Text

Forwards 1997 Consumers Energy Co Annual Rept, Including Certified Financial Statements
	ML20217E910
Person / Time
Site:	Palisades, Big Rock Point File:Consumers Energy icon.png
Issue date:	04/21/1998
From:	Haskell N; CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.)
To:	; NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
	NUDOCS 9804270459
	Download: ML20217E910 (2)
	v • d • e

Q A CMSEnergy Ownpany Pahsades Nuclear Plant Tel: 616 764 2276 27780 Blue Star Memonal Highway far 616 764 249C Covert. MI 49043 Director. Lkensing April 21,1998 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555 DOCKET 50-255 - LICENSE DPR BIG ROCK POINT DOCKET 50-255 - LICENSE QPR PALISADES PLANT 1997 CONSUMERS ENERGY COMPANY ANNUAL REPORT in accordance with the requirements of 10 CFR 50.71(b), attached is the 1997 Consumers Energy Company's annual financial report, including the certified financial statements.

SUMMARY

OF COMMITMENTS This letter contains no new commitrnents and no revisions to existing commitments.

A at an L. Haskell irector, Licensing CC Administrator, Region Ill, USNRC Palisades Project Manager, NRR, USNRC Big Rock Point Project Manager, NRR, USNRC NRC Resident inspector-Palisades NRC Resident inspector - Big Rock Point Attachment

\\ il i

'j2)

D k,J\\D k

9804270459 98o421 PDR ADOCK 05000155 I

PDR i

,o ;*

ATTACHMENT

)

CONSUMERS ENERGY COMPANY BIG ROCK POINT DOCKET 50-155 i

PALISADES PLANT i

DOCKET 50-255 l

1997 CONSUMERS ENERGY COMPANY ANNUAL REPORT

N 3

9 a#

.'t N

.f.

.. l

.I l

7, ' ' -

q

' $h.

N ffN

'l,_

"[ '

,' l

. m.-

.... _ ;. ~... '.N.,t.{.l.

_q

^ )

<g

~ _

.,.(

- g.

,[. ;

f" 1

. -. _..._ y. _ '.l '_..; ;.

_ j:.[ t -

3,q:.

~..

y-w'

_ g g..

.p..

~

f,',. I l- ^

^

.;.% ";,;.. :.,p%, ';, f:..Y "; *... j L:,..

,l y,:. f,,..

~

_..... ; f. *

..n j.

7 _ }

l.,p

' [.,.,. g.,g _ _. _, ' ' g ::.. _.

7.

. +.

t

i. 3 pa..

7.-

.;$.77.y.g7);

Lg.

~;;

c e

I..' ;.,Q::'

' }:);.

. ' ' -~

N.,. ;;.

?:.,

r,

'-)...'L

.:,.l_-

.. :n '.

. _,_.... ; l ;' :- ' ' \\ *,. /...;....,

.h ' l[

'[v; x

s., s _. #

.m.

v. J.. :L. L _ '

f.:,.;

. '['

3a ' * " l:. l' j._.

,u 3 t:;

s

.C[ -

., [.y j.

? :

l

.{}l.,

f.@

"f;,,

n I'

p;

}. l 9

.. ;f.,y b

....l',

W

%n:

k(tllm,w. :. ;.7.;.w

+ /

^ ' "

ps 4.;

.my a.,

l; fn. an;

.c.

w%

,. 7 _ > * ;;3 -

.c.

. 3,: ;;

f A f:l.,..

.k' c5 4

' ~c.. e c:

...:m ;g,.

...y; i.{.^ ;.' u. l n. ; Jb':

,.. s.#a.;.

. :) i Q.pQ. ;

.{.

y i

1 ~+.

,em

.s;+

.. m a.c; ;

, ;..c l. h1.;

(,1,

, 4'.trl

_..' (:

' l': Y 1 Cl': '

~;i 1

^ f, '

, i f' ' a '

..,s g

.~......g-a.

e x-s '-... :.,' ' p ;

O ".

~

l_**.',,...., :.)_'

' ] ll,,*.;, '.

^

.s f',

. :.P L

". ' ?,.. ; '

. * '- g - w.

r

.t, M-

. Y..

_.p,.. '

3

,'..c. "....

f."

n.. _-. M.. ~'-

.. ~;

< s.

ft

~

.. / - J. '. :. '

e,

)

i.

,.8 e

- j.

'l

',k ' ;,,_

g. g..,. s.c......,.y

_,J'..

~ '

l.

(

I:'. "l f.'

.l,.

.... '. ) '

_'., }lq.,.

['

~.

....z.

f W:

... l

['..ar & rek :' ;

- ::4 ',.:,. l h..,.'

',,,',.',,,..T.._l.'

E,' ', ; ?,/g's o. : -. ;, jv',7,',p,1..

,,p.,

- '..'..',Ct%,.l i,l '.,.' % L'l

n.

.- a.'

.,'.".'._.r

.,'.4. )p,, c,,.e' y:

I

,t q:

,',.1

t_".'.".,.*4

~.. p.G. 4. 5.+ e?,t s-m,."..-l',',

x g

a..

3, s.:

e

.,i.,

>.'..~..i'.'-

.s.

"3 3

4 1,

.',.-c,.., e :9'....

..? ;,;.,: *:.'.-

.J

,*%;v w y:,.

'n,

.. * '. g-a,.

?-

....n

.a.....',n:._..',-y

'\\..,'A

.c.

'y.. y r I:4,), e..,-

p '. ' ; p

,.. : ' '; ',.* *. : t [" *..., * - y,,;. l *p..J: ;

t s,

}-

v p,

,Q..':\\.

4. ;,,f. :,.G,;,y, ; h.,'_..

g...

e C. -

.,ya..

'. ',+ i. y u l, i_.< ',

, ' ' ". '.l.. ; _ ~ - L,

;'. i, :;-

r

'a:.-..'_, ~ -. :,.,~.',.'L.-..,./..;m 0',.....

9 u.s. - %..... :. a.,-

A

-t.:

^e\\,_',....~...',:'

r,

, m;

- g,;. :......,,.

. - :.s

.,.. A r4~..

L. M' b,' f'.' { D ' ' w;;* Q(;;,; ' .. & yy '_(,]n;* *, '.'s b' '.l f..*?'b:,). : s " :... <, l.?!.^'v lV.

e,

. ;a

. l l3 ' ' e. M'. ':. '..

.. :.. rs u.

,h N,:.,.. ' ' '. '

b - ' l,

W'...

,, '. ' jk 'l.

,j *

' '.; 'll ' $..

';) S. > t.'.'.':

^

. h );1' L ',

'.+

a :: 4,.'

..,. l?, " 5;

r!&;$

a &v.. f.. &.::::F;'M g_s;_ ' h) U: ' ' ;;'. - * :.. b.; ? :M::s. N.

Y, v -

G. ;,; '., ::

^

?: '~. A f.,lGn:,.s.

. l.. '. :..

?.'e

, ? y' ^,: jr.c... '.

,... i ', ], : a t ' ~n: I, ' s :. 7.'; '... n.d _:, ;.l l,, *;,'

?

q' _ '

h,

', -l :

q,

,.',.'I.

-....O..),. '.s.:.'Q~.: '::: ';'.',

e,.,j..

L; ' '

-~,.h_-'.v.'. '. * -

l L' a...,j' ;.. C - [ * ~ ;' / ] ;. '.' - '

'_.,,.'v..-i.,

. M.. ".:-*

s.',i.. A.%'1

' i y: :: - : '

,1 l.,

..c-

. j., ],., L.

.c.t, :

1 t

8

' :o :. n. :

'p}

y.

-,.; '...,., ~ <....

1 ;,., ry

.

y '

?,.,.y'.g...'

.c, 5. j,, s.

,,..g

..a'.g..

,-.,, j,, d.. ' y ',, ' '... *

.%'..'.*.',.l,

..,(, a ".s

.....a{,

9 g*

.' { <. ', ' *=.. g ;,... # - *,n;'y, w

'{..'..',..i,t.'

, 3. y. *:,.

a.

-' q [ 4 ' i,',. '.',

0, t '. '

,S,,

L:

. ' l]. '

(

t.

A, g

c.

,,. r.., 7 c.,.

,r

. ',., _..,.,',,i,_....,.,....,

?

..qg.

'..p,...,,,, - 7 4,,...

,:..e_._'.

,..n.at.,'.

+

e aa.

s r - :

c

.... g.

f.

I 11

. ;.,... '. : :.,..'.,..'. ::...% ;. <p l.,.V *...: V...*;... ij,.,.

.., '(y

,.;.8

,-.,h,.

s.*..-., :

e,

,<t,

-i..

.s.,

.;;, t.,

l,

.,,..,il.': l. ? ' '........_ ; ;.9.. ' :'f.. :,. g

~...,...

,. ;.,Q L :% ! '

.m.

d u., [ ',

..1,

.i

.3. 7. : '.:_,.,...

.l.

_;. c...,, z. !,, i, y :..;

,y.. :. _..

, _ ; _.,.,;...g;.,._..,.. -

,g,.

.t..

y

.,.4.._,,7 g

v... :.

[

i r.,.

~

.. f '.,.

,q

..,..,,. q,

.,,,..... - g,

't

}-

l '

.p 1.

r-*,:

.c, a *:..

v,..

v.

N.,

' - ; [}.

,.5-

.r.

n.,

.. y, Y u,-

t.

c.

.l.. ~

1 -

.. ~,.:

.e

r. - ', ' :,;.

,.:,_, - - > g

., ;; ;,. *....J..

A,;,,,..+.,

e.,

=,, ".il,'s

. C y ' *.. ;' y.. Q [:,.. ' s i.L,,, ',

, _' f.Q : '.y ?;; y %

v...

~.

.;.b.'.'.

, ': CT -y,;; '. /. u.. l,_. _....

l[., y..n; [,;

'-Q,_.,-.,},d'.,..._

'.~

. '. :+. c :..,, ', a. : -

,' ; i-l*

-l...,..

n,.

.i

.L".,....i,.,,..

h.

~

l,.

: . ' e, v.

. f..; Y..r,,..s

(

. ~..... '... '....C. :., -,. '. ' '. ' -

c...

c

,,.s,.-.: -. '...:

,.?..

'o.

r-

. - ' t [.'

} '

. i.

5

- Y.... "l,

.a s

1.

,.a,-

s '

.y

_'l, :",. ;,.

I, j

.}'

f:

.g.,,.,..,.4.,.

.....:.. vq c

q o.,.-

y.....,,.-,

'I

.l' '.'

lf..j,, - r\\.i

,s......,.. :

. ;j :,,

.. -...,,..,, ;.,.,7

f. ;,,

f-

'i

(

l,..' -

,[.*.'

" '... \\p

.l l ;.. ' '.

' 7 4. :' ) *i n. *..

' ' ' '. ; d. ::

_ ]

,7 p ". l. - -' ' 'f.

- " " -;. k..

1.3

.cc,

. t.., '

)

lt..

,.-t

.a..

.v.

.." ;1, o ~ ;-... "... 3..

9.. -

T.

.s

a h.

k

/

s :... j.. ' ' '.

U. C.\\. ' '.

.\\

, t ;'. ;

.**'.I: ',-

}'.

i".','..../.i'/.:

'd.','.

'."';.{M: '. -

' l, '. : :

-. -: ' 't.

v^ ': '-:

.h. Y. ;;,'

rc,..:..j g,,.- e

.g...,

...s.,r...

1,... - - ; :..:, rc

,.c

>-.,,.,.,...j.

., c.

3. <

.,, f. '

N :. r. I:. f ' _ ; j.?:. _. '. '! 'Y '

':f _.f. ' Y V)g 'd'l".:f- ), {' (.d y '.'.:.;. ; ;, ;... 1 ". ;,,

J,.. W '. s)..

} ll, f.,'.?._f

?' N L-

? Y,;

3'~.

l W.

l;. 4 - l \\.v;.

.;.l,. f' l._ ;7, ll.l' :

'.'. T 1, i. Y. :~ ' \\ ': l'{. ( ' ',. " :,.. / ;,. % '..

...,..',,.".;;*.'g

.,. S.' '. 9, s., l. ' ' J.. l' w

,V i

n

. J.l 1':...\\*?:t: - (. <

. n q_. : l,,.y.';... :

..,., -l y.p.

t s c.

. y.

,,, $,. ': :::.Q' m} :., p

.z'.&,J:. Qa

_y* c::,, >; f. f p.::..:.u.; s., g. '[.M ' y *: : L. * *.. -*

v_. ; ;,' e.' ; ;j :, D,,

e,

. c.w &y(,f:p:4.I;w;... ~..y W /;.,

' ;.&p.

v

, ' ' w).N a [x ] ;. "; _." 4 fy ;.W..,_.'m, [

,.a

,, ;R r'

c ;.9

\\',., -

,4

n. u. ;.

Qn. ;..,;, i '

.? ',: :

v.

[.

s p.,

o m

.'..b. t,.l.;. s <.

~i....

..-".1....

, G y,-

n..g,

-.;.y. gn h, <.,

.C.,..:

0

m 1 ;,. :

f. @um. p,(. u.

4.,. 4.. sv :.

t : y....,. :.. : ~ r.v,, : vip. n r:.'

.)

, s?^.='J.

,'..,.f:'c

.;. Y r..., T. L. i ::c,"r -

,? '., :.. L : *: ;b ' L'L N: } f.. : '1.Y l':.'. ' * :': h '.. '..e. tl - JI.....,..

.1

.'.... '.... :a, ;.

s.:...< ?ll *...

Y.

s.!

f.

... v.. '......-..,

.,, ' l.. c,

-a',* [c ' ; ;. -

s 1.

,e

...c

....;,(. 9,y. :r,,, _.,.. }, ?..s,.,_.'.;~

r.,

'.. - -.... ',. *?;. o '. o.

..n.....

.. j.,vf......,,, p, [.<. J c.

.m c _,

y..

;...;y. ; ;'. ' "... r : _, _ m..l.e ;,.;j..,:

G.,..,,p s./...!

- :,. :. (.. '..; ;,

- ac*:..

Y s.

..- -.. l r,'. ::- - *.

...t

,.,.)

.s-,.

....' a -"*..

. s',:,

la..,.,3.,...,.*i. v ~; /-

n'. :

.'s:.

.s-

. ' ',,'n,..

...,.!,.. ',.,.., ',,,....*..t '.:: ;' :'.,i., * '., '

a'

...\\,.

...': i*N.. '. '

.,.. J.'.. a; : ^. "

?.

..t

4..' g',..bi.l

,'.'..j q 9 ;..,.;,,. ',..,.' c'. z

,e n

,-,.t.,.s l;-

. r

t

.n :.',.", ' -+.

e..

,n e...

v

.c.

. 3 y,, #

a

,....,, ~, -g...

.'..;'..y..,.I.',..'

.j

' ;'.. A:q',', '.. -

n;,..,.,g; g.-..

._e......

,.r,

...,.,.j, ;;.,;;j. ;...

,'e. :

, lg J. f " ',

p

,,,,,,,,,,. j '1,,.5.

i...._'. = '.

.p -

.:.,..'.-,. =

p. i. ;...

V.

t.

Aq..,;.. : ' u'.u ~,,,, y

}.t,

...e e- - -

.. :,,, -...' k v. 7,.,-

e,.c'. ;.

.. ' ';; n!. -.;- -, ' :. ".

^..,

n

. (

' ; :. ]. :.,..,.'. q

( " l l.i..

-.,f ' :., _..,,.... ;,.. ;

. :.,., v.;

. :.. ~,..,a.......,..,,..;

., r,*.,

1

.m

? ? *,..

' '.' I ';.

~

g y._ Y, :, l '.. '

,...f,..'..r0. _ ;.

ll, -.l. ! l :".. \\. ?, ;.; ' ] ',',, '

.,-,.. '..-. c.' -. -. ;

. ;,,.,c..

r: t....,\\ll '. ' '.

^

(,.,.

i'.

f.

w"..,..).,..'..,s.,.-.n'

...,sl'"'...j,..... g'.

7,;... '...,

.*a,

.v.

.o

-.~ v

,.,.-.s

.t....s

.:,..y...s.

l

? ;;

~.3,...

~,

..,f.,.,.

m.Q... :.,.:- ' -.. '.. ',

?'..,..'.

7. ' '

,ly,'

.,'c...'b','.,'........ _,

.e n

s.

l

. b.

,. ' -gi,'.,.',f

_ t

..r,- 1.h

.. f c,. ' %,

,[.. ' '

.. /, c ', '.

,1.,

'^

. _ [ ' ';* ( '.)

y.

.c.n....

; f.. ~ a j;..,

i i -.

.n,; a

a.: ;.....q.,a c.; h: 3..m :..y.. :. : :.,;. a...q: C n..v. :.w. ;r,..c..., '..,.,

w

,. v a p: ;.. r.

a, p.

.n..

e.

......,..,,aV...

x ;.,. n '., :._. _;. ;,, :,; :.'.r v i...,0,

-.....~;...,',.3..'e......,,.

't

.,z;

+. ; :...

. +... ;,:..

n...

.,n n... y:..

.'f y.,.:,.: y -,

. 3. d.

,.:n.

e,

y..... '.,.

s i..

'l

..,.','.'S."($.t,J,,.,

. f '.h,.,,;., *,,. "

...?...,.'

',', ' ; - l

,,...1 M. 2: - (Jc

,;'.,',n.,,x,v' c -,..

".,'I,

^

' l,,,, :,...."....l,.'*

I,

..'...,..s.'.:

..i-

..,,,,,.,. c,..

h,,

... ;...c. 9.,

..., 9. l..r g,../.-..

9...

p., m -

y,....

,v. r *W ; 9:;.. ' '. '. p.,...Q:..

..... n ;. ;.....; ' : : : ;;'.. '.., ;. u.... ' 'n ; l. + 4:.;.;r

,e v.

. :... p, _ ',;,.

(,:;'

a-

- '.. t:

.'.'.t...,.v.....;.,.,; ;,,.

q;, l.

';+

A,<.

3,. :+, ;. 7.... s...,'....

.,1,.

.... -,,.e.,, _..a.,.,.... ;q:

j, ; ::

e. :.,.;(,;.',.,

A'..

i

,}..}.,7

..,,,,. q

..,.,7.....

.,y,.,,,

37.,,

i; '

,g..

].',

\\.

l p

) (

, ;W'

'y

( ;b,. ',, '., '... '

S

],..

e,

.., ( [.,. '*. '

Q,.,,g.;gy.y3 : y g., ;.,~ ;.,,'.y [.y..'s.,,\\ q,.,,.;.7;f

.,;. (. :',.. 3 yy;g. :

t g.

y :.: m ";.;. ;,3_- [

.. ; ;.. y, 3. },

a

W i4

n l

L.,,. $.* !.

,..i

y

,w g,

4

)

+.c g

's

':M%.,v.,

y-

~ - - -

\\

t.

\\

f s

v ly

-[,

6-n'

,! y p

./. :s 1 v

ri h

o s-yg s

l 0

w 2

.n.

~

a h;m

, a g*.

. g -l 5

g ';

g gt

(.'[' ';;

[

t.#*

,k..

I^'.

I.

h Y

s#

p y.,

s p#

.g y

g1 g:

p", p.

s e'.

n.i

". p...,.

(.

e 0

3.

t e

m,

.'4 h

j 4

i '}.,,'+ls'.

4 T'

t.

- -g.

4 -

,7. _.~f,p

.,b Y

+

. >, =

.d/4

. 3 J

['

,)

h'r,'; p;f o 'i ^lf'.t' yle.. l p?.. '

g 7 w,.

c r

i

",. :t.,3. ;..

i.r.. c 3

>7 f.e

..i

m. ; 7 yr; c-

~~'

6.,, fp - Ay,.9<

if,;.

y A

4....

,j..'"

,, f

ys&, p,Nn, y

o

'.y

~ ~, n.

t u,.., e.a,.. o.- -.

y.

b 5g, Y-f,,',

4 M..

t p;.:

n, i

8 f

,h.I' '

',l' 9-p g.

g g

.4

~

n^

a c..+ a%

u

I.

M"s

^ ? lc, 's,.

pe#,

s

'y

.y eso n,.

g - ' En%,ae

' *M[

i 4

J

.'(i,4 Q

4 e

e-.

[

"hg e g

wpw, me -

ygggggg[ yy~- [.g g,q. y g

._y,

i,-. :..:...

Q

[.. '

.,.r..s.

s,~

.......a lv'~'-

1.

pg7,73 7;3:p n g.7:q p' :w+

gg

,, e

~

y$ D Wiggsfl W M M

' " ~geq# qm 3gj q g$g_g 6M

.s 7g..

w.

,l l[L[ '

l

i. -

l.- 1 ~; Y

' ;,.; [. [ ;

.L'.',.

L: - J: :.Q, -

(

.7+

s-c,g y*+(

4 O M Q

} ( }JlJ'-

%.%%l

..,, +,;..,..

8,, -

d.5 4 M.,

W W W..tagygsul,mh.uhausas,se n.o 1 1 A -

b

~

' +

M7 * '3,W $ fluf 5 0 e gnu m b H ube8 7 M f i. ei ~ R Q' Mi

' *-. r;

........,.c',,'

1, c "y' t *.

- /

ir,-

1'

t p'I. O...'.*.-

J.

e g.

9.

.., 4....

k M[.MMM((

. --ggs a

fy

] f71 f ]f

( ( ? o, j

+

f f L iE LU (i ~ M Di t R

E.

2

-.J1>

Wahsweenpanhempapet QM[ J ;

2 -

7.c :

33

>. 3.

/.l =a

.RM...

s

. j, J

9 u. m.: :.

my:.g.1 c. y:., nw. ;u.. ; -

+..

w

,v

.c. ;, 4.n

w.,.

. ; s.. -

r...

z

."'s,

, ( t,,.

. /-

' ~,

.,g

...y*,

s 7

6

e....

, Q

' '. ;l lj

, ;,.,,.. ~. ~ ':

.,..d,

,']'.-

' N,*i',

3

+

m

'^

E y-

.f.** ' ' ' ". : ' %- \\ ' j,, ' * 'G

,.f-

( J,a 5...'.

.,.(('

[ '

4'

'l'

.'?

_- L.... ;..

.,d,

^ c, fl,j' b

-i

:, : _,' o

,..,,...e;,..

,,, j,.

s p~.;. #..'0.;,,..s..;.h..(t.,'.... ;,../,.,.~:t,, '.

s

' j' :;

,,s r..

] (,'

,*'py.-.

-.l

.,,s..

"=f,.g.,3 k88 '

,a

.,e-

=,

[j j f f;g g +

_,,8-g

,_d#

%*+'

q, e

y.,

,Y d

x,

+8

.... ' **(

g,

., 9

^

4v...n

.... :..,;...-, -.-, a

- \\.., x.w p[

~

S r.

, I *.. -,, -

~.. ' ". v. '

~

(....

3

~

,x

.a n..;....

l-'

,,an.,

, /

y

.. + --

+..

~

.. /. %;4,( ',

+,

'2 J; ' ;'

e

.1

t.

s

.,y g

~ ; _ s./".

1,

p y. 7, W,.,y.,.fy,

_ q.'

s

.t *g g 4'n. -

/

f c

r

-e-

.'.r..

s e4

-,m e

i,:.'.... -..-

...p v ;..

s

.. * +

,y,

.).

J'

); '. ' '.. '...,.. _ '

.l..

c.*

LP

'.Y&

y

7. ;.J =

4 W5Be DIE.4i m a

(

. c :.. :...

w. w.;2.

m.:.s n

W~ h7.55 b,

$$h f

h p

4 FinancialHighlights 3

+

)

in Afdhems ExcepsasNosed Percent December 31 1997 1996 Change Revenue Electric utility

$2,515 52,446 2.8 Gas utility 1,204 1,282 (6.1)

Independent power production <ai 700 542 29.2 Oil and gas exploration and production""

168 153 9.8 I

Natural ga: transmission, storage and processing =>

143 92 55.4 Marketing, services and trading >

892 258 245.7 International energy distribution <a' 41 23 78.3 Other 9

13 (30.8)

Total'"'#

55,672

$4,809 17.9 Consolidated revenue 54,787

$4,333 10.5 r

Consolidated net income 5 268 5 240 11.7 Return on equity (percent) 14.6 15.2 (3.9)

Per common share Net income-basic

$ 2.63

$ 2.45 7.3 Net income - diluted S 2.61 5 2.44 7.0 Dividends declared S 1.14 5 1.02 11.8 Book value S t H.73 517.00 10.2 Market value (year end) 544.06 533.63 31.0 takincludes Chis Enegrk sharr ufumenwtulawd unwnw (b)Behnv snwotvmpany rismunatums Prelax OperatingIncome Ahlhons ofIAdlars EJoctric MNty Gas UtlNty Indeper M Oiland Gas NaturalGas Operations OperaNans Power Production Exploration and Transmission, Production Storage and Processing 412 156 158 33 15) 372 3,

26 ou 30 1

12 N N 01 N N 91 N N 01 N H 07 N 06 07 f

6 LeHer to Shareholders CMS Energyis the oniy major utility to out-he year 199. was another excel-perform the S&P 500 on

_L lent one for CMS Energy, both totalreturn during the in terms ofearnings performance and business growth.

last five years.

Net income increased 12 percent to $268 million and earnings per share grew by 7 percent to $2.63, despite adverse weather that affected the company's utility earnings. Earnings growth was propelled by a strong 32 percent increase in operating income from international operations.

As a result of the company's continued strong performance, the CMS Energy common dividend was increased by 11 percent-the fifth consecutive year ofdouble-digit Rught Nmam E NcCormick Jr, cw"reemo mereases.

'de's4TA[I"'

The market continued to recognize CMS Energy's superior performance, with the price of the company's stock increasing 31 percent during the year.

Total shareholder return, including dividends, reached 35 percent in 1997.

Over the past five years (1992 through 1997), CMS Energy's growth 2

s 6-Font ConseNdated A'arket Prke Dividende b

Tots!Ceturn AletIncome

!\\nr Share 9lnr Share 1% em Mellwm ofIMlars kor l'nd 181 5 268 44 / a 51.14 i

151 4 lIlWe.

2D4 335..

r o.lusn as u u n a a a a a n in stock price and its total return have and more than S5 billion ofprojects been more than twice any of the peer-under development.

group utility indexes and, significantly, In 1997 alone, CMS Energy, along CMS Energy's total return has sub-with its partners:

stantially outperformed the S&P 500.

Purchased the 2,000 megawatt Loy In fact, CMS Energy is the only major Yang generating plant and coal mine utility to outperform the S&P 500 on from the government ofAustralia's total return during the five-year period.

State ofVictoria. At S3.7 billion, it InternationalActivities energy facility in the world.

The growth that CMS Energy has Completed the purchase of the Jorf experienced has been the result of Lasfar electric generating plant in aggressive international m. vestments.

Morocco, and began a major expan-Assets of our international busin esses sion which will double its size to have grown to about S3.5 billion of 1,360 megawatts.

the company's S10 billion total.

Advanced new generating plants in CMS Energy now has operatmg assets Argentina, India and Jamaica from

.in 17 countries on five continents, with construction into operation, sigmficant additional development Began construction of the S750 mil-activities m these and several addi-lion Atacama pipeline and power tional countnes.

project that willlink Argentina CMS Energy has become one of the and Chile, world's leading energy infrastructure Acquired two electric distribution companies, with the largest indepen-systems in Brazil, serving over dent power plants on three continents, 600,000 customers.

pipeline projects on four continents

The company is helping bring competition to the utility industry in a manner that protects the interests of both customers andshareholders.

Was awarded the concession to Domestic Utility Operations & Deregulation in the United States, our Consumers own and operate a major Turkish electric system.

Energy electric and natural gas utilities And already in early 1998, continued to perform at record levels.

CMS Energy:

At the electric utility, a number of

Has amounced a major project in important production milestones, includ-Ghana to partner with the govern.

ing the second-best fossil plant ment to privatize and expand a availability and highest-ever nuclear pro-300 megawatt power plant currently duction, were achieved along with a new under construction, as well as con.

high for electric service installations. At struct an associated pipeline, the same time, electric and gas utility lias agreed with its partners to employees turned in the best safety a

construct, beginning this year, a record in the history of the company, 5300 million methanol project in again winning the National Safety Equatorial Guinea to utilize existing Council first-place award.

natural gas that would otherwise be The Big Rock nuclear plant was suc-flared to the environment.

cessfully retired in August after 35

Has become a 50 percent partner in years as a pioneer in America's nuclear a second power project (200 mega.

industry.The plant was the nation's watts) now under construction first commercial boiling water reactor in India.

and, at retirement, was the longest-These projects, as well as a number operating nuclear plant in the United of others under development, suggest States. During the next five years, a that 1998 will be another year of decommissioning team will work to remarkable development and growth.

restore the plant site to its natural state.

Equally important, however, were the company's efforts to help restruc-ture Michigan's utility industry so that 4

it is fully competitive. Michigan utility 300,000-20 percent-of our customers regulators in 1997 issued a series of will be able to choose their own natural very constructive orders that propose gas supplier. Consumers Energy will a framework for phasing in electric continue to deliver the gas through its customer choice over four years.

distribution system.

Importantly, the plan protects share-Summary holderinterests by permitting full We are proud of our m. dustry leadership recovery of m. vestments in generatmg

.in the United States and around the world, plants and other facilities that might and we are proud of our 10,000 employ-otherwise be stranded by deregulation.

ees who have produced our success. We Our regulators have shown sound extend our thanks for their innovation and judgment in forging these plans.

a Consumers Energy also is support-We are also grateful to our numerous ing a package of electric restructuring customers, partners, host governments legislation that is being considered by and valued suppliers for their support the Michigan Legislature. This legis-and loyalty, lation would complement and codify Finally, we thank our Board of regulators' proposals, and would per-Directors and, especially, Lois Lund, manently protect the delicate balance who retired as Director during 1997, for of shareholder and customer interests.

the.ir wise counsel and strong support.

Meanwhile, customer choice for natural gas customers is accelerating.

In December 1997, Michigan regula-Ars T%t~ 19 tors gave Consumers Energy approval to begin one of the country's largest, William T. McCormick Jr.

most far-reaching experiments with Chainnan andChiefExecutive Oficer customer choice. The program will be March 11,1998 phased in over three years. At its peak, 5

Gas Utility Independent Power Production conneen operatino aman seneranno capacity oversuno man-n Bdiumn of Cuhu feet Atollume ut skallan

%t %Irpomutts hidiums ofikdlan 44N I.2K2 3M2 74 0

,g 3,3 w j

}l I

i,y i.m N-l

.,1 um.m a s,ta.

Fifth-largest gas distribution company in U.S.

Fourth-largest U.S. des cloper and operator ofindependent power projects around the world

1.5 million gas customers

130 billion cubic feet of working gas storage, among the e lias interests in 34 operating plants totaling 7,400 largei,t in the U.S.

gross megaw atts

Michigan's largest gas utility in customers and geographic area

2,900 gross megawans under des elopment and in construction

More than 25,000 miles of intrastate pipelines Pros ides natural gas and related energy services to 44 counties Provides project management, des elopment, engineering, in Michigan's Lower peninsula insestment capital, management and operating services for independent power

Deliscred 420 bilhon cubic feet of gas

Added five plants to its portfolio e Added nearly 29,000 new customers

Hegan 700 megawatt expansion of Jorf Lasfar ( Morocco) plant

Charged lowest gas costs in Michigan

Hegan construction of 710 megawatt Atacama(Chile)

Launched two major value-added services power project

Acquired power plants in Australia and India e implement pilot program that gives customers choice of supphers

Commercial contracting of plant capacity in Austraha,

Increase gas throughput by extending gas main into fastest-Argentina and Chile growing regions

Complete acquisition and start construction in Ghana, Indonesia, Indir., Brazil and Thailand

Expand value-added sen ices

Continue improving operating etliciencies

\\

m ovefrom u

~.

bitDo frekt offshwe of

* ^

7 GX4)0. 86agt!S 13.250 turrets of or)per day A seo corttatned Ship Bnctloled at the

$lfVpfXeWS the ori g-

' N tdore ott'km$ng for tranotufatw W f' l

~

market.

S.. ~

~

m w,nt,rm. ewarees put the(Wty coristictent YWLa nata gewating plant onto ogwatron on 1997.

-~

Electric Utility arv or,anrtus srnrosroes natwo.,,1 naaman s.,,n wiums a thalan 37 h

IM g

2 446 lllIll u u er u a er CMS Energyprovides a complete range musinese etscairriou ofinternationalenergy expertise,

""'*h'8"""""*""*"""r*"""

= 1.6 milhon electric customers including:

About 7,200 megawatts of gross generating capacity a About 67,000 miles of transmission and

Distribution of electricity and natural di>tribution lines gas to the homes andbusinesses of eraaatrs 4 million Customers.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,ci,,,,,,,,,s,,,,,,,,

m Michigan's Lower Peninsula e Building and operating electric gener-ating plants and transmission lines, including 14,600pross megawatts of

. Sold 38 billion kilowatt-hours of electricity existing generating capacity.

j

"""'"*"'")

,, l(9

,n,,

n seconttbest eser

Exploration, development andproduc-

. p,,i,,a,,,uc,,,, p,,,,,,, p,,auc,,,,,,,,a tion of oil and natural gas, including

Retired Ilig Rock, the nation's longest-operatmg nuclear plant (barrels of oil equivalent) 11.4 million barrelsproduction and 152 million rinalize and implement electric industry restructuring that gis es customers choice of suppliers barre /S of reserves.

. Implement generating cost impros ements

' ~ ~

Experience with all fuel types: coal, oil, natural gas, hydroelectric, nuclear and waste.

Complete fuelhandling, including processing, storage and building and Jperatingpipelines, with nearly 30,000 miles of transmission, gather-ing anddistribution pipelines.

Providing energy marketing, services and trading, including sales of 243 bil-lion cubic feetofnaturalgas and 900,000 megawatt-hours of electricity.

&Rf *. LM; &% "M [.' %...:,.

g, V

,.. ? lj.:V:. f. :]?.?.W" C.- K ".

W_,_ '- -]

f y ']'.1 [.

Q.Q?.j m.;

E # L 1 'l O D'

fp g 7h 4[

j.

. $:.\\ '

.a b..

~

- ^AUiOYYY$

<u$.$.lcl;;.l:$j.. : ;.

.t.,

-. x.

.. v.. :- :.....

' 'I i

'l

.. 1 b;. ; :n v.4 s,a ~ :p ;. :. ~;,;.

F. F. :'.' ; c :

,. '.'. f:&,f+a,.' f.s:[. $ *,J.;l.: ? A l,'lll '. N ;-Qn'...

..'.?

'. - -..7;

.s ~

a v.w:mxw.

....;..:. n.... ; :-:..-.:;.. v. ; ::...

c.

i

. '..,i.. t.

f,; ~ N. f {...

..,.....,9w f.

a-

v.

~

. / ~. [

].

m v.

.. ~

l'k f ' :.

?

Q.f g hh

+. -

g

\\

.i

..u.a..:.. -.

t-

.y.,

3 3. <.

v

.t

.a

.. :C...,r

.... s,

....? C.. f...m..,.."...

.L s,

.r r

T.Qj_: u.w%....f

..e.

. L...

.g.

.. f 1,

~, - ~

. '. ' :- '....^*I 1

_;L.

'l.

~~ *~ *

.e

_ 7..' ' y %.sy.

y!,r 7.j ; F..::./. 3.;.

~ ' ^

.,;.x -,..

3. 7...;.7 yv...l......

+.

.J T

. o.. $.,,

.3. b. _,l ;... ;.. (.. T ' ;

~. :s -...

j.

', !... ;)7[. ~,.... ;. '

j ; p..

e

,,?.

-: :.:-._ ! ".....;.,.--O

.. q T;.,

s

+,

a

.s..

v.,

.;y

_.,.':..[.[.. (.. ~.,f. y.

r

-,; a p-

,,'...3-

._g.,

,,:.~

.8 :.:.

_._._,.e 7 / l - l ': - ^ I', f

'1

. ' :g _

v,

.v

-.; : ' <..y

,.' " ~, -

n.. i. : ::

.s :c. ~. -

s, v-a

...h.r.

q 4. :..:.. n.~.,.,. z.

7.

r

'; _.y, 1

~. [.:l;.~;'.. Q ; ~ 7.. [.

...;. g -

",a

.a

? m....

a 3.t 7

5..

i

e.

9

: ~..,A -[ ;fl. :

. : j... :

s. ;... s;i _.,[

2l

.K

~.

c" -

,'J.

j 8

.n......

l,

. \\ -.[(..

y e

1 12

..N

._.c.

p.

...... c, r,,.-..-;-

s

.q g

'J.

'l

'S j.

.m

' -' ' y j,7.f.[. l.,

f,.'..

n.,,,,-

.. -.; g.. y 7. 7 : ;.. :.

ww y..

y-

'M..., e

_ y..

~

'.'Og

,g-

+gj

..+

+f, p'. 9 ' ', "'. $,.. :..,

(-.' g

'~*. '

. n. ;$s,o..'s.....',G, :,.y.E,- ).D...,.,.,4 f.' '..,.3

..i.

r

.u-mi

. 7 J f. +..;s.--

w:.\\w v.....

' f:$h;,&.. '. l g.,; :. * ' m

. ; v

: :. ; c :w.c.. _... : ;

' &' ; y " -.

^' ~

N'

. A WS

,;i L

... 'i ;

I,'. ! = O.. : '. '...........

...c.

s.

..i

.,..,a. c

~v.>

i -

\\. L x...

..^.......................

~

,,. n... :,.';. w:: ; -.. : ' ;O

~'

.:...;T...

c'.:

'. : L. '. :. b [ - ; ;. ;

..ec.,......-

?

f.,'J!'if };* #;

. 7 '. ; ;. ' :

<.. ". >. ~

+

e

,.l[ / h :l. :l L ', y. 7,,..

( - :.

'... ; ' } ;,..

y ;.,... '; j.? ; L'

.J'N;:h_.[.k b.2.g [.

7

?-

f..

Ni. ' J :T f: Ecuadst:;.

4L p v.a -

- a m._

...

: . m. -

ry.

.. ;.,.u e.y'.: > :+..., L. :,. c

' c... '. c e..

c.. -.

z_,.

-:..a

...c ny, A,-.....,;:..

n 1 qp y. c ;;; *

.~..

*A:

,i..n. f. ;. L ' ';. ' _..,...

m. l t.

. \\. [ s'.. f v,

hQ.. '7 'j. ( }.; f. l j...~

l, 9',,

K, _, ;;..;,...*.

F.e

n-

'0

.i I '; :.

- ' ;}

'.)

K,:

V

.*'..;..--'._c.

q. +;.: ' q. :,

. G uq.

.L ~.

f -, '.; s

. ' r. c... ::: gu p 7: '

' n. y:~._

g.,7 ; ;. :,a c. <.. c.; e. -

.y

.. ~. ;. d, ;; ;.._.,-

-,/

.?,.-

-.r.

, s

.. v,...: w -

m

.,.2

.,7 c. ;s: p..,,., y; g.. ;,: :,...n....,n...

..~

. 9. c.

l: l l'

(c l

~ MC '.. :..

...:c.. v :. _

- ~

,u

~.

e

.,r, i:

.s

,.. * '.:..; Vw.[:.; ;. : l.L.) I ~-. ] L. i :....:.... '

o.

y

,y

,,_.4

+p

...L Q,.....

.,e'

..1 f, ^.

E,

.f.

,(,

i ' ^

l'F l b.l

, y.. y': ; y, s. y.y :..g., 3 13 t w

Am=.e c

y.

?'?

.y

. ? ;:. ' c. 9 :3 '; _

a'.

y.-

,Q.l, f',:. '. { i ~; ' '.; ?'* l. '.... ' ';,. ; _

.m 1,. ; *,,., ' _., -

J,.*'_.'.*; j'

...l b

y

? ~ 5, ',' } }, i _ ' h l ~. '.

W.,

'L

. ;.. :. gl;Q Q,f. 't'_; '. ;,

, ?g &;* #r ; j 's y&,Oy lsy. O

...,,,. f

. :..,. ~:

5

',f'E*I l,,..a

>.p

t. t. ;..:

. i. ;.

.g

. py

'.Vyy n SQ y,ff*,C:.%

qyY ?.:

. { f',) ; ; ' [:?-

',.,a-

..y, g L.

9 }

'e

*^~ '

. ;.'. : a.:::, L ; j ;.n L,.k.

l' c b.h..,. s'; f;W ? :G. ; f",J3.. n ~.:'. ^:,; *;':. :.:

..g. L

... : :.,M., '..'.k..' M..,j:

d :A *..'- '.~' Y;'...',..;,. -L;

. 'sr** ' <

.':.,,:]

C, j. '. c

_;._'n,'.

?

+.

e

- p'.'.

_"'.'.v.,."',3.

r..n.

....},

~

s i:

e e 3

; L /;','4, J[ ~

,, ; e

j

j,1_ i. pl :.. '

...j. -. :.. '.3

?' ' '. l,'. ',[I : ' ',' , i. ; } ]. : ; 1, J.-.

'N:

..p'.

', *;.. (',j.' ' l*Q

' 1

'1 5

., y' ' :

e, f x

.s ::S : L y',

>;q.y*.

(,,,;

^

. y

n.,Q q /

.. : 7. -;

y; ; _.. y :, ': ;,. ; y,..

's.............

3,u.;

. / y.p,.,,

( ;3,7. 3,..y -

, y, 3. c,,. 3,.,;

; r

. r....-

4 y,

,g

.. L mg.~m _

..y,..

i ;[. :

x.; s w + k-z mm a~ww.mx,./,,.

.. m x m._ m&l;v...u..& $ Q &.% & d &,.

.l $D $u, jj..c@

&.i m,

c..

v.

~ x.

',..'.~.s

.s*

.....,.,.,e,

...c'.'

..a L'

.. t y.

. ;l* *; ;., f..

..;.e..-

.... }

.4 i.*..

..i p,,k m.,...,,....

..r,

..t

.....*s p t..

x i'. '

'..,'.:.

l._

'.,, ', \\ ~ ;,,.*. :, ',d r l

, ' ', f ' A l. ' ' I '

4.,

.'l*-ll,

, '., Y ** l,.,'

',. ','p '.f. _.R,*,,5E '). ' a '. '- l.... *

;,~. l,,4

i. ^'..,l'.:v.{p '.

q., 'l, ;

.:a ;. '" ;., * * **f.T.

' i ' :

l ;[, ', /,,0 l3

.,'s

.' 't'*.r'-

. a,~, v' < :.

.s.',"-

'.,.. '.'.y*.- - *,'c. - s...

. ;~. r.o. /., l.

..'~

)."..;*..6,'**

l:

2t

'. m y. '..:.

t.

. '.,.., ' ' ' N',:N., ' t..

-!!q.,

+

.: a

..," gl ;- \\ ', *,1:. ; lI E.%.. " ".'.":..,. "li....'..';,'.'...:. i.

, ',.a.;,,

.;* I, i A:

f?.

'..,7 e.{;

^' - -

,.nl

. v

. T.y G. u.h ".L ', f,.,r. '

_l l

c g

,p

'.'. g, Q. :.,.,,, <

. a !< :..

s....y

.e.

n ::

o g's* N j. a '

H, %

.)

_; z[. Q q ;. :.,. ';',.; {..-

c. '..

b;;;..

,,sl,.. j., ';

., u ::.

e;'..:.

- v:.:: p [ 2; *. -'9

,.A

.c.*,s,'.,,.

,, ( 'sl *'. ;'

y,

, l. s,-

v" e.

o, w. -

.y a * :.':

L-

\\ ;.' +*,

n,..,. 9 n?.. ;,.., ' ;

y

,**j *, - lo','+,

W.-

c.<>

a.-', - ', *i,.*"..'*;;.. ' ; ).

l,:

s..

o s-

+-,. ' '...y',...,.'....'..,,

',e.r., :- ( *i', ;, s;, ;:-* ll

. c

. '.. sA.>.

b,. *.,, ' ' ':. o h ' 1' '~ j, '...,f f ' ^'. iY fi; f.,.

Y,^ ' ', [' f l* s. '

n

l s...:. ' U

'h.. 'I l'*..,,9 * ;., :- -,, J. e r-s,.,,.,,:.. '; x. n e..9 ' *,

l,4%.-'

t

'.'Y*^

w

; P,..

4

'n' v.0 "l.,,,f '

,,.Y'i.,**}^

?.,!.;'. ' &q; ;.,'. f'. l,f, }y.p. p g*' ' + h.

,s..*

- - 4

'a j

< ; y,C

.r

'^ '

' n

?

h

, -l'l; 2Nyf y

.y'._ :l.

,,:,.3

., ',, l '. } _,. :.. ',,' ll

\\.: *-

t '. ;.*

1,.f

;c-I s,,

. 2,,. !,

t: ';,y.:,. ;. f.*......

_4f,),e,,,nt... : - *....

>; r..^. ',l.u... ; 3..,...'. -, ::

p. ; v _..'

e.

12 ';:." '.';.........

s'

'.,, ':,, i :;.. '

..'.' ' j:. -.i.. ;

. ;n

-+

,,, d.

,. q;

'.Y' k;t.

..n

.5. Y..,:. [. (,l l *c h*

n,'<~.

.s k.'.'.;

', m,.'.

,1 p...... * -. ' Nl I

.<i....: N. I.:'

, ". ;.l.,

.e,)

1. y e n-s.

s

's s '.., s s

s:,,, '

f l'. # '.

[.

,t

,. p$

..1 s.

..+. -

n.

r. ).-

,>. s - <

.n.

r-ra h

I s

,I s,

' ls,.

-r

}.'

a,

' E, '.

e [.

I,,*.

'- '.. .,[,.

),-.. [-,,... '.'

..'1,.., +(

,[.,

.-,, ('

~....

3,,.,.

b 9.,,,.,, ',

%','.*..E'.' 'l, g;'

[f. -..h.

, LI';

,.i

',..*;'l,'.'.,

,..t,3.,.

k..,.....,,.*

.g-,

v.

.r'

%.,..r o

2.

t

.. '., s*-

...r.'..

..l _

s; *.,.. _

o

.,.,,',, ;, 1 :'.:

4

. $.. c<.,.,..,.*,,

,..*.......,a.

,,... v., %- f-

"np.,,.'~W

* ::,,,>, h...*.?...:,. '.,

..{...

1, ;

\\.

v. ;

. -. f.,.-

j*...

,,y.;.,

..,,.,,;,',,...'e,6

s,

<..,y

...,.,...,e,..e.-

i

,1,.,,i

, <.,.:,,,.,,.;3-,..,

,"(".,,... ;s e

,.,....,.,s.,

r, 2

,.f.o...,, -.

,;.. t

,...,g

, $D

".., ". ;,. 4.,.. - *. "..s..

y.,

,,..,,,..,.g

,..s.,

4. < -....o..,.

e. ;

dI i.,l '.

p.,

I

).,...,[ :h,. f,

.'. t. ' [.)

.I".' S '

,.....~~s'

.v

,y>

.y.

.~.(

v. -;.,..

y, i, _..'. 'y,;',.'. ".. ':) l _. ). '..: l h 'h,,..,.:, *..} M

.i

', ' f,. 5, f " "..,.

(;/ ; e,'.,

.,': ' ',,;.; ":: j_,.), 4.

{.,

'. n), '.. '

t;

,,,4.. _.y - :*_ s;. :,.,

'. ', i ',, :

.. :..... ;. :.... l,

,.'l.,

.. '.:.l - l ;.1

.s.... ;;

6 p; - e m

.e :,

p.,v:,.eb..

.: - - ^..-. ;,. y : ] ;.,

3,;

.., c. :

.. s :. g,r.,.

s

?

.*.a :* j*. -...f... - '.a

.y.

.s

,7 *; :'

- : p:

'.. y. :; - '.

L,,

,.'..{,y-

.L

,.,. - ^ < a..

'.,v

..p.,. :.' P,;:.., y ;(

.L,~. :f.;;.. ;.. C,,,

m :,,' :...

...,s.."~.,;.;,.(.

d.,.,.").-_*:'.,'.",'.,J...,:.,,

s'.n

.g,,;;

.-2,.

..v.',

g

, n, i.

~-

.,.......,. - -' ~..

..,...i;.

r.

.y s

u- ( } ' :..,..;,....,s _.,if ' 4 (

.'.a,,,_.;.. '.,

,,,.g

,p.

,.,, y.. y n,:'y p,,,-.,.,5

.u.,,,'

p.

g

.,y y

a..

y..

. 4. r.;;;,

M'.,-

s. ;. _

n,

, - e.g,. ;r k }g. ".ll :,*f.;; ;;' : ;..

'\\'

y ; :.

r_ ~ _ ' a,;. ~.

... -.... ; -....,i-,-

.. 4 '. '

-.;, 3.- s. -.'-, - -

, ~..

'i ',: '

w;., '.;. f',O.'..

. ':.,V' :).....' 4. : ;; %, f, : lmt,Q' l. ;:)] 1:.a. -.. l;.. >.

^

l

. } .. ' ' ;:

.. '. '.; r ' ' ".* f *: .. r.: L ' ?. ~ ' ' :: m

...'. _ ; '. '. f.Q:f': *,'..; i..c.. ;. Q,,,':.f'*;l ;.G.y,., _, j. ; ^ '_.: L. '., y.;. '(,.,..

.i...h e_ y. ).

' l Q v ['[,4f. ".,c.l [

..,q-

.;:q:y }..{y. {,,,{;) ;f

. [

d:n. ' '., j... f.y,p:. 3 :, ; [..S.,..

' )h :* *jl _

&,,y

..t

....L y i '. ), '.. :,; l f ; : '.l..,_.;...

'('_

.. ; 5 _,..,

g;.l q;'. *. l. - '., '_;, *.

..}...l

.. :..;., g.

... l : -.'...,.'..,..,'.4.....;.........,

, 9

,.,.,v...tf,....-

A.. : -...- _

3... ::

w';.. g v.r..n s..a

.. ' n ;>:

t,.'.,r.

. ~.. ;..?

J s

., r

..g e..

4

l i (3,'. l. f.:;'P:_: N&.::O l'{.}&(l.Q,. 4 3

..v..

.g..?h....

I '.', '.:.,).' '.. i y % l-l3 ; c...W.h,<. >.,... ~~ ; :[ l,.;s.l '. :. [........e. L. -l 9,.'

,Q. ';..l,l. :', h,ikj.

.....p..

7 %,

2 a

n

.Q l.l i :. N,'. '. f.,.J.l': ".s ; ','

y.) :l.G :

P g: e &..b. :>c.

'. c.f

.. ! t < N k.

..A.'..'lc yc

.u..,

m,0..s. ~ m -:

Si..h' ;.;3g "2(hty} q,;E fa% < l '

,.y :lh' :y'..':l 'I; ";;-....[..,. :

7o

~

v...4.-.... -.:-

.s t

...q. '(f(kg):u:,f,,'s)f.. r,.M..

f,. '.l":. y.;' } '.,7 . y..'. h.-: . ' ' N'. ..} '.. :,\\. '. ',.l s ' ' :'. '."."c.. i;. v j.m s s t n _ ;;l,.,. ' [. d a i g, & Y .l' '... [ l, '-' ~ a ..t.,.j.\\.l. l yf .s 5' .,c ,qW9, ? ' ("...J - l $, p:f,f l ;:' Q:{' ff[-[{. 3.[.h.'. : h ek/, Ml' 2 Y4 sjj:1f0l,' qrY,'l $[.'.- [)[u... _,... f';h ' y :) :: i.;, g.l '. ':. L, v,:..';.',)I. [,.,.- t 4 )'. z., '..,, '. :l.(.', s '; ;(':f lf C,'. k'.,.,y.N,k;{'.,. }$f{,.;].h,p"',T'; . l '; [ ..#:0 f [ (( f3.: '.'l ...j,. l,, :[. .;R f l _ l h. [' ; Q._. g.; f Y ~. l Q. . \\:(ig -JG .l; : L - '. ^. e. ;..' i > - g ; _: f'(,'Y.fe,f.f',y:% f k fgl.;"l4 (. ; d M 3- % 'J ((. ; ,' g )k,3,, i. M;,'.h:,.. ,9,. J ; t pF: '.? ...%...... J.3,, A .y

1. ' p, ?. J'%,..'

y 4.. .-? , ~ .y ,:%.;:.p. :..i, z.. +. G t..i. a.:} u:-4 A . R ' G W+". ? %,.. ; c.... ]: :' ;) -l,.' ';....n.:.l.h*l ? J.. 1.ff;

K;f_.,'. ;.;'l ' _ ',._..:(' : : ;; ' t..., \\ f.';.' l,, '.};[. '. ;:_.,:

M..,- a ~c A's'_.,[ " . ' ;:),'. ;;[, ';; .., _..' ; ". l,. '.f y.. Ju..p,,yk.. ~.:)fll,.' [{; 3,f.;.( h[,dh: g.; *.,. 7.J.,..,,; :h,..j ',y,j.;[, {

q. } h.. %

.?' ,.,. h.... : j&- ' 'u'.,g ',.Q. _ *. _ :. ..',. [; ; g,. l. '., ' '..[ s'. '.{1,',. -.,,,..,,'[.},.., jy!, b.,. (. i ( i.[,(.]. Y ' '(t [.f

;.\\,,' i, 9 ; 6,;.: ,.

3.- }, l.p ,?.

../ 9, 4

7 f, _,.,.:: . '... - l.lf, ~ ~ :. : ' r, ., )g.-.

*Q9G' p:w;;

,, v ,,._ - l. 's.; f. a. :)...., gw.y:.:' ...,_: w._ _ ,.z..,..,',... Q.Q,',,,.:* ;. ' ( _..,',.... ;' ;. '. f )., ::,1 l ,..;.. :', M q g y.;g&n p:,.e m '.,.f p;y yl. ppg"_, '.3-z l,.,,.-._;;[ tr,...,,,, ; F. .._ _ ;; -, 1 '.. J.:. - - t ,m ,_.: v. *

a.,.,.,_.. ~[

' * ',. *,3.~ s -.

. _ k,$ g y,.,;

.. ', _;, } l;'f

~
_

.., y ;.... _, y,.;,,,,' ;g [:_'..; , p, z, p1 'a _q gs lg,

.y: _.:..,.,,. - ;jr.

9M

. p

..l. ,, y (r. ,,, L. :.'. ; ' :. _ i. l, .,.i " l

, /,,

[. l l, *Qaq' ";.y# ' l? g%g y., -[:fiyf y;;(g ,1(Q., Ql,s_;,) l'f., 9, '; ',;. ; %', '. : ' '

:.7 '._ ;. ::: *, '

' T. : ' l.;::'., l :' ' ',. M,,' $ ) l:. ' V :.f e '* G~...

. -l

'l .: y; '.4. '/f. :.I, d /.'f-f"; ' l,'..,'.' ',.... b. .','.'h I, ' /.. - :- ' ; ,'.'p; ;; j?..p'%",ib',{! ,t _.q_';,'....',. i,.'. ;._... 'l...-l '. .-{s- ,r.. ..., ',,,., z ;. ;.,;.,.. _.l;.','..".', ~ "l, ; y.r...',':.', 9,.... g.f. . _.:. ', ' 'F. .'.c p :. '... ':.. ;. c. ...'.r..... -.. -..,.. \\., ,,g 9,m,y ,,4 .,_ y: v a b..,p ;m.:;g;r K. v:,f.&' \\. -..,:,,....... ..y ? '.\\. e.. '~., ::.. :. _'..1'.,'.: .s ~.. a ~.y.%:. y. W g h .%.f!#.N' '",j,.. '. ;... =. ' l:,,, - , k [. ;.b.U, *.,.1. ((. W k,.s.

s'

'f ;.,[.. ;:. ;.;.l, ;['.[y(,3?. '.; ' : 3 t, Q,* ;.,, ' v,. v.. q .,i. ' '... ; 4;. ( ['.. $ ;'.

{..?.7

+ W) : 7:j ' . f.l). s?,. ] '. ' '" _ ';{ '.; '. ' ;. ' : ' A. l,,,.,,.,; {a.;. ' ' 'l ' _ )[: '. ' (;* ..I.. y,L 'l N, ' i _, L lw ^ y*.:..',...',,..,,n.;

s ;; ; ' ;i, :'.',.

<!p Mct s,* %pt _, k. s.:. ;. ; ; y,..,: :, : Q: y. "' ' p",.... .., ^ -., :s +.... ; :.:

,.: .'p.".' - 'm. -.'.'.,.~,)'.

? r

'. v;:., ;;,'...'. ': ';L, _. ; ; ',..., ' : '...., *,,

Q. " ' c: n...,;..,,., f, W,W

~:'. :. .?'...: 1> ,;y._. '1.' . : s. -, ,v. Y ,F 4.', y..StL >-_, ~ ,, d:, e (* *

.,, ",; f:', r '..

' :. :..p s,.'o.' , l :',.,;. i, ;, '. f. ;.. ' * e. ',..... ' - : ' '....-.*,i, s

u l ;y.lt 9. k%Q ll : " w.7. 3, i,. ;Qa ',' *,,l '~ jf ..',,",,, *.~, ;..,'.;.. ; ';; g' i

>lC ./ - .,r... 'j,,','.,_ ';;, ;.. _, :4_._,,, ,_,g_. 't. -f.,', 3 -Q;.r.* : gf-l ,e-, f.- ..{,,,_.c~.'.,.,,3, '. r :'.,4..f...,.;;* 'a,. '3.. _, - /.,.e. ,;y ,(.'..,.,.,e, e,! y_. '. 4 ' '. ',,,,'.,..c,,.,W,'i..' , '[ '* ' .... ',,. " '..[ f,... ' ).[ -l { ',;, s, l *. ". p., : - i i t ...,., ; :=. 3f le '. V', '.c .,, *. i

. * / "'

' ',', _; j(; - ,._'r s __'W.* ..l ;' ; - l, . '* ^ ,'. q;,,.[ .u '- ', ',..f' 1._ } 'H.2. .u i '. ; q.( , * '.. [ I,[,[,.i,g c 9 _ ...p i.,.,, ' !. ',[.l f /, ", ',.s.,,,...,..,,,.,{,',,d.,..... '.,, -.,.a...< .h..* ,.y,, ;.,.. [ .,,},jJ% {.'.',.}. .... ',,.. 'jj h, / ,g, .c. 7,'; r , */.' ] g,3,1 ,....... /. ,l.t ..,'...c ... K.s n i p.r..r.- ,.;..,..,..c:..n.*,.'.'a.-. ,r -, *- q: 3-,- S..p.,,,.... ...A..,.,,.. Q..,,.,,..,........... ...4.!, ' c, ',:. .,y

,;,.,;, a,.,p: '... o - *. s) / ' '

1. ,le. p g ...,n.':,..q.,. ,.. /. :u.. '... 1....... t,.t,... ',, !, s, :'.' %. r.,,., ...8, 's' .\\r...;'....;.+;,..,.._, w y ',w......, ._c.,...;.. ... t : v 0; -...E."c n s- ..,.. ' r4

,.,, x.... N, :s. -.,;<..,..-.6.

.,c.. ., B '[ l '..., g.., '.. ?..'l,(. ";g3.....'.,g r.,W 7p q ; %g- .c.-.',..,.;, y .s...:j.~,,.._, n,.:, ....c..,. }~ 6 ...;. ;m, y.. c. t ,7.. ' Y ; j -y, -Q,..,,.* * ' *.f _:.[ 3 Oc f,

g'

,N. .,.....)."."e,E,'.....M'.,,;,.,T y s'? ;- ,;,; g: p',. f./,:. p,,.:. l.- f.' g '. ':' "./ o, R v. :, d..., ;, c e.... ;.'...,.:.'..'...,\\' .i ,y'.'- 4*<* A .. %.:.. q,,...., .g. p. ..v..,g,...;.~,-l'<s,,z.,.....y. ;,.',.?..,:,o.,..;c .,,,.g 'w

s. i.c....:.._'..i..;'.' '

~ .a:t.' -

y,.'

- (f ~.: : s+... r - t..;.s.. ?. ,.;.k...'..,.s...t. 2 ...,,.'...,.? e n ,.-;,;.e-.,,. o ,e,. 3 - - (. 7 s,

f..c..,f,.,..,g.,.;,.,,,..p.,.

./ .,, n.9.; 3, ..>..i.,,.. m; ,.c.. ..,3,.o.. ., 4 ;.4

s.,.

.-s s..- .,.,71,g i,.. a* ,, f. .-,,;....J.,... .e ,....l. ...s.....,......,,p,..,hs.j,r.g,g,,,N. w: ...u.0...,'p y ,.f 7, g g, .? , g. qg s,v.," -.. .,t,.,.. -3., y,. p,..y g. s o ...,f "7;. r. s. , l..k:,e ; );:$.. 'I.,'. d - : f ' U.'!l ]s '..J *; v ',;L ' :. Q.:. I " :lf ? ;,b..Ll :l: Y*Q.,,'

t.,%.b,.....l y.' t :k' -

g.r..,,.,.,.,.j s. i .y;...,s. g}.0'fiY,'l,,.i '<3.. i. g -.,,.3y,.<.3 a, >. t v. 7.. >g. c t., c.. e c .1

C5:;4',.f,' l%.sfl.f. n p,U V'? D:'l,W. ;,: '

3 ...,: - s. t 2 f, ..;...I,.. .. '... '.... v f.y.....* m. )e,, A. i,

3. 9;.

.j.9...,. ..,,...uc ',m, ;,..,.,,,,..... 1 <.T. y.;g,,.. g....., ? ~. r.;,,,, .r. ;19ty: .., V'. : :.ps '

s,'..

... :: t..; t,?'.;,D. ' .s fm.w.. e. 'i('['k,. s v. ' y v.:(;..;:. ; y ; p?:

.f p(.%':

'0 j..:. .p h;If:?;$$.&0 ? ",N' } W;f ; a.3 ; Q <*:, a, L :,.W',.[.,'[j;j.S?.,: f'rg,P i y:s;&*.y'.?*IUsy,'{,..~.3 ;[; f,l'J ' w.. ',. yl'p ; y .l [ f Wf M., . ;....t s',. '..... ' ::'I_' h;Ri]. ..,'( [MIY,;';ii s I . f (:'s 2,;;;f...

v. -'

M. < '. } l;l' 8 /, ',:.' n.?,;; M.;[

y '. ;s'. ;.):-fl c. ;

~$ ...f;"M' ' 2 , ' '. a:., : f. a, ;. p.D,,:.:.(t.E: 5 N,h 1N.Y. ':;;.C, p .g.d,] M...,

-: .. ::s p

1: K ':j.'.~; ' [3 ' _,,.;; g., g,,1.y y;..,4:... 's..

u ::.,., y. : s :.,. :.u f';',s. y;.9

' s ;l...a. ;.\\,

. : :4 ?..'.: v.. ;. - ' '..;,- ~ x: v-s. K.,:,:%. l. 4: . :, s > : '.n

e.:,. on ? ;f V.,f '.%.};. ' ;.:.

> f.:. : C ~,.,._. ; ' G >, '. ; _.,,.: ' ;..,, _ q,~ 'y j :w.4 . s : :L \\,

3,-['..

n, +. : c,. 3.. }.

&,, r.y.b.v ' 7 }. -

.. }.. f L

v,.

Q.. ,...w;,. j.. c

c. ;.:

1 n;.. - .(n.,..s..,-:':....v.-... ;;. ...e....,t > %,. p.';,. .g,v..,,,..( ?...,...,1.., : j,g,,,,y..q._..,,,l 1,, .......,. ;c. ..c,*,:. s,w s., v..$..,, .,.c. . - s v , ~.., .**,i.......,., 1.r, '.

1.,: ,

...v : v,.,,.

y

+,..,,, >, - n,,.:...,,.,l . ..}t.,,.,....,,:*. ..~,:- ..,n \\, '[p, : } ;. '... .s,,. .w t '.,, [ ' y.;' ...i,. y.. e, s..< s ,,-l.,l l.. '. l l '; /, ; f.:.':. 'i l,; ' _..v}:: ;, ; -) ] ).. .:e. j.. s . l;' f _'}: - &f% Mthy.,\\. : '. a. ' 'l y '. ' +';.; j,' ;;.l.: :.,: .1 y ' f f,' ' r. n; 'O,... . f [ 'f ll,:9.:.,. -

g.. :

'v' , y _.,, e V. z. ,",Q f T, g,,:

y-.@. -m,Q.qQ ".. ;, +.

'.., ) ; _ {; ;,, %." ;,,.;.;.. ; ..,, ;f ; ., '.,._n,.,. .. y ' g.. :- ':..,.,. w, f e, ' ; i.,..,, y, P': -4 .i.. .. ; ;..,. ',9 g 7., ;.), ;, r y;.: *,. 'p..,. ; ';,, ~,.%,..,-p....,.,..,...,... ";; g...,,.,,.e, ~-;,...c,..

5. s;,. c,;.-v;i r.

.. - 3.;., g ;,, i,;. n....';. '.,. ..),.,. ,9.. .,,,o, s ..,t,..,,,..,, .,, ~,,, ~,. .:y ,.j

v...,-

q ,...,y..,;n.,. c .........2,._...,o- ,.c .,s s. ',)....a.s e. ' ' 7.. .. s, ..,(, n ~.- ,'y.. ....,~.%... i. L u. . < f.'.. -.;..,.,,.,p.,'..+.\\ . i. ..9.... ., :..o ;-...s,.. J..... ,.? ,..s W.,..:. g .e t..- , -..-.. Vj

e<

.e. n,,:.p,_'; ....,; i: o:). r.t i1 .e. ' y ; h. . l.: .;,4 '.l+ .?> . ;.; 3.,...., ~.. : . ::p q.,..',- f- .t.,... ',..*....,.

y>.;..

o.......s

. y

a ..,,c.,r. ,3 g, - - " '!,,.,.., .c .. y g;q: e,,i: :. y8e- .,...'d,- %,.. ;., s ;..., ', ' :,'...:,1,.....* ; %; f,,,.,,c. s i ~. ~.;,.-....,i,......t;'s: e. ^r 1;,- .:o '.. v.v ' :.<. ,...,. < * *.J :, K. .r _. :.j i,") :";. :..f:. ; .,. ;l ? lG S, ' \\*6 : 4.- e.' '.. ll} :y, ;..?.

,..i ? %;

.,1., 8.,

H,.. N,. g 'R. :

h.. *. ',,...,...:.' 5;, W+,.?',0.,l ' L '.. '.' * ?:4

;.[ *: ).'&.i.f.:.[;f.K.d,? ):p ;...:1, ' _. f :.

n::. -.

Pl '.. f.),' ; ~,,. ;..' ',,'. }.~ .'.m..<,,. - (..f, '.,,~; $ g ,...,;.,,9.,.=,,,. r,,. ;, e ' g...,.',s,,,s . - p ,.*...;..,.j s, : i.,.., .b. . l.;, .,,..w' l ( .< i., ,,3 :,.,./.,.:3-; m..... q'. ;..,., J. *.."~,..c'.g ,.j,,..; - i .j.'i.*.- ,.','i: ... ; Y ' .g,.. <... + .... -,.....'.. :3,.. -,..,,. g y'w,,, z.w.. - a- ?

s.. -

n.:.,;.

.g - ~.,j.-,.. *. ~. . m.:W . v. .,,p..) l.

3,,.iq -.,.

,..v., c... :q..,, ;,m , s,e; q y, . 3: ',,,., r f ,Is .. i,..,. ,s '.y';*h. a ._ ;.y...'. a s. b '. ' :. ' ' '; f _,.ll '...e ......;;., N' ,a

s i.

!...?+. ...'.;,;.v..;..; .c, ; ; ;. :. c.:...z.~;..' ' *'...'.'.;%'...,..,..u.:..'. v.'.:.. : ' l n' s 9.... .~.9 -.q,,,... ......:s. ~ ?,;;,., y. - p ":-NY f...., f, o; 1 ' l,i ' ';. &.'l '.t A, '.. :.... .r .. 1 '.: -r ~,. c __ s, , o ;,..no,....\\a 'd'.' u" y :[*Mi :.M.j. : k:.y,, :.< '.,, :, :, L ' ...:~ ': 'J: ...A D,*:. n.,., '.

..~

,& ; :.).: '. ;, ' ;.;'; :v ;( _.l','. -l.. _ " :. ( ;( ::.. ', o.. - L..; . j ' u; :.

. ;s, :_3. (. c ( : ~ ~ ; ;,,;2 ;.'.;. y :,Q. b' f',:l .H .;. y,,......

y _ n

.;.g.' ;3,s,~:p ;,;.,3..]. 7m -

;., S, :.. :c. ; ; n,,,. : : :; :

. V,y : 1(., f..... ' '.. ! ;.

4. ',n '...'

,. s..., :.J : w. ' f v "i.:"..... ;. v.. ; :'.'..W.. 4 R.......;. '. : : y +:.......... J.,. _;'. E.. : -l l : ;....,,... ',. ' :.f 3.; 4.,,. ) v.. ....',S*. .,.; ;.'...- ;L;-...,., 2 ...:..: : <,3 b. s.. _.<f.. ; y '. '" ;/ ::.. .. '... '.. ' ;':. rv,. F.: .t. ;,. r..,..9

.,...,..(.y. q,.. s: , ::r.. -.:..n.. e". t-u.-

.: ; :'Xi * ...e..;,.-.'.- e~ ....:.,":.,n.

,.y.,,..c v,

u- ... - y, ' ' ., '. %.[..r],

( l "[ _',. ?. 3. '. ~ gl. ::.] . b.) '. : *:".*) :.. ;;:.' \\.. c[.;,.... u.j;.b,0.

"'.[a . r. . l '.' ' N,. ;'. ;'..,l ] 'l f. I I,'. i,. ' O, '.;l \\m .l , v {'..'.__}. '. ' 1 b ': '; A..V. : ly:k ...i y o m.

\\ 'dProcessing L:ergy Marketing, Services and Trading InternationalEnergy Distribution e amna= c.m nearnated o.e contine numa saias oomstar amna* 1%dian Entf Usert Uetlun.e at thdl.nn Monenme ear Ldemnon on Mellum. uf lhallenr. M.II.ms us i un teen 141 .36 sity q i ll dl l l I... n,.,,,.., m,um s ..,e i,,,. c vs e,.. h sese.saar asf m81useurassiansred scivesar erneuair,J ree ersvease,,see, e Her oare i W) , m t.in Lnu gas facilities

More than 1.000 customers, including 30 major gas
Business segment formed in 1996 tralia and U.S.

distnbution companies

857,000 customers ral gas in Michigan
Actses in states. t a c untnes
Locat,d in Argentina and Brazil
Energy management and fuel procurement services for individual and commercial customers
Markets the products of other CMS affiliates iral gas pipelines, and provides Otters packages of total energy solutions, from commodity Distnbutes electricity in Argentina and Brazil ie transportation and storage procurement and risk management. to complete energy management services
Began selling electricitj in Pennsylvania
Acquired ownership interest in electric distribution na ( Argentina to Chile)
Sold 243 billion cubic feet of natural gas and 900,000 systems in Brazil megawatt. hours of electric wholesale power
With partners, formed the FondElec Essential Services g;,
Sold 300 energy management services projects Growth Fund L.P. to invest in energy distribution systems
Acquired ownership interest in Texon LP, rr oil and natural
Continued operational improvements in electric distnbution mnect to affiliate's gas hquids tradcr company in Argentina
Ininated about 200 enabling agreements, positioning itself et in Argentina for electric deregulation in the U.S.

'peline in U.S.

Capitalire on opportunities as various states in U.S. open Continue negotiations to acquire and operate Turkish electric ia ( Argentina to Chile) energy markets to competition distnbution system
Acquire equity ownership of coal trading company
Grow comeany through acquisitions ilant in Equatorial Guinea
Expand international presence
Create value through transfer of work practices and technology ge facility in South America The Cuvottpunt a part

/' of Consuces Entwgyt porttofto of fossal fuem4 \\ etectnc generatongrunts mMoctugan US.wrich ,y g. together had the sew & n.pnestne ratea, p thew hostory si 1997. . A --- ,tt - 4 c ~ traarpartotNgenwes naturBt gas 03nSCGr. tJttUn systent, & nUIDr , M,~q espansatproneet tus WY.tstad c.rtW:4 'O i h 'lIN! ' b f

w'r Dv

[. i Oiland Gas Exploration and Production Cas Transmission, Storage and Processing Energy Marketing, Ser. -,,a._.. -.,,a._.. ,s,,,, ua..., u. i.,....u u,u., n..u,, u, ua. u.n., e isas,,, rer un,. n. i,,, '"""'""Z'"'

p.,

m u, i m

sa

'6 I in Ij 1 4 l, j ui, na m c h. 31 3l l ,s 4. ag,,.a

Among the 30 largest independent oil and pas
Owns interests in 16 U.S. natural gas facihties
More than 1.000 cust,mei companies in the U.S.

. Owns pipchnes in Argentina Australia and U.S. distnbution companies

Michigan's largest independent oil and gas producer
Processes largest volume of natural gas in Michigan
Activities in 25 states, thr,
Operatiom in eight countnes
Energy management and
Proved reserves of 152 milhon net equivalent barrels individual and commercia

. Markets the products of of Produces oil and natural pas from nearly 3,500 wells Builds, acquires and operates naiural gas pipelmes. and provides OfTers packages of total ei around the world gas gathering, processing, pipchne transportation and storage procurement and risk mai. management services Relocated its headquaners to llouston, Texas

Increased assets by 35 percent
Began selkng electncny ii
Signed exclusive oil and gas exploration concession agreement
llegan construction of the Atacama ( Argentma to Chile)
Sold 213 billion cubic feci with the government of Cameroon pipehne megawan-hours of electrii a increased reserves by 19 milhon net barrels of oil equivalent
Acquired pipeline busmess in Australia
S Id 300 energy managen Began extracting liquid petroleum gas at plant in
Buildmg pipchne in Tunisia to connect to affiliate's

9 P "'

3 d r1 Equatorial Guinea pas production

initiated about 200 enablu
Contmued TON expansion project in Argentina for electne deregulation n.

Further develop the Alba field in Equatonal Guinea Begm construction of Tristate pipeline in U.S.

Capitah7e on opportunitic Begm gas production in Tunisia, followulg construction
Contmue construction of Atacama ( Argentina to Chilel encrpy markets to compet:

ofpipeline pipclme

Acquire equny ownership Increase production in Ecuador Venezuela ar.d Congo
Begin construction of methanol plant in Equatorial Guinea

. Expand iniernational pres.

Build first underground pas storape facihty in South America CAG Enegr utarry aric eectric cistst>0"

'i Kierafoons nOn $rve the U $ kpentma and O'st'II. attd the C091tkiny rQ$ brut"' ana&C a = O'i E'e gr s Noe'itme a. ,[i re^!nr 021*odisol1 CO'n-e y hi"o EXErGA tW5 t e%%FC'CJS10nt" ratQ ir'pe ta70ungIJr'fy. g / 8 ' In09:e 'O' cuS10Mit"$ 9 I l sa j I

.m .-f.f'.7. ?'h.hf??$,. f., E.?., b h.h...kf,,.kh.'.' N[].f& h f.,h. f.;. f,fh. f...f. r...h;f... 'ff -c . ; '. \\..,. m. =..e.:,........ .n....... fr C.-

.qtg..

+ fp..-...-:.,*3 f

., e c., :.,; n,.,.;'*.;,...... ' ", -

, ~..._ / . ::...,... ~ -.... .\\ ...;L ..~..i.._,.._,:...,. ' ..2

.v ;:...,...,:,,..q:

3.. w, 7,. c.,.,... t

..s c

./., : ;.,. :,...6 .v s, ....s .t.. .y

%. n;,, ;y;,,y,3;9..q.,; ')m ;

pc : .,.... :;g

y. _ :

1 ;. 9y. ..L. .., p 3.. g: ~ p.. .,i /[ ; :), 7:..; y;. .k.. i,: y-a... ...S..,,.,- - -.... ~.. .> r.., t, > _ ;; m,r.. n.. :..,..., _.,.,. f,,.. ~. .. J.. :: ;. y : 6.q. ix,..c.n.. a.,...,, . ;f;;3;,, ; p.-g.. .,..- ;;...., ;.,,.: : 3..

a....., _, n

. y...... 9 ...~ .., ;;...y.;,,... ..a.. s ....c.w,, 3, .. v-c. ,3, g.: .,~t..... ...u~ r ....~;.. ......r. .f..,; a. :.}. g. r-. ..g:.:., v; ;. ~, y. ~;.. . -.s. c. ..,~...n. .~ v.; 4 - '.-(. .. ;; p.,;.......v;, (,....>.,..... ~..:"...., _ ->+... .z~ 1 ,v..., ~ u,-. 4,.,.. " _. - T:.f1 , * * '. gy jn .:. v; - e. ......u.- .. ': '. v ^, ~ :,,.__, ...,4<.s .]; 4, ?w '.~... f ;..q, n , ",.., T:.,* p ;. '.:.,...,. K. n c. '. '.'.4.:; ).,.: '. : s-t,. ~.. ;.f._

m'

f y.-..

{l W.. ..a ., :,.,,,.. ; ! :,. 7., :, : ". ^. :;;...; :.. ;..

a. w, y.:,..,

s. .. n. ..,.,., _.~ ...t.::..- ., ~ ,.v. ,. ~.,.,.a, z... s..,.e.;. s ,.s..........,.,,. ,..~,c- (..;

7. _,

_.; ;. _ y., __;.... ;.... ., ~,e,._..., 1 ,,;.3., _ ..,vy.,.. z...... .,.,.. : -( -.... :: - - s.t J

O;.: bn-

^ -. - ';."'=z.... ... :.h... q. .1.,,.' [f.:..-- :,:/; W.... f ;..f. :. '.. ;. ?. w. u- ~ : ~.::' + ' U. ~ ..<.,'l',..,,.. L' "'[*[ ' N,l d.;\\;f.5 1l ' ';~,... S,'. v, l....,'. _ l ' _'L I. :;,'

, i ' - _, _

.',.s- .v. .v. ....i,, g: ......y. ).

u. :...., c. :.

-1 i t .....c... .e

'.;..;,: v:.'..,

u,.- ...., ;,q ' -^ ,y . ;., 5 y.. s .v._.-~...... "_, ,t..,.... -,. ,. ' __,. ~..,. - i.. '~s ,.Q ','.*L. lt_ _.., - g y,". ,,-.:y*.... -: r ' c : _* 1 ^.';.-. *. ',_ - _ ' 7:, 7. a 3, 2 y.

~

..-t _,.,.. l;..:-. :

+

... 4,

q.9 ' ;.'

l- - ' ;,..

.,o g, ..r ..s*

. s 1.

e' ...}.",...,.... '..,-+,, ' ' -. ..,..S'+. t >

s....

8-

w

...**'s. ,. - ; 'q.. +. -,,,. y, ,q_.~

.r,...?

y_- r.,j,,",'...-;.,_. ,',;..a,,,,_ ..gi..'... ,,,:'(is s' ,9' +' O ;...'.,'_-;/.. 3: s.

-....,....., + ';..

,e, a. i+ - ,l,. y, -l+* , " = d ..'s...,..: t - e . '., -,., ;. ;,.} ... - ; + ', .. :> +,... )..r.. - ;.' l' (. ..., - 7q -, .. ';., e. '.f. '? '.. s..,.._ l: L ',.'. '* *. f ;,... ),.. {..;..., _-... .:' ;.. I* L *,.;*,.. l': -.. : * !.';;f

' j

.q y, [ ..;., y. . f ::,, ' ;. ;. ', ' ".'. ....,....,.; } '.l p)

+l

^ ,3... .,_ ; >.,3.,-

e; -

~: .'J T:

p '-

-.... n >: ' ?. 4.*N.; '... .Q.>...;:: _ J. Q.&., :;V Y f *:c., :~ 3, *

n. ' W.

4 ~[i ' '...,';, p.. -:". :.',._'l' [ ~ ' [ '. ~ f ' l -:,. ,f_-: ..... ' T *:L . ; [: l '-? ~e,; i-.

. ;... ; n -

~~ y

y::,,~.

Y ;- 7..,l :; A , :: c. : M. ' -),y!._. a 1,.p'. .y.,q b.',j' C L s. .n + f f,. $.: >. 'G.Y. - .,g-g l 3...

. f,f?f l*,

yi.',...;, .a6 e _,.a.[ll[ y. l [...f. ;l... *W.W, %,.f;[.l +,; g ,;,,_,,7 + y,' ,e...,,,,,.. ',., ,s.,;. l- -, :a ;. l

j*.. *,;

,a j ',.,:. /*,* 7 .,'a,. ,.,..,...,,,,,.,3 .# ~,. , +... -,.,j -', --..'.;..,.,..... ; m.., _..,.,.,..

', g..y

..] , ;a.q' a ' '.',". ', s *. 4., c. ' ', ~' ',.,.._'(, 7 f_ f'. ....._u, ',i. ~ ?.. &,..,,., y T. 7. - Q j, n_,. 1.,- ,. :, _. 9 ;.' ~ z

p. q v

" 4'{;.c;L 's,,'. ,N.,f, (. . ;. L : '.. ;. .... ; l. : b '; l, ' - n..., y.. - ;:,. i, ;; v. N* .', ~ .../ ?.- '.,.'.,:~., - v .e '.. 1 r... 'T ~.'-, 3 ;.; - . s. . u<

'.,>$/

c.' qg. .,!. ;, *) ' ' j. *. -.,'y;._..,','.'e'_,,

'.;.'.' ; ll,..... - - ',

I

f. i' -#;,

', *.^'>'.,I' ..,l-(, 4. *:.,, - t.,; 8 =. l ? j. s of. le.l _, '.. ~ ../n_ :..:.... ....;;..,..f..*,.,*.g'. .i. ~ . ~, ^ .. ' '. '+ * - '_l l '.4+:, } .m ^

.~- -

) , ;q. ._z.....;,:.. . : }5:(.? , ' '.:; ; -., ' '. *. O. l.. s r..._. _ f., [,.;,. j. (( *, ..'.J'?,--. c. y. ,'" '. ~. ;.p ';. .-% jy! ' '::. ; c:. ' _ ' ' '.,... ;" ;', -... ~. ' ' - .*e 'J- '.'p. . l:., ',;4 ... i :;.e ). g, .. ;> % -. :... - ; L..

.. % f- ;... '.,' C ": 9. '".;."' f i' f "".l. ',w\\'l9,[,[. $ 7 ['j; _.) '.[v_,

ly '_ _. ' /. ;

l- (.g. - j, [ ;. ' a,.'. [.

l [.,[ } y. - :

f, :.

l.j Y- ? 4 ..,..... -.... ~..w .n ~...: :.. < E,z.:..f... ... ~ -... .,.v..>... ...c g.-... -.. y. .,q :,. >.,. e", .,v...... *.. ;.:.- u.., ....s,. e r ,.I....

+ _,.

.[.,. ,.....:..i v..'._. ..;.:.'.av [, ...g ..). .*1 ' *i . b +

..... m

\\,*...'.. *-... -.......... <... v. ......= ,L... '.- i

+

.. M. g o ".'i.,..,'*7,;... 1'... '_*_ v . *.;, q :s,. .,l,. n '...,f' f h. h i_, ;. : 7.. ~ '.. :. . ; _.. y; ,.,.,.] . f ~4,;,: ..'^s

* *- l s cu

+ ,s ,o%; ..f;.._ s-e a' _..,.,_.-,..._..;..s,. .a.....;.,.,.. .L e ...,.'n

~. ' - -

4* g._ 'l' (+ g ..0 +f . '. >( @ y ' i.,.I g- - w - -._ ; ;. t, r- -( . ?. '... '3'.? ,t g - i ;' ,l, .-,-,[:. ? l.,. : * " ' ' ... :., e

h. ::j..

. Lbf (U:. ") ,... ~

f.., ~ [f [ i l h: h. '..

.. n... ... c E O':1. :.J t : ,. z. m.,. u 7..[l' [. b 2.j.1..Di.L)**Oh.)'..7.i.I.[Oj..N.N.$:e h,Y " h* : % ' ?.?.f

JeJ..

? L ! J n.:;r : '. L..... ~ ":g}l.Q.z :. ? q.:;.

f;.,

t.. : W.;. + y ;',;. 0 3. ;- :}.NdQ ';!, }. : MM*:. l;/. ' Y, * ' >;,,.. ).:%, : .. ~ e.. - o' l, o, c. . _,........s s. l.k[ l ,[ l [ ', y..,.. ' ',L'. 1. :. & 'f.f \\'; l )L ' lt.:;NYFN%}};;%, - .g nr.,.a ; w:. c:,;:::;:n.;;.1..,3..:};..;.. w .;[Y [ *: s..,, ..f. '.4';.

e. Jib otr d Is mrcy.,,a....-",,;.,...g..

,.. ; g., -; /: c.v.. ; _ r. ? 2~.- y.... l7..... .. + s r.. . t.... y - - m y :.,4 c. - - n 'O..r. n ; . n ma... 4.: g D ,c.. . a... , - (E,,..;Q 1 1 .f

-~; ;, 4'

. +..., .y

u:v *:

m u,;. i,,.. /,,f..A,'.w?' ..nuk um ^ -Aa .a q u...w w ',u. u. .. m 'w m.,. n'. :. -.:,.-+, -- .n...,.-....,. s..e y..,;.. s .t ?. ..,;...,a v. ,.'.t. e. e..',.' W e,. t .~9,,... . ~. ,j Y. ' ' '. A'* e. .N.- D? f:. : o* ^e.. -2.'...-;.: 3" e g.& 'S,, N;..:* l. Y", ; :* ) : ;~',' D **a [ 0;} :sl.) ."'.f ,.'*. ' ' ~ 'a :: n; '_ *...., .y'.. ,,'_l_.,.a . '., '. h'.n '. '? l b.. J., :.. - :._ e ' :..':[L ,;_m, R;f.,::. ; ' ;..,:; '..: . j. %,:.;<; (y. l.. ; e .,. ',3 L g.

a.,:.

: * ~.

-Q; v - .' c ::.C., J;:.. V"- qw&;. ":, p ::.... ~.. p :. : e c- .. ;~ '. :., :y f,. ;.j ' s,.f).,.; ~; ; y f: :y;y.;pf.} ..' e

v;.;u :-

m. _[: .., y ]:.:_ ^ [.[ l.h.,y;.. (tJ..:,,. > ". 7,. ; L,: p,, -.; e ' ;, :,; ;. ;. "; _. ' ". '. y ..r.. :9 ':;a..,...,,.,.. . p s. t.. ,,4 k... ,,.m. .o ):p 3 yyg y. ,1 , s 2,., 1.. ;..w.... W. ....x r ~.>.. -..., o;.. ., s'l, ' , g.:. " '..... ~+.;......., i< .o.-. h,,.)v l _., e ' ~,u f ), Vb-- 'n,. } ', ; \\'.t. 'lv \\.i;' *' L_ ' '.. 1.*:. *' * - * .. d. : ', ?,.. :' l.

s., %. ' '. ?.*;,. i f:. f,'. *;A ' 3..Y. ff h' r -

.l:f * ;e,*Q: f*0 ^,. ;;,,*

g..

l Y ..%l ~. h ,; > g m. -.:.r; >. y. .? N y.,. .,. n.gM..., s.' q....h 1,,, :..,&.,... % C y:. g e...y, a. g. 3 ..._g. 3.' ;.g.mt.. rc;m q .m.y.. w 2, ,,m c f..... ... -,.,,. e.,., ;,.,.. _.r ..r;c. ..;...-....y yr.r..- - py . 3,,.;. ; _ t,,.; -. m.,j ~..b,... ,. y .,9,s. g.. ;,3..ys.3... . yy., a %p ip, .p ~.... - f - ,....t,.. ..3.........,.-.,.v:;._.;

c. -

C "*,. 7,. j : '.,,c ~s n ,.j. m. s-. , ; l., o-'\\ a.. y >4 . ".... +.....*:..,';,.__V l.-.i '.;.:. .. .,..,.:/ i. % e A & a b.g. s., .s ~Q ,,.; ; ; % * ;-,ey s p n,.'.... f. r. ^. ,l, l: L* er r. ~ v. y.x....g :. r........... u- ,. :....~... .e ~ . ~;.,. ., ~ lI

e's

,. '., '..,, m..~ 'f. ' r e [.h } 8"

.r.vn' 'g*

. :w..' ~; n.? A. sy -:t

n..l.* - -

v'. :.

1 6. u..,.. +. 'g% -

a. g "!. v.. -. -.

x v.. - .c y.g:

Q}'

c;. n.- *. ::>.-

f..: ;..' ' C 3 ; ! * :lv.., -

.,t : : .. e e \\ O .-d y y y,l:. J:(,. [q,... [,7 . [:3: [ }, _.. .; } m 3 - '... ' ~ .M..

'/

,.. :( j..' : ; ',t,: :: > .h . ~. - 7: y..,f. ~;'.~~:"l },.4* p 4la...,, y g e L rp m,, e, s. ' ~. ;.. j _..: 3_ c .m.... ~ s. ..,. 3 - 1: ..',..r<. l. [. ~ c.'; y. ( .w ;;; . _ _ '., ~.. *. (.s ... [ y.. _ _.c; . j,. c, g g R.I. g g '., j v_ c .., =. e

't.

'~.: i e., c s ~- :,,..... .w .,,..c -g _.'y'....,,; y ,. ;' *' g.'.:.. g Qo .*M .y' . n s, 4 4 9 ,f tf' p.J ;_ r_.f r. '. 3..,. 9.... >.. v, _.. -;[. * :... '.. ;:' '. '. '. / J. ; .,.,L,, .... c.. ; ; ~, ~.m ;.. ..n.z u, y.

.[ n - - ^ I. [..'. .. '.J_....F_- ' :. _- [.. e [

O

'^. ',, _ - +

._' _ _.,4

~ [' ~-..[ ,['

..,': ' '_ / -

.[, [;.9 .1 2 ^I l. l:. :l ' '.. : l ~ ~ ' I: I ' '. [ : 7 ) :.,,. .: ;.... ' :[. : J ' [',{ :. ~, + .. b;i : f...;...... L-~ -l

,. _ '.. g,., 4*}

ya ,\\ v U3 l ,;i:li; i.2' ~ ' > v,. _ {. _ _~;: _.;.- ;:...'. ....' 7......]_

f... e...j.

..-.. Q7_,. m _L . g, c -cj -Q .7 , +'f.. c i. s ... _ ' _ ~

.. m.,4.a,.g -

a a . l. '. < L ' L. '.. -' ? Ei d.i.' 1 1

.. _. ;; :l

.. '. [- ..l. ~ _ x,,,. %, : F..:.m' m ~. - 4,- c;. W '. y: . f.,. ; i %.".,..

..... y u.,

.:.s;.. O .j;. ,l y- [ l .. s;. a. E. .",. ~ \\ '. '.,. '. l, * '~' .. ; *, ' : l.,

$' ! [.,

',$,'~jj_J%b. _,r

. ' /,.......; [.". 3^j-

,' J. l[ ; __ _.. .. ; I:;. I.' :. f ; %,- f$ -l: ^ 1: ?.

.v

.g .. ;n - _y;h r (,.. _;. I'; -l _ : .;{. - l.[:? l' I j.:Y I 'l N ll.l'll: 'y ;i::'t.:~. '.I f ?f:. - .. N'. Y_ '

\\ '

q,.

'.ll.

j, f

l oggg

gqxag%vN+g g 9e

.t ~ m ~. ..m

u. gn

~ .,[

m..,,. '

ame .. g ;<. ". t r r--- L :...... .. >g ~ . ~ " gd 8' .~. ~

).;

3 - ] ,s ,5 .- i. ' ~ "ggd^ . O H:: e es J, w.aq, p . J. ;. - ..-. ;j

,; 3.

l. f} }. M7.;%mm . 5t@,Q)g!g.Q g hg 4 7 j g g. + /

n m

n f.l}l f f.. p y.y j...s. m% Qf* f g 'p [ p$%;h g h4jik ggigjp h[h)hk$hh wm

g ygag_my m.w x-V y ;.;.. -g V..ffll ^;

2. q.

g ,:.p g g:q;; j; m - *.~ '. ~ g::: : 7.. . 4. sf

?

4, ei V ^ ~- QN.... ff s ~, 1 ^ .f.W- ,p , % 'l.. g [j. n.vc ;. _ __ .. y at,) s@

3. l.

_..,..g P .,. ' g } ':y k.._.. ' z <- D., ' ,Q f '- '[.f l . :.K% e -.e , d '. ....? :.. f'. g,

l. I in

. g..\\. ' 6..,, g, [.

:'}

g j T.. "i" 4,'* -1Ti> Y .',/ .i ' .. Y

5. kt,

y

;S.

, ~. ; '

r. n c

t J j..).3; - i ~' j .1 h, ..,] ,....[ .f.Ij:;1. T .. r...: o t . ;.1; t o;. 7..- %..J t c ?y:a$::::s.M /,... y. y 3 n 331t..

g

.1 .I g u ir

Aung 4. - ,3 e ~ af yevWik A% pr i ' } r?st' eft *Cf'C fentVdllnQ lalhDf> O (W.kfff LB$?d!. f m Morrxto PMn! ts feng n @ubM1 tt w$ the Urca s , laffes!ID(WPt'n0VH? Y x hh 5 y I wi v-. _J Argentina's largest oil company developing the Tristate Pipeline. Activities in the Republic of to develop South America's first it will provide new natural gas Congo helped to increase produc-underground gas storage facil-pipeline service from Chicago to tion.The B-14 well, drilled in ity. It will be capable of storing Ontario, Canada, where it will 1996, began producing in 1997 at 10 billion cubic feet of gas. connect with existing pipelines a rate in excess of 3,000 barrels Gas Transmission and Storage to eastern U.S. markets. per day. And near the already-also entered the Australian mar-The company and its partners productise Yombo block, another ket in 1997 by acquiring the this year will begin buildmg a successful exploratory well l 260-mile Parmelia Pipeline in S300 million, environmentally brought the promise of addi-l the western part of the country friendly methanol plant in tional oil s olumes. and 30 billion cubic feet of Equatorial Guinea. The plant will in Ecuador, the company's proved gas reserves. The process 100 million cubic feet of government contract was pipeline's transport capacity is natural gas that would otherwise restructured to allow production be flared into the environment. to reach 49,000 barrels per day, w,-,- "WL a 50 percent improvement over y

PI Oiland Gas Exploration 1996. If the government grants M

= W. and Production t + permission to inercase pipeline Our oil and gas exploration and capacity, that performance production business, CN1S should improve further in 1998. NON1ECO, celebrates its 30th The liquid petroleum gas anniversary this year. extraction plant in Equatorial Operating income in 1997 cus wurco aouea tv ers sam potent,a/ ne a Guinea entered operation last sareuveco,aro nevowe orcmga near reached a record 550 million, year, pmducing 1,800 barrels rv cmm s ensvog orout* despite continuing depressed oil per day. and gas prices. Record produc- ~ 120 million cubic feet per day of tion levels were achieved in natural gas.The purchase M. 1997, totaling i 1.4 million 4 includes natural gas storage. barrels of oil equivalent - a / a~g e in the U.S., the company A 13 percent increase over 1996. remains a leader in Antrim e. ^' t Oil production grew 33 percent d3JS gas processing in nonhern to 6.6 million barrels, w hile gas ~7:O Niichigan. ChiS completed its A production declined 8 percent to ~ fifth carbon dioxide extraction 27.2 billion cubic feet. Year-end plant there, enlarging its pro-proved reserves reached a cessing capacity by 27 percent

g record 152 million barrels of oil to 350 million cubic feet per day.

equivalent. The company plans to expand nematon omeaemenn at tv veneca

'"*"""""7'"'"'"#""""'""""*""

its Niidwest market area by .s av to asa:ue u:e ff s

Electric generating capacity willinclude the largest independentpowerplants on the North American, African and Australian continents. rhe Ecua%ican gowmr entg'antm1 CMS NOWCelentissum to inc'0356 Ollproduct&l by 50twent on 1997 The 67 megawatt Big Rock renovation also has improved plant, a pioneer in America's the performance of the plant's nuclear industry, was retired existing capacity. because its relatively small size in India, we have acquired g made it too expensive to operate an ownership interest in the 200 in a competitive environment. megawatt GMR Vasavi plant At shutdown, the 35-year-old that is expected to be completed plant was the oldest and longest-in early 1999. We also plan to operating nuclear plant in the U.S. double the size of the GVK Employees at our utility plants plant in eastern India. I continue to focus on efliciency improvements that will keep Gas &ansn#ssion,Morage and Processing them competitive in the deregu-CMS' most innovativuonstruc-lated market that is developing in the region in the last three i tion pmject is the S750 million the U.S. Expenditures at fossil years, and demonstrates the "C P"" C and hydro plants have remained economic vi bility of the plant flat since 1992, while perfor-vnsus compet;ng enngy pm-tion is being managed by CMS jects in tgie region. mance has continually improved. as Transmission and Storage, The gas transmission and Meanwhile, CMS has 2.900 ill try as nwh as 300 mil-gross megawatts ofindependent storage business also had a good lion cubic feet per day of natural year in 1997. Pretax operating M Groundbreakingtookplacein gas 585 miles over the Andes earnings increased 26 percent to Mountains, from Argentina to $33 million. Chile's copper mining region. In Argentina, more than 5300 million is being spent to November; completion is expand the TGN pipeline sys-expected in early 1999. tem. Work thus far increases the Erwesattweasaaesuespant,nuwgan. The pipeline will supply system to abou; 3.000 miles, os setsweruudetm recer w peeratsg industrial gas users and power with a contracted capacity of 5xognawatt noo oreec'"* plants, incl'iding a 710 mega-1.3 billion cubic feet per day. power plants under development Pan of the new expansion will CMS-led consonium on Chile's and in construction that will carry gas to CMS' generating nonhem coast. In early 1998, ensure that growth continues. plant at Mendoza and to the f the mid's largest cop-GasAndes pipeline, which trans-ne The work includes more than P" "U" IC doubling the size of our p rts gas to Santiago, Chile. than 20 pucent of the plant's Mendoza, Argentina plant to Near the Mendoza plant, p ty. It is the largest 506 megawatts. A major CMS is partnering with electricity contract awarded in to

ENERGY SUPPLY Substantialgrowth in the energy supply sectorhas propelled the assets of ourinternationalbusi-nesses to more than one-third of CMS Energy's total. rasitna s ceuw van eoretic pneratsry pbnt and CoalmirW Wa5 Vielargest hWimndrntynwrproyn1 MS Energy solidified its Several recently completed nnarummtustory n, inntm*s as ement e global energy leadership plants also began operations. "" }*#[ in 1997.The company expanded The 128 megawatt YPF La Plata its net interest in independent plant, southeast of Buenos mye a stravsa ws, generating capacity by 110 per-Aires, supplies two oil refiner-cent and started construction of ies, including Argentina's one of the largest new pipeline largest, and sells power to the projects in the world. country's spot market. CMS A CMS-led group acquired also has ownership interests in the 2,000 megawatt Loy Yang the 60 megawatt Jamaica power power plant and coal mine in plant and the 235 megawatt southeastern Australia. It is GVK Industries plant in India. Australia's lowest-cost generating The additional generating facility and its largest producing capacity helped push operating coal mine. income for the independent The company and its partner power business to $96 million in also acquired the 660 megawatt 1997, an increase of 43 percent Jorf Lasfar facility, the first priva-over the previous year. tized power plant in Morocco. CMS Energy's utility plants, Construction already has started all located in the United States, to double the plant's size to performed at an outstanding 1,360 megawatts. level in 1997. Baseload fossil When that expansion is com-plants had an availability rate of pleted, Jorf Lasfar will stand nearly 87 percent, the second-alongside Loy Yang in Australia highest in their history.The and the Midland Copeneration Palisades nuclear plant gener-Venture in the U.S., as the largest ated f,800 gigawatt-hours of independent power plants on electricity,its highest produc-their three continents. tion eve; by over 9 percent. 9

ENERGY DISTRIBUTION ConsumersEnergyhas worked ? hard to positionitself for competition from electricity and naturalgas suppliers. c p .w o a EU.S. electric utility indus-froits to deregulate the remain regulated. and would continue to be provided by AltialgtlDe stipinnes of try took an important leap existing utih, ties, including eectray ano returarp, are twormnp oereguorea forward in 1997, when several Consumers Energy.The plan

- * * * "o'#5 states decided to open their mar-contains a critical provision for Ull!!ff bustles $ Wtf CollVilUe kets to competition. Beginning shareholders. It permits full rivrgy.m continue ro this year, consumers in recovery of past investments Fo* #5'So'" $ $

California, Pennsylvania and approved by the Commission in 31 mdhon Custonwis Ne.v llampshire will be able to power plants and power supply choose their electricity supplier. contracts that might be stranded Recognizing the inevitability because of deregulation. of customer choice, Consumers Consumers Energy also is Energy has been in the forefront supporting competition-related of proceedings to design a bills that are being considered by competitive system in Michigan the Michigan Legislature.The that balances shareholder and bills would complement and customer interests. Many of our codify the regulatory proposals. ideas are included in a series of Meanwhile, Consumers Gas very constructive Michigan is launching one of the country's Public Ser ice Commission orders largest pilot programs that gives issued in the last nine months. natural gas customers a choice The Commission plan pro-of suppliers. The Commission-vides for a four-year transition approved test will phase in period beginning in 1998. At customer choice over three the end of this period, all cus-years, ultimately giving 20 per-tomers would be able to choose cent ofour customers the their electricity supplier, freedom to select their natural Delivery of the power would gas supplier. Consumers Energy will continue to deliver gas and charge a transport fee. f3

c~ne,u-g, erpaynes wwudbng. _t s s gruehng hours to awcwy w restore eiecVg servce InterrLptedby 8 mBfor Metugan te storm While competition will bring during the heating season were maintenance expenses for both dramatic changes, we have been warmer than normal, which gas and electric customers to preparing for them for several reduced gas deliveries to 420 fourth-lowest in the nation, years, so we face the future with billion cubic feet,6 percent The company also is applying confidence. As 1997 demon-below 1996 levels. its expertise to non-traditional strates, Consumers Energy is We continued to increase opportunities. For example, we quickly adapting to the new our customer base during the have contracted with three market with an innovative blend year. We added 29,000 new nat-Michigan cities to read their of core utility services and non-ural gas customers, along the water meters, and we are provid-traditional products. way celebrating the milestone ing billing services fer one of That performance pushed addition of our 1.5 millionth the cities.The company has 1997 operating income for the customer. We also added 23,000 contracted to read 15,000 gas gas and electric utility busi-new electric customers. meters of Michigan Consolidated nesses to $585 million, a To keep pace with this Gas Co. in Greenville. growth, we expanded our gas We also have reached state-system with 500 miles of new wide site-leasing agreements y gas main in 1997. We plan to with two telecommunications install another 530 miles in 1998. firms.The firms provide per-1- In the process, we improved our sonal communications services gas main unit cost by 5 percent. similar to cellular phones, and The company's virtual call will erect towers, mount antennas Empbrees at te Freedom (Ungessor Statoon and ""* P"& "

N W' A*"

simriar raaates mrmewt uenigan. v s piar an [',"][' '[""" #'" '""'{ nwoont ise m Aeemng co t*ve teet or natsraivas it handled a record number of moving e nomes emesses customer calls during a severe ,,,ceaea,,nyest,,e n,n,yy,m,mty,,tga, cy, ton, 3 percent increase over 1996. ice storm. Although the storm The earnings are particularly held southern Michigan captive impressive becarse of the nega-in a sheet ofice for days, down-tive efTect weather had on sales ing trees and power lines and during 1997. Temperatures stranding 270,000 customers from April through October-without electricity, employees w hich includes Michigan's nor-had customers re:onnected mally heavy air conditioning within six days. Despite the dif-season - averaged the coolest ficult working conditions, utility since 1864. Still, electric sales employees had the best safety increased two percent, to a record in their history. record 38 billion kilowatt-Employee innovation hours. Conversely, temperatures helped push 1997 operating and 14

For the 5th straight year - and the 11th in the last 13 - the Nationai Safety Councii named Consumers Energy the safest utility of its sizein the UnitedStates, watch oma distribution twtmvh thatsenes273luO Argentire custoners. based upon Consumers the countries in which it operates, Energy's system, for allocat-and is an important part ofCMS ing capital and maintenance Energy's international expansion. resources. That growth continued when O.

Reduced purchased power CMS partnerships acquired

^ unit cost by 19 percent. interests in two electric distribu-or string fiber optic cable on com-At the beginning of 1997, tion companies in Brazil.The pany facilities or rights-of-way. CMS introduced an economic operations have a combined CMS Energy had similar suc-development program to help 634,000 customers and 2,310 cess in 1997 with international Entre Rios retain and expand gigawatt-hours of sales.They energy distribution. existing industry, and attract operate in the states of Sergipe, Empresa Distribuidora de new business to the province. Minas Gerais and Rio de Janeiro. Electricidad de Entre Rios, S.A. In the first year, the program has CMS also is part of a consor. (EDEERSA), an electric distri-developed 40 business opportu-tium exclusively negotiating to bution company in the province nities, expected to generate acquire and operate Turkey's of Entre Rios Argentina, com- $20 million of new investment Bursa-Yalova electric distribu-pleted its first full year under in Entre Rios and create or tion system. It distributes 3.3 our ownership with impressive retain 500 jobs. billion kilowatt-hours annually improvements. CMS acquired The Entre Rios program is to 700,000 customers near the company in May of 1996, as based on a highly successful Bursa, about 60 miles south part ofArgentina's program to plan developed by Consumers ofIstanbul. privatize the government-owned Energy to help propel Michigan's energy industry. growth. The plan has proven its \\.(( ~ EDEERSA increased sales to value to Michigan for years, M'- E" 1,039 gigawatt-hours in 1997, making it a key partner with the mas * ~ serving 223,000 customers in state in developing newjobs. In MNOoN y h fx '~a the province that is located 62 1997, that program helped u miles northeast of Buenos Aires. Michigan develop S247 million [" iG' Its ratio of customers served per in new or expanded business, i ~." employee dramatically improved and created more than 1,600 ghw, from 340 to 435 customers per newjobs. That growth also will employee. generate 55.7 million annually In 1997, EDEERSA: in incremental electricity and

Reduced power losses by natural gas sales.

ht 7 percent. The economic development Empes of Ayntirrs DUO ektx estobutton

Established a sophisticated program is part ofCMS'corpo-cg,,,r ;,e tnee us counterwrs - nme cus.

decision analysis system, rate citizenship commitment to romer sewe s tx unty l 15

% 3.;r s.' .. a w e..,. w.,,,. r,.. s. 6,,q..q q c,e.

9. y~

s a. e.n.>. ; ~. :. ~ ~ 7 g g..... f.y. -. + e < e u..,. g,, r ':9 - M...... y... ..c.. .+- - , M. h. ',y,;? :. ..:, ? v.y ;.K b.,

j L

y

.y *Q,:... q.i. . p o.n

.. u s.

,e, - g

4

'JS.D;p" ' '.' - ' G 4 " O ;'.. A r< y'. M, sg. ,fs. Y'y. C,..[. k. ;h.b E.f.1 $.d:y' !. , g y:f l],.; ff*}%, %,./_, l L ' } % 7; 3 3,q u

g. f: ?,

. 9 Q, 4 C i t '.' 4 V ' TC.. 7M x .. ;V' rt y. n,. q..,.., _.; 7..t.. m. y u.. m..

c.,; -

v.... a 5. g.., p - .n.;., 2? .; :J- ; ;; *. : ( ~.. :.; p.- kf97 ?. 'W. J A >\\ ,,4,

y. -

.cx.a..<.7.... ;.u. x > :. :. '.. m + y y ~ :. : n : :.>." y

v...;. ;.

y xq.;. v. - h... -. . g;. m y.v. -..s '. e -7>~- .;e

y_.: w.. 3 -

w< . g. -3 o. uX. _J. fj '[... n-i - 6 4:. n. ..; 9. n.. y .s 3b .r.- .> ?. s.f. ~:*.b. . J.':l '2 U .I..; n - ;.;. a~.;wg}.; .y \\ .. ;. Q :).'F \\_ ' .. x e;,n..'. 3 / 3 y.,.y.. . a, ;g.g g - m..., x y < 6.... 7.,. q...., 7 s... .m.. r.- .....,.a.. .o cy:. p g. ,( j;. i <. ' : ...L %y 'g 4+ i. .? ~ . l _l*,\\..u.;;a..if.s" /.l,' ((..&.ougf;p d~'...

A mac

...v f....- n............. .gg a. g t.3 m. 4 1 y, .., gy. o.3 -x k(' ( s... }.. : [, :.;. b f 'l.' O 4: ~': l:. .l.. ' W'- L a\\. y- . c..n> ;. y.. sj:- n a .. ?.:: :s

.p.

.s . '....g.. \\) Q.1 l [* ) &v. o,... c /. : ~ y n .~.. ".. ;.. 'j*:.] y. i, ', j,' ;,. s. - q 0,; \\' y Q,.

p y

(.

s. ;. Q.. -

.g -; i 11 9 , ?..l... pf 'n

g.;

_. I ;.,3.,. g.,.. - Q _, ' ;.r \\, * ;;,3.y: 3.. ,.,'..,7... Q, . l..:*.%';p. i 3.... * * -,. */:" Q.;;.? 1.:. J':- xv m. v' t,e.. Q , :q. . L.. e, ...~; '(,

.. s. m :. t.x.... c._......

'. :. g ;p....,....

f..,;:. s 1 -...

,,.,.,,. * *.-. -_l . :w. -.- r v v. c s.f.... ; ;; s.. 7 v.e.. /......

. v :..~. x.,.,

n ~ :..... y*,,, *..: . ; '. 3..- - .t .. e y '~.. ,.., N.,,f Y

o

,.s :. *r f' L

.e. . r'- . ; _[.c [.qf,f *.},[. jW......'l ' ~ .o t.l,. .. ) /:e , y. R. ^,T- ,f, 9.;, {,

T -' ' '. '.

.g #.' jj f ~. ' y ,i. ,' l.} ], t -l 1, '

.s

,,(.. a ~ m..., ) '.,3,_ A. ' L. )-[ a: i;Q J_ .,e . *) ;. _, Q ..; a.; y.. ;-. s t,

7...,

.*3-..,...-- +..,. -* x a.

.....' ~ ( ;j $.,... w

%;..,... ; '?:..?;..,g"....

~,.?.. .\\

l.

.L J e \\'. % s: 4 .:,; x : ,.7; y %~ O . e .,,,... _~,.. f ',. c( ;;,", j,. - ..;,.g.., ~l ~;. a :.-,. j. i, ~G.. - ' ;~,. ] .1, , jf. :g..,..,.'-.,.,'."',;l'. ,_,c.. -..;.3. y ,. ;..f,1,, 2 C .. 3 -( 3 f ,;..,..;..*..-.w .t .g.. _p._. 9-a ,x, . g;. n .c i ou a i o ..~..>.: ~ .3 ...-... v. ~..v...,.. ~. f.l';l. ' iy ... %... ;. t .s, , [ ' i ;. ; ,....[- .s .e e Y. } ' 5,. ',..... * [, ?'[ ^ [R [ U gl ;., ~., ' l '

,;,' [*

, ' ['

u. L.'

Q' g W h&;.'N Q:f, o' R, f..lp. ', :,. .l :.'.4.,' ?E : (u. I R'" a.,. .p,. r.it; .e.. - [. - .l JH; i ~. . ;~.,. p _,.y {Ij . q..v,: ..f.-

r...

.% 'i W ?ll% ' J ' h' .$\\ g- .o 4 l-c v.. ,y .I.... II 5':- l 1,,.{m'"..,. s{'.,'.

3'. ;. _

d..,.., f, ' '.~~,).., ,'.L . E

..c i

~.. ,.....,..s 5..:

, 4

,'[ (; .. (. ; [' a k,,'y,'..- .Q. 'sv..;...,q 1 :..,j ' -' ' 'a..*. ' ? '. ' " .k ;. [., "',i c '< '. - '~ b. ,[ l' c;:. .,.. './; 1

F- '

.s p,;._ ,..:; - - f.; _ _ ;l r .a-(

"., }. c.,.c.u.:,.','s [f..f..,!

. e.?9;i - . [: l.. - / .l j', u. = 4, v. e.b.; .. Q. _., :.;;,: ' :.. :y. o 3 A.. ^ ~. - 4. . : J,P : *,

3 gw,., '..

4'

' - *. { - [ _ ', ; -; _

..., M h, :, ' ;' f... x ._ [. 3 ,..'a.;, j '.. ?"m. w.,.,.., N, - f. f.. l',,' .. e' ;.- n _,.. :. :. .3

# y ;;q 1.g,;;r ;. * *

..,, ',... ~.

s:,

.. ~ ' _{ :,._ . t: b :,. i..'. L, *s :. J. .*\\*^'~ .I ' -'3..'.

y,,. s p :. v._..! ;_ _ ?. '.', ; *. _ :. ';. ', ; ;l.

i...

v. -

.e....' . s , y.., .a.. .o

w

. ' - <. +'.:. r. . :.?. .y' t.,:.'. -

.g _

w

,. y

, 3 .'r.

.. j, y il. :j{ '[y,;;' j..;g, q:,f. -l,...

,yg,- q. * : v:... - '.c* ^ ,... i er.,. -,,,, Q,,. ; 2 4. 3, : ;. ). '..d. ;;%. ; " ->.. ; e ". c<;..,. ;. j.;J :-... ...77 j2' .., ;..~ r .s %'(, w** ? N ~ v r,... - ;~:.......,.: -c ..,._3~,...'.,. y; * '. a... ~. o ;s. ~.... ;, 'y - - - ~,...~..-.. '- :,.. 2 i:; _ y <:' :; >' ' ' ,. i ).*;., L. .l. f.? h,.*f.::l ' f, '^. ?, ',.}.j; ' ' 1 p., . j..,,. _ 3 ^ g.b, *: _ f,. l. 3: ' }:E ., ; l' 'ly;. ^ }. ' ' [l'_"[I ^

9. ::.:l* * * ' ;Y ' :'..:-G -

); ; ;.. {%... .-, ;r ,.<;<-. -b ,-,l....,.... _ '.;.., ; n,;g.. n f. y,.

p.,. -

.] - 1;. '^. ' m.

,~

'y. f ,..f }- j - 1 - g.. /., - l.. .5 .s,, . yJ f _ : 7 ..,.,',.......,;s ,t -... ~.. '., ' ~3....v.;. , _ ;+. s s_- ?.. . ~ ' - y _.;. _ ; <. ;; l,, [ ' - '-.i ).. : - .....o, ..g.. ge- '.gm f-g. -._cy ..n, ^, ., ' -.. '. ~. -t'. 'n '_i. ; _ ' '. __ [. ~' s, r f.,, ,;.~ , I.,, / ' ',I '.. l. *; } ((.... , '.; ; }. [, ? \\... ;,, '. l. ~ '. ". _; Q,,,, i_ '. _ ; ',, '. *L.. - - Y '- ' '. ~-'_ ' f_ ' ~l,- . f _ t. }.., M o,. _ f,y __ " i * ; _. 'e[';(,....,-- - , ',, ) (. 7:, r * ... * ;;. '...... ; :. l -...~ f :. < ', .Q,..., p. e i ...; C C. f 'y...'- t- '.: -. ,r.' . ;. s . ee .: - T.' t,g'r..; j,K;Q: j f 4..,', '.. - .,[, -L 3

-}. ?, '. '. ' -.

3, -, ...."j......'- -...p 3. s 4,. 7.' hii3.. J; ; y

r i

c. , i., -8, ,o ( [, '.d.~~_ ;;\\ ': i ; l.., Y; 7 ' '_.[',* _ '.} .., ;y. [ ' ' - y. _. ~.; y.l _' ~.,,, -

.. _ I,,

L' 4 o.{ g, b.':' -.. +.. . ; -........ :. ~ '... ~ ..,, p. - t,. ., '.. -..* '..+.. ' i-r - 4,.__. ,c,..;. s. X, ~-.- f.,. ,- -,.s. g

c.,...

'.N

ENERGY SER VICES CMS Energyis developing ~ exciting newservices, and creating new opportunities, as the competitive market unfolds. Wstates on the brink of ith Michigan and other The compam carbon monoxide protecuan program full electricity and natural gas continued to be one of the competition,it will be critically national leaders.The program important to develop non-tradi-provides residential, industrial tional services and to approach and commercial customers traditional services in non-with carbon monoxide detection traditional ways. units, marketed under the In 1997, these services con-Consumers Energy name. tinued to prove their value in The success of temporary developing an additional rev-heating and cooling programs enue stream from customers and grew. A construction heat pro-in building customer loyalty. gram, which provides temporary heat to construction sites in Utility Value-AddedServices cold months, for the tirst time Consumers Energy has an surpassed 52 million in revenue expanding list of value-added during the 1996-97 heating services for residential cus-season. A temporary cooling tomers.These services focus on program, introduced last sum-k the comfort, convenience and ,,,,,,,,,,c,,,y mer, ofTers portable spot air fumacesswortemaa safety ofour customers. Last conditioning units for sale or year our flouseCall appliance rent to commercial and indus- ,,, gn,,,,. service contract program, trial customers.The units can sewes-such as cm ofTered since 1995, increased save businesses from expensive the number of participating retrofits. customers by 68 percent.The lleating and Cooling Solutions mureemeuteinosm program ofTers service and last fall began helping our cus-repair of most major appliances tomers replace their furnaces or for residential customers, apart-air conditioning units.The pro-ment complexes and businesses. 17

nen amnsMnm openesitsewc atty manet m comperrte cafs somer, semces are reaang focus of the company is to pro-P=N 7- ?"y tours entumnes semno uwustnai customers m vide energy marketing, energy L I,

H, ;

Hae Plttsburgn area services and tradmg activities f gram refers customers to dealers for larger comrnercial and in our dealer network and offers industrialcustomers. Although financing for the units. CMS MST experienced a small loss associated with start-up Starf-Up Year costs and gas market cor.Jitions Revolutionary changes in the in 1997 it completed its first United States energy industry year of business by establishing continue to create unprecedented strong footholds in several busi-ness sectors. The company expanded the range of fuels in its marketing Otres hke chetsea, Archgan, are tarnrog M ChfS Energy portfolio by acquiring a 50 per-cent interest in Texon LP, a $1 billion (revenue) Houston. that allow buying, selling, trad-based oil and natural gas liquids ing and movement of power. marketing and gathering busi. Through year-end 1997, the ness.This acquisition adds company bought and sold about crude oil and petrochemical-9@,WO megawatt-hours of elec- ^"*""""#"'""t,nteret n renon cearon tricity in the U.S. Its electric based li uids to its 9 amt crus on ano perrxnemcarcaseo nums te rne porruo ot tes mamereny cats Afaaets fuel-marketing capabilities, commodity trading room oper-8"'" 8'# #"5 which already include natural ates around the clock, seven days gas, electricity and coal. a week. In Argentina, the com-opportunities to capture new and The volume of gas marketed pany has a 17 percent market redistributed electric markets. share with I80 electric contracts. by CMS MSTin 1997 increased CMS Marketing, Services 125 percent from 1996. A total CMS MST also successfully and Trading - CMS MST - of 243 billion cubic feet were entered the Pennsylvania was established in 1997 to pro-sold in 1997, compared with electricity market. Under a vide the marketplace with 108 billion cubic feet the pilot program, CMS MST has one-stop shopping for the com-prior year. signed contracts to provide mercial services of CMS Taking advantage of emerg. 10 megawatts of electric:tv to 59 Energy's utility, oil and gas pro-ing deregulat on in parts of the customers in Pennsylvania. i duction, energy marketing and U.S., CMS initiated nearly 200 Among the clients are PPG gas pipeline businesses.The agreements with utilities, trans. Industries, Westinghouse and mission entities and marketers General Electric plants. rJ

~ x Value-addedservicesareproviding new opportunities for serving traditional utilitycustomers. In Michigan, CMS signed a energy consumption by at least five-year contract to manage the 5 percent. electric power supply for the CMS MST has also entered village ofChelsea. CMS MST intoan agreement with Rockwell expects to save the village International. Utilizing its broad money by helping procure and experience, CMS MST will schedule its power supply. study various Rockwell facili-The company has also signed ties across the country and assist more than 300 contracts to man-them with gas procurement. age energy services forother CMS MSTis also discussing companies, including Cascades service contracts with various Engineering, Fasco D.C. companies in Argentina. Automotive, Citizens Bank, CMS energy specialists can Frankfort Manufacturing, and lower a business' energy costs Indiana Steel & Wire. through services such as fuel One of the arrangements is comersions, equipment mainte-with Graceland Fruit Cooperative nance and energy optimization. - which dries and freezes cher-It also concentrates on saving ries and cranberries at two money through the redesign or facilities. Under a three year retrofit oflighting systems;in contract, CMS MST is evaluat-1997 the company completed ~~ ing Graceland's water, air, gas, more than 145 lighting contracts electric and steam use, and ree-or retrofits. ommending ways to shave With its team in place, multi-ple product and business lines e>tablished, and target markets identified, CMS MST is well positioned to take advantage of the opportunities afforded in the rapidly changing energy marketplace. f*d"S"' 8'C "8""*5 Eregesresetan KEV 0ffarf6 toHK1Jik cesrtctor twatpomus atosentcornidenesand 8 hsCfB!!veifa%Pt10f pysyS$p5 gigg g g7n Consurrers Eregy arti Iwk:one trotn custones IP6 Contracto!S ColttH10P sgrk donngMichigans cold winter rnonins 19

CMSBegy Corporation OMSEnergyOSr$0rit/On(CMS '. This Annual Report contains forward-looking statements, as defined by the Private Securities Litigation Reform Act of EnergyllMepamntholding - 1995, that include without limitation, discussions as to companyofConsumenEnergy expectations, beliefs, plans, objectives and ruture financial C0mpinny(Consumen)andCMS P"'"""*""'""*""P"'""d""""e"""'"** ters discussed in this report. Refer to the Forward-Looking - EnterprisesCompany(Entetprises).. Information section of this Management's Discussion and ..C0hs#mersisaCombfgallonelec-Analysis (MD&A) f r s me imp rt nt f et rs that could cause actual results or outcomes to difTer materially from tricandgasutigtycampanyserving those addressed in the forward-iooking discussions. theLnwerPeninsulaofMichigan aggut7s oropega7;ogg andisthe91inClyglsubsidlaryOf CMSEnergy.Consumerdustomer ^ cusEnergy ConsolidatedEarnings ,,,~,n.,s,,-_,, baseincludesamixofresidential, ? Consolidated Net income 5 268 $240 5 28 commercialanddigretsilledindus-Nc'l"c"K^,";b"b'c '" '""*"" stocu,: g titalcust0ntets,thelargestseg t.arnings Per Average Common Share: mentofwhichistheautomotiva 'MS 'lc'n w w n industry.Enterprisesisengagedin c,, lc' h severaldomestionndlaternstl0nal " 'c *"" "'cd gggfgy.fgfgggg gggggggggg gggfgg. - CMS Energy experienced earnings growth for the fifth con-secutive year. This historical growth reflects changes m regulation ..ing!acquisl#0n,deFelopmentand allowing CMS Energy to invest in other states and countries, and to ofter a full range of services and fuels. The increased earnings 1 -Operat/On#findepend#ntpower for 1997 resulted from (i) a February 1996 electric rate increase peduct/Onf#c///fles; ell.endgas received by Consumers that benefitted all of 1997,(ii) increased .. eKplorafl0ngndpfDd&C#pn/stor' - electric sales by consumers,(iii) improved earnings from the " 'd' "d '"*e""" " *"'""' ""** '*""eh' " ( "'" age,transnns$101iandprocessing Partnership) (iv) increased revenues from the transmission of ofn#turafgastenergyrnarkat. electricity for others, (v) increased income from international ing,servicesandtrading;and - indePende"t Po*er Prod"e'i " 8"o (vi) incre" sed income fr

international gas transmission, storage and processing. Partially Intemat/0nalenergyiftstribut/On. -

ofTsetting these increases, however, were (i) decreased gas deliv-eries by Consumers due to warmer winter month temperatures in 1997 and the loss of an extra day for the 1996 leap year. (ii) marketing losses due to lower gas margins, and (iii) lower gas production and lower oil and gas prices in the oil and gas explo-ration and production business. Earnings for 1997 also included ~ recognition of a gain on the sale of CMS NOMECO Oil & Gas Cols entire interest in oil and gas properties in Yemen, an industry l expertise service fee in connection with the Loy Yang A acquisi-l tion, a gain on the sale of the Ames gas gathering system, and 4 e

O 1 CMSEnowcorporation Consumers' adjustment of prior years' income taxes associated sources to meet increased sales demand. The following table 4: with non-taxable earnings on nuclear decommissioning trust quantifies the changes in electric power costs: k funds. Comparatively, the 1996 results included a gain on the i,, um-y sale of a power purchase agreement by a partnership in which Years Ended Duenar 31 W m G ange m W G ange. # CMS Generation Co. (CMS Ceneration) owns a 50 percent inter-51.139 $1.087 $52 51,087 $970 5117 .D est, a gain on the sale of a partnership interest and a refund = received by the MCV Partnership. h Electric utility Operatingissues: The increase in consolidated net income for 1996 over 1995 primarily reflects the favorable impact of an electric rate increase Itmer Pwthasesfmm the MCVPartnership In 1992, -h and an operating income increase from a refund received by the Consumers recognized a loss for the present value of the esti-m MCV Partnership that prosided a 56 million earnings benefit for mated future underrecoveries ofpower purchases from the 't CMS Energy. Earnings in 1996 also reflect increased electric MCV Partnership.The afler-tax cash underrecoveries are cur-O sales, gas deliveries and revenues from gas loaning activities. rently based on the assumption that the Midland Cogeneration "4 Consolidated net income was also affected by increased earnings Venture Facility, a natural gas-fueled, combined-cycle cogenera-N from CMS Gas Transmission and Storage Company's (CMS Gas tion facility (MCV Facility) will be available to generate electric- :.. Transmission) 25 percent ownership interest in Transportadora de ity 91.5 percent of the time over its expected life. For 1997, the Gas del Norte S.A. (TGN), a riatural gas pipeline located in MCV Facility was available 99 percent of the time, resulting in Argentina, and increased equity earnings resulting from the sale afler-tax cash underrecoveries of $41 million. Consumers of a power purchase agreement. CMS Gas Transmission and believes it will continue to experience after-tax cash underrecov-CMS Generation are subsidiaries of Enterprises. eries associated with the Power Purchase Agreement between For further information, see the individual results of opera-Consumers and the MCV Partnership (PPA)in amounts as those tions for each CMS Energy business segment in this MD&A. shown below. For further information, see Power Purchases from Electric Utility Results of Operations in Mdhons Bectnc Pretax Operatingincome: 1998 1999 2000 2001 2002 Estimated cash under-Change Cornpared to Prior Year 1997 is1996 1996 1 95 Sales (including special contract discounts) 55 51 Consumers bases the above estimated underrecoveries, in part, on an estimate of the future availability of the MCV Facility. If per ion dnn ac General taxes, depreciation and other (19) (14) the MCV Facility operates at levels above management's estimate Total increase >(decrease) in pretax over the remainder of the PPA, Consumers will need to recognize operating income 5 21 5 39 losses for future underrecoveries larger than amounts previously Electric Sales: Total electric sales in 1997 were 38 billion recorded. Therefore, Consumers would experience larger kilowatt-hours (kWh), an increase of 2.3 percent over 1996 sales. amounts ofcash underrecoveries than originally anticipated. The increase reflects continued economic growth in Michigan Management will continue to evaluate the adequacy of the and a 1.2 percent increase in sales to ultimate customers, primar. accrued liability considering actual MCV Facility operations. 5 ily within the industrial class. Total electric sales in 1996 were Electric Rate Pmceedings: In 1996, the Michigan Public 37 billion kWh, an increase of 4.4 percent over the 1995 level. Service Commission (MPSC) issued a final order authorizing ~ ~ The increase in 1996 is primarily attributable to an increase in Consumers to recover costs a3sociated with the purchase of an addi-intersystem sales and a 1.7 percent increase in sales to ultimate tional 325 megawatts (MW) ofMCV Facility capacity and to accel-customers. This increase also reflects continued economic erate recovery ofits nuclear plant investment. To implement the growth in Consumers' territory. accelerated recovery, the order required an increase in annual nuclear -('. Itmer Costs: Cost increases in both 1997 and 1996 over the plant depreciation expense by $18 million with a corresponding r prior periods reflect greater power purchases from outside decrease in fossil-fueled generating plant depreciation expense.The order also established an experimental direct-access program. i gg

CANAGE"ENT'S DISCUSSION CONTINUE 0 CMSEnergyCwporaten For further information on these issues, see the Electric Business emissions, and proposed that the State of Michigan impose addi-Outlook section of this MD&A and Notes 3 and 4. tional nitrogen oxide limits on fossil-fueled emitters, such as Nuclear Matters: In January 1997, the Nuclear Regulatory Consumers' generating units. It is unlikely that the State of Commission (NRC) issued its Systematic Assessment of Michigan will establish Consumers' emissions reduction target Licensee Performance report for the Palisades nuclear power until mid-to-late 1999. Until this state-mandated target is known, I plant (Palisades). The report rated all areas as good, unchanged the estimated cost of compliance is subject to significant revi-from the previous assessment. sion. The preliminary estimate of capital costs to reduce nitrogen The NRC requires Consumers to make certain calculations oxide related emissions for Consumers' fossil-fueled generating and report to it on the continuing ability of the Palisades reactor units is approximately $175 million, plus an additional amount vessel to withstand postulated pressurized thermal shock. In totaling $ 10 million per year for the rext 20 years for operation 1996, Consumers received an interim Safety Evaluation Report and maintenance costs. Consumers may need an eqrivalent from the NRC indicating that the reactor vessel can be safely amount to comply with the new small particulate standards. The operated through 2003. Consumers believes that with a change in State of Michigan objected to the extent of the proposed EPA fuel management designed to minimize embrittlement, Palisades emission reductions. If the State of Michigan's position were to can be operated to the end ofits license life in the year 2007. be adopted by the EPA, costs could be less than the current esti-Palisades' temporary on-site storage pool for spent nuclear mated amounts. Consumers supports the bipartisan effort in the fuel is at capacity. Consequently, Consumers is using NRC-U.S. Congress to delay implementation of the revised standards approved steel and concrete vaults, commonly known as " dry until the relationship between the new standards and health casks," for temporary on-site storage. improvements is established scientifically. Big Rock Point nuclear power plant (Big Rock) closed per. Under the Michigan Natural Resources and Environmental manently on August 29,1997 because management determined Protection Act, Consumers expects that it will ultimately incur that the plant would be uneconomical to operate in an increas-investigation and remedial action costs at a number of sites. ingly competitive environment. Consumers originally scheduled Nevertheless,it believes that these costs are properly recoverable the plant to close May 31,2000, at the end of the plant's operat-in rates under current ratemaking policies. ing license. Plant decommissioning began in September 1997 Consumers is a so-called potentially responsible party at sev-and may take five to ten years to return the site to its original eral contaminated sites administered under the Comprehensive condition. The earlier than planned closure of the plant and the hvironmental Response, Compensation and Liability Act reopening of the South Carolina Barnwell facility to receive low (Superfund). Many other creditworthy, potentially responsible level radioactive waste have changed the method of decommis-parties, with substantial assets also cooperate with respect to the sioning from the safe storage option to immediate dismantle-individual sites. Based on current information, management ment. This change could have an impact on the estimated believes it is unlikely that the liability at any of the known decommissioning cost which is required to be updated in a filing Superfund sites, individually or in total, will have a material with the MPSC by March 31,1998. For further information on adverse effect on CMS Energy's financial position, liquidity or nuclear matters, see Note 11. results ofoperations. Electric EnvimnmentalMatters: The Federal Clean Air Act, While decommissioning Big Rock, Consumers found that as amended (Clear Air Act) contains significant environmental some areas of the plant have coatings that contain both metals provisions specific to utilities. During the past few years, and polychlorinated biphenyls. Consumers does not believe that Consumers incurred $46 million in capital expenditures. any facility in the United States currently accepts the radioac-Consumers believes it may incur an additional $30 million in tive portion of that waste. The cost of removal and disposal is capital expenditures by the year 2000 to comply with the current currently unknown. These costs would constitute part of the cost sulfur dioxide and nitrogen oxide emission limits established by to decommission the plant, and will be paid from the decom-the Environmental Protection Agency (EPA). missioning fund. Consumers is studying the extent of the con-Consumers currently operates within all Clean Air Act tamination and reviewing options. For further information requirements and meets current ozone and particulate emission regarding these and other environmental matters, see.lectric r limits. The EPA recently res ised the national air quality standards, Environmental Matters in Note 10 and Nuclear Nnt which may further limit small particulate and ozone related Decommissioning in Note 2. 22

o le CMSEnergyCorporatsort Stray Voltage: Various parties have sued Consumers relating decreased deliveries for 1997 compared to 1996 reflect warmer to the effect of so-called stray voltage on certain livestock. In temperatures in 1997 and loss of an extra day for the 1996 leap December 1997, the Michigan Supreme Court remanded for year. Comparable system deliveries for 1996 totaled 448 bef, further proceedings a 1994 Michigan trial court decision that an increase of 44 bef or 10.8 percent compared to 1995.The refused to allow the claims of over 200 named plaintifTs to be increased deliveries fbr 1996 compared to 1995 reflect growth l joined in a single action.The trial court dismissed all of the resulting from customer additions, conversions to natural gas plaintifTs except the first-named plaintiff, allowing the others to from alternative fuels, continued strength in the Michigan econ- ] re-file separate actions. Of the original plaintifTs, only 49 re-omy and the benefit from the added leap year day in 1996. filed separate cases. All of those 49 cases have been resolved. Cost ofGas Sold: The cost decrease for 1997 was the result of The Michigan Supreme Court remanded the matter, finding that decreased sales and lower gas prices. The cost increase for 1996 the proper remedy for misjoinder was not dismissal, but to auto-was the result ofincreased sales. l matically allow each case to go forward separately. Consumers ima-filed a motion for reconsideration with the Michigan Supreme Years Ended December 31 1997 1996 Change 1996 1995 Change Court, which was denied. Consumers intends to vigorously 5694 5750 5(56) 5750 5674 576 defend these cases, but is unable to predict the outcome. As of December 31,1997, Consumers had 12 individual stray volt-Consumers Gas Group Operating Issues: age lawsuits, unrelated to the cases above, awaiting trial court action, down from 22 lawsuits as reported at year end 1996. Gas Rate hoccedings: Consumers entered into a special natural Other In October 1997, two independent power producers gas transportation contract in response to a customer's proposal sued Consumers and CMS Energy in a federal court alleging to bypass Consumers' system in favor of a competitive alterna-antitrust violations and economic losses due to special electric tive. In 1995, the MPSC approved the contract. The MPSC contracts signed by Consumers with large customers. The plain-stated, however, that Consumers' shareholders must bear the rev-l tiffs claim damages of $ 100 million (which a court can treble in enue shortfall created by the difTerence between the contract's { antitrust cases as provided by law).The transactions of which discounted rate and the floor price of an MPSC-authorized gas plaintiffs complain have been regulated by, and are subject to, transportation rate. In 1995, Consumers filed an appeal with the the jurisdiction of the MPSC. In November 1997, Consumo Court o' Appeals claiming that the MPSC decision denies and CMS Energy filed a motion fbr summaryjudgement and'or Consumers the opportunity to earn its authorized rate of return l for dismissal of the complaint fibd by the plaintiffs. Consumers and is therefore unconstitutional. In October 1997, the Court i and CMS Energy believe the Ir.wsuit is without merit and will ofAppeals issued an opinion affirming the MPSC's order, vigorously defend against it, but cannot predict the outcome of Consumers has sought a rehearing of the Court ofAppeals this matter. opinion. For further information on Gas Proceedings, see the Consumers Gas Group Business Outlook section of this MD&A i Consumers Gas Group Results of Operations l and Note 4. GasPretax Operatingincome: Gas Cost Recovery Atatters: In i995, the MPSC issued an order favorable to Consumers' position in a $44 million contract ian-f Change Compared to Prior Year 1997 ts 1996 1996 vs 1995 pricing dispute (excluding interest) between Consumers and cer-S2.les 5(13) $3 tain gas producers.The Court ofAppeals upheld the MPSC Gas holes lean r semces activities ) 7 order. The gas producers have now appealed to the Michigan ) General taxes, depreciation and other (7) (4) Supreme Court. Consumers believes the MPSC order correctly Total increase'(decrease) in pretax concludes that the producers' theories are without merit. operating income 5 (5) 52 Consumers will vigorously oppose any claims the producers Gas Deliveries: System deliveries in 1997, including miscel-may raise, but cannot predict the outcome of this issue. laneous transportation, totaled 420 billion cubic feet (bef), a decrease of 28 bef or 6.1 percent compared to 1996. The 23

a MANAGEMENT'SDISCUSSIONCONTINUE0 wSEmq Cwwata Gas EmimnmentalMatters: Consumers expects that it will Oil and Gas Exploration and Production Results of Operations ultimately incur investigation and remedial action costs at a Pirtax OpemtingIncome: The oil and gas exploration and pro-number ofsites, m. eluding some that formerly housed manufac-duction segment of CMS Energy experienced continued growth tured gas plant facih.. ties. Consumers estimates its costs related to m 1997. Pretax operating income for 1997 increased $11 million investigation and remedial actw.n at $48 million to $98 milh.on. (28 percent) over 1996. This increase is the result of a gain on the Th.is estimate is based on und.iscounted 1998 costs. Any s.igmfi. terest m oil and sale of CMS NOMECO Oil & Gas Co.'s entire m. cant change in assumptions, such as remediation technique, gas properties in Yemen and 33 percent higher o.l production. i nature and extent of contamination and regulatory requirements, The increase is offset by lower oil and gas prices and gas produc. could affect the estimate ofinvestigation and remedial acten tion and higher operating expenses. Pretax operating income for costs for the sites. For further m. formation regardm.g environ-1996 increased $9 million from 1995, primarily due to higher oil mental matters, see Note 10. and gas prices and volumes, partially offset by the recognition of Independent Power Production Results of Operations a $10 million gain from assignment and novation ofa gas supply contract recorded in the first quarter of 1995. Prvtar OpemringIncome:The. improved earnings in the m. de-pendent power production business demonstrates the successful Natural Gas Transmission, Storage and Processing - strategy to search for global opportunities. Pretax operating Results of Operations income for 1997 increased 528 mil

ion (43 percent) from 1996.

Pirtax OpemtingIncome: S..lar to the m, dependent power imi This merease pnmanly reflects mereased operating income production business, CMS Energy's natural gas transmission, resulting from increased international earnings, higher electricity storage and processing business earnings reflect the ability to sales by the MCV Facility, the m. dustry expertise service fee acquire and develop major pipelines worldwide. Pretax operat-income earned m. connection with the Loy Yang transaction in ing income for 1997 m.ereased $7 million (26 percent).The 1997, and increased earnings attributable to the Loy Yang and increase primarily reflects.mcome attnbutable to the Australian Jorf Lasfar projects. These increases were offset by the absence pipeline acquired in 1997, m.come attnbutable to domestic and of certain 1996 nonrecurring gains, including the gain on the sale mternational operations and a gain on the sale of a portion of of a power purchase agreement by a partnership m which CMS the Ames gas gathering system.These increases were partially Generation owns a 50 percent interest. Pretax operating income for 1996 increased $22 million from 1995, pnmarily reflecting Moss Bluff and Grand Lacs partnersh.ips. Pretax operating nonrecurring gains and.mereased operating income from a income for 1996 increased $14 million from 1995, reflecting refund received by the MCV Partnership. See the Capital new pipeline and storage investments, primarily TGN, the con-Resources and Liquidity-Cap. l Expenditures, and ita tinued growth of existing projects, and a gain relating to the Outlook -Internatmnal Operations Outlook sections of this Moss BlufTand Grand Lacs partnerships. MD&A for further discussion of LoyYang and Jorf Lasfar. - Independent Power Production Operating Issues Pirtax Opemting Income: CMS Marketing, Services and Contracts to sell 11 percent of Loy Yang's capacity will expire Trading Company (CMS MST) provides energy commodity during 1998. Although LoyYang will make attempts to replace marketmg, nsk management and energy management services these contracts at comparable prices, there is no assurance that to commercial and industrial customers throughout the Um. d te the new contracts will be at the same price. CMS Generation States and plans to expand operations worldwide. Pretax operat-does not currently expect to incur sigmficant capital costs, if any, ing income for 1997 decreased $7 million from the 1996 period. at its power facih. ties to comply with current environmental regu. The decrease is a result of substantially higher than expected latory standards. natural gas prices that severely impacted CMS MST's ability to achieve positive margins on fixed price sales, and higher than expected start up costs. Despite the decreased earnings, CHS N

a CMSEnergy Corporatoon e MST will continue to position itself for future growth in the new CMS Energy's consolidated financial position, resuhs of opera-energy world. Gas marketed for end users totaled 243 bef and tions or cash flows as of December 31,1997. 108 bef for 1997 and 1996, respectively. Wholesale electric trad-Limitations ofthe Sensitivity Afodel: Management does not ing, a new marketing activity for CMS MST in 1997, totaled believe that a sensitivity analysis alone provides an accurate or 900,000 MW. CMS MST completed over 300 energy manage-reliable method for monitoring and controlling risk. Therefore, ment services projects resulting in $6 million in revenues. CMS Energy and its subsidiaries rely on the experience andjudge- " E' # Afarket Risk Information adjust positions as they deem necessary. Losses in excess of the CMS Energy is exposed to market risk including, but not limited amounts determined could occur if market rates or prices exceed to, changes in interest rates, currency exchange rates, and certain the 10 percent shill used for the analysis. The model assumes that commodity and equity prices. Derivative instruments including, the maximum exposure associated with purchased options is but not limited to, futures contracts, swaps, options and forward limited to premiums paid. The model does not take into con-contracts may be used to manage these exposures. Derivatives sideration that the Trust Preferred Securities are convertible into are principally used as hedges and not for trading purposes. CMS Energy Common Stock. The model assumes that conversion During 1997, trading activities were immaterial. In the case of does not take place. If the conversion occurred, the $173 million of hedges, management believes that any losses incurred on deriva-Trust Preferred Securities would be discharged through the tive instruments used as a hedge would be offset by the opposite issuance of 4.2 million shares of CMS Energy Common Stock. movement of the underlying hedged item. The model also does not ciuantify short-term exposure to hypo-Management uses commodity futures contracts, options and thetically adverse price fluctuations in inventories. swaps (which require a net cash payment for the difference For a discussion of accounting policies related to derivative between a fixed and variable price) and oil swaps to manage transactions, see Note 9. commodity price risk.They also use forward exchange contracts CAPITAL RESOURCES AND UQUIDITY to hedge certain receivables, payables and long-term debt relat-ing to foreign investments. Management also uses equity invest-Cash Pos/flon, invesfing and financing ments in which CMS Energy or its subsidiar;es hold less than a CMS Energy's primary ongoing source of operating cash is divi-20 percent interest. These commodity, financial and equity dends from subsidiaries. In 1997, Consumers paid $218 million instruments do not expose CMS Energy to material market risk. in common dividends. In October 1997, Consumers returned Internt Rate Risk: Management uses a combination of fixed- $50 million cf paid-in capital to CMS Energy. During 1997, rate and variable-rate debt to reduce m. terest rate exposure. Enterprises paid common dividends and other distributions of Interest rate swaps and rate locks may be used to adjust exposure $173 million to CMS Energy. CMS Energy's consolidated oper-when deemed appropriate, based upon market condit;ons. These ating cash requirements are further met by its operating and strategies attempt to provide and maintain the lowest cost of capi-financing actis,ities. tal.The carrying amount oflong-term debt was $3.3 billion at Opemting Activities: CMS Energy's consolidated net cash December 31,1997 with a fair value of $3.3 bilh.on.The fa.ir value provided by operating activities is derived mainly from the sale of CMS Energy's financial derivative instruments at December 31, and transportation of natural gas by Consumers; the generation, 1997, with a notional amount of $1.1 billion, was $13 million, transmission, and sale of electricity by Consumers; the sale of oil representing the amount that CMS would have paid to termmate and natural gas; the transportation and storage of natural gas by these agreements on December 31,1997. For purposes of the new CMS GasTransnu.ssion; and the production and sale of electric-Secun.. ties and Exchange Conunission (SEC) disclosure require-ity by other affiliates. Consolidated cash from operations totaled ments, the Company performed a sensitivity analys.is.The analy- $657 million and $661 million for 1997 and 1996, respectively, sis assesses the potential loss m. fair value, cash flows and The $4 million decrease resulted from changes m. working capi-earnings based upon hypothetical increases and decreases m. mar-tal and timing differences related to cash payments, cash receipts ket interest rates. A hypothetical 10 percent adverse shift in mar-and the recognition of revenues for routine operations, which ket rates m the near term would not have a material impact on offset an merease in net mcome. CMS Energy uses.ts operating i 25 [

4 ACANADEntENT'S DISCUS $10N CONTINUED CMSEnergyCbrmrata cash primarily to expand its international businesses, to maintain respectively, compared to $447 million and $432 million, and expand electric and gas systems of Consumers, to retire por-respectively, during 1996. tions ofits long-tenn debt and to pay dividends. Financing Activities: CMS Energyi net cash provided by Im>esting Activities: CMS Energy's consolidated net cash fmancing activities totaled $938 million and $180 million for used in investing activities totaled $1.584 billion and $841 mil-1997 and 1996, respectively. The increase of $758 million in net lion for 1997 and 1996, respectively. The increase of $743 mil-cash provided by financing activities resulted from issuing the lion primarily reflects increases in capital expenditures and securities listed in the table below, an increase in notes payable investments in partnerships and unconsolidated subsidiaries and the reduction in the repayment of bank loans. The retirement during 1997. CMS Energy's 1997 expenditures for its utility and of bonds and other long-term debt and the retirement of pre-international businesses were $371 million and $1.181 billion, ferred stock partially offset the 1997 increase. In hidiumn Distribution / Principal Month issued Maturity Interest Rate Amount Use of Proceeds CMS ENE RGY Senior Notes. May 2002 8.125 % $ 350 Fund LoyYang Senior Notes September 2004 7.625 % 180 Discharge debt - Senior Notes November 2000 7.375 % 300 Pay down Senior Credit Facilities GTNs Series C I?> (2> 7.7%'2> 150 General corporate purposes Series D I?>

1 7.3 % (21 78 General corporate purposes Trust Preferred Securities /l>

June 2027 7.75 %I4) 173 General corporate purposes Common Stock November N/A 4.142 shares 152 General corporate purposes 1,383 CoNsuutas . Trust Preferred Securities'>> September 2027 8.2 0 % I41 120 Redeem preferred stock Total $ 1.503 (1) Nur addesionalinfrarmatwo reganimg the sale of these securtnes ur Note 7 andnose (b) on the Conwlidated Balance Sheets. (Z) General Term Notes *(GTN>) avr usuedJhun teme so ame wath various matururwn The rate shown hemn is a uraghtedaverage interest rute. (3) Rw addorumal mformatum regardmg the sals ofthese securines see Note 7 and note tal on the Consalutated Balance Sheet.t (4) Eksonhunons are tas deductible. l l 1 2e

l CMSEnergyCorp:vate in 1997, CMS Energy paid $109 million in cash dividends Securities due January 15,2005. Net proceeds to CMS Energy to holders of CMS Energy Common Stock and $10 million from the sale totaled $176 million. in cash dividends to holders of Class G Common Stock. In in January 1998, CMS Energy announced the commencement January 1998, the Board of Directors of CMS Energy (Board of of an ofter to exchange up to $300 million ofits privately placed Directors) declared a quarterly dividend of $.30 per share on 7.375 percent Senior Unsecured Notes duc 2000, Series A for CMS Energy Common Stock and $.31 per share on Class G 7.375 percent Senior Unsecured Notes due 2000, Series B that Common Stock, payable in February 1998. have been registered with the SEC. Other than their registration, In July 1997, the Board of Directors declared quarterly divi-the terms of the Series B Notes are substantially identical to the dends of $.30 per share on CMS Energy Common Stock and Series A (except that the Series B will not have transfer restric-5.31 per share on Class G Common Stock. CMS Energy paid tions).The ofter was completed in February 1998. these dividends in August 1997, representing an increase in the At December 31,1997, Consumers had Federal Energy annualized dividend on CMS Energy Common Stock to Regulatory Commission (FERC) authorization to: (i) issue or $ 1.20 per share from the previous amount of $ 1.08 per share guarantee up to $900 million of short-term securities through (an 11 percent increase) and an increase in the annualized divi-1998; (ii) issue, through November 1998, $376 million oflong-dend on Class G Common Stock to $1.24 per share from the term securities with maturities up to 30 years, for refinancing or previous dividend of $1.18 per share (a 5 percent increase). refunding purposes; and (iii) guarantee, through 1999, up to Other /m'esting and financing Matters: At December 31, $25 million in loans made by others, to residents of Michigan for 1997, the book value per share of CMS Energy Common Stock the purpose of making energy-related home improvements. In and Class G Common Stock was $18.73 and $10.91, respectively. January 1998, Consumers requested authorization to issue, As of December 31,1997, CMS Energy could issue $241 mil-through November 1998, an additional $500 million oflong- . lion in deferred coupon notes, GTNs, CMS Energy Common term securities for refinancing or refunding purposes. Stock, subordinated debentures, stock purchase contracts, stock Consumers has an unsecured $425 million credit facility and purchase units and Trust Preferred Securities under various out-unsecured lines of credit aggregating $120 million.These facili-standing shelf registration statements on file with the SEC. ties are available to finance seasonal working capital require-In July 1997 CMS Energy refinanced a $450 million unse-ments and to pay for capital expenditures between long-term cured revolving credit facility and a $ 125 million term loan with financings. At December 31,1997, the total available amount the $1.125 billion Senior Credit Facilities. The Senior Credit remaining under these facilities was $168 million. Facilities consist of a $400 million 364-day revolving credit Consumers also has in place a $500 million trade receivables facility, a $600 million three-year revolving credit facility and a sale program. At December 31,1997, $165 million in receivables five-year $125 million term loan facility. Additionally, CMS remained available for sale under the program. For further infor-Energy has unsecured lines of credit and letters of credit in an mation, see Note 5. aggregate amount of $155 million.These credit facilities are CMS Energy and its subsidiaries must redeem or retire available to finance working capital requirements and to pay for $1.7 billion oflong-term debt over the three-year period ending capital expenditures between long-term financings. At December 2000. In addition, at December 31,1997, Consumers l December 31,1997, the total amount utilized under the Senior had a recorded liability to the U.S. Department of Energy (DOE) Credit Facilities was $365 million, including $60 million ofcon-of $111 million, which Consumers must pay upon the first deliv-tingent obligations, and under the unsecured lines of credit and ery of spent nuclear fuel to the DOE. Current federal law origi-l letters ofcredit was $21 million. nally scheduled delivery of the fuel to occur in 1998 (see Note 2). CMS Energy has a bank commitment through March 1998 to Consumers plans to refinance $850 million ofits long-term debt enter into a $580 million credit agreement to fund investments in during 1998 and will continue to evaluate capital markets as a power pmjects. source of financing further debt retirements. In early 1998, in January 1998, a Delaware statutory business trust estab-Consumers called for the March 1998 redemption of $57 million lished by CMS Energy sold $180 million of certificates due aggregate principal amount ofits 7.5 percent First Mortgage January 15,2005 in a public ofkring. In exchange for those pro-Bonds due 2002 and $62 million aggregate principal amount of ceeds, CMS Energy sold to the trust $180 million aggregate prin-its 7.5 percent First Mortgage Bonds due 2002. cipal amount of 7 percent Extendible Tenor Rate Adjusted { H

MANAGEMENPEDISCUSSIONCONTINUED cmmgycapwatim In early 1998, Consumers issued $250 million of senior notes Company may increase its ownership interest in CFLCL during due February 1,2008, at an interest rate of 6.375 percent. The the first halfof1998. senior notes are secured by a series of Consumers' First Looking forward, CMS Energy estimates that capital expendi-Mortgage Bonds, issued contemporaneously in a similar amount. tures, including new lease commitments and investments in part-Proceeds from the sale were added to the general funds of nerships and unconsolidated subsidiaries, will total $3.7 billion Consumers and applied to the payment, at maturity, of $248 mil-over the next three years. Cash generated by operations is lion aggregate principal amount of Consumers' 8.75 percent expected to satisfy a substantial portion of these capital expendi-First Mortgage Bonds due February 15,1998. tures. Nevertheless, CMS Energy will continue to evaluate capital markets in 1998 as a potential source of financing its subsidiaries' The following discussions in Capital Expenditures and Outlook investing activities. CMS Energy estimates capital expenditures contain forward-looking statements. See the Forward-Looking by business segment over the next three years as follows: Information section of this MD&A for some important factors in uaima, that could cause actual results or outcomes to differ materially Years Ended December 31 1998 1999 2000 from those discussed herein. Consumers electric operations /a* 5 320 5 265 $ 255 Consumers gas operations /"' 115 115 115 Cap /falExpenditures Independent power production 368 469 400 Oil and gas exploration and production 110 160 175 In September 1997, a joint venture of affiliates of CMS Natural gas transmission and storage 210 61 100 International energy distribution 142 125 100 Generation and ABB Energy Ventures, Inc. ( ABB) collectively Marketing, services and tradmg 70 25 30 invested $395 million for their equity contribution in the Jorf $1.335 51.220 $1.175 Lasfar project company. Equity bridge loans from private banks m rn<se amou,ia encias, a., or,,s,uresp.,, n of consumen an,,c,pa,,s cap,,,a,xpen,h- '*""#"'"'d'"*""'"- provided the funds for their equity investment. CMS Energy '"" *"r'""' ""d "'"'r*'"' *"'*"" " "* "ma'"tes}w capaal emenduurespossady 8 (h) These amounn so not im tudepnhminary est guaranteed CMS Generation's 50 percent share of the $395 mil-aquares so comply auh,,cana, rensas nassonalair quahiy stunderss under the Clean Air Act. lion borrowing that funded the equity contribution. A consortium ^"/""'"'"#"""""'"'"U"'"U'd'*r"*""'#"""~""'*E""***'"'"' Matters aime ansNote 10 of governmental, multilateral and private financial institutions CMS Energy currently plans investments from 1998 to 2000: l prmided an estimated additional $920 million of non-recourse (i) for oil and gas exploration and production operations, primar-debt financing. Jorf Lasfar is a $ 1.5 billion privatization and ily in North and South America, ofTshore West Africa and North expansion project. CMS Energy anticipates that reinvested cash Africa; (ii) for independent power production operations to pur-from operations, estimated at $ 191 million, will provide the bal-sue acquisitions and development of electric generating plant in ance of the financing needed for Jorf Lasfar. the United States, Latin America, Asia, Australia, the Pacific Rim In the second quarter of 1997, a consortium comprising sub-region, North Africa and the Middle East;(iii) to continue devel-sidiaries of CMS Generation, among others, financed, through opment of non-utility natural gas storage, gathering and pipeline a consortium of banks, seventy-seven percent of the consor-operations of CMS Gas Transmission, both domestic and interna-tium's $3.7 billion payment to the Australian State ofVictoria tional; (iv) to acquire, develop and expand international energy l government fbr the Loy Yang acquisition. This financing distribution businesses; and (v) to provide gas, electric, oil and occurred on a non-recourse basis to CMS Energy and CMS coal marketing, risk management and energy management serv-Generation. CMS Generation holds a 50 percent interest in the ices throughout the United States and eventually worldwide. Loy Yang consortium. These estimates are prepared for planning purposes and are In December 1997, the State of Sergipe, Brazil selected a subject to revision. group consisting of CMS Energy affiliates and a Brazilian utility, Companhia Forca e Luz Cataguazes-Leopoldina (CFLCL), to OUTLOOK acquire, in a privatization, an 86 percent interest in the Energipe As the deregulation and privatization of the energy industry electric distribution utility. By prior agreement, CMS Electric & takes place in the United States and internationally, CMS Energy Gas Company, a subsidiary of Enterprises, acquired 39 percent has positioned itself to be a leading international energy infra-of the equity securities ofCFLCL for $180 million, which structure company developing and operating energy facilities funded CFLCUs investment in Energipe. CMS Electric & Gas to

e CAfSEnergy Comoratica e and providing energy services in all major world growth mar-Electric Business Outlook kets. CMS Energy provides a complete range ofinternational Growth: Consumers expects average annual growth of two and one-energy expertise from well-head to burner-tip. Beyond 1997 it half percent per year in electric system deliveries over the next five will continue to grow its businesses by finding opportunities to years, based on the present industry and regulatory configumtion in invest m addin.onal energy infrastructures and to capitalize on Michigan. Abnormal weather, changing economic conditions, or being a major, full-service energy company. CMS Energy will the developm.g competitive market for electricity may affect actual increase its involvement in energy projects by pursuing opportu-electricsales. futureperiods. in mties m oil and gas exploration and development projects, Restructuring: Consumers, electric retail service is affected natural gas pipelines and storage facilities, power generation, by competition. To meet the challenge of competition, Consumers and electric and gas distribution systems around the world. In entered into mulu.-year contracts with some ofits largest indus-addition, CMS Energy will focus more on marketing energy trial customers to serve certain facih.. ties.The MPSC has approved services and trading to take advantage ofcontmued growth these contracts as pan ofits phased introduction to competition. opportunities m both the domestic and international markets. Certain customers have the option to temiinate the.ir contracts early. International 0perations Outlook FERC Orders 888 and 889, as amended, require utilities to provide direct access to the interstate transmission grid for CMS Energy will continue to grow internationally by investing wholesale transactions. Consumers and The Detroit Edison m multiple projects m each country as well as by developing Company (Detroit Edison) disagree on the effect of the orders synergistic projects across its lines of business. CMS Energy on the Michigan Electric Power Coordination Center pool. believes these integrated projects will create more opportunities Consumers proposes to maintain the benefits of the pool, while and greater value than m. dividual investments. Also, CMS Detroit Edison has given notice of early termination. Consumers Energy w.ll achieve th.is growth through strategic partnering i expects FERC to rule on this issue m 1998. where appropriate. In June 1997 the MPSC issued an order proposing that begin. To improve the efficiency and focus ofits mternational ning January 1,1998 Consumers would have to transmit and dis-energy businesses, CMS Energy w l separate its development d tnbute energy on behalfof competing power suppliers to serve efforts from the operations ofits assets. CMS Energy plans to retail customers. He order states that by January 1,2002, all conduct its developmee efforts from offices m. four regions of customers would be free to choose (that is, has e direct access to) the world:

Dearborn,

Michigan for The Americas - Northern their own power suppliers. IIemisphere; Buenos Aires for The Americas - Southern Under the June 1997 order, the MPSC would allow utilities ta llemisphere; London for Africa, Europe and the Middle East; recover prudently m.eurred Transition Costs, which are costs and Singapore for Southeast As.ia and Austrah.a. incurred by utilities m order to serve their customers m a regul.sted CMS Energy's development efforts will focus on countnes where there are multiple m. vestment opportunities across its busa.- monopoly environment, but which may not be recoverable. ma competitive environment because of customers leaving their sys-nesses, high energy growth expectations, defined legal and regu-tems and ceasing to pay for their costs. These costs could indude latory structures, and economic poh..cies that support private owned and purchased generation, regulatory assets and costs investment. CMS Energy will continue to create value by using incurred in the transition to competition. These Transition Costs the extensive knowledge and experience it has gained in the would be recovered through a charge to all direct-access customers United States over the past century, to gain ecmpetitive positions until the end of the transition period in 2007. m these countries. Subsequent to the June 1997 order, the MPSC issued orders in CMS Energy structures its investments to minimize opera-October 1997 and early in 1998. Ultimately, the MPSC allowed tional and financial risks. These risks are mitigated when operat-Consumers: i) to recover Transition Costs of $1.755 billion ing internationally by working with local partuers, utilizing through a charge to all direct-access customers until the end of the multi-lateral financing institutions, procuring political risk insur-transition period in 2007, subj.ect to an adjustment through a true-ance and hedging foreign currency exposure where appropriate. up mechanism; u..) to commence the phase-m.ofdirect access in March 1998; and iii) to suspend the power supply cost recovery 20 l

MANAGEMENT'S DISCUSSION CONTINUED CMSEnewCopatm clause.The orders also confirm the MPSC's belief that assets or liabilities for the part of the business being deregulated Securitization may be a beneficial mechanism for recovery of if deregulatory legislation or an MPSC rate order allows Transition Costs while recognizing that Securitization requires the collection ofcash flows from its regulated transmission and state legislation to occur. Securitization is a fmancing authorized distribution customers to recover these specific costs or settle by statute in which the statutorily assured flow of revenues from a obligations. Consumers believes that even ifit was to discontinue portion of the rates charged by utilities to their customers is set applicetion of SFAS 71 for the generation segment ofits busi-aside and pledged as security for the repayment of rate reduction ness, its regulatory assets, including those related to generation, bonds issued by a special purpose vehicle affdiated with such are probable of future recovery from the regulated portion of the utilities. Consumers believes that the Transition Cost surcharge business. At December 31,1997, Consumers had $277 million will apply to all customers beginning in 2002. A separate charge of generation-related net regulatory assets recorded on its to direct-access customers after MPSC review and verification balance sheet, and a net investment in generation facilities of would also recover prudent costs ofimplementing a direct-access $1.4 billion included in electric plant and property. For further program estimated at an additional $200 million. Nuclear decom-information regarding this issue, see Electric Business Outlook missioning costs will also continue to be collected through a - Restructuring, above. separate surcharge to all customers. Consumers expects Michigan Consumers Gas Group Basiness Outlook legislative consideration of the entire subject of electric industry restructuring in 1998. To be acceptable to Consumers, the legisla-Growth: Consumers currently anticipates gas deliveries (exclud-tion would have to provide for full recovery ofTransition Costs. ing transportation to the MCV Facility and off-system deliveries) Consumers expects the legislature to review all of the policy to grow at an average annual rate of between one and two percent choices made by the MPSC during the restructuring proceedings over the next five years based primarily on a steadily growing to assure that they are in accord with those that the legislature custe ner base. Abnormal weather, alternative energy prices, believes should be paramount. For further information regarding changes in competitive conditions, and the level of natural gas restructuring, see Note 4. consumption may affect actual gas deliveries in future periods. Application ofStatement ofFinancial Accounting Standards Consumers is also ofTering a variety of energy-related ser\\ ices to (SE4S) 71: Consumers applies the utility accounting standard, its customers focused upon appliance maintenance, home safety, SFAS 71, that recognizes the economic effects of rate regulation and home security. and, accordingly, has recorded regulatory assets and liabilities Restructuring: In December 1997, the MPSC approved related to the generation, transmission and distribution opera-Consumers' application to implement a statewide, three-year tions ofits business in its financial statements. Consumers experimental gas transportation pilot program, eventually allow-believes that the generation segment ofits business is still sub-ing 300,000 residential, commercial and industrial retail gas ject to rate regulation based upon its present obligation to con-sales customers to choose their gas supplier.The program is vol-tinue providing generation service to its customers, and the lack untary for natural gas customers. Customers choosing to remain of definitive deregulation orders. If rate recovery of generation-as sales customers of Consumers will not see a rate change in t elated costs becomes unlikely or uncertain, whether due to com-their natural gas rates. To minimize the risk of exposure to higher petition or regulatory act on, this accounting standard may no gas costs, Consumers currently has contracts in place at known i longer apply to the generation segment of Consumers' business. prices covering a portion ofits requirements through the year Such a change could result in either full recovery of generation-2000. The Association of Businesses Advocating Tariff Equity related regulatory assets (net of related regulatory liabilities) or a (ABATF), the Attorney Ceneral and other parties filed claims loss, depending on whether Consumers' regulators adopt a tran-of appeal of the MPSC's order with the Court ofAppeals. For sition mechanism for the recovery of all or a portion oithese net further information, see Note 4. regulatory assets. According to recently published Emerging Application ofSE4S 71: Based on a regulated utility account-Issues Task Force issue 97-4, Deregulation ofthe Pricing of ing standard, SFAS 71, Consumers may defer certain costs to the Electricity --Issues Related to the Application offinancial future and record regulatory assets, based on the recoverability Accounting Standants Boani(FASB) Statements No. 71 and 101, of those costs through the MPSC's approval. consumers has Consumers can continue to carry its generation-related regulatory evaluated its regulatory assets related to its gas business, and k

CMSEnergy Corporation believes that sufficient regulatory assurance exists to provide for over the software's useful life. CMS Energy does not expect that the recovery of these deferred costs. the cost of these modifications will materially affect its financial position, liquidity or results of operations. OTRERAfATTERS New Accounting Sfandards CMS Energy adjusts common stockholders' equity to reflect for-In 1997, the FASf3 issued SFAS 130, Reporting Compirhensive eign currency translation adj.ustments for the operation oflong-Income, and SFA S I31, Disclosurrs about Sqments ofan term mvestments m foreign countries. As of December 31,1997 Enterprise andRelatedInformation. Each of these standards the foreign currency translation adjustment was $96 million relat-requires expanded disclosures effective for 1998. Also m. 1997, the ing primarily to the U.S. and Australian Dollar exchange rate flue-Emerging issues Task Force published issue 97-4, Derrgulation tuations related to Loy Yang. CMS Energy currently believes that ofthe Pricing ofElectricio~ Issues Related to the Application of the Australian economy is stable and does not expect currency FASB Statements No. 71 and 101, and Issue 97-l3, Accounting'for exchange rate fluctuations over the long term to materially Costs Incurrrdin Connection with a Consulting Contract oran adversely affect CMS Energy's financial position, h.qmdity or InternalPmj,ect that Combines Business Pmcess Reengineering results ofoperations. andInformation Technology Tmnsformation. The consensus reached in issue 97-4 allows a company to maintain regulatory FORWARD-LOOKINGINFORMAT/0N assets and liabilities for part of a business that is being deregu-Forward-lookm.g mformation is meluded throughout this lated ifderegulatory legislation or a commission rate order allows report. This report also desen.bes material contingencies in the co!!cetion of regulated cash flw vs to recover costs or settle the Notes to Consolidated Financial Statements and should be obligations.The regulated portion of a business maintains these read accordingly. regulatory assets and liabih.. ties until they are collected or settled. Some important factors that could cause actual results or out-they are impaired, or until the regulated portion of the business comes to difTer materially from those discussed in the forward-becomes deregulated. The consensus reached in issue 97-13 looking statements include prevailing domestic and foreign govem-requires a company to expense the cost ofbusiness process mental policies and regulatory actions (including those of FERC reengineering activities as incurred, and requires a company to and the MPSC) with respect to rates, proposed electne and natural write offpreviously capitalized costs as a cumulative effect gas industries restructuring, change m.. dustry and rate structure, m adjustment m 1997. CMS Energy was not afTected by the require-operation of a nuclear power facihty, acquisition and disposal of ments of this consensus. In addition, CMS Energy does not assets and facilities, operation and construction ofplant facilities, expect the application of the other statements to materially affect operation and construction ofnatural gas pipeline and storage facil-its financial position, h.quidity or results ofoperations. ities, recovery of the cost of purchased power or natural gas, Computer Modificat/ons for rear 2000 decommissioning costs, and present or prospective wholesale and retail competition, among other important factors The business CMS Energy and its subsidiaries use software and related tech-and profitability of CMS Energy are also mfluenced by economic no!ogies throughout its businesses that the year 2000 date and geographic factors, including political and economic risks (par-change will atTeet and, if uncorrected, could cause CMS Energy, ticularly those associated with intemational development and oper-among other things, to issue inaccurate bills, report inaccurate data, or incur plant outages. In 1995, CMS Energy began mods.- ations, including currency fluctuat on), changes in environmental laws and policies, weather conditions, competition for retail and fication ofits computer software systems by dividing programs wholesale customers, pricing and transportation of commodities, requiring modification between critical and noncritical pro-market demand for energy, m. flation or deflation, capital market grams. All necessary program modifications are expected to be conditions, unanticip ited development project delays or changes in completed by the year 2000. CMS Energy devoted n.gmficant project costs, and the ability to secure agreement m pending negoti-internal and external resources to these modifications. It will ations, among other important factors. All such factors are difficult expense anticipated spending for these modificctions as incurred, to predict, contain uncertainties that may materially afTect actual while capitah..zmg and amortizing the costs for new software results, and may be beyond the control of CMS Energy. 31

ConsolidatedStatementsofincome wiewcwwnm in Mdlwns. Except /WSharr Amounts Years Ended December 31 1997 1996 1995 Operating Revenue Electric utility $2.515 $2,446 $2,277 Gas utility 1,204 1,282 1,195 Independent power production a> 168 140 96 r Oil and gas exploration and production 93 130 108 Natural gas transmission, storage and processingra> 102 62 25 Marketing, services and tradingra> 692 258 171 Other(a> 13 15 18 4,787 4,333 3,890 Operating Expenses Operation Fuel for electric generation 297 296 283 Purchased power-related parties 599 589 491 Purchased and interchange power 243 202 196 Cost ofgas sold 1,311 997 824 Other 729 737 679 3,179 2,821 2,473 Maintenance 174 178 186 Depreciation, depletion and amortization 477 441 416 General taxes 211 202 196 4,041 3,642 3,271 Pr: tax Operating Electric utility 432 411 372 Income (Loss) Gas utility 153 158 156 Independent power production 96 68 46 Oil and gas exploration and production 50 39 30 Natural gas transmission, storage and processing 33 26 12-Marketing, services and trading (5) 2 2 Other (13) (13) 1 746 691 619 Otherlocame Accretion income (Note 2) 8 10 11 (Deductions) Aceretion expense (Note 2) (17) (22) (31) Other, net (3) 1 9 (12) (11) (11) FixedCharges Interest on long-term debt 273 230 224 Otherinterest 49 43 42 Capitalized interest (16) (8) (8) Preferred dwidends 25 28 28 Trust Preferred Securities distributions (Note 7) 18 8 349 301 286 l Income Bebre Jacome Taxes 385 379 322 l Income Taxes 117 139 118 ConsolidatedNetincome $ 268 $ 240 $ 204 Net income Attributable to common Stocks-CMS Energy 5 253 $ 226 $ 201 Class G $ 15 $ 14 3 Basic Earnings Per Average Common Share-CMS Energy $ 2.63 $ 2.45 $ 2.27 (Note 8) Class G $ 1.84 $ 1.82 $.38 Diluted Earnings Per Average Common Share-CMS Energy $ 2.61 $ 2.44 $ 2.26 (Note 8) Class G $ 1.84 $ 1.82 $.38 OMdends Oectared Per Common Share-CMS Energy $ 1.14 $ 1.02 $.90 Class G $ 1.21 $ 1.15 $.56 (al Does not mclude irwnue anwenated with ChtS'mteursu m unconsohdatedpartnershsps. For 1997,1996 andIVVL that rewnue totaled $621 mdhon. $4V3 millwn and $497 mdhon, urspectiniv. for independentpourproduction. and $31 mdhon. $42 mdhon and $26 mdhon, respecnw& for naturalgas trummtuum. storage andpmcessmg For 1997, that rrwnue totaled $202 mahonfor marketag, servsves andtrudmg For1997and1996, that rewnur sataled $39 mdhou and$22 millwn respective &.)iw mternationalenergy distrshuswn, whoch a reportedm other the accompanysng notes arr un integralpart of these statements. At

Consolidated Statements of Casit Flows cusenewccme in Millions Years Ended December 31 1997 1996 1995 Cosh Hows from Consolidated net income 5 268 $ 240 $ 204 OperatingActiv/tles Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization (includes nuclear decommissioning of $50, $49 and $$1,respectively) 477 441 416 Capital lease and debt discount amortization 44 41 61 Deferred income taxes and investment tax credit 33 46 75 Accretion expense (Note 2) 17 22 31 Accretion income-abandoned Midland project (Note 2) (8) (10) (l1) Undistributed earnings of related parties (64) (64) (53) Power purchases (Note 3) (62) (63) (137) Other (13) 20 7 Changes in other assets and liabilities (Note 12) (35) (12) 89 Net cash provided by operating activities 657 661 682 Cash nows from Capital expenditures (excludes capital lease additions InvestingAct/rlties of $11, $31 and $31, respectively and DSM)(Note 12) (71I) (659) (535) Investments in partnerships and unconsolidated subsidiaries (830) (163) (242) Investments in nuclear decommissioning trust funds (50) (49) (51) Cost to retire property, net (28) (31) (41) Other (I4) 8 (14) Acquisition of companies, net of cash acquired (20) (146) Deferred demand-side management costs (6) (9) Proceeds from sale ofproperty 49 79 22 Net cash used in investing activities (1,584) (841) (1,016) Cash nowsfrom Proceeds from bank loans, notes and bonds 1,214 433 333 Hnancing Actirlfles Proceeds from Trust Preferred Securities 286 97 Issuance ofcommon stock 224 95 160 Increase (decrease) in notes payable, net 49 (8) 2 Retirement of bonds and other long-term debt (521) (37) (44) Retirement ofpreferred stock (120) Payment ofcommon stock dividends (119) (103) (84) Payment of capital lease obligations (44) (40) (37) Paymentofbankloans - (29) (256) (18) Retirement ofcommon stock (2) (1) (1) Net cash provided by financing activities 938 180 311 Net lacrease (Decrease) in Cash and Temporary Cash Investments 11 (23) Cash and temporary cash investments Beginning ofyear 56 56 79 End ofyear 67 5 56 $ 56 the accompaaving notes are en Integelpart of these stasemenn i ss

ConsolidatedBalanceSheets wstamcamawi in Millkms December 31 1997 1996 AS$ets Plantand Property Electric 5 6,491 $ 6,333 (At Cosf) Gas 2,528 2,337 Oil and gas properties (full-cost method) 1,257 1,140 Other 168 94 10,444 9,904 l Less accumulated depreciation, depletion and amortization (Note 2) 5,270 4,867 5,174 5,037 Construction work-in-progress 261 243 5,435 5,280 investments independent power production 790 317 Natural gas transmission, storage and processing 256 233 International energy distribution 255 64 l-First Midland Limited Partnership (Notes 3 and 22) 242 232 l Midland Cogeneration Venture Limited Paitnership (Notes 3 and 22) 171 134 Other 48 22 1,762 1.002 CurrentAssets Cash and temporary cash investments at cost, which approximates market 67 56 Accounts receivable and accrued revenue, less allowances of $7 in 1997 and $10 in 1996(Note 5) 476 374 Inventories at average cost Gas in underground storage 197 186 Materials and supplies 85 86 Generating plant fuel stock 35 30 Deferred income taxes (Note 13) 38 48 l Prepayments and other 240 235 1.138 1,015 Con-currentAssets Nuclear decommissioning trust funds (Note 2) 486 386 Postretirement benefits (Note 16) 404 435 Abandoned Midland project 93 113 Other 475 384 1,458 1,318 TotstAssets 5 9.793 $ 8.615 ru aru.wasus aoon an aa tweeraipan otosen suurmena l N

CMSEnergy Corpxstion s in Aldlisms December 31 1997 1996 Stockholders' investment and Unbilities ? Capital / ration Common stockholders' equity $1,977 $1,702 Preferred stock ofsubsidiary 238 356 Company-obligated mandatorily redeemable Trust Preferred Securities of: Consumers Power Company Financing Ital 100 100 Consumers Energy Company Financing Iltal 120 Company-obligated convertible Trust Preferred Securities of ) CMS Energy Trust 1*> 173 Long-term debt (Note 6) 3,272 2,842 Non-current portion of capital leases (Note 17) 75 103 5,955 5,103 Current Usb/lities Current portion oflong-term debt and capital leases 643 409 Notes payable 382 333 Accounts payable 398 348 Accrued taxes 272 262 Accounts payable-related parties 80 63 Accrued ir,terest 51 47 Power purchases (Note 3) 47 47 Accrued refunds 12 8 . Other 190 206 2,075 1,723 Non-current Deferred income taxes (Note 13) 743-698 U bl/It/es Postretirement benefits (Note 16) 514 521 I Deferred investment tax credits 151 161 j Power purchases (Note 3) 133 178 Regulatory liabilities for income taxes, net (Notes 13 and 20) 54 66 Other 168 165 1.763 1,789 Commitments and Contingencies (Notes 2,3,4,10, i1 and 17) ) l retri stockholders' investment and uabilities 19.793 58.615 la) the primary asut ofCensumers Amer Company 1inancing iis 3103 mnlison pnncipalamount of 8.36 percent suhadmated deliwahle interest notes due 2015pvm Consumers Theprimary auet of Consumers Energy Company Financtng 11is $124 nuillum principalamo.mr of 8 20 percent subordmateddefenuble inserrst notes dur 2027from Consumers Forfurther docussion. see Note 7km the ConschdatedFmancialStatements. lb) As deserthed 6n Note 9, the pnmary amt ofCAIS Energy Trustiis $178 malum pnnc>lamewns of 773 percent convernble subordmated debentures due 2027fnw ChtS Energv. i i I l; a

c mstew ware Consolidated Statements of Prefened Stock Optional Redemption Number ofshares

1. Atinwn, December 31 Series Price 1997 1996 1997 1996 Consumers' PreferredStock Cumulative, $100 par value, authorized 7,500,000 shares, with no mandatory redemption

$4.16 $103.25 68,451 68,451 5 7 $ 7 s 4.50 110.00 373,148 373,148 37 37 7.45 101.00 379.549 38 7.68 101.00 207,565 20 7.72 101.00 289,642 29 7.76 102.21 308,072 31 Consumers' C/zss A PreferredStock Cumulative, no par value, authorized 16,000,000 shares, with no mandatory redemption'al 2.08 25.00 8,000,000 8,000,000 194 194 TotalPreferredStock $238 $356 ta) klermaNe begsaning April 1,19W The anompanytng notes are un Integrulpart ofthen statements. Consolidated Statements of Common Stockholders' Equity cuseneracoate Number ofSisares, in Thousands in Ahliions Years Ended December 31 1997 1996 1995 1997 1996 1995 Common Stock At beginning and end ofperiod I 1 1 Other Pald-In capital-At beginning ofperiod 94,813 91,594 86,535 1,916 1,827 1,701 CMS Energy Common stock reacquired (54) (32) (21) (2) 't) (1) f Common stock issued 6,031 3,248 5,039 217 90 126 Common stock reissued 2 3 41 1 At end ofperiod 100,792 94,813 91,594 2,131 1,916 1,827 OtherPald-In capital-At beginning ofperiod 7,877 7,619 129 124 Class C Common stock reacquired (!) Common stock issued 343 258 7,619 7 5 124 At end orperiod 8.219 7,877 7,619 136 129 124 Revaluation Capital At beginning ofperiod (6) (8) Change in unrealized investment 2 (8) gam (loss) At end ofperiod (6) (6) (8) Foreign Cartency At beginning ofperiod l Tansistion Change in foreign currency translation (96) At end ofperiod (96) RetainedEarnings(Deficit) At beginning ofperiod (338) (475) (595) Consolidated net income 268 240 204 Common stock dividends declared: CMS Energy (109) (94) (80) Class G (10) (9) (4) At end ofperiod (189) (338) (475) TotalCommon Stockholders' Equity %1.977 $1.702 $1.469 l The naampanysng notes arr an integmlpars qf thew statements l 1

Notes to Consolidated Financial Staternents c a m a c e arim f:CorporateStructure recovery of working gas, in the appropriate gas utility plant CMS Energy Corporation (CMS Energy) is the parent holding account. Consumers stores gas inventory in its underground company of Consumers Energy Company (Consumers) and storage facilities. CMS Enterprises Company (Enterprises). Consumers, a combina-Maintenance, Depreciation and Depletion: Consumers tion electric and gas utility company serving the lower Peninsula charges propeny repairs and minor property replacements to of Michigan,is the principal subsidiary of CMS Energy. maintenance expense. Depreciable property retired or sold, plus Consumers' customer base includes a mix of residential, commer-cost of removal (net of salvage credits), is charged to accumulated cial and diversified industrial customers, the largest segment of depreciation. Consumers bases depreciation provisions for utility which is the automotive industry. Enterprises is engaged in several plant on stntight-line and units-of-production rates approved by domestic and international energy-related businesses including: the MPSC.The composite depreciation rate for electric utility acquisition, development and operation ofindependent power pro. property was 3.6 percent for 1997 and 3.5 percent for 1996 and duction facilities; oil and gas exploration and production; storage, 1995.The composite rate for gas utility plant was 4.1 percent for transmission and processing of natural gas; energy marketing, 1997,4.2 percent for 1996 and 4.3 percent for 1995. The composite serv;ces and trading; and international energy distribution. rate for other plant and property was 8.2 percent for 1997,5.5 per-cent for 1996 and 4.9 percent for 1995. 2: Summary of Significant Accounting Policies and CMS NOMECO Oil & Gas Co. (CMS NOMECO) follows Otherntatters the full-cost method of accounting and, accordingly, capitalizes Basis offresentation The consolidated financial statements its exploration and development costs, including the cost of non-include CMS Energy, Consumers and Enterprises and their productive drilling and surrendered acreage, on a country-by-majority owned subsidiaries.The fmancial statements are pre-country basis. It is amortizing the capitalized costs in each cost pared in conformity with generally accepted accounting princi-gg g g ples and use management's estimates where appropriate. g CMS Energy uses the equity method of accounting for invest-Other non-utility depreciable property is amortized over its ments in companies and partnerslu,ps where it has more than a estimated useful life; gains and losses are recognized at the time 20 percent but less than a majority ownership interest and g includes these results in operating income. For the years ended Nuclear Fuel Cost: Consumers amortizes nuclear fuel cost to December 31,1997,1996 and 1995, undistributed equity earnings fuel expense based on the quantity of heat produced for electric were $64 million,564 million and $53 million, respectively. generation. Interest on leased nuclear fuel is expensed as Accrrrion Income and Erpense: In 1991, the Michigan Public incurred. Under current federal law, as confirmed by court deci-Service Commission (MPSC) ordered that Consumers could sion, the U. S. Department of Energy (DOE) must begin accept-recover a portion ofits abandoned Midland investment over a ing deliveries of spent nuclear fuel by January 31,1998 for 10-year period, but did not allow Consumers to earn a return on disposal, even.f a permanent repository is not then operational. i that amount. Consumers reduced the recoverable m. vestment t Utilities and their customers have been prepaying the costs of the present value of the future recoveries. During the recovery DOE transport and disposal through fees based on electric gener-period, Consumers adjusts the unrecovered asset to its present ation by their nuclear plants. For fuel used after April 6,1983, value. It reflects this adjustment as accretion income. Conversely' di W e m W fu h e e Consumers recorded a loss in 1992 for the present value ofits ers them through electric rates and remits to the DOE quarterly. [ estimated future underrecoveries of power costs resulting frorn Consumers elected to defer payment for disposal of spent nuclear l purchases from the Midland Cogeneration Venture Limited fuel burned before April 7,1983 until it delivers the first ofits Partnership (MCV Partnership)(see Note 3). It now recognizes spent fuel to the DOE. At December 31,1997. Consumers had a accretion expense annually to reflect the time value of money on recorded liability to the DOE of $ 111 million, including interest, the recorded loss. which is payable upon the first delivery of spent nuclear fuel to Gas Inventory: Consumers uses the weighted average cost the DOE. Consumers recovered through electric rates the amount method for valuing working gas inventory. It records cushion of this liability, excluding a portion ofinterest. In January 1997, in gas, which is gas stored to maintain reservoir pressure for ) 37

NOTESCONTMIED afsEnemyCaporatat response to the DOE's declaration in December 19% that it would Consumers will incur most of the Palisades decommissioning not begin to accept spent nuclear fuel deliveries in 1998, costs afler the plant's NRC operating license expires. When the Consumers and other utilities filed suit in federal court. The utili-Palisades

NRC license expires in 2007, the trust funds are cur-ties sought a declaration relieving them of their obligation to rently estimated to have accumulated $686 million. Consumers remit their quarterly fee payments to the DOE and authorizing estimates that at the time Palisades is fully decommissioned in them to escrow any related fees collected from their customers, the year 2046, the trust funds will have provided $2.1 billion, t

unless and until the DOE begins to accept spent nuclear fuel. The including trust earnings, over this decommissioning period. utilities also sought an order requiring the DOE to develop a pro-Consumers will determine if the current decommissioning sur-gram to begin acceptance of spent nuclear fuel by January 31, charge will be sufficient to provide for decommissioning ofits 1998, A decision was issued by the court in late 1997 affirming nuclear plants during the first quarter of1998, after the revised the DOE's duty to take delivery of spent fuel, but was not specific decommissioning cost estimates are computed for Palisades and as to the relief available for failure of the DOE to comply. Big Rock. At December 31,1997, Consumers had an invest. Consumers is considering its options. Also in 1997, federal legis-ment in nuclear decommissioning trust funds of $486 million, lation was reintroduced to clarify the timing of the DOE's obliga-spent $23 million for the decommissioning of Big Rock and with-tion to accept spent nuclear fuel and to direct the DOE to establish drew $17 million from the Big Rock nuclear decommissioning an integrated spent fuel management system that includes design-trust fund. ing and constructing an interim storage facility in Nevada. While decommissioning Big Rock, Consumers found Nuclear Plant Decommissioning: Consumers collected that some areas of the plant have coatings that contain both met- $50 million in 1997 from its electric customers for the future als and polychlorinated biphenyls. Consumers does not believe ' decommissioning ofits two nuclear plants. In April 1996, that any facility in the United States currently accepts the Consumers received a decommissioning order from the MPSC radioactive portion of that waste. The cost of removal and dis-that estimated decommissioning costs for Big Rock Point posal is currently unknown.These costs would constitute part of nuclear power plant (Big Rock) and Palisades nuclear power the cost to decommission the plant, and will be paid from the plant (Palisades) to be $330 million and $573 million (in 1997 decommissioning fund. Consumers is studying the extent of the dollars), respectively. The estimated decommissioning costs contamination and redewing options. increased from previous estimates principally due to the unavail-Reclassi# cations: CMS Energy has reclassified certain prior ability oflow-and high-level radioactive waste disposal facili-year amounts for comparative purposes. These reclassifications ties. Amounts collected from electric retail customers and did not affect consolidated net income for the years presented, deposited in trusts (including trust earnings) are credited to accu-Additionally, CMS Energy has restated all prior year earnings mulated depreciation.To meet Nuclear Regulatory Commission per share amounts to reflect the adoption of Statement of (NRC) decommissioning requirements, Consumers prepared Financial Accounting Standards (SFAS) 128, Earnings hr Shair, site-specific decommissioning cost estimates for Big Rock and for comparative purposes. I Palisades, assuming that each plant site will eventually be Related-hrry Transactions: In 1997,1996 and 1995, restored to conform with the adjacent landscape, and that all Consumers purchased $51 million, $50 million and $53 million, contaminated equipment will be disassembled and disposed ofin respectively, of electric generating capacity and energy from affil-a licensed burial facility.The April 1996 MPSC Order also iates of Enterprises. Affiliates of CMS Energy sold, stored and requires Consumers to file updated site-specific decommission-transported natural gas and provided other senices to the MCV ing cost estimates for Big Rock and Palisades by March 31,1998. Partnership totaling $21 million, $17 million and $26 million for The Big Rock estimate will reflect the early shut-down and the 1997,1996 and 1995, respectively. For additional discussion of switch from the safe storage option to immediate dismantlement related-party transactions with the MCV Partnership arr.1 the First because of the reopening of the South Carolina Barnwell Midland Limited Partnership (FMLP), see Notes 3 and 22. Other radioactive waste disposal facility. After retirement of Palisades, related-party transactions are immaterial. Consumers plans to maintain the facility in protective storage if Revenue and Fuel Costs: Consumers accrues revenue for elec-radioactive waste disposal facilities are not available. As a result, tricity and gas used by its customers but not billed at the end of an l N

f CMSDemy Corporatiors accounting period. Consumers accrues or reduces revenue for any Ibwer Purrhasesfrvm the MCVPartnership: After September underrecovery or overrecovery of electric power supply costs and 2007, pursuant to the terms of the Power Purchase Agreement natural gas costs by establishing a corresponding asset or liability (PPA) and related undertakings, Consumers will only be until it bills or refunds these difTerences to customers following required to pay the MCV Partnership the capacity charge and an MPSC order. energy charge amounts authorized for recovery from elcctric Utility Regulation: Consumers accounts for the effects of regu-customers by the MPSC. Prior to then, pursuant to MPSC orders lation based on a regulated utility accounting standard (SFAS 71). issued to date, Consumers recovered in 1997 approximately As a result, the actions of regulators affect when revenues, 90 percent of the total capacity charge and energy charge expenses, assets and liabilities are recognized. If all or a separable amounts being billed by the MCV Partnership and paid to the portion of Consumers' operations becomes no longer subject to MCV Partnership by Consumers. Currently, Consumers' annual i the provisions of utility regulation, a write-ofTof related regula-obligation to purchase capacity from the MCV Partnership is tory assets and liabilities would be required, unless some form of 1,240 megawatts (MW) through the termination of the PPA in transition cost recovery continues through rates established and 2025. The PPA provides that Consumers is to pay the MCV collected for Consumers' remaining operations. In addition, Partnership a minimum levelized average capacity charge of Consumers would be required to determine any impairment to the 3.77 cents per kilowatt-hour (kWh), a fixed energy charge, and a carrying costs of deregulated plant and inventory assets. For fur-variable energy charge based primarily on Consumers' average ther discussion, see Electric Business Outlook and Consumers cost of coal consumed. Consumers is recovering capacity Gas Group Business Outlook - Application of SFAS 71, in the charges averaging 3.62 cents per kWh for 915 MW ofcapacity, Management's Discussion and Analysis (MD&A) and Note 20. the fixed energy charge, and the prescribed energy charges asso-Other: For significant accounting policies regarding cash ciated with the scheduled deliveries within certain hourly avail-equivalents, see Note 12; for income taxes, see Note 13; for exec-ability limits, whether or not those deliveries are scheduled on utive incentive compensation, see Note 15; and for pensions and an economic basis. Beginning January 1,1996, the MPSC also other postretirement benefits, see Note 16. permitted Consumers to recover an average capacity charge of 2.86 cents per kWh for the remaining 325 MW of MCV Facility 3: The Afidland Cogeneratlon Venture capacity. The approved average capacity charge increased to The MCV Partnership, which leases and operates a natural gas-3.62 cents per kWh for 109 MW by January 1,1997. The recov-fueled, combined-cycle cogeneration facility (MCV Facility), etable portion of the capacity charge for the last 216 MW of the contracted to sell electricity to Consumers for a 35-year period 325 MW increases each year until it reaches 3,62 cents per kWh beginning in 1990 and to supply electricity and steam to The m 2004. It remains at this ceiling rate through the end of the Dow Chem.ical Company Consumers, through two wholly PPA term. owned subsidiaries, holds the following assets related to the Consumers recognized a loss m. 1992 for the present value of MCV Partnen, hip and MCV Facility: (i) CMS Midland inc., a the estimated future underrecoveries of power costs under the subsidiary of Consumers (CMS Midland) owns a 49 percent PPA. At December 31,1997 and 1996, the after-tax present general partnersh.. terest in the MCV Partnersh.ip; and ip m value of the PPA liability totaled $117 million and $147 million, (ii) CMS Midland lloidings Comn' a subsidiary of respectively. The reduction m the liability since December 31, Consumers (CMS lloidings) holds, through FMLP, a 35 percent 1996 reflects after-tax cash underrecoveries of $41 million, par-lessor interest m the MCV Facih.ty. tially offset by after-tax accretion expense of $11 million. The u disc unted after-tax amount associated with the liability Summarized Statements of/ncomefor CMS Midland and totaled $188 million at December 31,1997. The after-tax cash CMSHoldings (unaudited); underrecoveries are currently based on the assumption that the MCV Facility will be available to generate electricity 91.5 per-December 31 1997 1996 1 cent of f he ilme over its expected life. For 1997 the MCV Pretax operating income 546 540 535 i income taxes and other 14 11 10 Facility was available 99 percent of the time, resulting in f Net income 532 529 525 $13 million over.mticipated after-tax cash underrecoveries. j Consumers believes it will continue to experience after-tax cash 39

NOTES CONTINUED CMSEnergyCorporaten underrecoveries associated with the PPA in amounts as those Note 3) and to accelerate recovery ofits nuclear plant investment shown below. by increasing prospective annual nuclear plant depreciation expense by $18 million, with a corresponding decrease in fossil-imn-, 1998 1999 2000 2001 2002 fueled generating plant depreciation expense, it also established Estimated cash under-an experimental direct-access program. Customers having a max-recoveries. net of tax 523 522 $21 520 519 g g g, , ;g Consumers bases the above estimated underrecoveries, in tion senices directly from any eligible third-party power supplier part, on an estimate of the future availability of the MCV and Consumers would transmit the power for a fee.The program Facility. If the MCV Facility operates at levels above manage-is limited to 650 MW ofload, of which existing special contmets ment's estimate over the remainder of the PPA, Consumers will represent 410 MW. New special contracts or direct-access load need to recognize losses for future underrecoveries larger than may fill 140 MW of the 650 MW block.The remaining 100 MW amounts presiously recorded. Therefore, Consumers would will be available solely to direct-access customers for at least experience larger amounts of cash underrecoveries than origi-18 months. In April 1997, a lottery was held to select the cus-nally anticipated. Management will continue to evaluate the tomers to purchase 100 MW by direct access. Direct access for a adequacy of the accrued liability considering actual MCV portion of this 100 MW began during the fourth quarter of 1997. Facility operations. In May 1997, the MPSC authorized Consumers to collect in early 1998, the MCV Partnership filed a claim of appeal $17 million from electric customers through a one-time sur-from the January 1998 MPSC order in the electric utility indus-charge pertaining to the 1994 PSCR reconciliation. In try restructuring. On the same day, the MCV Partnership filed September 1997, the MPSC further authorized Consumers to suit in the U.S. District Court seeking a declaration that the collect $13 million from electric customers through a one-time MPSC's failure to provide Consumers and the MCV Partnership surcharge pertaining to the 1995 PSCR reconciliation. a certain source ofrecovery of capacity payments after 2007 In January 1998, the Court ofApp.als ruled that the MPSC deprived the MCV Partnership ofits rights under the Public has statutory authority to authorize an experimental electric Utilities Regulatory Policies Act of 1978. The MCV Partnership retail wheeling prograrn. By its terms, no retail wheeling has yet is seeking to prohibit the MPSC from implementing portions of occurred pursuant to that program. Consumers filed with the the order. Michigan Supreme Court seeking leave to appeal that ruling. Power Supply Cost Recovery Matters Related to Power For information on other orders, see the Electric Purrhases/mm the MCVPartnership: As part of a 1995 decision Restructuring section below. in the 1993 power supply cost recovery (PSCR) reconciliation Electric Restructuring: As part of ongoing proceedings relat-case, the MPSC disallowed a portion of the costs related to pur-ing to the restructuring of the electric utility industry in Michigan, chases from the MCV Partnership and instead assumed recov-in June 1997 the MPSC issued an order proposing that beginning cry of those costs from wholesale customers. Consumers January 1,1998 Consumers would have to transmit and distribute believed this was contrary to the terrns of an earlier 1993 settle-energy on behalf of competing power sup; liers to sen e retail cus-ment order and appealed.The MCV Partnership and the tomers. The order states that by January 1,2002, all customers Association of Business Advocating Tariff Equity (ABATE) would be free to choose (that is, have direct access to) their own also filed separate appeals of this order. In November 1996, the power suppliers. Michigan Court of Appeals (Court ofAppeals) affirmed the Under the June !997 order, the MPSC would allow utilities to MPSC's 1995 decision. The MCV Partnership filed an applica-recover prudently incurred Transition Costs, which are costs tion for leave to appeal with the Michigan Supreme Court which incurred by utilities in order to serve their customers in a regu-was denied in January 1998. lated monopoly environment, but which may not be recoverable inae mpetitiveenvir nmentbecause fcust mersleavingtheir 4: Rate Matters W #*** '#" "E Electric Pmceedings: In 1996, the M PSC issued a final order that authorized Consumers to recover costs associated with the pur-c sts incurred in the transition to competition. These Transition chase of the additional 325 MW of MCV Facility capacity (see l a

l. CMSEwgy Corporatm l l Costs would be recovered through a charge to all direct-access at an additional $200 million. Nuclear decommissioning costs customers until the end of the transition period in 2007. Further will also continue to be collected through a separate surcharge to proceedings, as ordered by the MPSC, took place to address all customers. caher features of the direct-access programs being considered, Subsequent to the January order, the MPSC issued an order including proposals to "true up" Transition Cost charges for addressing Consumers', among others, motions for clarification changes in sales and market prices of power purchase capacity to of the January order. This order results in: i) a suspension of the the extent they are different from estimates used for calculating PSCR in a manner proposed by Consumers; ii) a termination of Transition Costs. The June order is subject to a claim of appeal the 1998 PSCR plan case; and iii) the establishing of a permanent filed with the Court of Appeals which questions whether the PSCR/ base rate freeze charge in the 1997 PSCR reconciliation MPSC has the statutory authority to mandate restructuring on an proceeding. For further information see Electric Business involuntary basis. In October 1997, the MPSC issued a series of Outlook - Application of SFAS 71 in the MD&A. additional orders relating to its electric industry restructuring Gas Restructuring: In December 1997, the MPSC approved proceedings.The orders primarily addressed issues involving the Consumers' application to implement a statewide experimental design of retail direct-access tariffs, the true-up mechanism in gas transportation pilot program. Consumers' expanded experi-connection with the recovery ofTransition Costs, suspension of mental program will extend over a three-year period, eventually the power supply cost recovery claus: and freezing of power sup-allowing 300,000 residential, commercial and industrial retail ply costs, tad performance-based rate-making. gas sales customers to choose their gas supplier.The program is in January 1998 the MPSC clarified the October 1997 orders voluntary for natural gas customers. Participating customers will on a basis generally consistent with the June 1997 order.The be selected on a first-come, first-served basis, up to a limit of January 1998 order: i) defers the commencement of the phase-in 100,000 customers on April 1,1998. U to 100,000 more cus-T of direct access to begin in March 1998; ii) attempts to clarify the tomers will be added on April 1 ofeach of the next two years. true-up mechanism to be used in connection with the recovery of Customers choosing to remain as sales customers of Consumers Transition Costs; iii) confirms implementation of a suspension of will not see a rate change in their natural gas rates. The order i the power supply cost recovery clause; and iv) confirms the allowing the implementation of this program: (i) suspends MPSC's belief that Securitization may be a beneficial mecha-Consumers' gas cost recovery clause, effective April 1,1998 for a nism for recovery ofTransition Costs while recognizing that three-year period, establishing a gas commodity cost at a fixed Securitization requires state legislation to occur. Consumers rate of $2.84 per mcf; (ii) establishes an earnings sharing mecha-expects Michigan legislative consideration of the entire subject nism that will provide for refunds to customers if Consumers' of electric industry restructuring in 1998. To be acceptable to earnings during the three year term of the program exceed cer-Consumers, the legislation would have to proside for full recov-tain pre-determined levels; and (iii) establishes a gas transporta-ery ofTransition Costs. Consumers expects the legislature to tion code ofconduct that addresses concerns about the review all of the policy choices made by the MPSC during the relationship between Consumers and marketers, including its restructuring proceedings to assure that they are in accord with affiliated marketers. This experimental program will allow com-those that the legislature believes should be paramount. peting gas suppliers, including marketers and brokers, to market The January 1998 order further estimated a Transition Cost for natural gas to a large number of retail customers in direct compe-Consumers at $1.755 billion which is generally consistent witt, tition with Consumers. In 1998, the Attorney General, the the amount proposed by Consu:ners. Consumers will recover this Association of Businesses Advocating Tariff Equity (ABATE) cost through a surcharge to direct-access customers through and other parties filed claims of appeal regarding the program 2007. Consumers believes that this surcharge will apply to all with the Court ofAppeals. To minimize the risk ofexposure to customers beginning in 2002. The surcharge is subject to adjust-higher gas costs, Consumers currently has contracts in place at l ment through a true-up mechanism to assure that Transition Costs known prices covering 50 percent ofits 1998 requirements, i actually incurred are collected. A separate charge to direct-access 25 percent ofits 1999 requirements and 13 percent ofits 2000 customers after MPSC review and verification would also recover requirements. Additional forward coverage is currently under f. prudent costs ofimplementing a direct-access program estimated i 41

a NOTES CONTINUED CMSEnergyCowam review and will be firmed up during the next few months. For 6:Long-Term Debt further information see Consumers Gas Group Business Outlook - Long-term debt consists of the following: Application of SFAS 71 in the MD&A. fag,, Gas Pnmdings: In 1995, the MPSC issued an order regarding Maturing' Interest December 31 Expiring Rate 1997 1996 a $44 million (excluding interest) gas supply contract pricing dispute Mt M nsage Bonds imto2023 6mo 8;8 Sw.2M $L305 betwen Consumers and cenain gas producers. he order stated Long-Term Bank Debt 1999 6.4% 400 400 that Consumers was not obligated to seek prior approval of mar-Senior Unsecured Notes 2000 to 2004 7.75%fa> 830 Senior Deferred ket-based pricing changes that Consumers implemented under the Coupon Notes 1997 9.5% and 9.875% 347 contracts in question. The Court ofAppeals upheld the MPSC Senior Credit Facilities 1998 to 2002 7.2%W 305 order The producers sought leave to appeal with the Michigan GeneralTerm Notes' Series A to D 1998 to 2004 7.7%W 509 353 Supreme Court. Their request is still pending. Consumers beh. eves Pollution Control the MPSC order correctly concludes that the producers' theories Revenue Bonds 2000 to 2018 5.1%W 131 131 T L Agreement: are without merit and will vigorously oppose any claims they may 2002 7.2%W 125 raise, but cannot predict the outcome of this issue. CMS Generation 2001 7.4%W 91 107 Resolution of the issues discussed in this Note is not expected Revolving Line of Credit 2003 6.5%W 124 122 Uns dR lying to materially afTect CMS Energy's fmancial position, liquidity or results ofoperations. Nuclear Fuel Disposal (6 5.1% 111 106 Bank Loans and Other 1997 to 2009 8.7%W 134 105 5:Short-Term Financings p7;ne;panAmoun, At December 31,1997, Consumers had Federal Energy outstanding 3,890 3.221 Regulatory Commission (FERC) authorization to: (i) issue or N t Un ze Discount 9 guarantee up to $900 million of short-term securities through Total Long-Term Debt $3.272 $2.842 1998; (ii) issue, through November 1998, $376 million oflong-term securities with maturities up to 30 years, for refmancing or <N ousar, umm <-wi,a refunding purposes; and (iii) guarantee, through 1999, up to The scheduled maturities oflong-term debt and improvement $25 million in loans made by others, to residents of Michigan for fund obligations are as follows: $609 million in 1998,5466 mil-the purpose of making energy-related home improvements. In lion in 1999, $662 million in 2000, $192 million in 2001 and January 1998, Consumers requested authorization to issue, $759 million in 2002. through November 1998, an additional $500 million oflong-term CMS Energy securities for refinancing or refunding purposes. In July 1997, CMS Energy refinanced a $450 million unsecured Consumers has an unsecured $425 million credit facility and revolving credit facility and a $125 million term loan with the unsecured lines ofcredit aggregating $120 million.These facih.- $1.125 billion Senior Credit Facilities.The Sem.or Credit Facil-ties are available to finance seasonal working capital require-ities consist of a $400 million 364-day revolving credit facility, a ments and to pay for capital expenditures between long-term $600 million three-year revolving credit facility and a five-year financings. At December 31,1997, a total of $377 million was $125 million term loan facility. Additionally, CMS Energy has outstanding at a weighted average interest rate of 6.5 percent, unsecured lines of credit and letters of credit in an aggregate compared with $333 million outstanding at December 31,1996, amount of $155 million. At December 31,1997, the total amount at a weighted average interest rate of 6.3 percent. j utilized under the Senior Credit Facilities was $365 million, f Consumers also has m. place a $500 million tmde receivables l including $60 million of contingent obligations, and under the sale program. At December 31,1997 and 1996, receivables sold i under the program totaled $335 million and $318 million, In January 1998, a Delaware statutory business trust estab-i respectively. Accounts receivable and accrued revenue m.the lished by CMS Energy sold $180 million of certificates due Consolidated Dalance Sheets have been reduced to reflect receiv- ' E" E' " * "E# l ables sold. """"#Y 1 proceeds, CMS Energy sold to the trust $ 180 million aggregate 42

} CMS Energy Corporata i principal amoun of 7 percent Extendible Tenor Rate Adjusted CMS Generation Securities due January 15,2005. Net proceeds to CMS Energy In January 1998, CMS Generation Co., a subsidiary of from the sale totaled $176 million. Enterprises,(CMS Generation) refmanced a $110 million, In January 1998, CMS Energy announced the commencement five-year term loan with a loan provided by CMS Capital Corp., of an ofter to exchange up to $300 million ofits 7.375 percent a subsidiary of Enterprises. Senior Unsecured Notes due 2000, Series A for 7.375 percent g Senior Unsecured Notes due 2000, Series B that have been regis-tered with the Securities and Exchange Commission (SEC). Other CMS Energy than their registration, the terms of the Series B Notes are substan-The authorized capital stock of CMS Energy consists of 250 mil-tially similar to the Series A (except that the Series B will not have lion shares of CMS Energy Common Stock par value $.01 per transfer restrictions). The offer was completed in early 1998. share (CMS Energy Common Stock),60 million shares of Class G Common Stock, no par value (Class G Common Stock), Consumers and 10 million shares of CMS Energy Preferred Stock, $.01 par First Mortgage Bonds: Consumers secures its first mortgage value (Preferred Stock). bonds by a mortgage and lien on substantially all ofits property. In 1996, CMS Energy received net proceeds of $95 million Consumers' ability to issue and sell securities is restricted by cer-from the issuance of CMS Energy and Class G Common Stock. tain provisions in its First Mortgage Bond indenture, its Articles 1 The issuance of 2.1 milh.on of those shares completed the ofIncorporation and the need for regulatory approvals to meet i amount remaining on a February 15,1995 shelf-registration filmg appropriate federallaw. with the SEC that covered the issuance of up to $200 million of In early 1998, Consumers called for the March 1998 redemption { securities. CMS Energy used the proceeds from the sale for gen-of$$7 milh.on aggregate pnncipal amount ofits 7.5 percent First eral corporate purposes. Mortgage Bonds due in 2001 and $62 million aggregate principal In May 1997, CMS Energy and afliliated business trusts filed i amount ofits 7.5 p-rcent First Mortgage Bonds due m. 2002, 1 a shelf-registration statement with the SEC to issue and sell up to in early 1998, Consumers issued $250 milh.on of senior notes $300 milh.on of CMS Energy Common Stock, subordinated due February 1,2008, at an m. terest rate of 6.375 percent.The debentures, stock purchase contracts, stock purchase units and senior notes are secured by a series ofConsumers' First preferred securities. In June 1997,3.45 million units of 7.75 per-Mortgage Bonds, issued contemporaneously m.a similar amount. cent tax deductible Trust Preferred Securities were issued and i Proceeds from the sale were added to the general funds of sold through CMS Energy Trust 1, a wholly owned business trust Consumers and applied to the payment, at maturity, of $248 mil-consolidated with CMS Energy. Net proceeds from the sale h.on aggregate pnncipal amount of Consumers' 8.75 percent totaled $170 million. CMS Energy formed the trust for the sole First Mortgage Bonds due February 15,1998. purpose ofissuing tax deductible Trust Preferred Securities. Its Long-Term Bank Debt: Consumers has a $400 million unse-primary asset is approximately $ 178 million principal amount of cured, variable rate, long-term loan. 7.75 percent subordm.ated debentures issued by CMS Energy, In January 1998, two agreements to guarantee interest rates for which mature m 2027. These tax deductible Trust Preferred the issuance of future long-term debt were executed. The first Securities are convertible into CMS Energy Common Stock at a anticipatory debt agreement is for $250 million at 5.5 percent rate equivalent to a conversion price of $40.80 per share of which expires February 10,1998, and the second agreement is for CMS Energy Common Stock. CMS Energy used proceeds of the $200 million at 5.8 percent with an exp.iration of March 16,1998. subordinated debentures for general corporate purposes melud-Other: Consumers'long-term pollution contml revenue bonds ing repayment of debt, capital expenditures, investment m sub-are secured by irrevocable letters ofcredit or First Mortgage Bonds. sidiaries and working capital. CMS Energy's obligations under CMS NOMECO the subordinated debentures, the indenture through which CMS NOMECO has a $225 million revolving credit facility that CMS Energy issued the subordinated debentures, the declaration converts to term loans maturing from March 1999 through of trust and the CMS Energy guarantee provide, in the aggregate, March 2003. a full irrevocable and unconditional guarantee of payments of 43

NOTES CONTINUE 0 cusEwgyCawatar distribution., and other amounts due on the Trust Preferred in October 1997, Consumers returned $50 million of paid-in Securities. For additional information, see note (b) on the capitalto CMS Energy. Consolidated Balance Sheets. 8: Earnings PerShareandDMdends In November 1997, CMS Energy received net proceeds of FPMMh hdWH997 $152 million from the issuance of 4.142 million shares of and 1996 reflect the performance of the gas distribution, storage CMS Energy Common Stock. The issuance of those shares and transportation businesses of Consumers and Michigan Gas completed the amount remaining on the May 1997 shelf-registra-Storage Company (Consumers Gas Group). Earnings per share tion with the SEC. Proceeds from the sale were used for general attributable to Common Stock for the year ended December 31, 1995 reflect the performance of the Consumers Gas Group since Other: Under its most restrictive borrowing arrangement at mitialissuance ofClass G Common Stock during the third quar-December 31,1997, none of CMS Energy's consolidated net ter of 1995. The Class G Common Stock has participated in earn-mcome was restncted for payment of common dividends. ings and dividends from its original issue date in July 1995. The CMS Energy could pay $354 million in common dividends allocation ofearnings attributable to each class ofconunon stock under its most restrictive debt covenant. and the related amounts per share are computed by considering consumers the weighted average number of shares outstanding. In 1996,4 million shares of 8.36 percent Trust Preferred Earnings attributable to the outstanding shares of the Class G Securities were issued and sold through Consumers Power Common Stock (Outstanding Shares) are equal to Consumers Company Financing I, a wholly owned business trust consoli-Gas Group net income multiplied by a fraction; the numerator is dated with Consumers. Net proceeds from the sale totaled the weighted average numberof Outstanding Shares during the $97 million. In September 1997,4.8 million shares of 8.20 per-period and the denominator is the weighted average number of cent Trust Preferred Securities were issued and sold through Outstanding Shares and retained interest shares, shares not held Consumers Energy Company Financing II, a wholly owned busi-by the holders of the Outstanding Shares, during the period.The ness trust consolidated with Consumers. Net proceeds from the earnings attributable to Class G Common Stock on a per share sale totaled $116 million. Consumers formed both trusts for the basis for 1997 and 1996 are based on 24.50 percent and role purpose ofissuing the tax deductible Trust Preferred 23.79 percent, respectively, of the income of Consumers Gas Securities. Consumers' obligations with respect to the Trust Group. The earnings attributable to Class G Common Stock on a Preferred Securities under the notes, under the indenture through per share basis, for the year ended December 31,1995, are based which Consumers issued the notes, under Consumers' guarantee on 23.45 percent of the income of the Consumers Gas Group of the Trust Preferred Securities, and under the declaration by since the initialissuance. the trusts, taken together, constitute a full and unconditional guarantee by Consumers of the trusts' obligations under the Trust Preferred Securities. For additional information, see Note (a) on the Consolidated Balance Sheets. In September 1997, the proceeds from the 8.20 percent Trust Preferred Securities were used by Consumers to redeem all out-standing shares ofits $7.45, $7.68, $7.72 and $7.76 preferred stock for $120 million. Under the provisions ofits Articles ofIncorporation at December 31,1997, Consumers had $280 million of unre-stricted retained earnings available to pay common dividends. l 44

lI l 1 4 CMSEnergyCorporation I ) Computation of Earnings Per Share: are paid at the discretion of the Board of Directors based primar-t l a umm., numsam wa ily upon the earnings and financial condition of Consumers G :s Actual Actual Actual Pm Forma Group, and to a lesser extent, CMS Energy as a whole. Years Ended December 31 1997 1996 1995 1995 In February and May 1997, CMS Energy paid dividends of Net income Applicable to Basie and Diluted EPS: 5.27 per share on CMS Energy Common Stock and $.295 per Consolidated Net income 5268 $240 $204 $204 share on Class G Common Stock. In August and November 1997, Net income Attributable to CMS Energy paid dividends of 5.30 per share on CMS Energy Common Stock and 5.31 per share on Class G Common Stock. S E erg -Basic EPS 5253 $226 $201 $189 Add conversion of 7.75% in January 1998, the Board of Directors declared a quarterly div-Trust Preferred Securities (net of tas) 5 idend of 5.30 per share on CMS Energy Common Stock and S.31 per share a Class G Commm Stock, which were paid in CMS Energy - Diluted EPS 5258 $226 $201 $189 i February 1998. l Class G Basic and Diluted EPS $ l5 $ 14 $ 3 $ i5 9: Risk nfanagement Activities and Derivatives Average Common Shares Transactl0ns [",{',",d'" CMS Energy and its subsidiaries use a variety of derivative dD P l CMS Energy: instruments (derivatives), including futures contracts, swaps, . Average Shares-Basic 96.1 92.5 88.8 88.8 options and forward contracts, to manage exposure to fluctua-Add conversion of 7.75% Trust Preferred Securities 2.3 tions in commodity prices, interest rates and fore.ign exchange Options-Treasury Shares 0.3 0.2 0.2 0.2 rates. To qualify for hedge accounting, derivatives must meet the Average Shares-Diluted 98.7 92.7 89.0 89.0 following criteria: (i) the item to be hedged exposes the enter-Class G: prise to price, interest or exchange rate risk; and (ii) the deriva-Average Shares tive reduces that exposure and is designated as a hedge. Basic and Dduted R.0 7.7 7.5 7.5 Derivative instruments contain credit risk if the counterparties, E"["8' ' ^{""8' including financial institutions and energy marketers, fail to per-3 CMS Energy: form under the agreements. CMS Energy minimizes such risk by Basic $2.63 $2.45 $2.27 $2.14 performing financial credit reviews using, among other things, Diluted 52.61 - $2.44 $2.26 $2.13 publicly available credit ratings of such counterparties.The n. k l cg333 c; s Baeic and Diluted 51.84 $1.82 5.38 $1.93 of nonperformance by the counterparties is considered remote. Commodiy Price Hedges: CMS Energy accounts for its com-Pro forma data for the year ended December 31,1995 gives m dity price derivatives as hedges, as defined above, and as effect to the issuance and sale of 7.52 million shares of Class G such, defers any changes in market value and gains and losses Common Stock (representing 23.50 percent of the equity resulting fr m settlements until the hedged transaction is com-j i attributable to Consumers Gas Group) as ifit occurred on plete. If there was a loss of correlation between the changes in January 1,1995. mar t due oW mun@ prke cetracts anWe Holders of Class G Common Stock have no direct rights in market price ultimately received for the hedged item, and the the equity or assets of Consumers Gas Group, but rather have imp ct was material, the open commodity price contracts would rights in the equity and assets of CMS Energy as a whole. In the be marked to market and gains and losses would be recognized sole discretion of the Board of Directors of CMS Energy (Board m tWome statemmt cunen$ of Directors), CMS Energy may pay dividends exclusively to the CMS NOMECO periodically enters into oil and gas price holders of Class G Common Stock, exclusively to the holders of hedging arrangements to mitigate its exposure to price fluctua-CMS Energy Common Stock, or to the holders of both classes in tions on the sale ofcrude oil and natural gas. As of December 31, . equal or unequal amounts. The Board of Dkectors has stated its 1996, CMS NOMECO had 1997 commodity price contracts on intention to declare and pay dividends on the CMS Energy 13.8 billion cubic feet (bef) of gas at prices ranging from $1.92 to Common Stock based primarily on the earnings and financial $2.80 per one million British Thermal Units (MMBtu) and on condition of CMS Energy. Dividends on Class G Common Stock l l a L t __

NOTESCONTINUE0 CMSEnergyCbrtsatmo 2 million barrels ofoil at prices ranging from $19.50 to $22.90 and gains, respectively, on assets and liabilities being hedged. per barrel. During 1997, CMS NOMECO made net payrnents of The notional amount of the outstanding foreign exchange $6 million for settlement of 1997 contracts on 14.1 bef of gas and contracts was $50 million at December 31,1997. 2 million barrels ofoil' 10: Commitments, Contingencies and Other CMS NOMECO also has one arrangement which i tised to Electric Em imnmental Marters: The Federal Clean Air Act, as fix the prices that CMS NOMECO will pay to suppiy gas for the amended (Clean Air.Act), limits emissions of sulfur dioxide tad years 2001 through 2006 by purchasing the economic equivalent nitrogen oxides aad requires emissions monitoring. Consuraers, of10,000 MMBtu per day at a fixed price, escalating at 8 percent coal-fueled electric generating units burn low-sulfur coal and are per year thereafter, starting at $2.82 per MMBtu m 2001. The set-currently operating at or near the sulfur dioxide emission limits tiement periods are cach a one-year period ending December 31, that will be effective m the year 2000. During the past few years, 2001 through 2006 on 3.65 million MMBtu. If the floating price, m order to comply with the Act, Consumers incurred capital essentially the then-current Gulf Coast spot price, for a period is expenditures totaling $46 million to install equipment at certain higher than the fixed price, the seller pays CMS NOMECO the generating units. Consumers estimates capital expenditures for difference, and vice versa. If a party's exposure at any time

g g

g exceeds $5 million, that party is required to obtain a letter of to be an additional $30 million by the year 2000. Management credit in favw of the other party for the excess over $5 million believes that these expenditures will not matenally affect and up to $10 million. Accordingly, at December 31,1997, a letter Consumers, annual operating costs. of credit was not required by c. her party to the agreement. As of at Consumers currently operates withm.all Clean Air Act December 31,1997, the fair valuc of this contract reflected a pay-requirements and meets current ozone and particulate emission ment due from CMS NOMECO of $13 million. limits. The Act requires the EPA to review, periodically, the CMS Marketing, Services and Trading Company uses natural effectiveness of the national air quality standards.m preventing gas futures contracts, options and swaps (which require a net cash l adverse health affects.The EPA recently revised these standards, payment for the difference between a fixed and variable price). The revisions may further limit small particulate and ozone Interest Rates Hedges: CMS Energy and some ofits sub-related emissions. Consumers supports the bipartisan effort m sidianes enter mto interest rate swap agreements to exchange the U.S. Congress to delay implementation of the revised stan-variable rate interest payment obligations to fixed rate obliga-dards until the relationship between the new standards and heahh tions without exchang.mg the underlying notional amounts. impmvements is established scientifically. These agreements convert variable rate debt to fixed rate debt to In October 1997, pursuant to recommendations from the reduce t,oe impact ofinterest rate fluctuations.The notional Ozone Transport Assessment Group and the requests of several amounts parallel the underlying debt levels and are used to mea-Northeastern states, the EPA proposed that the State of Michigan sure interest to be pa.d or received and do not represent the expo-i impose additional nitrogen oxide limits on fossil-fueled emitters, sure to credit loss. The notional amount of CMS Energy's and such as Consumers' generatmg umts. The limits are an effort to its subsidiaries' interest rate swaps was $1.1 billion at reduce statewide nitrogen oxide emissions by 32 percent, as December 31,1997. The difference between the amounts paid and early as 2002.The State of Mich.igan will have one year to received under the swaps is accrued and recorded as an adjust-revie'v and challenge the proposed recommendations, and one ment to interest expense over the life of the hedged agreement. year afler that to implement final requirements. It is unlikely that . Fomign Exchange Hedges: CMS Energy usn forward the State of Michigan will establish Consumers' nitrogen oxide exchange contracts to hedge certain receivables, payables, and emissions reduction target until mid-to-late 1999. Until this state-long-term debt relating to foreign investments. The purpose of mandated target is known, the estimated cost of compliance is CMS Energy's foreign currency hedging actmties is to protect subject to significant revision. the company from the n. k that U.S. dollar net cash flows resulting s The preliminary estimate of capital costs to reduce nitrogen from sales to foreign customers and purebases from foreign sup-oxide related emissions for Consumers' fossil-fueled generating pliers and the repayment of non-U.S. dollar borrowings may be units is approximately $175 million, plus an addit.ional amount adversely affected by changes m. exchange mtes.These contracts totaling $ 10 million per year foi 20 years for operation and mainte-do not subject CMS Energy to nsk from exchange rate move-nance costs. Consumers may need an equivalent amount to com-ments because gains and losses on such contracts offset losses ply w,th the new small particulate standards. The State of i a

4 CMSEnergy Corporation Michigan objected to the extent of the proposed EPA emission not begin until afler a prudence review in a general rate case. The reductions. If the State of Michigan's position were to be adopted order authorizes current recovery of $1 million annually. by the EPA, costs could be less than the current estimated t. mounts. Consumers is continuing discussions with certain insurance Under the Michigan Natural Resources and Environmental companies regarding coverage for some or all of the costs that it Protection Act, Consumers expects that it will ultimately incur may incur for these sites. investigation and remedial action costs at a number of sites. Capita / Expenditim s: CMS Energy estimates capital expen. Nevertheless, it believes that these costs are properly recoverable ditures, including investments in unconsolidated subsidiaries and in rates under current ratemaking policies. new lease commitments, of $1.335 billion for 1998, $ 1.220 bil-Consumers is a so-called potentially responsible party at sev-tion Sr 1999 and $1.175 billion for 2000. For further information eral contaminated sites administered under the Comprehensive regarding capital expenditures, see Capital Resources and Environmental Response, Compensation and Liability Act Liquidity - Capital Expenditures in the M D& A. (Superfund). Superfund liability is joint and several; along with Commitmentsfor Coaland Gas Supplies: Consumers entered Consumers, many other creditworthy, potentially responsible into coal supply contracts with various suppliers for its coal-fired parties with substantial assets cooperate with respect to the indi-generating stations. These contracts have expiration dates that vidual sites. Based upon past negotiations, Consumers estimates range from 1998 to 2004. Consumers contracts for 50-75 percent that its share of the total liability for the known Superfund sites ofits annual coal requirements totaling $250 million in 1997 will be between $3 million and $9 million. At December 31, (56 percent was under long-term contracts). Consumers supple-1997, Consumers has accrued $3 million for its estimated ments its long-term contracts with spot-market purchases to ful-Superfund liability. fillits coal needs. Gas Envimnmental Matters: Under the Michigan Natural Consumers entered into gas supply contracts and transporta-Resources and Environmental Protection Act, Consumers tion contracts with various suppliers for its natural gas business, expects that it will ultimately incur investigation and remedial These contracts have expiration dates that range from 1998 to action costs at a number of sites, including some 23 sites that 2003. Consumers' 1997 gas requirements totaled 250 bef at a formerly housed manufactured gas plant facilities, even those in cost of $694 million,80 percent of which was under long-term which it has a partial or no current ownership interest. In 1998 contracts for one year or more. As of the end of 1997, Consumers Consumers plans to study indoor air issues at residences on had 50 percent ofits 1998 gas requirements under such long-some sites and ground water impacts or surface soil impacts at term contracts, and will supplement them with additional long-other sites. On sites where the company has received site-wide term conaacts and spot-market purchases. study plan approvals, it will continue to implement these plans. It Other: As of December 31,1997, CMS Energy and will also work toward closure of environmental issues at sites as Enterprises have guaranteed up to $543 million in contingent studies are completed. Data available to Consumers and its con-obligations of unconsolidated affiliates and unrelated parties. tinued internal review have resulted in an estimate for all costs Various parties have sued Consumers relating to the efTect of related to investigation and remedial action for all 23 sites of so-called stray voltage on certain livestock. Claimants contend that between $48 million and $98 million. These estimates are based stray voltage results when low-level electrical currents present in on undiscounted 1998 costs. At December 31,1997, Consumers grounded electrical systems are diverted from their intended path. has accrued a liability of $48 million and has established a regu-Consumen; maintains a policy ofinvestigating all customer calls latory asset for approximately the same amount. Any significant regarding stray voltage and working with customers to address change in assumptions, such as remediation technique, nature their concerns. It also has an ongoing mitigation program to mod-and extent of contamination, and legal and regulatory require-ify the service of all customers with livestock, ments, could afTect the estimate of remedial action costs for the in December 1997, the Michigan Supreme Court remanded for sites. According to an MpSC rate order issued in 1996, further proceedings a 1994 Michigan trial court decision that Consumers will defer and amortize, over a period of ten years, refused to allow the claims of over 200 named plaintifTs to be environmental clean-up costs above the amount currently being joined in a single action. The trial court dismissed all of the plain-recovered in rates. Rate recognition of amortization expense will tiffs except the first-named plaintiff, allowing the others to re-file C

l Npygg Cqq11ggy CMSEnemyCorporation I separate actions. Of the original plaintitTs, only 49 re-fded separate certain foreign countries that could be recaptured if a triggering cases. All of those 49 cases have been resolved. The Michigan event were to occur. The additional tax liability could be up to Supreme Court remanded the matter, finding that the proper $10 million plus interest. remedy for misjoinder was not dismissal, but to automatically alkw in addition to the matters disclosed in these Notes, each case to go forward separately. Consumers filed a motion for Consumers and certain other subsidiaries of CMS Energy are reconsideration with the Michigan Supreme Court, which was parties to certain lawsuits and administrative proceedings before denied. Consumers intends to vigorously defend these cases, various courts and governmental agencies arising from the ordi-but is unable to predict the outcome. As of December 31,1997, nary course ofbusiness.These lawsuits and proceedings may Consumers had 12 individual stray voltage lawsuits, unrelated to involve personal injury, property damage, contractual matters, the cases above, awaiting trial court action, down from 22 lawsuits environmental issues, federal and state taxes, rates, licensing and as reported at year end 1996. other matters, in October 1997, two independent power producers sued Estimated losses for certain contingencies discussed in this Consumers and CMS Energy in a federal court.The suit alleges Note have been accrued. Resolution of these contingencies is not antitrust violations relating to contracts which Consumers expected to have a material adverse impact on CMS Energy's entered into with some ofits customers and claims relating to financial position, liquidity, or results of operations. power facilities.The plaintifTs claim damages of $100 million g ~ (which a court can treble in antitrust cases as provided by law). Consumers filed updated decomm.issiomng mformation with the The transactions of which plaintifTs complain have been regu. MPSC in 1995 that estimated decommissiomng costs for Big lated by, and are subject to, thejurisdiction of the MPSC. In l1 Rock and Palisades. In April 1996, the MPSC a.ssued an order m. November 1997. Consumers and CMS Energy filed a motion for Consumers' nuclear decommissioning case, which fully sup-summaryjudgement and'or for d.ismissal of the complaint filed ported Consumers' request and did not change the overall sur-l by the plam. tiffs. Consumers and CMS Energy believe the law-i charge revenues collected from retail customers. The MPSC ' suit is without merit and will vigorously defend against it, but i ordered Consumers to file a report on the adequacy of the sur-cannot predict the outcome of this matter. charge revenues with the MPSC at three-year intervals begm.nmg Under agreements relating to CMS NOMECO's 1995 acquisi-m 1998. Consumers filed a revision to its Post Shutdown t.mn of Walter International, Inc. and its Congo operations. Activities Report (formerly deconum. iom.ng report)with the ss CMS Energy and CMS NOMECO could becomej..omtly and NRC to reflect the shutdown of Big Rock. severally liable for the recapture of" dual consolidated losses" Big Rock closed permanently on August 29,1997 because under Section 1503(d) of the Internal Revenue Code (IRC) if a management determined that the plant would be uneconomical " triggering event" were to occur. Potential triggering events " "E """E# include certain asset or stock dispositions to unrelated parties, Consumers originally scheduled the plant to close May 31,2000, certain tax deconsolidations, certain usage of the losses on a for-at the end of the plant's operating license. Plant decommission-eign tax return, and certain failures to comply with Internal ing began in September 1997 and may take five to ten years to Revenue Service regulations. CMS Energy and CMS NOMECO return the site to its original condition.The earlier than planned have no plans to effect any transaction that would be a triggering closure of the plant and the reopening of the South Carolina event.The amount of the potential tax liability could be up to Barnwell facility to receive low level radioactive waste have $67 million plus interest. In connection with the same acquisi-C angehe nM WecounMm@n& sahmge tion, a subsidiary of CMS NOMECO could also be jointly and severally liable with an unrelated party for up to $50 million of ""E # " "E * '"9"* tax plus interest. In that event. CMS NOMECO has certain to be updated in a filing with the MPSC by March 31,1998. For mdemn.ity nghts against that unrelated party. Additionally, CMS NOMECO and its domestic subsidiaries have incurred losses in Consumers has loaded 13 dry storage casks with spent nuclear fuel at Palisades. Consumers plans to load five additional casks at Palisades in 1999 pending approval by the NRC. In a

1 CMSEnergy Corporation June 1997, the NRC approved Consumers' process for unloading f2: Supplemental Casti Flow infiermation spent fuel from a cask at Palisades previously discovered to have For purposes of the Consolidated Statements of Cash Flows, all minor weld flaws. Consumers intends to transfer the spent fuel to highly liquid investments with an original maturity of three a new transportable cask when one is available. Westinghouse months or less are considered cash equivalents. Other cash flow Corporation has been contracted to design and fabricate trans-activities and non-cash investing and financing activities were: portable casks for both Palisades and Big Rock. These casks will www support the off-load of the cask with minor flaws, continued Years Ended December 31 1997 1996 1995 operation of Palisades and the decommissioning of Big Rock. Cash transactions fn'om P lized $293 $240 s207 [ Consumers maintains insurance coverage against property s f fd 67 4 I damage, debris removal, personal injury liability and other risks Non-eash transactions that are present at its nuclear generating facilities. Consumers Nuclear fuel placed under capital leases 5 4 $ 28 $ 26 Other assets placed under capitalleases 7 3 5 also maintains coverage for replacement power costs durm.g pro-Common Stock issued to acquire companies - 90 longed accidental outages at Palisades. Insurance would not cover Assumption of debt 20 - CaNtaheases rennaned 21 such costs during the first 17 weeks of any outage, but would cover most of such costs during the next 58 weeks of the outage, Changes in other assets and liabilities as shown on the ~ followed by reduced coverage to 80 percent for two additional Consolidated Statements of Cash Flows are described below: years. If certain loss events occur at its own or other nuclear g, - plants similarly insured, Consumers could be required to pay Years Ended December 31 1997 1996 1995 maximum assessments of $19 million in any one year to Nuclear Sale of receivables, net 5 17 $ 23 $ 20 ^ eivable (160) (2 ( Electric Insurance Ltd; $79 million per event under the nuclear ' ?e t-liability secondary fmancial protection program, limited to inventories (15) 43 $10 million per event in any one year; and $6 million if nuclear Accounts payable 67 55 112 Accrued refunds 4 (13) (3) workers claim bodily injury from radiation exposure. Consumers other current assets and liabilities, net t6) 23 30 considers the possibility of these assessments to be remote. Non-current deferred amounts, net t6) 10 (9) The NRC requires Consumers to make certain calculations 5 (35) 5(12) 5 89 and report to it on the continuing ability of the Palisades reactor vessel to withstand postulated pressurized thermal shock events 13 laceme Taxes during its remaining license life, considering the embrittlement CMS Energy and its subsidiaries (including Consumers) file a of reactor vessel materials over time due to operation in a consolidated federal income tax return. Income taxes are generally radioactive environment. Based on continuing analysis of data in allocated based on each company's separate taxable income. CMS December 1996 Consumers received an interim Safety Energy and Consumers practice full deferred tax accounting for Evaluation Report from the NRC indicating that the reactor ves. temporary differences, but federal income taxes have not been sel can be safely operated through 2003 before reaching the recorded on the undistributed earnings ofinternational sub-NRC's screening criteria for reactor embrittlement. Consumers sidiaries where CMS Energy intends to permanently reinvest those believes that with fuel management designed to minimize earnings. Upon distribution, those earnings may be subject to both embrittlement, it can operate Palisades to the end ofits license U.S. income taxes (adjusted for foreign tax credits or deductions) life in the year 2007 without annealing the reactor vessel, and withholding taxes payable to various foreign countries, it is Nevertheless, Consumers will continue to monitor the matter. not practical to estimate the amount of unrecognized deferred income taxes or withholding taxes on undistributed earnings. CMS Energy used investment tax credits (ITC) to reduce cur-rent income taxes payable, and amortizes ITC over the life of the related property. Any alternative minimum tax (AMT) paid gen-erally becomes a tax credit that CMS Energy can carry forward indefinitely to reduce regular tax liabilities in future periods when regular taxes paid exceed the tax calculated for AMT. n

NOTES CONTINUE 0 cusEnemycomxata I i The significant components of income tax expense (benefit) The actual income tax expense differs from the amount com-consisted of: puted by applying the statutory federal tax rate to income before income taxes as follows: fa,,y,,, Years Ended December 31 1997 1996 1995 fa,,um Current income taxes Years Ended December 31 1997 1996 1995 Federal and other 5 79 $ 90 $ 43 Consolidated net income before foreign 5 3 preferred dhidends 84 93 43 Domestic $229 $237 $219 Deferred income taxes Foreign 64 31 13 Federal 50 56 85 293 268 232 Foreign (7) Income tax expense i17 139 118 43 56 85 410 407 350 Statutory federalincome tax rate x 35% x 35% x 35% Deferred lTC, net (10) (10) (10) Expected income tax expense 143 142 123 g9 g,g Increase (decrease)in taxes from: Capitalized overheads previously The principal components of CMS E,nergy's deferred tax flowed through 5 5 5 assets (liabilities) recognized in the balance sheet are as follows: Differences in book and tax depreciation not previously deferred 8 6 6 'a*'" Impact of foreign taxes, tax rates and credits 1 8 3 December 31 1997 1996 Undistributed earnings of Property 5 (647) $ (621) international subrddiaries (10) (2) Unconsolidated investments (263) (259) ITC amortization (10) (10) (10) Postretirement benefits (Note 16) (156) (165) Section 29 FuelTax Credits (13) (13) (13) Abandoned Midland project (33) (40) Other, net (7) 3 4 Ernployee benefit obligations (includes post' $117 $139 $118 retirement benefits of 5155 and $167)(Note 16) 195 201 AMT carryforward I47 172 Power purchases (Note 3) 66 82 14 ffnanClallnStlvinenlS Other (14) (20) The carrying amounts of cash, short-term im estments and cut-rent liabilities approximate their fair values due to their short-Gross deferred tax liabilities $(1,758) $(1,715) term nature. The estimated fair values oflong-term investments Gross deferred tax assets 1,053 1,065 are based on quoted market prices or, in the absence of specific $ (705) $ (650) market prices, on quoted market prices of similar investments or other valuation techniques. The carrying amounts of all long-term investments in financial instruments approximate fair value. The carrying amount oflong-term debt was $3.3 billion at December 31,1997 and $2.8 billion at December 31,1996, and the fair values were $3.3 billion and $2.9 billion, respectively. Although the current fair value of the long-term debt may differ from the current carrying amount, settlement of the reported debt is generally not expected until maturity. The carrying amount of preferred stock and Trust Preferred Securities was $631 million at December 31,1997 and $456 million at December 31,1996, and the fair value was $632 million and $439 million, respectively. The fair values of CMS Energy's off-balance-sheet fmancial instruments are based on the amounts estimated to terminate or settle the instruments. At December 31,1997, the fair value of CMS Energy's interest rate swap agreements, with a notional amount of $1.1 billion, was $13 million, representing the amount that CMS Energy would have to pay to terminate the agree-ments. The settlement of the interest rate swap agreements in l 50 1

CMS Energy Corporato, l 1997 did not materially afTect interest expense. At December 31, expire up to ten years and one month from date of grant. The j 1996, CMS Energy would have paid $10 million to terminate the status of the restricted stock granted to CMS Energy's key agreements. Also refer to Note 9 for a discussion of CMS employees under the Performance incentive Stock Plan and NOMECO's price hedging arrangements and their fair values, options granted under both plans follows. Guarantees were $543 million and $102 million at December 31, Restricted 1997 and 1996, respectively. Stock Options The amortized cost of CMS Energy's nuclear decommission-Weighted-ing investments, which are considered available-for-sale securi-Number Number Lx reise ties in accordance with SFAS 115, AccountingIhr Certain of Shares ofShares Price Investments in Debt and Equiry Securities, was $405 million and CMS Energy Common Stock: $351 million as of December 31,1997 and 1996, respectively. The outstanding at January 1,1995 330,356 1,490.666 $23.50 Granted 253,337 304,000 $25.08 unrealized gain, which is classified in accumulated depreciation, Exercised or issued (43.939) (147,666) $ 14.52 was $81 million and $35 million as of December 31,1997 and Forfeited (22,307) Expired (55,000) $27.46 1996, respectively. Outstanding at December 31,1995 517,447 1,592.000 $24.50 15: Executive incentive Cornpensation l"j,go,,,,,,g f,',"3], g2f,yo, j,, 3 b Under CMS Energy's Performance Incentive Stock Plan, forfeited (46,076) restricted shares of Common Stock of CMS Energy, stock options Expired (12,000) $32.88 and stock appreciation rights may be granted to key employees Outstanding at December 31,1996 600,838 1,716,626 $26.24 Granted 366,360 431,500 $35.91 based on their contributions to the successful management of Exercised or issued (159,405) (479,422) $26.54 CMS Energy and its subsidiaries. Awards under the plan may Forfeited (59,582) Expired (2,T87) $30,13 consist of any c: ass of Common Stock of CMS Energy. Certain outstandmg at December 31,1997 748,211 1.665,717 $28.65 plan awards are subject to petformance-based business criteria. CI'"" The plan reserves for award not more than three percent of g d ga ce i r 31,1995 6.924 10,000 $17.88 j CMS Energyi Common Stock outstanding on.Ianuary 1 each Granted 9.423 11,000 $17.88 i year, less (i) the number of shares of restricted Common Stock Outstanding at December 31,1996 16,347 21,000 $17.88 awarded and (ii) Common Stock subject to options granted under { rant 8 12 4 5 g the plan during the immediately preceding four calendar years. Ferfeited (3,955) t Any forfeitures ofshares previously awarded increase the number Outstanding at December 31,1997 19,791 28,000 $18.89 available to be awarded under the plan. At December 31,1997, i The following table summarizes information about ttock awards of up to 749,889 shares ofCMS Energy Common Stock options outstanding at December 31,1997: and 192,387 shares of Class G Common Stock may be issued. um W g te We Restricted shares of Common Stock are outstanding shares te; 7 with full voting and dividend rights. These awards vest over five Exercise Prices Outstanding RemainingLife ExercisePrice years at the rate of 25 percent per year after two years.The $ 17.13-$24.75 594,000 4.82 years $21.82 restricted shares are subject to achievement of specified levels of $25.13-$33.88 668,217 5.30 years $30.32 $34.25- $38.00 403,500 9.51 years $35.92 total shareholder return and are subj.ect to forfeiture ifemploy- $17.13-$38.00 1.665,717 6.15 years $28.65 ment terminates before vesting. If performance objectives are exceeded, the plan provides additional awards Restricted shares The range ofexercise prices for Class G Common Stock vest fully if control of CMS Energy chcnges, as defined by the options is $17.88 to $23.31; the weighted average remaining life l plan. At December 31,1997,562,711 of the 748,21I shares of is S.8 years. restricted CMS Energy Common Stock outstanding are subject The weighted average fair value ofoptions granted for to performance objectives. At December 31,1997 all of the CMS Energy Common Stock was $6.38 in 1997, $6.94 in 1996, 19,791 restricted shares of Class G Common Stock outstanding and $5.37 in 1995.The weighted average fair value of options are subject to performance objectives. granted for Class G Common Stock was $1.87 in 1997, $1.59 in f Under the plan, stock options and stock appreciation rights 1996 and $ 1.57 in 1995. Fair value is estimated using the Black-r.re granted with an exercise price equal to the closing market price on each grant date, Options are exercisable upon grant and $1

NOTES CONTINUE 0 cusEwwcawation Scholes model, a mathematical formula used to value options CMS Energy's international subsidiaries expensed their accumu-traded on securities exchanges, with the following assumptions: lated transition obligation liability. The amount of such transition Years Ended December 31 1997 1996 1995 obligation is not material to the presentation of the consolidated CMS Energy Common Stock Options financial statements or significant to CMS Energy's total transi-Risk-free interest rate 6.06 % 6 63 % 6.17% tion obligation. The MPSC authorized recovery of the electric Expected stock-price volatility 17.43 % 24.08 % 27.12 % utility portion of these costs m 1994 over 18 years and the gas Expected dividend rate 5.30 $.27 S.24 Expected option life 5 p ars 5 years 5 years utility portion in 1996 over 16 years. During 1995, the FERC grante sumen a wa e a heoyear hg requkemem i e i t te t rat 6.06 % 6.63 % 6.17% Expected stock-price volatility 18.05 % 16.19 % 16.19 % for cost recovery with respect to its wholesale electric business. Expected dividend rate 5.31 S.295 5.295 At December 31,1997, Consumers had recorded a regulatory Expected option life 5 gars 5 years 5 years CMS Energy applies Accounting Principles Board Opinion 25 authorized recovery of these costs. CMS Energy funds the bene-and related interpretations in accounting for the Performance fits using external Voluntary Employee Beneficiary Associations, incentive Stock Plan. Since stock options are granted at market a legal entity established under guidelines of the IRC, through price, no compensation cost has ken recognized for stock which the company can provide certain benefits for its employ-options granted under the plan. The compensation cost charged ees or retirees. Funding of the benefits coincides with against income for restricted stock was $6 million in 1997, Consumers' recovery in rates. $2 million in 1996, and $3 million in 1995. Ifcompensation cost Retiree health care costs at December 31,1997 are based on for stock options had been determined in accordance with the assumption that costs would increase 6.5 percent in 1998, SFAS 123, Accountingfor Stock-Based Compensation, then decrease gradually to 5.5 percent in 2004 and thereafler. l CMS Energy's consolidated net income and earnings per share The health care cost trend rate assumption significantly affects I would have been as follows: the amounts reported. For example, a one percentage point increase in each year's estimated health care cost assumption in uan. ne sw s%.ma l l Pro Forma As Reported would increase the accumulated postretirement benefit obliga-Years Ended December 31 1997 1996 1997 1996 tion at December 31,1997 by $83 million and the aggregate of 5 5 39 5 8 5 the service and interest cost components of net periodic postre-e mea bu o Common Stocks tirement benefit costs for 1997 by $9 million. negy 6 Yearn Ended December 31 1997 1996 1995 Earnings Per Average Weighted average discount rate 7.50 % 7.75 % 7.50 % Common Share Expected long-term rate of return CMS Energy on plan assets 7.00 % 7.00 % 7.00 % Itasic 2.61 2.43 2.63 2.45 Diluted 2.59 2.42 2.61 2.44 Net postretirement benefit costs for the health care benefits Class G and life insurance benefits consisted of: liasic and Diluted 1.H1 1.78 1.84 1.82 in Mdhon.s Years Ended December 31 1997 1996 1995 16: Retirement Benefits g,7,;,,,,, ,,n ,,3 Ibstretirement Benefit Plans Other Than Pensions: CMS Energy Interest cost 41 42 40 and its subsidiaries provide certain health care and life insurance (Cf,,#rt zIt on an eferral benefits for retired employees and their cligible dependents. Net postretirement benefit costs 53H $ 49 $ 48 Substantially all employees may become eligible for such bene-fits if they attain retirement status while working for CMS Energy or its subsidiaries. CMS Energy and its subsidiaries adopted SFAS l06, Emplovers *Accountingfbr lbstretirrment Ber efits Other Than Pensions, etTective as of the beginning of1992 and Consumers recorded a liability of $466 million for the accumu-lated transition obligation and a corresponding regulatory asset for anticipated recovery in utility rates (see Note 20). 52

a CMSEnergy Corporation The funded status of the postretirement benefit plans is recon-The funded status of the Pension Plan and SERP reconciled to cited with the liability recorded at December 31 as follows: the liability recorded at December 31 was: In sfullums in stillums ) 1997 1996 Pension Plan SERP 1 Actuarial present value of estimated benefits 1997 1996 1997 1996 Retirees 5325 $330 Actuarial present value of Eligible for retirement 68 66 estimated benefits Active (upon retirement) 189 190 Vested 5 548 5504 5 24 $ 21 Accumulated postretirement benefit obligation 5N2 586 Non-vested 79 72 1 1 Plan assets (primarily stocks, bonds and money Accumulated benefit obligation 627 576 25 22 market investments) at fair value 224 138 Provision for future pay increases 165 158 16 15 Accumulated postretirement benefit obligation Projected benefit obligation 792 734 41 37 less than (in excess oO plan assets (358) (448) Plan assets (primarily stocks and Unrecognized net (gain) loss from experience bonda, including $153 in 1997 different than assumed 183) (36) and 5117 en 1996 in common Unrecognized prior sersice cost 7 stock ofCMS Energy) Recorded liability 5(441) $(477) at fair value NH2 779 Projected benefit obligation less The health care portion of the accumulated postretirement than (in excess of) plan assets 90 45 (41) (37) benefit obligation is $565 million and $570 million at Unrecogmzed net (gain) loss I P#'i*nce different December 31,1997 and 1996, respectively. , ' ", ' *, d SupplementalExecutiveRetirementPlan Certain manage-Unrecognized prior service cost 35 39 2 2 ment employees qualify to participate in the Supplemental Unrec snized net transition (asset) (22) (27) Executive Retirement Plan (SERP). SERP benefits, which are Recorded liability 5 (54) $ (42) 5(34) $(30) based on an employee's years of service and earnings as defined Beginning January 1,1986, the amortization period for the in the SERP, are paid from a trust established in 1988. B :cause Pension Plan's unrecognized net transition asset is 16 years and the SERP is not a qualified plan under the IRC, earnim of the 11 years for the SERP's unrecognized net transition obligation. trust are taxable and trust assets are included in consolidated Prior service costs are amortized on a straight-line basis over the assets. At December 31,1997 and 1996, trust assets were average remaining service period of active employees. $44 million and $31 million, respectively, and were classified Ddined Contribution Plan: CMS Energy provides a defined as other non-current assets. contribution 401(k) plan to all U.S. employees of CMS Energy Dc/ined Benefit Pension Plan: A trusteed, non-contributory, and its subsidiaries which are at least 80 percent owned and have defined benefit pension plan (Pension Plan) covers substantially adopted the plan. CMS Energy will match at least one-half of the all employees. The benefits are based on an employee's years of amount contributed by employees up to 3 percent of their salary. accredited service and earnings, as defined in the plan, during an These contributions to the plan are invested in CMS Energy employee's five highest years ofearnings. Because the plan was Common Stock. Amounts charged to expense for this plan were fully funded, no contributions were made in 1997 and 1996. A approximately $20 million in 1997, $18 million in 1996 and contribution of $9 million was made in 1995. $17 million in 1995. Years Ended December 31 1997 1996 1995 17: Leases Discount rate 7.50 % 7.75 % 7.50% Rite ofcompensation increase 3.75 % 4.00 % 4.50 % CMS Energy, Consumers, and Enterprises lease various assets, Expected long-term rate of return on assets 9.25 % 9.25 % 9 25% including vehicles, rail cars, aircraft, construction equipment, computer equipment, nuclear fuel and buildings. Consumers' Net Pension Plan and SERP costs consisted of: nuclear fuel capital leasing arrangement expires in in st.fiwns Yetts Ended December 31 1997 1996 1995 November 1999, yet provides for additional one-year extensions service cost 5 26 $ 26 s 23 upon mutual agreement by the parties. Upon termination of the Interest cost 61 58 56 lease, the lessor would be entitled to a cash payment equal to its Actual return on plan assets (163) (63) (168) i i ment, which was $47 million as of Net amortization and deferral 93 (6) 103 Net periodic pension cost 5 17 $ 15 $ 14 53

1 NOTES CONTINUED cusEwwcwnam r December 31,1997. Consumers is responsible for payment of 19lRepotfable Segments taxes, maintenance, operating costs, and insurance. CMS Energy operates principally in the following business seg-Minimum rental commitments under CMS Energy's non-can-ments: electric utility; gas utility; oil and gas exploration and celable leases at December 31,1997, were: production; independert power production; natural gas trans-f,, u,n. mission, storage and processing; and energy marketing, services Capital Operatmg and trading. Leases Leases The Consolidated Statements ofincome show operating rev. 1 1998 5 42 $11 i 1999 44 11 enue and pretax operating income by business segment. Other l 2c2D 14 II business and geographic segment information follows: 2001 12 8 2002 9 8 Business Segments 2003 and thereafter 7 20 Years Ended December 31 1997 1996 Le imp d Present value of net minimum lease payments ] Depreciation, depletion and amortization 34 Electne utility 5 296 $ 282 $ 272 Less current portion Gas utility 93 87 83 Won-current portion 5 75 Independent power production 13 8 4 Oil and gas exploration and production 58 55 52 Consumers recovers lease charges from customers and Natural gas transmission, storage accordingly charges payments for its capital and operating leases and processing 14 7 3 to operating expense. Operating lease charges, including charges $"hrketing, services and tradmg 1 to clearing and other accounts for the years ended December 31, 5 477 5 441 $ 416 1997,1996 and 1995, were $ 10 million, $8 million and $ 11 mil-Identifiable assets lion, respectively. Electric utility @ 54,472 $4,505 $4,522 Cap'tal lease expenses for the years ended December 31, Gas utilityw 1,644 1,709 1,690 Independent power production 1,699 1,053 840 1997,1906 and 1995 were $43 million, $46 million and $46 mil-Oil and gas exploration and production 726 719 660 lion, respectively. Included in these amounts for the years ended Natural gas transmission, storage l 1997,1996 atd 1995 are nuclear fuel lease expenses of $25 mil-and processing 536 347 272 Marketmg, semees and trading 191 52 3I lion for each year. Other 525 180 128 f8: Jointly Owned Utility facilities Consumers is responsible for providing its share of financing for Capital expenditures

Electric utility 5 255 $ 310 $ 328 l

the jointly owned facilities. he direct expenses of the joint Gas utility 116 137 126 plants are included in Consumers' operating expenses. The fol. Independent power production 704 142 239 and8 P ""P lowing table indicates the extent of Consumers' investment in i8 ta i e jointly owned utility facilities: and processinc i15 136 178 Marketing, sern and tradmg 28 I" M'#" Other 202 66 14 December 31 1997 1996 51.552 5 879 $ 1,053 Net investment Ludington - 51 percent $112 $116 Investments in Equity Method Investees Campbell Unit 3 -93.3 percent 314 329 Independent power production 51.203 $ 683 $ 603 Transmission lines - various 34 35 Natural gas transmission, storage Accumulattd depreciation and processing 256 234 193 Ludington 5 88 $ 84 Marketing, services and trading 26 Campbell Unit 3 265 252 Other 277 85 22 Transmission lines 14 14 51,762 $1.002 $ 818 Earnings from Equity Method investees's independent power prodwtion 5 89 $ 91 $ 58 Natural gas transmission, storage and processing 10 12 9 Marketing, services and trading 2 Other 8 8 11 5 109 5 111 5 78 54

cusEnergycomoration GeographicAreas 21: Equity niethodInvestments i Certain of CMS Energy % subsidiaries invest in companies, part-Pretax Equity Equity nerships andjoint ventures as part of a strategy for growth Operating Operating identifiable Method Method through international diversification. The ownership interests for Revenue income Assets investees Investecs/d> these investments vary from 20% to 50% and are all accounted ,997 UnitedStates 54,582 5670 57,991 5765 581 for using the equity method of accounting. Following is summa-International 205 76 1,802 997 28 rized combined fmancial information for all equity method 1996 UnitedStates 54,220 5653 57,802 5689 598 investments, except for1he MCV Partnership, which is disclosed International 113 38 813 313 13 separately in Note 22 and Loy Yang, which is disclosed sepa-rately in this note. For information relating to the geographic nitedStates 53,831 5601 57.611 5586 575 International 59 18 532 232 3 location ofinvestees and CMS Energy's and its subsidiaries

ta> dmouna inchie an attrtoutedportum ofC msumers other common auca to 60th IA,,i,c.

equity earnings from and investment in investees refer to Note 19. mc andgas uttitty bumenes tu includes apuat seasesfor nuclear 1 et andother s.t, eta and eiectrec samand suir manage. Inccme Statement Data (unauilited) ment (DSM) twts (see CanadulatedStatements of Cash Hows >. Amoums also melude an attributedportwo of Consumers %aps:al espendsnoestewplant andequipment common au both in Mdhan the electric andge utdati busmesses. Years Ended December 31 1997 1996 P.995 (c)incauses common stod tuned /br acquumou m s991 Operating revenue 51,267 5674 5587 (d) Thue amoams are includedin operutmg rewnue in the Conwhdated Statemenu ofincome. Operating txpenses 808 399 299 20: Ettects of the Ratensaking Process Orc'*ti"8 nc mc '59 215 288 i i Other expense, net 175 97 114 The following regulatory assets (liabilities), which include both Net income 5 284 s178 5174 current and non-current amounts, are reflected in the Consolidated Balance Sheets.These assets represent probable Balance Sheet Data (unaudited) future revenue to Consumers associated with certain incurred i in Malums l costs as these costs are recovered through the tatemaking December 31 1997 1996 process. These cosa are being recovered through rates over peri-A nets ods of up to 15 years. Current assets 5 439 5 341 l 2, An accounting standard, effective 1996, requires impairment [P ant an eq pment, net j losses on long-lived assets to be recognized when an asseti book $5,750 $3.299 - value exceeds its expected future cash flows (undiscounted). The Liabilities and Equity standafd also imposes stricter criteria for retention of regulatory-Current liabilities 5 696 5 293 created assets by requiring that such assets be probable of future Long-term debt and other non-current liabilities 3,262 1,351 secovery at each balance sheet date.There was no impact on Equity 1,792 1,655 financial position or results of operations upon adoption because 55,750 $3.299 management believen these assets will be recovered. For further discussion, see Outlook - Application of SFAS 71 in the MD&A. hs Mdlerms December 31 1997 1996 Postretirement benefits (Note 16) 5429 5 460 l Income taxes (Note 13) 172 A58 l Abandoned Midland pwject 93 113 Manufactured gas plant sites (Note 10) 47 47 DSM-deferred costs 46 60 Uranium ettrichment facility 22 23 Ludington Fish Settlement 12 14 Other 16 43 Totai regulatory assets $ 837 5918 Income taxes (Note 13) 5(226) 5(224) DSM-deferred revenue 124) f25) Total regulatory liabilities $t250) 5(g) D6

NOTES CONTINUED cusOteigycorcat:x LoyYang A. 2,000 MW brown coal fueled power plant and 22 SummarizedfinanciallnformaffonofSlgnificant an associated coal mine in Victoria, Australia, in which CMS RelatedEnergySupplier Generation holds a fifty percent ownership interest. In the second Under the PPA with the MCV Partnership discussed in Note 3, quarter ofl997, a consortium comprising subsidiarics of CMS Consumers' 1997 obligation to purchase electric capacity from Generation, among othen, financtid. chrough a consortium of the MCV Partnership was 15 percent of Consumers' owned and banks, seventy-seven percent of the consortium's $3.7 billion pay-contracted capacity. ment to the Australian State ofVictoria government for the Loy Yang acquisition. This ?inancing occurted on a non-recourse basis Summart:cdfinancialinfbrmation ofthe MCVPartner$ hip to CMS Energy and CMS Generation, Statenients ofIncome (unaudited) '*""h""' Summari:edjinancialinformation ofloy Yang: years Ended December 31 1997 1996 1995 income Statement Data (unaudited) Operating revenue ) 5651 $645 56l8 la Operating expenses 435 417 386 ,, yg,,, Year Ended December 31 1997 Operating income 217 228 232 Other expense, net 154 162 171 i Operating revenue $229 Operating expenses 112 Net income before cumulative effect of Operating income ] accounting change 63 66 61 Cumulative etTect ofchange m, method of 114 Other expense, net accounting for property tax 15 16et ia20me 5 3 Net income 5 7H $ 66 5 61 Balance Sheet Data (unaudited) Balance Sileets (unaudited) I in Mdhons December 31 1997 in Maiwu December 31 1997 1996 Assets Current assets 5 144 Assets Property, plant and equipment, net 3.159 Current assets (h) $ 362 $ 316 Other assets 4 Property, plant and equipment, net 1,N20 1,889 Other assets 169 159 53,307 Liabilities and Equity Currem liabilities 5 46 Liabilities and Fartners' Equity Long-term debt and other non-current liabilitics 2,352 Current liabilities $ 285 $ 235 Equity 909 Long-term debt and other n n-current liabilities ( 1,7N9 1,930 53,307 I Partners' equity @ 277 199 52,351 $2.364 fa) Rewnuefmm Camsumers totaled $MIV mdhun, $39M mdlum and $3 il millwnfiw IVV7 JVVW and IVVL respecttwly. (b) ReceswMesfmm Comumers totaled 534 milhon cond 33] mdlwn. at skcember 31, JVV7 and1996, wspecrawly tci FhfLP ss the wie beneticsary ofan owner trut that u the lessew in a long-term dorert pnance leaw wnth the lessee, MCV fkrtnershsp. CMS tioldmgs hedds a 46 4 percent ownenhap muerest in FMLP At ikcember 31, JVV1 and IVV6, lease ohhgatwns of $i 32 bilhon and $I $8 bdhon, respectuwly, were owed to the owner trat. CMS lividmgs 'sharr of the mieurst andprmapalportumfor the IVV7 lease payments wm $62 milhon and $28 mdhon. respec-onely, andfar the IVV6 leaseymments ws $M mdhem and $25 mdhon, respeettvelv The leaw payments service $I O bdlwn and $1I bdhon m non-recount debt outstandmg as of December 31,1997 and IVV6, respectuwiv, of the owner-trut FMLPk debt is ucuerd by the MCY fkrtnenksp ' leser obhgatwns, assets, and operutmg erwnues kr IVV7 and 1996, the s owner trust made debtpayments (wtudmg mierest) of $IV2 mdhon FMLP > earnmgsfor 1V97,1946, andIVV3 werr $2tb mdhem, $17 mahon and $14 mdhon, respectswir (d) CMS Mulland t wcarded mvestment m the MCV Parmershop meludes capriahzed morrest. whsch is bemg amortued to estwnse owr the Igfe ofta mvestment in the MCVIkrmershsp. Connants contamed afmancmg agreemenu prohohtt the MCVIkrtnershipfrom puvmg dis-trtbutwns untd cerram jmanceal sent requorements arr met Consumers does not antactpate ovcetvmg a cash dsstributwn in the nearfuturr u

Report ofIndependent Public Accountants custw w a wam TO CAfS ENERGYCORPORADON: principles used and significant estimates made by management, We have audited the accompanying cont Mated balance sheets as well as evaluating the overall fman+1 statement presenta-and consolidated statements ofpreferrec wk ofCMS Energy tion. We believe that our audits provide o reasonable bash for l Corporation (a Michigan corporation) ano subsidiaries as of our opinion. December 31,1997 and 1996, and the related consolidated state-In our opinion, the fmancial statements referred to above pre-ments ofincome, common stockholders' equity, and cash flows sent fairly, in all material respects, the financial position of CMS for each of the three years in the period ended December 31, Energy Corporation and subsidiaries as of December 31,1997 and 1997. These financial statements are the responsibility of the 1996, and the results of their operations and their cash flows for Company's management. Our responsibility is to express an each of the three years in the period ended December 31,1997 in opinion on these fmancial statements based upon our audits, conformity with generally accepted accounting principles. We conducted our audits in accordance with generally cccepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance .M kA 4@ about whether the financial statements are free of material mis-Artnur Andersen LLP statement, An audit includes examining, on a test basis, evi-dence supporting the amounts and disclosures in the fmancial Detroit, Michigan statements. An audit also includes assessing the accounting January 26,1998 Quarterly Firaancial and Common Stock Information custww owam c in Afdlwns, ExceptIhr Shury Amtmnts 1997 (Unaudited) 1996(Unaudited) Qui.rters Ended March 31 Junc 30, Sept.30 Dee.31 March 31 June 30 Sept. 30 Dec. 31 Operating revcouera> $1,295 $1,024 $1,032 $1,436 $ 1,283 $938 $ 929 $1,183 Patax operating incomew $ 213 $ 167 5 185 $ 181 $ 219 $159 $ 169 $ 144 i Consolidated net income $ 84 $ 54 $ 66 $ 64 $ 88 $ 50 $ 58 $ 44 Basic carnings(loss) per average common share:ki CMS Energy 5.79 $.55 $.70 $.59 $.83 $.54 $.65 $.43 Class G $ 1.1H $.16 5 (.21) $.70 $ 1.50 $.16 $(.28) $.44 Diluted earnings (loss) per average common share:Al CMS Energy 5.78 $.55 5.69 $.59 $.83 $.53 $.65 $.43 Class G $ a,.18 $.16 $ (.21) $.70 $ 1.50 $.16 $(.28) $.44 l Dividends declared per common share: I- . CMS Energy 5.27 $.27 $.30 $,30 $.24 $.24 $.27 $ ~27 Class G $.295 5.295 $.31 $.31 $.28 5.28 S.295 $.295 td Commonstockprices > ~ CMS Energy: liigh $ 34 % $ 35 % $ 38 $ 44 $ 31 % $ 31% $ 31". $ 33 % Low $ 31 % $ 31 % $ 34 % $ 35 % $ 27 % $ 28 $ 29 $ 30 % j ' ' Class G: High $ 19 % $ 19 % $ 22 $ 27 % $ 20 $ 19% $ 18% $ 19 % i Low $ 17 % $ 17 % $ 19 $ 20 % $ 17% $ 17 A $ 16% $ 17 % (at Anwatu in 1997 msre erstatedfew conip.orutterpurpuses. (b) Amounts in IVV6 seor restated}ia ronymruthwpurposes { (c) The som Afthe quarters mayant equalthe annualcaramga per skar* Jue w changes a skarrs ouutandmg (db Band on New lura Stah Exchange - Camspusue transucnons E1

cusenawcawaun SelectedFinanci:1Inkrm: tion 1997 1996 1995 1994 1993 ~hting revenue (in millions) ($) 4,787 4,333 3,890 3,614 3,476 O Consolidated net income (in millions) ($) 268 240 204 179 155 Average common shares outstanding (in thousands) CMS Energy 96,144 92,462 88,810 85,888 81,251 Class G 8,015 7,727 7,511 Earnings per average common sharc CMS Energy-Basic ($) 2.63 2.45 2.27 2.09 1.90 - Diluted ($) 2.61 2.44 2.26 2.08 1.90 Class G-Basic and Diluted ($) I.84 1.82 .38 Cash from operations (in millions) ($) 657 661 682 612 484 Capital expenditures, excludes capital lease additions and DSM (in millions) ($) 711 659 535 575 550 Total assets (in millions) ($) 9,793 8,615 8,143 7,378 6,958 Long-term debt, excluding current maturities (in millions) ($) 3,272 2,842 2,906 2,709 2,405 Non<urrent portion of capital leases (in millions) ($) 75 103 106 108 115 Total preferred stock (in millions) ($) 238 356 356 356 163 Total Trust Preferred Securities (in millions) ($) 393 100 Cesh dividends declared per common share CMS Energy ($) 1.14 1.02 .90 .78 .60 ~ Class G ($) 1.21 1.15 .56 Market price of common stock at year-end CMS Energy ($) 44%. 33% 29% 22% 25 % Class G ($) 27% 18K 18% Book value per common share at year-end/* CMS Energy ($) 18.73 17.00 15.15 12.78 11.33 Class G ($) 10.91 11.38 10.60 Return on average common equity (%) 14.6 15.2 15.9 17.3 18.3 Return on assets /d (%) 5.7 5.4 5.2 4.9 4.5 Number of employees at year-end (full-time equivalents) 9,682 9,712 10,105 9,972 10,013 Electric UtilityStatistics Sales (billions ofkWh) 37.9 37.1 35.5 ~ 34.5 32.8 Customers (in thousands) 1,617 1,594 1,570 1,547 1,526 Average sales rate per kWh (t) 6.57 6.55 6.36 6.29 6.28 Gas Utility Statistics Sales and transportation deliveries (bef) 420 448 404 409 411 Customers (in thousands)41 1,533 1,504 1,476 1,448 1,423 Average sales rate per mcf ($) 4.44 4.45 4.42 4.48 4.46 Electric and Gas Non-Utility Statistics CMS Energy's share of unconsolidated independent power production revenue (in millions) ($) 621 493 497 385 334 Independent power production sales (millions of kWh) 13,126 7,823 7,422 6,216 5,019 CMS Energy s share of unconsolidated natural gas transmission, storage and pmcessing revenue (in millions) ($) 51 42 26 7 3 CMS Energy's share of unconsolidated marketing, services and trading revenue ($) 202 Gas marketed for end users (bef) 243 108 101 66 60 Exploration and Production Statistics Sales (millions of net equivalent barrels)<d 11.4 10.1 9.0 5.6 5.0 Proved reserves (millions of net equivalent barrelsyw 152.0 133.5 124.5 108.0 69.8 Proved reserves added (millions of net equivalent barrels)<w 29.8 18.7 25.6 29.0 3.9 i Finding cost per net equivalent barrel ($) 2.38 2.94 5.06 5.92 4.97 I (a) Certain rewrpermdamounts um re.untedfor comparunwpurposes. (b) Excludes of,rystem annapartamm customers I N

1 Shareholderinformation cusenewcawara tg98 AnnualMeeting: Direct Deposit and Automatic Investment: j CMS Energy's 1998 annual meeting is scheduled for 10:30 a.m. CMS Energy can deposit your dividends directly into your bank on May 22 at the

Dearborn Inn,

Dearborn,

Michigan. Proxy account. We also offer automatic im'estment from your bank material will be mailed in April. account to purchase CMS Energy Common Stock and Class G "E Y*' "' EY E RegisteredShareholders: "E'

E*"*#

As of February 25,1998, the number of registered shareholders mformation. totaled 67,278 for CMS Energy Common Stock and 4,466 for Class G Common Stock. Eliminating Duplicate Mallings: Shr&lMetsets: To maintain more than one account, but eliminate duplicate mailings of annual and quarterly reports, send the labels from inquiries about stock ownership, change of address, dividend

** "E mdicating the names you w!
E**" N' payments, dividend reinvestment, or the Stock Purchase Plan ish to keep on the mailing hst.

may be directed to: (Dividend checks and proxy materials will continue to be sent Investor Services Department (517) 788-1868 212 W. Michigan Ave. Jackson,MI 49201 Consolidating Accounts: To consolidate separate accounts into one account, contact the For financial and operating information, please contact: Investor Services Department. Investor Relations Department (517)788-2590 Obtaining Reports: 212 W. Michigan Ave. Shareholders may obtain without charge and exclusive of Jackson, MI 49201 exhibits: CMS Energy's Forml0-K; a Financial and Statistical Stock Purchase Plant Supplement to the Annual Report; and an audio cassette record-j investor: can buy shares of CMS Energy Common Stock and ing of the annual report text. Please address all requests to the j Class G Common Stock directly through the Corporation's Stock Investor Services Department. j Purchase Plan, with no brokerage commission or service charge. Stock Exchange Listing: Other plan features include dividend reinvestment, certificate CMS Energy Common Stock is listed on the New York Stock safekeeping, direct deposit of dividends, automatic investment, m Exchange under the symbol CMS. Class G Common Stock is sale of shares, and gifting of shares. For more. formation and a listed under the symbol CPG. ) plan prospectus, please contact the Investor Services Department. Wanster Agent, Registrar and Paying Agent: Stock Ownership: Investor Services Department,212 W. Michigan Ave., Jackson, As a CMS Energy shareholder, you have the option of direct i Michigan 49201 stock ownership or indirect stock ownership. Under direct stock ownership, the shares are registered in your name, you enjoy the benefits ofdirect communication to and from CMS Energy, and ~ ~~ ' you can participate in the CMS Energy stock purchase plan. Under indirect stock ownership, your shares are held in " street name" by a broker, and your dividend payments come through a broker rather than directly from CMS Energy. (For more information on direct and indirect ownership, please contact the Investor Services Department for a copy of the brochure " Stock Ownership: What Every Investor Should Know.") f se

CMSEnergyComoraton Of6C0fS CMS Energy Akn M. nWpht,52 CMS NOMECO Oil & Cas Co. CMS Marketing, Services

"# I####"I Senior Vice President and MeterJ. fry #ss,50 IWNNam T.McCormickJr,53 ChiefFinancialOmcer Chairman of the Board WaferJ. Fry #ss,50 Chairman ofthe Board J8'"' E E88't,53.

President and Chief IWMam E scMyisy,$1 serden L WHght,55 ef cuti e 0 er SeniorVice President, MotorJ.FryNeg,50 Communications Executive Omcer Executive Vice President President and Chief and ChiefOperating Omcer perma Miksissis,49 byg#am N.sssphens #I,48 Operating Officer SeniorVice President and Executive Vice President

sesrf S.Esteent,38 General Camsel and GeneralCounsel Vice President, oV es dent and Chief FinancialOfficer AseertA Fenech,50 E AodesyDykes,41 Energy Marketing Semor Vice President, V ce President, Operations, David 3. seper,34 AsdparA Karsteer,49 Nuclear, Fossil and Ilydro Africa and Middle East Vice President, SemorVice President and Operations General Counsel Bradisy E Mscher,51 Risk Management
sionafshe,47 Vice President, Operations, Royalf f.sfers Jr.,50

ident,

(;l' Westem llemisphere Vice President, Energy o Pre ident, s# Communications As6ertC.afsen,54 Management Services James E Cosit,57 V r rit and SeniorVice President, Controller 88'* f 88'f,43 McierJ. Fry #eg,50 Technology and Vice President and Chairman of the Board Development K8""88' C. Ensory,50 Controller Vice President, Preissp Bhoss,51 Prestos D. Napper,47 Information Technology CMS Ceneraflon Co. Vice President, SeniorVice President, and Operations Services NederJ. Fry #ng,50 Business Development Ce eco tin ffce Carf L EngAlsh,51 Chairman of the Board and Operations John E Draire,49 ect c n rnission V P n an Vice President

and Distribution Executive Omcer Energy Distribution Ihiman Resources and GeneralManager Narendra K.Shadia,62 ofEDEERSA Doris E Bsivis,43 Vice President and Vice President, Engineering 1

Vice President and Treasurer and Construction Internations/ Officers Treasurer Asmos A McNish,60 Thomas E Savanf,49 ""TJG M: Thomas A McMst,60 Vice President and Vice P-Snt and Vice President. Operations DarMIK IMaswer,48 Se etary Secretary and Asset Management Vice President, Thomas J.Padselsano,47 Development CMS Cas Transinission Laura L Meudcas#s,4i S teVice President, Desresrw-The Americas-Vice President,Plannmg Palisades

stfeern #smispears and investor Relations McforJ. Fry #ss,50 IWi#sm J.#asser,56 PadN. Pts 4Wes,48 Chairman of the Board Vice President, Consumers Energy Vice President, IWilism T.McCormiot Jr.,53 Gas Operations IWMamJ.#aaner,56 Development g

President and Chief Karf A. IWid6sM,41 Chairman of the Board CMS Enterprise'= Executive Omcer Vice President MotorJ. Fry #ss,50 ss#sda M.Forsporth,39 i Vice Chairman of the Vice President and 2 Board Vice President, Middle East j Deputy GeneralCounsel Engineering, Operations Joseph P. TomasNr,43 e Psal A.Edbert,48 Theodore J. Mosef,45 and Construction Vice President' Vice President, Taxes and d i Thoesses L.MMer,42 Development T x Counse Executive Officer, Gas Vice President, Susass Ahss--The Amerinss-Martin R. fra#ckl,47 Business Analysis Sesshorn#smisp4ste 'Ima CC ExecutiveVice President Francisco A Metradrf,61 [, and President and Chief Regional General Manager g Executive Omcer, Electric John M. McLaagMis Jr.,47 gls Vice President. Development E i

. ~. "v. ' '^.

"~:.

,o.,.. L. .,y:: f :,N'lYQ'f.(:....[,h{k&y; Q.il1..-. ll:kt & Q:..ll.f.: ;:;).; f.ljl {; '.~.f l.f d l L.. f;g n " ' ^^Q:kl:';hl?& ;h.y.;- "ff, ;j. ll '. h : ' * :l 't ' ? ^ ::...%Se '$ ll. %. ': i bl ? ?.... :: % ".. '..v.. l .. l..}l. N:f. m. }}:., ;llj$ f[. :l I(.:' 1 l ~. ' ', A,;. 80.. .'. " f. ;. '* ' { l, T " ' - b i ' ?. '. '. ' :"

I ':,h!

.f' (. ^ ?L" ' '.l. J '. ~. +; J ~ ' ; ': . k.. Y' J ),. :<. T 0 l l ';P . Q ; ;. v., I. l ". Qe. M.Y. ;;,1] 8 ..... : ;, :; i; a; x;.. f. :t Y;.'r~-l:: ? *...y }ll.., ;..... ; 's. ':G.,... :.. ; .'.t._,... T;.n s.; l?.., J;;. <*.*: ':

. G '- '.. :

.........,...y..'...e'e

~;. '_...s. 2.;' u ': m: '. I.,; ? L.. ;. :' :,. ',, ~

f, e_..

..,. ~,. q,i .d. t. 3,.. 9_ '..... y}>. g e s,g g;., ; i,;,.. ; - ' W..,' g... c.

p.t :

.. ~... ,, 9. l,. n 3..... ,,7 ,7 , ll' %. ^ i -..:.'. i:%. *:l *: .. 2 %. ' ' O.:.*

) e s ': :Q'h.'. ' l g*. *.

. :,, %. Y, " :.4 j'.L. l '.iL Y

n' ' (r > [... ;;,,

~..:. L .1 b' a s. r w- .,l [. . f.l l., h;.-_,

l. - ~ -

[ _[ ; ,l . ;l '_.* l '.,. f. .. k. l: l ,3..,, ~. :. f. .[ g ;; ,.. ;).l..

yl.,,,'.,.33)3.

. ) ':z .: LF .'. _. f., .:., f. ~. _ : p. [: -._ _. ); l,,. '....u ;.

, y::$. L - '.'

_ _.. _:.v r _.

.~.,-.,.

e;, _e. .i 7y c. 3-t.. ~ l ~ . j': ' ;y, ;w,,)7:;% g g.y,y. y,,.:j Q; _ ^ ~~ ' 3':.:[ ';,. %.;.{...hp.Clikrinoge$k.l. : !l}J.. rn%t.&gy ' :.. -l'* yl. '. '.'. e './ [.'.. ..1 [ ; :. [ i b': _.g,_ Q, '.. y;j_ f '. %, ; L.;..', -.' L ; /l. is pdf./:f.[ l } 4tiQig pjusan M. y~. %,% oit.;jQgnygi.4x[.. :. .[ _;gp_ Qg,$V v. OjnM&d$h&k ~ l

Emerg. R l: '!. _ '

_.fryikt.. l. .._. ' [NfiiB06.tNthl% $ [:((l.,j ' l. n ; l$'*k6hS r.NNf;, fl;f,.f..Y$th ing1,. f h.l. & #Gl4Absttt$$k h ltl;.?I . ?. SbkdNt'5kiltktiliF8aN5*e.~};... - ' l l.:,. -l.l:fhN49 hhy){i;"$

.?

R S I;.;l.}.Uht(Enginetthg ;u } i:l [,fW4N8tMg$M thes9W - ; l _j _, l .l ' ' ? l f fl: {M$ 6e 48t& * ; '. ; y,;'.. : W.Qt$(149Qh .;.9 ) t)fhOggni ; f \\;, Nhk C. I {, $llA W U Y I 0.l ,ff M)k

$'..... ;hN\\\\

f. _,.;ll( l*ff.l -.: -l[,M5$$f.QW(fiVthrMyd ~ ~l } ',},'l(thfejgt$nlL _._.q',,,, y 'l.'.ll:.:Q$5@lntN.tffMGN$h y? [ QMEOdiRiff5, . & &'$0fbyli0k ll' l, ? & lh h W fNSEN M }.. [.'f: $ $l* din W h q ?.D!: 'l' ',l. l . [ j.h., f.;f f..hn$& Mat %thDW lt&&yl$ _ ';f'Q _ z,) YlC*tyhti ') ,$!, l},( f l' .ng;,ChnjeitiM,',; 3 _.,.l:0t[ftps,;$npet Ar$nori J .}:L. _- ,.-'h h k.( h yng4 k A k j % [ [.9 [7.,, ;, {,.7l , Dhabsf},% ' J '{ *, ~ k %'isps[hk..';" ' " ; -[ a_ l7. - ' ' '.;'. ' l -l. . t _ f h h: 7f. ' "' :. ',Q.E,.,., 5 '.t I, f,.1,: Y $ :. $ : ,. ;.':. ? f, Sk lf..f. 5;?.Y. . f.DWf.:..::;k.b.h $ h r5 f}*,Y; l,E ,z~

. " [',.l ^ j ',.

^ O'M. M yst hr(...[.];, ;.[ G l:f.h,

l;,,:b:j ($d

. ngf}nstW.Y ::l'..,0. } ls l-

a' k ty; L'
. Negd l9@$f..;.

' '~ _ '/ a { ^ - \\.gf ' I i l_' [. [ )@y j {'\\. '[? ., ;..;,,. ' < l. ; ' h ( $ [.[ 'f. ' $.,. ' I ' t ' -[ { 't ', ' f c.f - [. ' ' ?. ;[' ^..

ll,i."I. l..: ;'I]>nNfNini.e, lVlY :

...'. ~., - ^^ I:,.. ' Yl::'l "l' :l l ',, '. ',, ' '. - L ' '..'u

T et *

l3-

.f.. ', ~ L ',. l _. '.h.' * ^

n..

'3'.

v- ',.. l a plQ,.. ;.. 4

.. y,...; n' * ' :q'g: -ll;., n,x q'. gI S.- 'j

.,....,.~..L.

4... '.:.

-y

, f.. ? _

_,,.. t,,1;y.. s , f.-,' ', ', '*,.. .,v a -.. f, .y... 3, :. '. t ;; .c .a ;. - [,,,.,_,_a_ i., 9;.. .n.. ..5 ..... y :.q 7., .. c";; ['.. ' fl..q,..,g[.:... c f. ~;..,:,

y 4, ';

[_ . _,} ;

e.

[, , _, *'f . l; ', ifl ll, l ; . c;'$ ,.Y . Y. 'I.,, f :_

t: lY

?C ^ ~ _ ' ' *:'..* ..f, _I.,.

y,;' : ' '

fsj.y j_ .,i ' ~

',.;( r

,;.+ ;.. .. $. 3.- .,. 3. L :.s ,e ,;.....,.. q,.:..._. y y 7: - .';;7..,,,..".,. .,,......,.,,_...y:.

.., s s..-: g. * - ;e..

3-s.'.., 9:.p;, j,.; .,o 4 p 7. 7 .......,..'m,.- '_. 7:;%y, ;r; y,. ,g ..,.x+:;. -.p \\.. .,: e .,-s a ..', j7,g "w. {f.

h',l4 g

, ( ;. '.. f,g-g 'g .,4.j. !:

,. -;',.., l, [Ytkb&ru.;$d)e%'W.. '^ f,'uOdYtht h $.[ h NhYh W. fl$ aft @ bl*t$ $$$f W

'. ' i Ubl4tfltWhtWl*tviide*0t!.' - (hnntN#t., f. Rid ( ?l '. h. .NtfroulA$rdynitudt: O ['.: $bew&4att&&,.j- ' ' J'jang Mk%wm c.}Ehatiknarenuf tkiefHEWwQe ... OttWdier tk'WiltT }ht' G, Mwh.]prmtd ') W Un%%en. ::.: '[:). IfadNjdMfAfM4N1(d, J $ '.,Mirde'NidperWN.y. l.. n. 6 7 C,, ',,,f ' hk Nbh.,l" " I ' ihe 9#hOptrdit ftHY ': [. Ni/by.htt ,',, I ...s, , b.l ;q G4Aeptwrt ' Ors:@rL_ /:\\ ; 4&nha lat.dede: Y ~l C ; mSf$$MN tt i l Mrk$iedtland + :i : D. J EMonw:.MihrGwp. ? L llT - ..:'. Abitt;.l$W l A. $ttfh0Mgti9Et,5hd f: '_.f." =.fiktb0stt;ippf0ngper$$ht I \\ b Nsl. l'l'.{ f ' ' ? '.. l l ' ' ll l]l " '.h..%f&MGC'6*eN6Hthegnf,L ' \\, St,1B>ldtsel; But&teggetcEnif. -[. ',fhohChaff f 9N l'f f - \\ ;_ i ,l' jnydfYN&jQ;h j;'.. ', :L. [he'% gqHQt,[ . ; l } _ L. l ' ;f, ) ,Y .s.

,a L Y'.
. [. )): :;.. n } ' :.., ' ' (. ((.

, l(giggfeggiist. ,[:: _ t_ _ MNjan ' ;. ljpfek} Wet / l. ]' '.... l. '. '. l,;,

1... !..,

) ".. ':. c gg M.'.fMf,M ^ 1 a. ?fMg gg f$d),[ +.....h/gpp.quy; ? :J.jM .. 7 ;...);.>.. :, . g. A; ' O ' ' 7. ' ( ~ a" t. 3 _.,7..... .'..~.J -...q.... ~ - .. '.. ~. M. /.;;i..; :

...w"!....: ..,._'"_.. v"g ' T..,. '...,.' _ y

.8 .~ .T.. .....t . ;, ;i. *..n,,, n........,.. : R ;v.. s s,i. ;;,= 'n,.. v-u_ t '\\ g 'h s, ~ k.lh,. .~.n.. , * 'kf,. 9, f f$ kY. ' .] , kI $. ; ? y l Y l k 0 Y ' J" f; 0 f l:'-. .? .... n. v + <w x m.. - . x,~,.. s ,,s: w, =.c + + + u.w .v a .. a...n c w. .-w gkfinthh..

(..$..);jgd) k @M Wan paen[.<.[, [.[T h Q; h 6pk QinMapes[$

'Y '.': Jh $ G.9 4.acWi $ pngjeWis/,sp %.]. jMhsehagUmp;?Akk',',' W ;g,c ejpgem gv A nah.4 %#inan)J ; % e w ' TM4G#w .r % Eiff de r y n e s 1 l p &ws: e. 1 ' 7 Whwes ..J j i if.%stp&Mueas edtoke(ved@.g v3.;cm +Mmengtap 4 %m 4thp.Gwp WW4ir0;: f. 3,qm q mideir( W p.a 4 8,1;., 52 W.Wh$iMye %skyif,n@.: % @@inwr M ip i 7.), ~ Mwup.'M'QlW b..

AX.x: 6.

%Ar*

2%pc

?,W M Q" %neus;W Y f+.hk @ksw g). 6 g ( h qa..q.pwq quW Ma:, Moyai&MW:::fp%..keni( 122

.: y:.1:1,;$4s s e p$ 4. T # paw W W W lN 0 & m pn M "

ge.#. V. we 7 .c. Q %1kH W 5e & WMhaiwQ, W Sgod h&ns# W % & ; 0%.%*WWh f :;&_[ ;._]$$ewltis*W'liQn#N :D ' -l J 3.SQPhiutn"#645:C ).M :.I;i... X.l f . h.kf.h?(Y.flNl[ff:.f)..f.f.f&.f5.h.hffhfkg h.,Wff.Lllkkf:kh fhf me@m,w$ sis;f&$$im p%g. ' m' ~ %p;d.#pl.1 @iptiesef$ sir %ew@ g ;.N.< y{,],}.fl:[.;- w anm m w). fa. g - /1dhhgd gh 4 .Ar, ?,fc? N. 4 h R;E hi g :i.. d 4d p(j j 7 m /M .. ]/ /. 'ps#.a[, M !#@isaQ )l:+N:fhqsis%^ Mbj6e$'Q l7 '. [ h y! f g%wW:;w f:@ fpAqWaajideliiMfruep,4stannu f i

8. ;' 9e6A

.y ..G / i./st@M(pt*Weyek..'f ,.$tiqseenWerg;L v jgrMe@@a%end$gwsp@rej l "9.y.L6g.. ~ t. '. 3 :..gca&&gwwpr thenernd.. yQrg ' ~ ' MaidwT.;;;Q.s.%n%e46diqpeiMbpv.L ? ' -L>pt@phiny%,Q p.[. 9 M?'> %;. W :.' y y< ofe$ p.V f fnd&Enclyrkyvnnitruit.' ' ; ' cowh{ujo., ..' O Q..h:3;m :,.. "' 3rOlnen. edrhrQ ! l'A. ~. ? u :f6uy;McWMWMik ?L me4 5 m ent W i k ut w d $ne. C j. Q $. a L. ^1 qMpnr $,Q. pe,w,y gehsth ; + n. ' ;; [ i.;.:";.? ' '.:;. l.;; Wand #qsunra ; y e. ;nytiupptru%nH,:;;9 ;;;,f. L $(l 3M:und Wrwhiet? '.. J *. '.htkes'fn%mnia.\\ :: ;,. :l p Mithermide * .;l l L,L. ;, Jf:k. f: ; / _,

22.MmNs ui%iek& lvektg :,.; X ' i. '.1:!'l _... f.I l. { R./ 4.

..V.; l ; f, f ~. ;3({ %: ' '. ' ./b.. '. ; e. J [ .. _.J..,. ji'QW J ) ~ d. f ;; J . ::... - > ; _. + " [ l _ ~ _ / : ; Q ' ',.,. [.. ' ;.. "'~ ., ".. : Q:;.l f. y L. .L:,q J. .... - :....v ...a.. c.

: .... ~. ;.:. s

' ".. ^..,.. '-... .g.'y'....:..,.. .c... %p

.: ' f., ; k. [

,_.,3.,, e.,'.,g, -,:.. .-l '7 4 f. 1,, r4 . ; ' ',. L ',,. [ 9 f [ [.0

W. ~ q..;

i;

.. . ]:. '. f ]. v [;..g;n . [, j.; 3 O ;; ; 2... '- .,a.., . y _. v.y ..l. r ;; ,,, _ 'a '...:,.-..,(._. ,,. : :.. :.,...,... ;,;.. :,. j ', ?'.

1 ; - -

ig4,. _. d

,i.: ,;.,..,,5,,

CMS FA/67fGy Bulk Rate U.S. Postage PAID WorldNeedgaarters CMS Energy Fairlane Plaza South Corporation Suite i100 330 Town Center Drive

Dearborn,

MI 48126 PrincipalOtRces Buenos Aires, Argentina llouston, Texas Jackson. Michigan London, England New Delhi, India Santiago, Chile Singapore Washington, D.C. i i I i I

M.a + D M-w _d h _ k_m &, _ b ~N h g_, gggg y gg g k , n%M . w%Mw }e a nn +"Y Q h: 6kw QNWh 4M y ~ [g 9 -l $p v$w $ ' m $ . $,,tf Ma % 3 ^ W A M e n n w w,t k,at_,wg & g #e m e,w M M g u w 2 9 &p # m &,a %,@ p mym a w wd g n 3%me%g w% h mew %a$ k ' ' $y%w??+Np) ;q# y2$?$pg&p% %p4+1'4i$p@fWW WMW4Qq ~ W, Q_ %QR&W W_W QQ,ff M_? fQfL2 'b?h$f g% m3 ap ngg Agg g 9E93d@ 4 ;g@q[mgy@g$ypd9$ d m y; pp m %q A du A q g&a m g.as gu m o o.g sa s w w 1 i y pww y%g,g myymn psmagpsmmmymma y Y q d c p m aa p% qfg:gg e g g gw j%,ge A g %ggg a;g zg5 ag q q mWfnyg A xQweg% g w Mep p 44my sppy pykev%gwy, ggm%g# egpb peWWWp pwp yd-of$ g pma27 J -g$e5 p r 4gpwggggg %gpwp#aqqp gw% g d ur e pwemap Sp 7 9 % p e d @r s pen %w g %r W y wupgk dybw %yx,qua w km ynm"en'sf s yenn ty .% %#$MNf wp M t %a% w ?N M M $ % $k h % M % 4 $(g/we megp3 h Mppf; tg y Yeg ? 9,O oryg 3 flr~W?y% f w 5$O"Ylh W W 5 !%+%sia%GE $$$hd$$$ M _w g g R M g i. w%mp& mpp.s @_ M ME 2 - w _mv &mm_enm gRg wg myp#mpmpeygd y w y m mmq %s %w a Qgy y pw w a gw WWWi me% 5M ee Wi nyy W @r**p w @m y$h m p%m %g$g r W =M K g s &M ghQ Q+1 N%d h8%hQnmamgmwe$g ng m mQb e L L_4penem$fMf,?@*WW$ m~n L a e M & Ws nm%,m@@%%p@fQWgwMmpOm d* a V QfD%hW WE5 y &e use ummam nnna-nasen&negg pp$,,w uenw;u yu nge og my ggp wqp e &gsg p w w w p p p % - yQ 7 9 g@ a n n% @,W N M, eM m w n m s_ w w w w., ,,a ? ~ 7g@m wwuun.we, w,g. an ma pe.@ywmm pQg @jm@ww+Wh@g@Qelg - ;- --- ,rg gr sym awy/%kgG y d e + @ w w d % g &g g y w 4 n q $w y ex e a s9 pppmm 4 py9yjpBQ.;g;e 4 gW g h p w gp w wgJ g pdsq Waphgpggg v @ggsgaggggg%)wgp%g ej;jjpg Q pqgge h@F9@g& (kppg gMspgeg% m pA M a mgpqww=d gdh Ag yW7pFVW [4

.....c-- Cl(F N 13ulk Rate - U.S. Postage { PAID M N8edluerfurs CMS Energy Etirlane Plaza South Corporation ~ Seite 1100 - 330 Town Center Drive-

Dearborn,

MI 48126 MdusDef81Rees Buenos Aires, Argentina liouston, Texas Jackson, Michigan - London, England - New Delhi, India Santiago, Chile - ) Singapore Washington, D.C. ) I

~ 1997 Consumers Energy Anmial Report ConnounnersEssergy

1 i l I 1 1 l Contents Management's Discussion & Analysis 2 Consolidated Financial Statements 9 Notes to Consolidated Financial Statements 15 Report ofIndependent Public Accountants 29 Selected Financial Information . 30 Quarterly financial Information 30 Glossa ry 31 Board of Directors and officers....... 32

D e E qgpaEI N=@W $( O m ll B n t E em 1 3}QEo cg 3 (( e3j g a gf oE n e E py[ eh ygE a g gy 2(l ^ 1 2 s, 8 4 5 2 4 8 7 4, 2 2 0 0 4 7 2 5 . r 1 9 0 5 1 4 n 6 1, 2, 1 9 4 4 9 2 8 2 5 5 1, 1, 1 1 1 0 0 3 7 7 1, 2 8 4 3 3 1 1 4 4 4

o. 2 23 2

3 4 5 6 7 3 4 5 6 7 3 4 5 6 7 3 4 5 6 7 9 9 9 9. 9 9 9 9 3 9 9 9 9 9 9 9 9 9 9 M =;;[z" = ;;'; "

I FERC-ordered refund received by the MCV Partnership from a gas hNhhh pipeline supplier. For further information, see the Electric and 1 Gas Utility Results of Oprations sections of this MD&A and Note 4. Discussion hnd Electric Utility Results of Operations hg Electric Pretax Operating Income: l h Afsm Years Ended December 31 1997 1996 Change 1996 1995 Change 8432 8411 421 8411 8372 839 This Annual Report contains forward-looking statements, as Electric pretax operating income in 1997 benefitted from defined by the Private Securities Litigation Reform Act of 1995, increased electric sales, the full effect of the February 1996 elec-that include, without limitation, discussions as to expetations, tric rate increase and extensive control of opration and mainte-beliefs, plans, objectives and future financial prformance, or nance costs. Partially offsetting these benefits were lower revenue assumptions undelying or concerning matters discussed in this due to increases in special contract discounts negotiated with report. Refw to the Forward-Looking Information section of this large commercial and industrial customers and higher deprecia-MD&A for some important factors that could cause actual results tion and genwal taxes expenses. The increase in electric pretax j or outcomes to diffw materially from those addressed in the for. operating income in 1996 reflects the favorable impact of the ward-looking discussions. February 1996 electric rate increase and the benefit ofincreased Consumers is a combination electric and gas utility company k%h sales and lower maintenance expenses. The increase was serving the town Nninsula of Michigan and is the principal sub. partially offset by a decrease in revenues due to increases in spe-sidiary of CMS Energy, a holding company. Consumers' customa cial e ntract discounts negotiated with large industrial customers base includes a mix of residential, commecial and diversified and increased depreciation, general taxes and opration expenses. industrial customers, the largest segment of which is the automo-The following table quantifies these impacts on pretax oprating tive industiy. meome: h Af&m RESULTS OF OPERATIONS Change Compared to Prior Year 1997 w 1996 1996 vs 1995 Sales (including special contract discounts) $5 81 m, Years Ended December 31 1997 1996 Change 1996 1995 Change i 1 Operation and maintenance 24 2 Net income available General taxes, depreciation and other (19) (14) To c (decrease)in pretax k d $284 8260 $24 8269 8227 833 Consumers exprienced earnings growth for the fifth consecu-tive year. This continued gnmth is the reflection of changes in Electric Sales: Total electric sales in 1997 were 38 billion k%h, regulation and Consumers' strategy to target increased delivtries an increase of 2.3 preent over 1996 sales. The increase reflects to industrial and commercial customers. The improved net income e ntinued economic growth in Michigan and a 1.2 preent for 1997 reflects the favorable impact for all of 1997 of an electric increase in sales to ultimate customers, prunarily within the rate increase received in February 1996, increased electric sales, industrial class. Total electric sales in 1996 were 37 billion k%h, the one-time recognition ofint4 rest income for $7 million from a an increase of 4.4 preent ovte the 1995 level. The increase in related-party proprty sale, increased revenues from the transmis-IM is primarily attributable to an increase in intersystem sales sion of electricity for othes, and improved earnings from the MCV and a 1.7 percent increase in sales to ultimate customes. This Partnership. In addition, the improved net income for 1997 increase also reflects continued economic growth in Consumas' reflects an adjustment of prior years' income taxes associated tarim with non-taxable earnings on nuclear decommissioning trust Ptmer Costs: Cost increases in both 1997 and 1996 over the prior l funds of $9 million. 'Ihe improved net income for 1996 ovw the priods reflect greater power purchases from outside sources to 1995 level reflects the favorable impact of an electric rate meet increased sales demand. The folkming table quantifies the increase received in February 1996, increased electric sales and changes in electric power costs: gas delivtries, and revenues from gas loaning acti ities. In addi-tion, othe operating income increased during 1996 due to a Years Ended 15cember 81 1997 1996 Change 1996 199b Change $1.139 81.087 852 81.087 8979 $117 f 2

MANAGEMENT'S DISCUSSION AND ANALYSIS Electric Utility Operating Imues: Big Rock closed prmanently on August 29,1997 because man-agement determined that the plant would be uneconomical to Ibwrl%rthases/mm the NCVPartnership - In 1992, perate m, an mereasingly competith'e emironment. Consumers Consumers recognized a loss for the present value of the esti. riginauy scheduled the plant to close May 31,2000, at the end of mated future underrecoveries of power purchases from the MCV the plant's operating license. Plant decommissiomng began m Partnership. The afte-tax cash underrecovaies are currently Septemtxt 1997 and may take five to ten years to return the site based on the assumption that the MCV Facility wih be available t its ongmal condition.The earlier than planned closure of the to generate electricity 91.5 percent of the time ova its expected plant and the reopening of the South Camlina Barnwell facility to l life. For 1997, the MCV Facility was available 99 pecent of the Cb I

level radioactive waste have changed the method of time, resulting in afkr-tax cash underrecoveies of $41 million.

decomm?. ing from the safe storage option to immedia ission Consumas believes it will continue to experience after-tax cash mantlement. This change could have an impact on the estimated underrecoveries associated with the PPA in amounts as those decommissioning cost which is required to be updated in a filing shown below. For further information, see Ibwer Purchases from with the MPSC by March 31,1998. For further information on j the MCV Partnership in Note 3. nuclear matters, see Note 7. Electric EnrimnmentalMatters - The Clean Air Act contains sig-1998 1999 2000 2001 2002 nificant emironmental provisions specific to utilities. During the Estimated cash past few years, Consumers incurred $46 million in capital expen-underrecoveries. net of tax 823 822 821 820 $19 h my incur an additional $30 mil-Consumers bases the above estimated underecoveries, in lion in capital expenditures by the year 2000 to comply with the current sulfur dioxide and nitrogen oxide emission limits estab part, on an estimate of the future availability of the MCV Facility. if the MCV Facility operates at levels above management's esti-lished by the EPA. mate over the remainder of the PPA, Consumers will need to rec. Consumers currently operates within all Clean Air Act requue-ognize kisses for future underrecoveries larger than amounts pre-ments and meets current ozone and particulate emission limits. viously recorded. Therefore, Consumers would experience larger The EIR recently resised the national air quality standards, amounts of cash underrecoveries than originally anticipated. which may further limit small particulate and ozone related emis-Management will continue to evaluate the adequacy of the sions, and proposed that the State of Michigan impose additional accrued liability considering actual MCV Facility operations, nitmgen oxide limits on fossil-fueled emitters, such as Fnna ng unkt h b unneWa@ SM Electric Rate Fmceedings - In 1996, the MPSC issued a final Michigan wi.1 establish Consumers emissions reduction target order authorizing Consumers to recover costs associated with the until mid-to late 1999. Until this state-mandated target is known, purchase of an additional 325 MW of MCV Facility capacity and to The preliminary estimate of capital costs to esumated est of compliance is subject to signifk accehrate recovey of its nuclear plant investment. 'Ib implement trogen oxide the accelerated recovery, the order requires an increase in annual mla d emissions fodonsumes' fossil-fueled generating units is nuclear plant depreciation expense by 018 million with a corm- "EP" *" #8I, * "'E'"*""" "*I "** " sponding decrease in fossD-fueled generating plant depreciation $10 million per year for the next 20 years for operation and ma.m-expense. The order also established an expetmental direct-access tenance costs. Consumers may need an equhalent amount to program. For furthe information on these issues, see the Electric c mply with the new small particulate standards. The State of Business Outlook section of this MD&A and Notes 3 and 4. Michigan objected to the extent of the proposed EIR emission Nuclear Matters - In January 1997, the NRC issued its Systematic reductions. If the State of Michigan's position were to be adopted Assessment of Licensee Ihrformance report for Palisades. The by the El%, costs could be less than the current estimated report rated all areas as good, unchanged from the previous amounts. Consumers supports the bipartisan effort in the U.S. assessment. Congress to delay implementation of the revised standards until The NRC requires Consumers to make certain calculations and the relationship between the new standards and health improve-report to it on the continuing ability of the Palisades reactor ves. ments is established scientifically. set to withstand postulated pressurized themal shock. In 1996, Under the Michigan Natural Resources and Emironmental Consumers received an interim Safety Evaluation Report from the Protection Act, Consumers expects that it will ultimately incur NRC indicating that the reactor vessel can be safely operated investigation and remedial action costs at a number of sites, through 2003. Consumers believes that with a change in fuel man-Nevertheless, it believes that these costs are prop rly recoverable agement designed to minimize embrittlement, Palisades can be in rates under current ratemaking policies. operated to the end of its license life in the year 2007. Consumers is a so-called potentially responsible party at sev-Palisades' temporary on site storage pool for spent nuclear eral contaminated sites administered under Suptfund. Many fuel is at capacity. Consequently, Consumers is using NRC-other creditworthy, potentially responsible parties, with substan-approved steel and concrete vaults, commonly known as " dry tial assets also cooperate with respect to the indhidual sites. casks", for temporary on-site storage. Based on current information, management believes it is unlikely S CONSUMERS ENERGY 1997 ANNUAL REPORT

that Consumns' liability at any of the known Superfund sites, warmer winter month temperatures in 1997 and the loss of an indhidually or in total, will have a material adwrse effect on its extra day for the 1996 leap year. Revenues were also down in 1997 financial position, liquidity or results of optations. due to the elimination of surcharges related to past consavation While decommissioning Big Rock, Consumers found that some programs and reduced gas loaning activities. In addition, depreci-areas of the plant have coatings that contain both metals and ation costs and general taxes were higher in 1997 from increased PCBs. Consumers does not believe that any facility in the United investments to serve new customers. Offsetting these decreases to States currently accepts the radioactive portion of that waste. pretax operating income were lower operations and maintenance The cost of removal and disposal is currently unknown. These expenses that resulted from extensive cost controls. Gas prelax costs would constitute part of the cost to decommission the plant, operating income increased in 1996 compared to 1995. The and will be paid from the decommissioning fund. Consumers is increase results from increased gas delhtries and revenues from studying the extent of the contamination and resiewing options. value-added senices and gas loaning aethities. Partially offsetting For further information regarding these and other emironmental these increases wee higher operating, dgreciation and geneal matters, see Electric Emironmental Matters in Note 6. tax expenses. The following table quantifies these impacts on pre-Stmy Ellage - Various parties have sued Consumers relating to the effect of so-called stray voltage on certain livestock. In u vau. Decembe 1997, the Michigan Supreme Court remuded for fur-Change Canpared to Prior Year 1997 w 1996 1996 vs 1995 ther proceedings a 1994 Michigan trial court decision that sales s(18) sa refused to allow the claims of over 200 named plaintiffs to be Gas wholesale and retall joined in a single action. The trial court dismissed all of the plain-services actMties (9) 7 tiffs except the first-named plaintiff, allowing the others to re-file operations and maintenance 24 (4) separate actions. Of the original plaintiffs, only 49 re-filed sepa. Cwneral taxes, depreciation and other (7) (4) rate cases. All of those 49 cases have been resolved. The Michigan Totalincrease/(decrease)in Wamadng ince sm s2 Supreme Court remanded the matte, finding that the progy remedy for mijoinda was not dismissal, but to automatically Gas Delberles: System deliveries in 1997, including miscella-allow each case to go forward separately. Consumers filed a neous transportation, totaled 420 bef, a decrease of 28 bef or 6.1 motion for reconsideration with the Michigan Supreme Court, percent compared to 1996. The decreased delivaies for 1997 com-which was denied. Consumers intends to vigorously defend these pared to 1996 reflect warme temperatures in 1997 and the loss of cases, but is unable to predict the outcome. As of Decemixr 31, an extra day for the 1996 leap year. Comparable system deliveries 1997, Consumers had 12 indhidual stray voltage lawsuits, unre-for 1996 totaled 448 bef, an increase of 44 bcf or 10.8 lercent lated to the cases above, awaiting trial court action, down from 22 compared to 1995. The increased deliveries for 1996 compared to Icwsuits as reported at year end 1996. 1995 reflect growth esulting from customa additions, conver-Other - In October 1997, two independent power producers sued sions to natural gas from alternative fuels o mtinued strength in Consumers and CMS Energy in a federal court alleging antitrust the Michigan economy and the benefit froin the added leap year violations and economic losses due to special electric contracts day in 1996. signed by Consumers with large customers. The plaintiffs claim Cost of Gas Sold: The cost decrease for 1997 was the result of damages of $100 million (which a court can treble in antitrust decreased sales and lower gas prices. The cost increase for 1996 cases as provided by law). The transactions of which plaintiffs was the result ofincreased sales, complain have been regulated by, and are subject to, the jurisdic-tion of the MPSC. In November 1997, Consumers and CMS Enegy " "d= filed a motion for summaryjudgement and/or for dismissal of the Years Ended December 31 1997 1996 Change 1996 1995 Change complaint filed by the plaintiffs. Consumers believes the lawsuit s694 8750 s(56) 8750 s674 s76 is without merit and will vigorously defend against it, but cannot predict the outcome of this matter. Gas Utility Operating Issues: Gas Rate Pmcmfings Consumers entered into a special natural Gas Utility Results of Operations gas transportation contract in response to a customa's proposal Gas Pretax Operating Income: to bypass Consumas' system in favor of a competitive alternative. In 1995, the MPSC approved the contract. The MPSC stated, how-ever, that Consumers' shareholders must bear the revenue short-Yzra Fnded December 31 1997 1996 Change 1996 1995 Change fall created by the difference between the contract's discounted siss sira scr,) sirm sisc s2 rate and the floor price of an MPSC-authorized gas transportation rate. In 1995, Consumes filed an appeal with the Court of Gas pretax operating income decreased in 1997 compared t Appeals claiming that the MPSC decision denies Consumers the 1996. The decrease results from reduced gas delivtries due t opportunity to earn its authorized rate of return and is thaefore 4

MANAGEMENT'S DISCUSSION AND ANALYSIS l unconstitutional, in Octobe 1997, the Court of Appeals issued an Other Imesting and Financing Matters: At Decemba 31,1997, opinion affirming the MPSC's order. Consumers has sought a Consumers had FERC authorization to: 1) issue or guarantee up l l rehearing of the Court of Appeals opinion. For further information to $900 million of short-term securities through 1998; 2) issue, l on Gas Proceedings, see the Gas Business Outlook section of this through Novembe 1998, $376 million of long-term securities with MD&A and Note 4. maturities up to 30 years, for refinancing a refunding purposes; and 3) guarantee, through 1999, up to $25 million in loans made GCRMatters In 1995, the MPSC issued an orde favorable to by othes, to residents of Michigan for the purpose of making Consumers' position in a $44 million contract pricing dispute enegy-related home improvements. in January 1998, Consumes (excluding interest) between Consumes and certain gas produc-requested authorization to issue, through Novembe 1998, an ers. The Court of Appeals upheld the MPSC order. The gas produc-additional $500 million of long-term securities for termancmg or ers have now appealed to the Michigan Supreme Court. refundng purposes, Consumers believes the MPSC order correctly concludes that the Consumers has an unsecured $425 million credit facility and producers' theories are without merit, Consumes will sigorously unsecured lines of credit aggregating $120 million. These facill-oppose any claims the produces amy raise, but cannot predict ties are available to fmance seasonal working capital require-l the outcome of this issue. mena and to pay for capite.1 expenditures between long-term Gas Envirvnmental Matters - Consumers expects that it will ulti-f nancings. At December 31,1997, the total available amount mately incur investigation and remedial action costs at a numbe remaining under these facilities was $168 million. of sites, including some that formely housed manufactured gas Consumers also has in place a $500 million trade receivables j plant facilities. Consumes estimates its costs related to investiga-sale program. At December 31,1997, $165 million in receivables tion and remedial action at $48 million to $98 million. This esti-gg pg l mate is based on undiscounted 1998 costs. Any significant change mau.on, sWd ( in assumptions, such as remediation technique, nature and Consumers must redeem or retire $1 billion oflong tem debt extent of contamination and regulatory requirements, could over the three-year priod ending Decembe 2000. In addition, at affect the estimate of investigation and remedial action costs for December 31,1997, Consumers had a recorded liability to the the sites. For further information regardmg emironmental mat. DOE of $111 million, which Consumes must pay upon the first ters, see Note 6. delivery of spent nuclear fuel to the DOE. Current fedeal law riginally scheduled delivery of the fuel to occur in 1998 (see CAPITAL RESOURCES AND LIQUIDITY Note 2). Consumers plans to refinance $850 million of its long-term debt during 1998 and will continue to evaluate capital mar-l Cash Position, investing and Financing kets as a source of financing furthe debt retirements. In early Operating Acthities: Consumers derives cash from oprations 1998, Consumers called for the March 1998 redemption of $57 from the sale and transportation of natural gas and the genea. million aggregate principal amount ofits 7.5 preent First tion, transmission and sale of electricity. Cash from operations Mortgage Bonds due 2001 and $62 million aggregate principal l totaled $758 million and $672 million for 1997 and 1996, respec. amount of its 7.5 percent First Mortgage Bonds due 2002. tively. The $86 million increase resulted from an increase in net in early 1998, Consumes issued $250 million of senior notes income due to extensive control of operation and maintenance due February 1,2008, at an interest rate of 6.375 preent. The costs and a change in working capital. Consumm uses oprating senior notes are secured by a series of Consumers' First Mortgage cash primarily to maintain and expand electric and gas systems, Bonds, issued contemporaneously in a similar amount. Proceeds to retire portions of long-term debt, and to pay dhidends. from the sale wee added to the general funds of Consumers and applied to the payment, at maturity, of $248 million aggregate Inwsting Aethities: Cash used by Consumers in investing aethi-principal amount of Consumas' 8.75 percent First Mortgage ties totaled $392 milhon and $494 million for 1997 and 1996, B nds due February 15,1998. respectively. The $102 million decrease resulted from a decrease At December 31,1997, Consumers' capital structure consisted in capital expenditures and receipt of $50 million related to CMS of 38 pecent common equity,10 preent preferred equity (includ-Enterprises' repurchase of two shares of its preferred stock. ing preferred stock and preferred securities), and 52 percent Consumers uses cash primarily for capital expenditures. long-and short tem debt (including capitalleases and notes Financing Acthities: Cash used by Consumers in financing activi-payable). ties totaled $363 million and $188 million for 1997 and 1996, respectively. The increase of $175 million in cash used reflects the redemption of $120 million of prefered stock and a return of equity to Consumers' common stockholder totaling $50 million. The following discussions contain forward-looking statements. See the Forward-looking Information section of this MD&A for ( some important factors that could cause actual results or out-comes to differ materially from those discussed herein. 5 CONSUMERS ENERGY 1997 ANNU AL REPORT

Capital Expenditures Outlook Under the June 1997 orde, the MPSC would allow utilities to Consumas estimates the following capital expenditures, includ-recover prudently incurred 1ransition Costs thlough a charge to ing new lease commitments, by company and by business seg' all direct-access customers until the end of the transition period ment over the next three years. These estimates are pr@ared for in 2E Subsequent to the June 1997 order, the MPSC issued planning pumoses and are subject to revision. orders in Octobw 1997 and early in 1998. Ultimately, the MPSC allowed Consumes: 1) to recover Transition Costs of $1.755 bil-in wtw, lion through a charge to all direct access customers until the end Years Ended December 31 1998 1999 2000 of the transition period in 2007, subject to an adjustment through consumers a true-up mechanism; 2) to commence the phase-in of direct construction 8367 8358 saso access in March 1998; and 3) to suspend the power supply cost Nuclear fuellease 54 1 recovery clause. The orders also confirm the MPSC's belief that capital leases other than nuclear fuel 11 19 16 Securitization may be a beneficial mechanism for recovwy of Michigan Oas Storage B 3 3 lYansition Costs while recogmzing that Securitization requires 8435 s380 s370 state legislation to occur. Consumers believes that the 1ransition Electric nuhty operadons NN 8320 8265 8255 Cost surcharge will apply to all customers beginning in 2002. A Gas udHty operations N 115 115 115 separate charge to direct-access customers after MPSC review $435 8380 8370 and verification would also recover prudent costs of implementing a direct-access program estimated at an additional $200 million. to nese cmounts include an attributedportion erconsumers' anticipated Nuclear decommissioning costs will also continue to be collected capital arpendituresforplant and cruipment common to both the electric through a separate surcharge to all customas. Consumers expects Michigan legislative considaation of the entire subject of N nes, cmonuts do not include preliminary estimatesfor capital crpendi-electric industry restructuring in 1998.1b be acceptable to . turespouibly requimt to comply with recently revised nationalair guaht# standants under the Clean AirAct. For)%rther information seeElectric Consumas, the legislation would have to provide for full recovay i Utility Operating issues-Electric EnvironmmtalMatters above and Note 6. of Transition Costs. Consumas expects the legislature to review all of the policy choices made by the MPSC during the restructur-ing proceedings to assure that they are in accord with those that Electric Business Outlook the legislature believes should be paramount. For furtha infor-Growth: Consumas expects average annual growth of two and mation regardmg restructuring, see Note 4. one-half percent per year in electric system delivries ove the Application of SFAS 71: Consumers applies the utility account-next five years, based on the present industry and regulatory con-ing standard, SFAS 71, that recognizes the economic effects of Dguration in Michigan. Abnormal weathe, changing economic rate regulation and, accordingly, has recorded regulatory assets conditions, or the developing competitive market for electricity and liabilities related to the genwation, transmission and distrib-may affect actual electric sales in future periods. ution operations ofits business in its financial statements. Bestractarlag: Consumas' electric retail senice is affected Consumers believes that the generation segment of its business is by competition. To meet the challenge of competition, still subject to rate regulation based upon its present obligation Consumes entered into midti-year contracts with some ofits to continue providing generation senice to its customes, and the largest industrial customers to save certain facilities. The MPSC lack of definitive deregulation orders. If rate recovery of genera-has approved these contracts as part ofits phased introduction tion-related costs becomes unlikely or uncatain, whether due to to competition. Catain customers have the option to terminate competition or regulatory action, this accounting standard may their contracts early. no longer apply to the generation segment of Consumers' busi-FERC Orders 888 and 889, as amended, require utilities ness. Such a change could result in eithe full recovery of genera-to provide direct access to the interstate transmission grid for tion-related regulatory assets (net of related regulatory liabill-wholesale transactions. Consumes and Detroit Edison disagree ties) or a loss, depending on whether Consumes' regulators adopt on the effect of the orders on the Michigan Electric Ibwe a transition mechanism for the recovery of all or a portion of Coordination Centa pool. Consumers proposes to maintain the these net regulatory assets. According to recently published - benefits of the pool, while Detroit Edison has given notice of Emerging Issues Task Force Issue 97-4,Derrgulation qfthe early temination. Consumers expects FERC to rule on this issue Pricing ofElectricity -Issues Related to the Application qfFASB in 1998. Statements No. 71 and 101, Consumss can continue to carry its in June 1997 the MPSC issued an orde proposing that begin_ generation-related regulatory assets or liabilities for the part of ning January 1,1998 Consumers would have to transmit and the business bemg deregulated if deregulatory legislation or an ra r m e n f cMm fan hs ngw distribute enagy on behalf of competing power suppliers to serve retail customers. The order states that by January 1,2002, all lated transmissmn and distribution customes to recover these customes would be free to choose (that is, have direct access to) Specific costs or settle obligations. Consumars believes that even their own poww suppliers. If it was to discontinue application of SFAS 71 for the generation 6

MANAGEMENT'S DISCUSSION AND ANAL.YSIS segment of its busioss, its regulatory assets, including those an Internal Pmject that Combines Business Pmcess related to genwation, are probable of future recomy from the Reengineering andInformation 7Fehnology 7hm4 formation. regulated portion of the business. At Decembe 31,1997, The consensus reached in issue 97-4 allows a company to main-Consumas had $277 million of gensation-related net regulatory tain regulatory assets and liabilities for part of a business that is assets recorded on its balance sheet, and a net imestment in being deregulated if deregulatory legislation or a commission rate gensation facilities of $1.4 billion included in electric plant and order allows the collection of regulated cash flows to recova propety. For furthw information regardmg this issue, see Electric costs or settle obligations. The regulated portion of a business Business Outlook - Restructuring, above. maintains these regulatory assets and liabilities until they are collected or settled, they are impaired, or until the regulated por-tion of the business becomes dwegulated. The consensus reached Cas Business Oudoek in Issue 97-13 requires a company to expense the cost of business Gnarth: Consume currently anticipates gas delivwies (exclud' process reengineering activities as incurred, and requires a com-ing transportation to the MCV Facility and off system delivales) pany to write off previously capitalized costs as a cumulative to grow at an avaage annual rate of between one and two pr-effect adjustment in 1997. Consumers was not affected by the cent ova the next five years based primarily on a steadily growing requirements of this consensus. In addition, Consumns does not I customa base. Abnormal weather, altsnative enagy prices, expect the application of the other statements to materially affect changes in competitive conditions, and the level of natural gas its fmancial position, liquidity or results of opwations, consumption may affect actual gas delivwies in future pwkids. Consume is also offeing a variety of ensgy related savices t kh b h M lts customas focused upon appliance maintenance, home safety and home security. Consumas uses software and related technologies throughout its businesses that the year 2000 date change will affect and, if Restructuring: In December 1937, the MPSC approved uncorrected, could cause Consumns to, among other things, issue Consumers' application to implement a statewide threeyear inaccurate bills, report inaccurate data, or incur plant outages. experimental gas transportation pilot program, eventually allow-in 1995, Consumers began modification of its computer software Ing 300,000 residential, commweial and industrial retail gas sales systems by dhiding programs requiring modification between customas to choose their gas supplia. The program is voluntary critical and noncritical programs. All necessary program modifi-for natural gas customers. Customas choosing to remain as sales cati ns are expected to be completed by the year 2000, customers of Consumns will not see a rate change in their nat-Consumers devoted significant intenal and extenal resources ural gas rates.*1b minimize the risk of exposure to higher gas t these modifications. It will expense anticipated spending for costs, Consumas currently has contracts in place at known these modifications as incurred, while capitalizing and amortiz. prices covwing a portion of its lequirements through the year ing the costs for new software ova the software's usefullife. 2000. ABAM the Attorney Genwal and other parties filed claims Consumers does not expect that the cost of these modifications of appeal of the MPSC's order with the Court of A; peals. For fur-will matwially affect its fmancial position, liquidity or results ther information, see Note 4. ofoperations. Application of SFAS 71: Based on a regulated utility accounting standard, SFAS 71, Consumas may defer catain costs to the Derivatives and Hedges future and record regulatory assets, based on the recovaability of those costs through the MPSC's approval. Consumas has evalu-Consumers is exposed to market risk associated with changes in ated its regulatory assets related to its gas business, and believes interest rates. Management uses a combination of fixed-rate and that suf5cient regulatory assurance exists to provide for the variable-rate debt to reduce ir.twest rate exposure. Interest rate recovay of these defared costs. swaps may be used to adjust exposure when deemed arpropriate, based upon market conditions. Deivatives are principally used as hedges and not for trading purposes. During 1997, trading acth'l-0THE MMTm ties wee immataial. In the case of hedges, management believes that any losses incurred on derhative instruments used as a kconnUng Randads hedge would be offset by the o;posite movement of the underly-In 1997, the FASB issued SFAS 130, Reporting Compnhensity ing hedged item. These strategies attempt to proside and main-Income, and SFAS 131, Disclosures about Segments qfan tain the lowest cost of capital. The fair value of Consumers' fman-Enterprise and Related Irtformation. Each of these standards cial derivative instruments at Decemba 31,1997 was immaterial. requires expanded disclosures effective for 1998. Also in 1997, the Additionally, exposure to market risk in the near term would not Emwging issues Task Force published issue 97-4,Derrgulation qf have a material impact on Consumes consolidated financial posi-the Pricing qfElectricity -Issues Related to the Application qf tion, results of operations or cash flows as of Decemba 31,1997. FASB Statements No. 71 and 101, and issue 9713, Accounting For a discussion of accounting policies related to dwivathe for Costs incurmi in Connection teith a Consulting Contruct or transactions, see Nole 5. I 7 CONSUMERS ENERGY 1997 ANNU AL REPORT

6 INFORMATION Forward-looking information is included throughout this report. His report also describes material contingencies in the Notes to the Consolidated Financial Statements and should be read accordmgly. Some important factors that could cause actual results or out-comes to differ materially from those discussed in the fonvard-looking statements include prevailing gowrnmental policies and regulatory actions (including those ofITRC and the MPSC) with respect to rates, proposed electric and natural gas industries restructuring, change in industry and rate structure, operation of a nuclear power facility, acquisition and disposal of assets and facilities, opwation and construction of plant facilities, opwation and construction of natural gas pipeline and storage facilities, recomy of the cost of purchased pows or naturd gas, dacommin. sioning costs, and present or prospective wholesale and retail competition, among other important factors. De business and profitability of Consumers are also influenced by economic and geographic factors, including political and economic risks, changes in environmental laws and policies, weaths conditions, competition for retail and wholesale customas, pricing and trare-portation of commodities, market demand for energy, inflation or deflation, capital raarket conditions, and the ability to secure agreement in pending negotiations, among otha important fac-tors. All such factors are difficult to predict, contain uncatainties that may matalally affect actual results, and may be beyond the control of Consumas. 8

CONSOLIDATED STATEMENTS OF INCOME In Millions Years Ended December 31 1997 1996 1995 Operating Electric $2,515 $2,446 $2,277 Revenue Gas 1,204 1,282 1,195 Other 50 42 39 3,769 3,770 3,511 Operating Opwation Expenses Puel for electric geneation 297 296 283 Purchased power-related parties 599 589 491 Purchased andinterchange powa 243 202 196 Cost of gas sold 694 750 674 Other 542 586 574 2,375 2,423 2,218 Maintenance 170 174 183 Depreciation, depletion and amortization 391 371 357 General taxes 200 191 189 3,136 3,159 2,947 Protar Electric 432 411 372 Operating Gas 153 158 156 income Other 48 42 36 633 Gil 564 Otherincome Dividends and inteest from affiliates (Note 2) 24 17 17 l (Deductions) keretionincome (Note 2) 8 10 11 kcretion expense (Note 2) (17) (22) (31) Other, net (2) (4) 5 13 1 2 laternet Charges Interest on long-tem debt 138 139 141 Other interest 36 29 39 Capitalizedinterest (1) (2) (2) 173 166 178 Not income Before laceme Tames 473 446 388 income Taxes 152 150 133 Not income 321 296 255 Profened Stock DMdends 25 28 28 Profaned Securities Distributions (Note 5) 12 8 Not income Auntable to Conunon Stockholder 8 284 $ 260 $ 227 The accompanying notes an an integmlpart of these statements l 9 CONSUMERS ENERGY 1997 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS in Millions Years Ended December 31 1997 1996 1995 Cash Flows Netincome $ S21 8 206 8255 From Operating Adjustments to reconcile net income to net cash ActMties provided by opeating aethities Depreciation, depletion and amortization (includes nuclear decommissioning of $50, $49 and $51, respectively) 391 371 357 Capital lease and other amortization 44 40 38 Deferred income taxes and investment tax credit IS 48 57 Accretion expense (Note 2) 17 22 31 Accretion income - abandoned Midland project (Note 2) (8) (10) (11) Undistributed earnings of related parties (47) (40) (36) Power purchases (Note 3) (62) (63) (137) Other 5 5 4 Changes in other assets and liabilities (Note 8) 84 3 84 Net cash pnnided by operating aethities 758 672 642 Cash Flows Capital expenditures (excludes capital lease additions of From investieg $11, $31 and $31, respectively and DSM) (Note 8) (360) (410) (414) ActMties investments in nuclear decommissioning trust funds (50) (49) (51) Cost to retire property, net (28) (31) (41) Investment from preferred stock - Affiliate 50 Proceeds from sale of propety 1 1 De vred demand-side management costs (6) (9) r Otha (5) 2 (5) Net cash used in investing aethities (392) (494) (519) Cash Flows Payment of common stock dhidends (218) (200) (70) Fran Financing Retirement of Preferred Stock (120) ActMties Retirement of bonds and other long-term debt (50) (37) (1) Contribution from (return of equity to) stockholde (50) 13 Payment of capital lease obligations (44) (40) (37) Payment of preferred stock dhidends (29) (28) (28) Preferred securities distributions (12) (8) Increase (decrease) in notes payable, net 44 (8) 2 Proceeds from prefered securities 116 97 Proceeds from bankloans 23 Net cash usedin financing aethities (363) (188) (134) Not incrosse (Decrocee) in Cash and Temporary Cash investment Cash and temporary cashinvestments 3 (10) (11) Begmning of year 4 14 25 End of year 87 $4 $ 14 1he accompanying notes are an integralpart qf these statements 10

06NSOLIDATED BALANCE SHEETS ASSETS in Millions December 31 1997 1996 Plant Electric $6,491 $6,333 (Atoriginalcoet) Gas 2,322 2,203 Other 24 26 8,837 8,562 Less accumulated depreciation, depletion and amortization (Note 2) 4,603 4,269 4,234 4,293 Construction work-in-progress 145 158 4,379 4,451 Imeetments Stock of amliates(Note 2) 278 298 First Midland Limited Partneship (Notes 3 and 17) 242 232 Midland Cogeneation Venture Limited Partnership (Notes 3 and 17) 171 134 Other 7 8 698 672 Current Assets Cash and temporary cash investments at cost, which approximates market 7 4 kcounts receivable and accrued revenue,less allowances of $6in 1997 and $10in 1996 (Note 5) 82 148 kcounts receivable - related parties (Note 2) 62 63 Inventories at aveage cost Gasin underground storage 197 186 Matrials and supplies 63 68 Geneating plant fuel stock 35 30 Ibstretirement benefits (Note 12) 25 25 Deferredincome taxes (Note 9) 22 27 Prepayments and othe 161 183 654 734 Non current Nuclear decommissioning trust funds (Note 2) 486 386 Assets Postretirement ber.efits (Note 12) 404 435 Abandoned Midland project 93 113 Other 235 234 1,218 1,168 Total Assets $6,949 $7,025 I 11 CONSUMERS ENERGY 1997 ANNUAL REPORT

NIOCKHOLIERS'INVENI14ENT AND IJAINIITIES InMillions Decemixr 31 1997 1996 eP h Common stockholder's equity (Note 5! Common stock $ 841 $ 841 Paid in capital 452 504 Revaluation capital 58 37 Retained earnings since Decemba 31,1992 868 297 1,714 1,679 Preferred stock 288 356 Company 4)bligated mandatorily redeemable Trust Prefered Securices of: Consumers Ibwer Company Financing I (al 100 100 Consumers Energy Company Financing II(al 120 long-term debt 1,869 1,000 Non<urrent portion of capital leases 74 100 8,N5 4,135 Casteet Current portion of long-tem debt and capital leases 579 98 LlahEties Notes payable 877 333 kcrued taxes 244 211 kcounts payable 171 212 kcounts payable - related parties 79 68 Ibwer purchases (Note 3) 47 47 keruedinterest 82 33 kerued refunds 12 8 Other 186 176 1,677 1,186 Non current Deferredincome taxes (Note 9) 688 646 IJabWties Ibstretirement benefits (Note 12) 489 500 Deferred investment tax credit 149 159 Ibww purchases (Note 3) 188 178 Regulatory liabilities for income taxes, net (Notes 9 and 16) 54 66 Other 144 155 1,657 1,704 Commitments and Contingencies (Notes 2,3,4,6,7 and 13) Tbtal SamahaWmf Imestament and Ilabilities $6,949 $7,025 (*) neprimary asset qfConsumers Ibutr Company Financing iis $1&1 million principal amount qf&M% subordinated d$ermble intertst notes due M16from Consumers, ne primary asset qf Consumers Eneryy Company financing 11is $124 million principal amount qf &M% suboniinated ddermble interrst notes due 2027from Omeumers. Ibrfurther discussion, see Note 5. De accompanying notes air an integmlpart qf these statements. 12

CONSOLIDATED STATEMENTS OF'LONG-TERM DEST In Millions 1997 1996 December 31 First Mortgage Bonds Series (%) Due 6 1997 8- $ 50 8-3/4 1998 248 248 6-5/8 1998 45 45 67/8 1998 43 43 87/8 1999 200 200 71/2 2001 57 57 7-1/2 2002 62 62 6-W8 2003 300 300 7-3/8 2023 300 300 1,255 1,305 400 400 Long-Tenn Bank Debt PoGution Contal Revenue Bonds 131 131 111 106 W Fust Disposal (=> 25 26 Other Principal Ansoant w=adiar 1,922 1,968 Current Announts (545) (59) Net Unamorthed h (8) (9) Total Long-Tenn Debt $1,369 $1,900 IDNG-TERM DEBT MATURITIES AND IMPIREMENT FUND OBIJGATIONS in Millions First Mortgage improvement long-Term Bonds Fund Bank Debt Other 'Ibtal 1998 $336 $7 $200 $2 $545 1999 200 3 200 5 408 2000 1 105 106 2001 57 1 4 62 2002 62 1 5 68 (*)Due date uncertain (seeNote 2) The acampanying notes are an integralpart qf these statemerds. 13 CONSUMERS ENERGY 1997 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF PREFERRED STOCK Optional Redemption Number of Shares In Millions December 31 Series Price 1997 1996 1997 1996 Preferred Stock Cumulative, $100 parvalue, authorized 7,500,000 shares, with no mandatory redemption $4.16 $103.25 68,451 68,451 87 $7 4.50 110.00 373,148 373,148 37 37 7.45 101.00 379,549 38 7.68 101.00 207,565 20 7.72 101.00 289,642 29 7.76 102.21 308,072 31 Class A Preferred Stod Cumulative, no par value, authorized 16,000,000 shares, with no mandatory redemption 2.08 25.00(a) 8,000,000 8,000,000 194 194 Total Preferred Stock $238 $356 (*) Redeemable beginning April 1,1999. De accompanying notes att an integrulpart $these statemerds. CONSOLIDATED STATEMENTS OF COMMON STOCMHOLDER'S EQUITY In Millions Years Ended December 31 1997 1996 1995 Common Stock At beginning and end of period fa) 8 841 8 841 8 841 Other Paidin At begmning of period 504 491 491 Capital Preferred stock reacquired (2) Stockholder's contribution 13 Return of stockholder's contribution (50) At end of period 452 504 491 lisvaluation At beginning of period 37 29 15 Capital Change in unrealized investment gain 21 8 14 At end of period 58 37 29 listained At begmning of period 297 237 80 Earnings Netincome 321 296 255 Cash dividends declared Common Stock (218) (200) (70) Preferred Stock (25) (28) (28) Preferred securities distributions (12) (8) At end ofperiod 363 297 237 TotalCanunon Stockholderis Equity $1,714 $1,679 $1,598 (*) Number $ sham $ common stock outstanding was 84,108,789for allpenodspruented. %e amnnpanying notes art an integralpart $these statements. 14

G hatory: Consumers uses the weighted average cost N MtO method for vaiuing worxing sas inventoiT. it records cushion gas, which is gas stored to maintain resmoir pressure for recovery of gg working gas, in the appropriate gas utility plant account. Consumen stores gas inventory in its underground storage facili-Financial ties. Maintenance, Depreciation and Depletion: Consumers charges property rnalrs and minor property replacements to mainte-nance expense. Depreciable propsty retired or sold, plus cost of removal (net of salvage credits), is charged to accumulated depreciation. Consumers bases depreciation prosisions for utility plant on straight line and units-of-production rates approved by the MPSC. The composite depreciation rate for electric utility property was 3.6 percent for 1997 and 3.5 preent for 1996 and 1${pgggggg GrP0 rate 1995. The composite rate for gas utility plant was 4.1 pecent for 1997,4.2 percent for 1996 and 4.3 percent for 1995. The compos-ite rate for other plant and property was 8.2 percent for 1997,5.5 percent for 1996 and 4.9 percent fc 1995. Consumers is a combination electric and gas utility company sev-i ing the Lowe Peninsula of Michigan and is the principal sub. Nuclear Ibel Cost: Consumers amortizes nuclear fuel cost to fuel sidiary of CMS Enegy, a holding company. Consumers' customer expense based on the quantity of heat produced for electric gen-base includes a mix of residential, commercial and diversified eration. Inteest on leased nuclear fuel is expensed as incurred industrial customem, the largest segment of which is the automo-Unde current federal law, as confirmed by court decision, the tive industry. DOE must begin accepting deliveies of spent nuclear fuel by January 31,1998 for disposal, even if a permanent repository is not then operational. Utilities and their customes have been pre-paying the costs of DOE transport and disposal through fees 8HmmRry Of Significant hased on electric geneation by their nuclear plants. For fuel M ACC0unting Pblicies and used after April 6,1983, Consumers charges disposal costs to nuclear fuel expense, recovers them through electric rates and Other Matters remits to the DOE quarterly. Consumers elected to defer payment for disposal of spent nuclear fuel burned before April 7,1983 until Basis of Pneentation: The consolidated financial statements it delives the first of its spent fuel to the DOE. At December 31, 1997, Consumes had a recorded liability to the DOE of $111 mil-include Consumers and its wholly owned subsidiaries. The finan-lion, including inteest, which is payable upon the first delivay of cial statements are prepared in conformity with geneally acceted accounting principles and include the use of manage-spent nuclear fuel to the DOE. Consumes recovered through ment's estimates. Consumers uses the equity method of account-electric rates the amount of this liability, excluding a portion of ing for investments in its companies and partnerships where it interest. In January 1997,in response to the DOE's declaration in Decembe 1996 that it would not begin to accept spent nuclear has more than a 20 preent but less than a majority owneship interest and includes these results in oprating income. fuel deliveies in 1998, Consumes and other utilities filed suit in federal court. The utilities sought a declaration reliesing them of Acuetion income and Expense: In 1991, the MPSC ordwed that their obligation to remit their quartely fee payments to the DOE Consumes could recover a portion ofits abandoned Midland and authorizing them to escrow any related fees collected from investment over a 10-year period, but did not allow Consumes to their customers, unless and until the DOE begins to accet spent earn a return on that amount. Consumers reduced the recom-nuclear fuel. The utilities also sought an order requiring the DOE able investment to the present value of the future recoveies. to develop a program to begin acc@tance of spent nuclear fuel by During the recovey period, Consumers adjusts the unrecoveed January 31,1998. A decision was issued by the court in late 1997 asset to its present value. It reflects this adjustment as accretion affirrning the DOE's duty to take delivery of spent 'uel, but was income. Convasely, Consumes recorded a loss in 1992 for the not specific as to the relief available for failure of the DOE to present value of its estimated future underecoveies of power comply. Consumers is considering its options. Also in 1997, fedwal costs resulting from purchases from the MCV Partneship (see legislation was reintroduced to clarify the timing of the DOE's Note 3). It now recognizes accretion expense annually to reflect obligation to acc@t spent nuclear fuel and to direct the DOE to the time value of money on the recorded loss. establish an integrated spent fuel management system that includes designing and constructing an inteim storage facility in Nevada. 15 CONSUMERS ENERGY 1997 ANNUAL REPORT 1

Nedear Plant naan==lamiamier Consumes collected $50 mil-31,1996. Begmmng in 1997, Entsprises commenced a five-year lion in 1997 from its electr.c customers for the future decommis-redemption program of $50 million per year. In addition, sioning ofits two nuclear plants. In April 1996, Consumas Consumers has an imestment in three miluon shares of CMS received a decommissioning order from the MPSC that estimated Enwgy Common Stock with a fair ulue totaling $129 million at decommissioning costs for Big Rock and Palisades to be $330 mil-December 31,1997 (see Note 10). Fmm these two investments, lion and $573 million (in 1997 dollars), respectively. The esti-Consumas received dividends on affiliates' common and pre. mated decommissioning costs increased from previous estimates ferred stock totaling $17 million, each year, in 1997,1996 snd principally due to the unavailability oflow-and high-level 1995. In addition, Consumas recovemd $7 million ofinteest radioactive waste disposal facilities. Amoun*.s collected from elec-income in 1997 related to the sale of land to an affiliate. tric etail customas and dgosited in trusts (including trust earn-Consmners purchases a portion ofits gas from CMS NOMECO. Ings' art credited to accumulated dereciation.1b meet NRC The purchases for the years ended 1997,1996 and 1995 were $25 deco.mmkioning requirements, Consumes pr@ared site-specific million, $24 million and $19 million, respectively. In 1997,1996 decommissioning cost estimates for Big Rock and Palisades, and 1995, Consumas purchased $51 million, $50 million and $E3 assuming that each plant site will emntually be restored to con-million, respectively, of electric genwating capacity and enegy form with the adjacent landscape, and that all contaminated from affiliates of Entaprises. Consumas and its subsidiaries sold, equipment will be disasseinbled and disposed ofin a licensed stored and transported natural gas and prmided oths services to burial facility. The April 1996 MPSC Orde also requires the MCV Partnership totaling $13 million, each year, for 1997, Consumers to file updated site-specific decommissioning cost 1996 and 1995. For additional discussion of related-party transac-estimates for Big Rock and Pahsades by March 31,1998. The Big tions with the MCV Partneship and the FMLP, see Notes 3 and Rock estimate will reflect the early shut down and the switch

17. Othe related-party transactions are immaterial.

from the safe storage option to immediate dismantlement because of the reopening of the South Carolina Barnwell radioac-tive waste disposal facility. After retirement of Palisades, hty and gas used by its customers but not billed at the end of an Consumers plans to maintain the facility in protective storage if acmunting paioMonsume accmes w reduces mvenue for any radioactive waste disposal facilities are not available. As a result, undarecovery or overrecovay of electric pown supply costs and Consumers will incui most of the Palisades decommissioning natural gas msts by estabHshing a cwnsponding asset or liability costs after the plant's NRC opwatmg license expires. When the until it bills or refunds these differences to customas following an W SC ede Pahsades' NRC license expires in 2007, the trust funds are cur-rently estimated to have acctmmlated $686 million. Consumers Utility llegalatlan Consumws accounts for the effects of regula-estimates that at the time Pahsades is fully decommissioned in tion based on a regulated utility accounting standard (SPAS 71). the year 2046, the trust funds will have provided $2.1 billion, As a result, the actions of regulators hfiect when revenues, including trust earnings, ove this decommissioning priod. expenses, assets and liabilities are recognized. If all or a smara Consumers will detamine if the current decommissioning sur. ble portion of Consumers' operations becomes no longer subject charge cill be sufficient to provide for decommissioning of)ta to the provisions of utility regulation, a write-off of related regula-nuclear plants during the first quarta of 1998, afts the revised tory assets and liabilitkis would be required, unless some form of <lenmmiaaloning cost estimates are computed for Palisades and transition cost recovay continues through rates established and Big Rock. At Decernbe 31,1997, Consumers had an investment in collected for Consumas' remahung operations. In addition, nuclear decommissioning trust funds of $486 million, spent $23 Consumers would be required to determine any impairment to million for the decommissioning of Big Rock and withdrew $17 the canying costs of dwegulated plant and inventory assets. For million from the Big Rock nuclear decommissioning trust fund, further discussion, see Electric Business Outlook and Gas While decommissioning Big Rock, Consarners found that some Business Outlook-Application of SFAS 71 in the MD&A, Note 4 amas of the plant have coatings that contain both metals and and Note 16. PCBs. Consumas does not believe that any facility in the United Other. For rignificant accounting policies regarding cash equiva-States currently acc@ts the radioactiwa portion of that waste, lents, see Nete 8: for income taxes, see Note 9; for executive lhe cost of removal and disposal is currently unknown. These incenthe compensation, see Note 11; and for pensions and otha costs would constitute part of the cost to decommission the plant, postretirement benefits, see Note 12. and will be paid from the decommisdoning fund. Consumas is studying the extent of the contamination and reviewing optimm. RedassiSentiams: Consumers has reclassified catain prior year amounts for comparative purposes. These reclassifications did not affect consolidated net income for the years presented. Balah4 Party 1Yaasactions: Consumes investment in Entaprises' preferred stock was $200 million in eight shares at December 31,1997 and $250 million in ten shares at Decemixr 16

NOT'ES TO CONSOLIDATED FINANCIAL STATEMENTS reflects afta-tax cash underrecoveries of $41 million, partially off-3 De Mllaml set by after-tax accretion expense of $11 million. The undis-C0generatiOHVenture counted after-tax amount associated with the liability totaled $188 million at December 31,1997. The after-tax cash underrecov-eies am cuantly based on the assumption that the MCV Facility The MCV Partnership, which leases and operates the MCV will be available to generate electricity 91.5 percent of the time Facility, contracted to sell electricity to Consumes for a 35-year ove its expected life. For 1997 the MCV Facility was available 99 period beginning in 1990 and to supply electricity and steam to Dow. Consumes, through two wholly owned subsidiaries, holds percent of the time, resulting in $13 million ove anticipated afte-tax cash underecmuies. Consumes believes it will con-the following assets related to the MCV Partneship and MCV Facility: 1) CMS Midland owns a 49 percent geneal partnership tinue to experience after-tax cash underrecoveries associated with the PPA in amounts as those shown below. interest in the MCV Partnership; and 2) CMS IIoldings holds, through FMLP, a 35 percent lessor interest in the MCV Facility, f,, ya,,, Summarized Statements ofIncome for 1998 1999 2000 2001 2002 CMS Midland and CMS Holdings (unaudited): Estimated cash underrecovenes, In Numms net of tax $23 $22 821 820 $19 Years Ended December 31 1997 1996 1995 um am esumaW un&mds,in Pretax operaung income $46 840 $35 part, on an estimate of the future availability of the MCV Facility. income taxes and other 14 11 10 If the MCV Facility operates at levels above management's esti-Net income ss2 839 s25 mate over the remainde of the PPA, Consumers will need to rec-1%er Purchases fmm the MCV Partnership: After Smtember ognize losses for future undemcoveries larger than amounts pre. 2007, pursuant to the terms of the PPA and related undertakmgs, vlously recorded. Theefore, Consumers would experience large amounts of cash underecoveries than originally anticipated. Consumers will only be required to pay the MCV Partneship the Management will continue to evaluate the adequacy of the capacity charge and energy charge amounts authorized for recov. accrued liability considering actual MCV Facility operations. ety from electric customers by the MPSC. Prior to then, pursuant to MPSC orders issued to date, Consumes recovered in 1997 In early 1998, the MCV Partnership filed a claim of appeal approximately 90 percent of the total capacity charge and energy from the January 1998 MPSC orde in the electric utility industry charge amounts being billed by the MCV Partneship and paid to restructuring. On the same day, the MCV Partnership filed suit in the MCV Partnership by Consumers. Currently, Consumers' the U.S. District Court seeking a declaration that the MPSC's fail-annual obligation to purchase capacity from the MCV Partneship ure to provide Consumers and the MCV Partnership a certain is 1,240 MW through the tamination of the PPA in 2025. The PPA source of recmuy of capacity payments after 2007 deprived the provides that Consumers is to pay the MCV Partnership a mini-MCV Partnership of its rights under the Public Utilities mum levelized average capacity charge of 3.77 cents per k%h, a Regulatory Iblicies Act of 1978. The MCV Partnership is seeking fixed energy charge, and a variable enegy charge based primarily to prohibit the MPSC from implementing portions of the orde. on Consumers' average cost of coal consumed. Consumers is PSCR Matters Related to I%er Purchases fun the MCV recoveing capacity charges auraging 3.62 cents per k%h for 915 Partnership: As part of a 1995 decision in the 1993 PSCR recon-MW of capacity, the fixed energy charge, and the prescribed ciliation case, the MPSC disallowed a portion of the costs related energy charges associated with the scheduled delinries within to purchases from the MCV Partneship and instead assumed certain hourly availability limits, whether or not those delhuies recovey of those costs from wholesale customers. Consumers are scheduled on an economic basis. Beginning January 1,1996, believed this was contrary to the tems of an earlie 1993 settle < the MPSC also permitted Consumers to recover an average capac-ment order and appealed. The MCV Partnership and ABATE also ity charge of 2.86 cents per kWh for the remaining 325 MW of filed separate appeals of this order. In November 1996, the Court MCV Facility capacity. The approved average capacity charge of Appeals affirmed the MPSC's 1995 decision. The MCV increased to 3.62 cents per kWh for 109 MW by January 1,1997. Partnership filed an application for leave to appeal with the The recoverable portion of the capacity charge for the last 216 Michigan Supreme Court which was denied in January 1998. MW of the 325 MW increases each year ur.til it reaches 3.62 cents per k%h in 2004. It remains at this ceiling rate through the end of the PPA term. Consumers recognized a loss in 1992 for the present value of the estimated future underecoveries of power costs under the PPA. At Decemba 31,1997 and 1996, the afte-tax present value of the PPA liability totaled $117 million and $147 million, respec-tively. The reduction in the liability since Decemba 31,1996 17 CONSUMERS ENERGY 1997 ANNUAL REPORT

gg the MPSC has the statutory authority to mandate restructuring on an involuntary basis. In October 1997, the MPSC issued a Matters series of additional orders relating to its electric industry restrue-turing proceedings. The orders primarily addressed issues involy-Electric Pacedings: In 1996, the MPSC issued a fmal orda that ing the design of retail direct-access tarifts, the true-up mecha-authorized Consumes to recova costs associated with the pur, nism in connection with the recovery of hansition Costs, sus;en-chase of the additional 325 MW of MCV Facility capacity (see si n of the power supply cost recomy clause and freezing of Note 3) and to acceleate recovery of its nuclear plant investment p wa supply costs, and performance-based rate-making. by increasing prosg!ctive annual nuclear plant depreciation In January 1998, the MPSC clarified the Octoba 1997 ordas expnse by $18 million, with c corresponding decrease in fossil-on a basis generally consistent with the June 1997 ordw. The fueled genwating plant depreciation expense. It also established January 1998 order: 1) defes the commencement of the phase-in an exprimental direct-access program. Customers having a maxi. of direct access to begin in March 1998; 2) attempts to clarify the mum demand of at least 2 MW are eligible to purchase genwation true-up mechanism to be used in connection with the recovay of services directly from any eligible third party power supplier and Transition Costs; 3) confirms implementation of a suspension of Consumers would transmit the pown for a fee. The program is the power supply cost recovery clause; and 4) confirms the limited to 650 MW ofload, of which existing special contracts rep. MPSC's belief that Securitization may be a beneficial mechanism resent 410 MW. New special contracts or direct-access load may for recovery of hansition Costs while recogmzmg that fill 140 MW of the 650 MW block. The remaining 100 MW will be Securitization requires state legislation to occur. Consumes available solely to direct-access customes for at least 18 months. expects Michigan legislative consideation of the entire subject of in April 1997, a lottery was held to select the customers to pur. electric industry restructuring in 1998. 'Ib be acceptable to chase 100 MW by direct access. Direct access for a portion of this Consumers, the legislation would have to provide for full recomy l@ MW began during the fourth quarter of 1997. of hansition Costs. Consumen expects the legislature to resiew In May 1997, the MPSC authorized Consumers to collect $17 all of the policy choices made by the MPSC during the restructur-million from electric customers through a one-time surcharge ing proceedings to assure that they are in accord with those that prtaining to the 1994 PSCR reconciliation. In S(ptember 1997, the legislature believes should be paramount. the MPSC further authorized Consumers to collect $13 million The January 1998 order furtha estimated a hansition Cost for from electric customers through a one-time surcharge prtaining Consumers at $1.755 billion which is genwally consistent with the to the 1995 PSCR reconciliation. amount proposed by Consumes. Consumers will recova this cost In Janaary 1998, the Court of Appeals ruled that the MPSC through a surcharge to direct-access customers through 2007. has statutory authority to authorize an exprimental electric Consumers believes that this surcharge will apply to all customers retail wheeling program. By its tems, no retail wheeling has yet beginning in 2002. The surcharge is subject to adjustment occurred pursuant to that program. Consumes filed with the thmigh a te-up mechanism to assure that hansition Costs Michigan Supreme Court seeking leave to appeal that ruling. actually incurred are collected. A separate charge to direct-access customers after MPSC review and verification would also For information on other orders, see the Electric Restructuring section below. ree ver prudent costs of implementing a direct access program estimated at an additional $200 million. Nuclear decommission-Electric Bestructuring: As part of ongoing proceedings relating ing costs will also continue to be collected through a separate to the restructuring of the electric utility industry in Michigan, in surcharge to all customers. June 1997 the MPSC issued an order proposing that beginning Subsequent to the January orda, the MPSC issued an order Januaiy 1,1998 Consumers would have to transmit and distribute addressing Consumers', among others, motions for clarification of energy on behalf of competing power suppliers to serve retail cus-the January order. This order results in: 1) a suspension of the tomers. The order states that by January 1,2002, all customas PSCR in a manner proposed by Consumes; 2) a t&mination of would be free to choose (that is, have direct access to) their own the 1998 PSCR plan case; and 3) the establishing of a prmanent powtr suppliers. PSCR/ base rate freeze charge in the 1997 PSCR reconciliation Unda the June 1997 order, the MPSC would allow utilities to proceeding. For further information see Electric Business recover prudently incurred hansition Costs through a charge to Outlook Application of SPAS 71 in the MD&A. all direct-access customas until the end of the transition priod in 2@7. Furtha proceedings, as ordwed by the MPSC, took place Resuming In Dembx M7, We MC appmed to address otha features of the direct-access programs being con-Consumes' awlication to implement a statewide experimental sidered, including proposals to "true up" hansition Cost charges gas transportation pilot program. Consumers' expanded expri-m pr gram wM extend ove a three-year period, eventually for changes in sales and market prices of powe purchase capac-ity to the extent they are different from estimates used for calcu, all wing 300,000 residential, commweial and industrial retail gas lating hansition Costs. The June order is subject to a claim of sales customers to choose their gas supplier. The program is vol-appeal fded with the Court of Appeals which questions whether untary for natural gas customers. Participating customes will be selected on a first-come, first-seved basis, up to a limit of 100,000 18

i I NOTES TO CONS 00 DATED FINANCIAL STATE E customers on April 1,1998. Up to 100,000 more customas will be improvements. In January 1998, Consume requested authoriza-added on April 1 of each of the next two years. Customas choos-tion to issue, through November 1998, an additional $500 million j ing to remain as sales customas of Consumers will not see a rate oflong-term securities for refmancing or refunding purposes. change in their natural gas rates. The order allowing the imple' Short Term Financings: Consumers has a unsecured $425 mil-mentation of this program: 1) suspends Consumers' gas cost lion credit facility and unsecured lines of credit aggregating $120 recovery clause, effective April 1,1998 for a three-year period, million. These facilities are availdle to fmance seasonal working establishing a gas commodity cost at a fixed rate of $2.84 pr mcf; capital requirements and to pay for capital expenditures between

2) establishes an earnings sharing mechamsm that will provide long-term financings. At Decembe 31,1997, a total of $377 mil-for refunds to customes if Consumers' earnings during the three lion was outstanding at a weighted aveage interest rate of 6.5 year term of the program exceed certain pre-determined levels; percent, compared with $333 million outstanding at Decemba 31, and 3) establishes a gas transportation code of conduct that 1996, at a weighted average interest rate of 6.3 preent.

addresses concens about the relationship between Consumes Constuners also has in place a $500 million trade recehables and markets, including its affiliated marketers. This exprimen-Sale program. At Decemba 31,1997 and 1996, recchables sold tal program will allow competing gas suppliers, including mar. under the program totaled $335 million and $318 million, respec-keters and brokers, to market natural gas to a large numbe of tively. Acc unts receivable and accrued revenue m the retail customers in direct competition with Consumers. In 1998, Consolidated Balance Sheets have been reduced to reflect recch-the Attorney General, ABATE and other parties filed claims of ables sold. appeal regarding the program with the Court of Appeals. To mini-mize the risk of exposure to higha gas costs, Consumers cur-Derinthes: Consumers has entered interest rate map agree-rently has contracts in place at known prices covaing 50 percent inents (derivatives) to exchange variable rate interest payment ofits 1998 requirements,25 percent ofits 1999 requirements and obligations for fixed rate obligations. These swaps attempt to 15 percent ofits 2000 requirements. Additional forward coveage reduce the impact of interest rate fluctuations. To qualify for is currently under review and will be firmed up during the next hedge accounting, derivatives must meet the following critwia few months. For further information see Gas Business Outlook-initially: 1) the item to be hedged exposes the enterprise to inter-Application of SFAS 71in the MD&A. est rate risk; and 2) the daivative reduces that exposure and is designated as a hedge. The hedged amounts are used to measura Gas Proceedings: In 1995, the MPSC issued an order regardmg a interest to be paid or recehed and do not represent the exposure $44 million (excluding interest) gas supply contract pricing dis. to principal loss. The difference between the amounts paid and pute between Consumes and certain gas producers. The orda received under the swaps is accrued and recorded as an adjust-stated that Consumes was not obligated to seek prior approval of rnent to interest expense over the life of the hedged agreement. market-based pricing changes that Consumers implemented under the contracts in question. The Court of Appeals upheld the Derivative instruments contain credit risk if the countapar-MPSC orda. The producers sought leave to appeal with the ties, including financial institutions, fail to grform under the Michigan Supreme Court. Their request is still pending. agreements. Consumes minimizes such risk by performing rman-Consumers believes the MPSC order correctly concludes that the cial credit reviews using, among other things, publicly available producers' theories are without melt and will vigorously oppose credit ratings of such counterparties. The risk of nongrformance any claims they may raise, but cannot predict the outcome of this by the counterparties is considered remote. Issue. Capital Stoda in 1996,4 million shares of 8.36 percent Trust Resolution of the issues discussed in this Note is not expected Preferred Securities were issued and sold through Consumas to materially affect Consumers' financial position, liquidity or Ibwer Company Financing L s wholly owned business trust con-results of oprations, solidated with Consumes. Net proceeds from the sale totaled $97 million. In September 1997,4.8 million shares of 8.2 percent Trust Preferred Securities were issued and sold through Consumers Energy Company Financing 11, a wholly owned business trust con-ShorteTerm Financings solidated with Consumers. Net proceeds from the sale totaled and Capitalization $116 million. Consumes formed both trusts for the sole purpose of issuing the tax deductible Trust Preferred Securities. Consumers' obligations with respect to the Trust Preferred Authorizathm: At December 31,1997, Consumers had FERC Securities unde the notes, under the indenture through which authorization to: 1) issue or guarantee up to $900 million of short-Consumers issued the notes, unda Consumers' guarantee of tha term securities through 1998; 2) issue, through Novembe 1998, Trust Preferred Securities, and unda the declaration by the $376 million of long-tam securities with maturities up to 30 trusts, taken together, constitute a full and unconditional guaran-years, for refinancing or refunding purposes; and 3) guarantee, tee by Consumers of the trusts' obligations unda the Trust through 1999, up to $25 million in loans made by othes, to resi-Preferred Securities. For additional information, see footnote (a) dents of Michigan for the purpose of making enegy-related home on the Consolidated Balance Sheets. 19 CONSUMERS ENERGY 1997 ANNUAL REPORT

4 in Septembe 1997, the proceeds from Consumas' 8.2 percent Under the provisions ofits Articles ofIncorporation at eu 'lYust Preferred Securities wee used to redeemed all outstanding December 31,1997, Consumm had $280 million of unrestricted shares of its $7.45, $7.68, $7.72 and $7.76 preferred stock for $120 retained earnings available to pay common dhidends. In January million. 1998, Consumes declared a $80 million common dhidend First Mortgage Bonds: Consumers secures its first mortgage payable in February 1998. bonds by a mortgage and lien on substantially all ofits property. In October 1997, Consumes returned $50 million of paid-in Consumers' ability to issue and sell securities is restricted by ce. capital to CMS Energy. tain provisions in its First Mortgage Bond Indenture, its Articles of Incorporation end the need for regulatory approvals to meet appropriate federallaw. COHHHitmeRtS RHd In early 1998, Consumers called for the March 1998 redemp-tion of $57 million agt.regate principal amount of its 7.5 percent COntm. geneieS First Mortgage Bonds due in 2001 and $62 million aggregate prin-cipal amount ofits 7.5 percent First Mortgage Bonds due in 2002. Electric Envimnmental Mr.tters: The Clean Air kt limits emis-In early 1998, Consumes issued $250 million of senior notes cions of sulfur lioxide and nitrogen oxides and requires emissions due February 1,2008, at an inteest rate of 6.375 percent. The monitoring. Consumm' coal-fueled electric geneating units burn senbr notes are secured by a seies of Consumers' First Mortgage low-sulfur coal and are currently operating at or near the sulfur Bonds, issued contemporaneously in a similar amount. Proceeds dioxide emission limits that will be effective in the > var 2000. from the sale were added to the geneal funds of Consumes and During the past few years, in order to comply with the kt, applied to the payment, at maturity, of $248 million aggregate Consumers incurred capital expenditures totaling $46 million to principal amount of Consumers' 8.75 preent First Mortgage install equipment at catain generating units. Consumers esti-Bonds due February 15,1998. mates capital expenditures for in-process and proposed modifica-Iong-Term Bank Debt: Consumers has a $400 million unsecured, tions at other coal-fueled units to be an additional $30 million by variable rate, long-term loan. At Decemba 31,1997 and 1996 the the year 2000. Management believes that these expenditures will loan carried a weighted aveage interest rate of 6.4 percent and n t materially affect Consumers' annual operating costs. 6 preent, respectively. In 1996, an existhig interest rate swap Consumers currently oprates within all Clean Air kt require-ended and Consumers entered into a new $125 million interest ments and meets current ozone and particulate emission limits. rate swap agreement, again exchanging variable-rate inteest for The kt requires the EPA to miew, periodically, the effectiveness fixed-rate interest to hedge a portion ofits long-term debt. This of the national air quality standards in preventing advase health swap agreement terminated in Novembe 1997. In Decembe affects. The EPA recently mised these standards. The misions 1997, Consumers entered into interest rate swaps of $400 million. may further limit small particulate and ozone related emissions. After taldng into account the effect of the swaps, the weighted Consmners supports the bipartisan effort in the U.S. Congress to average interest rate on the long-tem loan for the years ended delay implementation of the mised standards until the relation-December 31,1997 and 1996 was 6.2 percent and 6.1 percent, ship between the new standards and health improvements is respctively. established scientifically. 10 January 1998, two agreements to guarantee intest rates In October 1997, pursuant to recommendations from the for the issuance of future long-tem debt were executed. The first Ozone Transport Assessment Group and the requests of seveal anticipatory debt agreement is for $250 million at 5.5 percent Northeastern states, the EPA proposed that the State of Michigan which expires February 10,1998, and the second agreement is for impose additional nitrogen oxide limits on fossil-fueled emittes, $200 million at 5.8 percent with an expiration of March 16,1998. such as Consumers' generating units. The limits are an effort to In 1996, Michigan Gas Storage enteed into a $23 million reduce statewide nitrogen oxide emissions by 32 percent, as early secured, variable rate, seven-year term loan. At Decemba 31 as 2002. 'Ihe State of Michigan will have one year to review and 1997 and 1996 the loan had a weighted average interest rate of challenge the proposed recommendations, and one year afte that 6.8 preent and 6 preent, fspythply. In October 1997 Michigan t implement final requirements. It is unlikely that the State of Gas Storage entered into a $15 milhon interest rate swap agree-Michigan will establish Consumers' nitrogen oxide emissions ment at 6.2 pacent which terminates on September 30,2003. reduction target until mid-to-late 1999. Until this state-mandated Afts taking into account the effect of the swap, the weighted target is known, the estimated cost of compliance is subject to average intsest rate on the long-term loan fer the year ended significant mision. Decembe 31,1997 was 6.4 preent. The preliminary estimate of capital costs to reduce nitrogen oxide related emissions for Consumes' fossil-fueled geneating Other: Consumers has a total of $131 million of long-term pollu-units is approximately $175 million, plus an additional amount tion contn I revenue bonds outstanding, secured by irrevocable totaling $10 million per year for 20 years for opration and main-letters of credit or fimt mortgage bonds. These bonds had a tenance costs. Consumers may need an equivalent amount to I weighted average interest rate of 5.1 percent at Decembe 31,1997. 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS comply with the new small particulate standards. The Stete of Capital Expenditures: Consumers estimates capital expendi-Michigan objected to tha extent of the proposed EPA emission tures, including new lease commitments, of $435 million for 1998, reductions. If the State of Michigan's position were to be adopted $380 million for 1999, and $370 million for 2000. For furtha infor-by the EPA, costs could b e less than the current estimated mation, see the Capital Expenditures Outlook section in the amounts. MD&A. Under the Michigan Natural Resources and Emironmental Commitments for Coal and Ges Supplies: Consumers entered Protection kt, Consumers expects that it will ultimately incur into coal sulply contracts with various suppliers for its coal-fired investigation and remedial action costs at a number of sites, generating stations. These contracts have expiration dates that Nevertheless, it believes that these costs are proprly recoverable range from 1998 to 2004. Consumes contracts for 50 - 75 preent in rates under current ratemaking policies. of its annual coal requirement, totaling $250 million, in 1997 (56 Consumers is a so called potentially responsible party at sev-percent was under long-term contracts). Consumers surplements wal contammated sites administaed under Superfund. Superfund its long-term contracts with spot-market purchases to fulfill its liability is joint and several; along with Consumers, many othe coal needs. creditworthy, potentially responsible parties with substantial Consumers entered into gas su; ply contracts and transporta-assets cooperate with respect to the indhidual sites. Based upon tion contracts with various suppliem for its natural gas business. past negotiations, Consumers estimates that its share of the total These contracts have expiration dates that range from 1998 to liability for the known Superfund sites will be between $3 million 2003. Consumerv 1997 gas requirements totaled 250 bcf at a cost and $9 million. At December 31,1997, Consumers has accrued $3 of $694 millior,80 percent of which was under long-term con-million for its estimated Suprfund liability, tracts for one year or more. As of the end of 1997, Consumes had Gas Emimamental Matters: Under the Michigan Natural 50 percent elits 1998 gas requirements under such long-term Resources and Emironmental Protection kt, Consumers expects contracts, and will supplement them with additional long-term that it will ultimately incur investigation and remedial action contracts and spot-market purchases. costs at a number of sites, includ.ing some 23 sites that formerly Other Various parties have sued Consumas relating to the effect housed manufactured gas plant facilities, even those in which it of so-called stray voltage on certain livestock. Claimants contend has a partial or no current owneship inteest. In 1998 Consumers that stray voltage results when low-level electrical cu: rents pre-plans to study indoor air issues at residences on somo sites and sent in grounded electrical systems are div rted from their ground water impacts or surface soil impacts at othe sites. On intended path. Consumes maintains a policy of investigating all sites where the company has received site-wide study plan customer calls regarding stray voltage and working with cus-approsals, it will continue to implement these plans. It will als tomers to address their concerns. It also has an ongoing mitiga-work toward closure of emironmental issues at sites as studies tion program to modify the savice of all customers with lh'estock. are completed. Data available to Consumers and its continued In Decemba 1997, the Michigan Supreme Court remanded for intenal review have resulted in an estimate for all costs related further proceedings a 1994 Michigan trial court decision that to investigation and remedial action for all 23 sites of between refused to allow the claims of over 200 named plainti!!s to be $48 million and $98 million. These estimates are based on undis-jo ned in a single action. The trial court dismissed all of the plain-counted 1998 costs. At Decemba 31,1997, Consumers has tiffs except the first-named plaintiff, allowing the othes to re-file accrued a liability of $48 million and has established a regulatory separate actions. Of the original plaintiffs, only 40 re-filed sepa-asset for approximately the same amount. Any significant change rate cases. All of those 49 cases have been resched. The Michigan in assumptions, such as remediation technique, nature and Supreme Court remanded the matter, finding that the propr extent of contamination, and legal and regulatory requirements' remedy for migoinder was not dismissal, but to automatically could affect the estimate of remedial action costs for the sites. allow each case to go forward smarately. Consumers filed a According to an MPSC rate order issued in 1996, Consumes will motion for reconsideation with the Michigan Supreme Court, defer and amortize, ova a period of ten years, emironmental which was denied. Consumers intends to vigorously defend these clean-up costs above the amount currently bemg recoveed m cases, but is unable to predict the outcome. As of Decembe 31, rates. Rate recognition of amortization expense will not begin 1997, Consumers had 12 individual stray voltage lawsuits, unre-until afta a prudence review m a general rate case. The order lated to the cases above, awaiting trial court action, down from 22 authorizes current recovery of $1 million annually. Consumers is lawsuits as reported at year end 1996. continuing discussions with catain insurance companies regard-in October 1997, two independent power producers sued ing coverage for some or all of the costs that it may incur for Consumes and CMS Energy in a federal court. The suit alleges these sites. antitrust violations relating to contracts which Consumes entered into with some of its customers and claims relating to pown facilities. The plaintiffs claim damages of $100 million (which a court can treble in antitrust cases as provided by law). The transactions of which plaintifh complain have been regu-21 CONSUMERS ENERGY 1997 ANNU AL REPORT

Icted by, and are subject to, thejurisdiction of the MPSC. In Corporation has been contracted to design and fabricate trans. Novemhar 1997, Consumes and CMS Energy filed a motion for portable casks for bcth Palisades and Big Rock. These casks will summaryjudgement and/or for dismissal of the complaint filed by support the off-load of the cask with minor flaws, continued oper-the plaintiffs. Consumers believes the lawsuit is without meit ation of Palisades and the decommissioning of Big Rock. and will vigorously defend against it, but cannot predict the out-Consumes maintains insurance coverage against propety come of this matter. damage, debris removal, personal injury liability and othe risks in addition to the matters disclosed in these Notes, Consumes that are present at its nuclear geneating facilities. Consumers and certain ofits subsidiaries are parties to certain lawsuits and also maintains coveage for replacement power costs during pro-administrative proceedings before various courts and govenmen-longed accidental outages at Palisades. Insurance would not tal agencies arising from the ordmary course of business. Dese cove such costs during the first 17 weeks of any outage, but lawsuits and proceedings may involve pesonal injury, property would cover most of such costs during the next 58 weeks of the damage, contractual mattes, emironmental issues, fedwal and outage, followed by reduced coveage to 80 percent for two addi-state taxes, rates, licensing and othe matters. tional years, if cetain loss events occur at its own or othe Consumers has accrued estimated losses for cetain contin. nuclear plants similarly insured, Consumes could be required to gencies discussed in this Note. Resolution of these contingencies pay maximum assessments of $19 million in any one year to is not expected to have a material adverse impact on Consumes' Nuclear Electric Insurance Ltd; $79 million per event under the ilnancial position, liquidity, or results of operations. nuclear liability secondary financial protection program, limited to $10 million per event in any one year; and $6 million if nuclear workers claim bodily irdury from radiation exposure. Consumes consides the possibility of these assessments to be remote. 7 Matters Nuclear ne NRC,equires Consumes to make cetain caicuiations and report to it on the continuing ability of the Palisades reactor ves-sel to withstand postulated pressunzed themal shock events dur-ing its remaining license life, consideing the embrittlement of Consumers filed updated decommissioning information with the MPSC in 1995 that estimated decommissioning costs for Big Rock reactor vessel materials over time due to opeation in a radioac-tive environment. Based on continuing analysis of data in and Palisades. In April 1996, the MPSC issued an orde in Decembe 1996 Consumes received an interim Safety Evaluation Consumers' nuclear decommissioning case, which fully supported Report from the NRC indicating that the reactor vessel can be Consumers' request and did not change the oveall surcharge rev-safely opeated through 2003 before reaching the NRC's screening enues collecteo irum ?tsil customes. The MPSC ordered criteria for reactor embrittlement. Consumes believes that with Consumers to file a report e the adequacy of the surcharge rev-fuel management designed to minimize embrittlement, it can enues with the MPSC at three-year intsuls begmning in 1998. operate Palisades to the end of its license life in the year 2007 Consumes filed a revision to its Ibst Shutdown Acthities Report (formerly decommissioning rgort) with the NRC to reflect the without annealing the reactor vessel. Nevetheless, Consumers will continue to monitor the matta. shutdown of Big Rock. Big Rock closed permanently on August 29,1997 because man-agement determined that the plant would be uneconomical to oprate in an increasingly competitive emironment. Consumes originally scheduled the plant to close May 31,2000, at the end of the plant's operating license. Plant decommissioning began in September 1997 and may take five to ten years to return the site to its original condition. The earlier than planned closure of the plant and the reopening of the South Carolina Barnwell facility to recehe low level radioactive waste have changed the method of decommissioning from the safe storage option to immediate dis-mantlement. This change could have an impact on the esthmated decommissioning cost which is required to be updated in a filing eith the MPSC by March 31,1998. For further information on nuclear mattes, see Note 2. Consumers has loaded 13 dzy storage casks with spent nuclear fuel at Palisades. Consumers plans to load five additional casks at Palisades in 1999 pending approval by the NRC. In June 1997, the NRC approved Consumes' process for unloading spent fuel from a cask at Palisades previously discovered to have minor weld flaws. Consumes intends to transfer the spent fuel to a new transportable cask when one is available. Westinghouse 22

1 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 SupplementalCash Years Ended December 31 1997 1996 1995 FlowInforination current fede,anncome taxes $i39 liO2 8 76 Deferred income taxes 23 58 67 D*f""'d IM "*' (10) (30) (30) For purposes of the Consolidated Statements of Cash Flows, all $152 8150 $133 highly liquid investments with an original maturity of three months or less are considsed cash equivalents. Other cash flow operating $160 $162 4145 activities and non< ash investing and financing aethities wee: Other (8) (12) (12) 8152 8150 8133 la MWenw Years Ended December 31 1997 1996 1995 The principal components of Consumas' deferred tax assets (liabilities) recognized in the balance sheet are as follows: cash transactions Interest paid (net of amounta capitalized) 8166 8143 8158 income taxes paid (net of refunds) 116 119 43 December 31 1997 1996 Non<aak transacths Nuclear fuel placed under capital lease 8 4 $ 28 8 26 Property 8 (563) 8 (556) Other assets placed under capitalleases 7 3 6 l'nconsolidatedinvestments (246) (239) Capitalleases rennanced 21 lbstretirement benefits (Note 12) (156) (165) Abandoned Midland project (33) (40) Changes in other assets and liabilities as shown on the Employee benefit obligations Consolidated Statements of Cash Flom are described below: (includes postretirement benents of $153 and $165)(Note 12) 184 195 inMmunu Ibwer purchases (Note 3) 66 82 AMTcarryforward 74 93 Years Ended December 31 1997 1996 1995 Sale of receivables, net 8 17 4 23 8 20 kcounts recetvable 31 12 (55) kerued revenue 20 (49) 1 Gross deferred taxliabilities $(1,372) $(1,375) Inventories (10) 8 54 Gross deferred tax assets 706 75b & counts payable (30) 17 48 8 (666) 8 (619) kerued refunds 4 (14) (4) other current assets and liabilities, net 17 (14) 28 The actual income tax expense difTers from the amount com-Non<urrent deferred amounts, net 35 20 (8) puted by applying the statutory fedeal tax rate to income before 8 84 83 8 84 income tales as follows: in Millwns Years Ended December 31 1997 1996 1995 9 Taxes Income Netincome $ 321 8296 8255 income tax expense 162 150 133 ereferred securities distributions (12) (8) PretaxIncome 461 438 888 f*

8 Consumers and its subsidiaries file a consolidated fedeal income tax return with CMS Energy. Income taxes are generally allocated increase (decrease)in taxes from based on each company's separate taxable income Consumers Capitallzed overheads previously practices full defered tax accounting for temporary differences flowed through 5

5 6 Differences in book and tax depreciation as authorized by the MPSC. not previously deferred 8 6 6 Consumers used ITC to reduce current income taxes payable, ITc amortization (10) (10) (10) and defes and amortizes Il0 ove the life of the related property. Affiliated compardes' dividends (6) (6) (6) Any AMT paid geneally becomes a tax credit that Consumes can Other, net (6) 2 2 i l carry forward indefinitely to reduce regular tax liabilities in ktualincome tax expense 8 152 8 150 $ 133 future periods when regular taxes paid exceed the tax calculated I am for AMT. The significant components of income tar e tense (ben-1 efit) consisted of: 4 ( l 23 con 6UMERS ENERGY 1997 ANNUAL REPORT

Y 10 IRStrHInentS pjggggjg} restricted shares are subject to achievement of specified levels of total shareholda return and are subject to forfeiture if employ-ment taminates before vesting. If performance objectives are exceeded, the plan provides additional awards. Restricted shares The carrying amounts of cash, short-tem investments and cur-vest fully if control of CMS Energy changes, as defined by the rent liabilitios approximate their fair values due to their short-plan. At December 31,1997,229,601 of the 310,351 shares of term nature. The estimated fair values oflong-tam investments restricted CMS Energy Common Stock outstanding are subject to are based on quoted market prices or,in the absence of speciSc performance objectives. At Decemba 31,1997 all of the 19,791 market prices, on quoted market prices of similar investments or restricted shares of Class G Common Stock outstanding are sub-otha valuation techniques. The carrymg amounts of all long-term ject to performance objectives. investments, except as shown below, approximate fair value. Unda the plan, stock options and stock amreciation rights are granted with an exacise price equal to the closing market y, price on each grant date. Options are exercisable upon grant and tweemtwr 31 1997 1996 expire up to ten years and one month from date of grant. The sta-Available-fer-Amorthed Fair Unrealked Amarthed Fair UnruJhed tus of the restricted Stock and options granted to Consumas' key 6" 6*'" employees unda the Performance incentive Stock Plan follows. of CMS Energy 8 43 $129 8 86 8 43 $ 09 8 56 Restrict Nuclser decommissioning Welghted investmentsN 405 486 81 351 386 35 CMS Energy Number Number Average Common Stock ofShares ofShares Exercise Price M Consumers classfes its unrealized gains and lasses on nuclear decennmis-

'*'*"#"E **

5*" 'l# sioning investments in accumulated depnenahon. 'lhe carrying amount oflong-tam debt was $1.4 billion at Exercised or h, sued (27,533) (93,333) 8 15.64 Decemba 31,1997 and $1.9 billion at Decemba 31,1996, and the Forfeited (16,807) fair values wae $1.4 billion and $1.9 billion, respectively. For Expired (51,000) $27.M held-to-maturity securities and related-party financial instru. Ntstanang at g gl,199 269,053 805,750 8 24.93 men 4 sdok 2. Granted 84,760 138,520 8 30.63 Exercised or issued (50,925) (169,525) $ 21.72 Forfeited (25,522) 11 CORipenSatiOR Executive Incentive ,,t,T, "d "' ") pecember Si,im 277,3a m,745 8 26.55 Granted 165,942 M2.352 8 35.97 Exercised or Issued (73,375) (37/,317) $ 27.21 Consumes participates in CMS Enagy's Performance incentive forfeited (59.582) Stock Plan. Unda the plan, restricted shares of Common Stock of outstanding at December 31 m7 310.351 537,m 8 28.28 CMS Energy, stock options and stock appreciation rights may be granted to key employees based on their contributions to the suc-Restricted cessful management of CMS Enegy nnd its subsidiaries. Awards Stock options under the plan may consist of any class of Common Stock of CMS Mghted Energy. Catain plan awards are subject to paformance-based I,U Nu o, stocg of Sh ofSh Excre nee business critaia. The plan resaves for award not more than outstanding at three percent of CMS Enagy's Common Stock outstanding on January 1,1995 ~. January I each year, less (1) the numba of shares of restricted Granted 6,924 10.000 8lt88 Common Stock awarded and (2) Common Stock subject to @tstanding at e 31, m s 2 ,e options granted under the plan during the immediately preceding four calendar years. Any forfeitures of shares previously awarded outstanding at increase the numba of shares available for grant. At Decemba December 31,1996 16,347 21,000 8 17.88 31,1997, awards of up to 749,889 shares of CMS Enagy Common Granted 8,784 12,000 8 20.24 Stock and 192,387 shares of Class G Common Stock may be Exercised or issued (1,385) (5,000) 8 17.88 issued. Forfeited (3,955) Restricted shares of Common Stock are outstanding shares 0"tj* ding',1997 ,be 31 19.791 28,000 $ 18.89 with full voting and dividend rights. These awards vest ova five l years at the rate of 25 percent peryear afta two years. The 24

. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about CMS g g gggg Enagy Common Stock options outstanding at December 31,1997: Benefits Number Weighted Weighted Range of ofShares Average Average Postretirement Benefit Plans Other Dan Pensions: Consumers Exweise Prices Outstanding Remaining Life Exercise Price provides certain health care and life insurance benefits for r ewe @&nk Suh@d 13 7 192,800 2.62 years $20.59 employees may become eligible for such benefits if they attain $26.25 - 433.88 220,680 5.16 years $30.67 retirement status while working for Consumes or its subsidiaries. s35.94. s38.on 124.800 9.65 years $35.98 Consumers adopted the required accounting for these benefits $17.13 $36.00 537,780 5.29 years $28.28 effective in 1992 and recorded a liability of $466 million for the ne range of exercise prices for Class G Common Stock accumulated transition obligation and a corresponding regulatory options is $17.88 to $23.31; the weighted average remalmng life is asset for anticipated recovay in utility rates (see Note 16). The 8.8 years. MPSC authorized recovery of the electric utility portion of these The weighted average fair value of options granted for CMS costs in 1994 ova 18 years and the gas utility portion in 1996 over Enagy Common Stock was $6.38 in 1997, $6.94 in 1996, and $5.37 16 years. During 1995, the FERC granted Consumers a waiver of a in 1995. De weighted avnage fair value of options granted for three-year filing requirement for cost recovey with respect to its Class G Common Stock was $1.87 in 1997, $1.59 in 1996 and $1.57 wholesale electric business. At December 31,1997, Consumes in 1995. Fair value is estimated using the Black-Scholes model, a had recorded a regulatory asset and liability of $7 million. By mathematical formula used to value options traded on securities early 1997, the FERC had authorized recovay of these costs. exchanges, with the following assumptions: Consumers funds the benefits using extenal Voluntary Employee Beneficiary Associations. Funding of the benefits coincides with Consumas' recovey in rates. Years Ended December 31 1997 1996 1995 Retiree health care costs at December 31,1997 are based on MS Energy Omem M Opdons the assumption that costs would increase 6.5 percent in 1998,

"*[

then decrease gradually to 5.5 percent in 2004 and thereafter. He 2 health care cost trend rate assumption significantly affects the Expected dMdend rate 8.30 8.27 8.24 amounts reported. For example, a one percentage point increase Expected optionlife 5 pars 6 years 5 years in each year's estimated health care cost assumption would class G casson w opuans increase the accumulated postretirement benefit obligation at Risk.freeinterest rate 6.06% 6.63% 6.17% Expected stock price volatility 18.05% 16.19% 16.19% December 31,1997 by $81 million and the aggregate of the se-Expected dMdend rate $.31 8.295 8.295 vice and interest cost components of net pwiodic postretirement Expected option life 5 pars 5 years 5 years benefit costs for 1997 by $8 million. Consumers applies Accounting Principles Board Opinion 25 and related intspretations in accounting for the Performance Years Ended December 31 1997 1996 1995 Incentive Stcck Plan. Since stock options are granted at market Weighted average discount rate 7.50% 7.75% 7.50% price, no compensation cost has been recognized for stock Expectedlong-term rate of return n plan assets 7.00% 7.00% 7.00% options granted unda the plan. If compensation cost for stock optiom had been detamined in accordance with SFAS 123' Net postretirement benefit costs for the health care benefits Accountingfor Stock-Based Compensation, Consumers' net and life insurance benefits consisted of: income would have decreased by less than $1 million for 1997, uwum 1996 and 1995. The compensation cost charged against income for restricted stock was $2 million in 1997, $1 million in 1996, and Years Ended December 31 1997 1996 1995 $2 million in 1995. service cost s9 s 12 s 11 Interest cost 40 41 30 Actual return on assets (37) (14) (4) Net amortization and deferral 25 8 1 Net postretirement benent costs 8 37 8 47 8 47 The funded status of the postretirement benefit plans for the heakh care benefits and life insurance benefits is reconciled with the liability recorded at Decemba 31 as follows: M CONSUMERS ENERGY 1997 ANNUAL REPORT

- =

'Ihe funded status of the CMS Energy Pension Plan and 1997 1996 Consumers SERP reconciled to the pension liability recorded ktuarial present value of estimated benefits at December 31 was: Retirees s 321 s327 h"" Elir,1ble for retirement 67 65 ktive (upon retirement) 182 183 I&nsion Plan SERP kcumulated postretirement 1997 1996 1997 1996 benefit obligation 670 576 ktuarial present value Plan ansets (primarily stocks, bonds and money market investments) at falt value 219 134 Vested 8 648 s 504 s 12 8 13 kcumulated postretirement benefit obligation Non4ested 79 72 less than (in excees of) plan asets (351) (44I) Unrecognized prior service cost (1) 6 kcumulated benefit obligation 627 576 12 13 Unrecognized nel gain from experience Provision for future pay increases 165 158 6 8 different than assumed (84) (37) Projected benefit obligation 792 734 18 21 Recorded liability s(486) 8(4 72) Plan assets (primarily stocks and bonds, including 4153 in 1997 The health care portion of the accumulated postretirement and 4117in 1996 of CMS Energy 882 m benefit obligation is $554 million and $500 million at Decemixr ) p 31,1997 and 1996, respecth'ely. than (in excess of) plan assets 90 45 (18) (21) U"' 8" Supplemental Executhe Retirement Plan: Certain management fron h[n than employees qualify to participate in the SERP. SERP benefits, assumed (157) (99) 3 I which are based on an employees years of service and earmngs as Unrecognized prior service cost 35 39 1 1 defined in the SERP, are paid from a trust established in 1988. IJnrecognized nei transition Because the SERP is not a qualified plan unda the Internal (*"se0 bugation (22) (27) Recorded liability s (54) s(42) s(14) s(19) Revenue Code, earnings of the trust are taxable and trust assets are included in consolidated assets. At Decemba 31,1997 and Beginmng January 1,1986, the amortization paiod for the 1996, trust assets wac $24 million and $18 million, respectively, Ibnsion Plan's unrecognized net transition asset is 16 years and and were classified as other non<urrent assets. 11 years for the SERP's unrecognized net transition obligation. Defined Benefit Pension Plan: A trusteetl, non-contributory, Prior savice costs are amortized on a straight-line basis over the defined benefit Ibnsion Plan covers substantially all employees, average remaining smice period of active employees. The benefits are based on an employee's years of accredited sa' Defined Contribution Plan: Consumers provides a defined contri-vice and earnings, as defined in the plan, during an employeds bution 401(k) plan to all U.S. employees of CMS Enagy and its five highest years of earnings. Because the plan was fully funded, subsidiaries which are at least 80 percent owned and have no contributions were made in 1997 and 1996. A contribution of adopted the plan. Consumers will match at least one half of the $9 million was made in 1995. Amounts presented below for the amount contributed by employees up to 3 pacent of their salary. Ibnsion Plan include amounts for employees of CMS Energy and These contributions to the plan are invested in CMS Enagy non-utility a!!iliates which wae not distinguishable from the Common Stock. Amounts charged to expense for this plan were plan's total assets. $18 million in 1997, $17 million in 1996 and $16 million in 1995. Years Ended December 31 1997 1996 1995 Discount rate 7.50% 7.75% 7.50% Rate of compensation increase 3.75% 4.00% 450% A h8 SOS Expected long-term rate of return on asseta 9.25% 9.25% 9.25% Net Ibnsion Plan and SERP costs consisted of: Consumas leases various assets, including vehicles, rail cars, air-craft, construction equipment, computa equipment, nuclear fuel

- =

and buildings. Consumm' nuclear fuel capital leasing arrange-Years Ended December 31 1997 1996 1995 ment expires in Novemba 1999, yet provides for additional one-service cost s 25 s 25 s 22 year extensions upon mutual agreement by the parties. Upon ta-1 Interest cost 60 57 54 mination of the lease, the lessor would be entitled to a cash pay-ktual return on plan assets (164) (63) (168) ment equal to its remaining investment, which was $47 million as Net amortization and deferral so (6) 103 of December 31,1997. Consumers generally is responsible for pay-Net periodic pension cost s 14 s 13 s 1I ment of taxes, maintenance, operating costs, and insurance. 26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Minimum rental commitments under Consumers' non-cance-b d8le l table leases at December 31,1997, wae: Segments in umms Capital Operating The Consolidated Statements of Income show operating revenue g,,,, g,,,, and pretax operating income by segments. These amounts include earmngs from investments accounted for by the equity method of 1998 8 42 84 $49 million, $42 million and $39 million for 1997,1996 and 1995, 3999 44 3 2000 13 a respectively. Other segment information follows: In Mmmu 2002 9 2 2003 and thereafter 7 15 Years Ended December 31 1997 1996 1995 Total minimumlease payments 127 8 30 Depreciation, depletion and amortization Electric 8 296 8 282 8 272 ~ Lessimputed interest ,,,,1,,9-Gu 93 87 83 Present value of net minimum Other 2 2 2 8 891 8 371 8 357 less current portion 34 Non-current portion 8 74 Identifiable assets Electric 4> $4,472 $4,505 84,522 Consumers recovers lease charges from customers and accord-c,9; 1,644 1,709 1,690 ingly charges payments for its capital and operating leases to Other 833 811 742 operating expense. Opwating lease charges, including charges to $6,949 87,025 86,954 clearing and other accounts for the year., ended December 31, C "d"*"

1997,1996 and 1995, were $3 million, $3 million and $7 million,
- [I 8 zu 8 n' 0 8 328 respectively.

Gas 116 137 126 Capital lease expenses for the years ended December 31,1997, 8 371 8 447 8 454 1996 and 1995 wee $43 million, $45 million and $45 million, respectively. Included in these amounts for the years ended 1997, a> Amounts inctwe an attributedportion grConsumers'oner common assets to boa ne electric andgas utua t businmes. r 1996 and 1995, are nuclear fuellease expenses of $25 million for each year-mincides capaat leasesfor nuclearfuel and oarr a. sets and electric Dsu costs (see Consolidated Statements qrCash Flows). Amounts also include an attributed portson qfConsumers' capital e.xpendituresfor plant and equip-ment common to both the electric and gas utslita businesses. 1"f, JointlyOwnedUtility f Facilities 1 Effects of the Ratemaking g gggg Consumers is responsible for providing its share of financing for thejointly owned facilities. The direct expenses of thejoint plants are included in Consumers' operating expenses. The following The following regulatory assets (liabilities), which include both table indicates the extent of Consumas' investment in jointly current and non-current amounts, are reflected in the owned utility facilities: Consolidated Balance Sheets. These assets represent probable la #*=* future revenue to Consumers associated with certain incurred December 31 1997 1996 costs as these costs are recoveed through the ratemaldng Net lamtment process. These costs are being recoveed through rates over peri-Ludington 51 percent 8112 8116 ods of up to 15 years. Campbelll' nit 3 93.3 percent $14 329 An accounting standard, effective 1996, requires impairment Transmissionlines various 84 35 losses on long-lived amts to be recognized when an asset's book "I" d*" value exceeds its expected future cash flows (undiscounted). The 8 standard also imposes stricter criteria for retention of regulatory-C l1 Unit 3 265 created assets by requiring that such assets be probable of future Transmission fines 14 14 recovery at each balance sheet date. There was no impact on financial position or results of operations upon adoption because management believes these assets will be recovered. For further 27 CONSUMER $ ENERGY 1997 ANNUAL REPORT

e' discussion, see Outlook - Application of SFAS 71 in the MD&A. Balance Sheets (unaudited) la Millwns in Millkms December 21 1997 1996 December 31 1997 1996 Assets Postretirement benefits (Note 12) $ 429 8 460 Current assetsIO 8 362 8 316 Income taxes (Note 9) 172 158 Property, plant and equipment, net 1,820 1,889 Abandoned Midland project 93 !!3 Other assets 169 159 Manufactured gas plant sites (Note 6) 47 47 82,351 82.364 I;"M deferredcosts 46 60 Uranlum enrichment facility 22 23 IJabilities an.d Partner # Equity Ludington Fish Settlement 12 14 Current liabilities 8 285 8 235 Other 16 43 tong term debt and other 8 D-currentliabilities/<1 1,789 1,930 Total regulatory assets 8 837 8 918 Partners'equityid> 277 199 Income taxes (Note 9) 8(226) 8(224) 82,351 82,364 DSM deferredrevenue (24) (25) Total regulatory liabilities 8(256) 8(249) (a)Rewnuefrom Consumm totaled $609 million, $598 miukm and $571 mil-tionfor 1997,1996, and 1995, respectinly (HReceimblesfrorn Consumers totaled $54 miukm and $52 miRion, at Decernber 31,1997and 1994 nspectiwly 17 Summarized Financial <.,ryg i,,h, mo b,n#ciary <an..,,ru,,,ha,.,

usso,,n a uy.

term dinctfInance lease with the lessee, MG'1%rtnership. CMS Holdings Information Of Significant hadsa a4 wownmhipi~tinruuato er*,supnaa 1996, lease obligations $$1.52 biuion and $1.58 biuion, nspectiwig um Related Energy Supp.h,er -a to m - t-CuS uang, *- <* i,*-st aa,4neira portionfor the 1997 lease payments was $62 rnillion and $28 minion, respectinly andfor the 1996 leasepayments was $64 miRion and $25 mil. Under the PPA with the MCV Partneship discussed in Note 3, Inm, mi= etinly the lease payments sert *e $1.0 binion and $1.1 binion in "*"""'" d *"""r"Mwk debt a secumi by the MCYPartnership > vna as voeumba31,1997and1994 mpn. Consumers' 1997 obligation to purchase electric capacity from tiwiy 4the ownertrust the MCV Partnership was 15 pacent ot Consumas' owned and lease obligations, assets, and operating smnues. ror 1997 and 199g the Contracted capacity. Summartzed financial information ot the owner-trust made debt rauments (including intmst) q$192 miukm. MCV Pattnership follows: rum arningsfor 1997, mg and 1995 um a minion, $17 minion, and $14 minion, respectinly

" (

ri3 CSfSMidland> recorded innstn.ent in the MCVPartnership includes capi- ,, ym talized intmst, which is being amortized to erperue oter the IVe gits inwstment in the MCVPartnership. Cownants contained infinancing Years Ended Decembe 31 1997 1996 1995 agm ments prohibit the MCVPartnershipfrom paying distributions until Operating revenueIs> $652 4645 8 618 catainAnaW test m7ainments an met Cwumm dus not anheipate Operating extenses 435 417 386 Operating income 217 228 232 Othee expense, net 154 162 171 Net income tefore cumulative effect of cocounting change 63 66 61 Cumulative effect of change in method of accounting for property tax 15 Net income 8 78 8 6F $ 61 28

l To Consumers Energy Company: We have audited the accompanying consolidated balance sheets and consolidated statements of long-term debt and preferred indeMnde stock of Coxsuuens Extnor Courisv (a uichigan corpora-tion and wholly owned subidiary of cms Energy Corporation) and subsidiaries as of December 31,1997 and 1996, and the related consolidated statements of income, common stockholda's equity, and cash flows for each of the three years in the period COU aS ended December 3i, i997. rhese rmanciai statements are the responsibility of the Company's management. our responsibility is to express an opinion on these fmancial statements based upon our audits. We conducted our audits in accordance with geneally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whetha the fmancial statements are free of mataial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and signifi-cant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audits pnnide a reasonable basis for our opinion. In our opinion, the financial statements refered to above present fairly, in all material respects, the fmancial position of Consumes Energy Company and subsidiaries as of Decembe 31,1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1997 in conformity with generally accepted accounting principles. 0._ L.S Detroit, Michigan, January 26,1998. i 1 29 CONSUMERS ENERGY 1997 ANNUAL REPORT

$ ELECTED FINANCIAL INFORMATION 1997 1996 1995 1994 1993 Opwating revenue (in millions) ($) 3,769 3,770 3,511 3,356 3,243 i Netincome (in millions) ($) 321 296 255 226 198 Netincome available to common stockholder (in millions) ($) 284 260 227 202 187 Cash from operations (in millions) ($) 758 672 642 598 403 Capital expenditures, excluding capital 1:ase additions and DSM (in millions) ($) 360 410 414 447 451 Total assets (in millions) ($) 6,949 7,025 6,954 6,809 6,551 Long-term debt, excluding current maturities (in millions) ($) 1,369 1,000 1,922 1,953 1,839 Non-current portion of capital leases (in millions) ($) 74 100 104 108 106 Totalpreferred stock (in millions) ($) 238 S56 356 356 163 Tbtal preferred securities (in millions) ($) 220 100 Number of preferred shareholdas at year-end 6,178 9,540 10,084 10,599 7,037 Book value per common share at year-end ($) 20.38 19.96 19.00 16.96 15.28 Return on average common equity (%) 16.8 15.9 15.0 14.9 14.8 l Return on assets (%) 6.2 5.7 5.3 4.9 4.7 i Number of full-time equivalent employees at year-end Consumers 8,640 8,938 9,262 9,409 9,495 Michigan Gas Storage 66 67 70 73 72 Electric statistics Sales (billions of kWh) 37.9 37.1 35.5 34.5 32.8 Customers (in thousands) 1,617 1,594 1,570 1,547 1,526 Average sales rate per kWh (t) 6.57 6.55 6.36 6.29 6.28 Gas statistics Sales and transportation deliveries (bef) 420 448 404 409 411 Customers (in thousands)(al 1,533 1,504 1,476 1,448 1,423 Average sales rate per mcf ($) 4.44 4.45 4.42 4.48 4.46 M Exludes qisystem transportalwn customers. QUARTERLY FINANCIAL INFORMATION in Millions 1997 (Unaudited) 1996 (Unaudited) Quarters Ended March 31 June 30 Sept.30 Dec.31 March 31 June 30 Sept.30 Dec. 31 Operating revenue (s) $1,127 $829 $799 $1,014 $1,143 $799 $798 $1,030 Pretax opwating income (s) $193 $137 $149 $154 $202 $130 $147 $132 Netincome $97 $63 $80 $81 $102 $58 $69 $67 Preferred stock dividends $7 $7 $6 $5 $7 $7 $7 $7 Preferred securities distributions $2 $2 $3 $5 $1 $2 $2 $3 Netincome available to common stockholder $88 $54 $71 871 $94 $49 $60 $57 M Amounts in 1996 um restataffor compamtite purposes. 30

GLOSSARY Certain terms used in the text and financial statements are dermed below. ABATE Consumers Gas Group MD&A SERP Association of Businesses The gas distribution, storage Management's Discussion Supplemental Executive AdvocatingTariffEquity and transportation busi-and Analysis Retirement Plan nesses currently conducted MicMgan Gas Swage Superfud AMT Alternative minimum tax by Consumers and Michigan Michigan Gas Storage Comprehensive Gas Storage Company, a subsidiary Environmental Response, AtW General Michigan Attorney Geneal Com1t of Appeals ofConsumers Compensation and Liability ACI Michigan Court of Appeals MPSC Detroit Edison Michigan Public Smice 'hansition Costs Billion cubic feet The Detroit Edison Company Commission Costsincurred by utilitiesin BigBad order to serve their cus-DOE MW tomasin a regulated pN plant, own by U.S. Department of Energy Megawatts monopoly emironment, but Cesmnas Dow W which may not be recover. The Dow ChemicalCompany Nuclear Regulatory able in a competitive emi-Btu Comnussion ronment because of cus-British thermal unit DSM Class G Conunon Stod Demand-side management Orders 888 and 889 tomasleaving their systems FERC fmalrulesissued on and ceasingto pay for their One of two classes of com-Enterprises mon stock of CMS Enegy, CMS Enterprises Company, a April 24,1996 costs. These costs could include owned and pur-no par value,which reflects subsidiary of CMS Enegy Outstanding Shares chased generation, regula-the separate peformance of FASB Outstanding shares of Class and G Common Stock the Consumes Gas Group Financial Accounting CleanAirAct Standards Board Palisades competition. Palisades nuclear pow & Federal Clean Air Act, as FERC t .h PMW Wh amended FedaalEnegy Regulatory plant, owned by Consumers Undivided beneficialinteest CMS Energy Commission PCBs in the assets of statutory CMS EnergyCorporation FMLP Iblychlorinated biphenyls business trusts, these inta-CMS Energy Common Stod First Midland Limited 1%nsion Plan ests have apreference with One of two classes of com-Partnership The trusteed, non<ontribu-respect to certain trust dis- ? tory, dermed benefit pension tributions ova the interests mon stock of CMS Energy, GCE plan of Consumers and of either CMS Energy or par value 8.01 por share Gas cost recovery CMS En&gy Consumes,as applicable,as CMS Holdings kWh owns of the common bene-ficialinterests of the trusts Comp y subsidiaryof The Power Purchase Consumers Ludington Agreement between Voluntary Emplope Ludington pumped storage Consumers and the MCV BeneficiaryAssociation CMS MMlad plant, jointly owned by Partnership with a 35-year Alegal entity, established CMS Midland Inc a sub-Consumers and Detmit tem commencingin under guidelines of the sidiary of Consumb Edison March 1990 Internal Revenue Code, CMS NOMECO mer through which the company CMS NOMECO Oil & Gas Thousand cubic feet Pm supply cost recovay forits employees or retirees can provide certain benefits Co., a subsidiary of Enterprises MCV Mty Securitization A natural gas-fueled,com-A financing authorized by c-w bined-cycle cogeneation statute in which the statuto-CMS En Co Stock f80 Y PTS rilyassumd flow of reveses and Class Common Stock Partnership from aportion of the rates Consumers MCV Partnership charged by utilities to their Consumes Enegy Company, Midland Cogenaation customersis set aside and a subsidiary of CMS Enagy Venture Limited Partneship pledged as securityfor the inwhich Consumers has a repayment of rate reduction 49 percent interest through bondsissued by a special CMS Midland purpose vehicle affiliated with such utilities 81 CONSUMERS ENERGY 1997 ANNUAL REPORT

h THE COMPANY CONSUMERS ENERGY BOARD OF DIRECTORS Consumas is the principal subsidiary of Hilliam T. McCormkk Jr.,53, Chairman of the Board of Consumers and Chairman CMS Energy Corporation. Consumers is of the Board and Chief Executive Omcer of CMS Energy. Michigan's largest natural gas and electri Mctor A lbling,50, h Chairman of the Board of Consumers and President utility, America's 12th-largest investor-and Chief Operating Omcer of CMS Enegy. owned electric company and fifth-largest gas distribution company. Consumers pro. John M. Deutch,59, institute Professor, Massachusetts Institute of Technology. Vides electricity and/or natural gas service James & Doderstadt,55, President Emeritus and Professor of Science in all 68 counties in Michigan's Lower and Engineering, The University of Michigan, and President, Michigan Mrtual Peninsula and saves 6 million people, Auto College, Ann Arbor, Mich. about two-thirds of Michigan's residents. hathlees R. Flahenty, 46, Senior Vice President, Product Architecture, 1998 ANNUAL MEETING MCI Communicadons Corporauon, wwn, RC. Consumers Energy's annual meeting is Earl a Men, M, President, M@ Inc, Grand Rapids, Mick scheduled for 10:30 a.m. Easten Daylight Milliam 11 Parfet,51, Cxhairman, MPI Research, Mattawan, Mich. Smings'llme on May 22,1998, at the

Dearborn Inn,

20301 Oakwood Blvd., Peny A. Pierre, 59, Professor of Dectrical Engineaing, Michigan State

Dearborn,

Mich. Meeting information will Unimsity, East 1,ansing, Mich be mailed to shareholders in April 1998. Kenneth Wlupple,63, Executive Uce President, Ford Motor Company, Chairman and Chief Executive Omcer, Ford Motor Credit and President, Ford ggggggyggg Lggyggg Financial Senices Group,

Dearborn,

Mich. Consumers' preferred securities are listed John B. Yaalnay,58, Chairman, Chief Executive Omcor and President, on the New York Stock Exchange under the GenCorp, Fairlawn, Ohio. symbols CMS A, B, I, J and K. Many finan-cial publications list the securities as 0FFICERS ConsPwr,with J and Kidentified as a H) prs.= William T. McCoraki Jr.,53, Chairmen of the Board Mctor 1 Myting,50,Mce Chairman of the Eoard GENERAL 0FFICES 212 West Michigan Avenue Jacinon,MI 49201 (517) 788-0550 Deid W. Joos,44, Executhe Vice President and President and Chief Executive Omcer, Dectric TRANSF AGENT AND REGISTRAR, Alan M. Wright, 52, Senior Mee President and Chief Financial 0meer Consumers Energy John W. Clark,53, Senior Vice President, Communications c nue Deid A. Mihdonis, 49, Senior Mee President and Geneal Counsel y Robert A. Fbnech,50, Senior Vice President, Nuclear, Fossil and TRUSTEE, FIRST MORTGAGE BONDS 11ydro operations The Chase Manhattan Bank liden Biolus, 47, Mee President, Retail Sonices 450ht 33rd Street NewYork,NY100012697 Dennis DaPra,55, Mee President and Controlla Kenneth C. Emery, 50, Vice President, Information Technology and TRANSFER AGENT AND PAYING Opwations Senices AGENT, REGISTERED FIRST MORTGAGE B0NDS Carl IJnpHa 51, Mee President, Dectric Transmission and Distribution Consumers Energy Doris F. Gehin, 43, Mee President and Treasurer 212 ht Michigan Avenue Jackson,MI 49201 Thomas A. McNish,60, Vice President and Secretary Timanas 1 Palmiamma, 47, Site Mee President, Palisades Pan! N. Preketes, 48, Vice President, Gas Operations 32

e 4 Bulk Rate U.S. Ntage PAID Consumen Energy 212 WestMichigan Avenue Jackson, Michigan 49201 l i l 1 ,}}

ML20217E910

Text

SUMMARY

Dearborn,

Dearborn Inn,

Dearborn,

Dearborn,

Dearborn,

Dearborn Inn,

Dearborn,

Dearborn,

Navigation menu

Search