuation of health care, or any other legally permissible term deemed to be in our best interest to offer. The EISP expense was less than $1 million for each of the years ended December 31, 2007 and 2006. The ABO for the EISP was $1 million at December 31, 2007 and less than $1 million at December 31, 2006.

OPEB: The OPEB plan covers all regular full-time employees who are covered by the employee health care plan on a company-subsidized basis the day before they retire from the company at age 55 or older and who have at least 10 full years of applicable continuous service. Regular full-time employees who qualify for a pension plan disability retirement and have 15 years of applicable continuous service are also eligible. Starting in 2007, we used two health care trend rates: one for retirees under 65 and the other for retirees 65 and over. The two health care trend rates recognize that prescription drug costs are increasing at a faster pace than other medical claim costs and that prescription drug costs make up a larger portion of expenses for retirees age 65 and over. Retiree health care costs were based on the assumption that costs would increase 9.0 percent for those under 65 and 10.5 percent for those over 65 in 2007. The 2008 rate of increase for OPEB health costs for those under 65 is expected to be 8.0 percent and for those over 65 is expected to be 9.5 percent. The rate of increase is expected to slow to 5 percent for those under 65 by 2011 and for those over 65 by 2013 and thereafter.

The health care cost trend rate assumption affects the estimated costs recorded. A one percentage point change in the assumed health care cost trend assumption would have the following effects:

			One
	One Percentage		Percentage
	Point Increase		Point Decrease
	(In Millions)
Effect on total service and interest cost component	$	20	$	(16	)
Effect on postretirement benefit obligation	$	201	$	(169	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Upon adoption of SFAS No. 106, at the beginning of 1992, we recorded a liability of $466 million for the accumulated transition obligation and a corresponding regulatory asset for anticipated recovery in utility rates. For additional details, see Note 1, Corporate Structure and Accounting Policies, “Utility Regulation.” The MPSC authorized recovery of the electric utility portion of these costs in 1994 over 18 years and the gas utility portion in 1996 over 16 years.

SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R): In September 2006, the FASB issued SFAS No. 158. This standard requires us to recognize the funded status of our defined benefit postretirement plans on our Consolidated Balance Sheets at December 31, 2006. SFAS No. 158 also requires us to recognize changes in the funded status of our plans in the year in which the changes occur. In addition, the standard requires that we change our plan measurement date from November 30 to December 31, effective December 31, 2008. We do not believe that implementation of this provision of the standard will have a material effect on our consolidated financial statements.

Assumptions: The following tables recap the weighted-average assumptions used in our retirement benefits plans to determine benefit obligations and net periodic benefit cost:

Weighted average for benefit obligations:

	Pension & SERP						OPEB
Years Ended December 31	2007		2006		2005		2007		2006		2005
Discount rate(a)		6.40%		5.65%		5.75%		6.50%		5.65%		5.75%
Expected long-term rate of return on plan assets(b)		8.25%		8.25%		8.50%		7.75%		7.75%		8.00%
Mortality table(c)		2000		2000		2000		2000		2000		2000
Rate of compensation increase:
Pension		4.00%		4.00%		4.00%
SERP		5.50%		5.50%		5.50%

Weighted average for net periodic benefit cost:

	Pension & SERP						OPEB
Years Ended December 31	2007		2006		2005		2007		2006		2005
Discount rate(a)		5.65%		5.75%		5.75%		5.65%		5.75%		5.75%
Expected long-term rate of return on plan assets(b)		8.25%		8.50%		8.75%		7.75%		8.00%		8.25%
Mortality table(c)		2000		2000		2000		2000		2000		2000
Rate of compensation increase:
Pension		4.00%		4.00%		3.50%
SERP		5.50%		5.50%		5.50%

(a)	The discount rate represents the market rate for high-quality AA-rated corporate bonds with durations corresponding to the expected durations of the benefit obligations and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension plans.
(b)	We determine our long-term rate of return by considering historical market returns, the current and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. We consider the asset allocation of the portfolio in

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	forecasting the future expected total return of the portfolio. The goal is to determine a long-term rate of return that can be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, we review for reasonableness and appropriateness of the forecasted returns for various classes of assets used to construct an expected return model.
(c)	We utilize the Combined Healthy RP-2000 Table from the 2000 Group Annuity Mortality Tables.

Costs: The following tables recap the costs and other changes in plan assets and benefit obligations incurred in our retirement benefits plans:

	Pension & SERP
Years Ended December 31	2007			2006			2005
	(In Millions)
Net periodic pension cost
Service cost	$	47		$	47		$	41
Interest expense		84			81			76
Expected return on plan assets		(75	)		(80	)		(89	)
Amortization of:
Net loss		44			41			33
Prior service cost		7			7			5
Net periodic pension cost		107			96			66
Regulatory adjustment(a)		(22	)		(11	)		—
Net periodic pension cost after regulatory adjustment	$	85		$	85		$	66

	OPEB
Years Ended December 31	2007			2006			2005
	(In Millions)
Net periodic OPEB cost
Service cost	$	24		$	22		$	21
Interest expense		65			60			58
Expected return on plan assets		(57	)		(53	)		(49	)
Amortization of:
Net loss		23			20			20
Prior service credit		(10	)		(10	)		(9	)
Net periodic OPEB cost		45			39			41
Regulatory adjustment(a)		(6	)		(2	)		—
Net periodic OPEB cost after regulatory adjustment	$	39		$	37		$	41

(a) Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated pursuant to SFAS No. 87 and SFAS No. 106. These adjustments are deferred as a regulatory asset and will be included in future rate cases. The pension regulatory asset had a balance of $33 million at December 31, 2007 and $11 million at December 31, 2006. The OPEB regulatory asset had a balance of $8 million at December 31, 2007 and $2 million at December 31, 2006.

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized into net periodic benefit cost over the next fiscal year from the regulatory asset is $43 million. The estimated net loss and

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prior service credit for OPEB plans that will be amortized into net periodic benefit cost over the next fiscal year from the regulatory asset is zero.

We amortize gains and losses in excess of 10 percent of the greater of the benefit obligation and the MRV over the average remaining service period. The estimated time of amortization of gains and losses is 13 years for pension and 14 years for OPEB. Prior service cost amortization is established in the years in which they first occur, and are based on the same amortization period in all future years until fully recognized. The estimated time of amortization of new prior service costs is 13 years for pension and 11 years for OPEB.

Reconciliations: The following table reconciles the funding of our retirement benefits plans with our retirement benefits plans’ liability:

	Pension Plan						SERP						OPEB
Years Ended December 31	2007			2006			2007			2006			2007			2006
	(In Millions)
Benefit obligation at beginning of period	$	1,576		$	1,510		$	47		$	46		$	1,179		$	1,065
Service cost		49			49			1			1			24			22
Interest cost		86			83			3			3			65			60
Actuarial loss (gain)		30			51			12			(1	)		(115	)		79
Palisades sale		(38	)		—			—			—			(20	)		—
Benefits paid		(138	)		(117	)		(2	)		(2	)		(51	)		(47	)
Benefit obligation at end of period(a)		1,565			1,576			61			47			1,082			1,179
Plan assets at fair value at beginning of period		1,040			1,018			—			—			734			655
Actual return on plan assets		89			126			—			—			51			67
Company contribution		109			13			2			2			51			57
Palisades sale		(22	)		—			—			—			(5	)		—
Actual benefits paid(b)		(138	)		(117	)		(2	)		(2	)		(46	)		(45	)
Plan assets at fair value at end of period		1,078			1,040			—			—			785			734
Funded status at end of measurement period		(487	)		(536	)		(61	)		(47	)		(297	)		(445	)
Additional VEBA Contributions or Non-Trust Benefit Payments		—			—			—			—			12			14
Funded status at December 31(c)(d)	$	(487	)	$	(536	)	$	(61	)	$	(47	)	$	(285	)	$	(431	)

(a)	The Medicare Prescription Drug, Improvement and Modernization Act of 2003 establishes a prescription drug benefit under Medicare (Medicare Part D), and a federal subsidy, which is tax-exempt, to sponsors of retiree health care benefit plans that provide a benefit that is actuarially equivalent to Medicare Part D. The Medicare Part D annualized reduction in net OPEB cost was $27 million for 2007 and 2006. The reduction includes $7 million for the years ended December 31, 2007 and December 31, 2006 in capitalized OPEB costs.
(b)	We received $4 million in 2007 and $3 million in 2006 for Medicare Part D Subsidy payments.
(c)	Liabilities for retirement benefits are $805 million non-current and $2 million current for year ended December 31, 2007 and $983 million non-current and $2 million current for year ended December 31, 2006.
(d)	Of the $487 million funded status of Pension Plan at December 31, 2007, $461 million is attributable to Consumers; and of the $536 million funded status of the Pension Plan at December 31, 2006, $507 million is attributable to Consumers, based on allocation of expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides pension ABO in excess of plan assets:

Years Ended December 31	2007		2006
	(In Millions)
Pension ABO	$	1,231	$	1,240
Fair value of Pension Plan assets		1,078		1,040
Pension ABO in excess of Pension Plan assets	$	153	$	200

SFAS No. 158 Recognized: The following table recaps the amounts recognized in SFAS No. 158 regulatory assets and AOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets, see Note 1, Corporate Structure and Accounting Policies, “Utility Regulation.”

	Pension & SERP				OPEB
Years Ended December 31	2007		2006		2007			2006
	(In Millions)
Regulatory assets
Net loss	$	636	$	676	$	265		$	416
Prior service cost (credit)		39		45		(89	)		(99	)
AOCI
Net loss (gain)		18		7		—			—
Prior service cost (credit)		1		1		—			—
Total amounts recognized in regulatory assets and AOCI	$	694	$	729	$	176		$	317

Plan Assets:  The following table recaps the categories of plan assets in our retirement benefits plans:

	Pension						OPEB
November 30	2007			2006			2007			2006
Asset Category:
Fixed Income		30	%		28	%		34	%		37	%
Equity Securities		60	%		62	%		66	%		63	%
Alternative Strategy		10	%		10	%		—			—

We contributed $49 million to our OPEB plan in 2007 and we plan to contribute $48 million to our OPEB plan in 2008. Of the $49 million OPEB contribution during 2007, $24 million was contributed to the 401(h) component of the qualified pension plan and the remaining $25 million was contributed to the VEBA trust accounts. We contributed $103 million to our Pension Plan in 2007 and we do not plan to contribute to our Pension Plan in 2008.

We established a target asset allocation for our Pension Plan assets of 60 percent equity, 30 percent fixed income, and 10 percent alternative strategy investments to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the Standard & Poor’s 500 Index, with lesser allocations to the Standard & Poor’s Mid Cap and Small Cap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of both government and corporate issuers as well as high-yield and global bond funds. Alternative strategies are diversified across absolute return investment approaches and global tactical asset allocation. We use annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

We established union and non-union VEBA trusts to fund our future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers, and through direct contributions from the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

non-utility subsidiaries. We invest the equity portions of the union and non-union health care VEBA trusts in a Standard & Poor’s 500 Index fund. We invest the fixed-income portion of the union health care VEBA trust in domestic investment grade taxable instruments. We invest the fixed-income portion of the non-union health care VEBA trust in a diversified mix of domestic tax-exempt securities. The investment selections of each VEBA trust are influenced by the tax consequences, as well as the objective of generating asset returns that will meet the medical and life insurance costs of retirees.

SFAS No. 132(R) Benefit Payments: The expected benefit payments for each of the next five years and the five-year period thereafter are as follows:

	Pension		SERP		OPEB(a)
	(In Millions)
2008	$	64	$	2	$	53
2009		71		2		56
2010		78		2		58
2011		88		2		60
2012		101		2		61
2013-2017		664		10		339

(a) OPEB benefit payments are net of employee contributions and expected Medicare Part D prescription drug subsidy payments. The subsidies to be received are estimated to be $5 million for 2008, $6 million for 2009 and 2010, $7 million for 2011, $8 million for 2012 and $47 million combined for 2013 through 2017.

7: ASSET RETIREMENT OBLIGATIONS

SFAS No. 143, Accounting for Asset Retirement Obligations: This standard requires us to record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. No market risk premium was included in our ARO fair value estimate since a reasonable estimate could not be made. If a five percent market risk premium were assumed, our ARO liability at December 31, 2007 would increase by $10 million.

If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is to be recognized when a reasonable estimate of fair value can be made. Historically, our gas transmission and electric and gas distribution assets have indeterminate lives and retirement cash flows that cannot be determined. During 2007, however, we implemented a new fixed asset accounting system that facilitates ARO accounting estimates for gas distribution mains and services. The new system enabled us to calculate a reasonable estimate of the fair value of the cost to cut, purge, and cap abandoned gas distribution mains and services at the end of their useful lives. We recorded a $101 million ARO liability and an asset of equal value at December 31, 2007. We have not recorded a liability for assets that have insignificant cumulative disposal costs, such as substation batteries.

FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations: This Interpretation clarified the term “conditional asset retirement obligation” used in SFAS No. 143. The term refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event. We determined that abatement of asbestos included in our plant investments and the cut, purge, and cap of abandoned gas distribution mains and services qualify as conditional AROs, as defined by FIN 47.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table lists the assets that we have legal obligations to remove at the end of their useful lives and that we have an ARO liability recorded:

	In Service
ARO Description	Date		Long-Lived Assets
December 31, 2007
JHCampbell intake/discharge water line		1980	Plant intake/discharge water line
Closure of coal ash disposal areas		Various	Generating plants coal ash areas
Closure of wells at gas storage fields		Various	Gas storage fields
Indoor gas services equipment relocations		Various	Gas meters located inside structures
Asbestos abatement		1973	Electric and gas utility plant
Gas distribution cut, purge & cap		Various	Gas distribution mains & services

No assets have been restricted for purposes of settling AROs.

	ARO											ARO
	Liability									Cash flow		Liability
ARO Description	12/31/05		Incurred		Settled(a)			Accretion		Revisions		12/31/06
					(In Millions)
Palisades-decommission	$	375	$	—	$	—		$	26	$	—	$	401
Big Rock-decommission		27		—		(28	)		3		—		2
JHCampbell intake line		—		—		—			—		—		—
Coal ash disposal areas		54		—		(2	)		5		—		57
Wells at gas storage fields		1		—		—			—		—		1
Indoor gas services relocations		1		—		—			—		—		1
Asbestos abatement		36		—		(3	)		2		—		35
Gas distribution cut, purge, cap		—		—		—			—		—		—
Total	$	494	$	—	$	(33	)	$	36	$	—	$	497

	ARO											ARO
	Liability									Cash flow		Liability
ARO Description	12/31/06		Incurred		Settled(a)			Accretion		Revisions		12/31/07
					(In Millions)
Palisades-decommission	$	401	$	—	$	(410	)	$	7	$	2	$	—
Big Rock-decommission		2		—		(3	)		1		—		—
JHCampbell intake line		—		—		—			—		—		—
Coal ash disposal areas		57		—		(4	)		6		—		59
Wells at gas storage fields		1		—		—			—		—		1
Indoor gas services relocations		1		—		—			—		—		1
Asbestos abatement		35		—		(1	)		2		—		36
Gas distribution cut, purge, cap		—		101		—			—		—		101
Total	$	497	$	101	$	(418	)	$	16	$	2	$	198

(a) Cash payments of $5 million in 2007 and $33 million in 2006 are included in the Other current and non-current liabilities line in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. In April 2007, we sold Palisades to Entergy and paid Entergy to assume ownership and responsibility for the Big

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Rock ISFSI. Our AROs related to Palisades and the Big Rock ISFSI ended with the sale, and we removed the related ARO liabilities from our Consolidated Balance Sheets. We also removed the Big Rock ARO related to the plant in the second quarter of 2007 due to the completion of decommissioning.

8: INCOME TAXES

We join in the filing of a consolidated federal income tax return with CMS Energy and its subsidiaries. Income taxes generally are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement. We had tax related payables to CMS Energy of $154 million in 2007 and $31 million in 2006.

We utilize deferred tax accounting for temporary differences. These occur when there are differences between the book and tax carrying amounts of assets and liabilities. ITC has been deferred and is being amortized over the estimated service life of related properties. We use ITC to reduce current income taxes payable.

AMT paid generally becomes a tax credit that we can carry forward indefinitely to reduce regular tax liabilities in future periods when regular taxes paid exceed the tax calculated for AMT. At December 31, 2007, we had AMT credit carryforwards of $13 million that do not expire and tax loss carryforwards of $196 million that expire from 2023 through 2025. In addition, we had a capital loss carryforward of $6 million that expires in 2011. We do not believe that valuation allowances are required, as we expect to fully utilize the loss carryforwards prior to their expiration. In addition, we recorded a benefit of $253 million for a future Michigan deduction, offset by a federal tax benefit of $88 million, for a net benefit of $165 million. This future deduction was granted as part of the Michigan Business Tax legislation of 2007, discussed within this Note.

The significant components of income tax expense (benefit) consisted of:

Years Ended December 31	2007			2006			2005
	(In Millions)
Current federal income taxes	$	114		$	212		$	176
Current federal income tax benefit of operating loss carryforwards		(44	)		(8	)		(9	)
Deferred federal income taxes		59			(109	)		(201	)
Deferred ITC, net		(4	)		(4	)		(13	)
Income tax expense (benefit)	$	125		$	91		$	(47	)

Current tax expense reflects the settlement of income tax audits for prior years, as well as the provision for current year’s income taxes prior to the use of loss carryforwards. Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in our consolidated financial statements. Deferred tax assets and liabilities are classified as current or non-current according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The principal components of deferred income tax assets (liabilities) recognized on our Consolidated Balance Sheets are as follows:

December 31	2007			2006
	(In Millions)
Current Assets and (Liabilities):
Tax loss and credit carryforwards	$	—		$	32
Employee benefits		5			6
Other		48			—
Current Assets	$	53		$	38
Gas inventory		(204	)		—
Other		—			(49	)
Current Liabilities	$	(204	)	$	(49	)
Net Current Asset/(Liability)	$	(151	)	$	(11	)
Noncurrent Assets and (Liabilities):
Tax loss and credit carryforwards	$	249		$	177
SFAS No. 109 regulatory liability		207			189
Nuclear decommissioning (including unrecovered costs)		—			57
Employee benefits		39			30
Noncurrent Assets	$	495		$	453
Valuation Allowance		—			(15	)
Net Noncurrent Assets	$	495		$	438
Property	$	(919	)	$	(814	)
Securitized costs		(180	)		(177	)
Gas inventory		—			(168	)
Nuclear decommisioning (including unrecovered costs)		(18	)		—
Other		(91	)		(126	)
Noncurrent Liabilities	$	(1,208	)	$	(1,285	)
Net Noncurrent Asset/(Liability)	$	(713	)	$	(847	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The actual income tax expense (benefit) differs from the amount computed by applying the statutory federal tax rate of 35 percent to income (loss) before income taxes as follows:

Years Ended December 31	2007			2006			2005
	(In Millions)
Net Income (Loss)	$	312		$	186		$	(96	)
Income tax expense (benefit)		125			91			(47	)
Income (loss) before income taxes		437			277			(143	)
Statutory federal income tax rate		x 35	%		x 35	%		x 35	%
Expected income tax expense (benefit)		153			97			(50	)
Increase (decrease) in taxes from:
Property differences		9			13			18
IRS Settlement/Credit Restoration		—			(19	)		—
Medicare Part D exempt income		(9	)		(10	)		(6	)
ITC amortization		(3	)		(4	)		(4	)
Expiration of general business credits		—			—			6
Valuation allowance		(23	)		15			(9	)
Other, net		(2	)		(1	)		(2	)
Recorded income tax expense (benefit)	$	125		$	91		$	(47	)
Effective tax rate		28.6	%		32.9	%		32.9	%

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which can result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe that our accrued tax liabilities at December 31, 2007 are adequate for all years.

In June 2006, the IRS concluded its most recent audit of CMS Energy and its subsidiaries, and adjusted taxable income for the years ended December 31, 1987 through December 31, 2001. The overall cumulative increase to taxable income related primarily to the disallowance of the simplified service cost method with respect to certain self-constructed utility assets, resulting in a deferral of these expenses to future periods. The adjustments to taxable income have been allocated based upon Consumers’ separate taxable income in accordance with CMS Energy’s tax sharing agreement. We made a payment to CMS Energy for our share of these audit adjustments of $232 million, and reduced our 2006 income tax provision by $19 million, primarily for the restoration and utilization of previously written off income tax credits. The years 2002 through 2006 are open under the statute of limitations and 2002 through 2005 are currently under audit by the IRS.

On January 1, 2007 we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. As a result of the implementation of FIN 48, we recorded a charge for additional uncertain tax benefits of $5 million, accounted for as a reduction of our beginning retained earnings. Included in this amount was an increase in our valuation allowance of $7 million, increases to tax reserves of $55 million and a decrease to deferred tax liabilities of $57 million. The capital gains of 2007 provided for the release of $23 million of valuation allowance, as reflected in our effective tax rate reconciliation.

CE-67

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	(In Millions)
Balance at January 1, 2007	$	51
Reductions for prior year tax positions		(11	)
Additions for prior year tax positions		1
Additions for current year tax positions		—
Statute lapses		—
Settlements		—
Balance at December 31, 2007	$	41

The balance of $41 million is attributable to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate. Since all our remaining uncertain tax benefits relate only to timing issues, at December 31, 2007, there are no uncertain benefits that would reduce our effective tax rate in future years. We are not expecting any other material changes to our uncertain tax positions over the next twelve months.

Due to the consolidated net operating loss position, we have reflected no interest related to our uncertain income tax positions on our Consolidated Balance Sheets as of December 31, 2007, nor have we accrued any penalties. We recognize accrued interest and penalties, where applicable, related to uncertain tax benefits as part of income tax expense.

Michigan Business Tax Act: In July 2007, the Michigan governor signed Senate Bill 94, the Michigan Business Tax Act, which imposed a business income tax of 4.95 percent and a modified gross receipts tax of 0.8 percent. The bill provided for a number of tax credits and incentives geared toward those companies investing and employing in Michigan. The Michigan Business Tax, which was effective January 1, 2008, replaced the state’s Single Business Tax that expired on December 31, 2007. In September 2007, the Michigan governor signed House Bill 5104, allowing additional deductions in future years against the business income portion of the tax. These future deductions are phased in over a 15-year period, beginning in 2015. As a result, our net deferred tax liability of $165 million, recorded due to the Michigan Business Tax enactment, was offset by a net deferred tax asset of $165 million. In December 2007, the Michigan governor signed House Bill 5408, replacing the expanded sales tax for certain services with a 21.99 percent surcharge on the business income tax and the modified gross receipts tax. Therefore, the total tax rates imposed under the Michigan Business Tax are 6.04 percent for the business income tax and 0.98 percent for the modified gross receipts tax.

9: STOCK BASED COMPENSATION

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

All grants under the Plan for 2007, 2006, and 2005 were in the form of total shareholder return (TSR) restricted stock and time-lapse restricted stock. Restricted stock recipients receive shares of CMS Energy’s Common Stock that have full dividend and voting rights. TSR restricted stock vesting is contingent on meeting a three-year service requirement and specific market conditions. Half of the market condition is based on the achievement of specified levels of total shareholder return over a three-year period and half is based on a comparison of our total shareholder return with the median shareholders’ return of a peer group over the same three-year period. Depending on the performance of the market, a recipient may earn a total award ranging from 0 percent to 150 percent of the initial grant. Time-lapse restricted stock vests after a service period of five years for awards granted prior to 2004, and

CE-68

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

three years for awards granted in 2004 and thereafter. Restricted stock awards granted to officers in 2006 and 2005 were entirely TSR restricted stock. Awards granted to officers in 2007 were 80 percent TSR restricted stock and 20 percent time-lapsed restricted stock.

All restricted stock awards are subject to forfeiture if employment terminates before vesting. However, if certain minimum service requirements are met or are waived by action of the Compensation and Human Resources Committee of the Board of Directors, restricted shares may vest fully upon retirement or disability and vest fully if control of CMS Energy changes, as defined by the Plan. The Plan also allows for stock options, stock appreciation rights, phantom shares, and performance units, none of which were granted in 2007, 2006, or 2005.

Shares awarded or subject to stock options, phantom shares, and performance units may not exceed 6 million shares from June 2004 through May 2009, nor may such awards to any recipient exceed 250,000 shares in any fiscal year. We may issue awards of up to 3,677,930 shares of common stock under the Plan at December 31, 2007. Shares for which payment or exercise is in cash, as well as forfeited shares or stock options, may be awarded or granted again under the Plan.

The following table summarizes restricted stock activity under the Plan:

				Weighted-Average
Restricted Stock	Number of Shares			Grant Date Fair Value
Nonvested at December 31, 2006		1,422,000		$	12.26
Granted(a)		606,083		$	14.12
Vested(a)		(641,004	)	$	16.09
Forfeited		(12,000	)	$	13.95
Nonvested at December 31, 2007		1,375,079		$	13.54

(a) During 2007, we granted 369,150 TSR shares and 83,020 time-lapse shares of restricted stock. In addition, we granted 153,913 shares that immediately vested as a result of achieving 150 percent of the market conditions on our 2004 TSR restricted stock grant. The fair value at the date of grant in 2004 was $9.73. We excluded the impact of these shares from the weighted-average grant date fair value for the 2007 shares granted.

We expense the awards’ fair value over the required service period. As a result, we recognize all compensation expense for share-based awards that have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. We calculate the fair value of time-lapse restricted stock based on the price of our common stock on the grant date. The fair value of TSR restricted stock awards was calculated on the award grant date using a Monte Carlo simulation. Expected volatilities were based on the historical volatility of the price of CMS Energy Common Stock. The risk-free rate for each valuation was based on the three-year U.S. Treasury yield at the award grant date. The following table summarizes the significant assumptions used to estimate the fair value of the TSR restricted stock awards:

	2007			2006			2005
Expected Volatility		19.11	%		20.51	%		48.70	%
Expected Dividend Yield		1.20	%		0.00	%		0.00	%
Risk-free rate		4.59	%		4.82	%		4.14	%

The total fair value of shares vested was $10 million in 2007, $2 million in 2006, and $2 million in 2005. Compensation expense related to restricted stock was $7 million in 2007, $7 million in 2006, and $3 million in 2005. The total related income tax benefit recognized in income was $2 million in 2007, $2 million in 2006, and $1 million in 2005. At December 31, 2007, there was $6 million of total unrecognized compensation cost related to restricted stock. We expect to recognize this cost over a weighted-average period of 1.4 years.

CE-69

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes stock option activity under the Plan:

						Weighted-
	Options			Weighted-		Average
	Outstanding,			Average		Remaining		Aggregate
	Fully Vested,			Exercise		Contractual		Intrinsic
Stock Options	and Exercisable			Price		Term		Value
								(In Millions)
Outstanding at December 31, 2006		1,601,784		$	18.16		5.0 years	$	(2	)
Granted		—			—
Exercised		(631,565	)		7.54
Cancelled or Expired		(283,993	)		32.90
Outstanding at December 31, 2007		686,226		$	21.83		3.6 years	$	(3	)

Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are exercisable upon grant, and expire up to ten years and one month from the grant date. We issue new shares when recipients exercise stock options. The total intrinsic value of stock options exercised was $6 million in 2007 and $1 million in 2006 and 2005. Cash received from exercise of these stock options was $5 million in 2007.

The following table summarizes the weighted average grant date fair value:

Years Ended December 31	2007		2006		2005
Weighted average grant date fair value
Restricted stock granted	$	14.12	$	13.82	$	15.60
Stock options granted(a)		—		—		—

(a) No stock options were granted in 2007, 2006, or 2005.

SFAS No. 123(R) requires companies to use the fair value of employee stock options and similar awards at the grant date to value the awards. SFAS No. 123(R) was effective for us on January 1, 2006. We elected to adopt the modified prospective method recognition provisions of this Statement instead of retrospective restatement. We adopted the fair value method of accounting for share-based awards effective December 2002. Therefore, SFAS No. 123(R) did not have a significant impact on our results of operations when it became effective.

10: LEASES

We lease various assets, including service vehicles, railcars, gas pipeline capacity and buildings. In accordance with SFAS No. 13, we account for a number of our power purchase agreements as capital and operating leases.

Operating leases for coal-carrying railcars have lease terms expiring over the next 15 years. These leases contain fair market value extension and buyout provisions, with some providing for predetermined extension period rentals. Capital leases for our vehicle fleet operations have a maximum term of 120 months and TRAC end-of-life provisions.

We have capital leases for gas transportation pipelines to the Karn generating complex and Zeeland power plant. The capital lease for the gas transportation pipeline into the Karn generating complex has a term of 15 years with a provision to extend the contract from month to month. The capital lease for the gas transportation pipeline to the Zeeland power plant has a lease term of 12 years with a renewal provision at the end of the contract. The remaining term of our long-term power purchase agreements range between 5 and 22 years. Most of our power purchase agreements contain provisions at the end of the initial contract term to renew the agreement annually.

CE-70

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

We are authorized by the MPSC to record both capital and operating lease payments as operating expense and recover the total cost from our customers. The following table summarizes our capital and operating lease expenses:

Years Ended December 31	2007		2006		2005
	(In Millions)
Capital lease expense	$	34	$	15	$	14
Operating lease expense		23		19		17

Minimum annual rental commitments under our non-cancelable leases at December 31, 2007 are:

	Capital		Finance		Operating
	Leases		Lease(a)		Leases
	(In Millions)
2008	$	21	$	13	$	25
2009		16		13		23
2010		15		13		21
2011		13		13		21
2012		14		13		21
2013 and thereafter		53		122		93
Total minimum lease payments		132		187	$	204
Less imputed interest		64		—
Present value of net minimum lease payments		68		187
Less current portion		17		13
Non-current portion	$	51	$	174

(a) In April 2007, we sold Palisades to Entergy and entered into a 15-year power purchase agreement to buy all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. We provided $30 million in security to Entergy for our power purchase agreement obligation in the form of a letter of credit. We estimate that capacity and energy payments under the Palisades power purchase agreement will average $300 million annually. Our total purchases of capacity and energy under the Palisades power purchase agreement were $180 million in 2007.

Because of the Palisades power purchase agreement and our continuing involvement with the Palisades assets, we accounted for the disposal of Palisades as a financing and not a sale. SFAS No. 98 specifies the accounting required for a seller’s sale and simultaneous leaseback involving real estate. We have continuing involvement with Palisades through security provided to Entergy for our power purchase agreement obligation and our DOE liability and other forms of involvement. As a result, we accounted for the Palisades plant, which is the real estate asset subject to the leaseback, as a financing for accounting purposes and not a sale. As a financing, no gain on the sale of Palisades was recognized in the Consolidated Statements of Income (Loss). We accounted for the remaining non-real estate assets and liabilities associated with the transaction as a sale.

As a financing, the Palisades plant remains on our Consolidated Balance Sheets and we continue to depreciate it. We recorded the related proceeds as a finance obligation with payments recorded to interest expense and the finance obligation based on the amortization of the obligation over the life of the Palisades power purchase agreement. The value of the finance obligation was based on an allocation of the transaction proceeds to the fair values of the net assets sold and fair value of the Palisades plant asset under the financing. Total charges under the financing were $10 million in 2007.

CE-71

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11: PROPERTY, PLANT, AND EQUIPMENT

The following table is a summary of our property, plant, and equipment:

	Estimated
	Depreciable
December 31	Life in Years		2007		2006
			(In Millions)
Electric:
Generation		13-85	$	3,328	$	3,573
Distribution		12-75		4,496		4,425
Other		7-40		438		421
Capital and finance leases(a)				293		85
Gas:
Underground storage facilities(b)		30-65		267		263
Transmission		15-75		570		465
Distribution		40-75		2,286		2,216
Other		7-50		320		300
Capital leases(a)				24		29
Other:
Non-utility property		7-71		15		15
Construction work-in-progress				447		639
Less accumulated depreciation, depletion, and amortization(c)				3,993		5,018
Net property, plant, and equipment(d)			$	8,491	$	7,413

(a)	Capital and finance leases presented in this table are gross amounts. Accumulated amortization of capital and finance leases was $62 million at December 31, 2007 and $59 million at December 31, 2006. Additions were $229 million during 2007, which includes $197 million related to assets under the Palisades finance lease. Retirements and adjustments were $26 million during 2007. Additions were $7 million and Retirements and adjustments were $6 million during 2006.
(b)	Includes unrecoverable base natural gas in underground storage of $26 million at December 31, 2007 and December 31, 2006, which is not subject to depreciation.
(c)	At December 31, 2007, accumulated depreciation, depletion, and amortization included $3.992 billion from our utility plant and $1 million related to our non-utility plant assets. At December 31, 2006, accumulated depreciation, depletion, and amortization included $5.017 billion from our utility plant and $1 million related to our non-utility plant assets.
(d)	At December 31, 2007, utility plant additions were $1.303 billion and utility plant retirements, including other plant adjustments, were $1.094 billion. At December 31, 2006, utility plant additions were $470 million and utility plant retirements, including other plant adjustments, were $82 million. Included in net property, plant and equipment are intangible assets.

CE-72

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes our intangible assets:

December 31			2007				2006
	Amortization				Accumulated				Accumulated
Description	Life in years		Gross Cost		Amortization		Gross Cost		Amortization
	(In Millions)
Software development		7-15	$	207	$	170	$	204	$	153
Rights of way		50-75		116		32		114		31
Leasehold improvements		various		19		16		19		15
Franchises and consents		various		14		5		19		10
Other intangibles		various		18		13		18		13
Total			$	374	$	236	$	374	$	222

Pretax amortization expense related to these intangible assets was $21 million for the year ended December 31, 2007, $22 million for the year ended December 31, 2006 and $19 million for the year ended December 31, 2005. Amortization of intangible assets is forecasted to range between $12 million and $22 million per year over the next five years.

Asset Acquisition: In December 2007, we purchased a 935 MW gas-fired power plant located in Zeeland, Michigan for $519 million from an affiliate of LS Power Group. The original cost of the plant was $350 million and the plant acquisition adjustment was $213 million. This results in an increase to property, plant, and equipment of $519 million, net of $44 million of accumulated depreciation. The purchase also increased capital leases by $12 million. For additional details on the Zeeland finance lease, see Note 10, Leases.

12: JOINTLY OWNED REGULATED UTILITY FACILITIES

We have investments in jointly owned regulated utility facilities, as shown in the following table:

							Accumulated				Construction
	Ownership		Net Investment(a)				Depreciation				Work in Progress
December 31	Share		2007		2006		2007		2006		2007		2006
	(%)						(In Millions)
Campbell Unit 3		93.3	$	664	$	262	$	337	$	370	$	44	$	353
Ludington		51.0		65		68		104		95		1		1
Distribution		Various		89		98		44		47		5		4

(a) Net investment is the amount of utility plant in service less accumulated depreciation.

We include our share of the direct expenses of the jointly owned plants in operating expenses. We share operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. We are required to provide only our share of financing for the jointly owned utility facilities.

13: REPORTABLE SEGMENTS

Our reportable segments consist of business units defined by the products and services they offer. We evaluate performance based on the net income of each segment. Our two reportable segments are electric utility and gas utility.

The electric utility segment consists of regulated activities associated with the generation and distribution of electricity in Michigan. The gas utility segment consists of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan.

CE-73

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounting policies of our segments are as described in the summary of significant accounting policies. Our consolidated financial statements reflect the assets, liabilities, revenues, and expenses of the two individual segments when appropriate. We allocate accounts between the electric and gas segments where common accounts are attributable to both segments. The allocations are based on certain measures of business activities, such as revenue, labor dollars, customers, construction expense, leased property, taxes or functional surveys. For example, customer receivables are allocated based on revenue, and pension provisions are allocated based on labor dollars.

We account for inter-segment sales and transfers at current market prices and eliminate them in consolidated net income (loss) available to common stockholder by segment. The “Other” segment includes our consolidated special purpose entity for the sale of trade receivables, and in 2005 and 2006 the MCV Partnership and the FMLP.

The following tables provide financial information by reportable segment:

Years Ended December 31	2007			2006			2005
	(In Millions)
Operating Revenues
Electric	$	3,443		$	3,302		$	2,701
Gas		2,621			2,374			2,483
Other		—			45			48
	$	6,064		$	5,721		$	5,232
Earnings from Equity Method Investees
Electric	$	—		$	1		$	—
Other		—			—			1
	$	—		$	1		$	1
Depreciation and Amortization
Electric	$	397		$	380		$	292
Gas		127			122			117
Other		—			25			75
	$	524		$	527		$	484
Interest Charges
Electric	$	193		$	167		$	133
Gas		70			73			68
Other		1			49			71
	$	264		$	289		$	272
Income Tax Expense (Benefit)
Electric	$	100		$	95		$	85
Gas		47			18			39
Other		(22	)		(22	)		(171	)
	$	125		$	91		$	(47	)
Net Income (Loss) Available to Common Stockholder
Electric	$	196		$	199		$	153
Gas		87			37			48
Other		27			(52	)		(299	)
	$	310		$	184		$	(98	)
Investments in Equity Method Investees
Electric	$	—		$	5		$	3
Other		—			—			4
	$	—		$	5		$	7

CE-74

CONSUMERS ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Years Ended December 31	2007		2006		2005
	(In Millions)
Total Assets
Electric(a)	$	8,492	$	8,516	$	7,755
Gas(a)		4,102		3,950		3,609
Other		807		379		1,814
	$	13,401	$	12,845	$	13,178
Capital Expenditures(b)
Electric	$	1,319	$	462	$	384
Gas		168		172		168
Other		—		19		32
	$	1,487	$	653	$	584

(a)	Amounts include a portion of our other common assets attributable to both the electric and gas utility businesses.
(b)	Amounts include purchase of nuclear fuel and capital lease additions. Amounts also include a portion of our capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.

14: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)

	2007
Quarters Ended	March 31		June 30		Sept. 30		Dec. 31
			In Millions
Operating revenue	$	2,055	$	1,247	$	1,172	$	1,590
Operating income		209		104		124		145
Net income		113		44		60		95
Preferred stock dividends		1		—		—		1
Net income available to common stockholder		112		44		60		94

	2006
Quarters Ended	March 31		June 30		Sept. 30		Dec. 31(a)
			In Millions
Operating revenue	$	1,782	$	1,138	$	1,191	$	1,610
Operating income (loss)		7		78		239		36
Net income		10		36		99		41
Preferred stock dividends		—		1		—		1
Net income available to common stockholder		10		35		99		40

(a) The quarter ended December 31, 2006 includes a $41 million net loss on the sale of our investment in the MCV Partnership, including the associated asset impairment charge. For additional details, see Note 2, Asset Sales and Impairment Charges.

CE-75

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income (loss), of cash flows, and of common stockholder’s equity present fairly, in all material respects, the financial position of Consumers Energy Company and its subsidiaries at December 31, 2007, and the results of their operations and their cash flows for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the Index at Item 15(a)2 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

As discussed in note 8 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain income tax provisions in 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/  PricewaterhouseCoopers LLP

Detroit, Michigan

February 20, 2008

CE-76

Report of Independent Registered Public Accounting Firm

To the Partners and the Management Committee of Midland Cogeneration Venture Limited Partnership:

In our opinion, the accompanying balance sheets and the related statements of operations, of partners’ equity (deficit) and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Midland Cogeneration Venture Limited Partnership at November 21, 2006 and December 31, 2005, and the results of its operations and its cash flows for the period ended November 21, 2006 and the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

Detroit, Michigan

February 19, 2007

CE-77

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of Consumers Energy Company

We have audited the accompanying consolidated balance sheets of Consumers Energy Company (a Michigan Corporation and wholly-owned subsidiary of CMS Energy Corporation) as of December 31, 2006, and the related consolidated statements of income (loss), common stockholder’s equity, and cash flows for each of the two years in the period ended December 31, 2006. Our audits also included the financial statement schedule as it relates to 2006 and 2005 listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of Midland Cogeneration Venture Limited Partnership, a former 49% owned variable interest entity which has been consolidated through the date of sale, November 21, 2006 (Note 2), which statements reflect total revenues constituting 9.5% in 2006 and 11.3% in 2005 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for the periods indicated above for Midland Cogeneration Venture Limited Partnership is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consumers Energy Company at December 31, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 6 to the consolidated financial statements, in 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” As discussed in Note 9 to the consolidated financial statements, in 2006, the Company adopted FASB Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment.”

/s/ Ernst & Young LLP

Detroit, Michigan

February 21, 2007

CE-78

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

CMS Energy

None.

Consumers

None.

ITEM 9A. CMS ENERGY’S CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, CMS Energy’s CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2007.

Management’s Report on Internal Control Over Financial Reporting: CMS Energy’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). CMS Energy’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America and includes policies and procedures that:

•  pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CMS Energy;

•  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of CMS Energy are being made only in accordance with authorizations of management and directors of CMS Energy; and

•  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of CMS Energy’s assets that could have a material effect on its financial statements.

Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates.

Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2007. In making this evaluation, management used the criteria set forth in the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, CMS Energy’s management concluded that its internal control over financial reporting was effective as of December 31, 2007.

Changes in Internal Control over Financial Reporting: There have been no changes in CMS Energy’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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ITEM 9A. CONSUMERS’ CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, Consumers’ CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2007.

Management’s Report on Internal Control Over Financial Reporting: Consumers’ management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Consumers’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America and includes policies and procedures that:

•  pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Consumers;

•  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of Consumers are being made only in accordance with authorizations of management and directors of Consumers; and

•  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Consumers’ assets that could have a material effect on its financial statements.

Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates.

Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2007. In making this evaluation, management used the criteria set forth in the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, Consumers’ management concluded that its internal control over financial reporting was effective as of December 31, 2007.

Changes in Internal Control over Financial Reporting: There have been no changes in Consumers’ internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

CMS Energy

For other information related to the Officer Incentive Compensation Plan, see ITEM 11. EXECUTIVE COMPENSATION.

Consumers

For other information related to the Officer Incentive Compensation Plan, see ITEM 11. EXECUTIVE COMPENSATION.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

CMS Energy

Information that is required in Item 10 regarding directors, executive officers and corporate governance is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

CODES OF ETHICS

CMS Energy has adopted a code of ethics that applies to its CEO, CFO and Chief Accounting Officer (“CAO”), as well as all other officers and employees of CMS Energy and its affiliates, including Consumers. CMS Energy and Consumers have also adopted a Directors Code of Conduct that applies to the directors of the Boards. The codes of ethics, included in our Code of Conduct and Statement of Ethics Handbook, and the Directors Code of Conduct can be found on our website at www.cmsenergy.com. Our Code of Conduct and Statement of Ethics, including the code of ethics, is administered by the Chief Compliance Officer, who reports directly to the Audit Committees of our Boards of Directors. The Directors Code of Conduct is administered by the Audit Committee of the Board. Any alleged violation of the Code of Conduct by a Director will be investigated by disinterested members of the Audit Committee, or if none, by disinterested members of the entire Board. Any amendment to, or waiver from, a provision of our code of ethics that applies to our CEO, CFO, CAO or persons performing similar functions will be disclosed on our website at www.cmsenergy.com under “Compliance and Ethics.”

Consumers

Information that is required in Item 10 regarding Consumers’ directors, executive officers and corporate governance is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

CODES OF ETHICS

Consumers has adopted a code of ethics that applies to its CEO, CFO and Chief Accounting Officer (“CAO”), as well as all other officers and employees of Consumers and its affiliates. CMS Energy and Consumers have also adopted a Directors Code of Conduct that applies to the directors of the Boards. The codes of ethics, included in our Code of Conduct and Statement of Ethics Handbook, and the Directors Code of Conduct can be found on our website at www.cmsenergy.com. Our Code of Conduct and Statement of Ethics, including the code of ethics, is administered by the Chief Compliance Officer, who reports directly to the Audit Committees of our Boards of Directors. The Directors Code of Conduct is administered by the Audit Committee of the Board. Any alleged violation of the Code of Conduct by a Director will be investigated by disinterested members of the Audit Committee, or if none, by disinterested members of the entire Board. Any amendment to, or waiver from, a provision of our code of ethics that applies to our CEO, CFO, CAO or persons performing similar functions will be disclosed on our website at www.cmsenergy.com under “Compliance and Ethics.”

ITEM 11. EXECUTIVE COMPENSATION

Information that is required in Item 11 regarding executive compensation of CMS Energy’s and Consumers’ executive officers is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

OFFICER INCENTIVE COMPENSATION PLAN

On February 19, 2008, the Compensation and Human Resources Committees of the Boards of Directors of CMS Energy and Consumers (the “C&HR Committees”) approved the payout of cash bonuses for 2007 under the Annual Officer Incentive Compensation Plan (the “Plan”).

The C&HR Committees approved achievement of the composite plan performance factor resulting in payout under the Plan at 148 percent. In doing so the C&HR Committees decided to exclude the $519 million Zeeland plant

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purchase, which was not included in the 2007 budget but was completed in December 2007, from what constitutes corporate free cash flow. Completing the purchase in 2007 provided significant benefits including certain tax benefits to Consumers that would otherwise not have been available had the transaction been completed in 2008.

On January 24, 2008, the C&HR Committees approved the material terms of the Plan, including the 2008 corporate performance goals thereunder. The Plan includes the material terms detailed below, although the specific target levels for the corporate performance goals vary from year to year.

Corporate Performance: The composite plan performance factor depends on corporate performance in two areas as described in the Plan: (1) the adjusted net income per outstanding CMS Energy common share (“Plan EPS”); and (2) the corporate free cash flow of CMS Energy (“CFCF”). Plan EPS performance constitutes one-half of the composite plan performance factor and CFCF performance constitutes one-half of the composite plan performance factor. There will be a payout under the Plan if either Plan EPS performance is not less than 10 cents below target EPS or CFCF is not less than $100 million below target CFCF. Even if only one but not both of these target minimums is achieved, a partial payout would result. The composite plan performance factor to be used for payouts is capped at a maximum of 200 percent. Annual awards under the Plan to Consumers’ officers may be reduced by 25 percent in the event that there is no payout to non-officer, non-union employees under a separate Consumers’ employee incentive plan.

Annual Award Formula: Annual awards for each eligible officer will be based upon a standard award percentage of the officer’s base salary as in effect on January 1 of the performance year. The maximum amount that can be awarded under the Plan for any Internal Revenue Code Section 162(m) employee will not exceed $2.5 million in any one performance year. Annual awards for officers will be calculated and made as follows: Individual Award = Base Salary times Standard Award% times Performance Factor%.

The standard award percentages for officers are based on individual salary grade levels and remain unchanged from the 2007 plan except for two eligible officers. The standard award percentage target for the Chief Executive Officer was increased to 100 percent from 65 percent and the Chief Operating Officer’s standard award percentage target was increased to 60 percent from 55 percent as described in the Form 8-K filed December 4, 2007.

Payment of Annual Awards: All annual awards for a performance year will be paid in cash no later than March 15th of the calendar year following the performance year provided that they first have been reviewed and approved by the C&HR Committees, and provided further that the annual award for a particular performance year has not been deferred voluntarily. The amounts required by law to be withheld for income and employment taxes will be deducted from the annual award payments. All annual awards become the obligation of the company on whose payroll the employee is enrolled at the time the C&HR Committees make the annual award.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

CMS Energy

Information that is required in Item 12 regarding securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

Consumers

Information that is required in Item 12 regarding securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management of Consumers is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE

CMS Energy

Information that is required in Item 13 regarding certain relationships and related transactions, and director independence is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

Consumers

Information that is required in Item 13 regarding certain relationships and related transactions, and director independence regarding Consumers is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

CMS Energy

Information that is required in Item 14 regarding principal accountant fees and services is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

Consumers

Information that is required in Item 14 regarding principal accountant fees and services relating to Consumers is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)	Financial Statements and Reports of Independent Public Accountants for CMS Energy and Consumers are included in each company’s ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA and are incorporated by reference herein.
(a)(2)	Index to Financial Statement Schedules.

		Page
Schedule II	Valuation and Qualifying Accounts and Reserves
	CMS Energy Corporation	CO-11
	Consumers Energy Company	CO-11
Report of Independent Registered Public Accounting Firm
	CMS Energy Corporation	CMS-101
	Consumers Energy Company	CE-75

Schedules other than those listed above are omitted because they are either not required, not applicable or the required information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.

(a)(3)	Exhibits for CMS Energy and Consumers are listed after Item 15(b) below and are incorporated by reference herein.
(b)	Exhibits, including those incorporated by reference.

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CMS ENERGY’S AND CONSUMERS’ EXHIBITS

	Previously Filed
	With File	As Exhibit
Exhibits	Number	Number		Description
(3)(a)	1-9513	(99)(a)	—	Restated Articles of Incorporation of CMS Energy dated June 1, 2004 (Form 8-K filed June 3, 2004)
(3)(b)	1-9513	(3)(b)	—	CMS Energy Corporation Bylaws, amended and restated as of August 10, 2007 (3rd qtr. 2007 Form 10-Q)
(3)(c)	1-5611	3(c)	—	Restated Articles of Incorporation dated May 26, 2000, of Consumers (2000 Form 10-K)
(3)(d)	1-5611	(3)(d)	—	Consumers Energy Company Bylaws, amended and restated as of August 10, 2007 (3rd qtr. 2007 Form 10-Q)
(4)(a)	2-65973	(b)(1)-4	—	Indenture dated as of September 1, 1945, between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979 (Designated in Consumers Power Company’s Registration No. 2-65973 as Exhibit (b)(1)(4))
			—	Indentures Supplemental thereto:
	1-5611	(4)(a)	—	70th dated as of 2/01/98 (1997 Form 10-K)
	1-5611	(4)(a)	—	71st dated as of 3/06/98 (1997 Form 10-K)
	1-5611	(4)(b)	—	75th dated as of 10/1/99 (1999 Form 10-K)
	1-5611	(4)(d)	—	77th dated as of 10/1/99 (1999 Form 10-K)
	1-5611	(4)(d)	—	90th dated as of 4/30/03 (1st qtr. 2003 Form 10-Q)
	1-5611	(4)(a)	—	91st dated as of 5/23/03 (3rd qtr. 2003 Form 10-Q)
	1-5611	(4)(b)	—	92nd dated as of 8/26/03 (3rd qtr. 2003 Form 10-Q)
	1-5611	(4)(a)	—	96th dated as of 8/17/04 (Form 8-K filed August 20, 2004)
	333-120611	(4)(e)(xv)	—	97th dated as of 9/1/04 (Consumers Form S-3 dated November 18, 2004)
	1-5611	4.4	—	98th dated as of 12/13/04 (Form 8-K filed December 13, 2004)
	1-5611	(4)(a)(i)	—	99th dated as of 1/20/05 (2004 Form 10-K)
	1-5611	4.2	—	100th dated as of 3/24/05 (Form 8-K filed March 30, 2005)
	1-5611	(4)(a)	—	101st dated as of 4/1/05 (1st qtr 2005 Form 10-Q)
	1-5611	4.2	—	102nd dated as of 4/13/05 (Form 8-K filed April 13, 2005)
	1-5611	4.2	—	104th dated as of 8/11/05 (Form 8-K filed August 11, 2005)
			—	106th dated as of November 30, 2007
(4)(b)			—	105th Supplemental Indenture (dated as of March 30, 2007) to the Indenture dated as of September 1, 1945 between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee
(4)(c)	1-5611	(4)(b)	—	Indenture dated as of January 1, 1996 between Consumers and The Bank of New York, as Trustee (1995 Form 10-K)
(4)(d)	1-5611	(4)(c)	—	Indenture dated as of February 1, 1998 between Consumers and JPMorgan Chase Bank, N.A. (formerly The Chase Manhattan Bank), as Trustee (1997 Form 10-K)
(4)(e)	33-47629	(4)(a)	—	Indenture dated as of September 15, 1992 between CMS Energy and NBD Bank, as Trustee (Form S-3 filed May 1, 1992)
			—	Indentures Supplemental thereto:
	333-58686	(4)(a)	—	11th dated as of 3/29/01 (Form S-8 filed April 11, 2001)
	1-9513	(4)(d)(i)	—	15th dated as of 9/29/04 (2004 Form 10-K)
	1-9513	(4)(d)(ii)	—	16th dated as of 12/16/04 (2004 Form 10-K)
	1-9513	4.2	—	17th dated as of 12/13/04 (Form 8-K filed December 13, 2004)
	1-9513	4.2	—	18th dated as of 1/19/05 (Form 8-K filed January 20, 2005)
	1-9513	4.2	—	19th dated as of 12/13/05 (Form 8-K filed December 15, 2005)

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	Previously Filed
	With File	As Exhibit
Exhibits	Number	Number		Description
	1-9513	4.2	—	20th dated as of July 3, 2007 (Form 8-K filed July 5, 2007)
	1-9513	4.3	—	21st dated as of July 3, 2007 (Form 8-K filed July 5, 2007)
(4)(f)	1-9513	(4a)	—	Indenture dated as of June 1, 1997, between CMS Energy and The Bank of New York, as trustee (Form 8-K filed July 1, 1997)
			—	Indentures Supplemental thereto:
	1-9513	(4)(b)	—	1st dated as of 6/20/97 (Form 8-K filed July 1, 1997)
(4)(g)	1-9513	(4)(i)	—	Certificate of Designation of 4.50% Cumulative Convertible Preferred Stock of CMS Energy dated as of December 2, 2003 (2003 Form 10-K)
(10)(a)	1-9513	10.2	—	$300 million Seventh Amended and Restated Credit Agreement dated as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents all defined therein (Form 8-K filed April 3, 2007)
			—	Amendments thereto:
				Amendment No. 1 dated December 19, 2007
	1-9513	10.1	—	Assumptions thereto:
				Assumption and Acceptance dated January 8, 2008 (Form 8-K filed January 11, 2008)
(10)(b)			—	Fourth Amended and Restated Pledge and Security Agreement dated as of April 2, 2007 among CMS Energy, and Collateral Agent, as defined therein
(10)(c)			—	Cash Collateral Agreement dated as of April 2, 2007, made by CMS Energy to the Administrative Agent for the lenders and Collateral Agent, as defined therein
(10)(d)	1-5611	10.1	—	$500 million Fourth Amended and Restated Credit Agreement dated as of March 30, 2007 among Consumers Energy Company, the Banks, the Administrative Agent, the Collateral Agent, the Syndication Agent and the Documentation Agents all as defined therein (Form 8-K filed April 3, 2007)
(10)(e)			—	2004 Form of Executive Severance Agreement
(10)(f)			—	2004 Form of Officer Severance Agreement
(10)(g)			—	2004 Form of Change-in-Control Agreement
(10)(h)			—	CMS Energy’s Performance Incentive Stock Plan effective June 1, 2004 and as further amended effective November 30, 2007
(10)(i)			—	CMS Deferred Salary Savings Plan effective December 1, 1989 and as further amended effective December 1, 2007
(10)(j)			—	Annual Officer Incentive Compensation Plan for CMS Energy Corporation and its Subsidiaries effective January 1, 2004, amended and restated effective as of January 1, 2007 and further amended November 30, 2007
(10)(k)			—	Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company effective January 1, 1982, as further amended December 1, 2007
(10)(l)			—	Defined Contribution Supplemental Executive Retirement Plan effective April 1, 2006 and as further amended effective December 1, 2007
(10)(m)	1-9513	(10)(v)	—	Amended and Restated Investor Partner Tax Indemnification Agreement dated as of June 1, 1990 among Investor Partners, CMS Midland as Indemnitor and CMS Energy as Guarantor (1990 Form 10-K)

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	Previously Filed
	With File	As Exhibit
Exhibits	Number	Number		Description
(10)(n)	1-9513	(19)(d)*	—	Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (1990 Form 10-K)
(10)(o)	1-9513	(10)(z)*	—	Indemnity Agreement dated as of June 1, 1990 made by CMS Energy to Midland Cogeneration Venture Limited Partnership (1990 Form 10-K)
(10)(p)	1-9513	(10)(aa)*	—	Environmental Agreement dated as of June 1, 1990 made by CMS Energy to United States Trust Company of New York, Meridian Trust Company, each Subordinated Collateral Trust Trustee and Holders from time to time of Senior Bonds and Subordinated Bonds and Participants from time to time in Senior Bonds and Subordinated Bonds (1990 Form 10-K)
(10)(q)	33-37977	10.4	—	Power Purchase Agreement dated as of July 17, 1986 between MCV Partnership and Consumers (MCV Partnership) (Designated in Midland Cogeneration Venture Limited Partnership’s Form S-1 filed November 23, 1999, File No. 33-37977 as Exhibit 10.4)
				Amendments thereto:
	33-37977	10.5	—	Amendment No. 1 dated September 10, 1987 (MCV Partnership)
	33-37977	10.6	—	Amendment No. 2 dated March 18, 1988 (MCV Partnership)
	33-37977	10.7	—	Amendment No. 3 dated August 28, 1989 (MCV Partnership)
	33-37977	10.8	—	Amendment No. 4A dated May 25, 1989 (MCV Partnership)
(10)(r)	1-5611	(10)(y)	—	Unwind Agreement dated as of December 10, 1991 by and among CMS Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC Development Corp. and CMS Midland Holdings Company (1991 Form 10-K)
(10)(s)	1-5611	(10)(z)	—	Stipulated AGE Release Amount Payment Agreement dated as of June 1, 1990, among CMS Energy, Consumers and The Dow Chemical Company (1991 Form 10-K)
(10)(t)	1-5611	(10)(aa)*	—	Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each of the Owner Trustees, the Indenture Trustees, the Owner Participants and the Initial Purchasers of Senior Bonds in the MCV Sale Leaseback transaction, and MEC Development (1991 Form 10-K)
(10)(u)	1-8157	10.41	—	Contract for Firm Transportation of Natural Gas between Consumers Power Company and Trunkline Gas Company, dated November 1, 1989, and Amendment, dated November 1, 1989 (1989 Form 10-K of PanEnergy Corp.)
(10)(v)	1-8157	10.41	—	Contract for Firm Transportation of Natural Gas between Consumers Power Company and Trunkline Gas Company, dated November 1, 1989 (1991 Form 10-K of PanEnergy Corp.)
(10)(w)	1-2921	10.03	—	Contract for Firm Transportation of Natural Gas between Consumers Power Company and Trunkline Gas Company, dated September 1, 1993 (1993 Form 10-K)
(10)(x)	1-5611	(10)(a)	—	Asset Sale Agreement dated as of July 11, 2006 by and among Consumers Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer (2nd qtr 2006 Form 10-Q)
(10)(y)	1-5611	(10)(b)	—	Palisades Nuclear Power Plant Power Purchase Agreement dated as of July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy Company (2nd qtr 2006 Form 10-Q)
(10)(z)	1-9513	99.2	—	Letter of Intent dated January 31, 2007 between CMS Enterprises Company and Lucid Energy LLC (Form 8-K filed February 1, 2007)

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	Previously Filed
	With File	As Exhibit
Exhibits	Number	Number		Description
(10)(aa)	1-9513	99.2	—	Agreement of Purchase and Sale, by and between CMS Enterprises Company and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007 (Form 8-K filed February 6, 2007)
(10)(bb)	1-9513	99.2	—	Memorandum of Understanding dated February 13, 2007 between CMS Energy Corporation and Petroleos de Venezuela, S.A. (Form 8-K filed February 14, 2007)
(10)(cc)	1-9513	10.1	—	Common Agreement dated March 12, 2007 between CMS Enterprises Company and Lucid Energy, LLC (Form 8-K filed March 14, 2007)
(10)(dd)	1-9513	10.2	—	Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Energy Investment, LLC, and Lucid Energy, LLC and Michigan Pipeline and Processing, LLC (Form 8-K filed March 14, 2007)
(10)(ee)	1-9513	10.3	—	Agreement of Purchase and Sale Dated March 12, 2007 by and among CMS Enterprises Company, CMS Generation Holdings Company, CMS International Ventures, LLC, and Lucid Energy, LLC and New Argentine Generation Company, LLC (Form 8-K filed March 14, 2007)
(10)(ff)	1-9513	10.1	—	Agreement of Purchase and Sale by and between CMS Energy Corporation and Petroleos de Venezuela, S.A. dated March 30, 2007 (Form 8-K filed April 5, 2007)
(10)(gg)	1-9513	10.1	—	Share Purchase Agreement dated as of April 12, 2007 by and among CMS Electric and Gas, L.L.C., CMS Energy Brasil S.A. and CPFL Energia S.A. together with CMS Energy Corporation (solely for the limited purposes of Section 8.9) (Form 8-K filed April 17, 2007)
(10)(hh)	1-5611	99.2	—	Purchase and Sale Agreement by and between Broadway Gen Funding, LLC as Seller and Consumers Energy Company as Buyer (Form 8-K filed May 29, 2007)
(10)(ii)	1-9513	99.2	—	Amended and Restated Securities Purchase Agreement by and among CMS International Ventures, L.L.C., CMS Capital L.L.C., CMS Gas Argentina Company and CMS Enterprises and AEI Chile Holdings LTD together with Ashmore Energy International (for purposes of the Parent Guarantee) dated as of June 1, 2007 (Form 8-K filed June 4, 2007)
(10)(jj)	1-9513	99.3	—	Stock Purchase Agreement by and among Hydra-Co Enterprises, Inc., HCO-Jamaica, Inc., and AEI Central America LTD together with Ashmore Energy International dated as of May 31, 2007 (Form 8-K filed June 4, 2007)
(10)(kk)	1-9513	99.1	—	Securities Purchase Agreement by and among CMS International Ventures, L.L.C., CMS Capital, L.L.C., CMS Gas Argentina Company and CMS Enterprises Company and Pacific Energy LLC together with Empresa Nacional De Electricdad S.A. (for purposes of the Parent Guarantee) dated as of July 11, 2007 (Form 8-K filed July 11, 2007)
(10)(ll)	1-9513	(10)(a)	—	Form of Indemnification Agreement between CMS Energy Corporation and its Directors, effective as of November 1, 2007 (3rd qtr. 2007 Form 10-Q)
(10)(mm)	1-5611	(10)(b)	—	Form of Indemnification Agreement between Consumers Energy Company and its Directors, effective as of November 1, 2007 (3rd qtr. 2007 Form 10-Q)

CO-9

	Previously Filed
	With File	As Exhibit
Exhibits	Number	Number		Description
(10)(nn)	1-9513	10.1	—	$200 million Letter of Credit Reimbursement Agreement dated as of November 30, 2007 between Consumers Energy Company and the Bank of Nova Scotia (Form 8-K filed December 6, 2007)
(12)(a)			—	Statement regarding computation of CMS Energy’s Ratio of Earnings to Fixed Charges and Preferred Dividends
(12)(b)			—	Statement regarding computation of Consumers’ Ratio of Earnings to Fixed Charges and Preferred Dividends and Distributions
(16)(a)	1-9513	16.1	—	Letter from Ernst & Young to the Securities and Exchange Commission dated January 25, 2007 (Form 8-K filed January 25, 2007)
(16)(b)	1-9513	16.1	—	Letter from Ernst & Young to the Securities and Exchange Commission dated February 28, 2007 (Form 8-K filed February 28, 2007)
(21)			—	Subsidiaries of CMS Energy and Consumers
(23)(a)			—	Consent of PricewaterhouseCoopers LLP for CMS Energy
(23)(b)			—	Consent of Ernst & Young for CMS Energy
(23)(c)			—	Consent of PricewaterhouseCoopers LLP for CMS Energy re: MCV
(23)(d)			—	Consent of PricewaterhouseCoopers LLP for Consumers Energy
(23)(e)			—	Consent of Ernst & Young for Consumers Energy
(23)(f)			—	Consent of PricewaterhouseCoopers LLP for Consumers Energy re: MCV
(24)(a)			—	Power of Attorney for CMS Energy
(24)(b)			—	Power of Attorney for Consumers
(31)(a)			—	CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31)(b)			—	CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31)(c)			—	Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31)(d)			—	Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)(a)			—	CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32)(b)			—	Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Obligations of only CMS Energy but not of Consumers.

Exhibits listed above that have heretofore been filed with SEC pursuant to various acts administered by the Commission, and which were designated as noted above, are hereby incorporated herein by reference and made a part hereof with the same effect as if filed herewith.

CO-10

CMS ENERGY CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

					Charged/
	Balance at				Accrued				Balance
	Beginning		Charged		to other				at End
Description	of Period		to Expense		Accounts		Deductions		of Period
	(In Millions)
Accumulated provision for uncollectible accounts:
2007	$	25	$	37	$	7	$	34	$	21
2006	$	25	$	30	$	—	$	30	$	25
2005	$	32	$	23	$	—	$	30	$	25
Deferred tax valuation allowance:
2007	$	72	$	—	$	81	$	121	$	32
2006	$	10	$	31	$	42	$	11	$	72
2005	$	42	$	1	$	—	$	33	$	10
Allowance for notes receivable, including related parties:
2007	$	101	$	—	$	1	$	69	$	33
2006	$	49	$	55	$	1	$	4	$	101
2005	$	40	$	9	$	—	$	—	$	49

CONSUMERS ENERGY COMPANY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

					Charged/
	Balance at				Accrued				Balance
	Beginning		Charged		to other				at End
Description	of Period		to Expense		Accounts		Deductions		of Period
	(In Millions)
Accumulated provision for uncollectible accounts:
2007	$	14	$	33	$	—	$	31	$	16
2006	$	13	$	30	$	—	$	29	$	14
2005	$	10	$	24	$	—	$	21	$	13
Deferred tax valuation allowance:
2007	$	15	$	—	$	8	$	23	$	—
2006	$	—	$	16	$	—	$	1	$	15
2005	$	9	$	1	$	—	$	10	$	—

CO-11

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CMS Energy Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of February 2008.

CMS ENERGY Corporation

By  /s/  David W. Joos

David W. Joos

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of CMS Energy Corporation and in the capacities indicated and on the 21st day of February 2008.

Signature		Title
(i)	Principal executive officer:
	/s/  David W. Joos David W. Joos	President and Chief Executive Officer
(ii)	Principal financial officer:
	/s/  Thomas J. Webb Thomas J. Webb	Executive Vice President and Chief Financial Officer
(iii)	Controller or principal accounting officer:
	/s/  Glenn P. Barba Glenn P. Barba	Vice President, Controller and Chief Accounting Officer
(iv)	A majority of the Directors including those named above:
	* Merribel S. Ayres	Director
	* Jon E. Barfield	Director
	* Richard M. Gabrys	Director
	* David W. Joos	Director
	* Philip R. Lochner, Jr.	Director
	* Michael T. Monahan	Director
	* Joseph F. Paquette, Jr.	Director

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Signature		Title
	* Percy A. Pierre	Director
	* Kenneth L. Way	Director
	* Kenneth Whipple	Director
	* John B. Yasinsky	Director
*By	/s/  Thomas J. Webb Thomas J. Webb, Attorney-in-Fact

CO-13

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Consumers Energy Company has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of February 2008.

CONSUMERS ENERGY COMPANY

By  /s/  David W. Joos

David W. Joos

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of Consumers Energy Company and in the capacities indicated and on the 21st day of February 2008.

Signature		Title
(i)	Principal executive officer:
	/s/  David W. Joos David W. Joos	Chief Executive Officer
(ii)	Principal financial officer:
	/s/  Thomas J. Webb Thomas J. Webb	Executive Vice President and Chief Financial Officer
(iii)	Controller or principal accounting officer:
	/s/  Glenn P. Barba Glenn P. Barba	Vice President, Controller and Chief Accounting Officer
(iv)	A majority of the Directors including those named above:
	* Merribel S. Ayres	Director
	* Jon E. Barfield	Director
	* Richard M. Gabrys	Director
	* David W. Joos	Director
	* Philip R. Lochner, Jr.	Director
	* Michael T. Monahan	Director
	* Joseph F. Paquette, Jr.	Director

CO-14

Signature		Title
	* Percy A. Pierre	Director
	* Kenneth L. Way	Director
	* Kenneth Whipple	Director
	* John B. Yasinsky	Director
*By	/s/  Thomas J. Webb Thomas J. Webb, Attorney-in-Fact

CO-15

CMS ENERGY’S AND CONSUMERS’ EXHIBIT INDEX

Exhibits			Description
	(4)(a)	—	106th Supplemental Indenture dated as of November 30, 2007, supplement to Indenture dated as of September 1, 1945, between Consumers and Chemical Bank
	(4)(b)	—	105th Supplemental Indenture (dated as of March 30, 2007) to the Indenture dated as of September 1, 1945 between Consumers and Chemical Bank
	(10)(a)	—	Amendment No. 1 dated December 19, 2007 to $300 million Seventh Amended and Restated Credit Agreement dated as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents
	(10)(b)		Fourth Amended and Restated Pledge and Security Agreement dated as of April 2, 2007 among CMS Energy, and Collateral Agent, as defined therein
	(10)(c)		Cash Collateral Agreement dated as of April 2, 2007, made by CMS Energy to the Administrative Agent for the lenders and Collateral Agent, as defined therein
	(10)(e)	—	2004 Form of Executive Severance Agreement
	(10)(f)	—	2004 Form of Officer Severance Agreement
	(10)(g)	—	2004 Form of Change-in-Control Agreement
	(10)(h)	—	CMS Energy’s Performance Incentive Stock Plan effective February 3, 1988, as amended June 1, 2004 and as further amended effective November 30, 2007
	(10)(i)	—	CMS Deferred Salary Savings Plan effective December 1, 1989 and as further amended effective December 1, 2007
	(10)(j)	—	Annual Officer Incentive Compensation Plan for CMS Energy Corporation and its Subsidiaries effective January 1, 2004, amended and restated effective as of January 1, 2007 and further amended November 30, 2007
	(10)(k)	—	Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company effective January 1, 1982, as further amended December 1, 2007
	(10)(l)	—	Defined Contribution Supplemental Executive Retirement Plan effective April 1, 2006 and as further amended effective December 1, 2007
	(12)(a)	—	Statement regarding computation of CMS Energy’s Ratio of Earnings to Fixed Charges and Preferred Dividends
	(12)(b)	—	Statement regarding computation of Consumers’ Ratio of Earnings to Fixed Charges and Preferred Dividends and Distributions
	(21)	—	Subsidiaries of CMS Energy and Consumers
	(23)(a)	—	Consent of PricewaterhouseCoopers LLP for CMS Energy
	(23)(b)	—	Consent of Ernst & Young for CMS Energy
	(23)(c)	—	Consent of PricewaterhouseCoopers LLP for CMS Energy re: MCV
	(23)(d)	—	Consent of PricewaterhouseCoopers LLP for Consumers Energy
	(23)(e)	—	Consent of Ernst & Young for Consumers Energy
	(23)(f)	—	Consent of PricewaterhouseCoopers LLP for Consumers Energy re: MCV
	(24)(a)	—	Power of Attorney for CMS Energy
	(24)(b)	—	Power of Attorney for Consumers
	(31)(a)	—	CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(31)(b)	—	CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(31)(c)	—	Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(31)(d)	—	Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(32)(a)	—	CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	(32)(b)	—	Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-4.(A)

EXHIBIT 4(a)

ONE HUNDRED SIXTH SUPPLEMENTAL INDENTURE

Providing among other things for

FIRST MORTGAGE BONDS,

2007-2 Collateral Series (Interest Bearing)

Dated as of November 30,2007

CONSUMERS ENERGY COMPANY

TO

THE BANK OF NEW YORK,

TRUSTEE

Counterpart 75 of 80

     THIS ONE HUNDRED SIXTH SUPPLEMENTAL INDENTURE, dated as of November 30, 2007 (herein sometimes referred to as “this Supplemental Indenture”), made and entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized and existing under the laws of the State of Michigan, with its principal executive office and place of business at One Energy Plaza, in Jackson, Jackson County, Michigan 49201, formerly known as Consumers Power Company (hereinafter sometimes referred to as the “Company”), and THE BANK OF NEW YORK, a New York banking corporation, with its corporate trust offices at 101 Barclay St., New York, New York 10286 (hereinafter sometimes referred to as the “Trustee”), as Trustee under the Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine corporation (hereinafter sometimes referred to as the “Maine corporation”), and City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter sometimes referred to as the “Predecessor Trustee”), securing bonds issued and to be issued as provided therein (hereinafter sometimes referred to as the “Indenture”),

     WHEREAS at the close of business on January 30, 1959, City Bank Farmers Trust Company was converted into a national banking association under the title “First National City Trust Company”; and

     WHEREAS at the close of business on January 15, 1963, First National City Trust Company was merged into First National City Bank; and

     WHEREAS at the close of business on October 31, 1968, First National City Bank was merged into The City Bank of New York, National Association, the name of which was thereupon changed to First National City Bank; and

     WHEREAS effective March 1, 1976, the name of First National City Bank was changed to Citibank, N.A.; and

     WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company succeeded Citibank, N.A. as Trustee under the Indenture; and

     WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to Manufacturers Hanover Trust Company as Trustee under the Indenture; and

     WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National Association), merged with and into Chemical Bank which thereafter was renamed The Chase Manhattan Bank; and

     WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged with Morgan Guaranty Trust Company of New York and the surviving corporation was renamed JPMorgan Chase Bank; and

     WHEREAS, effective November 13, 2004, the name of JPMorgan Chase Bank was changed to JPMorgan Chase Bank, N.A.; and

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     WHEREAS, effective October 2, 2006, The Bank of New York assumed the rights and obligations of JPMorgan Chase Bank, N.A. under the Indenture; and

     WHEREAS the Indenture was executed and delivered for the purpose of securing such bonds as may from time to time be issued under and in accordance with the terms of the Indenture, the aggregate principal amount of bonds to be secured thereby being limited to $5,000,000,000 at any one time outstanding (except as provided in Section 2.01 of the Indenture), and the Indenture describes and sets forth the property conveyed thereby and is filed in the Office of the Secretary of State of the State of Michigan and is of record in the Office of the Register of Deeds of each county in the State of Michigan in which this Supplemental Indenture is to be recorded; and

     WHEREAS the Indenture has been supplemented and amended by various indentures supplemental thereto, each of which is filed in the Office of the Secretary of State of the State of Michigan and is of record in the Office of the Register of Deeds of each county in the State of Michigan in which this Supplemental Indenture is to be recorded; and

     WHEREAS the Company and the Maine corporation entered into an Agreement of Merger and Consolidation, dated as of February 14, 1968, which provided for the Maine corporation to merge into the Company; and

     WHEREAS the effective date of such Agreement of Merger and Consolidation was June 6, 1968, upon which date the Maine corporation was merged into the Company and the name of the Company was changed from “Consumers Power Company of Michigan” to “Consumers Power Company”; and

     WHEREAS the Company and the Predecessor Trustee entered into a Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided, among other things, for the assumption of the Indenture by the Company; and

     WHEREAS said Sixteenth Supplemental Indenture became effective on the effective date of such Agreement of Merger and Consolidation; and

     WHEREAS the Company has succeeded to and has been substituted for the Maine corporation under the Indenture with the same effect as if it had been named therein as the mortgagor corporation; and

     WHEREAS effective March 11, 1997, the name of Consumers Power Company was changed to Consumers Energy Company; and

     WHEREAS, the Company has entered into a Letter of Credit Reimbursement Agreement dated as of November 30, 2007 (as amended or otherwise modified from time to time, the “Reimbursement Agreement”) with The Bank of Nova Scotia (the “Lender”) providing for the making of certain financial accommodations thereunder, and pursuant to such Reimbursement Agreement the Company has agreed to issue to the Lender, as evidence of and security for the

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Liabilities (as such term is defined in the Reimbursement Agreement), a new series of bonds under the Indenture; and

     WHEREAS, for such purposes the Company desires to issue a new series of bonds, to be designated First Mortgage Bonds, 2007-2 Collateral Series (Interest Bearing), each of which bonds shall also bear the descriptive title “First Mortgage Bond” (hereinafter provided for and hereinafter sometimes referred to as the “2007-2 Collateral Bonds”), the bonds of which series are to be issued as registered bonds without coupons and are to bear interest at the rate per annum specified herein and are to mature on the Termination Date (as such term is defined in the Reimbursement Agreement); and

     WHEREAS, each of the registered bonds without coupons of the 2007-2 Collateral Bonds and the Trustee’s Authentication Certificate thereon are to be substantially in the following form, to wit:

[FORM OF REGISTERED BOND

OF THE 2007-2 COLLATERAL BONDS]

[FACE]

CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2007-2 COLLATERAL SERIES (INTEREST BEARING)

No. 1 $200,000,000

     CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the “Company”), for value received, hereby promises to pay to The Bank of Nova Scotia, as the lender (in such capacity, the “Lender”) under the Letter of Credit Reimbursement Agreement dated as of November 30, 2007 between the Company and the Lender (as amended or otherwise modified from time to time, the “Reimbursement Agreement”), or registered assigns, the principal sum of Two Hundred Million Dollars ($200,000,000) or such lesser principal amount as shall be equal to the aggregate amount of obligations (the “Reimbursement Obligations”) of the Company then outstanding under the Reimbursement Agreement to reimburse the Lender for amounts paid by the Lender in respect of any one or more drawings under Letters of Credit (as defined in the Reimbursement Agreement) included in the Liabilities (as defined in the Reimbursement Agreement) outstanding on the Termination Date (as defined in the Reimbursement Agreement) (the “Maturity Date”), but not in excess, however, of the principal amount of this bond, and to pay interest thereon at the Interest Rate (as defined below) until the principal hereof is paid or duly made available for payment on the Maturity Date, or, in the event of redemption of this bond, until the redemption date, or, in the event of default in the payment

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of the principal hereof, until the Company’s obligations with respect to the payment of such principal shall be discharged as provided in the Indenture (as defined on the reverse hereof). Interest on this bond shall be payable on each Interest Payment Date (as defined below), commencing on the first Interest Payment Date next succeeding November 30, 2007, If the Maturity Date falls on a day which is not a Business Day, as defined below, principal and any interest and/or fees payable with respect to the Maturity Date will be paid on the immediately preceding Business Day. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions, be paid to the person in whose name this bond (or one or more predecessor bonds) is registered at the close of business on the Record Date (as defined below); provided, however, that interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. Should the Company default in the payment of interest (“Defaulted Interest”), the Defaulted Interest shall be paid to the person in whose name this bond (or one or more predecessor bonds) is registered on a subsequent record date fixed by the Company, which subsequent record date shall be fifteen (15) days prior to the payment of such Defaulted Interest. As used herein, (A) “Business Day” shall mean any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system; (B) “Interest Payment Date” shall mean each date on which Liabilities constituting interest and/or fees are due and payable from time to time pursuant to the Reimbursement Agreement; (C) “Interest Rate” shall mean a rate of interest per annum, adjusted as necessary, to result in an interest payment equal to the aggregate amount of Liabilities constituting interest and fees due under the Reimbursement Agreement on the applicable Interest Payment Date; and (D) “Record Date” with respect to any Interest Payment Date shall mean the day (whether or not a Business Day) immediately next preceding such Interest Payment Date.

     Payment of the principal of and interest on this bond will be made in immediately available funds at the office or agency of the Company maintained for that purpose in the City of Jackson, Michigan, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.

     This bond shall not be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee or its successor in trust under the Indenture of the certificate hereon.

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     IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be executed in its name by its Chairman of the Board, its President or one of its Vice Presidents by his or her signature or a facsimile thereof, and its corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries by his or her signature or a facsimile thereof.

SPECIMEN	CONSUMERS ENERGY COMPANY
	Dated:
	By
		Printed
		Title
		Attest:

TRUSTEE’S AUTHENTICATION CERTIFICATE

     This is one of the bonds, of the series designated therein, described in the within-mentioned Indenture.

SPECIMEN	THE BANK OF NEW YORK, Trustee
	By
		Authorized Officer

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[REVERSE]

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND
2007-2 COLLATERAL SERIES (INTEREST BEARING)

     This bond is one of the bonds of a series designated as First Mortgage Bonds, 2007-2 Collateral Series (Interest Bearing) (sometimes herein referred to as the “2007-2 Collateral Bonds”) issued under and in accordance with and secured by an Indenture dated as of September 1, 1945, given by the Company (or its predecessor, Consumers Power Company, a Maine corporation) to City Bank Fanners Trust Company (The Bank of New York, successor) (hereinafter sometimes referred to as the “Trustee”), together with indentures supplemental thereto, heretofore or hereafter executed, to which indenture and indentures supplemental thereto (hereinafter referred to collectively as the “Indenture”) reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights, duties and immunities thereunder of the Trustee and the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the limitations on such rights. By the terms of the Indenture, the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest and in other respects as provided in the Indenture.

     The 2007-2 Collateral Bonds are to be issued and delivered to the Lender in order to evidence and secure the obligation of the Company under the Reimbursement Agreement to make payments to the Lender under the Reimbursement Agreement and to provide the Lender the benefit of the lien of the Indenture with respect to the 2007-2 Collateral Bonds.

     The obligation of the Company to make payments with respect to the principal of 2007-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due Reimbursement Obligations included in the Liabilities shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Reimbursement Obligations means that if any payment is made on the Reimbursement Obligations, a corresponding payment obligation with respect to the principal of the 2007-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Reimbursement Obligations discharges the outstanding obligation with respect to such Reimbursement Obligations. No such payment of principal shall reduce the principal amount of the 2007-2 Collateral Bonds.

     The obligation of the Company to make payments with respect to the interest on 2007-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Reimbursement Agreement shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement means that if any payment is made on the interest and/or fees under

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the Reimbursement Agreement, a corresponding payment obligation with respect to the interest on the 2007-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Reimbursement Obligations discharges the outstanding obligation with respect to such Reimbursement Obligations.

     The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on this bond, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Lender stating (i) that timely payment of principal and interest on the 2007-2 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Lender in connection with the Liabilities pursuant to the Reimbursement Agreement, and (iii) the amount of the arrearage.

     If a Default (as defined in the Reimbursement Agreement) with respect to the payment of the principal of the Reimbursement Obligations shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the principal of the 2007-2 Collateral Bonds equal to the amount of such unpaid Reimbursement Obligations (but in no event in excess of the principal amount of the 2007-2 Collateral Bonds). If a Default (as defined in the Reimbursement Agreement) with respect to the payment of interest on the Reimbursement Obligations or any fees shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the interest on the 2007-2 Collateral Bonds equal to the amount of such unpaid interest or fees.

     This bond is not redeemable except upon written demand of the Lender following the occurrence of a Default under the Reimbursement Agreement and the acceleration of the Liabilities, as provided in Section 10.2 of the Reimbursement Agreement. This bond is not redeemable by the operation of the improvement fund or the maintenance and replacement provisions of the Indenture or with the proceeds of released property.

     In case of certain defaults as specified in the Indenture, the principal of this bond may be declared or may become due and payable on the conditions, at the time, in the manner and with the effect provided in the Indenture. The holders of certain specified percentages of the bonds at the time outstanding, including in certain cases specified percentages of bonds of particular series, may in certain cases, to the extent and as provided in the Indenture, waive certain defaults thereunder and the consequences of such defaults.

     The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than seventy-five per centum in principal amount of the bonds (exclusive of bonds disqualified by reason of the Company’s interest therein) at the time outstanding, including, if more than one series of bonds shall be at the time outstanding, not less than sixty per centum in principal amount of each series affected, to effect, by an indenture supplemental to the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and the rights of the holders of the bonds and coupons; provided,

-8-

however, that no such modification or alteration shall be made without the written approval or consent of the holder hereof which will (a) extend the maturity of this bond or reduce the rate or extend the time of payment of interest hereon or reduce the amount of the principal hereof, or (b) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce the percentage of the principal amount of the bonds the holders of which are required to approve any such supplemental indenture.

     The Company reserves the right, without any consent, vote or other action by holders of the 2007-2 Collateral Bonds or any other series created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to reduce the percentage of the principal amount of bonds the holders of which are required to approve any supplemental indenture (other than any supplemental indenture which is subject to the proviso contained in the immediately preceding sentence) (a) from not less than seventy-five per centum (including sixty per centum of each series affected) to not less than a majority in principal amount of the bonds at the time outstanding or (b) in case fewer than all series are affected, not less than a majority in principal amount of the bonds of all affected series, voting together.

     No recourse shall be had for the payment of the principal of or interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, director or officer, past, present or future, as such, of the Company, or of any predecessor or successor company, either directly or through the Company, or such predecessor or successor company, or otherwise, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers, as such, being waived and released by the holder and owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture.

     This bond shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

     The Lender shall surrender this bond to the Trustee when all of the Reimbursement Obligations and interest thereon arising under the Reimbursement Agreement, and all of the fees payable pursuant to the Reimbursement Agreement with respect to the Liabilities shall have been duly paid, and the Reimbursement Agreement shall have been terminated.

[END OF FORM OF REGISTERED BOND

OF THE 2007-2 COLLATERAL BONDS]

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     AND WHEREAS all acts and things necessary to make the 2007-2 Collateral Bonds (the “Collateral Bonds”), when duly executed by the Company and authenticated by the Trustee or its agent and issued as prescribed in the Indenture, as heretofore supplemented and amended, and this Supplemental Indenture provided, the valid, binding and legal obligations of the Company, and to constitute the Indenture, as supplemented and amended as aforesaid, as well as by this Supplemental Indenture, a valid, binding and legal instrument for the security thereof, have been done and performed, and the creation, execution and delivery of this Supplemental Indenture and the creation, execution and issuance of bonds subject to the terms hereof and of the Indenture, as so supplemented and amended, have in all respects been duly authorized;

     NOW, THEREFORE, in consideration of the premises, of the acceptance and purchase by the holders thereof of the bonds issued and to be issued under the Indenture, as supplemented and amended as above set forth, and of the sum of One Dollar duly paid by the Trustee to the Company, and of other good and valuable considerations, the receipt whereof is hereby acknowledged, and for the purpose of securing the due and punctual payment of the principal of and premium, if any, and interest on all bonds now outstanding under the Indenture and the $200,000,000 principal amount of the Collateral Bonds and all other bonds which shall be issued under the Indenture, as supplemented and amended from time to time, and for the purpose of securing the faithful performance and observance of all covenants and conditions therein, and in any indenture supplemental thereto, set forth, the Company has given, granted, bargained, sold, released, transferred, assigned, hypothecated, pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and by these presents does give, grant, bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto The Bank of New York, as Trustee, as provided in the Indenture, and its successor or successors in the trust thereby and hereby created and to its or their assigns forever, all the right, title and interest of the Company in and to all the property, described in Section 11 hereof, together (subject to the provisions of Article X of the Indenture) with the tolls, rents, revenues, issues, earnings, income, products and profits thereof, excepting, however, the property, interests and rights specifically excepted from the lien of the Indenture as set forth in the Indenture.

     TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in any wise appertaining to the premises, property, franchises and rights, or any thereof, referred to in the foregoing granting clause, with the reversion and reversions, remainder and remainders and (subject to the provisions of Article X of the Indenture) the tolls, rents, revenues, issues, earnings, income, products and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid premises, property, franchises and rights and every part and parcel thereof.

     SUBJECT, HOWEVER, with respect to such premises, property, franchises and rights, to excepted encumbrances as said term is defined in Section 1.02 of the Indenture, and subject also to all defects and limitations of title and to all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all said premises, property, franchises and rights hereby conveyed,

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assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its successor or successors in trust and their assigns forever;

     BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and proportionate benefit and security of the holders of all bonds now or hereafter authenticated and delivered under and secured by the Indenture and interest coupons appurtenant thereto, pursuant to the provisions of the Indenture and of any supplemental indenture, and for the enforcement of the payment of said bonds and coupons when payable and the performance of and compliance with the covenants and conditions of the Indenture and of any supplemental indenture, without any preference, distinction or priority as to lien or otherwise of any bond or bonds over others by reason of the difference in time of the actual authentication, delivery, issue, sale or negotiation thereof or for any other reason whatsoever, except as otherwise expressly provided in the Indenture; and so that each and every bond now or hereafter authenticated and delivered thereunder shall have the same lien, and so that the principal of and premium, if any, and interest on every such bond shall, subject to the terms thereof, be equally and proportionately secured, as if it had been made, executed, authenticated, delivered, sold and negotiated simultaneously with the execution and delivery thereof.

     AND IT IS EXPRESSLY DECLARED by the Company that all bonds authenticated and delivered under and secured by the Indenture, as supplemented and amended as above set forth, are to be issued, authenticated and delivered, and all said premises, property, franchises and rights hereby and by the Indenture and indentures supplemental thereto conveyed, assigned, pledged or mortgaged, or intended so to be, are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes expressed in the Indenture, as supplemented and amended as above set forth, and the parties hereto mutually agree as follows:

     SECTION 1. There is hereby created a series of bonds (the “2007-2 Collateral Bonds”) designated as hereinabove provided, which shall also bear the descriptive title “First Mortgage Bond”, and the forms thereof shall be substantially as hereinbefore set forth (collectively, the “Sample Bond”). The 2007-2 Collateral Bonds shall be issued in the aggregate principal amount of $200,000,000, shall mature on the Termination Date (as such term is defined in the Reimbursement Agreement) and shall be issued only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The serial numbers of the Collateral Bonds shall be such as may be approved by any officer of the Company, the execution thereof by any such officer either manually or by facsimile signature to be conclusive evidence of such approval. The Collateral Bonds are to be issued to and registered in the name of the Lender under the Reimbursement Agreement (as such terms are defined in the Sample Bonds) to evidence and secure any and all Liabilities (as such term is defined in the Reimbursement Agreement) of the Company under the Reimbursement Agreement.

     The 2007-2 Collateral Bonds shall bear interest as set forth in the Sample Bond. The principal of and the interest on said bonds shall be payable as set forth in the Sample Bond.

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     The obligation of the Company to make payments with respect to the principal of 2007-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due Reimbursement Obligations included in the Liabilities shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Reimbursement Obligations means that if any payment is made on the Reimbursement Obligations, a corresponding payment obligation with respect to the principal of the 2007-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Reimbursement Obligations discharges the outstanding obligation with respect to such Reimbursement Obligations. No such payment of principal shall reduce the principal amount of the 2007-2 Collateral Bonds.

     The obligation of the Company to make payments with respect to interest on 2007-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Reimbursement Agreement shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement means that if any payment is made on the interest and/or fees under the Reimbursement Agreement, a corresponding payment obligation with respect to the interest on the 2007-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees discharges the outstanding obligation with respect to such interest and/or fees.

     The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on the Collateral Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Lender stating (i) that timely payment of principal and interest on the 2007-2 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Lender pursuant to the Reimbursement Agreement, and (iii) the amount of the arrearage.

     The Collateral Bonds shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

     SECTION 2. The Collateral Bonds are not redeemable by the operation of the maintenance and replacement provisions of this Indenture or with the proceeds of released property.

     SECTION 3. Upon the occurrence of a Default under the Reimbursement Agreement and the acceleration of the Liabilities, the Collateral Bonds shall be redeemable in whole upon receipt by the Trustee of a written demand from the Lender stating that there has occurred under

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the Reimbursement Agreement both a Default and a declaration of acceleration of the Liabilities and demanding redemption of the Collateral Bonds (including a description of the amount of Reimbursement Obligations, interest and fees which comprise such Liabilities). The Company waives any right it may have to prior notice of such redemption under the Indenture. Upon surrender of the Collateral Bonds by the Lender to the Trustee, the Collateral Bonds shall be redeemed at a redemption price equal to the aggregate amount of the Liabilities.

     SECTION 4. The Company reserves the right, without any consent, vote or other action by the holder of the Collateral Bonds or of any subsequent series of bonds issued under the Indenture, to make such amendments to the Indenture, as supplemented, as shall be necessary in order to amend Section 17.02 to read as follows:

     SECTION 17.02. With the consent of the holders of not less than a majority in principal amount of the bonds at the time outstanding or their attorneys-in-fact duly authorized, or, if fewer than all series are affected, not less than a majority in principal amount of the bonds at the time outstanding of each series the rights of the holders of which are affected, voting together, the Company, when authorized by a resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or modifying the rights and obligations of the Company and the rights of the holders of any of the bonds and coupons; provided, however, that no such supplemental indenture shall (1) extend the maturity of any of the bonds or reduce the rate or extend the time of payment of interest thereon, or reduce the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the holder of each bond so affected, or (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of this Indenture, without the consent of the holders of all the bonds then outstanding, or (3) reduce the aforesaid percentage of the principal amount of bonds the holders of which are required to approve any such supplemental indenture, without the consent of the holders of all the bonds then outstanding. For the purposes of this Section, bonds shall be deemed to be affected by a supplemental indenture if such supplemental indenture adversely affects or diminishes the rights of holders thereof against the Company or against its property. The Trustee may in its discretion determine whether or not, in accordance with the foregoing, bonds of any particular series would be affected by any supplemental indenture and any such determination shall be conclusive upon the holders of bonds of such series and all other series. Subject to the provisions of Sections 16.02 and 16.03 hereof, the Trustee shall not be liable for any determination made in good faith in connection herewith.

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     Upon the written request of the Company, accompanied by a resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of bondholders as aforesaid (the instrument or instruments evidencing such consent to be dated within one year of such request), the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture.

     It shall not be necessary for the consent of the bondholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.

     The Company and the Trustee, if they so elect, and either before or after such consent has been obtained, may require the holder of any bond consenting to the execution of any such supplemental indenture to submit his bond to the Trustee or to ask such bank, banker or trust company as may be designated by the Trustee for the purpose, for the notation thereon of the fact that the holder of such bond has consented to the execution of such supplemental indenture, and in such case such notation, in form satisfactory to the Trustee, shall be made upon all bonds so submitted, and such bonds bearing such notation shall forthwith be returned to the persons entitled thereto.

     Prior to the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall publish a notice, setting forth in general terms the substance of such supplemental indenture, at least once in one daily newspaper of general circulation in each city in which the principal of any of the bonds shall be payable, or, if all bonds outstanding shall be registered bonds without coupons or coupon bonds registered as to principal, such notice shall be sufficiently given if mailed, first class, postage prepaid, and registered if the Company so elects, to each registered holder of bonds at the last address of such holder appearing on the registry books, such publication or mailing, as the case may be, to be made not less than thirty days prior to such execution. Any failure of the Company to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

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     SECTION 5. As supplemented and amended as above set forth, the Indenture is in all respects ratified and confirmed, and the Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.

     SECTION 6. Nothing contained in this Supplemental Indenture shall, or shall be construed to, confer upon any person other than a holder of bonds issued under the Indenture, as supplemented and amended as above set forth, the Company, the Trustee and the Lender, any right or interest to avail himself of any benefit under any provision of the Indenture, as so supplemented and amended.

     SECTION 7. The Trustee assumes no responsibility for or in respect of the validity or sufficiency of this Supplemental Indenture or of the Indenture as hereby supplemented or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein (other than those contained in the sixth, seventh and eighth recitals hereof), all of which recitals and statements are made solely by the Company.

     SECTION 8. This Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.

     SECTION 9. In the event the date of any notice required or permitted hereunder shall not be a Business Day, then (notwithstanding any other provision of the Indenture or of any supplemental indenture thereto) such notice need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date fixed for such notice. “Business Day” means, with respect to this Section 9, any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system.

     SECTION 10. This Supplemental Indenture and the Collateral Bonds shall be governed by and deemed to be a contract under, and construed in accordance with, the laws of the State of Michigan, and for all purposes shall be construed in accordance with the laws of such state, except as may otherwise be required by mandatory provisions of law.

     SECTION 11. Detailed Description of Property Mortgaged:

I.

ELECTRIC GENERATING PLANTS AND DAMS

     All the electric generating plants and stations of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including all powerhouses, buildings, reservoirs, dams, pipelines, flumes, structures and works and the land on which the same are situated and all water rights and all other lands and easements, rights of way, permits, privileges,

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towers, poles, wires, machinery, equipment, appliances, appurtenances and supplies and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such plants and stations or any of them, or adjacent thereto.

II.

ELECTRIC TRANSMISSION LINES

     All the electric transmission lines of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including towers, poles, pole lines, wires, switches, switch racks, switchboards, insulators and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such transmission lines or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation. Also all the real property, rights of way, easements, permits, privileges and rights for or relating to the construction, maintenance or operation of certain transmission lines, the land and rights for which are owned by the Company, which are either not built or now being constructed.

III.

ELECTRIC DISTRIBUTION SYSTEMS

     All the electric distribution systems of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including substations, transformers, switchboards, towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such distribution systems or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises, grants and rights, for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation.

IV.

ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

     All the substations, switching stations and sites of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, for transforming, regulating, converting or distributing or otherwise controlling electric current at any of its plants and elsewhere, together

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with all buildings, transformers, wires, insulators and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with any of such substations and switching stations, or adjacent thereto, with sites to be used for such purposes.

V.

GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
SITES

     All the compressor stations, processing plants, desulphurization stations, metering stations, odorizing stations, regulators and sites of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, for compressing, processing, desulphurizing, metering, odorizing and regulating manufactured or natural gas at any of its plants and elsewhere, together with all buildings, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with any of such purposes, with sites to be used for such purposes.

VI.

GAS STORAGE FIELDS

     The natural gas rights and interests of the Company, including wells and well lines (but not including natural gas, oil and minerals), the gas gathering system, the underground gas storage rights, the underground gas storage wells and injection and withdrawal system used in connection therewith, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture: In the Overisel Gas Storage Field, located in the Township of Overisel, Allegan County, and in the Township of Zeeland, Ottawa County, Michigan; in the Northville Gas Storage Field located in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County, and the Townships of Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field, located in the Township of Salem, Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas Storage Field, located in the Townships of Casco, China, Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus, St. Clair, Michigan.

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VII.

GAS TRANSMISSION LINES

     All the gas transmission lines of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including gas mains, pipes, pipelines, gates, valves, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such transmission lines or any of them or adjacent thereto; together with all real property, right of way, easements, permits, privileges, franchises and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation.

VIII.

GAS DISTRIBUTION SYSTEMS

     All the gas distribution systems of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including tunnels, conduits, gas mains and pipes, service pipes, fittings, gates, valves, connections, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such distribution systems or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises, grants and rights, for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation.

IX.

OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

     All office, garage, service and other buildings of the Company, wherever located, in the State of Michigan, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, together with the land on which the same are situated and all easements, rights of way and appurtenances to said lands, together with all furniture and fixtures located in said buildings.

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X.

TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT

     All telephone lines, switchboards, systems and equipment of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, used or available for use in the operation of its properties, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such telephone properties or any of them or adjacent thereto; together with all real estate, rights of way, easements, permits, privileges, franchises, property, devices or rights related to the dispatch, transmission, reception or reproduction of messages, communications, intelligence, signals, light, vision or sound by electricity, wire or otherwise, including all telephone equipment installed in buildings used as general and regional offices, substations and generating stations and all telephone lines erected on towers and poles; and all radio communication equipment of the Company, together with all property, real or personal (except any in the Indenture expressly excepted), fixed stations, towers, auxiliary radio buildings and equipment, and all appurtenances used in connection therewith, wherever located, in the State of Michigan.

XI.

OTHER REAL PROPERTY

     All other real property of the Company and all interests therein, of every nature and description (except any in the Indenture expressly excepted) wherever located, in the State of Michigan, acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture. Such real property includes but is not limited to the following described property, such property is subject to any interests that were excepted or reserved in the conveyance to the Company:

ALCONA COUNTY

     Certain land in Caledonia Township, Alcona County, Michigan described as:

     The East 330 feet of the South 660 feet of the SW 1/4 of the SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South 330 feet thereof; said land being more particularly described as follows: To find the place of beginning of this description, commence at the Southwest corner of said section, run thence East along the South line of said section 1243 feet to the place of beginning of this description, thence continuing East along said South line of said section 66 feet to the West 1/8 line of

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said section, thence N 02 degrees 09’ 30” E along the said West 1/8 line of said section 660 feet, thence West 330 feet, thence S 02 degrees 09’ 30” W, 330 feet, thence East 264 feet, thence S 02 degrees 09’ 30” W, 330 feet to the place of beginning.

ALLEGAN COUNTY

     Certain land in Lee Township, Allegan County, Michigan described as:

          The NE 1/4 of the NW 1/4 of Section 16, TIN, R15W.

ALPENA COUNTY

     Certain land in Wilson and Green Townships, Alpena County, Michigan described as:

     All that part of the S’ly 1/2 of the former Boyne City-Gaylord and Alpena Railroad right of way, being the Southerly 50 feet of a 100 foot strip of land formerly occupied by said Railroad, running from the East line of Section 31, T31N, R7E, Southwesterly across said Section 31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2 of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

ANTRIM COUNTY

     Certain land in Mancelona Township, Antrim County, Michigan described as:

     The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting therefrom all mineral, coal, oil and gas and such other rights as were reserved unto the State of Michigan in that certain deed running from the State of Michigan to August W. Schack and Emma H. Schack, his wife, dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on page 682 of Antrim County Records.

ARENAC COUNTY

     Certain land in Standish Township, Arenac County, Michigan described as:

     A parcel of land in the SW 1/4 of the NW 1/4 of Section 12, T18N, R4E, described as follows: To find the place of beginning of said parcel of land, commence at the Northwest corner of Section 12, T18N, R4E; run thence South along the West line of said section, said West line of said section being also the center line of East City Limits Road 2642.15 feet to the W 1/4 post of said section and the place of beginning of said parcel of land; running thence N 88 degrees 26’ 00” E along the East and West 1/4 line of said section, 660.0 feet; thence North parallel with the West line of

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said section, 310.0 feet; thence S 88 degrees 26’ 00” W, 330.0 feet; thence South parallel with the West line of said section, 260.0 feet; thence S 88 degrees 26’ 00” W, 330.0 feet to the West line of said section and the center line of East City Limits Road; thence South along the said West line of said section, 50.0 feet to the place of beginning.

BARRY COUNTY

     Certain land in Johnstown Township, Barry County, Michigan described as:

     A strip of land 311 feet in width across the SW 1/4 of the NE 1/4 of Section 31, TIN, R8W, described as follows: To find the place of beginning of this description, commence at the E ¹/⁴ post of said section; run thence N 00 degrees 55’ 00” E along the East line of said section, 555.84 feet; thence N 59 degrees 36’ 20” W, 1375.64 feet; thence N 88 degrees 30’ 00” W, 130 feet to a point on the East 1/8 line of said section and the place of beginning of this description; thence continuing N 88 degrees 30’ 00” W, 1327.46 feet to the North and South 1/4 line of said section; thence S 00 degrees 39’35” W along said North and South 1/4 line of said section, 311.03 feet to a point, which said point is 952.72 feet distant N’ly from the East and West 1/4 line of said section as measured along said North and South 1/4 line of said section; thence S 88 degrees 30’ 00” E, 1326.76 feet to the East 1/8 line of said section; thence N 00 degrees 47’ 20” E along said East 1/8 line of said section, 311.02 feet to the place of beginning.

BAY COUNTY

     Certain land in Frankenlust Township, Bay County, Michigan described as:

     The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of the SE 1/4 of Section 9, T13N, R4E.

BENZIE COUNTY

     Certain land in Benzonia Township, Benzie County, Michigan described as:

     A parcel of land in the Northeast 1/4 of Section 7, Township 26 North, Range 14 West, described as beginning at a point on the East line of said Section 7, said point being 320 feet North measured along the East line of said section from the East 1/4 post; running thence West 165 feet; thence North parallel with the East line of said section 165 feet; thence East 165 feet to the East line of said section; thence South 165 feet to the place of beginning.

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BRANCH COUNTY

Certain land in Girard Township, Branch County, Michigan described as:

     A parcel of land in the NE 1/4 of Section 23 T5S, R6W, described as beginning at a point on the North and South quarter line of said section at a point 1278.27 feet distant South of the North quarter post of said section, said distance being measured along the North and South quarter line of said section, running thence S89 degrees21’E 250 feet, thence North along a line parallel with the said North and South quarter line of said section 200 feet, thence N89 degrees21’W 250 feet to the North and South quarter line of said section, thence South along said North and South quarter line of said section 200 feet to the place of beginning.

CALHOUN COUNTY

     Certain land in Convis Township, Calhoun County, Michigan described as:

     A parcel of land in the SE 1/4 of the SE 1/4 of Section 32, T1S, R6W, described as follows: To find the place of beginning of this description, commence at the Southeast corner of said section; run thence North along the East line of said section 1034.32 feet to the place of beginning of this description; running thence N 89 degrees 39’ 52” W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of said section; thence S 89 degrees 39’ 52” E along said South 1/8 line of said section 333.0 feet to the East line of said section; thence South along said East line of said section 290.0 feet to the place of beginning. (Bearings are based on the East line of Section 32, T1S, R6W, from the Southeast corner of said section to the Northeast corner of said section assumed as North.)

CASS COUNTY

     Certain easement rights located across land in Marcellus Township, Cass County, Michigan described as:

     The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S, R13W.

CHARLEVOIX COUNTY

     Certain land in South Arm Township, Charlevoix County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 29, T32N, R7W, described as follows: Beginning at the Southwest corner of said section and running thence North along the West line of said section 788.25 feet

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to a point which is 528 feet distant South of the South 1/8 line of said section as measured along the said West line of said section; thence N 89 degrees 30’ 19” E, parallel with said South 1/8 line of said section 442.1 feet; thence South 788.15 feet to the South line of said section; thence S 89 degrees 29’ 30” W, along said South line of said section 442.1 feet to the place of beginning.

CHEBOYGAN COUNTY

     Certain land in Inverness Township, Cheboygan County, Michigan described as:

     A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W, described as beginning at the Northwest corner of the SW frl 1/4, running thence East on the East and West quarter line of said Section, 40 rods, thence South parallel to the West line of said Section 40 rods, thence West 40 rods to the West line of said Section, thence North 40 rods to the place of beginning.

CLARE COUNTY

     Certain land in Frost Township, Clare County, Michigan described as:

     The East 150 feet of the North 225 feet of the NW 1/4 of the NW 1/4 of Section 15, T20N, R4W.

CLINTON COUNTY

     Certain land in Watertown Township, Clinton County, Michigan described as:

     The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22, T5N, R3W.

CRAWFORD COUNTY

     Certain land in Lovells Township, Crawford County, Michigan described as:

     A parcel of land in Section 1, T28N, R1W, described as: Commencing at NW corner said section; thence South 89 degrees53’30” East along North section line 105.78 feet to point of beginning; thence South 89 degrees53’30” East along North section line 649.64 feet; thence South 55 degrees 42’30” East 340.24 feet; thence South 55 degrees 44’

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37”“ East 5,061.81 feet to the East section line; thence South 00 degrees 00’ 08”“ West along East section line 441.59 feet; thence North 55 degrees 44’ 37” West 5,310.48 feet; thence North 55 degrees 42’30” West 877.76 feet to point of beginning.

EATON COUNTY

Certain land in Eaton Township, Eaton County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 6, T2N, R4W, described as follows: To find the place of beginning of this description commence at the Southwest corner of said section; run thence N 89 degrees 51’ 30” E along the South line of said section 400 feet to the place of beginning of this description; thence continuing N 89 degrees 51’ 30” E, 500 feet; thence N 00 degrees 50’ 00” W, 600 feet; thence S 89 degrees 51’ 30” W parallel with the South line of said section 500 feet; thence S 00 degrees 50’ 00” E, 600 feet to the place of beginning.

EMMET COUNTY

Certain land in Wawatam Township, Emmet County, Michigan described as:

     The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of Section 23, T39N, R4W.

GENESEE COUNTY

Certain land in Argentine Township, Genesee County, Michigan described as:

     A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E, being more particularly described as follows:

     Beginning at a point of the West line of Duffield Road, 100 feet wide, (as now established) distant 829.46 feet measured N01 degrees 42’56”W and 50 feet measured S88 degrees l4’04”W from the South quarter corner, Section 8, T5N, R5E; thence S88 degrees l4’04”W a distance of 550 feet; thence N01 degrees 42’56”W a distance of 500 feet to a point on the North line of the South half of the Southwest quarter of said Section 8; thence N88 degrees 14’04”E along the North line of South half of the Southwest quarter of said Section 8 a distance 550 feet to a point on the West line of Duffield Road, 100 feet wide (as now established); thence S01 degrees 42’56”E along the West line of said Duffield Road a distance of 500 feet to the point of beginning.

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GLADWIN COUNTY

     Certain land in Secord Township, Gladwin County, Michigan described as:

     The East 400 feet of the South 450 feet of Section 2, Tl9N, R1E.

GRAND TRAVERSE COUNTY

     Certain land in Mayfield Township, Grand Traverse County, Michigan described as:

     A parcel of land in the Northwest 1/4 of Section 3, T25N, R11W, described as follows: Commencing at the Northwest corner of said section, running thence S 89 degreesl9’ 15” E along the North line of said section and the center line of Clouss Road 225 feet, thence South 400 feet, thence N 89 degreesl9’l5” W 225 feet to the West line of said section and the center line of Hannah Road, thence North along the West line of said section and the center line of Hannah Road 400 feet to the place of beginning for this description.

GRATIOT COUNTY

     Certain land in Fulton Township, Gratiot County, Michigan described as:

     A parcel of land in the NE 1/4 of Section 7, Township 9 North, Range 3 West, described as beginning at a point on the North line of George Street in the Village of Middleton, which is 542 feet East of the North and South one-quarter (1/4) line of said Section 7; thence North 100 feet; thence East 100 feet; thence South 100 feet to the North line of George Street; thence West along the North line of George Street 100 feet to place of beginning.

HILLSDALE COUNTY

     Certain land in Litchfield Village, Hillsdale County, Michigan described as:

     Lot 238 of Assessors Plat of the Village of Litchfield.

HURON COUNTY

     Certain easement rights located across land in Sebewaing Township, Huron County, Michigan described as:

     The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

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INGHAM COUNTY

     Certain land in Vevay Township, Ingham County, Michigan described as:

     A parcel of land 660 feet wide in the Southwest 1/4 of Section 7 lying South of the centerline of Sitts Road as extended to the North-South 1/4 line of said Section 7, T2N, R1W, more particularly described as follows: Commence at the Southwest corner of said Section 7, thence North along the West line of said Section 2502.71 feet to the centerline of Sitts Road; thence South 89 degrees54’45” East along said centerline 2282.38 feet to the place of beginning of this description; thence continuing South 89 degrees54’45” East along said centerline and said centerline extended 660.00 feet to the North-South 1/4 line of said section; thence South 00 degrees07’20” West 1461.71 feet; thence North 89 degrees34’58” West 660.00 feet; thence North 00 degrees07’20” East 1457.91 feet to the centerline of Sitts Road and the place of beginning.

IONIA COUNTY

     Certain land in Sebewa Township, Ionia County, Michigan described as:

     A strip of land 280 feet wide across that part of the SW 1/4 of the NE 1/4 of Section 15, T5N, R6W, described as follows:

     To find the place of beginning of this description commence at the E 1/4 corner of said section; run thence N 00 degrees 05’ 38” W along the East line of said section, 1218.43 feet; thence S 67 degrees 18’ 24” W, 1424.45 feet to the East 1/8 line of said section and the place of beginning of this description; thence continuing S 67 degrees 18’ 24” W, 1426.28 feet to the North and South 1/4 line of said section at a point which said point is 105.82 feet distant N’ly of the center of said section as measured along said North and South 1/4 line of said section; thence N 00 degrees 04’ 47” E along said North and South 1/4 line of said section, 303.67 feet; thence N 67 degrees 18’ 24” E, 1425.78 feet to the East 1/8 line of said section; thence S 00 degrees 00’ 26” E along said East 1/8 line of said section, 303.48 feet to the place of beginning. (Bearings are based on the East line of Section 15, T5N, R6W, from the E 1/4 corner of said section to the Northeast corner of said section assumed as N 00 degrees 05’ 38” W.)

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IOSCO COUNTY

     Certain land in Alabaster Township, Iosco County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 34, T21N, R7E, described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence South along the North and South 1/4 line of said section, 1354.40 feet to the place of beginning of this description; thence continuing South along the said North and South 1/4 line of said section, 165.00 feet to a point on the said North and South 1/4 line of said section which said point is 1089.00 feet distant North of the center of said section; thence West 440.00 feet; thence North 165.00 feet; thence East 440.00 feet to the said North and South 1/4 line of said section and the place of beginning.

ISABELLA COUNTY

     Certain land in Chippewa Township, Isabella County, Michigan described as:

     The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29, T14N, R3W.

JACKSON COUNTY

     Certain land in Waterloo Township, Jackson County, Michigan described as:

     A parcel of land in the North fractional part of the N fractional 1/2 of Section 2, T1S, R2E, described as follows: To find the place of beginning of this description commence at the E 1/4 post of said section; run thence N 01 degrees 03’ 40” E along the East line of said section 1335.45 feet to the North 1/8 line of said section and the place of beginning of this description; thence N 89 degrees 32’ 00” W, 2677.7 feet to the North and South 1/4 line of said section; thence S 00 degrees 59’ 25” W along the North and South 1/4 line of said section 22.38 feet to the North 1/8 line of said section; thence S 89 degrees 59’ 10” W along the North 1/8 line of said section 2339.4 feet to the center line of State Trunkline Highway M-52; thence N 53 degrees 46’ 00” W along the center line of said State Trunkline Highway 414.22 feet to the West line of said section; thence N 00 degrees 55’ 10” E along the West line of said section 74.35 feet; thence S 89 degrees 32’ 00” E, 5356.02 feet to the East line of said section; thence S 01 degrees 03’ 40” W along the East line of said section 250 feet to the place of beginning.

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KALAMAZOO COUNTY

     Certain land in Alamo Township, Kalamazoo County, Michigan described as:

     The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16, T1S, R12W, being more particularly described as follows: To find the place of beginning of this description, commence at the Northwest corner of said section; run thence S 00 degrees 36’ 55” W along the West line of said section 971.02 feet to the place of beginning of this description; thence continuing S 00 degrees 36’ 55” W along said West line of said section 350.18 feet to the North 1/8 line of said section; thence S 87 degrees 33’ 40” E along the said North 1/8 line of said section 1325.1 feet to the West 1/8 line of said section; thence N 00 degrees 38’ 25” E along the said West 1/8 line of said section 350.17 feet; thence N 87 degrees 33’ 40” W, 1325.25 feet to the place of beginning.

KALKASKA COUNTY

     Certain land in Kalkaska Township, Kalkaska County, Michigan described as:

     The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting therefrom all mineral, coal, oil and gas and such other rights as were reserved unto the State of Michigan in that certain deed running from the Department of Conservation for the State of Michigan to George Welker and Mary Welker, his wife, dated October 9,1934 and recorded December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records, and subject to easement for pipeline purposes as granted to Michigan Consolidated Gas Company by first party herein on April 4, 1963 and recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County Records.

KENT COUNTY

     Certain land in Caledonia Township, Kent County, Michigan described as:

     A parcel of land in the Northwest fractional 1/4 of Section 15, T5N, R10W, described as follows: To find the place of beginning of this description commence at the North 1/4 corner of said section, run thence S 0 degrees 59’ 26” E along the North and South 1/4 line of said section 2046.25 feet to the place of beginning of this description, thence continuing S 0 degrees 59’ 26” E along said North and South 1/4 line of said section 332.88 feet, thence S 88 degrees 58’ 30” W 2510.90 feet to a point herein designated “Point A” on the East bank of the Thornapple River, thence continuing S 88 degrees 53’ 30” W to the center thread of the Thornapple River, thence NW’ly along the center thread of said

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Thornapple River to a point which said point is S 88 degrees 58’ 30” W of a point on the East bank of the Thornapple River herein designated “Point B”, said “Point B” being N 23 degrees 41’ 35” W 360.75 feet from said above-described “Point A”, thence N 88 degrees 58’ 30” E to said “Point B”, thence continuing N 88 degrees 58’ 30” E 2650.13 feet to the place of beginning. (Bearings are based on the East line of Section 15, T5N, R10W between the East 1/4 corner of said section and the Northeast corner of said section assumed as N 0 degrees 59’ 55” W.)

LAKE COUNTY

     Certain land in Pinora and Cherry Valley Townships, Lake County, Michigan described as:

     A strip of land 50 feet wide East and West along and adjoining the West line of highway on the East side of the North 1/2 of Section 13 T18N, R12W. Also a strip of land 100 feet wide East and West along and adjoining the East line of the highway on the West side of following described land: The South 1/2 of NW 1/4, and the South 1/2 of the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

LAPEER COUNTY

     Certain land in Hadley Township, Lapeer County, Michigan described as:

     The South 825 feet of the W 1/2 of the SW 1/4 of Section 24, T6N, R9E, except the West 1064 feet thereof.

LEELANAU COUNTY

     Certain land in Cleveland Township, Leelanau County, Michigan described as:

     The North 200 feet of the West 180 feet of the SW 1/4 of the SE 1/4 of Section 35, T29N, R13W.

LENAWEE COUNTY

     Certain land in Madison Township, Lenawee County, Michigan described as:

     A strip of land 165 feet wide off the West side of the following described premises: The E 1/2 of the SE 1/4 of Section 12. The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13, being all in T7S, R3E, excepting therefrom a parcel of land in the E 1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest corner of said E 1/2 of

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the SE 1/4 of Section 12, running thence East 4 rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to the place of beginning.

LIVINGSTON COUNTY

     Certain land in Cohoctah Township, Livingston County, Michigan described as:

          Parcel 1

     The East 390 feet of the East 50 rods of the SW 1/4 of Section 30, T4N, R4E.

          Parcel 2

     A parcel of land in the NW 1/4 of Section 31, T4N, R4E, described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence N 89 degrees 13’ 06” W along the North line of said section, 330 feet to the place of beginning of this description; running thence S 00 degrees 52’ 49” W, 2167.87 feet; thence N 88 degrees 59’ 49” W, 60 feet; thence N 00 degrees 52’ 49” E, 2167.66 feet to the North line of said section; thence S 89 degrees 13’ 06” E along said North line of said section, 60 feet to the place of beginning.

MACOMB COUNTY

     Certain land in Macomb Township, Macomb County, Michigan described as:

     A parcel of land commencing on the West line of the E 1/2 of the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of said E 1/2 of the NW 1/4 of Section 6; thence South on said West line and the East line of A. Henry Kotner’s Hayes Road Subdivision #15, according to the recorded plat thereof, as recorded in Liber 24 of Plats, on page 7, 24.36 chains to the East and West 1/4 line of said Section 6; thence East on said East and West 1/4 line 8.93 chains; thence North parallel with the said West line of the E 1/2 of the NW 1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of beginning, all in T3N, R13E.

MANISTEE COUNTY

     Certain land in Manistee Township, Manistee County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 20, T22N, R16W, described as follows: To find the place of beginning of this description, commence at the Southwest corner of said section; run thence East along the South line of said section 832.2 feet to the place of beginning of this

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description; thence continuing East along said South line of said section 132 feet; thence North 198 feet; thence West 132 feet; thence South 198 feet to the place of beginning, excepting therefrom the South 2 rods thereof which was conveyed to Manistee Township for highway purposes by a Quitclaim Deed dated June 13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of Manistee County Records.

MASON COUNTY

     Certain land in Riverton Township, Mason County, Michigan described as:

          Parcel 1

     The South 10 acres of the West 20 acres of the S 1/2 of the NE 1/4 of Section 22, T17N, R17W.

     Parcel 2

     A parcel of land containing 4 acres of the West side of highway, said parcel of land being described as commencing 16 rods South of the Northwest corner of the NW 1/4 of the SW ¹/⁴ of Section 22, T17N, R17W, running thence South 64 rods, thence NE’ly and N’ly and NW’ly along the W’ly line of said highway to the place of beginning, together with any and all right, title, and interest of Howard C. Wicklund and Katherine E. Wicklund in and to that portion of the hereinbefore mentioned highway lying adjacent to the E’ly line of said above described land.

MECOSTA COUNTY

     Certain land in Wheatland Township, Mecosta County, Michigan described as:

     A parcel of land in the SW 1/4 of the SW 1/4 of Section 16, T14N, R7W, described as beginning at the Southwest corner of said section; thence East along the South line of Section 133 feet; thence North parallel to the West section line 133 feet; thence West 133 feet to the West line of said Section; thence South 133 feet to the place of beginning.

MIDLAND COUNTY

     Certain land in Ingersoll Township, Midland County, Michigan described as:

     The West 200 feet of the W 1/2 of the NE 1/4 of Section 4, T13N, R2E.

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MISSAUKEE COUNTY

Certain land in Norwich Township, Missaukee County, Michigan described as:

     A parcel of land in the NW 1/4 of the NW 1/4 of Section 16, T24N, R6W, described as follows: Commencing at the Northwest corner of said section, running thence N 89 degrees 01’ 45” E along the North line of said section 233.00 feet; thence South 233.00 feet; thence S 89 degrees 01’ 45” W, 233.00 feet to the West line of said section; thence North along said West line of said section 233.00 feet to the place of beginning. (Bearings are based on the West line of Section 16, T24N, R6W, between the Southwest and Northwest corners of said section assumed as North.)

MONROE COUNTY

Certain land in Whiteford Township, Monroe County, Michigan described as:

     A parcel of land in the SW1/4 of Section 20, T8S, R6E, described as follows: To find the place of beginning of this description commence at the S 1/4 post of said section; run thence West along the South line of said section 1269.89 feet to the place of beginning of this description; thence continuing West along said South line of said section 100 feet; thence N 00 degrees 50’ 35” E, 250 feet; thence East 100 feet; thence S 00 degrees 50’ 35” W parallel with and 16.5 feet distant W’ly of as measured perpendicular to the West 1/8 line of said section, as occupied, a distance of 250 feet to the place of beginning.

MONTCALM COUNTY

Certain land in Crystal Township, Montcalm County, Michigan described as:

     The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

MONTMORENCY COUNTY

Certain land in the Village of Hillman, Montmorency County, Michigan described as:

     Lot 14 of Hillman Industrial Park, being a subdivision in the South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to the plat thereof recorded in Liber 4 of Plats on Pages 32-34, Montmorency County Records.

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MUSKEGON COUNTY

     Certain land in Casnovia Township, Muskegon County, Michigan described as:

     The West 433 feet of the North 180 feet of the South 425 feet of the SW 1/4 of Section 3, T10N, R13W.

NEWAYGO COUNTY

Certain land in Ashland Township, Newaygo County, Michigan described as:

     The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

OAKLAND COUNTY

     Certain land in Wixcom City, Oakland County, Michigan described as:

     The E 75 feet of the N 160 feet of the N 330 feet of the W 526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more particularly described as follows: Commence at the NW corner of said Section 8, thence N 87 degrees 14’ 29” E along the North line of said Section 8 a distance of 451.84 feet to the place of beginning for this description; thence continuing N 87 degrees 14’ 29” E along said North section line a distance of 75.0 feet to the East line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02 degrees 37’ 09” E along said East line a distance of 160.0 feet; thence S 87 degrees 14’ 29” W a distance of 75.0 feet; thence N 02 degrees 37’ 09” W a distance of 160.0 feet to the place of beginning.

OCEANA COUNTY

     Certain land in Crystal Township, Oceana County, Michigan described as:

     The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290 feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

OGEMAW COUNTY

     Certain land in West Branch Township, Ogemaw County, Michigan described as:

     The South 660 feet of the East 660 feet of the NE 1/4 of the NE 1/4 of Section 33, T22N, R2E.

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OSCEOLA COUNTY

     Certain land in Hersey Township, Osceola County, Michigan described as:

     A parcel of land in the North 1/2 of the Northeast 1/4 of Section 13, T17N, R9W, described as commencing at the Northeast corner of said Section; thence West along the North Section line 999 feet to the point of beginning of this description; thence S 01 degrees 54’ 20” E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17’ 05” W along the North 1/8 line 330.89 feet; thence N 01 degrees 54’ 20” W 1331.26 feet to the North Section line; thence East along the North Section line 331 feet to the point of beginning.

OSCODA COUNTY

     Certain land in Comins Township, Oscoda County, Michigan described as:

     The East 400 feet of the South 580 feet of the W 1/2 of the SW 1/4 of Section 15, T27N, R3E.

OTSEGO COUNTY

     Certain land in Corwith Township, Otsego County, Michigan described as:

     Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W, described as: Beginning at the N 1/4 corner of said section; running thence S 89 degrees 04’ 06” E along the North line of said section, 330.00 feet; thence S 00 degrees 28’ 43” E, 400.00 feet; thence N 89 degrees 04’ 06” W, 330.00 feet to the North and South 1/4 line of said section; thence N 00 degrees 28’ 43” W along the said North and South 1/4 line of said section, 400.00 feet to the point of beginning; subject to the use of the N’ly 33.00 feet thereof for highway purposes.

OTTAWA COUNTY

     Certain land in Robinson Township, Ottawa County, Michigan described as:

     The North 660 feet of the West 660 feet of the NE 1/4 of the NW 1/4 of Section 26, T7N, R15W.

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PRESQUE ISLE COUNTY

     Certain land in Belknap and Pulawski Townships, Presque Isle County, Michigan described as:

     Part of the South half of the Northeast quarter, Section 24, T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E, more fully described as: Commencing at the East ¹/⁴ corner of said Section 24; thence N 00 degrees l5’47” E, 507.42 feet, along the East line of said Section 24 to the point of beginning; thence S 88 degrees l5’36” W, 400.00 feet, parallel with the North 1/8 line of said Section 24; thence N 00 degrees l5’47” E, 800.00 feet, parallel with said East line of Section 24; thence N 88 degrees l5’36”E, 800.00 feet, along said North 1/8 line of Section 24 and said line extended; thence S 00 degrees 15’47” W, 800.00 feet, parallel with said East line of Section 24; thence S 88 degrees l5’36” W, 400.00 feet, parallel with said North 1/8 line of Section 24 to the point of beginning.

     Together with a 33 foot easement along the West 33 feet of the Northwest quarter lying North of the North 1/8 line of Section 24, Belknap Township, extended, in Section 19, T34N, R6E.

ROSCOMMON COUNTY

     Certain land in Gerrish Township, Roscommon County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 19, T24N, R3W, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section, run thence East along the North line of said section 1,163.2 feet to the place of beginning of this description (said point also being the place of intersection of the West 1/8 line of said section with the North line of said section), thence S 01 degrees 01’ E along said West 1/8 line 132 feet, thence West parallel with the North line of said section 132 feet, thence N 01 degrees 01’ W parallel with said West 1/8 line of said section 132 feet to the North line of said section, thence East along the North line of said section 132 feet to the place of beginning.

SAGINAW COUNTY

     Certain land in Chapin Township, Saginaw County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 13, T9N, R1E, described as follows: To find the place of beginning of this description commence at the Southwest corner of said section; run thence North along the West line

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of said section 1581.4 feet to the place of beginning of this description; thence continuing North along said West line of said section 230 feet to the center line of a creek; thence S 70 degrees 07’ 00” E along said center line of said creek 196.78 feet; thence South 163.13 feet; thence West 185 feet to the West line of said section and the place of beginning.

SANILAC COUNTY

     Certain easement rights located across land in Minden Township, Sanilac County, Michigan described as:

     The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N, R14E, excepting therefrom the South 83 feet of the East 83 feet thereof.

SHIAWASSEE COUNTY

     Certain land in Burns Township, Shiawassee County, Michigan described as:

     The South 330 feet of the E 1/2 of the NE 1/4 of Section 36, T5N, R4E.

ST. CLAIR COUNTY

     Certain land in Ira Township, St. Clair County, Michigan described as:

     The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

ST. JOSEPH COUNTY

     Certain land in Mendon Township, St. Joseph County, Michigan described as:

     The North 660 feet of the West 660 feet of the NW 1/4 of SW 1/4, Section 35, T5S, R10W.

TUSCOLA COUNTY

     Certain land in Millington Township, Tuscola County, Michigan described as:

     A strip of land 280 feet wide across the East 96 rods of the South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more particularly described as commencing at the Northeast corner of Section 3, T9N, R8E, thence S 89 degrees 55’ 35” W along the South line of said Section 34 a distance of 329.65 feet, thence N 18 degrees 11’ 50” W a distance of 1398.67 feet to the South 1/8 line of said Section 34 and the place of beginning for this description; thence continuing N 18 degrees

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11’ 50” W a distance of 349.91 feet; thence N 89 degrees 57’ 01” W a distance of 294.80 feet; thence S 18 degrees 11’ 50” E a distance of 350.04 feet to the South 1/8 line of said Section 34; thence S 89 degrees 58’ 29” E along the South 1/8 line of said section a distance of 294.76 feet to the place of beginning.

VAN BUREN COUNTY

     Certain land in Covert Township, Van Buren County, Michigan described as:

     All that part of the West 20 acres of the N 1/2 of the NE fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the North 80 rods, being more particularly described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence N 89 degrees 29’ 20” E along the North line of said section 280.5 feet to the place of beginning of this description; thence continuing N 89 degrees 29’ 20” E along said North line of said section 288.29 feet; thence S 00 degrees 44’ 00” E, 1531.92 feet; thence S 89 degrees 33’ 30” W, 568.79 feet to the North and South 1/4 line of said section; thence N 00 degrees 44’ 00” W along said North and South 1/4 line of said section 211.4 feet; thence N 89 degrees 29’ 20” E, 280.5 feet; thence N 00 degrees 44’ 00” W, 1320 feet to the North line of said section and the place of beginning.

WASHTENAW COUNTY

     Certain land in Manchester Township, Washtenaw County, Michigan described as:

     A parcel of land in the NE 1/4 of the NW 1/4 of Section 1, T4S, R3E, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section; run thence East along the North line of said section 1355.07 feet to the West 1/8 line of said section; thence S 00 degrees 22’ 20” E along said West 1/8 line of said section 927.66 feet to the place of beginning of this description; thence continuing S 00 degrees 22’ 20” E along said West 1/8 line of said section 660 feet to the North 1/8 line of said section; thence N 86 degrees 36’ 57” E along said North 1/8 line of said section 660.91 feet; thence N 00 degrees22’ 20” W, 660 feet; thence S 86 degrees 36’ 57” W, 660.91 feet to the place of beginning.

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WAYNE COUNTY

     Certain land in Livonia City, Wayne County, Michigan described as:

     Commencing at the Southeast corner of Section 6, T1S, R9E; thence North along the East line of Section 6 a distance of 253 feet to the point of beginning; thence continuing North along the East line of Section 6 a distance of 50 feet; thence Westerly parallel to the South line of Section 6, a distance of 215 feet; thence Southerly parallel to the East line of Section 6 a distance of 50 feet; thence easterly parallel with the South line of Section 6 a distance of 215 feet to the point of beginning.

WEXFORD COUNTY

     Certain land in Selma Township, Wexford County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 7, T22N, R10W, described as beginning on the North line of said section at a point 200 feet East of the West line of said section, running thence East along said North section line 450 feet, thence South parallel with said West section line 350 feet, thence West parallel with said North section line 450 feet, thence North parallel with said West section line 350 feet to the place of beginning.

     SECTION 12. The Company is a transmitting utility under Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in M.C.L. 440.9102(l)(aaaa).

     IN WITNESS WHEREOF, said Consumers Energy Company has caused this Supplemental Indenture to be executed in its corporate name by its Chairman of the Board, President, a Vice President or its Treasurer and its corporate seal to be hereunto affixed and to be attested by its Secretary or an Assistant Secretary, and The Bank of New York, as Trustee as aforesaid, to evidence its acceptance hereof, has caused this Supplemental Indenture to be executed in its corporate name by a Vice President and its corporate seal to be hereunto affixed and to be attested by an Assistant Treasurer, in several counterparts, all as of the day and year first above written.

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	CONSUMERS ENERGY COMPANY
(SEAL)	By	/s/ Laura L. Mountcastle
Attest:		Laura L. Mountcastle Vice President and Treasurer
/s/ Joyce H. Norkey
Joyce H. Norkey Assistant Secretary
Signed, sealed and delivered by CONSUMERS ENERGY COMPANY in the presence of
/s/ Kimberly C. Wilson
Kimberly C. Wilson
/s/ Sharon K. Davis
Sharon K. Davis

STATE OF MICHIGAN	)
		ss.
COUNTY OF JACKSON	)

          The foregoing instrument was acknowledged before me this 30th day of November, 2007, by Laura L. Mountcastle, Vice President and Treasurer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

	/s/ Margaret Hillman
[SEAL]	Margaret Hillman, Notary Public State of Michigan, County of Jackson My Commission Expires: 06/14/10 Acting in the County of Jackson

S-1

	THE BANK OF NEW YORK, AS TRUSTEE
(SEAL)	By	/s/ L. O’Brein
Attest:		L. O’Brein Vice President
/s/ Ignazio Tamburello
Ignazio Tamburello
Signed, sealed and delivered by THE BANK OF NEW YORK in the presence of
/s/ Francine Kincaid
Francine Kincaid
/s/ Guy Marzella
Guy Marzella

STATE OF NEW YORK	)
		ss.
COUNTY OF NEW YORK	)

          The foregoing instrument was acknowledged before me this 3rd day of December, 2007, by L. O’Brien, a Vice President of THE BANK OF NEW YORK, a New York banking corporation, on behalf of the bank, as trustee.

	/s/ Gerold Picard
	Gerold Picard, Notary Public
[Seal]	New York County, New York My Commission Expires:
	GEROLD PICARD Notary Public, State of New York No. 01P16128836 Qualified in Nassau County Commission Expires June 20, 2009
Prepared by: Kimberly C. Wilson One Energy Plaza Jackson, MI 49201	When recorded, return to: Consumers Energy Company Business Services Real Estate Dept. Attn: Tracy VanWoert EP7-438
	One Energy Plaza Jackson, MI 49201

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EX-4.(B)

EXHIBIT 4(b)

ONE HUNDRED FIFTH SUPPLEMENTAL INDENTURE

Providing among other things for

FIRST MORTGAGE BONDS,

2007-1 Collateral Series (Interest Bearing)

Dated as of March 30, 2007

CONSUMERS ENERGY COMPANY

TO

THE BANK OF NEW YORK,

TRUSTEE

Counterpart 77 of 80

     THIS ONE HUNDRED FIFTH SUPPLEMENTAL INDENTURE, dated as of March 30, 2007 (herein sometimes referred to as “this Supplemental Indenture”), made and entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized and existing under the laws of the State of Michigan, with its principal executive office and place of business at One Energy Plaza, in Jackson, Jackson County, Michigan 49201, formerly known as Consumers Power Company (hereinafter sometimes referred to as the “Company”), and THE BANK OF NEW YORK, a New York banking corporation, with its corporate trust offices at 101 Barclay St., New York, New York 10286 (hereinafter sometimes referred to as the “Trustee”), as Trustee under the Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine corporation (hereinafter sometimes referred to as the “Maine corporation”), and City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter sometimes referred to as the “Predecessor Trustee”), securing bonds issued and to be issued as provided therein (hereinafter sometimes referred to as the “Indenture”),

     WHEREAS at the close of business on January 30, 1959, City Bank Farmers Trust Company was converted into a national banking association under the title “First National City Trust Company”; and

     WHEREAS at the close of business on January 15, 1963, First National City Trust Company was merged into First National City Bank; and

     WHEREAS at the close of business on October 31, 1968, First National City Bank was merged into The City Bank of New York, National Association, the name of which was thereupon changed to First National City Bank; and

     WHEREAS effective March 1, 1976, the name of First National City Bank was changed to Citibank, N.A.; and

     WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company succeeded Citibank, N.A. as Trustee under the Indenture; and

     WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to Manufacturers Hanover Trust Company as Trustee under the Indenture; and

     WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National Association), merged with and into Chemical Bank which thereafter was renamed The Chase Manhattan Bank; and

     WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged with Morgan Guaranty Trust Company of New York and the surviving corporation was renamed JPMorgan Chase Bank; and

     WHEREAS, effective November 13, 2004, the name of JPMorgan Chase Bank was changed to JPMorgan Chase Bank, N.A.; and

     WHEREAS, effective October 2, 2006, The Bank of New York assumed the rights and obligations of JPMorgan Chase Bank, N.A. under the Indenture; and

     WHEREAS the Indenture was executed and delivered for the purpose of securing such bonds as may from time to time be issued under and in accordance with the terms of the Indenture, the aggregate principal amount of bonds to be secured thereby being limited to $5,000,000,000 at any one time outstanding (except as provided in Section 2.01 of the Indenture), and the Indenture describes and sets forth the property conveyed thereby and is filed in the Office of the Secretary of State of the State of Michigan and is of record in the Office of the Register of Deeds of each county in the State of Michigan in which this Supplemental Indenture is to be recorded; and

     WHEREAS the Indenture has been supplemented and amended by various indentures supplemental thereto, each of which is filed in the Office of the Secretary of State of the State of Michigan and is of record in the Office of the Register of Deeds of each county in the State of Michigan in which this Supplemental Indenture is to be recorded; and

     WHEREAS the Company and the Maine corporation entered into an Agreement of Merger and Consolidation, dated as of February 14, 1968, which provided for the Maine corporation to merge into the Company; and

     WHEREAS the effective date of such Agreement of Merger and Consolidation was June 6, 1968, upon which date the Maine corporation was merged into the Company and the name of the Company was changed from “Consumers Power Company of Michigan” to “Consumers Power Company”; and

     WHEREAS the Company and the Predecessor Trustee entered into a Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided, among other things, for the assumption of the Indenture by the Company; and

     WHEREAS said Sixteenth Supplemental Indenture became effective on the effective date of such Agreement of Merger and Consolidation; and

     WHEREAS the Company has succeeded to and has been substituted for the Maine corporation under the Indenture with the same effect as if it had been named therein as the mortgagor corporation; and

     WHEREAS effective March 11, 1997, the name of Consumers Power Company was changed to Consumers Energy Company; and

     WHEREAS, the Company has entered into a Fourth Amended and Restated Credit Agreement dated as of March 30,2007 (as amended or otherwise modified from time to time, the “Credit Agreement”) with various financial institutions and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Agent”) for the Banks (as such term is defined in the Credit Agreement), providing for the making of certain financial accommodations thereunder, and pursuant to such Credit Agreement the Company has agreed to issue to the Agent, as evidence of and security for the Obligations (as such term is defined in the Credit Agreement), a new series of bonds under the Indenture; and

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     WHEREAS, for such purposes the Company desires to issue a new series of bonds, to be designated First Mortgage Bonds, 2007-1 Collateral Series (Interest Bearing), each of which bonds shall also bear the descriptive title “First Mortgage Bond” (hereinafter provided for and hereinafter sometimes referred to as the “2007-1 Collateral Bonds”), the bonds of which series are to be issued as registered bonds without coupons and are to bear interest at the rate per annum specified herein and are to mature on the Termination Date (as such term is defined in the Credit Agreement); and

     WHEREAS, each of the registered bonds without coupons of the 2007-1 Collateral Bonds and the Trustee’s Authentication Certificate thereon are to be substantially in the following form, to wit:

[FORM OF REGISTERED BOND

OF THE 2007-1 COLLATERAL BONDS]

[FACE]

CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2007-1 COLLATERAL SERIES (INTEREST BEARING)

No. 1 $500,000,000

     CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the “Company”), for value received, hereby promises to pay to JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Agent”) for the Banks under and as defined in the Fourth Amended and Restated Credit Agreement dated as of March 30, 2007 among the Company, the Banks and the Agent (as amended or otherwise modified from time to time, the “Credit Agreement”), or registered assigns, the principal sum of Five Hundred Million Dollars ($500,000,000) or such lesser principal amount as shall be equal to the aggregate principal amount of the Loans (as defined in the Credit Agreement) and Reimbursement Obligations (as defined in the Credit Agreement) included in the Obligations (as defined in the Credit Agreement) outstanding on the Termination Date (as defined in the Credit Agreement) (the “Maturity Date”), but not in excess, however, of the principal amount of this bond, and to pay interest thereon at the Interest Rate (as defined below) until the principal hereof is paid or duly made available for payment on the Maturity Date, or, in the event of redemption of this bond, until the redemption date, or, in the event of default in the payment of the principal hereof, until the Company’s obligations with respect to the payment of such principal shall be discharged as provided in the Indenture (as defined on the reverse hereof). Interest on this bond shall be payable on each Interest Payment Date (as defined below), commencing on the first Interest Payment Date next succeeding March 30, 2007. If the Maturity Date falls on a day which is not a Business Day, as defined below, principal and any interest and/or fees payable with respect to the Maturity Date will be paid on the immediately preceding Business Day. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions, be paid to the person in whose name this bond (or one or more predecessor

3

bonds) is registered at the close of business on the Record Date (as defined below); provided, however, that interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. Should the Company default in the payment of interest (“Defaulted Interest”), the Defaulted Interest shall be paid to the person in whose name this bond (or one or more predecessor bonds) is registered on a subsequent record date fixed by the Company, which subsequent record date shall be fifteen (15) days prior to the payment of such Defaulted Interest. As used herein, (A) “Business Day” shall mean any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system; (B) “Interest Payment Date” shall mean each date on which Obligations constituting interest and/or fees are due and payable from time to time pursuant to the Credit Agreement; (C) “Interest Rate” shall mean a rate of interest per annum, adjusted as necessary, to result in an interest payment equal to the aggregate amount of Obligations constituting interest and fees due under the Credit Agreement on the applicable Interest Payment Date; and (D) “Record Date” with respect to any Interest Payment Date shall mean the day (whether or not a Business Day) immediately next preceding such Interest Payment Date.

     Payment of the principal of and interest on this bond will be made in immediately available funds at the office or agency of the Company maintained for that purpose in the City of Jackson, Michigan, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.

     This bond shall not be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee or its successor in trust under the Indenture of the certificate hereon.

          IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be executed in its name by its Chairman of the Board, its President or one of its Vice Presidents by his or her signature or a facsimile thereof, and its corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries by his or her signature or a facsimile thereof. CONSUMERS ENERGY COMPANY

Dated:

SPECIMEN	By
		Printed
		Title

SPECIMEN

Attest: ___________________________

4

TRUSTEE’S AUTHENTICATION CERTIFICATE

     This is one of the bonds, of the series designated therein, described in the within-mentioned Indenture.

	THE BANK OF NEW YORK Trustee
SPECIMEN	By
		Authorized Officer

[REVERSE]

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND
2007-1 COLLATERAL SERIES (INTEREST BEARING)

     This bond is one of the bonds of a series designated as First Mortgage Bonds, 2007-1 Collateral Series (Interest Bearing) (sometimes herein referred to as the “2007-1 Collateral Bonds”) issued under and in accordance with and secured by an Indenture dated as of September 1, 1945, given by the Company (or its predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers Trust Company (The Bank of New York, successor) (hereinafter sometimes referred to as the “Trustee”), together with indentures supplemental thereto, heretofore or hereafter executed, to which indenture and indentures supplemental thereto (hereinafter referred to collectively as the “Indenture”) reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights, duties and immunities thereunder of the Trustee and the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the limitations on such rights. By the terms of the Indenture, the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest and in other respects as provided in the Indenture.

     The 2007-1 Collateral Bonds are to be issued and delivered to the Agent in order to evidence and secure the obligation of the Company under the Credit Agreement to make payments to the Banks under the Credit Agreement and to provide the Banks the benefit of the lien of the Indenture with respect to the 2007-1 Collateral Bonds.

     The obligation of the Company to make payments with respect to the principal of 2007-1 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due principal of the Loans and/or the Reimbursement Obligations included in the Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to

5

the Loans and/or the Reimbursement Obligations means that if any payment is made on the principal of the Loans and/or the Reimbursement Obligations, a corresponding payment obligation with respect to the principal of the 2007-1 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Loans and/or the Reimbursement Obligations discharges the outstanding obligation with respect to such Loans and/or Reimbursement Obligations. No such payment of principal shall reduce the principal amount of the 2007-1 Collateral Bonds.

     The obligation of the Company to make payments with respect to the interest on 2007-1 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Credit Agreement shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Credit Agreement means that if any payment is made on the interest and/or fees under the Credit Agreement, a corresponding payment obligation with respect to the interest on the 2007-1 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Loans and/or the Reimbursement Obligations discharges the outstanding obligation with respect to such Loans and/or Reimbursement Obligations.

     The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on this bond, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2007-1 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Agent in connection with the Obligations pursuant to the Credit Agreement, and (iii) the amount of the arrearage.

     If an Event of Default (as defined in the Credit Agreement) with respect to the payment of the principal of the Loans and/or the Reimbursement Obligations shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the principal of the 2007-1 Collateral Bonds equal to the amount of such unpaid principal or Reimbursement Obligations (but in no event in excess of the principal amount of the 2007-1 Collateral Bonds). If an Event of Default (as defined in the Credit Agreement) with respect to the payment of interest on the Loans and/or the Reimbursement Obligations or any fees shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the interest on the 2007-1 Collateral Bonds equal to the amount of such unpaid interest or fees.

     This bond is not redeemable except upon written demand of the Agent following the occurrence of an Event of Default under the Credit Agreement and the acceleration of the Obligations, as provided in Section 9.2 of the Credit Agreement. This bond is not redeemable by the operation of the improvement fund or the maintenance and replacement provisions of the Indenture or with the proceeds of released property.

     In case of certain defaults as specified in the Indenture, the principal of this bond may be declared or may become due and payable on the conditions, at the time, in the manner and with

6

the effect provided in the Indenture. The holders of certain specified percentages of the bonds at the time outstanding, including in certain cases specified percentages of bonds of particular series, may in certain cases, to the extent and as provided in the Indenture, waive certain defaults thereunder and the consequences of such defaults.

     The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than seventy-five per centum in principal amount of the bonds (exclusive of bonds disqualified by reason of the Company’s interest therein) at the time outstanding, including, if more than one series of bonds shall be at the time outstanding, not less than sixty per centum in principal amount of each series affected, to effect, by an indenture supplemental to the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and the rights of the holders of the bonds and coupons; provided, however, that no such modification or alteration shall be made without the written approval or consent of the holder hereof which will (a) extend the maturity of this bond or reduce the rate or extend the time of payment of interest hereon or reduce the amount of the principal hereof, or (b) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce the percentage of the principal amount of the bonds the holders of which are required to approve any such supplemental indenture.

     The Company reserves the right, without any consent, vote or other action by holders of the 2007-1 Collateral Bonds or any other series created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to reduce the percentage of the principal amount of bonds the holders of which are required to approve any supplemental indenture (other than any supplemental indenture which is subject to the proviso contained in the immediately preceding sentence) (a) from not less than seventy-five per centum (including sixty per centum of each series affected) to not less than a majority in principal amount of the bonds at the time outstanding or (b) in case fewer than all series are affected, not less than a majority in principal amount of the bonds of all affected series, voting together.

     No recourse shall be had for the payment of the principal of or interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, director or officer, past, present or future, as such, of the Company, or of any predecessor or successor company, either directly or through the Company, or such predecessor or successor company, or otherwise, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers, as such, being waived and released by the holder and owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture.

     This bond shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

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     The Agent shall surrender this bond to the Trustee when all of the principal of and interest on the Loans and Reimbursement Obligations arising under the Credit Agreement, and all of the fees payable pursuant to the Credit Agreement with respect to the Obligations shall have been duly paid, and the Credit Agreement shall have been terminated.

[END OF FORM OF REGISTERED BOND

OF THE 2007-1 COLLATERAL BONDS]

     AND WHEREAS all acts and things necessary to make the 2007-1 Collateral Bonds (the “Collateral Bonds”), when duly executed by the Company and authenticated by the Trustee or its agent and issued as prescribed in the Indenture, as heretofore supplemented and amended, and this Supplemental Indenture provided, the valid, binding and legal obligations of the Company, and to constitute the Indenture, as supplemented and amended as aforesaid, as well as by this Supplemental Indenture, a valid, binding and legal instrument for the security thereof, have been done and performed, and the creation, execution and delivery of this Supplemental Indenture and the creation, execution and issuance of bonds subject to the terms hereof and of the Indenture, as so supplemented and amended, have in all respects been duly authorized;

     NOW, THEREFORE, in consideration of the premises, of the acceptance and purchase by the holders thereof of the bonds issued and to be issued under the Indenture, as supplemented and amended as above set forth, and of the sum of One Dollar duly paid by the Trustee to the Company, and of other good and valuable considerations, the receipt whereof is hereby acknowledged, and for the purpose of securing the due and punctual payment of the principal of and premium, if any, and interest on all bonds now outstanding under the Indenture and the $500,000,000 principal amount of the Collateral Bonds and all other bonds which shall be issued under the Indenture, as supplemented and amended from time to time, and for the purpose of securing the faithful performance and observance of all covenants and conditions therein, and in any indenture supplemental thereto, set forth, the Company has given, granted, bargained, sold, released, transferred, assigned, hypothecated, pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and by these presents does give, grant, bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto The Bank of New York, as Trustee, as provided in the Indenture, and its successor or successors in the trust thereby and hereby created and to its or their assigns forever, all the right, title and interest of the Company in and to all the property, described in Section 11 hereof, together (subject to the provisions of Article X of the Indenture) with the tolls, rents, revenues, issues, earnings, income, products and profits thereof, excepting, however, the property, interests and rights specifically excepted from the lien of the Indenture as set forth in the Indenture.

     TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in any wise appertaining to the premises, property, franchises and rights, or any thereof, referred to in the foregoing granting clause, with the reversion and reversions, remainder and remainders and (subject to the provisions of Article X of the Indenture) the tolls, rents, revenues, issues, earnings, income, products and profits thereof, and all the estate, right, title and

8

interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid premises, property, franchises and rights and every part and parcel thereof.

     SUBJECT, HOWEVER, with respect to such premises, property, franchises and rights, to excepted encumbrances as said term is defined in Section 1.02 of the Indenture, and subject also to all defects and limitations of title and to all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all said premises, property, franchises and rights hereby conveyed, assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its successor or successors in trust and their assigns forever;

     BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and proportionate benefit and security of the holders of all bonds now or hereafter authenticated and delivered under and secured by the Indenture and interest coupons appurtenant thereto, pursuant to the provisions of the Indenture and of any supplemental indenture, and for the enforcement of the payment of said bonds and coupons when payable and the performance of and compliance with the covenants and conditions of the Indenture and of any supplemental indenture, without any preference, distinction or priority as to lien or otherwise of any bond or bonds over others by reason of the difference in time of the actual authentication, delivery, issue, sale or negotiation thereof or for any other reason whatsoever, except as otherwise expressly provided in the Indenture; and so that each and every bond now or hereafter authenticated and delivered thereunder shall have the same lien, and so that the principal of and premium, if any, and interest on every such bond shall, subject to the terms thereof, be equally and proportionately secured, as if it had been made, executed, authenticated, delivered, sold and negotiated simultaneously with the execution and delivery thereof.

     AND IT IS EXPRESSLY DECLARED by the Company that all bonds authenticated and delivered under and secured by the Indenture, as supplemented and amended as above set forth, are to be issued, authenticated and delivered, and all said premises, property, franchises and rights hereby and by the Indenture and indentures supplemental thereto conveyed, assigned, pledged or mortgaged, or intended so to be, are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes expressed in the Indenture, as supplemented and amended as above set forth, and the parties hereto mutually agree as follows:

     SECTION 1. There is hereby created a series of bonds (the “2007-1 Collateral Bonds”) designated as hereinabove provided, which shall also bear the descriptive title “First Mortgage Bond”, and the forms thereof shall be substantially as hereinbefore set forth (collectively, the “Sample Bond”). The 2007-1 Collateral Bonds shall be issued in the aggregate principal amount of $500,000,000, shall mature on the Termination Date (as such term is defined in the Credit Agreement) and shall be issued only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The serial numbers of the Collateral Bonds shall be such as may be approved by any officer of the Company, the execution thereof by any such officer either manually or by facsimile signature to be conclusive evidence of such approval. The Collateral Bonds are to be issued to and registered in the name of the Agent under the Credit Agreement (as

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such terms are defined in the Sample Bonds) to evidence and secure any and all Obligations (as such term is defined in the Credit Agreement) of the Company under the Credit Agreement.

     The 2007-1 Collateral Bonds shall bear interest as set forth in the Sample Bond. The principal of and the interest on said bonds shall be payable as set forth in the Sample Bond.

     The obligation of the Company to make payments with respect to the principal of 2007-1 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due principal of the Loans and/or the Reimbursement Obligations included in the Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Loans and/or the Reimbursement Obligations means that if any payment is made on the principal of the Loans and/or the Reimbursement Obligations, a corresponding payment obligation with respect to the principal of the 2007-1 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Loans and/or the Reimbursement Obligations discharges the outstanding obligation with respect to such Loans and/or Reimbursement Obligations. No such payment of principal shall reduce the principal amount of the 2007-1 Collateral Bonds.

     The obligation of the Company to make payments with respect to interest on 2007-1 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Credit Agreement shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Credit Agreement means that if any payment is made on the interest and/or fees under the Credit Agreement, a corresponding payment obligation with respect to the interest on the 2007-1 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees discharges the outstanding obligation with respect to such interest and/or fees.

     The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on the Collateral Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2007-1 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Agent pursuant to the Credit Agreement, and (iii) the amount of the arrearage.

     The Collateral Bonds shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

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     SECTION 2. The Collateral Bonds are not redeemable by the operation of the maintenance and replacement provisions of this Indenture or with the proceeds of released property.

     SECTION 3. Upon the occurrence of an Event of Default under the Credit Agreement and the acceleration of the Obligations, the Collateral Bonds shall be redeemable in whole upon receipt by the Trustee of a written demand from the Agent stating that there has occurred under the Credit Agreement both an Event of Default and a declaration of acceleration of the Obligations and demanding redemption of the Collateral Bonds (including a description of the amount of principal, interest and fees which comprise such Obligations). The Company waives any right it may have to prior notice of such redemption under the Indenture. Upon surrender of the Collateral Bonds by the Agent to the Trustee, the Collateral Bonds shall be redeemed at a redemption price equal to the aggregate amount of the Obligations.

     SECTION 4. The Company reserves the right, without any consent, vote or other action by the holder of the Collateral Bonds or of any subsequent series of bonds issued under the Indenture, to make such amendments to the Indenture, as supplemented, as shall be necessary in order to amend Section 17.02 to read as follows:

     SECTION 17.02. With the consent of the holders of not less than a majority in principal amount of the bonds at the time outstanding or their attorneys-in-fact duly authorized, or, if fewer than all series are affected, not less than a majority in principal amount of the bonds at the time outstanding of each series the rights of the holders of which are affected, voting together, the Company, when authorized by a resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or modifying the rights and obligations of the Company and the rights of the holders of any of the bonds and coupons; provided, however, that no such supplemental indenture shall (1) extend the maturity of any of the bonds or reduce the rate or extend the time of payment of interest thereon, or reduce the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the holder of each bond so affected, or (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of this Indenture, without the consent of the holders of all the bonds then outstanding, or (3) reduce the aforesaid percentage of the principal amount of bonds the holders of which are required to approve any such supplemental indenture, without the consent of the holders of all the bonds then outstanding. For the purposes of this Section, bonds shall be deemed to be affected by a supplemental indenture if such supplemental indenture adversely affects or diminishes the rights of holders thereof against the Company or against its property. The Trustee may in its discretion determine whether or not, in accordance with the foregoing, bonds of any particular series would be affected by any

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supplemental indenture and any such determination shall be conclusive upon the holders of bonds of such series and all other series. Subject to the provisions of Sections 16.02 and 16.03 hereof, the Trustee shall not be liable for any determination made in good faith in connection herewith.

     Upon the written request of the Company, accompanied by a resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of bondholders as aforesaid (the instrument or instruments evidencing such consent to be dated within one year of such request), the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture.

     It shall not be necessary for the consent of the bondholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.

     The Company and the Trustee, if they so elect, and either before or after such consent has been obtained, may require the holder of any bond consenting to the execution of any such supplemental indenture to submit his bond to the Trustee or to ask such bank, banker or trust company as may be designated by the Trustee for the purpose, for the notation thereon of the fact that the holder of such bond has consented to the execution of such supplemental indenture, and in such case such notation, in form satisfactory to the Trustee, shall be made upon all bonds so submitted, and such bonds bearing such notation shall forthwith be returned to the persons entitled thereto.

     Prior to the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall publish a notice, setting forth in general terms the substance of such supplemental indenture, at least once in one daily newspaper of general circulation in each city in which the principal of any of the bonds shall be payable, or, if all bonds outstanding shall be registered bonds without coupons or coupon bonds registered as to principal, such notice shall be sufficiently given if mailed, first class, postage prepaid, and registered if the Company so elects, to each registered holder of bonds at the last address of such holder appearing on the registry books, such publication or mailing, as the case may be, to be made not less than thirty days prior to such execution. Any failure of the Company to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

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     SECTION 5. As supplemented and amended as above set forth, the Indenture is in all respects ratified and confirmed, and the Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.

     SECTION 6. Nothing contained in this Supplemental Indenture shall, or shall be construed to, confer upon any person other than a holder of bonds issued under the Indenture, as supplemented and amended as above set forth, the Company, the Trustee and the Agent, for the benefit of the Banks (as such term is defined in the Credit Agreement), any right or interest to avail himself of any benefit under any provision of the Indenture, as so supplemented and amended.

     SECTION 7. The Trustee assumes no responsibility for or in respect of the validity or sufficiency of this Supplemental Indenture or of the Indenture as hereby supplemented or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein (other than those contained in the sixth, seventh and eighth recitals hereof), all of which recitals and statements are made solely by the Company.

     SECTION 8. This Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.

     SECTION 9. In the event the date of any notice required or permitted hereunder shall not be a Business Day, then (notwithstanding any other provision of the Indenture or of any supplemental indenture thereto) such notice need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date fixed for such notice. “Business Day” means, with respect to this Section 9, any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system.

     SECTION 10. This Supplemental Indenture and the Collateral Bonds shall be governed by and deemed to be a contract under, and construed in accordance with, the laws of the State of Michigan, and for all purposes shall be construed in accordance with the laws of such state, except as may otherwise be required by mandatory provisions of law.

     SECTION 11. Detailed Description of Property Mortgaged:

I.

ELECTRIC GENERATING PLANTS AND DAMS

     All the electric generating plants and stations of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including all powerhouses, buildings, reservoirs, dams, pipelines, flumes, structures and works and the land on which the same are situated and all water rights and all other lands and easements, rights of way, permits, privileges, towers, poles, wires, machinery, equipment, appliances, appurtenances and supplies and all other

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property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such plants and stations or any of them, or adjacent thereto.

II.

ELECTRIC TRANSMISSION LINES

     All the electric transmission lines of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including towers, poles, pole lines, wires, switches, switch racks, switchboards, insulators and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such transmission lines or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation. Also all the real property, rights of way, easements, permits, privileges and rights for or relating to the construction, maintenance or operation of certain transmission lines, the land and rights for which are owned by the Company, which are either not built or now being constructed.

III.

ELECTRIC DISTRIBUTION SYSTEMS

     All the electric distribution systems of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including substations, transformers, switchboards, towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such distribution systems or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises, grants and rights, for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation.

IV.

ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

     All the substations, switching stations and sites of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, for transforming, regulating, converting or distributing or otherwise controlling electric current at any of its plants and elsewhere, together with all buildings, transformers, wires, insulators and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed

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in connection with any of such substations and switching stations, or adjacent thereto, with sites to be used for such purposes.

V.

GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
SITES

     All the compressor stations, processing plants, desulphurization stations, metering stations, odorizing stations, regulators and sites of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, for compressing, processing, desulphurizing, metering, odorizing and regulating manufactured or natural gas at any of its plants and elsewhere, together with all buildings, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with any of such purposes, with sites to be used for such purposes.

VI.

GAS STORAGE FIELDS

     The natural gas rights and interests of the Company, including wells and well lines (but not including natural gas, oil and minerals), the gas gathering system, the underground gas storage rights, the underground gas storage wells and injection and withdrawal system used in connection therewith, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture: In the Overisel Gas Storage Field, located in the Township of Overisel, Allegan County, and in the Township of Zeeland, Ottawa County, Michigan; in the Northville Gas Storage Field located in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County, and the Townships of Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field, located in the Township of Salem, Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas Storage Field, located in the Townships of Casco, China, Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus, St. Clair, Michigan.

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VII.

GAS TRANSMISSION LINES

     All the gas transmission lines of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including gas mains, pipes, pipelines, gates, valves, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such transmission lines or any of them or adjacent thereto; together with all real property, right of way, easements, permits, privileges, franchises and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation.

VIII.

GAS DISTRIBUTION SYSTEMS

     All the gas distribution systems of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including tunnels, conduits, gas mains and pipes, service pipes, fittings, gates, valves, connections, meters and other appliances and equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such distribution systems or any of them or adjacent thereto; together with all real property, rights of way, easements, permits, privileges, franchises, grants and rights, for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation.

IX.

OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

     All office, garage, service and other buildings of the Company, wherever located, in the State of Michigan, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, together with the land on which the same are situated and all easements, rights of way and appurtenances to said lands, together with all furniture and fixtures located in said buildings.

X.

TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT

     All telephone lines, switchboards, systems and equipment of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, used or available for use in the

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operation of its properties, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such telephone properties or any of them or adjacent thereto; together with all real estate, rights of way, easements, permits, privileges, franchises, property, devices or rights related to the dispatch, transmission, reception or reproduction of messages, communications, intelligence, signals, light, vision or sound by electricity, wire or otherwise, including all telephone equipment installed in buildings used as general and regional offices, substations and generating stations and all telephone lines erected on towers and poles; and all radio communication equipment of the Company, together with all property, real or personal (except any in the Indenture expressly excepted), fixed stations, towers, auxiliary radio buildings and equipment, and all appurtenances used in connection therewith, wherever located, in the State of Michigan.

XI.

OTHER REAL PROPERTY

     All other real property of the Company and all interests therein, of every nature and description (except any in the Indenture expressly excepted) wherever located, in the State of Michigan, acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture. Such real property includes but is not limited to the following described property, such property is subject to any interests that were excepted or reserved in the conveyance to the Company:

ALCONA COUNTY

     Certain land in Caledonia Township, Alcona County, Michigan described as:

     The East 330 feet of the South 660 feet of the SW 1/4 of the SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South 330 feet thereof; said land being more particularly described as follows: To find the place of beginning of this description, commence at the Southwest corner of said section, run thence East along the South line of said section 1243 feet to the place of beginning of this description, thence continuing East along said South line of said section 66 feet to the West 1/8 line of said section, thence N 02 degrees 09’ 30” E along the said West 1/8 line of said section 660 feet, thence West 330 feet, thence S 02 degrees 09’ 30” W, 330 feet, thence East 264 feet, thence S 02 degrees 09’ 30” W, 330 feet to the place of beginning.

ALLEGAN COUNTY

     Certain land in Lee Township, Allegan County, Michigan described as:

     The NE 1/4 of the NW 1/4 of Section 16, TIN, R15W.

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ALPENA COUNTY

Certain land in Wilson and Green Townships, Alpena County, Michigan described as:

     All that part of the S’ly 1/2 of the former Boyne City-Gaylord and Alpena Railroad right of way, being the Southerly 50 feet of a 100 foot strip of land formerly occupied by said Railroad, running from the East line of Section 31, T31N, R7E, Southwesterly across said Section 31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2 of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

ANTRIM COUNTY

Certain land in Mancelona Township, Antrim County, Michigan described as:

     The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting therefrom all mineral, coal, oil and gas and such other rights as were reserved unto the State of Michigan in that certain deed running from the State of Michigan to August W. Schack and Emma H. Schack, his wife, dated April 15, 1946 and recorded May 20,1946 in Liber 97 of Deeds on page 682 of Antrim County Records.

ARENAC COUNTY

Certain land in Standish Township, Arenac County, Michigan described as:

     A parcel of land in the SW 1/4 of the NW 1/4 of Section 12, T18N, R4E, described as follows: To find the place of beginning of said parcel of land, commence at the Northwest corner of Section 12, T18N, R4E; run thence South along the West line of said section, said West line of said section being also the center line of East City Limits Road 2642.15 feet to the W 1/4 post of said section and the place of beginning of said parcel of land; running thence N 88 degrees 26’ 00” E along the East and West 1/4 line of said section, 660.0 feet; thence North parallel with the West line of said section, 310.0 feet; thence S 88 degrees 26’ 00” W, 330.0 feet; thence South parallel with the West line of said section, 260.0 feet; thence S 88 degrees 26’ 00” W, 330.0 feet to the West line of said section and the center line of East City Limits Road; thence South along the said West line of said section, 50.0 feet to the place of beginning.

BARRY COUNTY

Certain land in Johnstown Township, Barry County, Michigan described as:

     A strip of land 311 feet in width across the SW 1/4 of the NE 1/4 of Section 31, TIN, R8W, described as follows: To find the place of beginning of this description, commence at the E ¹/4 post of said section; run thence N 00 degrees 55’ 00” E along the East line of said section, 555.84 feet; thence N 59

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degrees 36’ 20” W, 1375.64 feet; thence N 88 degrees 30’ 00” W, 130 feet to a point on the East 1/8 line of said section and the place of beginning of this description; thence continuing N 88 degrees 30’ 00” W, 1327.46 feet to the North and South 1/4 line of said section; thence S 00 degrees 39’35” W along said North and South 1/4 line of said section, 311.03 feet to a point, which said point is 952.72 feet distant N’ly from the East and West 1/4 line of said section as measured along said North and South 1/4 line of said section; thence S 88 degrees 30’ 00” E, 1326.76 feet to the East 1/8 line of said section; thence N 00 degrees 47’ 20” E along said East 1/8 line of said section, 311.02 feet to the place of beginning.

BAY COUNTY

Certain land in Frankenlust Township, Bay County, Michigan described as:

     The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of the SE 1/4 of Section 9, T13N, R4E.

BENZIE COUNTY

Certain land in Benzonia Township, Benzie County, Michigan described as:

     A parcel of land in the Northeast 1/4 of Section 7, Township 26 North, Range 14 West, described as beginning at a point on the East line of said Section 7, said point being 320 feet North measured along the East line of said section from the East 1/4 post; running thence West 165 feet; thence North parallel with the East line of said section 165 feet; thence East 165 feet to the East line of said section; thence South 165 feet to the place of beginning.

BRANCH COUNTY

Certain land in Girard Township, Branch County, Michigan described as:

     A parcel of land in the NE 1/4 of Section 23 T5S, R6W, described as beginning at a point on the North and South quarter line of said section at a point 1278.27 feet distant South of the North quarter post of said section, said distance being measured along the North and South quarter line of said section, running thence S89 degrees21’E 250 feet, thence North along a line parallel with the said North and South quarter line of said section 200 feet, thence N89 degrees21’W 250 feet to the North and South quarter line of said section, thence South along said North and South quarter line of said section 200 feet to the place of beginning.

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CALHOUN COUNTY

Certain land in Convis Township, Calhoun County, Michigan described as:

     A parcel of land in the SE 1/4 of the SE 1/4 of Section 32, T1S, R6W, described as follows: To find the place of beginning of this description, commence at the Southeast corner of said section; run thence North along the East line of said section 1034.32 feet to the place of beginning of this description; running thence N 89 degrees 39’ 52” W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of said section; thence S 89 degrees 39’ 52” E along said South 1/8 line of said section 333.0 feet to the East line of said section; thence South along said East line of said section 290.0 feet to the place of beginning. (Bearings are based on the East line of Section 32, Tl S, R6W, from the Southeast corner of said section to the Northeast corner of said section assumed as North.)

CASS COUNTY

     Certain easement rights located across land in Marcellus Township, Cass County, Michigan described as:

     The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S, R13W.

CHARLEVOIX COUNTY

Certain land in South Arm Township, Charlevoix County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 29, T32N, R7W, described as follows: Beginning at the Southwest corner of said section and running thence North along the West line of said section 788.25 feet to a point which is 528 feet distant South of the South 1/8 line of said section as measured along the said West line of said section; thence N 89 degrees 30’ 19” E, parallel with said South 1/8 line of said section 442.1 feet; thence South 788.15 feet to the South line of said section; thence S 89 degrees 29’ 30” W, along said South line of said section 442.1 feet to the place of beginning.

CHEBOYGAN COUNTY

Certain land in Inverness Township, Cheboygan County, Michigan described as:

     A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W, described as beginning at the Northwest corner of the SW frl 1/4, running thence East on the East and West quarter line of said Section, 40 rods, thence South parallel to the West line of said Section 40 rods, thence West 40 rods to the West line of said Section, thence North 40 rods to the place of beginning.

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CLARE COUNTY

Certain land in Frost Township, Clare County, Michigan described as:

     The East 150 feet of the North 225 feet of the NW 1/4 of the NW 1/4 of Section 15, T20N, R4W.

CLINTON COUNTY

Certain land in Watertown Township, Clinton County, Michigan described as:

     The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22, T5N, R3W.

CRAWFORD COUNTY

Certain land in Lovells Township, Crawford County, Michigan described as:

     A parcel of land in Section 1, T28N, R1W, described as: Commencing at NW corner said section; thence South 89 degrees 53’ 30” East along North section line 105.78 feet to point of beginning; thence South 89 degrees 53’ 30” East along North section line 649.64 feet; thence South 55 degrees 42’ 30” East 340.24 feet; thence South 55 degrees 44’ 37” “East 5,061.81 feet to the East section line; thence South 00 degrees 00’ 08” “West along East section line 441.59 feet; thence North 55 degrees 44’ 37” West 5,310.48 feet; thence North 55 degrees 42’30” West 877.76 feet to point of beginning.

EATON COUNTY

Certain land in Eaton Township, Eaton County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 6, T2N, R4W, described as follows: To find the place of beginning of this description commence at the Southwest corner of said section; run thence N 89 degrees 51’ 30” E along the South line of said section 400 feet to the place of beginning of this description; thence continuing N 89 degrees 51’ 30” E, 500 feet; thence N 00 degrees 50’ 00” W, 600 feet; thence S 89 degrees 51’ 30” W parallel with the South line of said section 500 feet; thence S 00 degrees 50’ 00” E, 600 feet to the place of beginning.

EMMET COUNTY

Certain land in Wawatam Township, Emmet County, Michigan described as:

     The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of Section 23, T39N, R4W.

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GENESEE COUNTY

Certain land in Argentine Township, Genesee County, Michigan described as:

     A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E, being more particularly described as follows:

     Beginning at a point of the West line of Duffield Road, 100 feet wide, (as now established) distant 829.46 feet measured N01 degrees 42’ 56” W and 50 feet measured S88 degrees l4’ 04” W from the South quarter corner, Section 8, T5N, R5E; thence S88 degrees l4’ 04” W a distance of 550 feet; thence N01 degrees 42’ 56” W a distance of 500 feet to a point on the North line of the South half of the Southwest quarter of said Section 8; thence N88 degrees l4’ 04” E along the North line of South half of the Southwest quarter of said Section 8 a distance 550 feet to a point on the West line of Duffield Road, 100 feet wide (as now established); thence S01 degrees 42’ 56” E along the West line of said Duffield Road a distance of 500 feet to the point of beginning.

GLADWIN COUNTY

Certain land in Secord Township, Gladwin County, Michigan described as:

     The East 400 feet of the South 450 feet of Section 2, T19N, R1E.

GRAND TRAVERSE COUNTY

Certain land in Mayfield Township, Grand Traverse County, Michigan described as:

     A parcel of land in the Northwest 1/4 of Section 3, T25N, R11W, described as follows: Commencing at the Northwest corner of said section, running thence S 89 degrees l9’ 15” E along the North line of said section and the center line of Clouss Road 225 feet, thence South 400 feet, thence N 89 degrees l9’ 15” W 225 feet to the West line of said section and the center line of Hannah Road, thence North along the West line of said section and the center line of Hannah Road 400 feet to the place of beginning for this description.

GRATIOT COUNTY

Certain land in Fulton Township, Gratiot County, Michigan described as:

     A parcel of land in the NE 1/4 of Section 7, Township 9 North, Range 3 West, described as beginning at a point on the North line of George Street in the Village of Middleton, which is 542 feet East of the North and South one-quarter (1/4) line of said Section 7; thence North 100 feet; thence East 100 feet; thence South 100 feet to the North line of George Street; thence West along the North line of George Street 100 feet to place of beginning.

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HILLSDALE COUNTY

Certain land in Litchfield Village, Hillsdale County, Michigan described as:

     Lot 238 of Assessors Plat of the Village of Litchfield.

HURON COUNTY

     Certain easement rights located across land in Sebewaing Township, Huron County, Michigan described as:

     The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

INGHAM COUNTY

Certain land in Vevay Township, Ingham County, Michigan described as:

     A parcel of land 660 feet wide in the Southwest 1/4 of Section 7 lying South of the centerline of Sitts Road as extended to the North-South 1/4 line of said Section 7, T2N, RlW, more particularly described as follows: Commence at the Southwest corner of said Section 7, thence North along the West line of said Section 2502.71 feet to the centerline of Sitts Road; thence South 89 degrees 54’ 45” East along said centerline 2282.38 feet to the place of beginning of this description; thence continuing South 89 degrees 54’ 45” East along said centerline and said centerline extended 660.00 feet to the North-South 1/4 line of said section; thence South 00 degrees 07’ 20” West 1461.71 feet; thence North 89 degrees 34’ 58” West 660.00 feet; thence North 00 degrees 07’ 20” East 1457.91 feet to the centerline of Sitts Road and the place of beginning.

IONIA COUNTY

Certain land in Sebewa Township, Ionia County, Michigan described as:

     A strip of land 280 feet wide across that part of the SW 1/4 of the NE 1/4 of Section 15, T5N, R6W, described as follows:

     To find the place of beginning of this description commence at the E 1/4 corner of said section; run thence N 00 degrees 05’ 38” W along the East line of said section, 1218.43 feet; thence S 67 degrees 18’ 24” W, 1424.45 feet to the East 1/8 line of said section and the place of beginning of this description; thence continuing S 67 degrees 18’ 24” W, 1426.28 feet to the North and South 1/4 line of said section at a point which said point is 105.82 feet distant N’ly of the center of said section as measured along said North and South 1/4 line of said section; thence N 00 degrees 04’ 47” E along said North and South 1/4 line of said section, 303.67 feet; thence N 67 degrees 18’ 24” E, 1425.78 feet to the East 1/8 line of said section; thence S 00 degrees 00’ 26” E along said East 1/8 line of said section, 303.48 feet to the place of beginning. (Bearings are based on the East line

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of Section 15, T5N, R6W, from the E 1/4 corner of said section to the Northeast corner of said section assumed as N 00 degrees 05’ 38” W.)

IOSCO COUNTY

Certain land in Alabaster Township, Iosco County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 34, T21N, R7E, described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence South along the North and South 1/4 line of said section, 1354.40 feet to the place of beginning of this description; thence continuing South along the said North and South 1/4 line of said section, 165.00 feet to a point on the said North and South 1/4 line of said section which said point is 1089.00 feet distant North of the center of said section; thence West 440.00 feet; thence North 165.00 feet; thence East 440.00 feet to the said North and South 1/4 line of said section and the place of beginning.

ISABELLA COUNTY

Certain land in Chippewa Township, Isabella County, Michigan described as:

     The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29, T14N, R3W.

JACKSON COUNTY

Certain land in Waterloo Township, Jackson County, Michigan described as:

     A parcel of land in the North fractional part of the N fractional 1/2 of Section 2, T1S, R2E, described as follows: To find the place of beginning of this description commence at the E 1/4 post of said section; run thence N 01 degrees 03’ 40” E along the East line of said section 1335.45 feet to the North 1/8 line of said section and the place of beginning of this description; thence N 89 degrees 32’ 00” W, 2677.7 feet to the North and South 1/4 line of said section; thence S 00 degrees 59’ 25” W along the North and South 1/4 line of said section 22.38 feet to the North 1/8 line of said section; thence S 89 degrees 59’ 10” W along the North 1/8 line of said section 2339.4 feet to the center line of State Trunkline Highway M-52; thence N 53 degrees 46’ 00” W along the center line of said State Trunkline Highway 414.22 feet to the West line of said section; thence N 00 degrees 55’ 10” E along the West line of said section 74.35 feet; thence S 89 degrees 32’ 00” E, 5356.02 feet to the East line of said section; thence S 01 degrees 03’ 40” W along the East line of said section 250 feet to the place of beginning.

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KALAMAZOO COUNTY

Certain land in Alamo Township, Kalamazoo County, Michigan described as:

     The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16, T1S, R12W, being more particularly described as follows: To find the place of beginning of this description, commence at the Northwest corner of said section; run thence S 00 degrees 36’ 55” W along the West line of said section 971.02 feet to the place of beginning of this description; thence continuing S 00 degrees 36’ 55” W along said West line of said section 350.18 feet to the North 1/8 line of said section; thence S 87 degrees 33’ 40” E along the said North 1/8 line of said section 1325.1 feet to the West 1/8 line of said section; thence N 00 degrees 38’ 25” E along the said West 1/8 line of said section 350.17 feet; thence N 87 degrees 33’ 40” W, 1325.25 feet to the place of beginning.

KALKASKA COUNTY

Certain land in Kalkaska Township, Kalkaska County, Michigan described as:

     The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting therefrom all mineral, coal, oil and gas and such other rights as were reserved unto the State of Michigan in that certain deed running from the Department of Conservation for the State of Michigan to George Welker and Mary Welker, his wife, dated October 9, 1934 and recorded December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records, and subject to easement for pipeline purposes as granted to Michigan Consolidated Gas Company by first party herein on April 4, 1963 and recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County Records.

KENT COUNTY

Certain land in Caledonia Township, Kent County, Michigan described as:

     A parcel of land in the Northwest fractional 1/4 of Section 15, T5N, R10W, described as follows: To find the place of beginning of this description commence at the North 1/4 corner of said section, run thence S 0 degrees 59’ 26” E along the North and South 1/4 line of said section 2046.25 feet to the place of beginning of this description, thence continuing S 0 degrees 59’ 26” E along said North and South 1/4 line of said section 332.88 feet, thence S 88 degrees 58’ 30” W 2510.90 feet to a point herein designated “Point A” on the East bank of the Thornapple River, thence continuing S 88 degrees 53’ 30” W to the center thread of the Thornapple River, thence NW’ly along the center thread of said Thornapple River to a point which said point is S 88 degrees 58’ 30” W of a point on the East bank of the Thornapple River herein designated “Point B”, said “Point B” being N 23 degrees 41’ 35” W 360.75 feet from said above-described “Point A”, thence N 88 degrees 58’ 30” E to said “Point B”, thence continuing N 88 degrees 58’ 30” E 2650.13 feet to the place of beginning. (Bearings are based on the East line of

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Section 15, T5N, R10W between the East 1/4 corner of said section and the Northeast corner of said section assumed as N 0 degrees 59’ 55” W.)

LAKE COUNTY

     Certain land in Pinora and Cherry Valley Townships, Lake County, Michigan described as:

     A strip of land 50 feet wide East and West along and adjoining the West line of highway on the East side of the North 1/2 of Section 13 T18N, R12W. Also a strip of land 100 feet wide East and West along and adjoining the East line of the highway on the West side of following described land: The South 1/2 of NW 1/4, and the South 1/2 of the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

LAPEER COUNTY

Certain land in Hadley Township, Lapeer County, Michigan described as:

     The South 825 feet of the W 1/2 of the SW 1/4 of Section 24, T6N, R9E, except the West 1064 feet thereof.

LEELANAU COUNTY

Certain land in Cleveland Township, Leelanau County, Michigan described as:

     The North 200 feet of the West 180 feet of the SW 1/4 of the SE 1/4 of Section 35, T29N, R13W.

LENAWEE COUNTY

Certain land in Madison Township, Lenawee County, Michigan described as:

     A strip of land 165 feet wide off the West side of the following described premises: The E 1/2 of the SE 1/4 of Section 12. The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13, being all in T7S, R3E, excepting therefrom a parcel of land in the E 1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4 rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to the place of beginning.

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LIVINGSTON COUNTY

Certain land in Cohoctah Township, Livingston County, Michigan described as:

     Parcel 1

     The East 390 feet of the East 50 rods of the SW 1/4 of Section 30, T4N, R4E.

     Parcel 2

     A parcel of land in the NW 1/4 of Section 31, T4N, R4E, described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence N 89 degrees 13’ 06” W along the North line of said section, 330 feet to the place of beginning of this description; running thence S 00 degrees 52’ 49” W, 2167.87 feet; thence N 88 degrees 59’ 49” W, 60 feet; thence N 00 degrees 52’ 49” E, 2167.66 feet to the North line of said section; thence S 89 degrees 13’ 06” E along said North line of said section, 60 feet to the place of beginning.

MACOMB COUNTY

Certain land in Macomb Township, Macomb County, Michigan described as:

     A parcel of land commencing on the West line of the E 1/2 of the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of said E 1/2 of the NW 1/4 of Section 6; thence South on said West line and the East line of A. Henry Kotner’s Hayes Road Subdivision #15, according to the recorded plat thereof, as recorded in Liber 24 of Plats, on page 7, 24.36 chains to the East and West 1/4 line of said Section 6; thence East on said East and West 1/4 line 8.93 chains; thence North parallel with the said West line of the E 1/2 of the NW 1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of beginning, all in T3N, R13E.

MANISTEE COUNTY

Certain land in Manistee Township, Manistee County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 20, T22N, R16W, described as follows: To find the place of beginning of this description, commence at the Southwest corner of said section; run thence East along the South line of said section 832.2 feet to the place of beginning of this description; thence continuing East along said South line of said section 132 feet; thence North 198 feet; thence West 132 feet; thence South 198 feet to the place of beginning, excepting therefrom the South 2 rods thereof which was conveyed to Manistee Township for highway purposes by a Quitclaim Deed dated June 13,1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of Manistee County Records.

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MASON COUNTY

Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

     The South 10 acres of the West 20 acres of the S 1/2 of the NE 1/4 of Section 22, T17N, R17W.

Parcel 2

     A parcel of land containing 4 acres of the West side of highway, said parcel of land being described as commencing 16 rods South of the Northwest corner of the NW 1/4 of the SW ¼ of Section 22, T17N, R17W, running thence South 64 rods, thence NE’ly and N’ly and NW’ly along the W’ly line of said highway to the place of beginning, together with any and all right, title, and interest of Howard C. Wicklund and Katherine E. Wicklund in and to that portion of the hereinbefore mentioned highway lying adjacent to the E’ly line of said above described land.

MECOSTA COUNTY

Certain land in Wheatland Township, Mecosta County, Michigan described as:

     A parcel of land in the SW 1/4 of the SW 1/4 of Section 16, T14N, R7W, described as beginning at the Southwest corner of said section; thence East along the South line of Section 133 feet; thence North parallel to the West section line 133 feet; thence West 133 feet to the West line of said Section; thence South 133 feet to the place of beginning.

MIDLAND COUNTY

Certain land in Ingersoll Township, Midland County, Michigan described as:

     The West 200 feet of the W 1/2 of the NE 1/4 of Section 4, T13N, R2E.

MISSAUKEE COUNTY

Certain land in Norwich Township, Missaukee County, Michigan described as:

     A parcel of land in the NW 1/4 of the NW 1/4 of Section 16, T24N, R6W, described as follows: Commencing at the Northwest corner of said section, running thence N 89 degrees 01’ 45” E along the North line of said section 233.00 feet; thence South 233.00 feet; thence S 89 degrees 01’ 45” W, 233.00 feet to the West line of said section; thence North along said West line of said section 233.00 feet to the place of beginning. (Bearings are based on the West line of Section 16,

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T24N, R6W, between the Southwest and Northwest corners of said section assumed as North.)

MONROE COUNTY

Certain land in Whiteford Township, Monroe County, Michigan described as:

     A parcel of land in the SW1/4 of Section 20, T8S, R6E, described as follows: To find the place of beginning of this description commence at the S 1/4 post of said section; run thence West along the South line of said section 1269.89 feet to the place of beginning of this description; thence continuing West along said South line of said section 100 feet; thence N 00 degrees 50’ 35” E, 250 feet; thence East 100 feet; thence S 00 degrees 50’ 35” W parallel with and 16.5 feet distant W’ly of as measured perpendicular to the West 1/8 line of said section, as occupied, a distance of 250 feet to the place of beginning.

MONTCALM COUNTY

Certain land in Crystal Township, Montcalm County, Michigan described as:

     The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

MONTMORENCY COUNTY

Certain land in the Village of Hillman, Montmorency County, Michigan described as:

     Lot 14 of Hillman Industrial Park, being a subdivision in the South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to the plat thereof recorded in Liber 4 of Plats on Pages 32-34, Montmorency County Records.

MUSKEGON COUNTY

Certain land in Casnovia Township, Muskegon County, Michigan described as:

     The West 433 feet of the North 180 feet of the South 425 feet of the SW 1/4 of Section 3, T10N, R13W.

NEWAYGO COUNTY

     Certain land in Ashland Township, Newaygo County, Michigan described as:

     The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

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OAKLAND COUNTY

Certain land in Wixcom City, Oakland County, Michigan described as:

     The E 75 feet of the N 160 feet of the N 330 feet of the W 526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, TIN, R8E, more particularly described as follows: Commence at the NW corner of said Section 8, thence N 87 degrees 14’ 29” E along the North line of said Section 8 a distance of 451.84 feet to the place of beginning for this description; thence continuing N 87 degrees 14’ 29” E along said North section line a distance of 75.0 feet to the East line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02 degrees 37’ 09” E along said East line a distance of 160.0 feet; thence S 87 degrees 14’ 29” W a distance of 75.0 feet; thence N 02 degrees 37’ 09” W a distance of 160.0 feet to the place of beginning.

OCEANA COUNTY

Certain land in Crystal Township, Oceana County, Michigan described as:

     The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290 feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

OGEMAW COUNTY

Certain land in West Branch Township, Ogemaw County, Michigan described as:

     The South 660 feet of the East 660 feet of the NE 1/4 of the NE 1/4 of Section 33, T22N, R2E.

OSCEOLA COUNTY

Certain land in Hersey Township, Osceola County, Michigan described as:

     A parcel of land in the North 1/2 of the Northeast 1/4 of Section 13, T17N, R9W, described as commencing at the Northeast corner of said Section; thence West along the North Section line 999 feet to the point of beginning of this description; thence S 01 degrees 54’ 20” E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17’ 05” W along the North 1/8 line 330.89 feet; thence N 01 degrees 54’ 20” W 1331.26 feet to the North Section line; thence East along the North Section line 331 feet to the point of beginning.

OSCODA COUNTY

Certain land in Comins Township, Oscoda County, Michigan described as:

     The East 400 feet of the South 580 feet of the W 1/2 of the SW 1/4 of Section 15, T27N, R3E.

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OTSEGO COUNTY

Certain land in Corwith Township, Otsego County, Michigan described as:

     Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W, described as: Beginning at the N 1/4 corner of said section; running thence S 89 degrees 04’ 06” E along the North line of said section, 330.00 feet; thence S 00 degrees 28’ 43” E, 400.00 feet; thence N 89 degrees 04’ 06” W, 330.00 feet to the North and South 1/4 line of said section; thence N 00 degrees 28’ 43” W along the said North and South 1/4 line of said section, 400.00 feet to the point of beginning; subject to the use of the N’ly 33.00 feet thereof for highway purposes.

OTTAWA COUNTY

Certain land in Robinson Township, Ottawa County, Michigan described as:

     The North 660 feet of the West 660 feet of the NE 1/4 of the NW 1/4 of Section 26, T7N, R15 W.

PRESQUE ISLE COUNTY

     Certain land in Belknap and Pulawski Townships, Presque Isle County, Michigan described as:

     Part of the South half of the Northeast quarter, Section 24, T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E, more fully described as: Commencing at the East ¼ corner of said Section 24; thence N 00 degrees 15’47” E, 507.42 feet, along the East line of said Section 24 to the point of beginning; thence S 88 degrees l5’36” W, 400.00 feet, parallel with the North 1/8 line of said Section 24; thence N 00 degrees l5’47” E, 800.00 feet, parallel with said East line of Section 24; thence N 88 degrees 15’36”E, 800.00 feet, along said North 1/8 line of Section 24 and said line extended; thence S 00 degrees l5’47” W, 800.00 feet, parallel with said East line of Section 24; thence S 88 degrees l5’36” W, 400.00 feet, parallel with said North 1/8 line of Section 24 to the point of beginning.

     Together with a 33 foot easement along the West 33 feet of the Northwest quarter lying North of the North 1/8 line of Section 24, Belknap Township, extended, in Section 19, T34N, R6E.

ROSCOMMON COUNTY

Certain land in Gerrish Township, Roscommon County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 19, T24N, R3W, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section, run thence East along the North line of said

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section 1,163.2 feet to the place of beginning of this description (said point also being the place of intersection of the West 1/8 line of said section with the North line of said section), thence S 01 degrees 01’ E along said West 1/8 line 132 feet, thence West parallel with the North line of said section 132 feet, thence N 01 degrees 01’ W parallel with said West 1/8 line of said section 132 feet to the North line of said section, thence East along the North line of said section 132 feet to the place of beginning.

SAGINAW COUNTY

     Certain land in Chapin Township, Saginaw County, Michigan described as:

     A parcel of land in the SW 1/4 of Section 13, T9N, R1E, described as follows: To find the place of beginning of this description commence at the Southwest corner of said section; run thence North along the West line of said section 1581.4 feet to the place of beginning of this description; thence continuing North along said West line of said section 230 feet to the center line of a creek; thence S 70 degrees 07’ 00” E along said center line of said creek 196.78 feet; thence South 163.13 feet; thence West 185 feet to the West line of said section and the place of beginning.

SANILAC COUNTY

     Certain easement rights located across land in Minden Township, Sanilac County, Michigan described as:

     The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N, R14E, excepting therefrom the South 83 feet of the East 83 feet thereof.

SHIAWASSEE COUNTY

     Certain land in Burns Township, Shiawassee County, Michigan described as:

     The South 330 feet of the E 1/2 of the NE 1/4 of Section 36, T5N, R4E.

ST. CLAIR COUNTY

Certain land in Ira Township, St. Clair County, Michigan described as:

     The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

ST. JOSEPH COUNTY

Certain land in Mendon Township, St. Joseph County, Michigan described as:

     The North 660 feet of the West 660 feet of the NW 1/4 of SW 1/4, Section 35, T5S, R10W.

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TUSCOLA COUNTY

     Certain land in Millington Township, Tuscola County, Michigan described as:

     A strip of land 280 feet wide across the East 96 rods of the South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more particularly described as commencing at the Northeast corner of Section 3, T9N, R8E, thence S 89 degrees 55’ 35” W along the South line of said Section 34 a distance of 329.65 feet, thence N 18 degrees 11’ 50” W a distance of 1398.67 feet to the South 1/8 line of said Section 34 and the place of beginning for this description; thence continuing N 18 degrees 11’ 50” W a distance of 349.91 feet; thence N 89 degrees 57’ 01” W a distance of 294.80 feet; thence S 18 degrees 11’ 50” E a distance of 350.04 feet to the South 1/8 line of said Section 34; thence S 89 degrees 58’ 29” E along the South 1/8 line of said section a distance of 294.76 feet to the place of beginning.

VAN BUREN COUNTY

     Certain land in Covert Township, Van Buren County, Michigan described as:

     All that part of the West 20 acres of the N 1/2 of the NE fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the North 80 rods, being more particularly described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence N 89 degrees 29’ 20” E along the North line of said section 280.5 feet to the place of beginning of this description; thence continuing N 89 degrees 29’ 20” E along said North line of said section 288.29 feet; thence S 00 degrees 44’ 00” E, 1531.92 feet; thence S 89 degrees 33’ 30” W, 568.79 feet to the North and South 1/4 line of said section; thence N 00 degrees 44’ 00” W along said North and South 1/4 line of said section 211.4 feet; thence N 89 degrees 29’ 20” E, 280.5 feet; thence N 00 degrees 44’ 00” W, 1320 feet to the North line of said section and the place of beginning.

WASHTENAW COUNTY

Certain land in Manchester Township, Washtenaw County, Michigan described as:

     A parcel of land in the NE 1/4 of the NW 1/4 of Section 1, T4S, R3E, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section; run thence East along the North line of said section 1355.07 feet to the West 1/8 line of said section; thence S 00 degrees 22’ 20” E along said West 1/8 line of said section 927.66 feet to the place of beginning of this description; thence continuing S 00 degrees 22’ 20” E along said West 1/8 line of said section 660 feet to the North 1/8 line of said section; thence N 86 degrees 36’ 57” E along said North 1/8 line of said section 660.91 feet; thence N 00 degrees 22’ 20” W, 660 feet; thence S 86 degrees 36’ 57” W, 660.91 feet to the place of beginning.

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WAYNE COUNTY

     Certain land in Livonia City, Wayne County, Michigan described as:

     Commencing at the Southeast corner of Section 6, T1S, R9E; thence North along the East line of Section 6 a distance of 253 feet to the point of beginning; thence continuing North along the East line of Section 6 a distance of 50 feet; thence Westerly parallel to the South line of Section 6, a distance of 215 feet; thence Southerly parallel to the East line of Section 6 a distance of 50 feet; thence easterly parallel with the South line of Section 6 a distance of 215 feet to the point of beginning.

WEXFORD COUNTY

     Certain land in Selma Township, Wexford County, Michigan described as:

     A parcel of land in the NW 1/4 of Section 7, T22N, R10W, described as beginning on the North line of said section at a point 200 feet East of the West line of said section, running thence East along said North section line 450 feet, thence South parallel with said West section line 350 feet, thence West parallel with said North section line 450 feet, thence North parallel with said West section line 350 feet to the place of beginning.

     SECTION 12. The Company is a transmitting utility under Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in M.C.L. 440.9102(l)(aaaa).

     IN WITNESS WHEREOF, said Consumers Energy Company has caused this Supplemental Indenture to be executed in its corporate name by its Chairman of the Board, President, a Vice President or its Treasurer and its corporate seal to be hereunto affixed and to be attested by its Secretary or an Assistant Secretary, and The Bank of New York, as Trustee as aforesaid, to evidence its acceptance hereof, has caused this Supplemental Indenture to be executed in its corporate name by a Vice President and its corporate seal to be hereunto affixed and to be attested by a Trust Officer, in several counterparts, all as of the day and year first above written.

34

	CONSUMERS ENERGY COMPANY
(SEAL)	By	/s/ Laura L. Mountcastle
		Laura L. Mountcastle
		Vice President and Treasurer

/s/ Joyce H. Norkey  

Joyce H. Norkey 

Assistant Secretary 

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
 

/s/ Kimberly C. Wilson  

Kimberly C. Wilson 

/s/ Sammie B. Dalton  

Sammie B. Dalton 

STATE OF MICHIGAN	)
		ss.
COUNTY OF JACKSON	)

          The foregoing instrument was acknowledged before me this 30^th day of March, 2007, by Laura L. Mountcastle, Vice President and Treasurer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

[Seal]	/s/ Margaret Hillman
	Margaret Hillman, Notary Public
	State of Michigan, County of Jackson My Commission Expires: 06/14/10 Acting in the County of Jackson

S-1

	THE BANK OF NEW YORK, AS TRUSTEE
(SEAL)	By	/s/ L. O’Brien
		L. O’Brien
Attest:		Vice President

/s/ Rosa Ciaccia  

Rosa Ciaccia 

Assistant Treasurer 

Signed, sealed and delivered
by THE BANK OF NEW YORK
in the presence of
 

/s/ James D. Heaney  

James D. Heaney 

/s/ Carol Ng  

Carol Ng 

STATE OF NEW YORK	)
		ss.
COUNTY OF NEW YORK	)

          The foregoing instrument was acknowledged before me this 30th day of March, 2007, by L. O’Brien, a Vice President of THE BANK OF NEW YORK, a New York banking corporation, on behalf of the bank, as trustee.

/s/ CHERYL L. CLARKE  

Notary Public 

[Seal]	New York County, New York
	My Commission Expires:
	CHERYL L. CLARKE
	Notary Public, State of New York
	No.01CL5057121
	Qualified in New York County
	Certificate Filed in New York County
	Commission Expires May 11, 2010

S-2

EX-10.(A)

EXHIBIT 10 (a)

EXECUTION COPY

AMENDMENT NO. 1

     This AMENDMENT NO. 1, dated as of December 19, 2007 (this “Amendment”), is by and among CMS Energy Corporation, a Michigan corporation (the “Borrower”), the financial institutions parties to the “Credit Agreement” (defined below) as lenders (the “Lenders”), and Citicorp USA, Inc. (“CUSA”), as administrative agent (in such capacity, the “Administrative Agent”).

     WHEREAS, the Borrower, the Lenders, the Administrative Agent and CUSA, as collateral agent, have entered into a Seventh Amended and Restated Credit Agreement, dated as of April 2, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”; capitalized terms not defined herein are used as defined in the Credit Agreement);

     WHEREAS, the Borrowers, the requisite number of Lenders under Section 11.01 of the Credit Agreement and the Administrative Agent have agreed, subject to the terms and conditions hereof, to amend the Credit Agreement as hereinafter set forth.

     NOW, THEREFORE, in consideration of the premises set forth above, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the requisite number of Lenders under Section 11.01 of the Credit Agreement and the Administrative Agent agree as follows:

     1. Amendment to Credit Agreement. Subject to the conditions set forth in Paragraph 2 hereof, the Credit Agreement is hereby amended by amending and restating the definition of “Consolidated EBITDA” set forth in Section 1.01 of the Credit Agreement in its entirety as follows:

     “Consolidated EBITDA” means, with reference to any period, the pretax operating income of the Borrower and its Subsidiaries (“Pretax Operating Income”) for such period plus, to the extent included in determining Pretax Operating Income (without duplication), (i) depreciation, depletion and amortization, (ii) non-cash write-offs and write-downs, including, without limitation, write-offs or write-downs related to the sale of assets, impairment of assets and loss on contracts, (ii) non-cash gains or losses on mark-to-market valuation of contracts and (iv) the cash or non-cash costs and expense charges related to the termination, buy-out or amendment of electricity sales agreements associated with Dearborn Industrial Generation, L.L.C. and/or CMS ERM Michigan LLC, or other agreements related thereto in an aggregate amount not to exceed $325,000,000 during the life of the Agreement, in each case in accordance with GAAP consistently applied, all calculated for the Borrower and its Subsidiaries on a consolidated basis for such period; provided, however, that Consolidated EBITDA shall not include any operating income attributable to that portion of the revenues of Consumers dedicated to the repayment of the Securitized Bonds.

     2. Conditions to Effectiveness. The amendments contemplated by this Amendment shall become effective upon the satisfaction of the following conditions:

     (a) The Administrative Agent shall have received duly executed counterparts hereof from each of the requisite number of Lenders under Section 11.01 of the Credit Agreement, the Administrative Agent and the Borrower.

     (b) As of the date hereof, all representations and warranties contained in this Amendment shall be true and correct in all material respects.

     (c) As of the date hereof no event shall have occurred and be continuing which constitutes an Event of Default or a Default.

     3. Reference to and Effect on the Loan Documents. On and after the effective date of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as modified by this Amendment, and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as modified by this Amendment. Except as specifically set forth above, the Credit Agreement and all other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

     4. Miscellaneous.

     (a) Representations and Warranties. The Borrower represents and warrants that:

     (i) The representations and warranties contained in Section 7.01 of the Credit Agreement (other than those contained in subsection (f) thereof) are correct in all material respects on and as of the date hereof (unless such representation and warranty is made as of a specific date, in which case such representation and warranty shall be true and correct as of such date), and no event has occurred and is continuing that constitutes a Default or an Event of Default;

     (ii) Each Loan Party is duly organized and validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority to execute, deliver and carry out the terms and provisions of this Amendment and has taken or caused to be taken all necessary corporate or limited liability company action to authorize the execution, delivery and performance of this Amendment;

     (iii) No consent of any other person, including, without limitation, shareholders or creditors of any Loan Party, and no action of, or filing with, any governmental or public body or authority, is required to authorize, or is otherwise required in connection with the execution, delivery and performance of, this Amendment;

2

     (iv) This Amendment has been duly executed and delivered by a duly authorized officer on behalf of the Loan Parties party thereto, and constitutes the legal, valid and binding obligations of each Loan Party, enforceable in accordance with its terms, except as enforcement thereof may be subject to the effect of any applicable (A) bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally and (B) general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); and

     (v) The execution, delivery and performance of this Amendment will not violate any law, statute or regulation applicable to any Loan Party or any order or decree of any court or governmental instrumentality applicable to it, or conflict with, or result in the breach of, or constitute a default under, any of its contractual obligations.

     (b) No Waiver. Nothing herein contained shall constitute a waiver or be deemed to be a waiver, of any existing Defaults or Events of Default, and the Lenders and the Administrative Agent reserve all rights and remedies granted to them by the Credit Agreement, by the other Loan Documents, by law and otherwise.

     (c) Costs and Expenses. The Borrower agrees to pay all reasonable costs and out-of-pocket expenses (including, without limitation, reasonable attorneys’ fees) incurred by the Administrative Agent in connection with the preparation, execution and enforcement of this Amendment.

     (d) Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

     (e) Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

     (f) GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

[signature pages follow]

3

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

CMS ENERGY CORPORATION, as Borrower
By:	/s/ Laura L. Mountcastle
	Name:	Laura L. Mountcastle
	Title:	Vice President & Treasurer
CITICORP USA, INC., as Administrative Agent
By:
	Name:
	Title:
CITIBANK, N.A., as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

CMS ENERGY CORPORATION, as Borrower
By:
	Name:
	Title:
CITICORP USA, INC., as Administrative Agent
By:	/s/ Shannon Sweeney
	Name:	Shannon Sweeney
	Title:	Vice President
CITIBANK, N.A., as a Lender
By:	/s/ Shannon Sweeney
	Name:	Shannon Sweeney
	Title:	Vice President

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

UNION BANK OF CALIFORNIA, N.A., as a Lender
By:	/s/ Bryan Read
	Name:	Bryan Read
	Title:	Vice President
BARCLAYS BANK PLC, as a Lender
By:
	Name:
	Title:
JPMORGAN CHASE BANK, N.A., as a Lender
By:
	Name:
	Title:
WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
	Name:
	Title:
BARCLAYS BANK PLC, as a Lender
By:	/s/ Sydney G. Dennis
	Name:	Sydney G. Dennis
	Title:	Director
JPMORGAN CHASE BANK, N.A., as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
	Name:
	Title:
BARCLAYS BANK PLC, as a Lender
By:
	Name:
	Title:
JPMORGAN CHASE BANK, N.A., as a Lender
By:	/s/ Michael DeForge
	Name:	Michael DeForge
	Title:	Executive Director
WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
	Name:
	Title:
BARCLAYS BANK PLC, as a Lender
By:
	Name:
	Title:
JPMORDAN CHASE BANK, N.A., as a Lender
By:
	Name:
	Title:
WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ FREDRICK W. PRICE
	Name:	FREDRICK W. PRICE
	Title:	MANAGING DIRECTOR

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

MERRILL LYNCH BANK USA, as a Lender
By:	/s/ Louis Alder
	Name:	Louis Alder
	Title:	Director
BNP PARIBAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
SUNTRUST BANK, as a Lender
By:
	Name:
	Title:
UBS LOAN FINANCE LLC, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

MERRILL LYNCH BANK USA, as a Lender
By:
	Name:
	Title:
BNP PARIBAS, as a Lender
By:	/s/ FRANCIS J. DELANEY
	Name:	FRANCIS J. DELANEY
	Title:	Managing Director
By:	/s/ DENIS O’MEARA
	Name:	DENIS O’MEARA
	Title:	Managing Director
SUNTRUST BANK, as a Lender
By:
	Name:
	Title:
UBS LOAN FINANCE LLC, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

MERRILL LYNCH BANK USA, as a Lender
By:
	Name:
	Title:
BNP PARIBAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
SUNTRUST BANK, as a Lender
By:	/s/ Yann Pirio
	Name:	Yann Pirio
	Title:	Vice President
UBS LOAN FINANCE LLC, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

MERRILL LYNCH BANK USA, as a Lender
By:
	Name:
	Title:
BNP PARIBAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
SUNTRUST BANK, as a Lender
By:
	Name:
	Title:
UBS LOAN FINANCE LLC, as a Lender
By:	/s/ David B. Julie
	Name:	David B. Julie
	Title:	Associate Director
By:	/s/ Irja R. Otsa
	Name:	Irja R. Otsa
	Title:	Associate Director

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender
By:	/s/ Illegible
	Name:
	Title:
By:	/s/ Scottye Lindsey
	Name:	Scottye Lindsey
	Title:	Director
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
COMERICA BANK, as a Lender
By:
	Name:
	Title:
LASALLE BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:	/s/ Sherrie I. Manson
	Name:	Sherrie I. Manson
	Title:	Senior Vice President
COMERICA BANK, as a Lender
By:
	Name:
	Title:
LASALLE BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
COMERICA BANK, as a Lender
By:	/s/ BLAKE ARNETT
	Name:	BLAKE ARNETT
	Title:	VICE PRESIDENT
LASALLE BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
COMERICA BANK, as a Lender
By:
	Name:
	Title:
LASALLE BANK MIDWEST, N.A., as a Lender
By:	/s/ GREGORY E. CASTLE
	Name:	GREGORY E. CASTLE
	Title:	FIRST VICE PRESIDENT

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as a Lender
By:	/s/ Brian Caldwell
	Name:	Brian Caldwell
	Title:	Director
By:	/s/ Laurence Lapeyre
	Name:	Laurence Lapeyre
	Title:	Associate
FIFTH THIRD BANK, as a Lender
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
THE BANK OF NOVA SCOTIA, as a Lender
By:
	Name:
	Title:
BAYERISCHE LANDESBANK, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as a Lender
By:
	Name:
	Title:
FIFTH THIRD BANK, as a Lender
By:	/s/ BRIAN JELINSKI
	Name:	BRIAN JELINSKI
	Title:	AVP
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
THE BANK OF NOVA SCOTIA, as a Lender
By:
	Name:
	Title:
BAYERISCHE LANDESBANK, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as a Lender
By:
	Name:
	Title:
FIFTH THIRD BANK, as a Lender
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
THE BANK OF NOVA SCOTIA, as a Lender
By:	/s/ Thane Rattew
	Name:	Thane Rattew
	Title:	Managing Director
BAYERISCHE LANDESBANK, as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as a Lender
By:
	Name:
	Title:
FIFTH THIRD BANK, as a Lender
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:
THE BANK OF NOVA SCOTIA, as a Lender
By:
	Name:
	Title:
BAYERISCHE LANDESBANK, as a Lender
By:	/s/ John Gregory                    /s/ Nikolal von Mengden
	Name:	John Gregory               Nikolal von Mengden
	Title:	First Vice President     Senior Vice President

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

HUNTINGTON NAITONAL BANK, as a Lender
By:	/s/ Patrick Barbour
	Name:	Patrick Barbour
	Title:	Vice President
GOLDMAN SACHS CREDIT PARTNERS, L.P., as a Lender
By:
	Name:
	Title:
SUMITOMO MITSUI BANKING CORP., as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

HUNTINGTON NAITONAL BANK, as a Lender
By:
	Name:
	Title:
GOLDMAN SACHS CREDIT PARTNERS, L.P., as a Lender
By:	/s/ Pedro Ramirez
	Name:	Pedro Ramirez
	Title:	Authorized Signatory
SUMITOMO MITSUI BANKING CORP., as a Lender
By:
	Name:
	Title:

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

SUMITOMO MITSUI BANKING CORP., as a Lender
By:	/s/ Masakazu Hasegawa
	Name:	Masakazu Hasegawa
	Title:	Joint General Manager

Signature Page to Amendment No. 1 to
Seventh Amended and Restated Credit Agreement
(CMS Energy Corporation)

EX-10.(B)

EXHIBIT 10(b)

EXECUTION COPY

CMS ENERGY
FOURTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

     THIS FOURTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this “Security Agreement”), dated as of April 2, 2007, is made by CMS ENERGY CORPORATION, a corporation organized and existing under the laws of the State of Michigan (the “Grantor”), to CITICORP USA, INC. (“CUSA”), as Collateral Agent (the “Collateral Agent”) for the lenders (the “Lenders”) parties to the Credit Agreement (as hereinafter defined).

PRELIMINARY STATEMENTS

     (1) The Grantor has previously entered into that certain Third Amended and Restated Pledge and Security Agreement, dated as of December 8, 2003 (said Agreement, as amended or otherwise modified from time to time prior to the date hereof, being the “Existing Security Agreement”), in connection with that certain Fourth Amended and Restated Credit Agreement, dated as of December 8, 2003, among the Grantor, CMS Enterprises Company, CUSA, as Administrative Agent and as Collateral Agent, and the Lenders named therein (said Agreement, as subsequently restated as the Sixth Amended and Restated Credit Agreement, dated as of May 18, 2005 and as further amended prior to the date hereof, the “Existing Credit Agreement”).

     (2) The Grantor, CUSA, as Administrative Agent and as Collateral Agent, and the Lenders have agreed to amend and restate the Existing Credit Agreement pursuant to that certain Seventh Amended and Restated Credit Agreement, dated as the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

     (3) The Grantor is the owner of the Collateral described in Exhibit “A” hereto.

     (4) It is a condition precedent to the effectiveness of the Credit Agreement that the Grantor shall have made the pledge contemplated by this Agreement.

     (5) It is the intention of the parties hereto that this Security Agreement be merely an amendment and restatement of the Existing Security Agreement and not constitute a novation of the grants of security or the obligations thereunder.

     NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Extensions of Credit under the Credit Agreement, the Grantor hereby agrees with the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, that the Existing Security Agreement is amended and restated in its entirety as follows:

ARTICLE I
DEFINITIONS

     1.1. Terms Defined in Credit Agreement. All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

1

     1.2. Terms Defined in New York Uniform Commercial Code. Terms defined in the New York UCC which are not otherwise defined in this Security Agreement are used herein as defined in the New York UCC.

     1.3. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in addition to the terms defined in the Preliminary Statements, the following terms shall have the following meanings:

     “Accounts” shall have the meaning set forth in Article 9 of the New York UCC.

     “Article” means a numbered article of this Security Agreement, unless another document is specifically referenced.

     “Collateral” means the Investment Property described on Exhibit “A” and the proceeds (including Stock Rights) and products thereof, together with records related thereto.

     “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the New York UCC.

     “Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.

     “Event of Default” means an event described in Section 5.1.

     “Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

     “Investment Property” shall have the meaning set forth in Article 9 of the New York UCC.

     “Lenders” means the lenders party to the Credit Agreement and their successors and assigns.

     “New York UCC” means the New York Uniform Commercial Code as in effect from time to time.

     “Permitted Liens” means the Liens permitted to be created, incurred or assumed or otherwise to exist pursuant to Section 8.02(a) of the Credit Agreement.

     “Section” means a numbered section of this Security Agreement, unless another document is specifically referenced.

     “Secured Obligations” means any and all existing and future indebtedness, obligations and liabilities of every kind, nature and character, direct or indirect, absolute or contingent (including all renewals, extensions and modifications thereof and all reasonable and reimbursable fees, costs and expenses incurred by any Secured Party in connection with the preparation, administration, collection or enforcement thereof), of the Grantor to any Secured

2

Party, arising under or pursuant to this Security Agreement, the Credit Agreement and any other Loan Document.

     “Secured Parties” means the Collateral Agent, the Administrative Agent and each Lender.

     “Security” has the meaning set forth in Article 8 of the New York UCC.

     “Stock Rights” means any securities, dividends or other distributions and any other right or property which the Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral and any securities, any right to receive securities and any right to receive earnings, in which the Grantor now has or hereafter acquires any right, issued by an issuer of such securities.

     The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II
GRANT OF SECURITY INTEREST

     The Grantor hereby pledges, assigns and grants to the Collateral Agent, on behalf of and for the ratable benefit of the Secured Parties, a security interest in all of the Grantor’s right, title and interest, whether now owned or hereafter acquired, in and to the Collateral to secure the prompt and complete payment and performance of the Secured Obligations, provided, however, that the principal amount of the Secured Obligations secured by the security interests granted pursuant to this Security Agreement shall not exceed an amount that would cause all secured Indebtedness of Grantor outstanding on the date hereof to exceed 5% of the “Consolidated Net Tangible Assets” (as defined in the Twelfth Supplemental Indenture dated as of July 2, 2001 between the Grantor and Bank One Trust Company, N.A. (successor to NBD Bank) with respect to the Grantor’s original Indenture dated as of September 15, 1992) as of the date hereof.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     The Grantor represents and warrants to the Collateral Agent and the other Secured Parties that:

     3.1. Title, Authorization, Validity and Enforceability. The Grantor has good and valid rights in or the power to transfer the Collateral and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens (other than Permitted Liens), and has full power and authority to grant to the Collateral Agent the security interest in such Collateral pursuant hereto. The execution and delivery by the Grantor of this Security Agreement has been duly authorized by proper corporate or other proceedings, and this Security Agreement constitutes a legal, valid and binding obligation of the Grantor and creates a security interest which is enforceable against the Grantor in all now owned and hereafter acquired Collateral. When financing statements (or appropriate amendments to existing filings)

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have been filed in the appropriate offices against the Grantor in the locations listed on Exhibit “B”, the Collateral Agent will have a fully perfected first priority security interest in the Collateral in which a security interest may be perfected by filing.

     3.2. Conflicting Laws and Contracts. The execution, delivery and performance by the Grantor of this Security Agreement (i) are within the Grantor’s powers, (ii) have been duly authorized by all necessary corporate or other organizational action or proceedings and (iii) do not and will not (A) require any consent or approval of the stockholders (or other applicable holder of equity) of the Grantor (other than such consents and approvals which have been obtained and are in full force and effect), (B) violate any provision of the charter or by-laws (or other comparable constitutive documents) of the Grantor or of law, (C) violate any legal restriction binding on or affecting the Grantor, (D) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Grantor is a party or by which it or its properties may be bound or affected, or (E) result in or require the creation of any Lien (other than pursuant to the Loan Documents as defined in the Credit Agreement) upon or with respect to any of its properties.

     3.3. Type and Jurisdiction of Organization. The Grantor is a corporation organized under the laws of the State of Michigan.

     3.4. Pledged Securities. Exhibit “A” sets forth a complete and accurate list of the Securities delivered to the Collateral Agent. The Grantor is the direct and beneficial owner of each Security listed on Exhibit “A” as being owned by it, free and clear of any Liens, except for the security interest granted to the Collateral Agent for the benefit of the Secured Parties hereunder and other Permitted Liens. The Grantor further represents and warrants that all such Securities have been duly and validly issued, are fully paid and non-assessable and constitute the percentage of the issued and outstanding shares of stock of the respective issuers thereof indicated on Exhibit “A” hereto.

ARTICLE IV
COVENANTS

     From the date of this Security Agreement, and thereafter until this Security Agreement is terminated:

     4.1. General.

          4.1.1 Inspection. The Grantor will permit the Collateral Agent or any Lender, by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make copies of the records of the Grantor relating to the Collateral and (iii) to discuss the Collateral and the related records of the Grantor with, and to be advised as to the same by, the Grantor’s officers and employees all at such reasonable times and intervals as the Collateral Agent or such Lender may determine.

          4.1.2 Records and Reports. The Grantor will maintain complete and accurate books and records with respect to the Collateral, and furnish to the Collateral Agent, with

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sufficient copies for each of the Lenders, such reports relating to the Collateral as the Collateral Agent shall from time to time reasonably request.

          4.1.3 Financing Statements and Other Actions; Defense of Title. The Grantor hereby authorizes the Collateral Agent to file, and if requested will execute and deliver to the Collateral Agent, all financing statements describing the Collateral and other documents and take such other actions as may from time to time be reasonably requested by the Collateral Agent in order to maintain a perfected security interest in and, if applicable, Control of, the Collateral. The Grantor will take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Collateral Agent in the Collateral and the priority thereof against any Lien not expressly permitted hereunder.

          4.1.4 Change in Corporate Existence, Type or Jurisdiction of Organization, Location, Name. The Grantor will preserve its existence as a corporation, not change its state of organization, and not change its mailing address, unless, in each such case, the Grantor shall have given the Collateral Agent not less than 10 days’ prior written notice of such event or occurrence and the Collateral Agent shall have either (x) determined that such event or occurrence will not adversely affect the validity, perfection or priority of the Collateral Agent’s security interest in the Collateral, or (y) taken such steps (with the cooperation of the Grantor to the extent necessary or advisable) as are necessary or advisable to properly maintain the validity, perfection and priority of the Collateral Agent’s security interest in the Collateral.

     4.2. Securities. The Grantor will (i) deliver to the Collateral Agent immediately upon execution of this Security Agreement the originals of all Securities constituting Collateral (if any then exist) and (ii) hold in trust for the Collateral Agent upon receipt and immediately thereafter deliver to the Collateral Agent any additional Securities constituting Collateral, in each case together with a stock power or endorsement therefor executed in blank.

     4.3. Stock and Other Ownership Interests. The Grantor will permit any registerable Collateral to be registered in the name of the Collateral Agent or its nominee at any time at the option of the Required Lenders following the occurrence and during the continuance of an Event of Default.

     4.4. Voting Rights and Dividends

     4.5.1 Rights Prior to Default. So long as no Event of Default, and no Default under Section 9.01(f) of the Credit Agreement, shall have occurred and be continuing:

     (i) Until the Collateral Agent shall have notified the Grantor in writing to the contrary, the Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement or the Credit Agreement, provided, however, that the Grantor shall not exercise or refrain from exercising any such right if such action would have a material adverse effect on the value of the Collateral.

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     (ii) The Grantor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Collateral; provided, however, that any and all (a) dividends and interest paid or payable other than in cash in respect of, and securities, instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Collateral, and (b) dividends, interest and other distributions paid or payable in cash in respect of any Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Collateral and shall, if received by the Grantor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of the Grantor, and be forthwith delivered to the Collateral Agent as Collateral in the same form as so received (with any necessary endorsement or assignment).

     (iii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to the Grantor all such proxies and other instruments as the Grantor may reasonably request for the purpose of enabling the Grantor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i), above, and to receive the dividends and interest which it is authorized to receive and retain pursuant to paragraph (ii), above.

     4.5.2 Rights During Default. Upon the occurrence and during the continuance of a Default under Section 9.01(f) of the Credit Agreement or an Event of Default:

     (i) Upon written notice to the Grantor by the Collateral Agent, which notice can only be given by the Collateral Agent with respect to the Collateral consisting of the common stock of Consumers after the Grantor has filed an application with the Federal Energy Regulatory Commission seeking approval pursuant to Section 203 of the Federal Power Act, 16 U.S.C. 824b, to transfer the common stock of Consumers to the Collateral Agent and received such approval from the Federal Energy Regulatory Commission, all rights of the Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 4.5.1(i) and to receive the dividends and interest which it would otherwise be authorized to receive and retain pursuant to Section 4.5.1(ii) shall cease, and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Collateral such dividends and interest. The Grantor shall only file the application pursuant to Section 203 of the Federal Power Act referred to in the prior sentence if the Collateral Agent instructs it to do so in writing, and the Grantor shall have 10 days after receipt of such instruction in which to prepare and make the filing; provided, that the Collateral Agent can withdraw such instruction at any time before the expiration of the ninth day after its receipt.

     (ii) All dividends and interest and other property which are received by the Grantor after proper written notice has been received by the Grantor pursuant to paragraph (i) of this Section 4.5.2 shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of the Grantor and shall be

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forthwith paid over to the Collateral Agent as Collateral in the same form as so received (with any necessary endorsement).

ARTICLE V
DEFAULT

     5.1. Default. The occurrence of any “Event of Default” under, and as defined in, the Credit Agreement shall constitute an Event of Default hereunder.

     5.2. Acceleration and Remedies. Upon the acceleration of the Obligations under the Credit Agreement pursuant to Section 9.02 thereof, the Collateral Agent may, with the concurrence or at the direction of the Required Lenders, exercise any or all of the following rights and remedies:

          5.2.1 Those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan Document, provided that this Section 5.2.1 shall not be understood to limit any rights or remedies available to the Collateral Agent and the other Secured Parties prior to an Event of Default.

          5.2.2 Those rights and remedies available to a secured party under the New York UCC (whether or not the New York UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement.

          5.2.3 Without notice except as specifically provided herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Collateral Agent may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

ARTICLE VI
WAIVERS, AMENDMENTS AND REMEDIES

     No delay or omission of the Collateral Agent or any other Secured Party to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by the Collateral Agent with the concurrence or at the direction of the Lenders required under Section 11.01 of the Credit Agreement and the Grantor, and then only to the extent in such writing specifically set forth. All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to the Collateral Agent and the other Secured Parties until the Secured Obligations have been paid in full in cash and all of the Commitments have been terminated.

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ARTICLE VII
SUBORDINATION OF INTERCOMPANY INDEBTEDNESS

     The Grantor agrees that any and all claims of the Grantor against any Subsidiary with respect to any “Intercompany Indebtedness” (as hereinafter defined), any endorser, obligor or any other guarantor of all or any part of the Secured Obligations, or against any of its properties shall be subordinate and subject in right of payment to the prior payment, in full and in cash, of all Secured Obligations; provided, that, for the avoidance of doubt, so long as no Event of Default shall be continuing, the Borrower and each Subsidiary may make loans to and receive payments in the ordinary course with respect to Intercompany Indebtedness (as hereinafter defined) from each other Subsidiary to the extent not prohibited by the terms of the Credit Agreement and the other Loan Documents. If all or any part of the assets of any the Borrower or any Subsidiary, or the proceeds thereof, are subject to any distribution, division or application to the creditors of party, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any such Loan Party is dissolved or if substantially all of the assets of any such party are sold, then, and in any such event (such events being herein referred to as an “Insolvency Event”), any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any indebtedness of any Subsidiary to the Grantor (“Intercompany Indebtedness”) shall be paid or delivered directly to the Collateral Agent for application to the Secured Obligations, due or to become due, until the Secured Obligations shall have been fully paid and satisfied in cash. Should any payment, distribution, security or instrument or proceeds thereof be received by the Grantor upon or with respect to the Intercompany Indebtedness after any Insolvency Event and prior to the satisfaction of all of the Secured Obligations, the Grantor shall receive and hold the same in trust, as trustee, for the benefit of the Secured Parties, and shall forthwith deliver the same to the Collateral Agent, for the benefit of the Secured Parties, in precisely the form received (except for any necessary endorsement or assignment of the Grantor), for application to the Secured Obligations, due or to become due, until the Secured Obligations shall have been fully paid and satisfied in cash, and, until so delivered, the same shall be held in trust by the Grantor as the property of the Secured Parties.

ARTICLE VIII
GENERAL PROVISIONS

     8.1. Secured Party Performance of Grantor’s Obligations. Without having any obligation to do so, the Collateral Agent may perform or pay any obligation which the Grantor has agreed to perform or pay in this Security Agreement and the Grantor shall reimburse the Collateral Agent for any reasonable amounts paid by the Collateral Agent pursuant to this Section 8.1. The Grantor’s obligation to reimburse the Collateral Agent pursuant to the preceding sentence shall be an Obligation payable on demand.

     8.2. Authorization for Secured Party to Take Certain Action. The Grantor irrevocably authorizes the Collateral Agent at any time and from time to time in the sole discretion of the Collateral Agent and appoints the Collateral Agent as its attorney in fact (i) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Collateral and

8

which are Securities or with financial intermediaries holding other Investment Property as may be necessary or advisable solely to give the Collateral Agent Control over such Securities or other Investment Property, (ii) following the occurrence and during the continuance of an Event of Default, to apply the proceeds of any Collateral received by the Collateral Agent to the Secured Obligations and (iii) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted hereunder or under any other Loan Document), and the Grantor agrees to reimburse the Collateral Agent on demand for any reasonable payment made or any reasonable expense incurred by the Collateral Agent in connection therewith, provided that this authorization shall not relieve the Grantor of any of its obligations under this Security Agreement or under the Credit Agreement.

     8.3. Benefit of Agreement. The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of the Grantor, the Collateral Agent and the other Secured Parties and their respective successors and assigns (including all persons who become bound as a debtor to this Security Agreement), except that the Grantor shall not have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Collateral Agent.

     8.4. Survival of Representations. All representations and warranties of the Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.

     8.5. Taxes and Expenses. Any stamp, documentary or (to the extent provided in the Credit Agreement) withholding taxes payable or ruled payable by Federal or State authority in respect of this Security Agreement shall be paid by the Grantor, together with interest and penalties, if any. The Grantor shall reimburse the Collateral Agent for any and all reasonable out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the Collateral Agent) paid or incurred by the Collateral Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by the Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by the Grantor.

     8.6. Headings. The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

     8.7. CHOICE OF LAW. SUBMISSION TO JURISDICTION. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). EACH OF THE GRANTOR AND THE COLLATERAL AGENT (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT

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SITTING IN NEW YORK CITY IN ANY ACTION ARISING OUT OF ANY LOAN DOCUMENT, (II) AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED IN SUCH COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY MAIL. A FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO BRING ANY ACTION IN ANY OTHER COURT. THE GRANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR THE LENDERS. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.

     8.8. Indemnity. The Grantor hereby agrees to indemnify the Collateral Agent and its successors, assigns, agents and employees (each, an “indemnified party”), from and against any and all liabilities, damages, penalties, suits, costs, and expenses of any kind and nature (including, without limitation, all expenses of litigation or preparation therefor whether or not the Collateral Agent is a party thereto) imposed on, incurred by or asserted against the Collateral Agent, or its successors, assigns, agents and employees, in any way relating to or arising out of this Security Agreement, or the ownership, delivery, possession, or other disposition of any Collateral except to the extent that such liabilities, damages, penalties, costs or expenses were caused by the gross negligence or willful misconduct of such indemnified party.

     8.9. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including facsimile communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered, if to the Grantor, at its address at One Energy Plaza, Jackson, Michigan 49201, Attention: James E. Brunner Attention: Laura L. Mountcastle, and if to the Collateral Agent, at its address specified in the Credit Agreement, or, as to either party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and other communications shall, when mailed or telecopied, be effective five days after when deposited in the mails, or when telecopied.

     8.10. Continuing Security Interest; Assignments under Credit Agreement. This Security Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the earlier to occur of (x) the payment in full of all Secured Obligations now or hereafter existing under the Credit Agreement, whether for principal, interest, fees, expenses or otherwise, and all other amounts payable under this Security Agreement and the termination of all of the Commitments or (y) the release by the Collateral Agent of its security

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interest in all of the Collateral, (ii) be binding upon the Grantor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of, and be enforceable by, the Collateral Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) and Section 8.3 above, any Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Loans owing to it and any Promissory Note held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however to the provisions of Sections 10.03 and 11.07 of the Credit Agreement. Upon the earlier to occur of (A) the payment in full of all Secured Obligations now or hereafter existing under the Credit Agreement, whether for principal, interest, fees, expenses or otherwise, and all other amounts payable under this Security Agreement and the termination of all of the Commitments or (B) the release by the Collateral Agent of its security interest in all of the Collateral, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantor. In addition, the Collateral Agent shall release any Collateral as permitted or required pursuant to Section 10.03 of the Credit Agreement. Upon any such termination, the Collateral Agent will, at the Grantor’s expense, return to the Grantor such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.

     8.11. WAIVER OF JURY TRIAL. THE GRANTOR AND THE COLLATERAL AGENT EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER.

     8.12. No Novation. It is the intention of the parties hereto that this Security Agreement be merely an amendment and restatement of the Existing Security Agreement and not constitute a novation of the grants of security or the obligations thereunder.

[Remainder of page intentionally blank.]

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     IN WITNESS WHEREOF, the Grantor and the Collateral Agent have executed this Security Agreement as of the date first above written.

CMS ENERGY CORPORATION
By:	/s/ Laura L. Mountcastle
	Title: Vice President and Treasurer

AGREED AND ACKNOWLEDGED: CITICORP USA, INC., as Collateral Agent
By:
	Title:

Signature Page to
Fourth Amended and Restated Pledge Agreement
(CMS Energy)

     IN WITNESS WHEREOF, the Grantor and the Collateral Agent have executed this Security Agreement as of the date first above written.

CMS ENERGY CORPORATION
By:
	Title:

AGREED AND ACKNOWLEDGED: CITICORP USA, INC., as Collateral Agent
By:	/s/ AMIT VASANI
	AMIT VASANI
	Title:	Vice President

Signature Page to
Fourth Amended and Restated Pledge Agreement
(CMS Energy)

EXHIBIT “A”

List of Pledged Securities and Pledged Instruments¹
(See Section 3.4 of Security Agreement)

STOCK OWNED BY CMS ENERGY CORPORATION:

Issuer	Certificate Number		Number of Shares		Percentage Ownership Interest
Consumers Energy Company		04		84,108,789		100	%

INSTRUMENTS OWNED BY CMS ENERGY CORPORATION

Obligor	Amount	Interest Rate	Maturity
None

GENERAL INTANGIBLES AND OTHER SECURITIES OR OTHER INVESTMENT
PROPERTY (CERTIFICATED AND UNCERTIFICATED)
OWNED BY CMS ENERGY CORPORATION:

Issuer	Description of Collateral	Percentage Ownership Interest
None

¹ CMS to confirm.

A-1

EXHIBIT “B”
(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

Secretary of State of Michigan

B-1

EX-10.(C)

EXHIBIT 10(c)

EXECUTION COPY

AMENDED AND RESTATED CASH COLLATERAL AGREEMENT

     THIS AMENDED AND RESTATED CASH COLLATERAL AGREEMENT, dated as of April 2, 2007 (this “Agreement”), made by CMS ENERGY CORPORATION, a Michigan corporation (the “Pledgor”), to CITICORP USA, INC. (“CUSA”), as administrative agent (in such capacity, the Administrative Agent”) for the lenders (the “Lenders”) parties to the Credit Agreement (as hereinafter defined) and as collateral agent (in such capacity, the “Collateral Agent”) for the Lenders.

PRELIMINARY STATEMENTS

          (1) The Administrative Agent, the Collateral Agent and the Lenders have entered into that certain Seventh Amended and Restated Credit Agreement, dated as of the date hereof (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the “Credit Agreement”, the terms defined therein and not otherwise defined herein being used herein as therein defined), with the Pledgor.

          (2) The Pledgor and the Administrative Agent have previously entered into that certain Cash Collateral Agreement, dated as of August 3, 2005 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the “Existing Agreement”) pursuant to which cash collateral is deposited by the Administrative Agent in a special non-interest-bearing cash collateral account (the “Account”) with the Collateral Agent at its office at 388 Greenwich Street, New York, New York 10013, Account No. 30579578 (or at such other office of the Collateral Agent as the Collateral Agent may, from time to time, notify the Pledgor and the Administrative Agent), in the name of the Pledgor but under the sole control and dominion of the Collateral Agent and subject to the terms of this Agreement and the Credit Agreement.

          (3) The Pledgor and the Administrative Agent have agreed to amend and restate the Existing Agreement pursuant to this Agreement.

          NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby agrees with the Collateral Agent and the Administrative Agent, for their benefit and the ratable benefit of the Lenders and the LC Issuer, as follows:

          SECTION 1. Pledge and Assignment. The Pledgor hereby pledges and assigns to the Collateral Agent, for its benefit and the ratable benefit of the Administrative Agent, the Lenders and the LC Issuer, and grants to the Collateral Agent, for its benefit and the ratable benefit of the Administrative Agent, the Lenders and the LC Issuer, a security interest in, the following collateral (collectively, the “Collateral):

     (i) the Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Account;

     (ii) all Investments (as hereinafter defined) from time to time, and all certificates and instruments, if any, from time to time representing or evidencing the Investments;

     (iii) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Collateral Agent for or on behalf of the Pledgor in substitution for or in addition to any or all of the then existing Collateral;

     (iv) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Collateral; and

     (v) all proceeds of any and all of the foregoing Collateral.

          SECTION 2. Security for Obligations. This Agreement secures the payment of all reimbursement obligations of the Pledgor now or hereafter existing with respect to LC Outstandings and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations of the Pledgor being the “Secured Obligations”). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and which remain outstanding after the Commitment Termination Date or otherwise would be owed by the Pledgor to the Administrative Agent, the Collateral Agent or the Lenders under the Credit Agreement and the Promissory Notes (if any) but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor.

          SECTION 3. Delivery of Collateral. All certificates or instruments, if any, representing or evidencing the Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time upon the occurrence and during the continuance of an Event of Default, in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Collateral. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations.

          SECTION 4. Maintaining the Account. So long as any LC Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Commitment:

     (a) The Pledgor will maintain the Account with the Collateral Agent.

     (b) It shall be a term and condition of the Account, notwithstanding any term or condition to the contrary in any other agreement relating to the Account and except as otherwise provided by the provisions of Sections 6, 13 and 17, that no amount (including interest on the Account, if any) shall be paid or released to or for the account of, or

2

withdrawn by or for the account of, the Pledgor or any other Person (other than the Administrative Agent or the Collateral Agent) from the Account.

          The Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect.

          SECTION 5. Investing of Amounts in the Account. If requested by the Pledgor, the Collateral Agent will, subject to the provisions of Section 6 and Section 13, from time to time (a) invest amounts on deposit in the Account in such Permitted Investments as the Pledgor may select and the Administrative Agent may approve and (b) invest interest paid on the Permitted Investments referred to in clause (a) above, and reinvest other proceeds of any such Permitted Investments which may mature or be sold, in each case in such Permitted Investments as the Pledgor may select and the Administrative Agent may approve (the Permitted Investments referred to in clauses (a) and (b) above, being collectively “Investments”). Interest and proceeds that are not invested or reinvested in Investments as provided above shall be deposited and held in the Account.

          SECTION 6. Release of Amounts. So long as no Event of Default or Default shall have occurred and be continuing, the Collateral Agent will pay and release to the Pledgor or at its order, upon the request of the Pledgor, (a) amounts of credit balance of the Account and of principal of any other Collateral when matured or sold to the extent that (i) the sum of the credit balance of the Account plus the aggregate outstanding principal amount of all other Collateral exceeds (ii) the aggregate Dollar Equivalent of the LC Outstandings in respect of all Letters of Credit and all other amounts owing by the Pledgor hereunder, (b) all amounts in the Account if (i) the aggregate of all of the Commitments shall exceed the Total Outstandings, (ii) the aggregate Dollar Equivalent of the LC Outstandings in respect of all Letters of Credit denominated in euro and all other amounts owing by the Pledgor hereunder are less than $40,000,000, (iii) the aggregate Dollar Equivalent of the LC Outstandings in respect of all Letters of Credit denominated in Indian Rupees and all other amounts owing by the Pledgor hereunder are less than $3,000,000, and (iv) the aggregate Dollar Equivalent of the LC Outstandings in respect of all Letters of Credit denominated in Canadian Dollars and all other amounts owing by the Pledgor hereunder are less than $30,000,000 and (c) all interest and earnings on the Investments deposited and held in the Account.

          SECTION 7. Representations and Warranties. The Pledgor represents and warrants as follows:

     (a) The Pledgor is the legal and beneficial owner of the Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement.

     (b) The pledge and assignment of the Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations.

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     (c) No consent of any other Person and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (i) for the pledge and assignment by the Pledgor of the Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest) or (iii) for the exercise by the Collateral Agent of its rights and remedies hereunder.

     (d) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived.

     (e) The Pledgor has, independently and without reliance upon the Administrative Agent, the Collateral Agent or any Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.

          SECTION 8. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral.

          SECTION 9. Transfers and Other Liens. The Pledgor agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect to any of the Collateral, except for the security interest under this Agreement.

          SECTION 10. Collateral Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Collateral Agent the Pledgor’s attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time upon the occurrence and during the continuance of an Event of Default or Default or otherwise to the extent that the Collateral Agent shall reasonably deem any action to be necessary in order to maintain its security interest in the Collateral, in the Collateral Agent’s discretion, to take any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any interest payment, dividend or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

          SECTION 11. Collateral Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by the Pledgor under Section 14.

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     SECTION 12. The Collateral Agent’s Duties. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Administrative Agent, the Collateral Agent or any Lender has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property.

     SECTION 13. Remedies upon Default. If any Event of Default shall have occurred and be continuing:

     (a) The Collateral Agent may, and shall at the direction of the Administrative Agent, without notice to the Pledgor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Account against the Secured Obligations or any part thereof.

     (b) The Collateral Agent may also exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of New York at that time (the “Code”) (whether or not the Code applies to the affected Collateral), and may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

     (c) Any cash held by the Collateral Agent as Collateral and all cash proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Collateral Agent as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 14) in whole or in part by the Administrative Agent for its benefit and the ratable benefit of the Collateral Agent, the Lenders and the LC Issuer against, all or any part of the Secured Obligations in such order as the Administrative Agent shall elect. Any surplus of such cash or cash proceeds held by the Collateral

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Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

          SECTION 14. Expenses. The Pledgor will upon demand pay to the Collateral Agent and the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Collateral Agent or the Administrative Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Administrative Agent, the Collateral Agent or the Lenders hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof.

          SECTION 15. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent and the Collateral Agent and, in the case of any amendment hereof, the Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

          SECTION 16. Addresses for Notices. All notices and other communications provided for hereunder shall be made and delivered in accordance with Section 11.02 of the Credit Agreement.

          SECTION 17. Continuing Security Interest; Assignments under Credit Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the later of (x) the payment in full of the Secured Obligations and the expiration or termination of each Letter of Credit and (y) the expiration or termination of the Commitments under the Credit Agreement, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, the Administrative Agent, the Collateral Agent, the Lenders, the LC Issuer and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Loans owing to it and any Promissory Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however, to the provisions of Article X (concerning the Agents) and Section 11.07 of the Credit Agreement. Upon the later to occur of (x) the payment in full of the Secured Obligations and the expiration or termination of each Letter of Credit and (y) the expiration or termination of the Commitments under the Credit Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Pledgor. Upon any such termination, the Collateral Agent will, at the Pledgor’s expense, return to the Pledgor such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination.

          SECTION 18. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE

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STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Code are used herein as therein defined.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

CMS ENERGY CORPORATION
By:	/s/ Laura L. Mountcastle
	Name:	Laura L. Mountcastle
	Title:	Vice President and Treasurer

ACCEPTED AND AGREED: CITICORP USA, INC., as Administrative      Agent and as Collateral Agent
By:
	Name:
	Title:

Signature Page to
Amended and Restated Cash Collateral Agreement

     IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

CMS ENERGY CORPORATION
By:
	Name:
	Title:

ACCEPTED AND AGREED: CITICORP USA, INC., as Administrative      Agent and as Collateral Agent
By:	/s/ AMIT VASANI
	Name:	AMIT VASANI
	Title:	Vice President

Signature Page to
Amended and Restated Cash Collateral Agreement

EX-10.(E)

Exhibit (10)(e)

Executive Severance Agreement
for Senior Officers

Tier I

Contents

Article 1.	Establishment, Term, and Purpose	1
Article 2.	Definitions	2
Article 3.	Severance Benefits	7
Article 4.	Other Terminations	12
Article 5.	Noncompetition and Confidentiality	13
Article 6.	Excise Tax Equalization Payment	15
Article 7.	Dispute Resolution and Notice	16
Article 8.	Successors and Assignment	16
Article 9.	Miscellaneous	17

Executive Severance Agreement

     THIS EXECUTIVE SEVERANCE AGREEMENT (“Agreement”) is made, entered into, and is effective as of                     , 2004 (hereinafter referred to as the “Effective Date”), by and between,                                         , a Michigan corporation, (hereinafter referred to as the “Employer”) and                                           (hereinafter referred to as the “Executive”).

     WHEREAS, the Board of Directors of CMS Energy Corporation has approved entering into severance agreements with certain key executives as being necessary and advisable for the success of CMS Energy Corporation;

     WHEREAS, the Executive is currently employed at                                         , by the Employer in a key management position as                                         ;

     WHEREAS, the Board of Directors of CMS Energy Corporation wants to provide the Executive with a measure of financial security in the event of certain terminations of employment; and

     WHEREAS, both the Employer and the Executive are desirous that any proposal involving Change in Control as defined in this Agreement will be considered by the Executive objectively and with reference only to the business interests of CMS Energy Corporation and its shareholders.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intended to be legally bound, agree as follows:

Article 1. Establishment, Term, and Purpose

     This Agreement will commence on the Effective Date and shall continue in effect for three (3) full years through March           , 2007. However, at the end of such three (3) year period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Executive delivers written notice six (6) months prior to the end of such term, or extended term, to the Committee, stating that the Agreement will not be extended by Executive. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. However, in the event of a Change in Control (as defined in Section 2.7 herein) of CMS Energy Corporation, the term of this Agreement shall automatically be extended for two (2) years from the date of the Change in Control if the current term of the Agreement has less than two (2) full years remaining until its expiration. If the term of this Agreement is not extended, the Employer is not obligated to pay any severance benefits under Section 3.2 for a Change in Control that happens after the expiration of the term and is not obligated to pay any severance benefits under Section 3.3 with respect to any other termination that happens after the expiration of the term.

Article 2. Definitions

     Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.

2.1	“Affiliate” shall have the meaning set forth in Rule 12B-2 promulgated under Section 12 of the Exchange Act.
2.2	“Base Salary” means the greater of the Executive’s full annual rate of salary, whether or not any portion thereof is paid on a deferred basis, at: (i) the Effective Date of Termination, or (ii) at the date of the Change in Control. It does not include any incentive compensation in any form, bonuses of any type or any other form of monetary or nonmonetary compensation other than salary.
2.3	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.4	“Beneficiary” means the persons or entities designated or deemed designated by the Executive pursuant to Section 9.5 herein.
2.5	“Board” means the Board of Directors of CMS Energy Corporation.
2.6	“Cause” shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a)	The willful and continued failure by the Executive to substantially perform his or her duties of employment (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his or her duties, and the Executive has failed to remedy the situation within a reasonable period of time specified by the Committee which shall not be less than 30 days; or
(b)	The Executive’s arrest for committing an act of fraud, embezzlement, theft, or other act constituting a felony involving moral turpitude; or
(c)	The willful engaging by the Executive in misconduct materially and demonstrably injurious to CMS Energy Corporation or its Affiliates, monetarily or otherwise.

However, for purposes of clauses (a) and (c), no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by

the Executive not in good faith and without reasonable belief that his or her action or omission was in the best interest of CMS Energy Corporation or its Affiliates.

2.7 “Change in Control” means a change in control of CMS Energy Corporation, and shall be deemed to have occurred upon the first to occur of any of the following events:

(a)	Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or
(b)	The following individuals cease for any reason to constitute a majority of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CMS Energy Corporation) whose appointment or election by the Board or nomination for election by CMS Energy Corporation’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or
(c)	The consummation of a merger or consolidation of CMS Energy Corporation or any direct or indirect subsidiary of CMS Energy Corporation with any other corporation or other entity, other than: (i) any such merger or consolidation which involves either CMS Energy Corporation or any such subsidiary and would result in the voting securities of CMS Energy Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of CMS Energy Corporation or its Affiliates, at least sixty percent (60%) of the combined voting power of the voting securities of CMS Energy Corporation or the surviving entity or any parent thereof outstanding immediately after such merger or consolidation and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of CMS Energy Corporation, the entity surviving such merger or consolidation or, if CMS Energy Corporation or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or (ii) a merger or consolidation effected to implement a recapitalization of CMS Energy Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of

securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities; or

(d) Either (1) the stockholders of CMS Energy Corporation approve a plan of complete liquidation or dissolution of CMS Energy Corporation, or (2) there is consummated an agreement for the sale, transfer or disposition by CMS Energy Corporation of all or substantially all of CMS Energy Corporation’s assets (or any transaction having a similar effect). For purposes of clause (d)(2), (i) the sale, transfer or disposition of a majority of the shares of common stock of Consumers Energy Company shall constitute a sale, transfer or disposition of substantially all of the assets of CMS Energy Corporation and (ii) the sale, transfer or disposition of subsidiaries or affiliates of CMS Energy Corporation, singly or in combinations, or their assets, only qualifies as a Change in Control if it satisfies the substantiality test contained in that clause and the Board of CMS Energy Corporation’s determination in that regard is final. In addition, for purposes of clause (d)(2), the sale, transfer or disposition of assets has to be in a transaction or series of transactions closing within six months after the closing of the first transaction in the series, other than with an entity in which at least 60% of the combined voting power of the voting securities is owned by stockholders of CMS Energy Corporation in substantially the same proportions as their ownership of CMS Energy Corporation immediately prior to such transaction or transactions and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold, transferred or disposed or, if such entity is a subsidiary, the ultimate parent thereof.

Notwithstanding the foregoing clauses (a), (c) and (d), a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions closing within six months after the closing of the first transaction in the series immediately following which the record holders of the common stock of CMS Energy Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CMS Energy Corporation immediately following such transaction or series of transactions.

2.8	“Code” means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.
2.9	“Committee” means the Organization and Compensation Committee of the Board of CMS Energy Corporation or any other committee appointed by the Board of CMS Energy Corporation to perform the functions of the Organization and Compensation Committee.
2.10	“Disability” means for all purposes of this Agreement, the incapacity of the Executive, due to injury, illness, disease, or bodily or mental infirmity, which causes the Executive not to engage in the performance of a substantial or material portion of the Executive’s usual duties of employment associated with such Executive’s position. Such Disability shall be determined based on competent medical advice.

2.11	“Effective Date” means the date of this Agreement as specified in the opening sentence of this Agreement.
2.12	“Effective Date of Termination” means the date on which a Qualifying Termination occurs, as provided under Section 2.17 hereunder, which triggers the payment of Severance Benefits hereunder.
2.13	“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
2.14	“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Executive’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Executive of duties materially inconsistent with the Executive’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a diminution of the Executive’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Executive); or
(b)	Reducing the Executive’s Base Salary; or
(c)	Reducing the Executive’s targeted annual incentive opportunity; or
(d)	Failing to maintain the Executive’s participation in a long-term incentive plan in a manner that is consistent with the Executive’s position, authority, or responsibilities; or
(e)	Failing to maintain the Executive’s amount of benefits under, or relative level of participation in, employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Executive participates as of the Effective Date; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer within ten (10) business days of receipt of written notice of such breach delivered by the Executive to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Executive under this Agreement in their entirety, as required by Section 8.1 hereunder; or

(h)	The Executive is required to be based at a location in excess of thirty-five (35) miles from the location of the Executive’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Executive’s prior business travel obligations; or
(i)	The Executive ceases being an executive officer of a company (other than by reason of death, Disability or Cause) whose common stock is publicly owned if immediately prior to the Change in Control the Executive was an executive officer of a company whose common stock was publicly owned.

For purposes of applying clauses (a) through (i) of this Agreement, the Executive’s Retirement shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason, and the Executive’s continued employment shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason or constitute Executive’s consent to the circumstances constituting Good Reason unless Executive has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Finally, for purposes of implementing this Agreement, any claim by Executive that Good Reason exists shall be presumed to be correct unless the Committee determines by clear and convincing evidence that Good Reason does not exist, which evidence shall be presented by the person disputing the claim that Good Reason exists.

2.15	“Notice of Termination” shall be provided for a Qualifying Termination and shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. The notice shall provide a specific date on which a Qualifying Termination has occurred and is effective for purposes of this Agreement.
2.16	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as provided in Section 13(d).
2.17	“Qualifying Termination” means:

(a)	An involuntary termination of the Executive’s employment by the Employer on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control for reasons other than death, Disability, Retirement, or Cause pursuant to a Notice of Termination delivered to the Executive by the Employer; or
(b)	A voluntary termination by the Executive for Good Reason on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control pursuant to a Notice of Termination delivered to the Employer by the Executive.

(c) A termination (not involving death, Disability, Retirement or Cause), which takes place before the date of a Change in Control or after the first twenty-four (24) months immediately following a Change in Control, pursuant to a Notice of Termination delivered to Executive or pursuant to a request that Executive submit a resignation as an officer. A termination for failure of the Executive to comply in material respects with CMS Energy’s Code of Conduct and Statement of Ethics Handbook (June 2003 edition) or other corporate policies, as the handbook and those documents may be amended from time to time, does not satisfy the definition of a Qualifying Termination under this clause (c).

2.18	“Release Date” occurs after the delivery of the Notice of Termination required by Section 2.15 and means the date on which the release contained in Exhibit A to this Agreement is first provided to Executive for signature.
2.19	“Retirement” shall have the meanings ascribed under the terms of the pension plan applicable to Executive and entitled “Pension Plan for Employees of Consumers Energy Company,” dated September 1, 2000, as amended, other than under Section 7 thereof, or under the successor or replacement of such pension plan if it is then no longer in effect.
2.20	“SERP” shall mean the retirement plan applicable to Executive and entitled “Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company,” dated May 1, 1998, as amended, or under the successor or replacement of such retirement plan if it is then no longer in effect.
2.21	“Severance Benefits” means the payment of Change-in-Control Severance Benefits or General Severance Benefits as provided in Article 3 herein.

Article 3. Severance Benefits

3.1 Right to Severance Benefits.

(a) Change-in-Control Severance Benefits. The Executive shall be entitled to receive from the Employer Change-in-Control Severance Benefits, as described in Section 3.2 herein, if a Qualifying Termination of the Executive’s employment satisfying the definitions contained in Section 2.17(a) or (b) has occurred on the date of a Change in Control of CMS Energy Corporation or within twenty-four (24) months immediately following a Change in Control of CMS Energy Corporation. Further, Executive’s Retirement under the pension plan and SERP shall not constitute a waiver of the Executive’s rights with respect to receipt of Change-in-Control Severance Benefits. Nor shall benefits received for Retirement under the pension plan and SERP (or any replacement or successor plans thereto) be used as an offset to the level of Change-in-Control Severance Benefits owed to Executive.

(b)	General Severance Benefits. The Executive shall be entitled to receive from the Employer General Severance Benefits, as described in Section 3.3 herein, if the Executive’s employment is terminated for reasons satisfying the definition contained in Section 2.17(c) and such termination has occurred either before a Change of Control of CMS Energy Corporation or during the period that begins after the expiration of twenty-four (24) months immediately following a Change in Control of CMS Energy Corporation. Further, Executive’s Retirement under the pension plan and SERP shall not constitute a waiver of the Executive’s rights with respect to receipt of General Severance Benefits. Nor shall benefits received for Retirement under the pension plan and SERP (or any replacement or successor plans thereto) be used as an offset to the level of General Severance Benefits owed to Executive.
(c)	No Severance Benefits. Other than in a situation involving a Retirement, the Executive shall not be entitled to receive Severance Benefits if the Executive’s employment with the Employer ends for reasons other than a Qualifying Termination.
(d)	General Release. As a condition precedent to receiving Severance Benefits under Section 3.3 herein, the Executive shall be obligated to execute and deliver to the Employer on a timely basis duplicate originals of a general release of claims in the form included as Exhibit A hereto.
(e)	Waiver and Release. The Executive’s act of accepting payment of Severance Benefits payable under Section 3.2 of this Agreement shall constitute and is deemed an express waiver, release and discharge by Executive of any and all claims for damages or other remedies, regardless of when they arose or when they are discovered, against CMS Energy Corporation and its Affiliates arising out of or in any way connected with Executive’s employment relationship with them or the termination of such employment relationship except for claims and rights of Executive preserved under Section 3.2 of this Agreement and applicable rights to indemnification.
(f)	No Duplication of Severance Benefits. If the Executive becomes entitled to Change-in-Control Severance Benefits, the benefits provided for under Section 3.2 hereunder shall be in lieu of all other benefits provided to the Executive under the provisions of this Agreement including, but not limited to, the benefits under Section 3.3. Likewise, if the Executive becomes entitled to General Severance Benefits, the benefits provided under Section 3.3 hereunder shall be in lieu of all other benefits provided to the Executive under the provisions of this Agreement including, but not limited to, the benefits under Section 3.2. If the Executive receives either Change-in-Control Severance Benefits under Section 3.2 or General Severance Benefits under Section 3.3, any other severance benefits received by employees not covered by this Agreement to which the Executive is entitled will be subtracted from the Severance Benefits paid pursuant to this Agreement.

3.2 Description of Change-in-Control Severance Benefits. In the event the Executive becomes entitled to receive Change-in-Control Severance Benefits, as provided in Section 3.1(a) herein, the Employer shall provide the Executive with the following:

(a)	A lump-sum amount paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to the sum of the Executive’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and unreimbursed allowances owed to the Executive through and including the Effective Date of Termination.
(b)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to two (2) times the sum of the following: (A) the Executive’s Base Salary and (B) the greater of the Executive’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Executive in respect of the year prior to the year in which the Qualifying Termination occurs.
(c)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to the Executive’s then current target bonus opportunity established under the bonus plan in which the Executive is then participating, for the plan year in which the Qualifying Termination occurs, adjusted on a pro rata basis for the number of days that have elapsed to the Effective Date of Termination during the bonus plan year in which the Qualifying Termination occurs.
(d)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to one (1) times the sum of the following: (A) the Executive’s Base Salary and (B) the greater of the Executive’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Executive in respect of the year prior to the year in which the Qualifying Termination occurs. Such amount shall be consideration for the Executive entering into the noncompete agreement as described in Section 5(a).
(e)	Equivalent payment to Executive in a lump sum amount within forty-five (45) calendar days following delivery of the Notice of Termination for continued medical coverage for a period of thirty-six (36) months. Such equivalent payment shall be computed based on the same coverage level as in effect for Executive under the general health care plan available to all employees on the Effective Date of Termination by providing a lump sum payment of the Employer’s portion of the monthly COBRA premium in effect on the Effective Date of Termination times thirty-six (36). Nothing herein amends or provides

Executive any rights to health care coverage other than as provided in the applicable group health care plan. If the Executive has waived coverage under the applicable group health care plan, no equivalent payment shall be made under this Agreement.

(f)	Immediate extension (as allowable by Section 6.10 of Article VI of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) by one year after the Effective Date of Termination of the period for Executive to exercise any outstanding stock options or stock appreciation rights granted by the Committee to Executive pursuant to said Article VI. Otherwise, the terms of said plan shall govern and be applied.
(g)	Immediate vesting and distribution to Executive (as allowable by the second sentence of Section 7.2(h) of Article VII of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) within forty-five (45) days after delivery of the Notice of Termination of all outstanding shares of restricted stock previously awarded to Executive pursuant to said Article VII. For any award of restricted stock to which there are future performance goals attached, the number of shares distributed to Executive shall assume that the goals have been achieved in full and the award fully earned based on target performance without deductions or additions to the number of shares then held by Executive. For any award of restricted stock that is tenure based, the number of shares distributed to Executive shall assume that all requirements with respect to tenure are satisfied by Executive. Otherwise, the terms of said plan shall govern and be applied.
(h)	For an Executive included in SERP, the Executive’s retirement benefits under the SERP will become fully vested as of the Effective Date of Termination and shall not be subject to further vesting requirements or to any forfeiture provisions. In addition, said Executive shall be provided the following: (i) an additional thirty-six (36) months of Preference Service (as defined in SERP) for purposes of the SERP in accordance with Section III(1) of SERP, subject, however, to the total of Preference Service plus Accredited Service being limited to a maximum of thirty-five (35) years under SERP, and (ii) only the amounts paid to Executive pursuant to clauses (a), (b), (c) and (d) of this Section 3.2 shall be considered a “severance payment under an employment agreement” for purposes of computing Final Executive Pay under SERP. Since the Executive is over the age of 55, the provisions of the last complete paragraph of Section V(3) of SERP shall not be operative. The enhanced SERP benefits under this Section 3.2(h) shall be in lieu of any Change-in-Control enhancements provided for in the SERP.
(i)	For purposes of (1) Retirement, (2) SERP and (3) benefits not expressly discussed in clauses (a) through (h) of this Section 3.2, but which are available to the general employee population or available only to officers and

implemented with contracts with third parties, the benefit plan descriptions covering all employees and the retirement plan and SERP plan descriptions and contracts with third parties covering officers in place at the time of the Effective Date of Termination control Executive’s treatment under those plans and contracts. For any other benefits only available to officers, if those benefits are not expressly discussed in clauses (a) through (h) of this Section 3.2, those benefits are terminated for Executive as of the Effective Date of Termination.

3.3 Description of General Severance Benefits. In the event the Executive becomes entitled to receive General Severance Benefits as provided in Section 3.1(b) herein, the Employer shall provide the Executive with the following:

(a)	A lump-sum amount paid within fifteen (15) calendar days following delivery to the Executive of a Notice of Termination with respect to a Qualifying Termination as described in Section 2.17 (c) of this Agreement, equal to the sum of the Executive’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and unreimbursed allowances owed to the Executive through and including the Effective Date of Termination.
(b)	An amount, paid following the Release Date on an installment basis over a period of twelve (12) months on a twice a month schedule in accordance with the normal payroll procedures of the Employer, equal to two (2) times the sum of: (A) the Executive’s Base Salary and (B) the greater of the Executive’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Executive in respect of the year prior to the year in which the Qualifying Termination occurs. The first of the twenty-four (24) installment payments called for by this section shall be made within forty-five (45) days following the Release Date.
(c)	A lump-sum amount, paid within forty-five (45) calendar days following the Release Date, equal to the Executive’s then current target bonus opportunity established under the bonus plan in which the Executive is then participating, for the plan year in which the Qualifying Termination occurs, adjusted on a pro rata basis for the number of days that have elapsed to the Effective Date of Termination during the bonus plan year in which the Qualifying Termination occurs.
(d)	Equivalent payment to Executive in a lump-sum amount within forty-five (45) days following the Release Date for continued medical coverage for a period of twenty-four (24) months. Such equivalent payment shall be computed based on the same coverage level as in effect for Executive under the general health care plan available to all employees on the Effective Date of Termination by providing a lump-sum payment of the Employer’s portion of the monthly COBRA premium in effect on the Effective Date of Termination times

twenty-four (24). Nothing herein amends or provides Executive any rights to health care coverage other than as provided in the applicable group health care plan. If the Executive has waived coverage under the applicable group health care plan, no equivalent payment shall be made under this Agreement.

(e) Outstanding stock options and stock appreciation rights previously granted by the Committee to Executive pursuant to Article VI of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended, shall be treated as a “termination of employment” in accordance with Section 6.10 of Article VI, provided however that Employee will not be eligible to seek or receive from the Committee any extensions of the period for their exercise. For outstanding shares of restricted stock held by Executive, they shall be forfeited to CMS Energy Corporation in accordance with the provisions of the first sentence of Section 7.2(h) of Article VII of said plan.) For purposes of (1) Retirement, (2) SERP and (3) benefits not expressly discussed in clauses (a) through (d) of this Section 3.3, but which are available to the general employee population or available only to officers and implemented with contracts with third parties, the benefit plan descriptions covering all employees and the retirement plan and SERP plan descriptions and contracts with third parties covering officers in place at the time of the Effective Date of Termination control Executive’s treatment under those plans and contracts. For any other benefits only available to officers, if those benefits are not expressly discussed in clauses (a) through (d) of this Section 3.3, those benefits are terminated for Executive as of the Effective Date of Termination.

Article 4. Other Terminations

4.1	Termination for Disability. If the Executive’s employment is terminated with the Employer due to Disability, the Executive’s benefits shall be determined in accordance with the Employer’s retirement, insurance, and other applicable plans and programs then in effect.
4.2	Termination for Retirement or Death. If the Executive’s employment with the Employer is terminated by reason of his Retirement or death, the Executive’s benefits shall be determined in accordance with the Employer’s retirement and SERP plans, survivor’s benefits, insurance, and other applicable programs then in effect.
4.3	Termination for Cause or by Employer or the Executive for Other Than Good Reason. If the Executive’s employment is terminated either: (a) by the Employer for Cause as defined in Section 2.6 of this Agreement; or (b) voluntarily by the Executive for reasons other than those specified in Section 2.14 herein, or (c) by the Employer for the reasons stated in the last sentence of Section 2.17(c) of this Agreement, the Employer shall pay the Executive the sum of any unpaid Base

Salary, accrued vacation, unreimbursed business expenses and unreimbursed allowances owed to the Executive through the effective date of termination. The terms of the benefit plan descriptions, compensation plan descriptions and contracts with third parties covering officers shall control the disposition to Executive and timing of all other amounts to which the Executive may be entitled, and neither the Employer nor CMS Energy Corporation nor any of its Affiliates shall have any further obligations to the Executive thereunder as a result of the existence of this Agreement. No other severance benefits of any type shall be made available to Executive. Notwithstanding the above, if the Executive’s employment terminates pursuant to this Section 4.3, the Executive shall be bound by the provisions contained in Article 5(a), 5(b), 5(c), 5(d), and 5(e) hereof.

4.4 Notice of Termination. Any termination of the Executive’s employment in accordance with Section 4.3 of this Agreement shall be communicated by Notice of Termination delivered to the other party, which shall include a specific date on which the termination has occurred and is effective.

Article 5. Noncompetition and Confidentiality

     In the event the Executive becomes entitled to receive Change-in-Control Severance Benefits as provided in Section 3.2 herein or General Severance Benefits as provided in Section 3.3 herein, the following shall apply:

(a)	Noncompetition. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not: (i) directly or indirectly act in concert or conspire with any person employed by CMS Energy Corporation or any of its Affiliates in order to engage in or prepare to engage in or to have a financial or other interest in any business which is a Direct Competitor (as defined below); or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business which is a Direct Competitor (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Exchange Act.
	For purposes of this Agreement, the term “Direct Competitor” shall mean any person or entity engaged in the business of selling electric power or natural gas at retail within the State of Michigan.
	The Committee also reserves the right to designate, prior to the termination date specified in a Notice of Termination, any Person that it believes, in good faith, is a significant competitive threat to CMS Energy Corporation or its Affiliates.
(b)	Confidentiality. The Employer has advised the Executive and the Executive

acknowledges that it is the policy of CMS Energy Corporation and its Affiliates to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to CMS Energy Corporation and its Affiliates. The Executive shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (other than as may be required in the regular course of the Executive’s employment), nor use in any manner, either during the term of employment or after termination, for any reason, any Protected Information, or cause any such information of CMS Energy Corporation and its Affiliates to enter the public domain.

For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of CMS Energy Corporation and its Affiliates and any other information of CMS Energy Corporation and its Affiliates, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by CMS Energy Corporation and its Affiliates and their agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CMS Energy Corporation or its Affiliates or lawfully obtained from third parties who are not bound by a confidentiality agreement with CMS Energy Corporation or its Affiliates, is not Protected Information. Notwithstanding the foregoing, nothing in this subsection is to be construed as prohibiting Executive from freely providing information to a state or federal agency, legislative body or one of its committees or a court with jurisdiction when Executive is requested or required to do so by such entity.

(c)	Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not: (i) employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of CMS Energy Corporation or its Affiliates; or (ii) solicit suppliers or customers of CMS Energy Corporation or its Affiliates or induce any such person to terminate their relationship with them.
(d)	Cooperation. Executive agrees to fully and unconditionally cooperate with CMS Energy Corporation and its Affiliates and their attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive’s employment or activities on behalf of CMS Energy Corporation and its Affiliates.
(e)	Nondisparagement. At all times, the Executive agrees not to disparage CMS Energy Corporation or its Affiliates or otherwise make comments harmful to their reputations. While receiving any payments pursuant to this Agreement,

Executive further agrees not to testify or act in any capacity as a paid or unpaid expert witness, advisor or consultant on behalf of any person, individual, partnership, firm, corporation or any other person or entity that has or may have any claim, demand, action, suit, cause of action, or judgment against CMS Energy Corporation or its Affiliates, or from agreeing to do so after the payments under this Agreement have ceased. Further, CMS Energy Corporation and its Affiliates agree not to disparage Executive or otherwise make comments harmful to Executive’s reputation. Notwithstanding the foregoing, nothing in this Section prohibits Executive or representatives of CMS Energy Corporation or its Affiliates from testifying truthfully under oath in any judicial, administrative or legislative proceedings or in any arbitration, mediation or other similar proceedings.

Article 6. Excise Tax Equalization Payment

6.1

Excise Tax Equalization Payment. In the event that the Executive becomes entitled to Severance Benefits or any other payment or benefit under this Agreement, or under any other agreement, plan or arrangement for which Executive is eligible with (1) the Employer, (2) any Person whose actions result in a Change in Control, or (3) CMS Energy Corporation or any of its Affiliates (all of such payments and benefits collectively referred to as the “Total Payments”), and if all or any part of the Total Payments will be subject to the tax (the “Excise Tax”) imposed by Sections 280G and 4999 of the Code (or any similar tax that may hereafter be imposed), the Employer shall pay to the Executive in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any federal, state, and local income tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 6.1 (including FICA and FUTA), shall be equal to the Total Payments. Such payment shall be made by the Employer to the Executive within forty-five (45) calendar days following the Effective Date of Termination.

For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Effective Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

6.2 Subsequent Recalculation. In the event the Internal Revenue Service adjusts the computation under Section 6.1 herein so that the Executive did not receive the greatest net benefit, the Employer shall reimburse the Executive for the full amount necessary to make the Executive whole, plus interest on the reimbursed amount at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay the Employer within thirty (30) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive) to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.

Article 7. Dispute Resolution and Notice

7.1

Dispute Resolution. Any dispute or controversy between the parties arising under or in connection with this Agreement shall be settled by final and binding arbitration after first being submitted in writing to the Committee for attempted resolution. If that does not result in mutually agreeable resolution, the arbitration proceeding shall be conducted before a single arbitrator selected by the parties to be conducted in Jackson, Michigan. The arbitration will be conducted in accordance with the rules of the American Arbitration Association then in effect and be finished within ninety (90) days after the selection of the arbitrator. The arbitrator shall not have authority to fashion a remedy that includes consequential, exemplary or punitive damages of any type whatsoever, and the arbitrator is hereby prohibited from awarding injunctive relief of any kind, whether mandatory or prohibitory. Judgment may be entered on the award of the arbitrators in any court having competent jurisdiction. The parties shall share equally the cost of the arbitrator and of conducting the arbitration proceeding, but each party shall bear the cost of its own legal counsel and experts and other out-of-pocket expenditures.

7.2

Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing and sent by registered or certified mail to the Executive at the last address he or she has filed in writing with the Employer or, in the case of the Employer, at One Energy Plaza, Jackson, Michigan 49201, Attention: Corporate Secretary. Notices, requests, demands or other communications may also be delivered by messenger, courier service or other electronic means and are sufficient if actually received by the party for whom it is intended.

     Article 8. Successors and Assignment

8.1

Successors. Any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to the business of CMS Energy Corporation or purchaser of all or substantially all of the assets of CMS Energy Corporation shall be required to expressly assume and agree to perform under this Agreement in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place. Failure to obtain such assumption and agreement prior to the effectiveness of any such succession or asset sale shall entitle the Executive to the Change-in-Control Severance Benefits specified in Section 3.2 of this Agreement. The effective date of the succession or the sale shall be deemed the date of delivery to Executive of the Notice of Termination for purposes of administering Section 3.2. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law.

8.2

Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him or her hereunder had he or she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s Beneficiary. If the Executive has not named a Beneficiary, then such amounts shall be paid to the Executive’s devisee, legatee, or other designee, or if there is no such designee, to the Executive’s estate.

Article 9. Miscellaneous

9.1

Employment Status. The employment of the Executive by the Employer is “at will” and may be terminated by either the Executive or the Employer at any time, subject to applicable law. Further, Executive has no right to be an officer of CMS Energy Corporation or any of its Affiliates and serves as an officer entirely at the discretion of the Board.

9.2

Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, this Agreement completely supersedes, cancels, voids and renders of no further force and effect any and all employment agreements, change in control agreements, and other similar agreements, communications, representations, promises, covenants and arrangements, whether oral or written, between the Employer and Executive and between the Executive and CMS Energy Corporation or any of its Affiliates that may have taken place or been executed prior to the Effective Date of this Agreement and which may address the subject matters contained herein, including but not by way of limitation Employment Agreement between CMS Energy Corporation and Executive dated the 13th day of March, 2000.

9.3	Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.
9.4	Tax Withholding. The Employer may withhold from any benefits payable under this Agreement any authorized deductions and all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.
9.5	Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing on a form provided by the Employer. The Executive may make or change such designation at any time.
9.6	Payment Obligation Absolute. Except as provided in the last sentence of this paragraph, the Employer’s and CMS Energy Corporation’s obligations to make the payments and provide the benefits to Executive specified herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Employer, CMS Energy Corporation or any of its Affiliates may have against the Executive or anyone else. All amounts payable by the Employer hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Employer shall be final, but subject to the provisions of the next sentence. If the Executive should seek to bypass arbitration and litigate about this Agreement or the subject matters addressed herein in a state or federal court, Executive agrees (i) at least 10 days prior to filing in court to tender back to the Employer all cash consideration paid to Executive under this Agreement prior thereto and (ii) any payments due Executive under this Agreement after said tender shall be suspended until said litigation is finally resolved.
	The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Employer’s obligations to make the payments and arrangements required to be made under this Agreement.
9.7	Contractual Rights to Benefits. Subject to approval and ratification by the Committee, this Agreement establishes and vests in the Executive a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Employer to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
9.8	Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a

written instrument executed by the parties hereto or their legal representatives.

9.9	Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures transmitted via facsimile shall be regarded by the parties as original signatures.
9.10	Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of Michigan, without regard to its conflicts of laws principles.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of this          day of                                         , 2004.

	EXECUTIVE:
By:	Signature:
Its:	Printed Name:

Addendum to the Executive Severance Agreement for Senior Officers.

Whereas the Board of Directors of CMS Energy Corporation approved entering into severance agreements with certain key employees; and

Whereas                                          and the Executive have entered into an Executive Severance Agreement (the “Agreement”) dated                      , 2004 pursuant to that authority; and

Whereas the Agreement requires that any modification or alteration may only be made by mutual agreement of the parties in a written instrument executed by the parties or their legal representatives; and

Whereas the parties mutually agree to modify the Agreement to comply with Internal Revenue Code Section 409A (“Code Section 409A”) under the short term deferral rules.

Now Therefore the parties agree to modify the Executive Severance Agreement to comply with the requirements of Section 409A to qualify as a short term deferral by making the following changes to the Agreement:

I. Section 2.14 “Good Reason” is modified as follows:

“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Executive’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Executive of duties materially inconsistent with the Executive’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a material diminution of the Executive’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Executive); or
(b)	Materially reducing the Executive’s Base Salary; or
(c)	Materially reducing the Executive’s targeted annual incentive opportunity; or
(d)	A material failure to maintain the Executive’s participation in a long-term incentive plan in a manner that is consistent with the Executive’s position, authority, or responsibilities; or

(e)	A material failure to maintain the Executive’s amount of benefits under, or relative level of participation in, employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Executive participates as of the date of a Change in Control, provided however that any such change must result in a material negative change to the employee in the employment relationship; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer after receipt of written notice of such breach delivered by the Executive to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Executive under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Executive is required to be based at a location in excess of thirty-five (35) miles from the location of the Executive’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Executive’s prior business travel obligations.

For purposes of applying clauses (a) through (h) of this Agreement, the Executive’s Retirement shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason, and the Executive’s continued employment shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason or constitute Executive’s consent to the circumstances constituting Good Reason unless Executive has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Notwithstanding the above, the Executive must provide notice to the Employer of the existence of Good Reason not more than 90 days after the initial existence of the circumstance that constitutes Good Reason as set forth above and provide a period of 30 days for the Employer to remedy the circumstance giving rise to Good Reason and thus not have to pay the Change in control severance benefits as provided for under Section 3.2. All provisions and interpretations relating to good Reason are to be applied consistent with Section 409A and the applicable Treasury regulations at Section 1.409A-1(n)(2) or its successor.

II. Section 2.15 “Notice of Termination” shall be amended to add the following sentences at the end:

Notwithstanding the above, the date of the Qualifying Termination will be the date the Executive experiences a separation from service from the Employer, as that term is defined under Section 409A and any applicable regulations. Such Notice of Termination when provided by the Executive for Good Reason as set forth in Section 2.14 (after the expiration of the 90 day notice and 30 day cure period described in Section 2.14) shall be

	consistent with the requirements of Section 409A and applicable requirements. For all other Qualifying Terminations, the Notice shall be provided not more than 10 days after the date of the separation from service with the Employer as that term is defined under Section 409A and any applicable regulations.
III.	Section 2.18 “Release Date” shall add the following sentence at the end:
	In no event will a Release Date be a date that is more than 15 days following a separation from service as that term is defined under IRC Section 409A and any applicable regulations.
IV.	Section 3.1(d) General Release is modified to require a general release be submitted with in 45 days as follows:

(d) General Release. As a condition precedent to receiving Severance Benefits under Section 3.3 herein, the Executive shall be obligated to execute and deliver to the Employer on a timely basis, but not more than 45 days after the Release Date, duplicate originals of a general release of claims in the form included as Exhibit A hereto.

V.	Section 3.2(c) is modified to add the following sentence at the end:
	To the extent, if any, the Executive has elected to defer any bonus under the applicable bonus plan, any payments due under this provisions corresponding to the amount of the deferral shall be paid in accordance with the payment terms elected by the Executive under the plan wherein the bonus is deferred.
VI.	Section 3.3(b) is modified to add the following sentence at the end:
	Notwithstanding anything in the foregoing to the contrary, the final installment will be paid no later than March 10 of the year following the year in which the Qualifying Termination occurs, and such final installment will include the value of all remaining installments under this provision.
VII.	Section 3.3(c) is modified to add the following sentence at the end: To the extent, if any, the Executive has elected to defer any bonus under the applicable bonus plan, any payments due under this provisions corresponding to the amount of the deferral shall be paid in accordance with the payment terms elected by the Executive under the plan wherein the bonus is deferred.
VIII.	Section 6.1 shall be modified to change the final sentence of the first paragraph to read as follows:

	Such payment shall be made by the Employer to the Executive by the end of the taxable year of the Executive next following the taxable year in which the Executive remits the related taxes.
IX.	Section 6.2 shall be modified to add the following as the second sentence:
	Any such reimbursement shall be paid to the Executive by the end of the taxable year of the Executive next following the taxable year in which the Executive remits the related taxes.
X.	The final sentence of the first paragraph of Section 9.6 Payment Obligation Absolute shall be amended to read as follows:
	If the Executive should seek to bypass arbitration and litigate about this Agreement or the subject matters addressed herein in a state or federal court, subject to the requirements of Section 409A, to the extent applicable, Executive agrees (i) at least 10 days prior to filing in court to tender back to the Employer all cash consideration paid to Executive under this Agreement prior thereto and (ii) any payments due Executive under this Agreement after said tender shall be suspended until said litigation is finally resolved.

Accepted by                                         :	Accepted by Executive:
Date:	Date:

EX-10.(F)

Exhibit (10)(f)

Officer Severance Agreement

Tier II

Contents

Article 1.	Establishment, Term, and Purpose	1
Article 2.	Definitions	2
Article 3.	Severance Benefits	7
Article 4.	Other Terminations	13
Article 5.	Noncompetition and Confidentiality	13
Article 6.	Excise Tax Equalization Payment	15
Article 7.	Dispute Resolution and Notice	16
Article 8.	Successors and Assignment	17
Article 9.	Miscellaneous	18

Officer Severance Agreement

     THIS OFFICER SEVERANCE AGREEMENT (“Agreement”) is made, entered into, and is effective as of                                         , 2004 (hereinafter referred to as the “Effective Date”), by and between                                         , a Michigan corporation, (hereinafter referred to as the “Employer”) and                                          (hereinafter referred to as the “Officer”).

     WHEREAS, the Board of Directors of CMS Energy Corporation has approved entering into severance agreements with certain key officers as being necessary and advisable for the success of CMS Energy Corporation;

     WHEREAS, the Officer is currently employed at                                         , by the Employer in a key management position as                                          
                                        ;

     WHEREAS, the Board of Directors of CMS Energy Corporation wants to provide the Officer with a measure of financial security in the event of certain terminations of employment; and

     WHEREAS, both the Employer and the Officer are desirous that any proposal involving Change in Control as defined in this Agreement will be considered by the Officer objectively and with reference only to the business interests of CMS Energy Corporation and its shareholders.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intended to be legally bound, agree as follows:

Article 1. Establishment, Term, and Purpose

     This Agreement will commence on the Effective Date and shall continue in effect for two (2) full years through March ___, 2006. However, at the end of such two (2) year period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Committee delivers written notice six (6) months prior to the end of such term, or extended term, to the Officer, stating that the Agreement will not be extended. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. However, in the event of a Change in Control (as defined in Section 2.7 herein) of CMS Energy Corporation, the term of this Agreement shall automatically be extended for two (2) years from the date of the Change in Control if the current term of the Agreement has less than two (2) full years remaining until its expiration. If the term of this agreement is not extended, the Employer is not obligated to pay any severance benefits under Section 3.2 for a Change in Control that happens after the expiration of the term and is not obligated to pay any severance benefits under Section 3.3 with respect to any other termination that happens after the expiration of the term.

Article 2. Definitions

     Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.

2.1	“Affiliate” shall have the meaning set forth in Rule 12B-2 promulgated under Section 12 of the Exchange Act.
2.2	“Base Salary” means the greater of the Officer’s full annual rate of salary, whether or not any portion thereof is paid on a deferred basis, at: (i) the Effective Date of Termination, or (ii) at the date of the Change in Control. It does not include any incentive compensation in any form, bonuses of any type or any other form of monetary or nonmonetary compensation other than salary.
2.3	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.4	“Beneficiary” means the persons or entities designated or deemed designated by the Officer pursuant to Section 9.5 herein.
2.5	“Board” means the Board of Directors of CMS Energy Corporation.
2.6	“Cause” shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a)	The willful and continued failure by the Officer to substantially perform his or her duties of employment (other than any such failure resulting from the Officer’s Disability), after a written demand for substantial performance is delivered to the Officer that specifically identifies the manner in which the Committee believes that the Officer has not substantially performed his or her duties, and the Officer has failed to remedy the situation within a reasonable period of time specified by the Committee which shall not be less than 30 days; or
(b)	The Officer’s arrest for committing an act of fraud, embezzlement, theft, or other act constituting a felony involving moral turpitude; or
(c)	The willful engaging by the Officer in misconduct materially and demonstrably injurious to CMS Energy Corporation or its Affiliates, monetarily or otherwise.

However, for purposes of clauses (a) and (c), no act or failure to act on the Officer’s part shall be considered “willful” unless done, or omitted to be done, by the Officer

not in good faith and without reasonable belief that his or her action or omission was in the best interest of CMS Energy Corporation or its Affiliates.

2.7 “Change in Control” means a change in control of CMS Energy Corporation, and shall be deemed to have occurred upon the first to occur of any of the following events:

(a)	Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or
(b)	The following individuals cease for any reason to constitute a majority of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CMS Energy Corporation) whose appointment or election by the Board or nomination for election by CMS Energy Corporation’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or
(c)	The consummation of a merger or consolidation of CMS Energy Corporation or any direct or indirect subsidiary of CMS Energy Corporation with any other corporation or other entity, other than: (i) any such merger or consolidation which involves either CMS Energy Corporation or any such subsidiary and would result in the voting securities of CMS Energy Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of CMS Energy Corporation or its Affiliates, at least sixty percent (60%) of the combined voting power of the voting securities of CMS Energy Corporation or the surviving entity or any parent thereof outstanding immediately after such merger or consolidation and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of CMS Energy Corporation, the entity surviving such merger or consolidation or, if CMS Energy Corporation or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or (ii) a merger or consolidation effected to implement a recapitalization of CMS Energy Corporation (or similar transaction) in which

no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities; or

(d)

Either (1) the stockholders of CMS Energy Corporation approve a plan of complete liquidation or dissolution of CMS Energy Corporation, or (2) there is consummated an agreement for the sale, transfer or disposition by CMS Energy Corporation of all or substantially all of CMS Energy Corporation’s assets (or any transaction having a similar effect). For purposes of clause (d)(2), (i) the sale, transfer or disposition of a majority of the shares of common stock of Consumers Energy Company shall constitute a sale, transfer or disposition of substantially all of the assets of CMS Energy Corporation and (ii) the sale, transfer or disposition of subsidiaries or affiliates of CMS Energy Corporation, singly or in combinations, or their assets, only qualifies as a Change in Control if it satisfies the substantiality test contained in that clause and the Board of CMS Energy Corporation’s determination in that regard is final. In addition, for purposes of clause (d)(2), the sale, transfer or disposition of assets has to be in a transaction or series of transactions closing within six months after the closing of the first transaction in the series, other than with an entity in which at least 60% of the combined voting power of the voting securities is owned by stockholders of CMS Energy Corporation in substantially the same proportions as their ownership of CMS Energy Corporation immediately prior to such transaction or transactions and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold, transferred or disposed or, if such entity is a subsidiary, the ultimate parent thereof.

Notwithstanding the foregoing clauses (a), (c) and (d), a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions closing within six months after the closing of the first transaction in the series immediately following which the record holders of the common stock of CMS Energy Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CMS Energy Corporation immediately following such transaction or series of transactions.

2.8	“Code” means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.
2.9	“Committee” means the Organization and Compensation Committee of the Board of CMS Energy Corporation or any other committee appointed by the Board of CMS Energy Corporation to perform the functions of the Organization and Compensation

	Committee.
2.10	“Disability” means for all purposes of this Agreement, the incapacity of the Officer, due to injury, illness, disease, or bodily or mental infirmity, which causes the Officer not to engage in the performance of a substantial or material portion of the Officer’s usual duties of employment associated with such Officer’s position. Such Disability shall be determined based on competent medical advice.
2.11	“Effective Date” means the date of this Agreement as specified in the opening sentence of this Agreement.
2.12	“Effective Date of Termination” means the date on which a Qualifying Termination occurs, as provided under Section 2.17 hereunder, which triggers the payment of Severance Benefits hereunder.
2.13	“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
2.14	“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Officer’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Officer of duties materially inconsistent with the Officer’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective, or any action by the Employer which results in a diminution of the Officer’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Officer); or
(b)	Reducing the Officer’s Base Salary; or
(c)	Reducing the Officer’s targeted annual incentive opportunity; or
(d)	Failing to maintain the Officer’s participation in a long-term incentive plan in a manner that is consistent with the Officer’s position, authority, or responsibilities; or
(e)	Failing to maintain the Officer’s amount of benefits under or relative level of participation in employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Officer participates as of the Effective Date; or
(f)	A material breach of this Agreement by the Employer which is not remedied

	by the Employer within ten (10) business days of receipt of written notice of such breach delivered by the Officer to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Officer under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Officer is required to be based at a location in excess of thirty-five (35) miles from the location of the Officer’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Officer’s prior business travel obligations; or
(i)	The Officer ceases being an officer of a company (other than by reason of death, Disability or Cause) whose common stock is publicly owned if immediately prior to the Change in Control the Officer was an officer of a company whose common stock was publicly owned.

For purposes of applying clauses (a) through (i) of this Agreement, the Officer’s Retirement shall not constitute a waiver of the Officer’s rights with respect to any circumstance constituting Good Reason, and the Officer’s continued employment shall not constitute a waiver of the Officer’s rights with respect to any circumstance constituting Good Reason or constitute Officer’s consent to the circumstances constituting Good Reason unless Officer has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Finally, for purposes of implementing this Agreement, any claim by Officer that Good Reason exists shall be presumed to be correct unless the Committee determines by clear and convincing evidence that Good Reason does not exist, which evidence shall be presented by the person disputing the claim that Good Reason exists.

2.15	“Notice of Termination” shall be provided for a Qualifying Termination and shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Officer’s employment under the provision so indicated. The notice shall provide a specific date on which a Qualifying Termination has occurred and is effective for purposes of this Agreement.
2.16	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as provided in Section 13(d).
2.17	“Qualifying Termination” means:

(a) An involuntary termination of the Officer’s employment by the Employer on

	the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control for reasons other than death, Disability, Retirement, or Cause pursuant to a Notice of Termination delivered to the Officer by the Employer; or
(b)	A voluntary termination by the Officer for Good Reason on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control pursuant to a Notice of Termination delivered to the Employer by the Officer.
(c)	A termination (not involving death, Disability, Retirement or Cause), which takes place before the date of a Change in Control or after the first twenty-four (24) months immediately following a Change in Control, pursuant to a Notice of Termination delivered to Officer or pursuant to a request that Officer submit a resignation as an officer. A termination for failure of the Officer to comply in material respects with CMS Energy’s Code of Conduct and Statement of Ethics Handbook (June 2003 edition) or other corporate policies, as the handbook and those documents may be amended from time to time, does not satisfy the definition of a Qualifying Termination under this clause (c).

2.18	“Release Date” occurs after the delivery of the Notice of Termination required by Section 2.15 and means the date on which the release contained in Exhibit A to this Agreement is first provided to Officer for signature.
2.19	“Retirement” shall have the meanings ascribed under the terms of the pension plan applicable to Officer and entitled “Pension Plan for Employees of Consumers Energy Company,” dated September 1, 2000, as amended, other than under Section 7 thereof, or under the successor or replacement of such pension plan if it is then no longer in effect.
2.20	“SERP” shall mean the retirement plan applicable to Officer and entitled “Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company,” dated May 1, 1998, as amended, or under the successor or replacement of such retirement plan if it is then no longer in effect.
2.21	“Severance Benefits” means the payment of Change-in-Control Severance Benefits or General Severance Benefits as provided in Article 3 herein.

Article 3. Severance Benefits

3.1 Right to Severance Benefits.

(a) Change-in-Control Severance Benefits. The Officer shall be entitled to receive from the Employer Change-in-Control Severance Benefits, as

	described in Section 3.2 herein, if a Qualifying Termination of the Officer’s employment satisfying the definitions contained in Section 2.17(a) or (b) has occurred on the date of a Change in Control of CMS Energy Corporation or within twenty-four (24) months immediately following a Change in Control of CMS Energy Corporation. Further, Officer’s Retirement under the pension plan and SERP shall not constitute a waiver of the Officer’s rights with respect to receipt of Change-in-Control Severance Benefits. Nor shall benefits received for Retirement under the pension plan and SERP (or any replacement or successor plans thereto) be used as an offset to the level of Change-in-Control Severance Benefits owed to Officer.
(b)	General Severance Benefits. The Officer shall be entitled to receive from the Employer General Severance Benefits, as described in Section 3.3 herein, if the Officer’s employment is terminated for reasons satisfying the definition contained in Section 2.17(c) and such termination has occurred either before a Change of Control of CMS Energy Corporation or during the period that begins after the expiration of twenty-four (24) months immediately following a Change in Control of CMS Energy Corporation. Further, Officer’s Retirement under the pension plan and SERP shall not constitute a waiver of the Officer’s rights with respect to receipt of General Severance Benefits. Nor shall benefits received for Retirement under the pension plan and SERP (or any replacement or successor plans thereto) be used as an offset to the level of General Severance Benefits owed to Officer.
(c)	No Severance Benefits. Other than in a situation involving a Retirement, the Officer shall not be entitled to receive Severance Benefits if the Officer’s employment with the Employer ends for reasons other than a Qualifying Termination.
(d)	General Release. As a condition precedent to receiving Severance Benefits under Section 3.3 herein, the Officer shall be obligated to execute and deliver to the Employer on a timely basis duplicate originals of a general release of claims in the form included as Exhibit A hereto.
(e)	Waiver and Release. The Officer’s act of accepting payment of Severance Benefits payable under Section 3.2 of this Agreement shall constitute and is deemed an express waiver, release and discharge by Officer of any and all claims for damages or other remedies, regardless of when they arose or when they are discovered, against CMS Energy Corporation and its Affiliates arising out of or in any way connected with Officer’s employment relationship with them or the termination of such employment relationship except for claims and rights of Officer preserved under Section 3.2 of this Agreement and applicable rights to indemnification.
(f)	No Duplication of Severance Benefits. If the Officer becomes entitled to Change-in-Control Severance Benefits, the benefits provided for under Section

3.2 hereunder shall be in lieu of all other benefits provided to the Officer under the provisions of this Agreement including, but not limited to, the benefits under Section 3.3. Likewise, if the Officer becomes entitled to General Severance Benefits, the benefits provided under Section 3.3 hereunder shall be in lieu of all other benefits provided to the Officer under the provisions of this Agreement including, but not limited to, the benefits under Section 3.2. If the Officer receives either Change-in-Control Severance Benefits under Section 3.2 or General Severance Benefits under Section 3.3, any other severance benefits received by employees not covered by this Agreement to which the Officer is entitled will be subtracted from the Severance Benefits paid pursuant to this Agreement.

3.2 Description of Change-in-Control Severance Benefits. In the event the Officer becomes entitled to receive Change-in-Control Severance Benefits, as provided in Section 3.1(a) herein, the Employer shall provide the Officer with the following:

(a)	A lump-sum amount paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Officer, as applicable, of a Notice of Termination, equal to the sum of the Officer’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and unreimbursed allowances owed to the Officer through and including the Effective Date of Termination.
(b)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Officer, as applicable, of a Notice of Termination, equal to one and one half (1.5) times the sum of the following: (A) the Officer’s Base Salary and (B) the greater of the Officer’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Officer in respect of the year prior to the year in which the Qualifying Termination occurs.
(c)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Officer, as applicable, of a Notice of Termination, equal to the Officer’s then current target bonus opportunity established under the bonus plan in which the Officer is then participating, for the plan year in which the Qualifying Termination occurs, adjusted on a pro rata basis for the number of days that have elapsed to the Effective Date of Termination during the bonus plan year in which the Qualifying Termination occurs.
(d)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Officer, as applicable, of a Notice of Termination, equal to one half (0.5) times the sum of the following: (A) the Officer’s Base Salary and (B) the greater of the Officer’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Officer in

	respect of the year prior to the year in which the Qualifying Termination occurs. Such amount shall be consideration for the Officer entering into the noncompete agreement as described in Section 5(a).
(e)	Equivalent payment to Officer in a lump sum amount within forty-five (45) calendar days following delivery of the Notice of Termination for continued medical coverage for a period of twenty four (24) months. Such equivalent payment shall be computed based on the same coverage level as in effect for Officer under the general health care plan available to all employees on the Effective Date of Termination by providing a lump sum payment of the Employer’s portion of the monthly COBRA premium in effect on the Effective Date of Termination times twenty-four (24). Nothing herein amends or provides Officer any rights to health care coverage other than as provided in the applicable group health care plan. If the Officer has waived coverage under the applicable group health care plan, no equivalent payment shall be made under this Agreement.
(f)	Immediate extension (as allowable by Section 6.10 of Article VI of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) by one year after the Effective Date of Termination of the period for Officer to exercise any outstanding stock options or stock appreciation rights granted by the Committee to Officer pursuant to said Article VI. Otherwise, the terms of said plan shall govern and be applied.
(g)	Immediate vesting and distribution to Officer (as allowable by the second sentence of Section 7.2(h) of Article VII of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) within forty-five (45) days after delivery of the Notice of Termination of all outstanding shares of restricted stock previously awarded to Officer pursuant to said Article VII. For any award of restricted stock to which there are future performance goals attached, the number of shares distributed to Officer shall assume that the goals have been achieved in full and the award fully earned based on target performance without deductions or additions to the number of shares then held by Officer. For any award of restricted stock that is tenure based, the number of shares distributed to Officer shall assume that all requirements with respect to tenure are satisfied by Officer. Otherwise, the terms of said plan shall govern and be applied.
(h)	For an Officer included in SERP, the Officer’s retirement benefits under the SERP will become fully vested as of the Effective Date of Termination and shall not be subject to further vesting requirements or to any forfeiture provisions. In addition, said Officer shall be provided the following: (i) an additional twenty-four (24) months of Preference Service (as defined in SERP) for purposes of the SERP in accordance with Section III (1) of SERP, subject, however, to the total of Preference Service plus Accredited Service being limited to a maximum of thirty-five (35) years under SERP; (ii) only the

amounts paid to Officer pursuant to clauses (a), (b), (c) and (d) of this Section 3.2 shall be considered a “severance payment under an employment agreement” for purposes of computing Final Officer Pay under SERP; and (iii) for an Officer that receives Change-in-Control Severance Benefits under this Agreement within twenty four (24) months prior to attaining the age of 55, Officer shall receive 65% of Officer’s Accrued Supplemental Officer Retirement Income under SERP if Officer elects to retire at age 55 notwithstanding the fact that the Effective Date of Termination for Officer pursuant to this Agreement is before he or she attains the age of 55. If it should occur that Officer retires under SERP after the age of 55, clause (iii) of the preceding sentence and the provisions of the last complete paragraph of Section V(3) of SERP shall not be operative. The enhanced SERP benefits under this Section 3.2(h) shall be in lieu of any Change-in-Control enhancements provided for in the SERP.

(i)

For purposes of (1) Retirement, (2) SERP and (3) benefits not expressly discussed in clauses (a) through (h) of this Section 3.2, but which are available to the general employee population or available only to officers and implemented with contracts with third parties, the benefit plan descriptions covering all employees and the retirement plan and SERP plan descriptions and contracts with third parties covering officers in place at the time of the Effective Date of Termination control Officer’s treatment under those plans and contracts. For any other benefits only available to officers, if those benefits are not expressly discussed in clauses (a) through (h) of this Section 3.2, those benefits are terminated for Officer as of the Effective Date of Termination.

3.3 Description of General Severance Benefits. In the event the Officer becomes entitled to receive General Severance Benefits as provided in Section 3.1(b) herein, the Employer shall provide the Officer with the following:

(a)

A lump-sum amount paid within fifteen (15) calendar days following delivery to the Officer of a Notice of Termination with respect to a Qualifying Termination as described in Section 2.17 (c) of this Agreement, equal to the sum of the Officer’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and unreimbursed allowances owed to the Officer through and including the Effective Date of Termination.

(b)

An amount, paid following the Release Date on an installment basis over a period of twelve (12) months on a twice a month schedule in accordance with the normal payroll procedures of the Employer, equal to one (1) times the sum of: (A) the Officer’s Base Salary and (B) the greater of the Officer’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Officer in respect of the year prior to the year in which the Qualifying Termination occurs. The first of the twenty-four (24) installment payments

	called for by this section shall be made within forty-five (45) days following the Release Date.
(c)	A lump-sum amount, paid within forty-five (45) calendar days following the Release Date, equal to the Officer’s then current target bonus opportunity established under the bonus plan in which the Officer is then participating, for the plan year in which the Qualifying Termination occurs, adjusted on a pro rata basis for the number of days that have elapsed to the Effective Date of Termination during the bonus plan year in which the Qualifying Termination occurs.
(d)	Equivalent payment to Officer in a lump-sum amount within forty-five (45) days following the Release Date for continued medical coverage for a period of twelve (12) months. Such equivalent payment shall be computed based on the same coverage level as in effect for Officer under the general health care plan available to all employees on the Effective Date of Termination by providing a lump-sum payment of the Employer’s portion of the monthly COBRA premium in effect on the Effective Date of Termination times twelve (12). Nothing herein amends or provides Officer any rights to health care coverage other than as provided in the applicable group health care plan. If the Officer has waived coverage under the applicable group health care plan, no equivalent payment shall be made under this Agreement.
(e)	Outstanding stock options and stock appreciation rights previously granted by the Committee to Officer pursuant to Article VI of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended, shall be treated as a “termination of employment” in accordance with Section 6.10 of Article VI, provided however that Employee will not be eligible to seek or receive from the Committee any extensions of the period for their exercise. For outstanding shares of restricted stock held by Officer, they shall be forfeited to CMS Energy Corporation in accordance with the provisions of the first sentence of Section 7.2(h) of Article VII of said plan.) For purposes of (1) Retirement, (2) SERP and (3) benefits not expressly discussed in clauses (a) through (d) of this Section 3.3, but which are available to the general employee population or available only to officers and implemented with contracts with third parties, the benefit plan descriptions covering all employees and the retirement plan and SERP plan descriptions and contracts with third parties covering officers in place at the time of the Effective Date of Termination control Officer’s treatment under those plans and contracts. For any other benefits only available to officers, if those benefits are not expressly discussed in clauses (a) through (d) of this Section 3.3, those benefits are terminated for Officer as of the Effective Date of Termination.

Article 4. Other Terminations

4.1	Termination for Disability. If the Officer’s employment is terminated with the Employer due to Disability, the Officer’s benefits shall be determined in accordance with the Employer’s retirement, insurance, and other applicable plans and programs then in effect.
4.2	Termination for Retirement or Death. If the Officer’s employment with the Employer is terminated by reason of his or her Retirement or death, the Officer’s benefits shall be determined in accordance with the Employer’s retirement and SERP plans, survivor’s benefits, insurance, and other applicable programs then in effect.
4.3	Termination for Cause or by Employer or the Officer for Other Than Good Reason. If the Officer’s employment is terminated either: (a) by the Employer for Cause as defined in Section 2.6 of this Agreement; or (b) voluntarily by the Officer for reasons other than those specified in Section 2.14 herein, or (c) by the Employer for the reasons stated in the last sentence of Section 2.17(c) of this Agreement, the Employer shall pay the Officer the sum of any unpaid Base Salary, accrued vacation, unreimbursed business expenses and unreimbursed allowances owed to the Officer through the effective date of termination. The terms of the benefit plan descriptions, compensation plan descriptions and contracts with third parties covering officers shall control the disposition to Officer and timing of all other amounts to which the Officer may be entitled, and neither the Employer nor CMS Energy Corporation nor any of its Affiliates shall have any further obligations to the Officer thereunder as a result of the existence of this Agreement. No other severance benefits of any type shall be made available to Officer. Notwithstanding the above, if the Officer’s employment terminates pursuant to this Section 4.3, the Officer shall be bound by the provisions contained in Article 5(a), 5(b), 5(c), 5(d), and 5(e) hereof.
4.4	Notice of Termination. Any termination of the Officer’s employment in accordance with Section 4.3 of this Agreement shall be communicated by Notice of Termination delivered to the other party, which shall include a specific date on which the termination has occurred and is effective.

Article 5. Noncompetition and Confidentiality

     In the event the Officer becomes entitled to receive Change-in-Control Severance Benefits as provided in Section 3.2 herein or General Severance Benefits as provided in Section 3.3 herein, the following shall apply:

(a) Noncompetition. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Officer shall not: (i) directly or indirectly act in concert or conspire with any person employed by CMS Energy Corporation or any of its Affiliates in order to engage in or prepare to engage in or to have a financial or other interest in any business

	which is a Direct Competitor (as defined below); or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business which is a Direct Competitor (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Officer may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Exchange Act.
	For purposes of this Agreement, the term “Direct Competitor” shall mean any person or entity engaged in the business of selling electric power or natural gas at retail within the State of Michigan.
	The Committee also reserves the right to designate, prior to the termination date specified in a Notice of Termination, any Person that it believes, in good faith, is a significant competitive threat to CMS Energy Corporation or its Affiliates.
(b)	Confidentiality. The Employer has advised the Officer and the Officer acknowledges that it is the policy of CMS Energy Corporation and its Affiliates to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to CMS Energy Corporation and its Affiliates. The Officer shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (other than as may be required in the regular course of the Officer’s employment), nor use in any manner, either during the term of employment or after termination, for any reason, any Protected Information, or cause any such information of CMS Energy Corporation and its Affiliates to enter the public domain.
	For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of CMS Energy Corporation and its Affiliates and any other information of CMS Energy Corporation and its Affiliates, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by CMS Energy Corporation and its Affiliates and their agents or employees, including the Officer; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CMS Energy Corporation or its Affiliates or lawfully obtained from third parties who are not bound by a confidentiality agreement with CMS Energy Corporation or its Affiliates, is not Protected Information. Notwithstanding the foregoing, nothing in this subsection is to be construed as prohibiting Officer from freely providing information to a state or federal agency, legislative body or one of its committees or a court with jurisdiction when Officer is requested or required to do so by such entity.

(c)	Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Officer shall not: (i) employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of CMS Energy Corporation or its Affiliates; or (ii) solicit suppliers or customers of CMS Energy Corporation or its Affiliates or induce any such person to terminate their relationship with them.
(d)	Cooperation. Officer agrees to fully and unconditionally cooperate with CMS Energy Corporation and its Affiliates and their attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Officer’s employment or activities on behalf of CMS Energy Corporation and its Affiliates.
(e)	Nondisparagement. At all times, the Officer agrees not to disparage CMS Energy Corporation or its Affiliates or otherwise make comments harmful to their reputations. While receiving any payments pursuant to this Agreement, Officer further agrees not to testify or act in any capacity as a paid or unpaid expert witness, advisor or consultant on behalf of any person, individual, partnership, firm, corporation or any other person or entity that has or may have any claim, demand, action, suit, cause of action, or judgment against CMS Energy Corporation or its Affiliates, or from agreeing to do so after the payments under this Agreement have ceased. Further, CMS Energy Corporation and its Affiliates agree not to disparage Officer or otherwise make comments harmful to Officer’s reputation. Notwithstanding the foregoing, nothing in this Section prohibits Officer or representatives of CMS Energy Corporation or its Affiliates from testifying truthfully under oath in any judicial, administrative or legislative proceedings or in any arbitration, mediation or other similar proceedings.

Article 6. Excise Tax Equalization Payment

6.1 Excise Tax Equalization Payment. In the event that the Officer becomes entitled to Severance Benefits or any other payment or benefit under this Agreement, or under any other agreement, plan or arrangement for which Officer is eligible with (1) the Employer, (2) any Person whose actions result in a Change in Control, or (3) CMS Energy Corporation or any of its Affiliates (all of such payments and benefits collectively referred to as the “Total Payments”), and if all or any part of the Total Payments will be subject to the tax (the “Excise Tax”) imposed by Sections 280G and 4999 of the Code (or any similar tax that may hereafter be imposed), the Employer shall pay to the Officer in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Officer after deduction of any Excise Tax upon the

	Total Payments and any federal, state, and local income tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 6.1 (including FICA and FUTA), shall be equal to the Total Payments. Such payment shall be made by the Employer to the Officer within forty-five (45) calendar days following the Effective Date of Termination.
	For purposes of determining the amount of the Gross-Up Payment, the Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Officer’s residence on the Effective Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
6.2	Subsequent Recalculation. In the event the Internal Revenue Service adjusts the computation under Section 6.1 herein so that the Officer did not receive the greatest net benefit, the Employer shall reimburse the Officer for the full amount necessary to make the Officer whole, plus interest on the reimbursed amount at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Officer shall repay the Employer within thirty (30) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Officer) to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Officer’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.

Article 7. Dispute Resolution and Notice

7.1 Dispute Resolution. Any dispute or controversy between the parties arising under or in connection with this Agreement shall be settled by final and binding arbitration after first being submitted in writing to the Committee for attempted resolution. If that does not result in mutually agreeable resolution, the arbitration proceeding shall be conducted before a single arbitrator selected by the parties to be conducted in Jackson, Michigan. The arbitration will be conducted in accordance with the rules of the American Arbitration Association then in effect and be finished within ninety (90) days after the selection of the arbitrator. The arbitrator shall not have authority to fashion a remedy that includes consequential, exemplary or punitive damages of any type whatsoever, and the arbitrator is hereby prohibited from awarding injunctive relief of any kind, whether mandatory or prohibitory. Judgment may be entered on the

award of the arbitrators in any court having competent jurisdiction. The parties shall share equally the cost of the arbitrator and of conducting the arbitration proceeding, but each party shall bear the cost of its own legal counsel and experts and other out-of-pocket expenditures.

7.2

Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing and sent by registered or certified mail to the Officer at the last address he or she has filed in writing with the Employer or, in the case of the Employer, at One Energy Plaza, Jackson, Michigan 49201, Attention: Corporate Secretary. Notices, requests, demands or other communications may also be delivered by messenger, courier service or other electronic means and are sufficient if actually received by the party for whom it is intended.

Article 8. Successors and Assignment

8.1

Successors. Any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to the business of CMS Energy Corporation or purchaser of all or substantially all of the assets of CMS Energy Corporation shall be required to expressly assume and agree to perform under this Agreement in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place. Failure to obtain such assumption and agreement prior to the effectiveness of any such succession or asset sale shall entitle the Officer to the Change-in-Control Severance Benefits specified in Section 3.2 of this Agreement. The effective date of the succession or the sale shall be deemed the date of delivery to Officer of the Notice of Termination for purposes of administering Section 3.2. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law.

8.2

Assignment by the Officer. This Agreement shall inure to the benefit of and be enforceable by the Officer’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Officer dies while any amount would still be payable to him or her hereunder had he or she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Officer’s Beneficiary. If the Officer has not named a Beneficiary, then such amounts shall be paid to the Officer’s devisee, legatee, or other designee, or if there is no such designee, to the Officer’s estate.

Article 9. Miscellaneous

9.1 Employment Status. The employment of the Officer by the Employer is “at will” and may be terminated by either the Officer or the Employer at any time, subject to

	applicable law. Further, Officer has no right to be an officer of CMS Energy Corporation or any of its Affiliates and serves as an officer entirely at the discretion of the Board.
9.2	Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, this Agreement completely supersedes, cancels, voids and renders of no further force and effect any and all employment agreements, change in control agreements, and other similar agreements, communications, representations, promises, covenants and arrangements, whether oral or written, between the Employer and Officer and between the Officer and CMS Energy Corporation or any of its Affiliates that may have taken place or been executed prior to the Effective Date of this Agreement and which may address the subject matters contained herein.
9.3	Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.
9.4	Tax Withholding. The Employer may withhold from any benefits payable under this Agreement any authorized deductions and all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.
9.5	Beneficiaries. The Officer may designate one (1) or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing on a form provided by the Employer. The Officer may make or change such designation at any time.
9.6	Payment Obligation Absolute. Except as provided in the last sentence of this paragraph, the Employer’s and CMS Energy Corporation’s obligations to make the payments and provide the benefits to Officer specified herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Employer, CMS Energy Corporation or any of its Affiliates may have against the Officer or anyone else. All amounts payable by the Employer hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Employer shall be final, but subject to the provisions of the next sentence. If the Officer should seek to bypass arbitration and litigate about this Agreement or the subject matters addressed herein in a state or federal court, Officer agrees (i) at least 10 days prior to filing in court to tender back to the Employer all cash consideration paid to Officer under this Agreement prior thereto and (ii) any payments due Officer under this Agreement after said tender shall be suspended until said litigation is finally resolved.

	The Officer shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Employer’s obligations to make the payments and arrangements required to be made under this Agreement.
9.7	Contractual Rights to Benefits. Subject to approval and ratification by the Committee, this Agreement establishes and vests in the Officer a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Employer to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
9.8	Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.
9.9	Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures transmitted via facsimile shall be regarded by the parties as original signatures.
9.10	Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of Michigan, without regard to its conflicts of laws principles.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of this          day of                                         , 2004.

		OFFICER:
By:		Signature:
	Its:		Printed Name:

Addendum to the Officer Severance Agreement.

Whereas the Board of Directors of CMS Energy Corporation approved entering into severance agreements with certain key employees; and

Whereas                                          and the Officer have entered into an Officer Severance Agreement (the “Agreement”) dated                     , 2004 pursuant to that authority; and

Whereas the Agreement requires that any modification or alteration may only be made by mutual agreement of the parties in a written instrument executed by the parties or their legal representatives; and

Whereas the parties mutually agree to modify the Agreement to comply with Internal Revenue Code Section 409A (“Code Section 409A”) under the short term deferral rules.

Now Therefore the parties agree to modify the Officer Severance Agreement to comply with the requirements of Section 409A to qualify as a short term deferral by making the following changes to the Agreement:

I. Section 2.14 “Good Reason” is modified as follows:

“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Officer’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Officer of duties materially inconsistent with the Officer’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a material diminution of the Officer’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Officer); or
(b)	Materially reducing the Officer’s Base Salary; or
(c)	Materially reducing the Officer’s targeted annual incentive opportunity; or
(d)	A material failure to maintain the Officer’s participation in a long-term incentive plan in a manner that is consistent with the Officer’s position, authority, or responsibilities; or

(e)	A material failure to maintain the Officer’s amount of benefits under, or relative level of participation in, employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Officer participates as of the date of a Change in Control, provided however that any such change must result in a material negative change to the employee in the employment relationship; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer after receipt of written notice of such breach delivered by the Officer to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Officer under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Officer is required to be based at a location in excess of thirty-five (35) miles from the location of the Officer’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Officer’s prior business travel obligations.

For purposes of applying clauses (a) through (hi) of this Agreement, the Officer’s Retirement shall not constitute a waiver of the Officer’s rights with respect to any circumstance constituting Good Reason, and the Officer’s continued employment shall not constitute a waiver of the Officer’s rights with respect to any circumstance constituting Good Reason or constitute Officer’s consent to the circumstances constituting Good Reason unless Officer has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Notwithstanding the above, the Officer must provide notice to the Employer of the existence of Good Reason not more than 90 days after the initial existence of the circumstance that constitutes Good Reason as set forth above and provide a period of 30 days for the Employer to remedy the circumstance giving rise to Good Reason and thus not have to pay the Change in control severance benefits as provided for under Section 3.2. All provisions and interpretations relating to good Reason are to be applied consistent with Section 409A and the applicable Treasury regulations at Section 1.409A-1(n)(2) or its successor.

II.	Section 2.15 “Notice of Termination” shall be amended to add the following sentences at the end:
	Notwithstanding the above, the date of the Qualifying Termination will be the date the Officer experiences a separation from service from the Employer, as that term is defined under Section 409A and any applicable regulations. Such Notice of Termination when provided by the Officer for Good Reason as set forth in Section 2.14 (after the expiration

	of the 90 day notice and 30 day cure period described in Section 2.14) shall be consistent with the requirements of Section 409A and applicable requirements. For all other Qualifying Terminations, the Notice shall be provided not more than 10 days after the date of the separation from service with the Employer as that term is defined under Section 409A and any applicable regulations.
III.	Section 2.18 “Release Date” shall add the following sentence at the end:
	In no event will a Release Date be a date that is more than 15 days following a separation from service as that term is defined under IRC Section 409A and any applicable regulations.
IV.	Section 3.1(d) General Release is modified to require a general release be submitted with in 45 days as follows:

(d) General Release. As a condition precedent to receiving Severance Benefits under Section 3.3 herein, the Officer shall be obligated to execute and deliver to the Employer on a timely basis, but not more than 45 days after the Release Date, duplicate originals of a general release of claims in the form included as Exhibit A hereto.

V.	Section 3.2(c) is modified to add the following sentence at the end:
	To the extent, if any, the Officer has elected to defer any bonus under the applicable bonus plan, any payments due under this provisions corresponding to the amount of the deferral shall be paid in accordance with the payment terms elected by the Officer under the plan wherein the bonus is deferred.
VI.	Section 3.3(b) is modified to add the following sentence at the end:
	Notwithstanding anything in the foregoing to the contrary, the final installment will be paid no later than March 10 of the year following the year in which the Qualifying Termination occurs, and such final installment will include the value of all remaining installments under this provision.
VII.	Section 3.3(c) is modified to add the following sentence at the end:
	To the extent, if any, the Officer has elected to defer any bonus under the applicable bonus plan, any payments due under this provisions corresponding to the amount of the deferral shall be paid in accordance with the payment terms elected by the Officer under the plan wherein the bonus is deferred.
VIII.	Section 6.1 shall be modified to change the final sentence of the first paragraph to read as follows:

	Such payment shall be made by the Employer to the Officer by the end of the taxable year of the Officer next following the taxable year in which the Officer remits the related taxes.
IX.	Section 6.2 shall be modified to add the following as the second sentence:
	Any such reimbursement shall be paid to the Officer by the end of the taxable year of the Officer next following the taxable year in which the Officer remits the related taxes.
X.	The final sentence of the first paragraph of Section 9.6 Payment Obligation Absolute shall be amended to read as follows:
	If the Officer should seek to bypass arbitration and litigate about this Agreement or the subject matters addressed herein in a state or federal court, subject to the requirements of Section 409A, to the extent applicable, Officer agrees (i) at least 10 days prior to filing in court to tender back to the Employer all cash consideration paid to Officer under this Agreement prior thereto and (ii) any payments due Officer under this Agreement after said tender shall be suspended until said litigation is finally resolved.

Accepted by ______________________________:	Accepted by Officer:
Date: _____________________	Date: _____________________

EX-10.(G)

Exhibit (10)(g)

Change-in-Control Agreement

Tier III

Contents

Article 1.	Establishment, Term, and Purpose	1
Article 2.	Definitions	2
Article 3.	Severance Benefits	8
Article 4.	Other Terminations	11
Article 5.	Noncompetition and Confidentiality	11
Article 6.	Excise Tax Equalization Payment	13
Article 7.	Dispute Resolution and Notice	14
Article 8.	Successors and Assignment	14
Article 9.	Miscellaneous	15

Change-in-Control Agreement

     THIS CHANGE-IN-CONTROL AGREEMENT (“Agreement”) is made, entered into, and is effective as of                    , 2004 (hereinafter referred to as the “Effective Date”), by and between                                        , a Michigan corporation, (hereinafter referred to as the “Employer”) and                                         (hereinafter referred to as the “Executive”).

     WHEREAS, the Board of Directors of CMS Energy Corporation has approved entering into change-in-control agreements with certain key executives as being necessary and advisable for the success of CMS Energy Corporation;

     WHEREAS, the Executive is currently employed at                                        , by the Employer in a key management position as                                         ;

     WHEREAS, the Board of Directors of CMS Energy Corporation wants to provide the Executive with a measure of financial security in the event of a change in control of CMS Energy Corporation; and

     WHEREAS, both the Employer and the Executive are desirous that any proposal involving Change in Control as defined in this Agreement will be considered by the Executive objectively and with reference only to the business interests of CMS Energy Corporation and its shareholders.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intended to be legally bound, agree as follows:

Article 1. Establishment, Term, and Purpose

     This Agreement will commence on the Effective Date and shall continue in effect for three (3) full years through March ___, 2007. However, at the end of such three (3) year period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Committee delivers written notice six (6) months prior to the end of such term, or extended term, to the Executive, stating that the Agreement will not be extended. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. However, in the event of a Change in Control (as defined in Section 2.7 herein) of CMS Energy Corporation, the term of this Agreement shall automatically be extended for two (2) years from the date of the Change in Control if the current term of the Agreement has less than two (2) full years remaining until its expiration. Notwithstanding the foregoing, this Agreement shall automatically terminate and thereafter be of no force and effect at the same time that the First Amended and Restated Employment Agreement, dated as of September 1, 2003, between Executive and CMS Energy Corporation (“Employment Agreement”) is terminated pursuant to its Section 6. If the term of this Agreement is not extended or if the Agreement is terminated, the Employer is not obligated to pay any severance benefits under Section 3.2 for a Change in Control that happens after the

expiration of the term or after the termination of this Agreement.

Article 2. Definitions

     Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.

2.1	“Affiliate” shall have the meaning set forth in Rule 12B-2 promulgated under Section 12 of the Exchange Act.
2.2	“Base Salary” means the greater of the Executive’s full annual rate of salary, whether or not any portion thereof is paid on a deferred basis, at: (i) the Effective Date of Termination, or (ii) at the date of the Change in Control. It does not include any incentive compensation in any form, bonuses of any type or any other form of monetary or nonmonetary compensation other than salary.
2.3	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.4	“Beneficiary” means the persons or entities designated or deemed designated by the Executive pursuant to Section 9.5 herein.
2.5	“Board” means the Board of Directors of CMS Energy Corporation.
2.6	“Cause” shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a)	The willful and continued failure by the Executive to substantially perform his or her duties of employment (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his or her duties, and the Executive has failed to remedy the situation within a reasonable period of time specified by the Committee which shall not be less than 30 days; or
(b)	The Executive’s arrest for committing an act of fraud, embezzlement, theft, or other act constituting a felony involving moral turpitude; or
(c)	The willful engaging by the Executive in misconduct materially and demonstrably injurious to CMS Energy Corporation or its Affiliates, monetarily or otherwise.

However, for purposes of clauses (a) and (c), no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his or her action or

omission was in the best interest of CMS Energy Corporation or its Affiliates.

2.7 “Change in Control” means a change in control of CMS Energy Corporation, and shall be deemed to have occurred upon the first to occur of any of the following events:

(a)	Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or
(b)	The following individuals cease for any reason to constitute a majority of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CMS Energy Corporation) whose appointment or election by the Board or nomination for election by CMS Energy Corporation’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or
(c)	The consummation of a merger or consolidation of CMS Energy Corporation or any direct or indirect subsidiary of CMS Energy Corporation with any other corporation or other entity, other than: (i) any such merger or consolidation which involves either CMS Energy Corporation or any such subsidiary and would result in the voting securities of CMS Energy Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of CMS Energy Corporation or its Affiliates, at least sixty percent (60%) of the combined voting power of the voting securities of CMS Energy Corporation or the surviving entity or any parent thereof outstanding immediately after such merger or consolidation and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of CMS Energy Corporation, the entity surviving such merger or consolidation or, if CMS Energy Corporation or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or (ii) a merger or consolidation effected to implement a recapitalization of CMS Energy Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS

Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities; or

(d)

Either (1) the stockholders of CMS Energy Corporation approve a plan of complete liquidation or dissolution of CMS Energy Corporation, or (2) there is consummated an agreement for the sale, transfer or disposition by CMS Energy Corporation of all or substantially all of CMS Energy Corporation’s assets (or any transaction having a similar effect). For purposes of clause (d)(2), (i) the sale, transfer or disposition of a majority of the shares of common stock of Consumers Energy Company shall constitute a sale, transfer or disposition of substantially all of the assets of CMS Energy Corporation and (ii) the sale, transfer or disposition of subsidiaries or affiliates of CMS Energy Corporation, singly or in combinations, or their assets, only qualifies as a Change in Control if it satisfies the substantiality test contained in that clause and the Board of CMS Energy Corporation’s determination in that regard is final. In addition, for purposes of clause (d)(2), the sale, transfer or disposition of assets has to be in a transaction or series of transactions closing within six months after the closing of the first transaction in the series, other than with an entity in which at least 60% of the combined voting power of the voting securities is owned by stockholders of CMS Energy Corporation in substantially the same proportions as their ownership of CMS Energy Corporation immediately prior to such transaction or transactions and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold, transferred or disposed or, if such entity is a subsidiary, the ultimate parent thereof.

Notwithstanding the foregoing clauses (a), (c) and (d), a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions closing within six months after the closing of the first transaction in the series immediately following which the record holders of the common stock of CMS Energy Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CMS Energy Corporation immediately following such transaction or series of transactions.

2.8	“Code” means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.
2.9	“Committee” means the Organization and Compensation Committee of the Board of CMS Energy Corporation or any other committee appointed by the Board of CMS Energy Corporation to perform the functions of the Organization and Compensation Committee.
2.10	“Disability” means for all purposes of this Agreement, the incapacity of the Executive, due to injury, illness, disease, or bodily or mental infirmity, which causes the Executive not to engage in the performance of a substantial or material portion of the Executive’s usual duties of employment associated with such Executive’s

position. Such Disability shall be determined based on competent medical advice.

2.11	“Effective Date” means the date of this Agreement as specified in the opening sentence of this Agreement.
2.12	“Effective Date of Termination” means the date on which a Qualifying Termination occurs, as provided under Section 2.17 hereunder, which triggers the payment of Severance Benefits hereunder.
2.13	“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
2.14	“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Executive’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Executive of duties materially inconsistent with the Executive’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a diminution of the Executive’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Executive); or
(b)	Reducing the Executive’s Base Salary; or
(c)	Reducing the Executive’s targeted annual incentive opportunity; or
(d)	Failing to maintain the Executive’s participation in a long-term incentive plan in a manner that is consistent with the Executive’s position, authority, or responsibilities; or
(e)	Failing to maintain the Executive’s amount of benefits under or relative level of participation in employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Executive participates as of the Effective Date; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer within ten (10) business days of receipt of written notice of such breach delivered by the Executive to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Executive under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Executive is required to be based at a location in excess of thirty-five (35) miles from the location of the Executive’s principal job location or office

	immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Executive’s prior business travel obligations; or
(i)	The Executive ceases being an executive officer of a company (other than by reason of death, Disability or Cause) whose common stock is publicly owned if immediately prior to the Change in Control the Executive was an executive officer of a company whose common stock was publicly owned.

For purposes of applying clauses (a) through (i) of this Agreement, the Executive’s Retirement shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason, and the Executive’s continued employment shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason or constitute Executive’s consent to the circumstances constituting Good Reason unless Executive has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Finally, for purposes of implementing this Agreement, any claim by Executive that Good Reason exists shall be presumed to be correct unless the Committee determines by clear and convincing evidence that Good Reason does not exist, which evidence shall be presented by the person disputing the claim that Good Reason exists.

2.15	“Notice of Termination” shall be provided for a Qualifying Termination and shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. The notice shall provide a specific date on which a Qualifying Termination has occurred and is effective for purposes of this Agreement.
2.16	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as provided in Section 13(d).
2.17	“Qualifying Termination” means:

(a)	An involuntary termination of the Executive’s employment by the Employer on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control for reasons other than death, Disability, Retirement, or Cause pursuant to a Notice of Termination delivered to the Executive by the Employer; or
(b)	A voluntary termination by the Executive for Good Reason on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control pursuant to a Notice of Termination delivered to the Employer by the Executive.
(c)	A termination for failure of the Executive to comply in material respects with CMS Energy’s Code of Conduct and Statement of Ethics Handbook (June

2003 edition) or other corporate policies, as the handbook and those documents may be amended from time to time, does not satisfy the definition of a Qualifying Termination under clauses (a) and (b).

2.18	“Retirement” shall have the meanings ascribed under the terms of the pension plan applicable to Executive and entitled “Pension Plan for Employees of Consumers Energy Company,” dated September 1, 2000, as amended, other than under Section 7 thereof, or under the successor or replacement of such pension plan if it is then no longer in effect.
2.19	“SERP” shall mean the retirement plan applicable to Executive and entitled “Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company,” dated May 1, 1998, as amended, or under the successor or replacement of such retirement plan if it is then no longer in effect.
2.20	“Severance Benefits” means the payment of Change-in-Control Severance Benefits as provided in Article 3 herein.

Article 3. Severance Benefits

3.1 Right to Change-in-Control Severance Benefits.

(a)	Change-in-Control Severance Benefits. The Executive shall be entitled to receive from the Employer Change-in-Control Severance Benefits, as described in Section 3.2 herein, if a Qualifying Termination of the Executive’s employment satisfying the definitions contained in Section 2.17(a) or (b) has occurred on the date of a Change in Control of CMS Energy Corporation or within twenty-four (24) months immediately following a Change in Control of CMS Energy Corporation. Further, Executive’s Retirement under the pension plan and SERP shall not constitute a waiver of the Executive’s rights with respect to receipt of Change-in-Control Severance Benefits. Nor shall benefits received for Retirement under the pension plan and SERP (or any replacement or successor plans thereto) be used as an offset to the level of Change-in-Control Severance Benefits owed to Executive.
(b)	No Severance Benefits. Other than in a situation involving a Retirement, the Executive shall not be entitled to receive Severance Benefits pursuant to this Agreement if the Executive’s employment with the Employer ends for reasons other than a Qualifying Termination.
(c)	Waiver and Release. The Executive’s act of accepting payment of Severance Benefits payable under Section 3.2 of this Agreement shall constitute and is deemed an express waiver, release and discharge by Executive of any and all claims for damages or other remedies, regardless of when they arose or when they are discovered, against CMS Energy Corporation and its Affiliates arising out of or in any way connected with Executive’s employment relationship with them or the termination of such employment relationship except for claims and

	rights of Executive preserved under Section 3.2 of this Agreement and applicable rights to indemnification.
(d)	No Duplication of Severance Benefits. If the Executive receives Change-in-Control Severance Benefits under Section 3.2, any other severance benefits received by employees not covered by this Agreement to which the Executive is entitled will be subtracted from the Severance Benefits paid pursuant to this Agreement.

3.2 Description of Change-in-Control Severance Benefits. In the event the Executive becomes entitled to receive Change-in-Control Severance Benefits, as provided in Section 3.1(a) herein, the Employer shall provide the Executive with the following:

(a)	A lump-sum amount paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to the sum of the Executive’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and unreimbursed allowances owed to the Executive through and including the Effective Date of Termination.
(b)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to two (2) times the sum of the following: (A) the Executive’s Base Salary and (B) the greater of the Executive’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Executive in respect of the year prior to the year in which the Qualifying Termination occurs.
(c)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to the Executive’s then current target bonus opportunity established under the bonus plan in which the Executive is then participating, for the plan year in which the Qualifying Termination occurs, adjusted on a pro rata basis for the number of days that have elapsed to the Effective Date of Termination during the bonus plan year in which the Qualifying Termination occurs.
(d)	A lump-sum amount, paid within fifteen (15) calendar days following delivery to the Employer or delivery to the Executive, as applicable, of a Notice of Termination, equal to one (1) times the sum of the following: (A) the Executive’s Base Salary and (B) the greater of the Executive’s: (i) annual target bonus opportunity in the year in which the Qualifying Termination occurs or (ii) the actual annual bonus payment paid or due to be paid the Executive in respect of the year prior to the year in which the Qualifying Termination occurs. Such amount shall be consideration for the Executive entering into the noncompete agreement as described in Section 5(a).
(e)	Equivalent payment to Executive in a lump sum amount within forty-five (45) calendar days following delivery of the Notice of Termination for continued

	medical coverage for a period of thirty-six (36) months. Such equivalent payment shall be computed based on the same coverage level as in effect for Executive under the general health care plan available to all employees on the Effective Date of Termination by providing a lump sum payment of the Employer’s portion of the monthly COBRA premium in effect on the Effective Date of Termination times thirty-six (36). Nothing herein amends or provides Executive any rights to health care coverage other than as provided in the applicable group health care plan. If the Executive has waived coverage under the applicable group health care plan, no equivalent payment shall be made under this Agreement.
(f)	Immediate extension (as allowable by Section 6.10 of Article VI of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) by one year after the Effective Date of Termination of the period for Executive to exercise any outstanding stock options or stock appreciation rights granted by the Committee to Executive pursuant to said Article VI. Otherwise, the terms of said plan shall govern and be applied.
(g)	Immediate vesting and distribution to Executive (as allowable by the second sentence of Section 7.2(h) of Article VII of the plan entitled “CMS Energy Corporation Performance Incentive Stock Plan,” dated December 3, 1999, as amended) within forty-five (45) days after delivery of the Notice of Termination of all outstanding shares of restricted stock previously awarded to Executive pursuant to said Article VII. For any award of restricted stock to which there are future performance goals attached, the number of shares distributed to Executive shall assume that the goals have been achieved in full and the award fully earned based on target performance without deductions or additions to the number of shares then held by Executive. For any award of restricted stock that is tenure based, the number of shares distributed to Executive shall assume that all requirements with respect to tenure are satisfied by Executive. Otherwise, the terms of said plan shall govern and be applied.
(h)	For an Executive included in SERP, the Executive’s retirement benefits under the SERP will become fully vested as of the Effective Date of Termination and shall not be subject to further vesting requirements or to any forfeiture provisions. In addition, said Executive shall be provided the following: (i) an additional thirty-six (36) months of Preference Service (as defined in SERP) for purposes of the SERP in accordance with Section III(1) of SERP, subject, however, to the total of Preference Service plus Accredited Service being limited to a maximum of thirty-five (35) years under SERP, and (ii) only the amounts paid to Executive pursuant to clauses (a), (b), (c) and (d) of this Section 3.2 shall be considered a “severance payment under an employment agreement” for purposes of computing Final Executive Pay under SERP. Since the Executive is over the age of 55, the provisions of the last complete paragraph of Section V(3) of SERP shall not be operative. The enhanced SERP benefits under this Section 3.2(h) shall be in lieu of any Change-in-Control enhancements provided for in the SERP.

(i) For purposes of (1) Retirement, (2) SERP and (3) benefits not expressly discussed in clauses (a) through (h) of this Section 3.2, but which are available to the general employee population or available only to officers and implemented with contracts with third parties, the benefit plan descriptions covering all employees and the retirement plan and SERP plan descriptions and contracts with third parties covering officers in place at the time of the Effective Date of Termination control Executive’s treatment under those plans and contracts. For any other benefits only available to officers, if those benefits are not expressly discussed in clauses (a) through (h) of this Section 3.2, those benefits are terminated for Executive as of the Effective Date of Termination.

Article 4. Other Terminations

4.1	Termination for Retirement. If the Executive’s employment with the Employer is terminated by reason of his Retirement, the Executive’s benefits shall be determined in accordance with the Employer’s retirement and SERP plans, survivor’s benefits, insurance, and other applicable programs then in effect.
4.2	Termination for Cause Under this Agreement or Pursuant to Section 6 of the Employment Agreement or by Employer or the Executive for Other Than Good Reason. If the Executive’s employment is terminated either: (a) by the Employer for Cause as defined in Section 2.6 of this Agreement; or (b) under the circumstances specified in Section 6 of the Employment Agreement, the Employer shall pay the Executive the compensation provided in Section 7 of the Employment Agreement. The terms of the benefit plan descriptions, compensation plan descriptions and contracts with third parties covering officers shall control the disposition to Executive and timing of all other amounts to which the Executive may be entitled, and neither the Employer nor CMS Energy Corporation nor any of its Affiliates shall have any further obligations to the Executive thereunder as a result of the existence of this Agreement. No other severance benefits of any type shall be made available to Executive. Notwithstanding the above, if the Executive’s employment terminates pursuant to this Section 4.2, the Executive shall be bound by the provisions contained in Article 5(a), 5(b), 5(c), 5(d), and 5(e) hereof.
4.3	Notice of Termination. Any termination of the Executive’s employment in accordance with Section 4.2 of this Agreement shall be communicated by Notice of Termination delivered to the other party, which shall include a specific date on which the termination has occurred and is effective.

Article 5. Noncompetition and Confidentiality

     During the term of this Agreement and also in the event the Executive becomes entitled to receive Change-in-Control Severance Benefits as provided in Section 3.2 herein, the following shall apply:

(a)	Section 8 of the Employment Agreement. All the provisions of Section 8 of the Employment Agreement shall apply.
(b)	Confidentiality. In addition to the confidentiality provisions contained in Section 8(c) of the Employment Agreement, the Employer has advised the Executive and the Executive acknowledges that it is the policy of CMS Energy Corporation and its Affiliates to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to CMS Energy Corporation and its Affiliates. The Executive shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (other than as may be required in the regular course of the Executive’s employment), nor use in any manner, either during the term of employment or after termination, for any reason, any Protected Information, or cause any such information of CMS Energy Corporation and its Affiliates to enter the public domain.
	For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of CMS Energy Corporation and its Affiliates and any other information of CMS Energy Corporation and its Affiliates, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by CMS Energy Corporation and its Affiliates and their agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CMS Energy Corporation or its Affiliates or lawfully obtained from third parties who are not bound by a confidentiality agreement with CMS Energy Corporation or its Affiliates, is not Protected Information. Notwithstanding the foregoing, nothing in this subsection is to be construed as prohibiting Executive from freely providing information to a state or federal agency, legislative body or one of its committees or a court with jurisdiction when Executive is requested or required to do so by such entity.
(c)	Cooperation. Executive agrees to fully and unconditionally cooperate with CMS Energy Corporation and its Affiliates and their attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive’s employment or activities on behalf of CMS Energy Corporation and its Affiliates.
(d)	Nondisparagement. At all times, the Executive agrees not to disparage CMS Energy Corporation or its Affiliates or otherwise make comments harmful to their reputations. While receiving any payments pursuant to this Agreement or the Employment Agreement, Executive further agrees not to testify or act in any capacity as a paid or unpaid expert witness, advisor or consultant on behalf of any person, individual, partnership, firm, corporation or any other person or entity that has or may have any claim, demand, action, suit, cause of action, or

judgment against CMS Energy Corporation or its Affiliates, or from agreeing to do so after the payments under this Agreement have ceased. Further, CMS Energy Corporation and its Affiliates agree not to disparage Executive or otherwise make comments harmful to Executive’s reputation. Notwithstanding the foregoing, nothing in this Section prohibits Executive or representatives of CMS Energy Corporation or its Affiliates from testifying truthfully under oath in any judicial, administrative or legislative proceedings or in any arbitration, mediation or other similar proceedings.

Article 6. Excise Tax Equalization Payment

6.1	Excise Tax Equalization Payment. In the event that the Executive becomes entitled to Severance Benefits or any other payment or benefit under this Agreement, or under the Employment Agreement, or under any other agreement, plan or arrangement for which Executive is eligible with (1) the Employer, (2) any Person whose actions result in a Change in Control, or (3) CMS Energy Corporation or any of its Affiliates (all of such payments and benefits collectively referred to as the “Total Payments”), and if all or any part of the Total Payments will be subject to the tax (the “Excise Tax”) imposed by Sections 280G and 4999 of the Code (or any similar tax that may hereafter be imposed), the Employer shall pay to the Executive in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any federal, state, and local income tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 6.1 (including FICA and FUTA), shall be equal to the Total Payments. Such payment shall be made by the Employer to the Executive within forty-five (45) calendar days following the Effective Date of Termination.
	For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Effective Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
6.2	Subsequent Recalculation. In the event the Internal Revenue Service adjusts the computation under Section 6.1 herein so that the Executive did not receive the greatest net benefit, the Employer shall reimburse the Executive for the full amount necessary to make the Executive whole, plus interest on the reimbursed amount at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay the Employer within thirty (30) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive) to the extent that such repayment

results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.

Article 7. Dispute Resolution and Notice

7.1

Dispute Resolution. Any dispute or controversy between the parties arising under or in connection with this Agreement shall be settled by final and binding arbitration after first being submitted in writing to the Committee for attempted resolution. If that does not result in mutually agreeable resolution, the arbitration proceeding shall be conducted before a single arbitrator selected by the parties to be conducted in Jackson, Michigan. The arbitration will be conducted in accordance with the rules of the American Arbitration Association then in effect and be finished within ninety (90) days after the selection of the arbitrator. The arbitrator shall not have authority to fashion a remedy that includes consequential, exemplary or punitive damages of any type whatsoever, and the arbitrator is hereby prohibited from awarding injunctive relief of any kind, whether mandatory or prohibitory. Judgment may be entered on the award of the arbitrators in any court having competent jurisdiction. The parties shall share equally the cost of the arbitrator and of conducting the arbitration proceeding, but each party shall bear the cost of its own legal counsel and experts and other out-of-pocket expenditures.

7.2

Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing and sent by registered or certified mail to the Executive at the last address he or she has filed in writing with the Employer or, in the case of the Employer, at One Energy Plaza, Jackson, Michigan 49201, Attention: Corporate Secretary. Notices, requests, demands or other communications may also be delivered by messenger, courier service or other electronic means and are sufficient if actually received by the party for whom it is intended.

Article 8. Successors and Assignment

8.1 Successors. Any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to the business of CMS Energy Corporation or purchaser of all or substantially all of the assets of CMS Energy Corporation shall be required to expressly assume and agree to perform under this Agreement in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place. Failure to obtain such assumption and agreement prior to the effectiveness of any such succession or asset sale shall entitle the Executive to the Change-in-Control Severance Benefits specified in Section 3.2 of this Agreement. The effective date of the succession or the sale shall be deemed the date of delivery to Executive of the Notice of Termination for purposes of administering Section 3.2. Regardless of whether such agreement is executed, this Agreement shall be binding

upon any successor in accordance with the operation of law.

8.2 Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him or her hereunder had he or she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s Beneficiary. If the Executive has not named a Beneficiary, then such amounts shall be paid to the Executive’s devisee, legatee, or other designee, or if there is no such designee, to the Executive’s estate.

Article 9. Miscellaneous

9.1	Employment Status. The employment of the Executive by the Employer is “at will” and may be terminated by either the Executive or the Employer at any time, subject to applicable law. Further, Executive has no right to be an officer of CMS Energy Corporation or any of its Affiliates and serves as an officer entirely at the discretion of the Board.
9.2	Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, and except for the Employment Agreement which remains in full force and effect unless expressly modified or amended herein, this Agreement completely supersedes, cancels, voids and renders of no further force and effect any and all other employment agreements, change in control agreements, and other similar agreements, communications, representations, promises, covenants and arrangements, whether oral or written, between the Employer and Executive and between the Executive and CMS Energy Corporation or any of its Affiliates that may have taken place or been executed prior to the Effective Date of this Agreement and which may address the subject matters contained herein. Executive expressly agrees that only the first two sentences of Section 9 of the Employment Agreement shall survive the execution of this Agreement and the balance of Section 9 after those first two sentences is superseded in its entirety by this Agreement and no longer has any legal force and effect whatsoever. Executive forever releases the Employer, CMS Energy Corporation, and its affiliates from the duty to comply with the superseded provisions of Section 9.
9.3	Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.
9.4	Tax Withholding. The Employer may withhold from any benefits payable under this Agreement any authorized deductions and all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

9.5	Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing on a form provided by the Employer. The Executive may make or change such designation at any time.
9.6	Payment Obligation Absolute. Except as provided in the last sentence of this paragraph, the Employer’s and CMS Energy Corporation’s obligations to make the payments and provide the benefits to Executive specified herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Employer, CMS Energy Corporation or any of its Affiliates may have against the Executive or anyone else. All amounts payable by the Employer hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Employer shall be final, but subject to the provisions of the next sentence. If the Executive should seek to bypass arbitration and litigate about this Agreement or the subject matters addressed herein in a state or federal court, Executive agrees (i) at least 10 days prior to filing in court to tender back to the Employer all cash consideration paid to Executive under this Agreement and the Employment Agreement prior thereto and (ii) any payments due Executive under this Agreement and the Employment Agreement after said tender shall be suspended until said litigation is finally resolved.
	The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Employer’s obligations to make the payments and arrangements required to be made under this Agreement and the Employment Agreement.
9.7	Contractual Rights to Benefits. Subject to approval and ratification by the Committee, this Agreement establishes and vests in the Executive a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Employer to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
9.8	Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.
9.9	Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures transmitted via facsimile shall be regarded by the parties as original signatures.
9.10	Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of Michigan, without regard to its conflicts of laws principles.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of this ___ day of                      , 2004.

	EXECUTIVE:
By:	Signature:
Its:	Printed Name:

Addendum to Tier III Change-in-Control Agreement.

Whereas the Board of Directors of CMS Energy Corporation approved entering into change in control agreements with certain key employees; and

Whereas                      and the Executive have entered into a Change-in-Control (the “Agreement”) dated                      , 200___ pursuant to that authority; and

Whereas the Agreement requires that any modification or alteration may only be made by mutual agreement of the parties in a written instrument executed by the parties or their legal representatives; and

Whereas the parties mutually agree to modify the Agreement to comply with Internal Revenue Code Section 409A (“Code Section 409A”) under the short term deferral rules.

Now Therefore the parties agree to modify the Change-in-Control Agreement to comply with the requirements of Section 409A to qualify as a short term deferral by making the following changes to the Agreement:

I. Section 2.14 “Good Reason” is modified as follows:

“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Executive’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Executive of duties materially inconsistent with the Executive’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a material diminution of the Executive’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Executive); or
(b)	Materially reducing the Executive’s Base Salary; or
(c)	Materially reducing the Executive’s targeted annual incentive opportunity; or
(d)	A material failure to maintain the Executive’s participation in a long-term incentive plan in a manner that is consistent with the Executive’s position, authority, or responsibilities; or

(e)	A material failure to maintain the Executive’s amount of benefits under, or relative level of participation in, employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Executive participates as of the date of a Change in Control, provided however that any such change must result in a material negative change to the employee in the employment relationship; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer after receipt of written notice of such breach delivered by the Executive to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Executive under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Executive is required to be based at a location in excess of thirty-five (35) miles from the location of the Executive’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Executive’s prior business travel obligations.

For purposes of applying clauses (a) through (hi) of this Agreement, the Executive’s Retirement shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason, and the Executive’s continued employment shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason or constitute Executive’s consent to the circumstances constituting Good Reason unless Executive has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Notwithstanding the above, the Executive must provide notice to the Employer of the existence of Good Reason not more than 90 days after the initial existence of the circumstance that constitutes Good Reason as set forth above and provide a period of 30 days for the Employer to remedy the circumstance giving rise to Good Reason and thus not have to pay the Change in control severance benefits as provided for under Section 3.2. All provisions and interpretations relating to good Reason are to be applied consistent with Section 409A and the applicable Treasury regulations at Section 1.409A-1(n)(2) or its successor.

II. Section 2.15 “Notice of Termination” shall be amended to add the following sentence at the end:

Notwithstanding the above, the date of the Qualifying Termination will be the date the Executive experiences a separation from service with the service recipient, as that term is defined under IRC Section 409A and any applicable regulations.

Accepted by Company:	Accepted by Executive:
Date:	Date:

Addendum to Tier III (DC SERP)Change-in-Control Agreement.

Whereas the Board of Directors of CMS Energy Corporation approved entering into change in control agreements with certain key employees; and

Whereas                      and the Executive have entered into a Change-in-Control (the “Agreement”) dated                      , 200___ pursuant to that authority; and

Whereas the Agreement requires that any modification or alteration may only be made by mutual agreement of the parties in a written instrument executed by the parties or their legal representatives; and

Whereas the parties mutually agree to modify the Agreement to comply with Internal Revenue Code Section 409A (“Code Section 409A”) under the short term deferral rules.

Now Therefore the parties agree to modify the Change-in Control Agreement to comply with the requirements of Section 409A to qualify as a short term deferral by making the following changes to the Agreement:

I. Section 2.14 “Good Reason” is modified as follows:

“Good Reason” exists only on the date of a Change in Control or during the twenty-four (24) months which follow a Change in Control and shall mean, without the Executive’s express written consent, the occurrence of any one or more of the following:

(a)	The assignment to the Executive of duties materially inconsistent with the Executive’s position (including status, offices, titles, and reporting requirements), authority, or responsibilities as in effect on the Effective Date, or any action by the Employer which results in a material diminution of the Executive’s position, authority, duties, or responsibilities as constituted as of the Effective Date (excluding an isolated, insubstantial, and inadvertent action which is remedied by the Employer promptly after receipt of notice thereof given by the Executive); or
(b)	Materially reducing the Executive’s Base Salary; or
(c)	Materially reducing the Executive’s targeted annual incentive opportunity; or
(d)	A material failure to maintain the Executive’s participation in a long-term incentive plan in a manner that is consistent with the Executive’s position, authority, or responsibilities; or

(e)	A material failure to maintain the Executive’s amount of benefits under, or relative level of participation in, employee benefit or retirement plans, policies, practices, or arrangements of a material nature available to employees of CMS Energy Corporation and its Affiliates and in which the Executive participates as of the date of a Change in Control, provided however that any such change must result in a material negative change to the employee in the employment relationship; or
(f)	A material breach of this Agreement by the Employer which is not remedied by the Employer after receipt of written notice of such breach delivered by the Executive to the Committee; or
(g)	Any successor company fails or refuses to assume the obligations owed to Executive under this Agreement in their entirety, as required by Section 8.1 hereunder; or
(h)	The Executive is required to be based at a location in excess of thirty-five (35) miles from the location of the Executive’s principal job location or office immediately prior to a Change in Control except for required travel on the Employer’s or CMS Energy Corporation’s business to an extent substantially consistent with the Executive’s prior business travel obligations.

For purposes of applying clauses (a) through (h) of this Agreement, the Executive’s Retirement shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason, and the Executive’s continued employment shall not constitute a waiver of the Executive’s rights with respect to any circumstance constituting Good Reason or constitute Executive’s consent to the circumstances constituting Good Reason unless Executive has provided express written consent to the circumstance that would otherwise constitute Good Reason under this Agreement. Notwithstanding the above, the Executive must provide notice to the Employer of the existence of Good Reason not more than 90 days after the initial existence of the circumstance that constitutes Good Reason as set forth above and provide a period of 30 days for the Employer to remedy the circumstance giving rise to Good Reason and thus not have to pay the Change in control severance benefits as provided for under Section 3.2. All provisions and interpretations relating to good Reason are to be applied consistent with Section 409A and the applicable Treasury regulations at Section 1.409A-1(n)(2) or its successor.

II.	Section 2.15 “Notice of Termination” shall be amended to add the following sentence at the end:
	Notwithstanding the above, the date of the Qualifying Termination will be the date the Executive experiences a separation from service with the service recipient, as that term is defined under IRC Section 409A and any applicable regulations.
III.	Section 3.2(h) shall be amended as follows:

(h) For an Executive included in DC SERP, the Executive’s retirement benefits under the DC SERP will become fully vested as of the Effective Date of Termination and shall not be subject to further vesting requirements or to any forfeiture provisions. In addition, said Executive shall be provided an additional contribution to the DC SERP equal to three times the amount the Company would contribute on behalf of the Executive to the Deferred Company Contribution Plan and the DC SERP Plan for the current year based on the base salary and bonus as determined pursuant to clause (b) of this Section 3.2.

Accepted by Company:	Accepted by Executive:
Date:	Date:

EX-10.(H)

Exhibit (10)(h)

PERFORMANCE INCENTIVE STOCK PLAN

The CMS Energy Corporation Performance Incentive Stock Plan, first effective February 3, 1988, is hereby set forth as amended and restated effective June 1, 2004, and as further amended effective April 1, 2006 to ensure compliance with the requirements of Internal Revenue Code Section 409A.

Article I. Purpose

The CMS Energy Corporation Performance Incentive Stock Plan (hereinafter called the “Plan”) is a Plan to provide incentive compensation to Eligible Persons, based upon such Eligible Persons’ individual contributions to the long-term growth and profitability of the Corporation, and in order to encourage such Eligible Persons to identify with shareholder concerns and their current and continuing interest in the development and financial success of the Corporation. Because it is expected that the efforts of the key employees, Directors or advisors selected for participation in the Plan will have a significant impact on the results of the Corporation’s operations in future years, the Plan is intended to assist the Corporation in attracting and retaining as key employees, Directors or advisors individuals of superior ability and in motivating their activities on behalf of the Corporation.

Article II. Definitions

2.1 Definitions: When used in the Plan, the following words and phrases shall have the following meanings:

a.	“Award Period” means the period or periods of time relating to any restrictions imposed by the Committee with respect to Common Stock awarded under Article VII. Such period of time shall extend for a period of at least twelve months from and after the date of the award.
b.	“Beneficiary” means the beneficiary or beneficiaries designated to receive the amount, if any, payable under the Plan upon the death of a Participant.
c.	“Board” means the Board of Directors of the Corporation.
d.	“Change in Control” means, for individuals who have a written agreement including a change in control provision, whatever meaning was given in such agreement. For other individuals, the phrase shall have the meaning shown on Attachment A.
e.	“Committee” means the Compensation and Human Resources Committee of the Board, which shall be comprised in such a manner to comply with the requirements, if any, of the New York Stock Exchange or other applicable stock markets, Rule 16b-3 (or any successor rule) under the Securities Exchange Act of 1934, as amended, and Section 162(m) of the Internal Revenue Code of 1986, as amended.
f.	“Common Stock” means the Common Stock of the Corporation as authorized for issuance in its Articles of Incorporation at the time of an award or grant under this Plan.
g.	“Corporation” means CMS Energy Corporation, its successors and assigns, and each of its Subsidiaries, or any of them individually.
h.	“Director” means any person who is a member of the Board of Directors of the Corporation or a Subsidiary.
i.	“Eligible Person” means a key employee, non-employee Director or advisor. A key employee must at the end of the fiscal year be a regular full-time salaried employee of the Corporation or a Subsidiary, or, to the extent the Committee may determine, a person whose services to the Corporation terminated before the end of the fiscal year, who, in the opinion of the Committee, made a significant contribution to the Corporation or a Subsidiary.
j.	“Incentive Option” means an option to purchase Common Stock of the Corporation which meets the requirements set forth in the Plan and also meets the definition of an Incentive Stock Option set forth in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

k.	“Non-Employee Director” means a member of the Board of Directors of the Corporation or a Subsidiary who is not currently an employee of the Corporation or a Subsidiary and has not been an employee of the Corporation or a Subsidiary within the preceding 3 years.
l.	“Nonqualified Option” means an option to purchase Common Stock of the Corporation which meets the requirements set forth in the Plan but does not meet the definition of an Incentive Stock Option set forth in Section 422 of the Code.
m.	“Officers Incentive Compensation Plan” means the incentive compensation plan, including any amendments thereto, authorized and approved by the Board to provide incentive compensation to the Officers of the Corporation or a Subsidiary.
n.	“Optionee” means any person to whom an option or right has been granted or who becomes a holder of an option or right under Article VI of the Plan.
o.	“Participant” means a person to whom a grant or award has been made which has not been paid, forfeited, or otherwise terminated or satisfied under the Plan, or a person included under the Management Stock Purchase Plan.
p.	“Performance Criteria” are the factors used by the Committee to establish goals to track business measures such as net earnings; operating earnings or income; earnings growth; net income (absolute or competitive growth rates comparative); cash flow (including operating cash flow, free cash flow, discounted cash flow return on investment, and cash flow in excess of cost of capital); earnings per share; stock price (absolute or peer-group comparative); total shareholder return; absolute and/or relative return on common shareholders equity; return on shareholders equity (absolute or peer-group comparative); absolute and/or relative return on capital; absolute and/or relative return on assets; economic value added (income in excess of cost of capital); customer satisfaction; expense reduction; sales; or ratio of operating expenses to operating revenues.
q.	“Performance Unit” means a contractual right granted to a Participant pursuant to Article VIII to receive a designated dollar value equal to the value established by the Committee and subject to such terms and conditions as are set forth in this Plan and the applicable grant.
r.	“Phantom Share” means a contractual right granted to a Participant pursuant to Article VIII to receive an amount equal to the Appreciation Value at such time, and subject to such terms and conditions as are set forth in this Plan and the applicable grant.
s.	“Restricted Common Stock” means Common Stock delivered subject to the restrictions described in Article VII.
t.	“Restrictions” for purposes of Article VII includes any time based and/or performance based conditions on vesting.
u.	“Shareholders” means the shareholders of the Corporation.
v.	“Stock Appreciation Right” shall mean a right, granted in conjunction with a Stock Option, to surrender the Stock Option and receive the appreciation in value of the optioned shares over the option price.
w.	“Stock Option” means an option to purchase shares of Common Stock, granted pursuant to this Plan.
x.	“Subsidiary” means a corporation, domestic or foreign, 50 percent or more of the voting stock of which is owned directly or indirectly by the Corporation.

Article III. Effective Date, Duration, Scope and Administration of the Plan

3.1

This Plan shall be effective June 1, 2004, conditioned upon approval of the shareholders of the Corporation, and shall continue until May 31, 2009.

3.2

The Committee shall have full power and authority to construe, interpret and administer the Plan. All decisions, actions or interpretations of the Committee shall be final, conclusive and binding upon all parties. If any Participant or Optionee objects to any such interpretation or action formally or informally, the expenses of the Committee and its agents and counsel shall be chargeable against any amounts otherwise payable under the Plan to or on account of the Participant or Optionee.

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3.3 No member of the Committee shall be personally liable by reason of any contract or other instrument executed by him or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Corporation shall indemnify and hold harmless each member of the Committee and each other officer, employee or director of the Corporation to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith.

Article IV. Participation, Awards and Grants

4.1 Each year the Committee shall designate as Participants and/or Optionees in the Plan those Eligible Persons who, in the opinion of the Committee, have significantly contributed to the Corporation.

4.2 Each year, the Committee may award shares of Common Stock, and/or may grant Phantom Shares, Performance Units, Stock Options which qualify as “Incentive Stock Options” within the meaning of Section 422 of the Code or Stock Options which do not qualify as Incentive Stock Options and/or Stock Appreciation Rights for use in connection with Stock Options to each Eligible Person whom it has designated as an Optionee or Participant for such year. No Incentive Stock Option will be granted to an Eligible Person who is not a full or part-time employee of the Corporation or a subsidiary of the Corporation.

4.3 Awards of Common Stock and grants of Stock Options (with or without Stock Appreciation Rights), Phantom Shares or Performance Units may be made, without amending the Plan, to Eligible Persons who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan or to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or alternative versions of the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, no such supplement or alternative version shall: (a) increase the number of available shares of Common Stock under Section 5.1; or (b) increase the limitations contained in Section 5.3.

Article V. Shares Reserved Under the Plan

5.1 There is hereby reserved for award under this Plan 6 million whole shares of Common Stock, less the number of shares awarded, granted or purchased under the provisions of this Plan which have not been forfeited. To the extent permitted by law or the rules and regulations of any stock exchange on which the Common Stock is listed, shares of Common Stock with respect to which payment or exercise is in cash as well as any shares or options which are forfeited may thereafter again be awarded or made subject to grant under the Plan. The number of shares made available for option and sale under Article VI of this Plan plus the number of shares awarded under Article VII of this Plan plus the number of shares awarded or purchased under Article VIII of this Plan will not exceed, at any time, the number of shares of Common Stock reserved pursuant to this Article V.

5.2 If a dividend shall be declared upon the Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any such option and the number of shares reserved for issuance pursuant to the Plan but not yet covered by an option shall be adjusted by adding to each such option or share the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend. In the event that the outstanding shares of the Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of CMS Energy Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation or otherwise, then there shall be substituted for each share of Common Stock subject to any such option and for each share of Common Stock reserved for issuance pursuant to the Plan but not yet covered by an option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged. In the event there shall be any change, other than as specified above in this Section 5.2, in the number or kind of outstanding shares of Common Stock of the Corporation or of any stock or other securities into which such Common Stock shall have been changed or for which it shall have been exchanged, then if the Committee shall in its sole discretion determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Plan but not yet covered by an option and of the shares then subject to an option or options, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of the Plan and each Stock Option agreement. In the ease of any such substitution or adjustment as provided for in this paragraph, the option price in each Stock Option agreement for each share covered thereby prior to such substitution or adjustment will be the option price for all shares of stock or other securities which shall have been substituted for such share or to which such share shall have been adjusted pursuant to this section. No adjustment or substitution provided for in this Section 5.2 shall require the Corporation

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	in any Stock Option agreement to sell a fractional share, and the total substitution or adjustment with respect to each Stock Option agreement shall be limited accordingly.
5.3	Individual Grant Limit: The combined maximum shares awarded or granted for any one Eligible Person for any one year under this Plan, excluding any Performance Units awarded under Section 8.2, will not exceed 250,000 shares of Common Stock.

Article VI. Stock Options and Stock Appreciation Rights

6.1	The Committee may from time to time provide for the option and sale of shares of Common Stock, which may consist in whole or in part of the authorized and unissued Common Stock of the Corporation.
6.2	Optionees: The Committee shall determine and designate from time to time, in its discretion, those Eligible Persons to whom Stock Options and Stock Appreciation Rights are to be granted and who thereby become Optionees under the Plan.
6.3	Allotment of Shares: The Committee shall determine and fix the number of shares of Common Stock subject to options to be offered to each Optionee.
6.4	Option Price: The Committee shall establish the option price at the time any option is granted at not less than 100% of the fair market value of the stock on the date on which such option is granted; provided, however, that with respect to an Incentive Option granted to an employee who at the time of the grant owns (after applying the attribution rules of Section 425(d) of the Code) more than 10% of the total combined voting stock of the Corporation or of any parent or Subsidiary, the option price shall not be less than 110% of the fair market value of the stock subject to the Incentive Option on the date such option is granted. In no event shall Options previously granted under this Plan be re-priced by reducing the exercise price thereof, nor shall Options previously granted under this Plan be cancelled and replaced by a subsequent re-grant under this Plan of Options having an exercise price lower than the options so cancelled.

6.5 Stock Appreciation Rights: At the discretion of the Committee, any Stock Option granted under this Plan may, at the time of such grant, include a Stock Appreciation Right. A Stock Appreciation Right shall pertain to, and be granted only in conjunction with, a related underlying Stock Option, and shall be exercisable only at the time and to the extent the related underlying Stock Option is exercisable and only if the fair market value of the Common Stock of the Corporation exceeds the Stock Option price in the related underlying Stock Option. An Optionee who is granted a Stock Appreciation Right may elect to surrender the related underlying Stock Option with respect to all or part of the number of shares subject to the related underlying Stock Option and exercise in lieu thereof the Stock Appreciation Right with respect to the number of shares as to which the Stock Option is surrendered.

The exercise of the underlying Stock Option shall terminate the related Stock Appreciation Right to the extent of the number of shares purchased upon exercise of the underlying Stock Option. The exercise of a Stock Appreciation Right shall terminate the related underlying Stock Option to the extent of the number of shares with respect to which the Stock Appreciation Right is exercised. Upon exercise of a Stock Appreciation Right, an Optionee shall be entitled to receive, without payment to the Company (except for applicable withholding taxes), an amount equal to the excess of (i) the then aggregate fair market value of the number of shares with respect to which the Optionee exercises the Stock Appreciation Right, over (ii) the aggregate Stock Option price per share for such number of shares. Such amount may be paid by the Corporation, at the election of the Optionee, in cash, Common Stock of the Corporation or any combination thereof; provided, however, that the Committee shall have sole discretion to approve or disapprove an election of an Optionee to receive cash upon exercise of a Stock Appreciation Right.

6.6

Granting and Exercise of Stock Options and Stock Appreciation Rights: The granting of Stock Options and Stock Appreciation Rights hereunder shall be effected in accordance with determinations made by the Committee pursuant to the provisions of the Plan, by execution of instruments in writing in form approved by the Committee. The Committee may grant Stock Options that provide for the grant of a subsequent restoration Stock Option if the exercise price has been paid for by tendering shares to the Company. Any restoration Stock Option shall be for the number of shares tendered in exercising the predecessor option. The restoration Stock Option exercise price shall be the then-current Fair Market Value, and the term of such restoration option may not extend beyond the remaining term of the original option.

Each Stock Option and Stock Appreciation Right granted hereunder shall be exercisable at any such time or times or in any such installments as may be determined by the Committee at the time of the grant, subject to the limitation that for each Incentive Option and related Stock Appreciation Right granted, a maximum of $100,000 (based on the price at the date of grant) may be exercised per year, plus any unused carry-over from a previous year(s).

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6.7 Payment of Stock Option Price: At the time of the exercise in whole or in part of any Stock Option granted hereunder, payment of the option price in full in cash or in Common Stock of the Corporation shall be made by the Optionee for all shares so purchased. No Optionee shall have any of the rights of a Shareholder of the Corporation under any such Stock Option until the actual issuance of shares to said Optionee, and prior to such issuance no adjustment shall be made for dividends, distributions or other rights in respect of such shares, except as provided in Section 5.2.

6.8 Nontransferability of Stock Options and Stock Appreciation Rights: No Stock Option or Stock Appreciation Right granted under the Plan to an Optionee shall be transferable by such Optionee otherwise than by will, pursuant to a valid Domestic Relations Order which limits the rights of the alternate payee to those available to the Optionee, or by the laws of descent and distribution except that the Optionee may transfer to an immediate family member or a family trust for estate planning purposes, and such Stock Option and Stock Appreciation Right shall be exercisable, during the lifetime of the Optionee, only by the Optionee or by a member of such Optionee’s immediate family or by the family trust.

6.9 Term of Stock Options and Stock Appreciation Rights: If not sooner terminated, each Stock Option and Stock Appreciation Right granted hereunder shall expire not more than ten years from the date of the granting thereof; provided, that with respect to an Incentive Option and a related Stock Appreciation Right granted to an Optionee who, at the time of the grant, owns (after applying the attribution rules of Section 425(d) of the Code) more than 10% of the total combined voting stock of all classes of stock of the Corporation or of any parent or Subsidiary, such Incentive Option and Stock Appreciation Right shall expire not more than five years after the date of granting thereof.

6.10 Termination of Employment: If the employment of an Optionee by the Corporation shall be terminated due to either the voluntary resignation of the employee or for cause, any outstanding Stock Option or Stock Appreciation Right granted to such Optionee shall terminate. If the employment of an Optionee shall be terminated due to the Optionee’s death, any Stock Option or Stock Appreciation Right, transferred to a family trust or by will or by the laws of descent and distribution, may be exercised for one year following the date of the Optionee’s death. If the employment of an Optionee shall otherwise terminate such as due to dismissal, a reorganization, retirement from active employment or service with the Corporation after age 55, or the disability of the Optionee, the Optionee may exercise any outstanding Stock Option or Stock Appreciation Right for one year following the date of the termination of employment. In such event, except upon the disability of the Optionee, any outstanding Incentive Option or related Stock Appreciation Right may be exercised for only three months following an Optionee’s termination of employment. Notwithstanding the foregoing, any Stock Option, Incentive Stock Option or Stock Appreciation Right, the exercise of which has been extended pursuant to this Section 6.10, shall immediately terminate upon the Optionee’s acceptance of an offer of employment with a competitor of the Corporation as determined by the Committee in its sole discretion. In no event, however, shall a Stock Option or Stock Appreciation Right be exercisable subsequent to its expiration date and, furthermore, a Stock Option or Stock Appreciation Right may only be exercised after termination of an Optionee’s employment to the extent exercisable on the date of termination of employment.

6.11 Termination of Service: If a Non-Employee Director ceases to be a member of the Board for any reason, or if an advisor no longer provides service to the Corporation, the Non-Employee Director or advisor may exercise any Option or related Stock Appreciation Right for one year following such termination of service. In no event, however, shall a Stock Option or Stock Appreciation Right be exercisable subsequent to its expiration date and, furthermore, a Stock Option or Stock Appreciation Right may only be exercised after termination of an Optionee’s service to the extent exercisable on the date of termination of service.

6.12 Investment Purpose: Any shares of Common Stock subject to option under the Plan may be made subject to such other restrictions as the Committee deems advisable, including without limitation provisions to comply with Federal and state securities laws. In making determinations of legal requirements the Committee shall rely on an opinion of counsel for the Corporation.

6.13 Withholding Payments: If upon the exercise of a Nonqualified Option and/or a Stock Appreciation Right or as a result of a disqualifying disposition (within the meaning of Section 422 of the Code) of shares acquired upon exercise of an Incentive Option, there shall be payable by the Corporation any amount for income tax withholding, either the Corporation shall appropriately reduce the amount of stock or cash to be paid to the Optionee or the Optionee shall pay such amount to the Corporation to reimburse it for such income tax withholding.

6.14 Restrictions on Sale of Shares: If, at the time of exercise of any Stock Option or Stock Appreciation Right granted hereunder, the Corporation is precluded by any legal, regulatory or contractual restriction from selling and/or delivering shares pursuant to the terms of such Stock Option or Stock Appreciation Right, the sale and delivery of the shares may be delayed until the restrictions

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	are resolved and only cash may be paid upon exercise of the Stock Appreciation Right. At any time during such delay, the Committee, in its discretion, may permit the Optionee to revoke a Stock Option exercise, in which event any corresponding Stock Appreciation Right shall be reinstated.
6.15	Compliance With Rule 16b-3: Notwithstanding any other provision of the Plan to the contrary, the administration of the Plan and the grant, exercise and terms of Stock Appreciation Rights hereunder shall comply with Rule 16b-3, or any successor rule, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Article VII. Restricted Common Stock

7.1 Awards: The Committee may from time to time award restricted shares of Common Stock to any Eligible Person it has designated as a Participant for such year. Awards shall be made to Eligible Persons in accordance with such rules as the Committee may prescribe. The Committee may also award restricted shares of Common Stock conditioned on the attainment of a performance goal that relates to Shareholder return, measured by Performance Criteria as determined by the Committee as set forth in the award.

7.2 Restrictions:

a.	Award Period. Any shares of Common Stock awarded or issued under the Plan may be made subject to such other restrictions as the Committee deems advisable, including without limitation provisions to comply with Federal and state securities laws. In making determinations of legal requirements the Committee may rely on an opinion of counsel for the Corporation. Except for any recoupment set forth in Article X.2, after shares are awarded under the Plan, the Committee may not, at a later date, add additional restrictions or extend the length of the Award Period. Notwithstanding the foregoing, the restrictions shall terminate upon the death of the Participant.
b.	Stock Certificates. Whenever shares of Common Stock are awarded to a Participant, such shares shall be outstanding, and stock certificates shall be issued in the name of the Participant, which certificates may bear a legend stating that the shares are issued subject to the restrictions set forth in the Plan. All certificates issued for shares of Common Stock awarded under the Plan shall be deposited for the benefit of the Participant with the Secretary of the Corporation as custodian until such time as the shares are vested and transferable.
c.	Voting Rights. A Participant who is awarded shares of Common Stock under the Plan shall have full voting rights on such shares, whether or not the shares are vested or transferable.
d.	Dividend Rights. Shares of Common Stock awarded to a Participant under the Plan, whether or not vested or transferable, may have full dividend rights as determined by the Committee. However, if shares or securities are issued as a result of a merger, consolidation or similar event, such shares shall be issued in the same manner, and subject to the same deposit requirements, vesting provisions and transferability restrictions as the shares of Common Stock which have been awarded.
e.	Delivery. Deliveries of Restricted Common Stock by the Corporation may consist in whole or in part of the authorized and unissued Common Stock of the Corporation (at such time or times and in such manner as it may determine). The Restricted Common Stock shall be paid and delivered as soon as practicable after the Award Period in accordance with Section 7.3.
f.	Transferability. The shares may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of by the Participant until their release. However, nothing herein shall preclude a Participant from making a gift of any shares of Restricted Common Stock to a spouse, child, stepchild, grandchild, parent or sibling, or legal dependent of the Participant or to a trust of which the beneficiary or beneficiaries of the corpus and the income shall be either such a person or the Participant; provided that, the Restricted Common Stock so given shall remain subject to the restrictions, obligations and conditions described in this Article VII.
g.	Vesting. If a Participant has received an award pursuant to the provisions of the Plan, is employed by the Corporation or remains a Non-Employee Director or is an advisor at the end of the Award Period and the performance goals have been met, then the Participant shall be fully vested, at the end of the Award Period, in the shares of Common Stock awarded to the Participant for that Award Period.

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h.

Termination of Employment. In the event of termination of employment of an employee Participant or termination of service of a Non-Employee Director or advisor prior to the last day of an Award Period for any reason other than Participant’s death, retirement of a Participant from active employment or service with the Corporation after age 55 (“Retirement”), or disability of a Participant., all rights to any shares of Restricted Common Stock held in a deposit account with respect to such award, including any additional shares issued with respect to such shares as described in subsection 7.2d above shall be forfeited to the Corporation. However, the Committee may, if the Committee determines that circumstances warrant such action, vest all or a portion of such outstanding awards and approve the immediate distribution of all vested Common Stock that would otherwise be forfeited. Alternatively, the Committee may, if the Committee determines that circumstances warrant such action, instruct that such shares of Restricted Common Stock shall continue to be held by the Corporation in a deposit account until any performance restrictions have been satisfied or the shares are forfeited for failure to satisfy such performance restrictions.

i.

Exchange of Shares .In the event the Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of CMS Energy Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation or otherwise, then there shall be substituted for each share of stock awarded pursuant to this Article VII the number and kind of shares of stock or other securities into which each outstanding share Common Stock shall be so changed or for which each such share shall be exchanged. In the event the Common Stock shall be exchanged for a cash payment, in whole or in part, whether through reorganization, recapitalization, merger or consolidation or otherwise, then any shares awarded pursuant to this Article VII shall also be exchanged for a similar cash and/or stock payment. At the time of any such change or exchange, whether for stock or for cash or a combination of stock and cash, any restrictions, other than time based vesting, shall be removed and such stock and/or cash as substituted for the shares awarded to the Participant shall continue to be considered an award of shares of Restricted Common Stock under this Plan. Nothing in this provision permits or requires the Corporation to sell a fractional share. Any such exchange for cash will be structured in such a manner as to be exempt from Section 409A or alternatively, to comply with Section 409A.

7.3 Distribution of Restricted Common Stock

a.	Distribution After Award Period: Except as otherwise provided, distribution of vested awards of Common Stock shall be made as soon as practicable after the last day of the applicable Award Period in the form of full shares of Common Stock, with fractional shares, if any, being awarded in cash.
b.	Distribution After Death of Participant: Upon the death of the Participant, either before or after retirement, any shares of Restricted Common Stock then held shall, subject to this Article VII, be delivered within a reasonable time under the circumstances to Participant’s Beneficiary or, in the absence of an appropriate Beneficiary designation to the Participant’s estate, in such one or more installments as the Committee may then determine.
c.	Distribution After Retirement or Disability: Upon termination of a Participant due to Retirement or disability, any shares awarded not less than 12 months prior to termination shall continue to be held by the Corporation in a deposit account until any performance restrictions have been satisfied or the shares are forfeited for failure to satisfy such performance restrictions. The Committee may, at its discretion and in exceptional circumstances, waive the requirement that the shares be awarded not less than 12 months prior to such termination. If such outstanding shares awarded to the Participant are subject only to time based vesting and not to any additional performance criteria, then such shares shall be delivered to the Participant as soon as practicable after such termination. Notwithstanding the above, if an employee Participant accepts an offer of employment with a competitor of the Corporation as determined by the Committee in its sole discretion, all shares that have not been distributed as of that date shall terminate and be forfeited by the Participant.

7.4 Designation of Beneficiaries

If a Participant dies prior to the receipt in full of any award under the Plan to which the Participant is entitled, the award shall be distributed to the Participant’s Beneficiary or, in the absence of a Beneficiary designation, to the Participant’s estate. The designation of a Beneficiary shall be made in writing on a form prescribed by and filed with the Committee prior to the Participant’s death. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Corporation therefor.

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7.5	Transferability: Subject to the provision of this Article VII, shares of Common Stock awarded to a Participant will become freely transferable by the Participant only at the end of the Award Period established with respect to such shares.
7.6	Distribution to Person Other Than Employee: If the Committee shall find that any person to whom any award is payable under this Article VII of the Plan is unable to care for such person’s affairs because of illness or accident, or is a minor, or has died, then any payment due Participant or Participant’s estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee so directs the Corporation, be paid to Participant’s spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Corporation therefor.
7.7	Restricted Common Stock for employee Participants is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated personnel.
7.8	A forfeiture of shares of Common Stock pursuant to subsection 7.2h of the Plan shall effect a complete forfeiture of voting rights, dividend rights and all other rights relating to the award or grant as of the date of forfeiture.
7.9	Each distribution of Common Stock under this Article VII of the Plan shall be made subject to such federal, state and local tax withholding requirements as apply on the distribution date. For this purpose, the Committee may provide for the withholding of shares of Common Stock or allow a Participant to pay to the Corporation funds sufficient to satisfy such withholding requirements.

Article VIII. Phantom Shares and Performance Units.

8.1 Phantom Shares.

a. Grants of Phantom Shares. The Committee may from time to time grant Phantom Shares, the value of which is determined by reference to a share of Common Stock on terms and conditions as the Committee, in its discretion, may from time to time determine. Each grant of Phantom Shares shall specify the number of Phantom Shares granted, the Initial Value of such Phantom shares which shall not be less than 100% of the Fair Market Value of the Common Stock as of the date of grant, the Valuation Dates, the number of Phantom Shares whose appreciation value shall be determined on each such Valuation Date, any applicable vesting schedule for such Phantom Shares, and any applicable limitation on payment for such Phantom Shares.

b. Appreciation Value.

(i)	Valuation Dates; Measurement of Appreciation Value. The Committee shall provide for one or more Valuation Dates on which the Appreciation Value of the Phantom Shares granted shall be measured and fixed, and shall designate the number of such Phantom Shares whose Appreciation Value is to be calculated on each such Valuation Date.
(ii)	Payment of Appreciation Value. Except as otherwise provided in this Section 8.1, the Appreciation Value of a Phantom Share shall be paid to a Participant in cash in a lump sum as soon as practicable following the Valuation Date applicable to such Phantom Share. The Committee may in its discretion, establish and set forth a maximum dollar amount payable under the Plan for each Phantom Share granted.
(iii)	The Committee may, in its discretion, provide that Phantom Shares shall vest (subject to such terms and conditions as the Committee may provide in the award) over such period of time, from the date of grant, as may be specified in a vesting schedule contained in the grant.
(iv)	Termination. In the event of termination of employment of an employee Participant or termination of service of a non-Employee Director or advisor prior to one or more Valuation Dates, unless the Committee in its discretion determines otherwise, the Appreciation Value for any Phantom Share to which the Participant’s Rights are vested, shall be the lesser of the Appreciation Value as of the termination date or the Appreciation Value of such Phantom Share calculated as of the originally scheduled Valuation Date applicable thereto in accordance with Section 8.1(b)(i). Except as otherwise provided in the grant agreement, the Appreciation Value so determined for each such vested outstanding Phantom Share shall then be payable to the Participant or the Participant’s estate following the originally scheduled Valuation Date applicable thereto in accordance with Section 8.1(b)(ii). Upon a termination as described in this Section 8.1(b)(iv), all rights with respect to Phantom Shares that are not vested as of such date will be relinquished.

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8.2	Performance Units. The Committee may, in its discretion, grant Performance Units to Eligible Persons. Each Performance Unit will have an initial value that is established by the Committee at the time of grant and credited to a bookkeeping account established for the Participant, but no Participant shall be granted Performance Units during any one fiscal year with an initial value in excess of $2.5 million. The Committee will set performance periods and objectives and other terms and conditions of the grant based upon Performance Criteria as determined by the Committee that, depending upon the extent to which they are met, will determine the value of Performance Units that will be paid out to the Participant. The Committee may pay earned Performance Units in cash, Common Stock or a combination thereof.
	Unless otherwise set forth in the grant, in the event the employment of an employee Participant is terminated during a performance period due to death, disability or retirement under the provisions of the Pension Plan the Participant will receive a prorated payout of Performance Units. In the event the employment is terminated for any other reason, then all Performance Units will be forfeited. If the service of a Non-Employee Director or advisor is terminated during a performance period, the Participant will receive a prorated payout of Performance Units. Notwithstanding the above, no payouts will be made to the extent that objectives other than the duration of the performance period have not been met except to the extent that the Committee in its discretion decides to waive any such other achievement or objectives.
8.3	Grant Terms. The terms of any award granted under this Article VIII shall be set forth in a separate grant agreement. Any such award either shall be structured in such a manner as to be exempt from the requirements of Code section 409A or shall be structured to meet the requirements of such provision.

Article IX. Amendment, Duration and Termination of the Plan

9.1 Duration of Plan. No grants or awards may be made under this Plan after May 31, 2009. Any grant or award effective on or prior to May 31, 2009 will continue to vest and otherwise be effective after the expiration of this Plan in accordance with the terms and conditions of this Plan as well as any requirements set forth in the grant or award.

9.2 Right To Amend, Suspend or Terminate Plan: Except as provided in Section 9.5 below, the Board reserves the right at any time to amend, suspend or terminate the Plan in whole or in part and for any reason and without the consent of any Optionee, Participant or Beneficiary; provided, that no such amendment shall:

a.	Change the Stock Option price or adversely affect any Stock Option or Stock Appreciation Right outstanding under the Plan on the effective date of such amendment or termination, or
b.	Adversely affect any award or grant then in effect or rights to receive any amount to which Participants or Beneficiaries have become entitled prior to such amendment, or
c.	Unless approved by the Shareholders of the Corporation, increase the aggregate number of shares of Common Stock reserved for award or grant under the Plan, change the group of Eligible Persons under the Plan or materially increase benefits to Eligible Persons under the Plan.

9.3 Periodic Review of Plan: In order to assure the continued realization of the purposes of the Plan, the Committee shall periodically review the Plan, and the Committee may suggest amendments to the Board as it may deem appropriate.

9.4 Amendments May Be Retroactive: Subject to Section 9.1 above, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively.

9.5 Change in Control Under an Agreement: Notwithstanding any other provisions in the Plan, in the event of a Change in Control as defined under any written employment contract or agreement between the Corporation or a subsidiary and an Officer of the Corporation or a subsidiary, awards of Common Stock granted under this Plan, as well as grants of any Performance Units and the Appreciation Value of Phantom Shares, shall vest to the extent, if any, provided for in the written employment agreement or contract or in such separate contractual arrangement relating to such an award or grant as may exist from time to time. Notwithstanding any other provisions of the Plan, the provisions of this Section 9.5 may not be amended after the date a Change in Control occurs.

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9.6 Change in Control Without an Agreement: Except as otherwise may be provided by the Committee, in the event of a change in control, a Participant not covered by a written employment contract or agreement or agreement containing a change in control provision will have any portion of an Award based on absolute total shareholder return vest (for purposes of the performance-based restriction) at the target, and continue to be subject to time based restrictions. The portion of any Award based on relative total shareholder return will vest (for purposes of the performance-based restriction) on a pro rata basis to the change in control date using the target number of shares as the basis for the pro ration and continue to be subject to time based restrictions.

Article X. General Provisions

10.1 Rights to Continued Employment, Award or Option: Nothing contained in the Plan or in any grant or award under this Plan shall give any employee the right to be retained in the employment of the Corporation or affect the right of the Corporation to terminate the employee’s employment at any time. The adoption of the Plan shall not constitute a contract between the Corporation and any employee. No Eligible Person who is an employee shall receive any right to be granted an option, right or award hereunder nor shall any such option, right or award be considered as compensation under any employee benefit plan of the Corporation.

10.2 Recoupment. Any Awards or Grants under this Plan is also subject to recoupment under the CMS Energy Recoupment Policy Relating to Financial Restatements.

10.3 Governing Law: The provisions of this Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Michigan.

IN WITNESS WHEREOF, execution is hereby effected.

ATTEST:	CMS ENERGY CORPORATION
/s/	By: /s/
Secretary	Chief Executive Officer

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Attachment A
Page 1 of 2

“Change in Control” means a change in control of CMS Energy Corporation, and shall be deemed to have occurred upon the first to occur of any of the following events:

(a) Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or

(b) The following individuals cease for any reason to constitute a majority of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CMS Energy Corporation) whose appointment or election by the Board or nomination for election by CMS Energy Corporation’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or

(c) The consummation of a merger or consolidation of CMS Energy Corporation or any direct or indirect subsidiary of CMS Energy Corporation with any other corporation or other entity, other than: (i) any such merger or consolidation which involves either CMS Energy Corporation or any such subsidiary and would result in the voting securities of CMS Energy Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of CMS Energy Corporation or its Affiliates, at least sixty percent (60%) of the combined voting power of the voting securities of CMS Energy Corporation or the surviving entity or any parent thereof outstanding immediately after such merger or consolidation and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of CMS Energy Corporation, the entity surviving such merger or consolidation or, if CMS Energy Corporation or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or (ii) a merger or consolidation effected to implement a recapitalization of CMS Energy Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CMS Energy Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from CMS Energy Corporation or its Affiliates) representing twenty-five percent (25%) or more of the combined voting power of CMS Energy Corporation’s then outstanding securities; or

(d) Either (1) the stockholders of CMS Energy Corporation approve a plan of complete liquidation or dissolution of CMS Energy Corporation, or (2) there is consummated an agreement for the sale, transfer or disposition by CMS Energy Corporation of all or substantially all of CMS Energy Corporation’s assets (or any transaction having a similar effect). For purposes of clause (d)(2), (i) the sale, transfer or disposition of a majority of the shares of common stock of Consumers Energy Company shall constitute a sale, transfer or disposition of substantially all of the assets of CMS Energy Corporation and (ii) the sale, transfer or disposition of subsidiaries or affiliates of CMS Energy Corporation, singly or in combinations, or their assets, only qualifies as a Change in Control if it satisfies the substantiality test contained in that clause and the Board of CMS Energy Corporation’s determination in that regard is final. In addition, for purposes of clause (d)(2), the sale, transfer or disposition of assets has to be in a transaction or series of transactions closing within six months after the closing of the first transaction in the series, other than with an

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Attachment A
Page 2 of 2

entity in which at least 60% of the combined voting power of the voting securities is owned by stockholders of CMS Energy Corporation in substantially the same proportions as their ownership of CMS Energy Corporation immediately prior to such transaction or transactions and immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold, transferred or disposed or, if such entity is a subsidiary, the ultimate parent thereof.

Notwithstanding the foregoing clauses (a), (c) and (d), a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions closing within six months after the closing of the first transaction in the series immediately following which the record holders of the common stock of CMS Energy Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CMS Energy Corporation immediately following such transaction or series of transactions.

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EX-10.(I)

Exhibit (10)(i)

CMS ENERGY DEFERRED SALARY SAVINGS PLAN

The purposes of the CMS Energy Deferred Salary Savings Plan (the “Plan”) are to provide key management employees the opportunity to defer additional compensation in excess of the limitations on contributions imposed on the Savings Plan for Employees of Consumers Energy and other CMS Energy Companies due to the application of various laws and regulations including the limitations of Code Section 401(a)(17), 402(g) or 415(c)(1)(A) and to provide those employees with employer matching contributions equal to the matching contributions that would have been made by the Company on their behalf under the Savings Plan. Further, Additional Deferrals are also permitted to assist employees in meeting their financial goals. This plan is maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees.

This Plan was originally effective on December 1, 1989 and includes amendments through December 1, 2007.

SECTION 1. DEFINITIONS

1.1 Definitions. Whenever used in this Plan, the following terms shall have the respective meanings set forth below, unless the context indicates otherwise:

Account or Account Balance	The notional amount credited to a Participant or beneficiary in accordance with the provisions of this Plan.
Additional Deferral	The amount deferred by a Participant in accordance with Section 3.3.
Code	The Internal Revenue Code of 1986, as amended.
Company	CMS Energy Corporation and its subsidiaries which are directly or indirectly owned 80% or greater. For purposes of determining a Separation from Service from the Company, the Company shall include the CMS Energy Corporation and all persons or entities that would be considered a single employer under Code Section 414(b) or Section 414(c), using for such purposes a “50 percent” standard, instead of an “80 percent” standard, under such provisions.
Compensation	A Participant’s regular salary from an Employer, before any adjustment for Deferrals under this Plan or any other deferred compensation plan of the Company, the Savings Plan, Code Section 125 plans, or deductions for taxes or other withholdings, but excluding any bonus, imputed income, incentive or other premium pay. For purposes of determining amounts subject to a deferral election under Section 3.1, Compensation for a Plan Year does not include any amounts paid in the Plan Year that are attributable to services performed by the Participant in an earlier Plan Year, except to the extent permitted by Code Section 409A.
Deferrals	Amounts deferred by a Participant pursuant to Section 3.
Employee	Any person, employed by an Employer and on the payroll and employment records system as an employee, excluding consultants, advisors and independent contractors, whose Compensation, when annualized, exceeds the Threshold Limit.

Employer	The entity within the Company that employs the Participant.
Employer Matching Amounts	Money or property added to the Participant’s account as provided in Section 3.2.
Participant	Any Employee who meets the eligibility requirements of the Plan, who elects to enroll under the Plan, and for whom Deferrals are currently being made under the Plan or for whom Deferrals were previously made under the Plan which have not been distributed.
Payment Event	The time when the Participant may receive the benefits deferred under the Plan as described in Section 6.2.
Payment Term	The form and duration of any payment to a participant or beneficiary as described in Section 6.2.
Plan Administrator	The Benefit Administration Committee as selected by the Chief Executive Officer and Chief Financial Officer of the Company to manage the plan.
Plan Record Keeper	The person(s) or entity named as such by the Plan Administrator.
Plan Year	January 1 to December 31 of a calendar year.
Savings Plan	The Savings Plan for Employees of Consumers Energy and other CMS Energy Companies.
Separation from Service	If an Employee retires or otherwise has a separation from service from the Company as defined under Code Section 409A and any applicable regulations. The Plan Administrator will determine, consistent with the requirements of Code Section 409A and any applicable regulations, to what extent a person on a leave of absence, including on paid sick leave pursuant to Company policy, has incurred a Separation from Service.
Threshold Limit	The amount as determined by the Secretary of the Treasury above which annual compensation is disregarded for qualified plans. As of January 1, 2007, the Threshold Limit was $225,000.

SECTION 2. ELIGIBILITY AND ENROLLMENT

2.1 Eligibility. Each Employee is eligible to become a Participant on the date of employment, or if later, the first of the month following when the Employee first has annualized Compensation in excess of the Threshold Limit. A Participant will no longer be permitted to make contributions to this Plan as of the end of any Plan Year when his or her annualized Compensation falls below the Threshold Limit.

2.2 Enrollment. An Employee may enroll during an enrollment period prior to the start of each Plan Year. A new Employee may enroll within 30 days of the date of employment. An Employee may enroll within 30 days of first becoming eligible to participate in the Plan for the initial Plan Year of his or her participation. The foregoing provisions allowing late elections by new Employees and newly eligible Employees shall apply only to the extent permitted by Code Section 409A.

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2.3 Procedure. An Employee must enroll in the Plan by completing the application for participation. Such application may, at the election of the Company or the Plan Record Keeper, be in an electronic format. Completion of the application by the Employee shall constitute an acceptance of the terms and conditions of the Plan.

SECTION 3. DEFERRALS

3.1 Deferrals. Upon enrolling in the Plan, each Participant may elect to defer a portion of his or her Compensation that is in excess of the Threshold Limit. The Deferral amount shall not be less than 1% or greater than 6% of his or her Compensation in excess of the Threshold Limit. A deferral election applies to one Plan Year.

Deferral elections made during the enrollment period immediately prior to the start of a Plan Year shall apply to Compensation received during that coming Plan Year. A deferral election made during one of the 30-day periods described at 2.1 above shall apply to Compensation paid for services to be rendered during the portion of the Plan Year following the deferral election.

Any such deferral election shall become irrevocable as to the applicable Plan Year’s Compensation as of the last permissible date for making such an election under Code Section 409A.

3.2 Employer Matching Amounts. Not less frequently than annually, the Company shall add an amount to the Participant’s Deferral which is equal to 60% of the amount deferred by the Participant under the Plan. (Prior to September 1, 2005, the Employer Matching Amount was equal to 50%). At no time will the applicable rate for the Employer Matching Amounts hereunder exceed the then current rate of match under the Savings Plan, and no Employer Matching Amounts will be contributed to the Participant Account for any period in which the company match under the Savings Plan is suspended or terminated. The employee share of any applicable FICA, FUTA and other applicable taxes for any Deferrals and Employer Matching Amounts will be deducted from the Participant’s pay at the time of any Deferral.

3.3 Additional Deferral. A Participant may elect to defer an additional amount (in excess of the 6% deferral under Section 3.1 above) into the Plan, up to a maximum of 50% of his or her Compensation. The election of any additional deferral will be made in accordance with Section 3.1. The deferral will be subject to its own Payment Election as described under Section 6 and will be consistent with the provisions of Section 6.1. Any such Additional Deferral will not receive any Employer Matching Amounts.

SECTION 4 INVESTMENTS

4.1 Designation of Investments. At the time of electing a Deferral under the Plan, the Participant shall specify the proportions of the Deferral to be invested among the various options available as investments under the Plan. A Participant who has previously deferred amounts under a nonqualified deferred compensation plan of the Company will automatically have his or her existing investment profile apply to this Deferral also.

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All determinations of the available investments by the Plan Administrator are final and binding upon the Participants. If a Participant fails to make an investment election, then such amounts shall be accounted for as if contributed to a lifestyle fund (as that term is defined in the Savings Plan) with a date that is applicable to the Participant’s age 65, rounded up, or such other investments as determined by the Plan Administrator.

4.2 Changes in Investment Elections. All investment elections may be changed at the Participant’s election subject to any applicable restrictions imposed by the Plan Administrator, the Plan Record Keeper or by any laws and regulations.

4.3 Determination of Investment Earnings. All gains and losses will be based upon the performance of the investments selected by the participant from the date any Deferral or Employer Matching Amount is first credited to the Participant’s Account. If the Company elects to fund its obligation for its convenience as described in Section 8.5, then investment performance will be the Account Balance as reported by the Plan Record Keeper.

SECTION 5 VESTING AND RECOUPMENT

5.1 Vesting of Employer Matching Amounts. Employer Matching Amounts and any related earnings do not vest until such time as the Participant has been employed by the Company for not less than five full calendar years. Notwithstanding the above, if a Participant dies or becomes disabled, as that term is defined under Code Section 409A and any applicable regulations, the Matching Employer Amounts and any related earnings will vest as of the date of the Participant’s death or disability. For purposes of vesting, all periods of service with an Employer are counted and completion of 12 months of employment, whether or not continuous, counts as one year of vesting under this Plan.

5.2 Recoupment. Any Matching Employer Amounts are also subject to recoupment under the CMS Energy Recoupment Policy Relating to Financial Restatements.

SECTION 6. PAYMENT ELECTIONS

6.1 Payment Elections. At the time the Employee makes a deferral election to participate in the Plan as described in Section 3.1 and/or 3.3, such Employee must select the Payment Event and Payment Term applicable to the Deferral and the Employer Matching Amounts for the Plan Year, as well as any earnings or income attributable to such amounts. Such Payment Options must be in accordance with the provisions of Section 6.2 and cannot be subsequently changed except as permitted under Section 6.3.

6.2 Payment Options.

(a) Payment Events. Each Participant must annually select one or more Payment Events from the following choices for each contribution including Deferrals, Employer Matching Amounts and/or Additional Deferrals. Such election must be made at the time the deferral election is made:

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(i)	Separation from Service for any reason other than death. Payment will be made, or begin in January of the year following Separation from Service or, if later, the seventh month after the month of Separation from Service. Later installments, if any, will be paid in January of the succeeding years;
(ii)	Payment upon attainment of a date certain that is more than 5 years after the last day of the applicable Plan Year. However, for amounts attributable to an Additional Deferral, payment upon attainment of a date certain that is more than one month after the last day of the applicable Plan Year. Later installments, if any, will be paid in January of the succeeding years.
(iii)	The earlier of (i) or (ii) above.

Any participant failing to make an election will be deemed to have elected payment upon Separation from Service in accordance with 6.2(a)(i).

(b) Payment Term. Upon selecting a Payment Event, the Participant must also elect how he or she wishes to receive any such payment from among the following options (the Participant may elect a separate Payment Term for each Payment Event elected):

(i) Payment in a single sum upon occurrence of the Payment Event.

(ii) Payment of a series of annual installment payments over a period from two (2) years to fifteen (15) years following the Payment Event. Each installment shall be equal to a fractional amount of the Account Balance the numerator of which is one and the denominator of which is the number of installment payments remaining. For example, a series of five installment payments will result in a payout of one fifth of the Account Balance for the first installment, one fourth of the Account Balance in the second installment, one third of the Account Balance for the third installment, one half of the Account Balance for the fourth installment and in the fifth installment the Account Balance is paid in full. Each installment, because of gains and losses, may not be identical to the prior installment.

Any participant failing to elect a Payment Term will be deemed to have elected a single sum.

6.3 Changes to Payment Options. Once a Payment Option has been elected, subsequent changes which would accelerate the receipt of benefits from the Plan are not permitted, except that the Plan Administrator may at its discretion accelerate payments to the extent permitted by Code Section 409A and applicable regulations. A subsequent election to change the Payment Options related to a Payment Event, in order to delay a payment or to change the form of a payment, can be made when all of the following conditions are satisfied:

(a) such election may not take effect until at least 12 months after the date on which the election is made;

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(b) the payment(s) with respect to which such election is made is deferred for a period of not less than 5 years from the date such payment would otherwise have been made (or, in the case of installment payments under Section 6.2(b)(ii), 5 years from the date the first installment was scheduled to be paid); and

(c) such election must be made not less than 12 months before the date the payment was previously scheduled to be made, (or, in the case of installment payments under Section 6.2(b)(ii), 12 months before the first installment was scheduled to be paid), if the Participant’s previous commencement date was a specified date.

6.4 Payment Upon the Death of the Participant. In the event of the death of a Participant prior to the start of any payments under the Plan, the Participant’s named beneficiary or beneficiaries shall receive as soon as administratively practicable but not later than 90 days after the Participant’s death, the entire Account Balance. In the event of the death of a Participant after commencement of benefits, the Participant’s named beneficiary or beneficiaries shall receive in a single sum as soon as administratively practicable but not later than 90 days after the Participant’s death, the entire Account Balance remaining under the Plan. If the Participant fails to name a beneficiary, or the beneficiary predeceases the Participant, then the Participant’s estate will receive, in a single sum as soon as administratively practicable but not later than 90 days after the Participant’s death, the entire Account Balance. In no event may any recipient designate a year of payment for an amount payable upon the death of the Participant.

6.5 Payment in the Event of an Unforeseeable Emergency. The Participant may request that payments of any vested amounts commence immediately upon the occurrence of an unforeseeable emergency as that term is defined in Code Section 409A and any applicable regulations. Generally, an unforeseeable emergency is a severe financial hardship resulting from an illness or accident of the Employee or the Employee’s spouse or dependent, loss of the Employee’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee. A distribution on account of unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Employee’s assets (without causing severe financial hardship), or by cessation of deferrals under this arrangement, the Savings Plan or other arrangements. Distributions because of an unforeseeable emergency shall not exceed the amount permitted under Section 409A and are limited to the amount reasonably necessary to satisfy the emergency need (after use of insurance proceeds, liquidation of assets, etc.) plus an amount to pay taxes reasonably anticipated as a result of the distribution. In the event any payment is made due to an unforeseeable emergency, all deferral elections for the current Plan Year will cease and the Participant will not be eligible to make any deferral elections under this Plan for the following Plan Year. For any Participant receiving a hardship withdrawal from the Savings Plan as permitted by the Code and the Savings Plan, all deferral elections under this Plan for the current Plan Year will cease and the Participant will not be eligible to make any deferral elections or receive Employer Matching Amounts under this Plan for the following Plan Year.

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SECTION 7. NON-ALIENATION OF BENEFITS

7.1 Non-Alienation. Except as may be required by a domestic relations order described in Code Section 414(p)(1)(B), in no event shall the Plan Administrator pay or assign over any part of the interest of a Participant under the Plan, or his or her beneficiary or beneficiaries, which is payable, distributable or credited to his or her account, to any assignee or creditor of such Participant or his or her beneficiary or beneficiaries. Prior to the time of distribution, a Participant, his or her beneficiary or beneficiaries or legal representative shall have no right by way of anticipation or otherwise to assign or otherwise dispose of any interest which may be payable, distributable or credited to the account of the Participant or his or her beneficiary or beneficiaries under the Plan, and every attempted assignment or other disposition of such interest in the Plan shall not be merely voidable but absolutely void.

SECTION 8. ADMINISTRATION

8.1 Plan Administrator. The Plan Administrator shall have authority to take necessary actions to implement the Plan and is granted full discretionary authority to apply the terms of the Plan, make administrative rulings, interpret the Plan and make any other determinations with respect to all aspects of the Plan. Any Participant with a claim under the Plan must make a written request within 60 days to the Plan Administrator for a determination on the claim. If the claim involves a benefit or issue relevant to an individual who has been appointed to serve on the Benefits Administration Committee, the individual so affected shall not participate in the determination. The Plan Administrator may hire such experts, accountants, or attorneys as it deems necessary to make a decision and may rely on the opinion of such persons in making a determination. The Plan Administrator shall notify the Participant of its determination in writing within 60 days of the claim unless the Plan Administrator advises the Participant that it requires additional time (not to exceed 90 days) to complete its investigation. The Participant may, within 60 days from the date the determination was mailed to the Participant, request a redetermination of the matter, and provide any additional information for the Plan Administrator to consider in its redetermination. The Plan Administrator will issue its opinion within 60 days of the request for redetermination, unless the Plan administrator advises the Participant that it requires additional time (not to exceed 90 days) to complete its reconsideration of the matter.

8.2 Administrative Expenses. Any administrative expenses, costs, charges or fees, to the extent not paid by the Company are to be charged to the Participant Accounts in accordance with the Plan Record Keeper’s normal procedures.

8.3 Amendment or Termination of the Plan. The Company may amend or terminate the Plan at any time. Upon termination, any amount accrued under the Plan and vested will remain in the Plan and be paid out in accordance with the Payment Elections previously selected, but no further Deferrals or Employer Matching Amounts will be made to the Plan. The Plan Administrator is authorized to make any amendments that are deemed necessary or desirable to comply with any applicable laws, regulations or orders or as may be advised by counsel or to clarify the terms and operation of the Plan. Notwithstanding the above, the Company may terminate the Plan and accelerate any benefits under the Plan, at its discretion, if it acts consistent in all manners with the requirements of Code Section 409A and any applicable regulations, with respect to when a terminated plan may accelerate payment to a Participant.

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8.4 Naming a Beneficiary. A Participant may at any time file a beneficiary designation with the Company or the Plan Record Keeper. Only one such beneficiary designation, the most recent received by the Plan Record Keeper, is effective at any time. No beneficiary designation is effective until it is received and accepted by the Company or the Plan Record Keeper. If a Participant fails to name a beneficiary or if the beneficiary predeceases the Participant, any benefit accrued under the Plan will be paid to the Participant’s estate. A Participant must name a separate beneficiary for each Account Balance Plan.

8.5 Funding Status. This is an unfunded nonqualified deferred compensation plan. To the extent the Company elects to place funds with a trustee to pay its future obligations under this Plan such amounts are placed for the convenience of the Company, remain the property of the Company and the Participant shall have no right to such funds until properly paid in accordance with the provisions of this Plan. For administrative ease and convenience, such amounts may be referred to as Participant Accounts, but as such are a notional account only and are not the property of the Participant. Such amounts are subject to the claims of the creditors of the Company.

ATTEST:	CMS ENERGY CORPORATION
/s/	/s/
Vice President and Secretary	Chief Executive Officer
	CMS Energy and Consumers Energy
Date: _____________

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EX-10.(J)

Exhibit (10)(j)

ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES

ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR OFFICERS OF CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES

I. GENERAL PROVISIONS

1.1 Purpose. The purpose of the Annual Officer Incentive Compensation Plan (“Plan”) is to:

(a)	Provide an equitable and competitive level of compensation that will permit CMS Energy Corporation (“Company”) and its subsidiaries to attract, retain and motivate highly competent Officers.
(b)	No payments to Officers in the form of incentive compensation shall be made unless pursuant to a plan approved by the Committee on Compensation and Human Resources of the Board of Directors of CMS Energy (the “Committee”) and after express approval of the Committee.

1.2	Effective Date. The initial effective date of the Plan is January 1, 2004. The Plan, as described herein, is amended and restated effective as of January 1, 2007.
1.3	Definitions. As used in this Plan, the following terms have the meaning described below:

(a)	“Adjusted Net Income” means generally accepted accounting practices income excluding asset sale cost, accounting changes, large restructuring and severance, legal and settlement cost for round-trip trading and gas price reporting, regulatory recovery for prior year changes, mark to mark greater than +/- $.05 of budget, and early debt retirement option premiums.
(b)	“Annual Award” means an annual incentive award granted under the Plan.
(c)	“Base Salary” means the base salary on January 1 of a Performance Year, except as impacted by a Change in Status as defined in Article V. For purposes of the Plan, an Officer’s Base Salary must be subject to annual review and annual approval by the Committee.
(d)	“CMS Energy” means CMS Energy Corporation.
(e)	“Code” means the Internal Revenue Code of 1986, as amended.
(f)	“Code Section 162(m) Employee” means an employee whose compensation is subject to the “Million Dollar Cap” under Code Section 162(m). Generally, this is the CEO and the three highest paid executive officers of the Company (other than the CEO and the CFO).

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(g)	“Committee” means the Committee on Compensation and Human Resources of the Board of Directors of CMS Energy Corporation.
(h)	“Company” means CMS Energy Corporation.
(i)	“Corporate Free Cash Flow” (CFCF) means CMS Consolidated Cash Flow from operating activities, excluding restricted cash flow, common dividends, financing and adjusted for GCR Recovery.
(j)	“Deferred Annual Award” means the amount deferred by an Officer pursuant to Section 4.2
(k)	“Disability” means that a participant has terminated employment with the Company or a Subsidiary and is disabled, as that term is defined under Code Section 409A and any applicable regulations.
(l)	“Earnings Per Share” (EPS) means the amount of adjusted net income per outstanding CMS Energy Share.
(m)	“GCR Recovery” means actual/forecast incremental GCR recovery during January and February calculated as actual/forecast GCR cycle billed sales times above budget GCR factor.
(n)	“Leave of Absence” for purposes of this Plan means a leave of absence that has been approved by the Plan Administrator.
(o)	“Officer” means an employee of the Company or a Subsidiary in Salary Grade “E-3” or higher.
(p)	“Payment Event” means the date a Deferred Annual Award may be paid pursuant to Section 4.2.
(q)	“Payment Term” means the length of time for payment of a Deferred Annual Award under Section 4.2.
(r)	“Pension Plan” means the Pension Plan for Employees of Consumers Energy and Other CMS Energy Companies.
(s)	“Performance Year” means the calendar year prior to the year in which an Annual Award is made by the Committee.
(t)	“Plan Administrator” means the Plan Administrator is the Benefits Administration Committee appointed by the Chief Executive Officer and the Chief Financial Officer as authorized by the Board of Directors.

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(u)	“Retirement” means that a Plan participant is no longer an active employee and qualifies for a retirement benefit other than a deferred vested retirement benefit under the Pension Plan. For a participant ineligible for coverage under the Pension Plan and covered instead under the Defined Company Contribution Plan, retirement occurs when there is a Separation from Service on or after age 55 with 5 or more years of service.
(v)	“Separation from Service” means an Employee retires or otherwise has a separation from service from the Company as defined under Code Section 409A and any applicable regulations. The Plan Administrator will determine, consistent with the requirements of Code Section 409A and any applicable regulations, to what extent a person on a leave of absence, including on paid sick leave pursuant to Company policy, has incurred a Separation from Service.
(w)	“Subsidiary” means any direct or indirect subsidiary of the Company.

1.4	Eligibility. Officers are eligible for participation in the Plan.
1.5	Administration of the Plan.

(a)	The Plan is administered by the President and Chief Executive Officer of CMS Energy under the general direction of the Committee.
(b)	The Committee, no later than March 30th of the Performance Year, will approve performance goals for the Performance Year.
(c)	The Committee, no later than March 1st of the calendar year following the Performance Year, will review for approval proposed Annual Awards for all Officer participants, taking into account the recommendations of the Chief Executive Officer of the Company. All proposed Annual Awards are subject to approval of the Committee. Before the payment of any Annual Awards, the Committee will certify in writing that the performance goals were in fact satisfied in accordance with Code Section 162(m).
(d)	The Committee reserves the right to modify the performance goals with respect to unforeseeable circumstances or otherwise exercise discretion with respect to proposed Annual Awards as it deems necessary to maintain the spirit and intent of the Plan, provided that such discretion will be to decrease or eliminate, not increase, Annual Awards in the case of any Code Section 162(m) Employees. The Committee also reserves the right in its discretion to not pay Annual Awards for a Performance Year. All decisions of the Committee are final.

II. CORPORATE PERFORMANCE GOALS

2.1 In General. The composite Plan Performance Factor will depend on corporate performance in two areas: (1) the adjusted net income per outstanding CMS Energy

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share (EPS); and (2) the Corporate Free Cash Flow of CMS Energy (CFCF). Each Component as well as the composite Plan Performance Factor to be used for payouts will be capped at a maximum of 200%. A table containing the composite Plan Performance Factors shall be created by the Committee for each Performance Year. The table for Performance Year 2007 is set forth below.

(a)

EPS Component. EPS performance shall constitute 50% of the composite Plan Performance Factor. The 100% EPS goal for the 2007 performance year is $.85 per share, and the EPS component shall increase or decrease by 25% for each $.05 per share change in performance. (Mathematical extrapolation shall be used for actual results not shown in the table.) There will be no payout under the EPS Component unless at least $.80 per share is achieved.

(b)

CFCF Component. CFCF performance shall constitute 50% of composite Plan Performance Factor. The 100% CFCF goal for the 2007 performance year is $1,250 million, and the CFCF component shall decrease by 1% for each $2 million change in performance. The CFCF component shall increase by 1% for each $2 million increase in performance from $1,250 million. (Mathematical extrapolation shall be used for actual results not shown in the table.) There will be no payout under the CFCF component unless at least $1,150 million is achieved.

Composite Performance Factors for 2007 Performance Year

CFCF
Component
(Millions)	<$1150			$1150			$1200			$1250			$1300			$1350			$1400			$1450
EPS
Component
$.79	No Payout				25	%		38	%		50	%		63	%		75	%		88	%		100	%
$.80		38	%		63	%		75	%		88	%		100	%		113	%		125	%		138	%
$.85		50	%		75	%		88	%		100	%		113	%		125	%		138	%		150	%
$.90		63	%		88	%		100	%		113	%		125	%		138	%		150	%		163	%
$.95		75	%		100	%		113	%		125	%		138	%		150	%		163	%		175	%
$1.00		88	%		113	%		125	%		138	%		150	%		163	%		175	%		188	%
$1.05		100	%		125	%		138	%		150	%		163	%		175	%		188	%		200	%

Notes: Mathematical extrapolation shall be used for actual results not shown in the table.
Target Award is Bolded 100% and Maximum Award is Bolded 200%

III. ANNUAL AWARD FORMULA

3.1 Officers’ Annual Awards. Annual Awards for each eligible Officer will be based upon a standard award percentage of the Officer’s Base Salary for the Performance

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Year. The standard award percentages are set forth in the table below. The maximum amount that can be awarded under this Plan for any Code Section 162(m) Employee will not exceed $2.5 Million in any one Performance Year. The total amount of an Officer’s Annual Award shall be computed according to the annual award formula set forth in Section 3.2.

	Salary		Std Award as a
Position	Grade		% of Base Salary
President & CEO		E-9		65	%1
President, Subsidiary — Ex Vice Pres		E-7		55	%2
President, Subsidiary — Ex Vice Pres		E-6		50	%
Senior Vice President		E-5		45	%
Vice President		E-4		40	%
Vice President		E-3		35	%

3.2 Annual Awards for Officers will be calculated and made as follows:

Individual Award = Base Salary times
Standard Award % times Performance Factor %

In addition, each Annual Award for Officers of Consumers Energy Company will be modified based on the results achieved for the Consumers Energy Annual Employee Incentive Compensation Plan. If the Consumers Energy Annual Employee Incentive Compensation Plan pays out an award for the same Performance Year, then there is no modification of awards under this plan. If however, there is no award under the Consumers Energy Annual Employee Incentive Compensation Plan, then whatever Annual Award, if any, earned under this plan will be reduced by 25%.

IV. PAYMENT OF ANNUAL AWARDS

4.1 Cash Annual Award. All Annual Awards for a Performance Year will be paid in cash after certification by the outside auditors of the Company that the performance goals have been satisfied, but not later than March 15^th of the calendar year following the Performance Year provided that the Annual Award for a particular Performance Year has not been deferred voluntarily pursuant to Section 4.2. The amounts required by law to be withheld for income and employment taxes will be deducted from the Annual Award payments. All Annual Awards become the obligation of the company on whose payroll the Officer is enrolled at the time the Committee makes the Annual Award.

4.2 Deferred Annual Awards.

(a) The payment of all or any portion (rounded to an even multiple of 10%) of a cash Annual Award may be deferred voluntarily at the election of an individual

1	100% effective January 1, 2008
2	60% effective January 1, 2008

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	Plan participant. Any such deferral will be net of any applicable FICA or FUTA taxes. A separate irrevocable election must be made prior to the Performance Year. Any Annual Award made by the Committee after termination of employment of a participant or retirement of a participant will be paid in accordance with any deferral election made within the enrollment period.
(b)	At the time the participant makes a deferral election he or she must select the payment options (including the Payment Event as set forth at (c) below and the Payment Term as set forth at (d) below) applicable to the Deferred Annual Award for the Performance Year, as well as any earnings or income attributable to such amounts. The payment options elected will apply only to that year’s Deferred Annual Award and will not apply to any previous Deferred Annual Award or to any subsequent Deferred Annual Award. Any participant who elects to defer all or a portion of an Annual Award and who fails to select a Payment Event or a Payment Term will be presumed to have elected a Payment Event of Separation from Service in accordance with paragraph (c)(i) below and/or a Payment Term of a single sum.
(c)	The Payment Event elected can be either:

(i)	Separation from Service for any reason other than death. Payment will be made, or begin, in the later of: (1) January of the year following the year of the Separation from Service; or (2) the seventh month after the month of the Separation from Service. Later installments, if any, will be paid in January of the succeeding years;
(ii)	Payment upon attainment of a date certain that is more than 1 year after the last day of the applicable Performance Year. Later installments, if any, will be paid in January of the succeeding years; or
(iii)	The earlier of (i) or (ii) above.

(d) Payment Term. At the time of electing to defer an Annual Award, the participant must also elect how he or she wishes to receive any such payment from among the following options (the participant may elect a separate Payment Term for each Payment Event elected):

(i)

Payment in a single sum upon occurrence of the Payment Event.

(ii)

Payment of a series of annual installment payments over a period from two (2) years to fifteen (15) years following the Payment Event. Each installment payment shall be equal to a fractional amount of the balance in the account the numerator of which is one and the denominator of which is the number of installment payments remaining. Although initially such installment payments will be identical, actual payments may vary based

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upon investment performance. For example, a series of 5 installment payments will result in a payout of 1/5 of the account balance in the first installment, 1/4 of the account balance (including investment gains or losses since the first installment date) in the second installment, etc.

(e) Changes to Payment Options. Once a payment option has been elected, subsequent changes which would accelerate the receipt of benefits from the Plan are not permitted, except that the Plan Administrator may at its discretion accelerate payments to the extent permitted by Code Section 409A and applicable regulations. A subsequent election to change the payment options related to a Payment Event, in order to delay a payment or to change the form of a payment, can only be made when all of the following conditions are satisfied:

(i)	such election may not take effect until at least 12 months after the date on which the election is made;
(ii)	the payment(s) with respect to which such election is made is deferred for a period of not less than 5 years from the date such payment would otherwise have been made (or, in the case of installment payments under Section 4.2(d)(ii), 5 years from the date the first installment was scheduled to be paid); and
(iii)	such election must be made not less than 12 months before the date the payment was previously scheduled to be made (or, in the case of installment payments under Section 4.2(d)(ii), 12 months before the first installment was scheduled to be paid), if the participant’s previous commencement date was a specified date.

(f) Investments. At the time of electing to voluntarily defer payment, the participant must elect how the Deferred Annual Award will be treated by the Company or Subsidiary. To the extent that any amounts deferred are placed in a rabbi trust with an independent record keeper, a participant who has previously deferred amounts under this Plan will automatically have his or her existing investment profile apply to this deferral also. All determinations of the available investment options by the Plan Administrator are final and binding upon participants. A participant may change the investment elections at anytime prior to the payment of the benefit, subject to any restrictions imposed by the Plan Administrator, the Benefit Administration Committee, the plan record keeper or by any applicable laws and regulations. A participant not making an election will have amounts deferred treated as if in a Lifestyle Fund applicable to the participant’s age 65, rounded up, or such other investment as determined by the Benefit Administration Committee. All gains and losses will be based upon the performance of the investments selected by the participant from the date the deferral is first credited to the nominal account. If the Company elects to fund its obligation as discussed below, then investment performance will be based on the balance as determined by the record keeper.

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(g)

The amount of any Deferred Annual Award is to be satisfied from the general corporate funds of the company on whose payroll the Plan participant was enrolled prior to the payout beginning and are subject to the claims of general creditors. This is an unfunded nonqualified deferred compensation plan. To the extent the Committee elects to place funds with a trustee to pay its future obligations under this Plan, such amounts are placed for the convenience of the Company or Subsidiary, remain the property of the Company or Subsidiary and the participant shall have no right to such funds until properly paid in accordance with the provisions of this Plan. For administrative ease and convenience, such amounts may be referred to as participant accounts, but as such are a notional account only and are not the property of the participant. Such amounts remain subject to the claims of the creditors of the Company or Subsidiary.

(h)

Payment in the Event of an Unforeseeable Emergency. The participant may request that payments commence immediately upon the occurrence of an unforeseeable emergency as that term is defined in Code Section 409A and any applicable regulations. Generally, an unforeseeable emergency is a severe financial hardship resulting from an illness or accident of the participant or the participant’s spouse or dependent, loss of the participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. A distribution on account of unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the participant’s assets (without causing severe financial hardship), or by cessation of deferrals under this arrangement, the Savings Plan for Employees of Consumers Energy and other CMS Energy Companies (the “Savings Plan”) or other arrangements. Distributions because of an unforeseeable emergency shall not exceed the amount permitted under Section 409A and accordingly are limited to the amount reasonably necessary to satisfy the emergency need (after use of insurance proceeds, liquidation of assets, etc.) plus an amount to pay taxes reasonably anticipated as a result of the distribution. In the event any payment is made due to an unforeseeable emergency, all deferral elections for the current Performance Year will cease and the participant will not be eligible to make any deferral elections under this Plan for the following Performance Year. For any participant receiving a hardship withdrawal under the Savings Plan, all deferral elections under this Plan for the current Performance Year will cease and the participant will not be eligible to make any deferral elections under this Plan for the following Performance Year.

4.3 Payment in the Event of Death.

(a) A participant may name the beneficiary of his or her choice on a beneficiary form provided by the Company or record keeper, and the beneficiary shall

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receive, within 90 days of the participant’s death, in a single sum, all payments credited to the participant in the event that the participant dies prior to receipt of either a cash Annual Award or Deferred Annual Awards. If a beneficiary is not named or does not survive the participant, the payment will be made to the participant’s estate. In no event may any recipient designate a year of payment for an amount payable upon the death of the participant.

(b) A participant may change beneficiaries at any time, and the change will be effective as of the date the plan record keeper or Company accepts the form as complete. Neither the Company nor the applicable Subsidiary will be liable for any payments made before receipt and acceptance of a written beneficiary request.

V.	CHANGE OF STATUS
	Payments in the event of a change in status will not be made if no Annual Awards are made for the Performance Year.

5.1	Pro-Rata Annual Awards. A new Officer, whether hired or promoted to the position, or an Officer promoted to a higher salary grade during the Performance Year will receive a pro rata Annual Award based on the percentage of the Performance Year in which the employee is in a particular salary grade. An Officer whose salary grade has been lowered, but whose employment is not terminated, during the Performance Year will receive a pro rata Annual Award based on the percentage of the Performance Year in which the employee is in a particular salary grade.
5.2	Termination. An Officer whose employment is terminated pursuant to a violation of the Company code of conduct or other corporate policies will not be considered for or receive an Annual Award.
5.3	Resignation. An Officer who resigns prior to payment (during or after a Performance Year) will not be eligible for an Annual Award. If the resignation is due to reasons such as a downsizing or reorganization, or the ill health of the Officer or ill health in the immediate family, the Officer may petition the Committee and may be considered, in the discretion of the Committee, for a pro rata Annual Award. The Committee’s decision to approve or deny the request for a pro rata Annual Award shall be final.
5.4	Death, Disability, Retirement, Leave of Absence. An Officer whose status as an active employee is changed during the Performance Year due to death, Disability, Retirement, or Leave of Absence will receive a pro rata Annual Award. An Officer who retires, is on disability or leave of absence and who becomes employed by a competitor of CMS Energy or Consumers Energy or their subsidiaries or affiliates prior to award payout will forfeit all rights to an Annual Award, unless prior approval of such employment has been granted by the Committee. A “competitor”

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shall mean an entity engaged in the business of (1) selling (a) electric power or natural gas at retail or wholesale within the State of Michigan or (b) electric power at wholesale within the market area in which an electric generating plant owned by a subsidiary or affiliate of CMS Enterprises is located or (2) developing an electric generating plant within the State of Michigan or a market area in which an electric generating plant owned by a subsidiary or affiliate of CMS Enterprises is located.

5.5 Recoupment of Annual Awards. Annual Awards under the Plan are also subject to recoupment pursuant to the CMS Energy Recoupment Policy Relating to Financial Restatements.

VI. MISCELLANEOUS

6.1	Impact on Benefit Plans. Payments made under the Plan will be considered as earnings for the Supplemental Executive Retirement Plans (Salary Grades E-3 through E-9) but not for purposes of the Savings Plan, Pension Plan, or other employee benefit programs.
6.2	Impact on Employment. Neither the adoption of the Plan nor the granting of any Annual Award under the Plan will be deemed to create any right in any individual to be retained or continued in the employment of the Company or any corporation within the Company’s control group.
6.3	Termination or Amendment of the Plan. The Board of Directors of the CMS Energy Corporation may amend or terminate the Plan at any time. Upon termination, any amount accrued under the Plan will remain in the Plan and be paid out in accordance with the payment options previously selected. Notwithstanding the foregoing, the Board of Directors of CMS Energy Corporation may terminate the Plan and accelerate payment of any deferred benefits under the Plan if it acts consistent in all respects with the requirements of Code Section 409A and any applicable regulations with respect to when a terminated plan may accelerate payment to a participant.
6.4	Governing Law. The Plan will be governed and construed in accordance with the laws of the State of Michigan.
6.5	Dispute Resolution. Any disputes related to the Plan must be brought to the Plan Administrator. The Plan Administrator is granted full discretionary authority to apply the terms of the Plan, make administrative rulings, interpret the Plan and make any other determinations with respect to the Plan. If the Plan Administrator makes a determination and the participant disagrees with or wishes to appeal the determination, the participant must appeal the decision to the Plan Administrator, in writing and not later than 60 days from when the determination was mailed to the participant. If the participant does not timely appeal the original determination, the participant has no further rights under the Plan with respect to the matter presented in the claim. If the participant appeals the original determination and that appeal does not result in a mutually agreeable resolution, then the dispute shall be subject to

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final and binding arbitration before a single arbitrator selected by the parties to be conducted in Jackson, Michigan, provided the participant makes such request for arbitration in writing within 30 days of the final decision by the Plan Administrator. The arbitration will be conducted and finished within 90 days of the selection of the arbitrator. The parties shall share equally the cost of the arbitrator and of conducting the arbitration proceeding, but each party shall bear the cost of its own legal counsel and experts and other out-of-pocket expenditures. The arbitrator must use an arbitrary and capricious standard of review when considering any determinations and findings by the Plan Administrator.

VII. AMENDMENT TO REFLECT CODE SECTION 409A

7.1 Code Section 409A. This Plan has been amended, effective as of January 1, 2005, to comply with the requirements of Section 409A of the Code. To the extent counsel determines additional amendments may be reasonable or desirable in order to comply with Code Section 409A, and any other applicable rules, laws and regulations, such changes shall be authorized with the approval of the Plan Administrator.

ATTEST:	CMS ENERGY CORPORATION
Vice President and Secretary	Chief Executive Officer CMS Energy and Consumers Energy

Date: __________________

11

EX-10.(K)

Exhibit (10)(k)

SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN FOR EMPLOYEES OF
CMS ENERGY / CONSUMERS ENERGY COMPANY

INTRODUCTION

The objective of the Supplemental Executive Retirement Plan is to retain and motivate top level executives by providing additional retirement income to supplement that provided by the Pension Plan.

The Supplemental Executive Retirement Plan became effective on January 1, 1982 and is applicable to all employees of the Company who are eligible in accordance with the provisions of this Supplemental Plan. This document includes all amendments through December 1, 2007.

This instrument describes the Supplemental Plan for employees who retire, die or whose services are terminated on or after January 1, 2005. The rights of employees who, prior to January 1, 2005, retired, died or whose services were terminated are governed by the provisions of the instrument in effect at such time. This Supplemental Plan is an unfunded, unsecured promise to pay benefits at a later date. Subject to the provisions of this Supplemental Plan, Participants have no greater rights than the general creditors of the Company.

SECTION I. DEFINITIONS

Whenever used in this Supplemental Plan, the following terms shall have the respective meanings set forth below, unless the context clearly indicates otherwise.

“Accrued Supplemental Executive Retirement Income”	Means the Supplemental Executive Retirement Income beginning at the first of the month following attainment of age 65, which would be payable to a Participant at the rates provided in subsection 1 of Section V, on the basis of his Accredited Service and Preference Service rendered to the date of computation.
“Accredited Service”	The period of service subsequent to inclusion in the Pension Plan.
“Code”	The Internal Revenue Code of 1986, as amended.
“Company”	Means CMS Energy Corporation and Consumers Energy Company and any subsidiary owned 80% and whose employees participate in the Pension Plan. For purposes of determining a Separation from Service from the Company, the Company shall include the CMS Energy Corporation and all persons or entities that would be considered a single employer under Code Section 414(b) or Section 414(c), using for such purposes a “50 percent” standard, instead of an “80 percent” standard, under such provisions.
“Disability Service”	Means the Accredited Service and Preference Service granted a Participant as provided in subsection 5 of Section V.

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“Disability Service Pension Supplement”	Means the pension supplement, provision for which is made in subsection 5 of Section V of this Supplemental Plan.
“Earnings”	Means the regular salary paid to the Participant during the Fiscal Year January 1 — December 31.
“Employment Agreement”	Means a Severance or Change in Control Agreement (Tier I, Tier II or Tier III) authorized by the Compensation and Human Resources Committee of the Board of Directors of CMS Energy Corporation and entered into between a Participant and CMS Energy Corporation or a subsidiary.
“Final Executive Pay”	Means 1/12th of the average of the Earnings (without regard to any limitations imposed on the Pension Plan by the Internal Revenue Code or Regulations thereunder) plus Incentive Compensation (if any) of a Participant, including any such amounts deferred, for his five years of highest totals of Earnings plus Incentive Compensation (if any) during the period of his Accredited Service.
	For purposes of determining Final Executive Pay, Accredited Service shall include only the service provided while the Participant holds a position that qualifies for inclusion under this Supplemental Plan.
“Incentive Compensation”	Means the applicable amount awarded to the Participant under an Annual Incentive Compensation Plan of the Company during a Plan Year.
“Participant”	Means an employee of the Company included in the Supplemental Plan pursuant to Section II.
“Payment Options”	Means the form of benefit payments elected by a Participant under Section VI.
“Pension Plan”	Means the Pension Plan for Employees of Consumers Energy Company, as amended.
“Plan Administrator”	Means the Benefit Administration Committee as selected by the Chief Executive Officer and Chief Financial Officer of the Company to manage this Supplemental Plan.
“Preference Service”	Means the period of service credited to a Participant pursuant to Section III.
“Provisional Payee”	Means the individual named by the Participant pursuant to Section VI(1)(C) to receive a benefit upon his death.
“Retirement Income”	Means the income which would be payable to the Participant from

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	the Pension Plan if the Participant were to elect to start a monthly benefit as of the applicable date.
“Separation from Service”	Means the Employee retires or otherwise has a separation from service from the company as defined under Code Section 409A and any applicable regulations. The Plan Administrator will determine, consistent with the requirements of Code Section 409A and any applicable regulations, to what extent a person on a leave of absence, including on paid sick leave pursuant to Company policy, has incurred a Separation from Service.
“Supplemental Executive Retirement Income”	Means the monthly retirement income provided for by this Supplemental Plan.
“Supplemental Plan or Plan”	Means the Supplemental Executive Retirement Plan as it is described in this instrument.

The masculine pronoun wherever used herein shall mean or include the feminine pronoun.

SECTION II. ELIGIBILITY

1. Employees included on January 1, 1982. Each officer or other executive of the Company in Salary Grades E-1 and above on January 1, 1982, who is eligible for inclusion in the Pension Plan on that date, will be included in the Supplemental Plan as of January 1, 1982.

2. Employees included after January 1, 1982. Each officer or other executive of the Company who is eligible for inclusion in the Pension Plan and is appointed to a position at Salary Grade E-1 or above after January 1, 1982, will be included in the Supplemental Plan on the first day of the month after he assumes such a position. Effective May 1, 1995, an officer or executive of Consumers Energy who is eligible for inclusion in the Pension Plan and is appointed to a position at Salary Grade F or above will be included in the Supplemental Plan on the first day of the month after he assumes such position. Any employee hired or promoted to a Salary Grade F or above (E-1 or above for CMS employees) on or after July 1, 2003 and who is not eligible for inclusion in the final average pay provisions of the Pension Plan will not be included in this Plan. Effective as of January 1, 2004, the Salary structure for non-officer employees of CMS Energy Corporation and its subsidiaries was modified and as of that date, executives promoted to or hired at a Salary Grade 24 or above and who are covered under the final average pay provisions of the Pension Plan are eligible for this Supplemental Plan.

3. Exclusion of additional participants. Effective as of April 1, 2006 no additional employees will be included in this Supplemental Plan. Employees first hired at or promoted to a Salary Grade 24 or above on or after April 1, 2006 will not be eligible for benefits under this Supplemental Plan. Employees previously covered under this Supplemental Plan who were not accruing benefits under this Supplemental Plan as of March 31, 2006, and who are reemployed or promoted to a Salary Grade 24 or above on or after April 1, 2006 will not resume participation in this Supplemental Plan.

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SECTION III. DETERMINATION OF PREFERENCE SERVICE

Preference Service. Each Participant at a Salary Grade E-3 or above shall be credited with one month of Preference Service for each month of Accredited Service credited to him under the Pension Plan until the sum of Accredited Service and Preference Service equals 20 years. Preference Service will be reduced by the amount (if any) by which the total period of Preference Service when added to the total period of Accredited Service exceeds 35 years.

SECTION IV. RETIREMENT

Retirement dates for the purposes of this Supplemental Plan shall be the later of Separation from Service or age 55; provided, however, that a Participant must have five years of actual service at an applicable salary grade to be eligible for Supplemental Executive Retirement Income.

SECTION V. SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME

1. Normal or Deferred Supplemental Executive Retirement Income. The monthly Supplemental Executive Retirement Income payable to a Participant who, incurs a Separation from Service on or after September 1, 2005, will be an amount equal to the product of the Participant’s Final Executive Pay times the sum of the percentages determined below, plus, for each employee who retires with 35 years of Accredited Service under the Pension Plan, an amount equal to $20.00 for each additional full year of vested service that would otherwise have been credited as Accredited Service but for the application of the minimum age requirements in the Pension Plan or the 35-year Accredited Service maximum, minus (i) .5% multiplied by 1/12th of the Participant’s “Final Average Compensation” up to “Covered Compensation” (as those terms are used in Section 401(l) of the Internal Revenue Code) for each year of Accredited Service and Preference Service and (ii) the Retirement Income provided or credited to the Participant under the Pension Plan:

2.1% for each of the first 20 years of Accredited Service and Preference Service.

1.7% for each of the next 15 years of Accredited Service and Preference Service (1.5% for Participant’s Separating from Service after January 1, 2005 but prior to August 1, 2005).

2. Early Supplemental Executive Retirement Income. The monthly Supplemental Executive Retirement Income payable to a Participant who, incurs a Separation from Service on or after age 55 but prior to age 65, will be the amount of his Accrued Supplemental Executive Retirement Income on the date his retirement commences, reduced by 5/12th of 1% for each month by which his Early Retirement Date precedes his age 62.

The monthly Supplemental Executive Retirement Income payable to a Participant who separates from service prior to age 55 with a vested benefit that is not otherwise forfeited, will be the actuarial equivalent (currently established by the Plan actuary as 38.3%), payable at age 55, of the accrued Supplemental Executive Retirement Income.

3. Payments Under this Supplemental Plan. The payments provided for in this Supplemental Plan shall be made by the Company at such times as required under this Supplemental Plan; provided, however, that, while the Company hopes and expects to make the payments provided for

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under this Supplemental Plan, such payment is not guaranteed. Payments under this Supplemental Plan may be accelerated or delayed only to the extent permitted by Code Section 409A.

4. Establishment of Fund. The Company may establish a fund, as part of the general assets of the Company, and subject to the claims of the general creditors of the Company, to provide for the payments required under this Supplemental Plan.

5. Disability Service Pension Supplement. If a Participant is totally disabled (unable to perform the Participant’s regular job because of disease or injury) and, as a result, fails to accumulate Accredited Service under the Pension Plan for some period of time, a Disability Service Pension Supplement will be calculated and paid as if Accredited Service and applicable Preference Service were credited during such period subject to the following:

A.	The period of Disability Service begins when the Participant stops accumulating Accredited Service under the Pension Plan as a result of the Participant’s total disability, provided that the Participant has not undertaken other employment.
B.	The period of Disability Service ends when the Participant first:

(i)	Begins again to accumulate Accredited Service under the Pension Plan,
(ii)	Undertakes other employment,
(iii)	Attains age 55.

C.

The “Final Executive Pay” of the Participant, for purposes of determining the Disability Pension Supplement only, will be calculated as if the Participant were earning during the period of Disability Service the sum of (1) the Participant’s last monthly rate of basic earnings prior to the period of Disability Service, and (2) 1/12th of the average of the Incentive Compensation (if any) for the five years of Accredited Service while in an eligible salary grade immediately preceding the period of Disability Service (or the monthly average of Incentive Compensation earned over the Participant’s Accredited Service if the Participant has fewer than five years of Accredited Service while in an eligible salary grade), increased or decreased each July 1, following the beginning of the Participant’s period of Disability Service, according to the change in the Bureau of Labor Statistics Consumer Price Index (CPI-W) for the preceding 12-month period of Disability Service (or lesser period of Disability Service, if applicable). However, no July 1 increase or decrease will exceed an amount which could result in an increase greater than a 5% compounded annual increase since the beginning of the Participant’s period of Disability Service, or in a reduction in the Participant’s Final Executive Pay to an amount less than the Participant’s Final Executive Pay prior to the period of Disability Service. For purposes of this provision, the Consumer Price Index for the second month previous to any measurement date will be deemed to be in effect on such date.

D.

The amount of the Disability Service Pension Supplement is the Supplemental Executive Retirement Income, calculated using Final Executive Pay as determined in Section V, subsection 5.C above, and giving credit for Accredited Service and applicable Preference Service for any period of Disability Service, less:

(i) The Supplemental Executive Retirement Income calculated without regard to the Disability Service Pension Supplement,

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(ii)	The Retirement Income that is or would be provided by the Pension Plan if the Participant elected to retire, and
(iii)	Any amount paid to a retired Participant for lost benefits under the Pension Plan, for the period of Disability Service, under a disability insurance policy, the premiums for which were paid in whole or in part by CMS Energy Corporation or any subsidiaries which are at least 80% owned, directly or indirectly, by CMS Energy Corporation.

E. Payments will begin as of the later of i) the first of the month following the Participant’s attainment of age 55, or ii) the seventh month following the Participant’s separation from service due to disability.

SECTION VI. PAYMENT OPTIONS AND
PRE-RETIREMENT SURVIVOR BENEFIT

1. Payment Options. Prior to December 31, 2007, a Participant must elect to receive his benefit in either a Single Sum Option or a Monthly Annuity Option. This Payment Option elected by a Participant may not be changed after December 31, 2007. Any Participant failing to make a Payment Election prior to December 31, 2007 will be presumed to have elected to continue to receive the Monthly Annuity Option. Under either Payment Option benefit payments will commence on: i) the first day of the seventh month following Separation from Service if a Participant incurs a Separation from Service on or after age 55; or, ii) if a Participant incurs a Separation from Service prior to age 55, the later of age 55 or the first day of the seventh month following Separation from Service. For persons incurring a Separation from Service in 2007, the benefit option will be that elected on or before December 31, 2006.

A. The Single Sum Payment will be determined by:

(i)	The present value of the Participant’s Supplemental Executive Retirement Income determined on the basis of the benefit the Participant would have been entitled to on the first day of the month following the later of his sixty-fifth birthday or his Retirement Date. The benefit will be the present value of the deferred annuity if the Supplemental Executive Retirement Income commences prior to age 65 and will not include any early retirement subsidies in Section V(2) of this Supplemental Agreement;
(ii)	Payment will be based upon the mortality tables used by the Pension Plan for computing single sums. The interest rate will be based on the earnings assumption used to comply with Financial Accounting Standard 87 under the Pension Plan (which is based on the assumed rate of return on assets) or such other reasonable mortality table or interest assumptions as the Plan Administrator may adopt from time to time;
(iii)	Payment will not include any amounts otherwise forfeited under this Supplemental Plan; and
(iv)	If a Participant dies after Separation from Service after age 55, but prior to payment of the Single Sum, his or her estate will receive the present value of the Single Sum on the first day of the seventh month following the Separation from Service.

B  Payment of the Monthly Annuity Option will be made to the Participant as follows:

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(i)

If the Monthly Annuity is scheduled to commence upon the seventh month following Separation from Service, the initial payment will include the payments for the six months prior to the payment date, less any applicable taxes and other withholdings. No interest or lost value of money will be paid on the benefits. If a Participant dies prior to receipt of the initial payment, any payments for months prior to his death will be made to his Provisional Payee, if any survives him, or to his estate on the first day of the seventh month following his Separation from Service.

(ii)

If the Monthly Annuity is scheduled to start at age 55, the benefit will commence the later of the first of the month following the Participant’s 55th birthday or the seventh month following Separation from Service. If the Participant dies after age 55 but prior to receipt of the initial payment, any payments for months prior to his death will be made to his Provisional Payee, if any survives him, or to his estate on the date the payment would have been made to the Participant had he survived.

C. A Participant electing a Monthly Annuity Option may, at any time prior to commencement of benefits, elect an actuarially equivalent joint and survivor annuity benefit. For this purpose, actuarial equivalence shall be determined by the Plan’s actuary (as selected by the Plan Administrator) applying reasonable actuarial methods and assumptions, and in accordance with the other applicable rules under Code Section 409A and applicable regulations including 1.409A-2(b)(2)(ii). A joint and survivor annuity provides a benefit to the Participant for his life and upon his death, provides a lifetime benefit to a Provisional Payee. A Participant may name a Provisional Payee or change his Provisional Payee at any time that is administratively reasonable, but not less than 8 days prior to (i) Separation from Service on or after age 55; or (ii) 30 days prior to age 55 for a Participant Separating from Service prior to age 55. A Participant may elect from the following Monthly Annuity Options:

(i)	a 100% Annuity payable to him for his life with no Provisional Payee (the standard benefit if no other election is made);
(ii)	an actuarially reduced equivalent benefit to provide a monthly annuity for his life with a 50% survivor annuity to his named Provisional Payee;
(iii)	an actuarially reduced equivalent benefit to provide a monthly annuity for his life with a 75% survivor annuity to his named Provisional Payee;
(iv)	an actuarially reduced equivalent benefit to provide a monthly annuity for his life with a 100% survivor annuity to his named Provisional Payee; or
(v)	an actuarially reduced equivalent benefit to provide a monthly annuity for his life, provided that if he dies less than 10 years following payment commencement date, his Provisional Payee or the estate of the last surviving of the Participant or the Provisional Payee will receive the same monthly payment until a date that is 10 years from the month the Executive Retirement Income was first allocated as part of an initial payment.

If the Participant elects a 50%, 75% or 100% survivor annuity and the Provisional Payee dies while the Participant is in pay status, the unreduced amount will be restored effective the first of the month following the death of the Provisional Payee.

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2. Pre-Retirement Survivor Benefit.

A.

Participants Actively on Payroll. A Participant may select one beneficiary to receive a benefit in the event of the Participant’s death subsequent to attaining five years as a Participant in this Supplemental Plan and prior to Separation from Service. A married Participant is presumed to have selected his spouse to receive the benefit unless the spouse provides notarized consent allowing the Participant to name a different beneficiary. An unmarried Participant who has elected a beneficiary under the Pension Plan will have the same beneficiary under this Supplemental Plan unless he elects to file a separate beneficiary form with the Company or the Plan Record Keeper. Payments to the beneficiary will commence the first of the month following the Participant’s death and will be equal to 50% of the Accrued Supplemental Executive Retirement Income which would be payable if the Participant had elected to Separate from Service the first of the month following his date of death adjusted for Early Retirement in accordance with Section V (2). Notwithstanding the above, if a Participant is younger than age 55 at the time of his death, the benefit payable to the beneficiary will be 32.5% of the Accrued Supplemental Early Retirement Income without any further adjustments.

B.

Participants Separating from Service Prior to Age 55. A Participant incurring a Separation from Service prior to age 55 will have a pre-retirement survivor benefit for his spouse for the period of time he is married after Separation from Service. Payments to the spouse will commence the first of the month following the Participant’s death and will be equal to 20% of the Supplemental Executive Retirement. The Supplemental Executive Retirement Income of a Participant will be reduced for any year or portion of a year that this option is elected. The reduction will be .1% for any year or portion of a year the election is in effect from the date the benefit is elected through age 44, plus .3% for any year or portion of a year the benefit is in effect from age 45 through age 54, plus .5% if the benefit is in effect the year the employee attains age 55. With the spouse’s notarized consent the Participant may waive this coverage.

SECTION VII. TERMINATION OF SERVICE

If a Participant included in the Supplemental Plan voluntarily terminates his services prior to age 55 other than in accordance with the terms of an Employment Agreement effective following a Change in Control as defined in the Employment Agreement, the Participant will forfeit all Supplemental Executive Retirement Income except for any amount attributable to Earnings not permitted to be used for benefit calculation under the Pension Plan by the Internal Revenue Code or Regulations thereunder. Any such amount shall be calculated without Preference Service or Incentive Income. A Participant whose services are terminated for any reason prior to attaining five years of actual or disability service following inclusion in this Supplemental Plan shall not be eligible for Supplemental Executive Retirement Income except as provided for in any Employment Agreement which provides for additional Years of Service, Earnings and Incentive Compensation to be used in the calculation of Retirement Income in the event of a Change in Control.

SECTION VIII. FORFEITURE

A Participant who is discharged by the Company for cause, or an employee who is subsequently convicted of any felony committed while in the course of his employment with the Company, which felony involved theft, malicious destruction or misuse of the property of the Company or the embezzlement or misapplication of the funds of the Company, or who makes an admission in writing of the commission of such felony, shall be ineligible for and forfeit all Supplemental Executive Retirement Income.

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SECTION IX. NON-ALIENATION OF BENEFITS

No benefit under the Supplemental Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, renunciation, or reduction and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, renounce, or reduce the same shall be void, nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.

If any Participant or retired Participant or any Provisional Payee under the Supplemental Plan is adjudicated bankrupt or attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, renounce, or reduce any benefit under the Supplemental Plan, except as specifically provided in the Supplemental Plan, then such benefit shall cease and terminate and in that event, subject to the requirements of Code Section 409A, the Plan Administrator shall hold or apply the same or any part thereof to or for the benefit of such Participant or retired Participant or Provisional Payee in such manner as the Plan Administrator may think proper, provided the Plan Administrator shall not act in any manner as would perpetuate the alienations prohibited by this Section. Nothing in this provision provides the Plan Administrator any power to accelerate any payments under this Supplemental Plan or to defer any payments under this Supplemental Plan other than in compliance with Code Section 409A and applicable regulations.

SECTION X. LIMITATION OF RIGHTS

Neither the establishment of this Supplemental Plan, nor any modification thereto, nor the payment of any benefits, shall be construed as giving to any Participant, other employee, or other person any legal or equitable rights against the Company, or any officer or employee thereof, or the Plan Administrator, except as herein provided. Under no circumstances shall the terms of employment of any employee be modified or in any way affected hereby. Inclusion under the Supplemental Plan will not give any Participant or any Provisional Payee any right to claim a Supplemental Executive Retirement Income except to the extent such right is specifically fixed under the terms of the Supplemental Plan. Subject to the provisions of this Supplemental Plan and the Supplemental Executive Retirement Trust the Participant shall have no rights greater than those of a general, unsecured creditor of the Company.

SECTION XI. ADMINISTRATION OF SUPPLEMENTAL PLAN

The general administration of this Supplemental Plan shall be placed in the Plan Administrator provided for in this Supplemental Plan. The determination of the Plan Administrator as to any question or matter arising under this Supplemental Plan shall be conclusive and binding.

The Participant shall file any claim for benefits with the Plan Administrator (EP1-449), One Energy Plaza, Jackson, Michigan 49201. Written notice of any determination will generally be provided within 60 days after the claim is filed. A denial will include an explanation including how to perfect the claim when appropriate. A Participant, or his authorized representative, may appeal such denial of his original claim within 90 days on the notice of denial and may submit additional information and appear before the Plan Administrator for a hearing. A hearing will generally be held within 60 days and a determination 60 days after the hearing. The final determination of the Plan Administrator is required before pursuing other possible remedies. The findings of fact and interpretation of the Plan by the Plan Administrator is final, conclusive and binding on the parties.

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SECTION XII. RECOUPMENT

Any benefit under this Plan is also subject to recoupment under the CMS Energy Recoupment Policy Relating to Financial Restatements.

SECTION XIII. AMENDMENT, MODIFICATION OR
TERMINATION OF THE SUPPLEMENTAL PLAN

This Supplemental Plan may be amended, modified or terminated at any time by action of the Board of Directors of the Company. Notwithstanding any other provisions of this Supplemental Plan, in the event of a Change in Control (as defined in an Employment Agreement between the Participant and CMS Energy Corporation), each such Participant covered under an Employment Agreement shall receive such additional vesting and benefits consistent with the terms of the Employment Agreement. While the Company hopes and expects to continue the Supplemental Plan indefinitely, it reserves the right to terminate or modify it at any time. The Plan Administrator may amend this Supplemental Plan, consistent with the terms of its charter, to comply with any applicable laws, rules or regulations, including Section 409A, to clarify its terms or to provide for administrative requirements. Any amendment or termination will be consistent with Code Section 409A and any applicable amendments or regulations.

IN WITNESS WHEREOF, execution is hereby effected this 1st day of December, 2007.

ATTEST:	CMS ENERGY CORPORATION
/s/	/s/
Vice President and Secretary	Chief Executive Officer, CMS Energy and Consumers Energy

Date: _____________________

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EX-10.(L)

Exhibit (10)(1)

DEFINED CONTRIBUTION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The objective of the Defined Contribution Supplemental Executive Retirement Plan is to attract and motivate top level executives, including those recruited in mid- or late-career. This Supplemental DC Plan is designed to provide additional retirement income to supplement that provided under the applicable Qualified Plans.

This Supplemental DC Plan is effective April 1, 2006 for employees hired into or promoted to a Covered Executive Position on or after April 1, 2006 and includes amendments through December 1, 2007. This Supplemental DC Plan replaces any Cash Balance SERP benefit credited to any Employee from July 1, 2003 to April 1, 2006. An amount equal to the accrued Cash Balance SERP has been transferred to this Plan and placed as a contribution to the Participant Account.

SECTION I. DEFINITIONS

Whenever used in this Supplemental DC Plan, the following terms shall have the respective meanings set forth below, unless the context clearly indicates otherwise.

Account or Account Balance	The notional amount credited to a Participant or beneficiary in accordance with the provisions of this Supplemental DC Plan.
Code	The Internal Revenue Code of 1986, as amended.
Company	CMS Energy Corporation and its subsidiaries which are directly or indirectly owned 80% or greater. For purposes of determining a Separation from Service from the Company, the Company shall include CMS Energy Corporation and all persons or entities that would be considered a single employer under Code Section 414(b) or Section 414(c), using for such purposes a “50 percent” standard, instead of an “80 percent” standard, under such provisions.
Company Contribution	The amount, which is a notional amount, contributed by the Employer on behalf of a Participant in accordance with Section III of this Supplemental DC Plan.
Compensation	A Participant’s regular salary from an Employer, before any adjustment for deferrals under any deferred compensation plan of the Company, any reductions for contributions to the Savings Plan, any reductions under any welfare benefit plan or deductions for taxes or other withholdings, but excluding any bonus, imputed income, incentive or other premium pay.
Covered Executive Position	A position with a Company where the Employee is classified as a Salary Grade 24 or above.
DB SERP	The Defined Benefit Supplemental Executive Retirement Plan. The DB SERP Plan is closed for new participants as of April 1, 2006.

Employee	Any person, employed by the Company as an exempt salaried employee at Salary Grade 24 or above, and on the payroll and employment records system as an employee, (excluding consultants, advisors and independent contractors).
Employer	The entity within the Company that employs the Participant.
Incentive Compensation	An amount paid to a Participant in a Plan Year under the terms of the Annual Employee Incentive Compensation Plan or the Annual Officer Incentive Compensation Plan.
Participant	Any Employee who meets or met the eligibility requirements of the Plan and for whom Contributions are made or were previously made under the Plan which have not been distributed.
Payment Event	The time when the Participant may receive the benefits deferred under the Plan as described in Section VI.1.
Payment Term	The form and duration of any payment to a Participant or beneficiary as described in Section VI.2.
Plan or Supplemental DC Plan	The Defined Contribution Supplemental Executive Retirement Plan.
Plan Administrator	The Benefit Administration Committee as selected by the Chief Executive Officer and Chief Financial Officer of the Company to manage the plan.
Plan Record Keeper	The person(s) or entity named as such by the Plan Administrator.
Plan Year	January 1 to December 31 of a calendar year.
Qualified Plan	A pension plan providing benefits for a broad group of employees and meeting the requirements for a qualified plan under the Code.
Savings Plan	The Savings Plan for Employees of Consumers Energy and other CMS Energy Companies.
Separation from Service	If an Employee retires or otherwise has a separation from service from the Company as defined under Code Section 409A and any applicable regulations. The Plan Administrator will determine, consistent with the requirements of Code Section 409A and any applicable regulations, to what extent a person on a leave of absence, including on paid sick leave pursuant to Company policy, has incurred a Separation from Service.
Threshold Limit	The amount as determined from time to time by the Secretary of the Treasury above which annual compensation is disregarded for Qualified Plans. As of January 1, 2007, the Threshold Limit is $225,000.

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SECTION II. ELIGIBILITY AND ENROLLMENT

Each Employee in a Covered Executive Position who is not a participant in the DB SERP is a Participant in this Plan as of the date of hire or promotion to a Covered Executive Position. Enrollment is automatic upon eligibility to participate.

SECTION III. COMPANY CONTRIBUTION

This Supplemental DC Plan is a defined contribution non-qualified deferred compensation plan. The benefit provided for under this Supplemental DC Plan is equal to the Company Contribution to the Participant Account as well as the gains or losses attributable to the performance of the investments selected by the Participant. The Company Contribution will be credited to the Participant Account not less frequently than annually and shall be determined based upon the Participant’s classification as of the date the Company Contribution is credited to the Participant Account. The Company Contribution shall be based upon the Participant’s salary grade and Compensation as follows:

1.	A Participant in Salary Grades 24 through E-2 will receive a Company Contribution equal to 5% of Compensation in excess of the Threshold Limit and 5% of any Incentive Compensation paid to the Participant during the Plan Year.
2.	A Participant in Salary Grades E-3 through E-5 will receive a Company Contribution equal to 5% of Compensation up to the Threshold Limit, plus 10% of Compensation in excess of the Threshold Limit and 10% of any Incentive Compensation paid to the Participant during the Plan Year.
3.	A Participant in Salary Grades E-6 and higher will receive a Company Contribution equal to 10% of Compensation up to the Threshold Limit, plus 15% of Compensation in excess of the Threshold Limit and 15% of any Incentive Compensation paid to the Participant during the Plan Year.

Any reference to Incentive Compensation paid to a Participant during a Plan Year includes amounts that would have been paid but for the election of the Participant to defer any amount of Incentive Compensation.

SECTION IV. INVESTMENTS

1. Designation of Investments. The Participant shall specify the proportions of the Company Contribution to be treated as if invested among the various options available as investment funds under this Supplemental DC Plan. A Participant who already has deferred amounts under a nonqualified deferred compensation plan of the Company will automatically have his or her existing investment profile apply to the Company Contribution.

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All determinations of the available investments by the Plan Administrator are final and binding upon the Participants. If a Participant fails to make an investment election, then such amounts shall be accounted for as if contributed to a Lifestyle Fund (as that term is defined in the Savings Plan) with a date that is applicable to the Participant’s age 65, rounded up, or such other investments as determined by the Plan Administrator.

2.

Changes in Investment Elections. All investment elections may be changed prospectively at the Participant’s election at any time prior to the payment of the benefit subject to any applicable restrictions imposed by the Plan Administrator, the Plan Record Keeper or by any laws and regulations.

3.

Determination of Investment Earnings. All gains and losses will be based upon the performance of the investments selected by the Participant from the date any Company Contribution is first credited to the Participant Account. If the Company elects to fund the Accounts for its convenience as described in Section VIII.5, then investment performance will be based on the balance in the Participant Account pursuant to the customary procedures of the Plan Record Keeper.

V. VESTING AND RECOUPMANT

1.

Vesting. A Participant will be fully vested in this Supplemental DC Plan only upon completion of five full years of service as a Participant in this Supplemental DC Plan and attainment of age 62. During the first five years of participation, the Participant’s vested percentage is 0%. Upon completing five full years as a Participant in this Supplemental DC Plan, the Account Balance will vest linearly from the date of plan eligibility to age 62; ratably each year such that at age 62 the benefit is 100 percent vested. As an example, an Employee hired or promoted on June 1, 2007 at age 52 will not receive any vesting credit until June 1, 2012 at age 57. At that time the Participant will be 50% vested, as there are 10 years from the date of inclusion in the Plan to age 62, so the Participant vests 10% for each year in the Plan. At age 62 the Participant is 100% vested. An Employee first hired at age 57 or older will be 100% vested upon five years of participation in this Supplemental DC Plan. In determining the percentage of vesting, the Participant’s age will be counted using whole years only without rounding and without regard to the number of months past the Participant’s last birthday. Notwithstanding the above, if a Participant incurs a “disability”, as that term is defined under Code Section 409A and any relevant regulations, then such Participant shall vest in the entire Account Balance as of the disability date. The Account Balance will vest in full upon the death of a Participant.

As the Company Contributions vest, the Participant’s Account Balance will be reduced by an amount equal to the employee’s share of any applicable FICA and FUTA taxes in accordance with the applicable regulations under Code Section 409A. To the extent

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required by law, the Participant will be imputed with income for the value of the taxes paid through the reduction of the Account Balance.

2. Recoupment. Any Company Contributions are also subject to recoupment under the CMS Energy Recoupment Policy Relating to Financial Restatements.

VI. PAYMENT OPTIONS

1.	Payment Events. This Supplemental DC Plan provides for payment of benefits upon Separation from Service or as otherwise specified in this Plan document.
2.	Payment Term. Each newly hired or promoted Participant will receive his or her payment in a single sum in the later of (i) January of the year following the year of Separation from Service or if later, (ii) the first day of the seventh month following Separation from Service.
3.	Changes in Payment Options. Subsequent changes to the original Payment Term which would accelerate the receipt of benefits from the Plan are not permitted, except that the Plan Administrator may at its sole discretion elect to accelerate payments to the extent permitted by Code Section 409A and applicable regulations. A subsequent election by a Participant to change the Payment Term can be made when both of the following conditions are satisfied:
	(a) any such election may not take effect until at least 12 months after the date on which the election is made; and
	(b) the payment(s) with respect to which such election is made is deferred for a period of not less than 5 years from the date such payment would otherwise have been made or, in the case of installment payments, 5 years from the date the first installment was scheduled to be paid.
	When making a subsequent election, the Participant may elect to receive either a single sum or a series of annual installment payments over a period from two (2) years to fifteen (15) years. If installment payments are elected, each installment payment shall be equal to a fractional amount of the original balance in the Account the numerator of which is one and the denominator of which is the number of installment payments remaining. For example, a series of five installment payments will result in a benefit equal to one fifth of the Account Balance for the first installment, one fourth of the Account Balance for the second installment, one third of the Account Balance for the third installment one half of the Account Balance for the fourth year and in the fifth installment the Account Balance is paid in full. Each installment, because of gains and losses may not be identical to the prior installment.

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4. Payment Upon the Death of the Participant. In the event of the death of a Participant prior to the start of any payments under the Plan, the Participant’s named beneficiary or beneficiaries shall receive the entire Account Balance under the Plan within 90 days following the death of the Participant. In the event of the death of a Participant after commencing payment of benefits, the Participant’s named beneficiary or beneficiaries shall receive the remaining Account Balance in a single sum within 90 days following the death of the Participant. If the Participant fails to name a beneficiary, the Account Balance will be paid in a single sum to his or her estate within 90 days following the death of the Participant. In no event may any recipient designate a year of payment for an amount payable upon the death of the Participant.

VII. NON-ALIENATION OF BENEFITS

Except as may be required by a domestic relations order as described in Code Section 414(p)(1)(B), in no event shall the Plan Administrator pay or assign over any part of the interest of a Participant under the Plan, or his or her beneficiary or beneficiaries, which is payable, distributable or credited to his or her Account, to any assignee or creditor of such Participant or his or her beneficiary or beneficiaries. Prior to the time of distribution, a Participant, his or her beneficiary or beneficiaries or legal representative shall have no right by way of anticipation or otherwise to assign or otherwise dispose of any interest which may be payable, distributable or credited to the Account of the Participant or his or her beneficiary or beneficiaries under the Plan, and every attempted assignment or other disposition of such interest in the Plan shall not be merely voidable but absolutely void.

VIII. ADMINISTRATION OF PLAN

1. Plan Administrator. The Plan Administrator shall have authority to take necessary actions to implement the Plan and is granted full discretionary authority to apply the terms of the Plan, make administrative rulings, interpret the Plan and make any other determinations with respect to all aspects of the Plan. Any Participant with a claim under the Plan must make a written request within 60 days to the Plan Administrator for a determination on the claim. If the claim involves a benefit or issue relevant to an individual who has been appointed to the Benefit Administration Committee, the individual so affected shall not participate in any determination on such issue. The Plan Administrator may hire such experts, accountants, or attorneys as it deems necessary to make a decision and may rely on the opinion of such persons in making a determination. The Plan Administrator shall notify the Participant of its determination in writing within 60 days of the claim unless the Plan Administrator advises the Participant that it requires additional time (not to exceed 90 days) to complete its investigation.. The Participant may, within 60 days from the date the determination was mailed to the Participant, request a redetermination of the matter, and provide any additional information for the Plan Administrator to consider in its redetermination. The Plan Administrator will issue its opinion within 60 days of the request for redetermination unless the Plan administrator

6

advised the Participant that it requires additional time (not to exceed 90 days) to complete its redetermination of the matter.

2.	Administrative Expenses. Any administrative expenses, costs, charges or fees, to the extent not paid by the Company are to be charged to the Participant Accounts in accordance with the Plan Record Keeper’s normal procedures.
3.	Amendment or Termination of the Plan. The Company may amend or terminate the Plan at anytime. Upon termination, any vested Account Balance will remain in the Plan and be paid out in accordance with the Payment Term. While the Account Balance will continue to be subject to investment gains and losses, no further Company Contributions will be made to the Plan. The Plan Administrator is authorized to make any amendments that are deemed necessary or desirable to comply with any applicable laws, regulations or orders or as may be advised by counsel or to clarify the terms and operation of the Plan. Notwithstanding the above, no termination of the Plan will accelerate any benefits under the Plan unless such termination is consistent in all manners with the requirements of Section 409A of the Internal Revenue Code and any applicable regulations, with respect to when a terminated plan may accelerate payment to a Participant.
4.	Naming a Beneficiary. A Participant may at any time file a beneficiary designation with the Plan Record Keeper. Only one such beneficiary designation, the most recent received by the Plan Record Keeper, is effective at any time. No beneficiary designation is effective until it is received by the Plan Record Keeper. If a Participant fails to name a beneficiary, any benefit payable under the Plan will be paid to the Participant’s estate. A Participant must name a separate beneficiary for each non qualified plan.
5.	Funding. This is an unfunded nonqualified deferred compensation plan. To the extent the Company elects to place funds with a trustee to pay its future obligations under this Plan such amounts are placed for the convenience of the Company, remain the property of the Company and the Participant shall have no right to such funds until properly paid in accordance with the provisions of this Plan. For administrative ease and convenience, such amounts may be referred to as Participant Accounts, but as such are a notional account only and are not the property of the Participant. Such amounts are subject to the claims of the creditors of the Company.

ATTEST:	CMS ENERGY CORPORATION
/s/	/s/
Vice President and Secretary	Chief Executive Officer, CMS Energy and Consumers Energy

Date: ________________________________

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EX-12.(A)

Exhibit (12)(a)

CMS ENERGY CORPORATION
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)

	Year Ended December 31
	2007			2006			2005			2004			2003
	(b)			(c)			(d)			(e)
Earnings as defined (a)
Pretax income from continuing operations	$	(310	)	$	(427	)	$	(766	)	$	96		$	69
Exclude equity basis subsidiaries		(22	)		(14	)		(17	)		(88	)		(41	)
Fixed charges as defined		483			528			533			639			663
Earnings as defined	$	151		$	87		$	(250	)	$	647		$	691
Fixed charges as defined (a)
Interest on long-term debt	$	406		$	483		$	506		$	560		$	531
Estimated interest portion of lease rental		23			8			6			4			7
Other interest charges		54			37			21			75			125
Fixed charges as defined	$	483		$	528		$	533		$	639		$	663
Preferred dividends		12			11			10			11			15
Combined fixed charges and preferred dividends	$	495		$	539		$	543		$	650		$	678
Ratio of earnings to fixed charges		—			—			—			1.01			1.04
Ratio of earnings to combined fixed charges and preferred dividends		—			—			—			—			1.02

NOTES:

(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.

(b) For the year ended December 31, 2007, fixed charges exceeded earnings by $332 million. Earnings as defined include $204 million in asset impairment charges and a $279 million charge for an electric sales contract termination.

(c) For the year ended December 31, 2006, fixed charges exceeded earnings by $441 million. Earnings as defined include $459 million of asset impairment charges.

(d) For the year ended December 31, 2005, fixed charges exceeded earnings by $783 million. Earnings as defined include $1.184 billion of asset impairment charges.

(e) For 2004, fixed charges, adjusted as defined, include $25 million of interest cost that was capitalized prior to 2004 and subsequently expensed in 2004

EX-12.(B)

Exhibit (12)(b)

CONSUMERS ENERGY COMPANY
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions
(Millions of Dollars)

	Years Ended December 31
	2007		2006			2005			2004			2003
						(b)
Earnings as defined (a)
Pretax income from continuing operations	$	437	$	167		$	(590	)	$	439		$	333
Exclude equity basis subsidiaries (c)		—		(1	)		(1	)		(1	)		(42	)
Include equity basis dividends received (c)		—		—			—			—			45
Fixed charges as defined, adjusted to exclude capitalized interest of $6, $10, $38, $(25), and $9 for the years ended December 31, 2007, 2006, 2005, 2004, and 2003, respectively. (d)		290		300			281			373			255
Earnings as defined	$	727	$	466		$	(310	)	$	811		$	591
Fixed charges as defined (a)
Interest on long-term debt	$	236	$	286		$	305		$	328		$	241
Estimated interest portion of lease rental		23		8			6			4			7
Other interest charges		34		13			5			13			13
Preferred dividends and distributions		3		3			3			3			3
Fixed charges as defined	$	296	$	310		$	319		$	348		$	264
Ratio of earnings to combined fixed charges and preferred dividends and distributions		2.46		1.50			—			2.33			2.24

NOTES:

(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.

(b) For the year ended December 31, 2005, fixed charges exceeded earnings by $629 million. Earnings as defined include asset impairment charges of $1.184 billion.

(c) In 2004, we consolidated the MCV Partnership and the FMLP in accordance with Revised FASB Interpretation No. 46.

(d) For 2004, fixed charges, adjusted as defined, include $25 million of interest cost that was capitalized prior to 2004 and subsequently expensed in 2004.

EX-21

Exhibit (21)

For the purpose of this filing, information is organized under the headings of CMS Energy Corporation (Tier 1), CMS Capital LLC. (Tier 2), CMS Enterprises Company (Tier 2), CMS Land Company (Tier 2), Consumers Energy Company (Tier 2) and Dearborn Industrial Energy, L.L.C. (Tier 2). As set forth in detail below, CMS Energy Corporation is the parent company of CMS Capital LLC, CMS Enterprises Company, CMS Land Company, Consumers Energy Company and Dearborn Industrial Energy, L.L.C. All ownership interests are 100% unless indicated parenthetically to the contrary and are accurate as of December 31, 2007.

01 CMS Energy Corporation

Address:
One Energy Plaza
Jackson, Michigan 49201

CMS Energy Corporation is an integrated energy company, which has as its primary business operations an electric and natural gas utility, natural gas pipeline systems, and independent power generation.

The name, state of organization and nature of business of CMS Energy’s direct subsidiaries are described below:

02	CMS Capital LLC
	CMS Capital LLC is a Michigan limited liability company formed to assist in securing financing for CMS Energy Corporation and its subsidiaries and affiliates.
02	CMS Enterprises Company
	CMS Enterprises Company is a Michigan corporation that, through various subsidiaries and affiliates, is engaged in diversified businesses in the United States and in select international markets.
02	CMS Land Company
	CMS Land Company is a Michigan corporation formed to act as a repository for any unused real property formerly owned by Consumers Energy Company, and hold the same for possible non-utility development.
02	Consumers Energy Company
	Consumers Energy Company is a Michigan corporation engaged in the generation, purchase, distribution and sale of electricity, and in the purchase, storage, distribution and sale of natural gas, in the lower peninsula of the State of Michigan.
02	Dearborn Industrial Energy, L.L.C.
	Dearborn Industrial Energy, L.L.C. is a Michigan limited liability company that holds the ownership interest in Dearborn Industrial Generation, L.L.C.

The name, state of organization and nature of business of each subsidiary and their subsidiaries are described below:

2

02 CMS Capital, L.L.C.

Address:
One Energy Plaza
Jackson, Michigan 49201

03	EnerBank USA
	EnerBank USA is a Utah corporation engaged in the business of an “industrial loan corporation” to issue thrift certificates of deposit and thrift savings accounts for the payment of money, to issue capital notes or debentures to receive payments with or without allowance for interest.

3

02 CMS Enterprises Company

Address:
One Energy Plaza
Jackson, Michigan 49201

03	CMS Childress County Wind One LLC
	CMS Childress County Wind One LLC is a Michigan limited liability company for to develop, own and operate a wind farm in Childress County, Texas.
03	CMS Distributed Power, L.L.C.
	CMS Distributed Power, L.L.C is a Michigan limited liability company formed for the purpose of aggregating the output from multiple generators to have power available on demand.
03	CMS Energy Asia Private Limited (in process of liquidation)
	CMS Energy Asia Private Limited, a Singapore corporation, is active and was involved in the development of electrical generation and distribution opportunities, gas transmission, storage and distribution opportunities, electrical and gas marketing opportunities and development opportunities in Asia and the Pacific Rim. CMS Energy Asia Private Limited is in the process of liquidation.
03	CMS Energy Resource Management Company
	CMS Energy Resource Management Company (CMS ERM) is a Michigan corporation concentrating on the purchase and sale of energy commodities in support of CMS Energy’s generating facilities.
04	CMS ERM Michigan LLC
	CMS ERM Michigan LLC is a Michigan limited liability company formed for the sole purpose of taking an assignment of the Ford/Rouge Electricity Sales Agreements from Dearborn Industrial Generation L.L.C. and to perform those contracts. CMS ERM Michigan LLC was formerly known as CMS MS&T Michigan L.L.C.
04	CMS Viron Corporation
	CMS Viron Corporation is a Missouri corporation formed to provide services in the area of energy usage analysis and the engineering and implementation of energy conservation measures.
03	CMS Energy South America Company
	CMS Energy South America Company is a Cayman Islands corporation formed to provide for consolidation of the development expenses and activity in Argentina and Brazil.

4

03	CMS Enterprises Development, L.L.C.
	CMS Enterprises Development, L.L.C. is a Michigan limited liability company formed to invest in various projects.
03	CMS Gas Transmission Company
	CMS Gas Transmission Company is a Michigan corporation organized to engage in the transmission, storage and processing of natural gas.
04	CMS Energy Investment LLC
	CMS Energy Investment LLC is a Delaware limited liability company that acts as a holding company of CMS Energy’s interests in the Michigan Gas Transmission assets.
04	CMS Gas Argentina Company
	CMS Gas Argentina Company is a Cayman Islands corporation with an equity interest in Transportadora de Gas del Norte S.A., an Argentine corporation, which provides natural gas transmission services to the northern and central parts of Argentina.
05	Servicios de Aguas de Chile CMS y Compania Limitada (.008%)
	Servicios de Aguas de Chile CMS y Compania Limitada is a chilean corporation formed to hold marine concession (beach access and water extraction) for a desalination plant.
05	Transportadora de Gas del Norte S.A. (TGN) (25%)
	Transportadora de Gas del Norte S.A. (TGN) is an Argentina corporation that provides natural gas transmission services to the northern and central parts of Argentina and owns natural gas pipelines.
04	CMS International Ventures, L.L.C. (37.01%) (See Exhibit A for list of subsidiaries)
	CMS International Ventures, L.L.C. is a Michigan limited liability company, formed to own, manage and sell certain of CMS Energy’s international investments.
03	CMS Generation Jegurupadu I Limited Duration Company (1%)
	CMS Generation Jegurupadu I Limited Duration Company is a Cayman Islands company and one of the owners in the operating company which operates the GVK project, a 235-MW gas- and naphtha-fired independent power generating plant in Jegurupadu, Andhra Pradesh Province, India
04	Jegurupadu O&M Company Mauritius (50%)
	Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.

5

03	CMS Generation Jegurupadu II Limited Duration Company (1%)
	CMS Generation Jegurupadu II Limited Duration Company is a Cayman Islands company and one of the owners in the operating company which operates the GVK project, a 235-MW gas- and naphtha-fired independent power generating plant in Jegurupadu, Andhra Pradesh Province, India
04	Jegurupadu O&M Company Mauritius (50%)
	Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.
03	CMS Generation San Nicolas Company (.1%)
	CMS Generation San Nicolas Company is a Michigan corporation which holds interests in certain Argentine assets.
04	Inversora de San Nicolas, S.A. (.1%)
05	Centrales Termica San Nicolas S.A. (88%)
04	Nitrotec Corporation (50%)
	Nitrotec Corporation is a Delaware corporation formed to invest in plants that extract helium from natural gas.
03	CMS International Ventures, L.L.C. (61.49%) (See Exhibit A for list of subsidiaries)
	CMS International Ventures, L.L.C. is a Michigan limited liability company, formed to own, manage and sell certain of CMS Energy’s international investments.
03	CMS Resource Development Company
	CMS Resource Development Company is a Michigan corporation formed to pursue and develop various power sources outside the United States.
03	CMS Texas LLC
	CMS Texas LLC is a Texas limited liability company formed to conduct business activities in Texas.
03	HYDRA-CO Enterprises, Inc. (See Exhibit B for list of subsidiaries)
	HYDRA-CO Enterprises, Inc. is a New York corporation involved in the management and operation of various power plants. The plants are fueled by coal, natural gas, waste wood and water (hydro).
03	New Generation Co.
	New Generation Co. is a Delaware limited liability company formed to conduct business activities for CMS Enterprises Company as determined appropriate in the future.

6

02 CMS Land Company

Address:
One Energy Plaza
Jackson, Michigan 49201

	CMS Land Company is a Michigan corporation formed to act as a repository for any unused real property formerly owned by Consumers Energy Company, and hold the same for possible non-utility development.
03	Beeland Group LLC
	Beeland Group LLC is a Michigan limited liability company formed to acquire land and other property in order to provide a disposal well for the Bay Harbor properties.

7

02 Consumers Energy Company

Address:
One Energy Plaza
Jackson, Michigan 49201

	The consolidated operations of Consumers Energy Company (“Consumers”) account for the largest share of CMS Energy’s total assets and income and account for a substantial portion of its revenues. The name, state of organization and nature of business of Consumers’ subsidiaries are described below:
03	CMS Engineering Co.
	CMS Engineering Co. is a Michigan corporation engaged in offering design, engineering, project management and related construction services to natural gas utilities, natural gas exploration and production companies, and other energy businesses.
03	Consumers Campus Holdings, LLC
	Consumers Campus Holdings, LLC is a Michigan limited liability company formed for the purpose of being the lessee in the synthetic lease financing of the new Consumers Energy Company office building located in downtown Jackson, Michigan.
03	Consumers Funding LLC
	Consumers Funding LLC is a Delaware limited liability company formed for the purpose of acting as issuer of securitization bonds and assignee of property transferred by Consumers.
03	Consumers Receivables Funding II, LLC
	Consumers Receivables Funding II, LLC is a Delaware limited liability company that buys certain accounts receivable from Consumers Energy Company and sells them to a third party.
03	ES Services Company
	ES Services Company is a Michigan corporation formed for the purpose of offering design, engineering, project management and related services primarily to electric utilities and generation facilities.
03	Maxey Flats Site IRP, L.L.C. (1.71%)
	Maxey Flats Site IRP, L.L.C. is a Virginia limited liability company formed for the purpose of environmental remediation of a former low-level radioactive waste disposal site.

8

03	MEC Development Corp.
	MEC Development Corp. is a Michigan corporation that previously held assets transferred to, and was holder of certain bonds issued by, the Midland Cogeneration Venture Limited Partnership, a Michigan limited partnership.

9

02 Dearborn Industrial Energy, L.L.C.

Address:
One Energy Plaza
Jackson, Michigan 49201

03	Dearborn Industrial Generation, L.L.C.
	Dearborn Industrial Generation, L.L.C. is a Michigan limited liability company engaged in the operation of the Ford/Rouge Cogeneration Facility in Dearborn, Michigan,

10

EXHIBIT A

Subsidiaries of CMS International Ventures, L.L.C.

Address:
One Energy Plaza
Jackson, Michigan 49201

04	CMS Atacama Company
	CMS Atacama Company is a Cayman Island company which is inactive and in the process of dissolution.
04	CMS Electric & Gas, L.L.C.
	CMS Electric & Gas, L.L.C. is a Michigan limited liability company. CMS International Distribution LLC and CMS Electric and Gas Company merged in December 2002 to form CMS Electric & Gas, L.L.C.
05	CMS (Barbados), SRL
	CMS (Barbados), SRL is a Barbados entity which was formed for the purpose of Holding investments in Venezuela.
06	CMS Venezuela, S.A.
	CMS Venezuela, S.A. is a Venezuelan corporation formed to operate Sistema Electrico Nueva Esparta C.A. (SENECA).
06	ENELMAR S.A.
	ENELMAR S.A. is a Venezuelan corporation formed to CMS Electric & Gas, L.L.C.’s interests in the privatized electric system of the State of Nueva Esparta.
05	CMS Electric and Gas Sucursal (branch) Argentina-in process of closure
	CMS Electric and Gas Sucursal (branch) Argentina is an Argentine branch office of CMS Electric & Gas, L.L.C., which provided technical assistance in generation and distribution companies.
05	CMS Empreendimentos Ltda (99.99%)
	CMS Empreendimentos Ltda, a Brazilian corporation was established as CMS Electric & Gas, L.L.C.’s Rio office in Brazil.
05	CMS Participações e Negócios S/A (99.99%)
	CMS Participações e Negócios S/A, a Brazilian corporation formed to hold real estate in Brazil.

11

04	CMS Generation Jegurupadu I Limited Duration Company (99%)
	CMS Generation Jegurupadu I Limited Duration Company is a Cayman Islands company and one of the owners in the operating company which operates the GVK project, a 235-MW gas- and naphtha-fired independent power generating plant in Jegurupadu, Andhra Pradesh Province, India
05	Jegurupadu O&M Company Mauritius (50%)
	Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.
04	CMS Generation Jegurupadu II Limited Duration Company (99%)
	CMS Generation Jegurupadu II Limited Duration Company is a Cayman Islands company and one of the owners in the operating company which operates the GVK project, a 235-MW gas- and naphtha-fired independent power generating plant in Jegurupadu, Andhra Pradesh Province, India
05	Jegurupadu O&M Company Mauritius (50%)
	Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.
04	CMS Luxembourg S.A.R.L.
	CMS Luxembourg S.A.R.L. is a Luxembourg company which was formed in connection with the former Goldfields pipeline acquisition and is in the process of liquidation.
04	Jegurupadu CMS Generation Company Ltd., a Mauritius company is inactive and in the process of liquidation

12

EXHIBIT B

Subsidiaries of HYDRA-CO Enterprises, Inc.

Address:
One Energy Plaza
Jackson, Michigan 49201

04	CMS Exeter LLC
	CMS Exeter LLC is a Michigan limited liability company formed to facilitate the restructuring of Oxford/CMS Development Limited Partnership and Exeter Energy Limited Partnership for state tax planning purposes.
05	Exeter Energy Limited Partnership (2% GP)
05	Oxford/CMS Development Limited Partnership (1% GP)
04	CMS Generation Filer City, Inc.
	CMS Generation Filer City, Inc. is a Michigan corporation involved as a 50% General Partner in the T.E.S. Filer City Station Limited Partnership, a Michigan limited partnership that is the owner of the 54 megawatt (net) wood chip and coal-fired electric generating station in Filer City, Michigan.
05	T.E.S. Filer City Station Limited Partnership (50%)
04	CMS Generation Filer City Operating LLC
	CMS Generation Filer City Operating LLC is a Michigan limited liability company formed to operate a coal and waste wood-fueled power plant near Filer City, Michigan owned by the T.E.S. Filer City Station Limited Partnership.
04	CMS Generation Genesee Company
	CMS Generation Genesee Company is a Michigan corporation involved as a 1% General Partner in the Genesee Power Station Limited Partnership, a Delaware limited partnership, which owns and operates a 35-megawatt (net) waste wood-fired electric generating facility located in Genesee County, Michigan.
05	Genesee Power Station Limited Partnership (1%)
06	GPS Newco, L.L.C (50%)
	GPS Newco, L.L.C. is a Kansas limited liability company formed for the purpose of facilitation financing and/or restricting liabilities of CMS’ equity invested in Genesee Power Station Limited Partnership.

13

04	CMS Generation Grayling Company
	CMS Generation Grayling Company is a Michigan corporation involved as a General Partner in Grayling Generating Station Limited Partnership, a Michigan limited partnership, that owns a waste wood-fueled power plant in Grayling, Michigan. Grayling Generating Station Limited Partnership owns GGS Holdings Company, a Michigan corporation, which is a General Partner in AJD Forest Products Limited Partnership, a Michigan limited partnership, that operates a sawmill adjacent to the Grayling Generating Station and also supplies waste wood fuel to Grayling Generating Station. Grayling Generating Station Limited Partnership is a Limited Partner in AJD Forest Products Limited Partnership.
05	Grayling Generating Station Limited Partnership (1%)
06	AJD Forest Products Limited Partnership (49.5% LP)
06	GGS Holdings Company
	A Michigan corporation that owns a General Partner interest in AJD Forest Products Limited Partnership, a Michigan limited partnership.
07	AJD Forest Products Limited Partnership (.5% GP)
05	Grayling Partners Land Development, L.L.C. (1%)
	A Michigan limited liability company formed to acquire land near the Grayling facility for potential development of an ash disposal site.
04	CMS Generation Grayling Holdings Company
	CMS Generation Grayling Holdings Company is a Michigan corporation involved as a Limited Partner in Grayling Generating Station Limited Partnership, a Michigan limited partnership. Grayling Generating Station Limited Partnership owns GGS Holdings Company, a Michigan corporation that owns a General Partner interest in AJD Forest Products Limited Partnership, a Michigan limited partnership.
05	Grayling Generating Station Limited Partnership (49%)
06	AJD Forest Products Limited Partnership (49.5% LP)
06	GGS Holdings Company
	A Michigan corporation that owns a General Partner interest in AJD Forest Products Limited Partnership, a Michigan limited partnership.
07	AJD Forest Products Limited Partnership (.5% GP)

14

05	Grayling Partners Land Development, L.L.C. (49%)
	A Michigan limited liability company formed to acquire land near the Grayling facility for potential development of an ash disposal site.
04	CMS Generation Holdings Company
	CMS Generation Holdings Company is a Michigan corporation involved as a limited partner in various partnerships.
05	Genesee Power Station Limited Partnership (48.75%)
05	GPS Newco, L.L.C. (50%)
	GPS Newco, L.L.C. is a Kansas limited liability company formed for the purpose of facilitation financing and/or restricting liabilities of CMS’ equity invested in Genesee Power Station Limited Partnership.
06	Genesee Power Station Limited Partnership (.25%)
07	GPS Newco, L.L.C. (50%)
	GPS Newco, L.L.C. is a Kansas limited liability company formed for the purpose of facilitation financing and/or restricting liabilities of CMS’ equity invested in Genesee Power Station Limited Partnership.
04	CMS Generation Honey Lake Company
	CMS Generation Honey Lake Company is a Michigan corporation with a General Partnership interest and a Limited Partnership interest in H L Power Company, a California limited partnership that uses waste wood and geothermal fluid to generate a 30-megawatt (net) electric generating station in Lassan County, California. It is also involved as General Partner in Honey Lake Energy I LP, and Honey Lake Energy II LP, both Michigan limited partnerships formed to own limited partnership interests in H L Power Company.
05	Honey Lake Energy I L.P. (99%)
06	H L Power Company (18.65%)
05	Honey Lake Energy II L.P. (99%)
06	H L Power Company (18.65%)
05	H L Power Company (.5%)
04	CMS Generation Michigan Power L.L.C.
	CMS Generation Michigan Power L.L.C. is a Michigan limited liability company formed to own generating units which are to be sited in Michigan for the purpose of generating power during peak demand periods.

15

04	CMS Generation Operating Company II, Inc.
	CMS Generation Operating Company II, Inc. is a New York corporation formed to operate power plants, primarily in the United States.
05	HCO-Jamaica, Inc.
	HCO-Jamaica, Inc. is a New York corporation involved in the operation of a 60 MW Diesel project in Jamaica.
04	CMS Generation Operating LLC
	CMS Generation Operating LLC is a Michigan limited liability company involved in the operation of various power plants throughout the United States.
04	CMS Generation Recycling Company
	CMS Generation Recycling Company is a Michigan corporation that owns 50% of Mid-Michigan Recycling, L.C. Mid-Michigan Recycling, L.C. was created to be involved in supplying waste wood fuel for the Genesee Power Station Limited Partnership.
05	Mid-Michigan Recycling, L.C. (50%)
	Mid-Michigan Recycling, L.C. is a Michigan limited liability company involved in supplying waste wood fuel for the Genesee Power Station Limited Partnership.
04	CMS Palermo Energy Company
	A Nova Scotia corporation formed to be the limited partner in the Palermo Energy Limited Partnership-in process of liquidation.
05	Palermo Energy General Partner Ltd.
	A Nova Scotia limited liability company formed to be the general partner of the Palermo Energy Limited Partnership-in process of liquidation.
06	Palermo Energy Limited Partnership (.001%)
05	Palermo Energy Limited Partnership (99.999%)
04	CMS Prairie State LLC
	CMS Prairie State LLC is an Michigan limited liability company formed to hold a membership interest in an LLC which would hold an interest in the Prairie State mine mouth coal generation project.

16

04	Dearborn Generation Operating, L.L.C.
	Dearborn Generation Operating, L.L.C. is a Michigan limited liability company formed to operate the Ford/Rouge Project.
04	Exeter Energy Limited Partnership (50%)
04	Honey Lake I L.P. (1%)
05	H L Power Company (18.65%)
04	Honey Lake Energy II L.P. (1%)
05	H L Power Company (18.65%)
04	Craven County Wood Energy Limited Partnership (44.99%)
04	HCE-Biopower, Inc.
	HCE-Biopower, Inc. is a New York corporation formed to hold partnership interests in various power projects.
05	IPP Investment Partnership (51%)
06	Craven County Wood Energy Limited Partnership (.01%)
04	HCE-Jamaica Development, Inc.
	HCE-Jamaica Development, Inc. is a New York corporation formed to be involved in The development and operation of a 60 MW diesel project in Jamaica.
04	IPP Investment Partnership (49%)
05	Craven County Wood Energy Limited Partnership (.01%)
04	New Bern Energy Recovery, Inc.
	New Bern Energy Recovery, Inc. is a Delaware corporation formed to participate as a General partner in the Craven County Wood Energy limited partnership formed to construct, operate and own a wood-fired electric generating facility in Craven County, North Carolina.
05	Craven County Wood Energy Limited Partnership (5%)
04	Oxford/CMS Development Limited Partnership (99%)
05	Exeter Energy Limited Partnership (48%)
04	Servicios de Aguas de Chile CMS y Compania Limitada (99.992%)
	Servicios de Aguas de Chile CMS y Compania Limitada is a chilean corporation formed To hold marine concession (beach access and water extraction) for a desalination plant.

17

04	South India Natural Gas Marketing Company Private Limited is a company formed in India- in process of liquidation.
04	Sterling Wind LLC
	Sterling Wind LLC is a Delaware limited liability company formed to own wind power projects in Connecticut.
04	TN LNG & Power Company Private Limited is a company formed in India-in process of liquidation.

18

EX-23.(A)

Exhibit (23)(a)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-32229, 333-58686, 333-76347), S-3 (Nos. 333-125553, 333-52560, 333-27849, 333-74958, 333-45556, 333-37241), and S-4 (Nos. 33-60007, 33-55805) of CMS Energy Corporation of our report dated February 20, 2008 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 20, 2008

EX-23.(B)

Exhibit (23)(b)

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements and in the related Prospectuses of CMS Energy Corporation:

(1)	Registration Statements (Form S-3 No. 333-27849, No. 333-37241, No. 333-74958, No. 333-45556, No. 333-125553 and No. 333-52560) of CMS Energy Corporation;
(2)	Registration Statements (Form S-4 No. 33-60007 and No. 33-55805) of CMS Energy Corporation;
(3)	Registration Statements (Form S-8 No. 333-32229 and No. 333-58686) pertaining to the CMS Energy Corporation Performance Incentive Stock Plan and Executive Stock Option Plan, respectively, and
(4)	Registration Statement (Form S-8 No. 333-76347) pertaining to the Employee Savings and Incentive Plan of Consumers Energy Company;

of our report dated February 21, 2007 (except for “Discontinued Operations” in Note 2, as to which the date is February 20, 2008) with respect to the consolidated financial statements and schedules of CMS Energy Corporation for 2006 and 2005 included in this Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/Ernst & Young LLP  

Detroit, Michigan
February 20, 2008

EX-23.(C)

Exhibit (23)(c)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-32229, 333-58686, 333-76347), S-3 (Nos. 333-125553, 333-52560, 333-27849, 333-74958, 333-45556, 333-37241), and S-4 (Nos. 33-60007, 33-55805) of CMS Energy Corporation of our report dated February 19, 2007 relating to the financial statements of Midland Cogeneration Venture L.P., which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 20, 2008

EX-23.(D)

Exhibit (23)(d)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-32229, 333-58686, 333-76347), S-3 (Nos. 333-125553, 333-52560, 333-120611, 333-27849, 333-74958, 333-45556, 333-37241), and S-4 (Nos. 33-60007, 33-55805) of Consumers Energy Company of our report dated February 20, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 20, 2008

EX-23.(E)

Exhibit (23)(e)

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements of Consumers Energy Company:

(1)	Registration Statement (Form S-3 No. 333-120611) of Consumers Energy Company, and
(2)	Registration Statement (Form S-8 No. 333-76347) pertaining to the Employee Savings and Incentive Plan of Consumers Energy Company;

of our report dated February 21, 2007, with respect to the consolidated financial statements and schedule of Consumers Energy Company for 2006 and 2005 included in this Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/Ernst & Young LLP  

Detroit, Michigan
February 20, 2008

EX-23.(F)

Exhibit (23)(f)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-32229, 333-58686, 333-76347), S-3 (Nos. 333-125553, 333-52560, 333-120611, 333-27849, 333-74958, 333-45556, 333-37241), and S-4 (Nos. 33-60007, 33-55805) of Consumers Energy Company of our report dated February 19, 2007 relating to the financial statements of Midland Cogeneration Venture L.P., which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 20, 2008

EX-24.(A)

Exhibit 24(a)

January 24, 2008

Mr. Thomas J. Webb
Mr. James E. Brunner
Ms. Catherine M. Reynolds
CMS Energy Corporation
One Energy Plaza
Jackson, MI 49201-2276

CMS Energy Corporation is required to file an Annual Report on Form 10-K for the year ended December 31, 2007 with the Securities and Exchange Commission within 60 days after the end of the year.

We hereby make, constitute and appoint each of you our true and lawful attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission said Annual Report with any necessary exhibits, and any amendments thereto that may be required.

Very truly yours,

/s/ K. Whipple Kenneth Whipple	/s/ P. R. Lochner, Jr. Philip R. Lochner, Jr.
/s/ Merribel S. Ayres	/s/ M. T. Monahan
Merribel S. Ayres	Michael T. Monahan
/s/ Jon E. Barfield	/s/ Joseph F. Paquette, Jr.
Jon E. Barfield	Joseph F. Paquette, Jr.
/s/ Richard M. Gabrys	/s/ Percy A. Pierre
Richard M. Gabrys	Percy A. Pierre
/s/ D. W. Joos	/s/ K. L. Way
David W. Joos	Kenneth L. Way
/s/ John B. Yasinsky
John B. Yasinsky

EX-24.(B)

Exhibit 24(b)

January 24, 2008

Mr. James E. Brunner
Mr. Thomas J. Webb
Ms. Catherine M. Reynolds
Consumers Energy Company
One Energy Plaza
Jackson, MI 49201-2276

Consumers Energy Company is required to file an Annual Report on Form 10-K for the year ended December 31, 2007 with the Securities and Exchange Commission within 60 days after the end of the year.

We hereby make, constitute and appoint each of you our true and lawful attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission said Annual Report with any necessary exhibits, and any amendments thereto that may be required.

Very truly yours,

/s/ K. Whipple Kenneth Whipple	/s/ P. R. Lochner, Jr. Philip R. Lochner, Jr.
/s/ Merribel S. Ayres	/s/ M. T. Monahan
Merribel S. Ayres	Michael T. Monahan
/s/ Jon E. Barfield	/s/ Joseph F. Paquette, Jr.
Jon E. Barfield	Joseph F. Paquette, Jr.
/s/ Richard M. Gabrys	/s/ Percy A. Pierre
Richard M. Gabrys	Percy A. Pierre
/s/ D. W. Joos	/s/ K. L. Way
David W. Joos	Kenneth L. Way
/s/ John B. Yasinsky
John B. Yasinsky

EX-31.(A)

Exhibit (31)(a)

CERTIFICATION OF DAVID W. JOOS

I, David W. Joos, certify that:

1.	I have reviewed this annual report on Form 10-K of CMS Energy Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d—15(f)) for the registrant and have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 21, 2008	By:	/s/ David W. Joos
		David W. Joos
		President and Chief Executive Officer

EX-31.(B)

Exhibit (31)(b)

CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

1.	I have reviewed this annual report on Form 10-K of CMS Energy Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d—15(f)) for the registrant and have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 21, 2008	/s/ Thomas J. Webb
	By Thomas J. Webb
	Executive Vice President and Chief Financial Officer

EX-31.(C)

Exhibit (31)(c)

CERTIFICATION OF DAVID W. JOOS

I, David W. Joos, certify that:

1.	I have reviewed this annual report on Form 10-K of Consumers Energy Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d—15(f)) for the registrant and have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 21, 2008	By:	/s/ David W. Joos
		David W. Joos
		Chief Executive Officer

EX-31.(D)

Exhibit (31)(d)

CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

1.	I have reviewed this annual report on Form 10-K of Consumers Energy Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d—15(f)) for the registrant and have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 21, 2008	By /s/ Thomas J. Webb
	Thomas J. Webb
	Executive Vice President and Chief Financial Officer

EX-32.(A)

Exhibit (32)(a)

Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of CMS Energy Corporation (the “Company”) for the annual period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David W. Joos, as President and Chief Executive Officer of the Company, and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David W. Joos
Name:	David W. Joos
Title:	President and
	Chief Executive Officer
Date:	February 21, 2008

/s/ Thomas J. Webb
Name:	Thomas J. Webb
Title:	Executive Vice President and
	Chief Financial Officer
Date:	February 21, 2008

EX-32.(B)

Exhibit (32)(b)

Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Consumers Energy Company (the “Company”) for the annual period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David W. Joos, as Chief Executive Officer of the Company, and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David W. Joos
Name:	David W. Joos
Title:	Chief Executive Officer
Date:	February 21, 2008

/s/ Thomas J. Webb
Name:	Thomas J. Webb
Title:	Executive Vice President and
	Chief Financial Officer
Date:	February 21, 2008