CONSUMERS ENERGY CO, 10-Q, 1997-11-14

CONSUMERS ENERGY CO
10-Q, 1997-11-14
ELECTRIC & OTHER SERVICES COMBINED

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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- -------------------------------------------------------------------------

1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313)436-9200

1-5611 CONSUMERS ENERGY COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue,
Jackson, Michigan 49201
(517)788-0550

Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes X
No

Number of shares outstanding of each of the issuer's classes of common
stock at October 31, 1997:
CMS Energy Corporation:

CMS Energy Common Stock, $.01 par value 96,435,348
CMS Energy Class G Common Stock, no par value 8,154,928
Consumers Energy Company, $10 par value, privately
held by CMS Energy 84,108,789
<PAGE>
<PAGE> 2

CMS Energy Corporation
and
Consumers Energy Company

Quarterly reports on Form 10-Q to the Securities and Exchange Commission
for the Quarter Ended September 30,1997

This combined Form 10-Q is separately filed by CMS Energy Corporation and
Consumers Energy Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Energy Company makes
no representation as to information relating to any other companies
affiliated with CMS Energy Corporation.

TABLE OF CONTENTS

Page
Glossary ..............................................................3
PART I:
CMS Energy Corporation
Management's Discussion and Analysis..........................6
Consolidated Statements of Income............................21
Consolidated Statements of Cash Flows........................22
Consolidated Balance Sheets..................................23
Consolidated Statements of Common Stockholders' Equity.......25
Condensed Notes to Consolidated Financial Statements.........26
Report of Independent Public Accountants.....................36
Consumers Energy Company
Management's Discussion and Analysis.........................37
Consolidated Statements of Income............................49
Consolidated Statements of Cash Flows........................50
Consolidated Balance Sheets..................................51
Consolidated Statements of Common Stockholder's Equity.......53
Condensed Notes to Consolidated Financial Statements.........54
Report of Independent Public Accountants.....................61
PART II:
Item 1. Legal Proceedings.................................62
Item 6. Exhibits and Reports on Form 8-K..................62
Signatures.............................................................64

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<PAGE> 3

GLOSSARY

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

ABATE . . . . . . . . . . . . . . Association of Businesses Advocating
Tariff Equity
ABB . . . . . . . . . . . . . . . ABB Energy Ventures, Inc.
ALJ . . . . . . . . . . . . . . . Administrative Law Judge
Ames. . . . . . . . . . . . . . . Crescent and Ames gas gathering systems
and processing plant in Oklahoma.

bcf . . . . . . . . . . . . . . . Billion cubic feet
Big Rock. . . . . . . . . . . . . Big Rock Point nuclear power plant,
owned by Consumers
Board of Directors. . . . . . . . Board of Directors of CMS Energy
Btu . . . . . . . . . . . . . . . British thermal unit

Class G Common Stock. . . . . . . One of two classes of common stock of
CMS Energy, no par value, which
reflects the separate performance of
the Consumers Gas Group
Clean Air Act . . . . . . . . . . Federal Clean Air Act, as amended
CMS Electric and Gas. . . . . . . CMS Electric and Gas Company, a
subsidiary of Enterprises
CMS Energy. . . . . . . . . . . . CMS Energy Corporation
CMS Energy Common Stock . . . . . One of two classes of common stock of
CMS Energy, par value $.01 per share
CMS Gas Transmission. . . . . . . CMS Gas Transmission and Storage
Company, a subsidiary of Enterprises
CMS Generation. . . . . . . . . . CMS Generation Co., a subsidiary of
Enterprises
CMS Holdings. . . . . . . . . . . CMS Midland Holdings Company, a
subsidiary of Consumers
CMS Midland . . . . . . . . . . . CMS Midland Inc., a subsidiary of
Consumers
CMS MST . . . . . . . . . . . . . CMS Marketing, Services and Trading
Company, a subsidiary of Enterprises
CMS NOMECO. . . . . . . . . . . . CMS NOMECO Oil & Gas Co., a subsidiary
of Enterprises
Common Stock. . . . . . . . . . . CMS Energy Common Stock and Class G
Common Stock
Consumers . . . . . . . . . . . . Consumers Energy Company, a subsidiary
of CMS Energy
Consumers Gas Group . . . . . . . The gas distribution, storage and
transportation businesses currently
conducted by Consumers and Michigan Gas
Storage
Court of Appeals. . . . . . . . . Michigan Court of Appeals
CTM . . . . . . . . . . . . . . . Centrales Termicas Mendoza, an indirect
subsidiary of CMS Generation

Detroit Edison. . . . . . . . . . The Detroit Edison Company
Dow . . . . . . . . . . . . . . . The Dow Chemical Company

EDEER S.A.. . . . . . . . . . . . Empresa Distribuidora de Electricidad
de Entre Rios S. A., the electric
distribution utility in Entre Rios
Province, Argentina
ENDESA. . . . . . . . . . . . . . Empresa Nacional de Electricidad S.A.,
Chile's largest electric generation and
transmission company
Enterprises . . . . . . . . . . . CMS Enterprises Company, a subsidiary
of CMS Energy
EPS . . . . . . . . . . . . . . . Earning per share

FASB. . . . . . . . . . . . . . . Financial Accounting Standards Board
FERC. . . . . . . . . . . . . . . Federal Energy Regulatory Commission
FMLP. . . . . . . . . . . . . . . First Midland Limited Partnership

GCR . . . . . . . . . . . . . . . Gas cost recovery
Grand Lacs Partnership. . . . . . Grand Lacs Limited Partnership, a
marketing center for natural gas.
GTNs. . . . . . . . . . . . . . . CMS Energy General Term Notes
(Registered Trademark), $250
million Series A, $125 million Series
B, $150 million Series C and $200
million Series D.
GVK . . . . . . . . . . . . . . . GVK Industries, the owner of an
independent power project in
Jegurupadu, Andhra Pradesh, India in
which CMS Generation owns 25.25%

Jorf Lasfar . . . . . . . . . . . A 1,320 MW coal-fueled power plant in
Morocco, Africa, jointly owned by
CMS Generation and ABB.

kWh . . . . . . . . . . . . . . . Kilowatt-hour

Ludington . . . . . . . . . . . . Ludington pumped storage plant, jointly
owned by Consumers and Detroit Edison
Loy Yang. . . . . . . . . . . . . A 2,000 MW brown coal fueled Loy Yang A
power plant and an associated coal mine
in Victoria, Australia, in which
CMS Generation holds a fifty percent
ownership interest.

MCV Facility. . . . . . . . . . . A natural gas-fueled, combined-cycle
cogeneration facility operated by the
MCV Partnership
MCV Partnership . . . . . . . . . Midland Cogeneration Venture Limited
Partnership in which Consumers has a 49
percent interest through CMS Midland.
MD&A. . . . . . . . . . . . . . . Management's Discussion and Analysis
Michigan Gas Storage. . . . . . . Michigan Gas Storage Company, a
subsidiary of Consumers
MMBtu . . . . . . . . . . . . . . Million British thermal unit
Moss Bluff. . . . . . . . . . . . Moss Bluff Gas Storage Systems, a
partnership that owns a gas storage
facility
MPSC. . . . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . . . Megawatts

NRC . . . . . . . . . . . . . . . Nuclear Regulatory Commission

Order 888 and Order 889 . . . . . FERC final rules issued on April 24,
1996
Outstanding Shares. . . . . . . . Outstanding shares of Class G Common
Stock

Palisades . . . . . . . . . . . . Palisades nuclear power plant, owned by
Consumers
PPA . . . . . . . . . . . . . . . The Power Purchase Agreement between
Consumers and the MCV Partnership with
a 35-year term commencing in March 1990
PSCR. . . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . . . . . . . . . . Public Utility Holding Company Act of
1935

Retained Interest . . . . . . . . The interest in the common
stockholders' equity of the Consumers
Gas Group that is retained by
CMS Energy
Retained Interest Shares. . . . . Authorized but unissued shares of Class
G Common Stock not held by holders of
the Outstanding Shares and attributable
to the Retained Interest

SEC . . . . . . . . . . . . . . . Securities and Exchange Commission
Securitization. . . . . . . . . . A financing authorized by statute in
which the statutorily assured flow of
revenues from a portion of the rates
charged by utilities to their customers
is set aside and pledged as security
for the repayment of rate reduction
bonds issued by a special purpose
vehicle affiliated with such utilities.
Senior Credit Facilities. . . . . $1.125 billion senior credit facilities
consisting of a $400 million 364-day
revolving credit facility, a $600
million three-year revolving credit
facility and a five-year $125 million
term loan facility.
SFAS. . . . . . . . . . . . . . . Statement of Financial Accounting
Standards
Superfund . . . . . . . . . . . . Comprehensive Environmental Response,
Compensation and Liability Act

Terra . . . . . . . . . . . . . . Terra Energy Ltd., an oil and gas
exploration and production subsidiary
of CMS NOMECO
TGN . . . . . . . . . . . . . . . Transportadora de Gas del Norte S. A.,
a natural gas pipeline located in
Argentina
Transition Costs. . . . . . . . . Costs incurred by utilities in order to
serve their customers in a regulated
monopoly environment, but which may not
be recoverable in a competitive
environment because of customers
leaving their systems and ceasing to
pay for their costs. These costs could
include owned and purchased generation,
regulatory assets, and costs incurred
in the transition to competition.
Trust Preferred Securities. . . . Undivided beneficial interest in the
assets of statutory business trusts,
these interests have a preference with
respect to certain trust distributions
over the interests of either CMS Energy
or Consumers, as applicable, as owner
of the common beneficial interests of
the trusts.

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<PAGE> 6

CMS Energy Corporation
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A and other
parts of CMS Energy's 1996 Form 10-K. This MD&A also refers to, and in
some sections specifically incorporates by reference from CMS Energy's
Condensed Notes to Consolidated Financial Statements and should be read
in conjunction with such Statements and Notes. This report contains
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995, including without limitation discussions as to
expectations, beliefs, plans, objectives and future financial performance,
or assumptions underlying or concerning matters discussed in this report.
These discussions, and any other discussions contained in this Form 10-Q
that are not historical facts, are forward looking and, accordingly,
involve estimates, assumptions and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in the
forward-looking statements. In addition to certain contingency matters
(and their respective cautionary statements) discussed elsewhere, the
Forward-Looking Information section of this MD&A indicates some important
factors that could cause actual results or outcomes to differ materially
from those addressed in the forward-looking discussions.

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest segment of which is the
automotive industry. Enterprises is engaged in several domestic and
international energy-related businesses including: oil and gas
exploration and production; acquisition, development and operation of
independent power production facilities; storage, transmission and
processing of natural gas; energy marketing, services and trading; and
international energy distribution.

Consolidated Earnings

In Millions, Except Per Share Amounts
September 30 1997 1996 Change

Quarter ended
Consolidated net income $ 66 $ 58 $ 8
Net income (loss) attributable
to common stocks:
CMS Energy 68 61 7
Class G (2) (3) 1
Earnings (loss) per average
common share:
CMS Energy .70 .65 .05
Class G (.21) (.28) .07

Nine months ended
Consolidated net income $204 $196 $ 8
Net income attributable
to common stocks:
CMS Energy 195 186 9
Class G 9 10 (1)
Earnings per average
common share:
CMS Energy 2.04 2.02 .02
Class G 1.13 1.38 (.25)

Twelve months ended
Consolidated net income $248 $234 $ 14
Net income attributable
to common stocks:
CMS Energy 235 220 15
Class G 13 14 (1)
Earnings per average
common share:
CMS Energy 2.47 2.39 .08
Class G 1.57 1.92 (.35)

Consolidated net income for the three months ended September 30, 1997
increased over the comparable period in 1996 as a result of reduced
operating expenses of Consumers, increased independent power production
earnings and higher oil production, partially offset by lower oil and gas
prices and lower gas production in the exploration and production
business. The third quarter of 1997 included recognition of a gain on the
sale of the entire interest in oil and gas properties in Yemen, offset by
the 1996 gain on the sale of a partnership interest.

Consolidated net income for the nine months ended September 30, 1997
increased over the comparable period in 1996 as a result of the favorable
impact of an electric rate increase received by Consumers in February 1996
which benefited all of 1997, increased electric sales of Consumers',
improved operating results from the MCV Facility in which Consumers has a
49 percent interest, increased independent power production operating
income, and higher oil production in the exploration and production
business. Partially offsetting these increases were decreased gas
deliveries of Consumers due to warmer temperatures during the early part
of 1997, reduced gas wholesale services revenues of Consumers in 1997, and
lower gas production and lower oil and gas prices in the exploration and
production business. The nine months ended September 1997 also included
recognition of an industry expertise service fee in connection with the
Loy Yang A acquisition and the gain on the sale of oil and gas properties,
while the comparable 1996 period included a gain on the sale of a power
purchase agreement by a partnership in which CMS Generation owned a 50
percent interest, a gain on the sale of a partnership interest and a
refund received by the MCV Partnership.

Consolidated net income for the twelve months ended September 30, 1997
increased over the comparable period in 1996 reflecting the favorable
impact of an electric rate increase received by Consumers in February
1996, increased electric sales of Consumers, increased revenues related
to Consumers' transmission of electricity for others, improved operating
results from the MCV Facility, increased independent power production
operating income and higher oil production in the exploration and
production business. Partially offsetting the increases for the twelve
months ended period were decreased electric revenues of Consumers because
of special contract discounts negotiated with large industrial customers
and decreased gas deliveries of Consumers due to warmer temperatures
during the first quarter of 1997. The twelve months ended September 1997
also included recognition of the industry expertise service fee and the
gain on the sale of oil and gas properties. For further information,
see the individual results of operations sections of this MD&A.

Cash Position, Investing and Financing

CMS Energy's primary ongoing source of operating cash is dividends from
subsidiaries. In the second and third quarters of 1997, Consumers paid
$70 million and $43 million in common dividends, respectively, to CMS
Energy. In October 1997, Consumers declared a $57 million common dividend
to be paid in November 1997. In October 1997, Consumers returned $50
million of paid in capital to CMS Energy. During 1997, Enterprises and
its subsidiaries paid common dividends and other distributions of
$143 million to CMS Energy.

Operating Activities: CMS Energy's consolidated operating cash
requirements are met by its operating and financing activities.
CMS Energy's consolidated cash from operations is derived mainly from the
sale and transportation of natural gas by Consumers, the generation,
transmission, and sale of electricity by Consumers; the sale of oil and
natural gas; the transportation and storage of natural gas; and the
independent power production of electricity . Consolidated cash from
operations totaled $363 million and $520 million for the first nine months
of 1997 and 1996, respectively. The $157 million decrease resulted from
timing differences related to cash payments, cash receipts and the
recognition of revenues for routine operations. CMS Energy uses its
operating cash primarily to expand its international businesses, maintain
and expand electric and gas systems of Consumers, retire portions of its
long-term debt and pay dividends.

Investing Activities: Net cash used in investing activities totaled
$1,170 million and $622 million for the first nine months of 1997 and
1996, respectively. The increase of $548 million primarily reflects
increases in capital expenditures and investments in partnerships and
unconsolidated subsidiaries during 1997. CMS Energy's 1997 expenditures
for its utility and international businesses were $260 million and $866
million, respectively.

Financing Activities: Net cash provided by financing activities totaled
$885 million and $101 million for the first nine months of 1997 and 1996,
respectively. The increase of $784 million in net cash from financing
activities resulted from the issuances of senior unsecured notes, Series C
and D GTNs and Trust Preferred Securities; the increase in notes payable,
and the reduction in the repayment of bank loans. This increase was
partially offset by the retirement of preferred stock in 1997.

In May 1997, CMS Energy issued $350 million of senior unsecured notes due
May 15, 2002, at an interest rate of 8.125 percent. Proceeds were used in
part to repay debt and in part to fund CMS Energy's equity investment in
Loy Yang.

In June 1997, 3.45 million units of 7.75 percent Trust Preferred
Securities were issued and sold through CMS Energy Trust I, a wholly owned
business trust which CMS Energy consolidates. These Trust Preferred
Securities are convertible into CMS Energy Common Stock at a rate
equivalent to a conversion price of $40.80 per share of CMS Energy Common
Stock. Net proceeds from the sale totaled $170 million. For additional
information regarding the sale of these securities refer to Note 4 to the
Consolidated Financial Statements of CMS Energy. For additional
information, see footnote (b) to the Consolidated Balance Sheet.

In September 1997, CMS Energy issued $180 million of senior unsecured
notes due November 15, 2004, at an interest rate of 7.625 percent.
Proceeds from the sale together with other funds were used on October 1,
1997 to discharge, at maturity, $172 million of CMS Energy's Series A
senior deferred coupon notes, and to redeem $175 million of CMS Energy's
Series B senior deferred coupon notes at a premium of $3 million.

At September 30, 1997, CMS Energy had $179 million of Series A GTNs, $125
million of Series B GTNs, $150 million of Series C GTNs, and $6 million
of Series D GTNs issued and outstanding with weighted-average interest
rates of 7.8 percent, 7.9 percent, 7.7 percent, and 7.3 percent,
respectively.

In September 1997, 4.8 million shares of 8.20 percent Trust Preferred
Securities were issued and sold through Consumers Energy Company Financing
II, a wholly owned business trust which Consumers consolidates. Net
proceeds from the sale totaled $116 million. For additional information
regarding the sale of these securities refer to Note 4. For additional
information, see footnote (a) to the Consolidated Balance Sheets.

In November 1997, CMS Energy issued $300 million of senior unsecured notes
due November 15, 2000, at an interest rate of 7.375 percent. Proceeds
from the sale were used to repay a significant portion of the outstanding
balance under CMS Energy's Senior Credit Facilities.

During the nine months ended September 30, 1997, CMS Energy paid $80
million in cash dividends to holders of CMS Energy Common Stock and $7
million in cash dividends to holders of Class G Common Stock. In October
1997, the Board of Directors declared a quarterly dividend of $.30 per
share on CMS Energy Common Stock and $.31 per share on Class G Common
Stock, each to be paid in November 1997.

In July 1997, the Board of Directors declared quarterly dividends of $.30
per share on CMS Energy Common Stock and $.31 per share on Class G Common
Stock that were paid in August 1997, representing an increase in the
annualized dividend on CMS Energy Common Stock to $1.20 per share from the
previous amount of $1.08 per share (an 11.1 percent increase) and an
increase in the annualized dividend on Class G Common Stock to $1.24 per
share from the previous dividend of $1.18 per share (a 5.1 percent
increase).

Other Investing and Financing Matters: At September 30, 1997, the book
value per share of CMS Energy Common Stock and Class G Common Stock was
$18.04 and $11.67, respectively.

As of September 30, 1997, CMS Energy was authorized to issue $406 million
in deferred coupon notes, GTNs, CMS Energy Common Stock, subordinated
debentures, stock purchase contracts, stock purchase units and Trust
Preferred Securities under various outstanding shelf registration
statements on file with the SEC. For information regarding the amounts
previously issued, see the short-term and long-term Financings, and
Capitalization in Note 4.

In October 1997, CMS Energy and affiliated business trusts filed a shelf
registration statement with the SEC pursuant to Rule 462 (b) of the
Securities Act, for the issuance and the sale of an additional $26 million
of CMS Energy Common Stock, subordinated debentures, stock purchase
contracts, stock purchase units and Trust Preferred Securities. When
combined with an existing shelf registration, CMS Energy now has an
aggregate $153 million in such securities registered for future issuance
and sale.

In July 1997, CMS Energy refinanced a $450 million unsecured revolving
credit facility and a $125 million term loan with the $1.125 billion
Senior Credit Facilities consisting of a $400 million 364-day revolving
credit facility, a $600 million three year-revolving credit facility and a
five-year $125 million term loan facility . Also, CMS Energy has
available unsecured lines of credit and letters of credit in an aggregate
amount of $155 million. At September 30, 1997, the total amount
utilized under the Senior Credit Facilities and unsecured lines of credit
and letters of credit was $395 million and $15 million, respectively.

Consumers has FERC authorization to: 1) issue or guarantee up to $900
million of short-term securities through 1998; and 2) to issue $380
million of long-term securities with maturities up to 30 years, for
refinancing or refunding purposes, through November 1998.

Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million that are available to finance
seasonal working capital requirements and pay for capital expenditures
between long-term financings. At September 30, 1997, the total amount
remaining available under these facilities was $156 million.

Consumers also has in place a $500 million trade receivables sale program.
At September 30, 1997, $250 million in receivables remained available for
sale under the program. For further information, see Note 4.

Consumers' Electric Business Unit Results of Operations

Electric Pretax Operating Income:

In Millions
Three Months Nine Months Twelve Months
Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to
Prior Year 1997 vs 1996 1997 vs 1996 1997 vs 1996
- ------------------------------------------------------------------------
Sales (including
special contract discounts) $ - $ 4 $ 8
Rate increases and
other regulatory issues 2 12 26
Operations and maintenance 9 8 3
General taxes, depreciation
and other (7) (12) (13)
---- ---- ----

Total change $ 4 $ 12 $ 24
==== ==== ====

Electric Sales: Total electric sales remained constant for the three
month periods ended September 30, 1997 and 1996 but increased for the nine
months ended (0.6 percent) and twelve months ended (2.0 percent) September
30, 1997 over the comparable 1996 periods. The table below reflects
electric kWh sales by class of customer for each period:

In Billions of kWh
Three Nine Twelve
Months Ended Months Ended Months Ended
Sept. 30 1997 1996 Change 1997 1996 Change 1997 1996 Change

Residential 2.8 2.8 - 8.1 8.2 (0.1) 10.8 10.8 -
Commercial 2.7 2.7 - 7.6 7.5 0.1 10.1 9.8 0.3
Industrial 3.4 3.4 - 9.8 9.5 0.3 13.2 12.7 0.5
Other 0.9 0.9 - 2.3 2.5 (0.2) 3.1 3.2 (0.1)
---- ---- ---- ---- ---- ---- ---- ---- ----

Total Sales 9.8 9.8 - 27.8 27.7 0.1 37.2 36.5 0.7
==== ==== ==== ==== ==== ==== ==== ==== ====

Power Costs:

In Millions
September 30 1997 1996 Change

Three months ended $ 296 $ 282 $ 14
Nine months ended 847 802 45
Twelve months ended 1,132 1,041 91

The cost increases for all periods ended September 30, 1997 reflect
increased power purchases from outside sources to meet the sales demand
and the accelerated amortization of nuclear fuel costs related to the
early closing of Big Rock.

Consumers Electric business Unit Issues

Power Purchases from the MCV Partnership: In 1992, Consumers recognized a
loss for the present value of the estimated future underrecoveries of
power purchases from the MCV Partnership. Consumers anticipates it will
continue to experience cash underrecoveries associated with the PPA as
shown below. These after-tax cash underrecoveries were based on the
assumption that the MCV Facility would be available over its expected life
to generate electricity 90 percent of the time. However, for the first
nine months of 1997, the MCV Facility was available 98.9 percent of the
time, resulting in after-tax cash underrecoveries of $31 million. The
underrecovery shown in the table below has been revised to reflect the
anticipated availability of the MCV Facility for the year 1997. For
further information, see Power Purchases from the MCV Partnership in Note
2.

In Millions
1997 1998 1999 2000 2001

Estimated cash under-
recoveries, net of tax $40 $23 $22 $21 $20

The amount of estimated underrecoveries of power costs continues to be
based, in part, on an estimate of the future availability of the MCV
Facility. If the MCV Facility operates at levels above management's
estimate over the remainder of the PPA, losses will need to be recognized
for the amount of future underrecoveries in excess of amounts previously
recorded, and Consumers would experience greater amounts of cash
underrecoveries than originally anticipated. Management will continue to
evaluate the adequacy of the accrued liability considering actual MCV
Facility operations.

Electric Rate Proceedings: In 1996, the MPSC issued a final order which
authorized Consumers to recover costs associated with the purchase of an
additional 325 MW of MCV Facility capacity and to accelerate recovery of
its nuclear plant investment by increasing prospective annual nuclear
plant depreciation expense by $18 million, with a corresponding decrease
in fossil-fueled generating plant depreciation expense. The order also
established an experimental direct access program. Rehearing petitions
have been ruled upon by the MPSC and resulted in no material changes to
the relief granted Consumers. For further information on these issues,
see Notes 2 and 3 which are incorporated by reference herein.

Nuclear Matters: In January 1997, the NRC issued its Systematic
Assessment of Licensee Performance report for Palisades. The report rated
all areas as good, unchanged from the previous assessment.

Consumers is required to make certain calculations and report to the NRC
about the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock. In 1996, Consumers received an
interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003. Consumers believes that with
a change in fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007.

Palisades' on-site storage pool for spent nuclear fuel is at capacity.
Consequently, NRC-approved dry casks, which are steel and concrete vaults,
are being used for temporary on-site storage.

Big Rock closed permanently on August 29, 1997 because management
determined that the plant would be uneconomical to operate in an
increasingly competitive environment. The plant was originally scheduled
to close May 31, 2000, at the end of the plant's operating license. Plant
decommissioning began in September 1997 and is expected to take five to
ten years to return the site to its original condition. The current
decommissioning fund, together with future collections from customers and
future earnings of the fund, is expected to be adequate to cover the plant
decommissioning expenses. For further information on nuclear matters, see
Note 8 which is incorporated by reference herein.

Electric Environmental Matters: The Clean Air Act contains significant
environmental provisions specific to utilities. Consumers anticipates
that it will have incurred capital expenditures totaling $85 million by
the year 2000 in order to comply with the current nitrogen oxide emission
limits established by the EPA.

The Clean Air Act also contains national air quality standards. Consumers
and certain other subsidiaries of CMS Energy currently operate within
these standards and meet current ozone and small particle related emission
limits. The EPA recently revised these standards to further limit small
particle and ozone related emissions and proposed that the State of
Michigan impose additional nitrogen oxide limits on fossil-fuel emitters,
such as Consumers' generating units. The preliminary estimate of costs to
reduce ozone related emissions for Consumers' fossil-fueled generating
units is approximately $175 million. A potentially equivalent amount may
be needed to comply with the new small particle standards. CMS Energy and
Consumers support the bipartisan effort in Congress to delay
implementation of the revised standards until the relationship between the
new standards and health improvements is established.

Consumers is a so-called potentially responsible party at several
contaminated sites being administered under Superfund. There are many
other creditworthy potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that Consumers' liability
at any of the known Superfund sites, individually or in total, will have a
material adverse effect on its financial position, liquidity or results of
operations. For further information regarding these and other
environmental matters, see Electric Environmental Matters in Note 7 which
is incorporated by reference herein.

Other: In October 1997, two independent power producers filed a lawsuit
against Consumers and CMS Energy in a federal court. The suit alleges
antitrust violations relating to contracts which Consumers entered into
with some of its customers as well as claims relating to independent power
production projects. The plaintiffs claim damages of $100 million (which
can be trebled in antitrust cases as provided by law). The transactions
of which plaintiffs complain have been regulated by and subject to the
jurisdiction of the MPSC. CMS Energy believes the lawsuit is without
merit and will vigorously defend against it, but cannot predict the
outcome of this matter.

Consumers Gas Group Results of Operations

Gas Pretax Operating Income:

In Millions
Three Nine Twelve
Months Ended Months Ended Months Ended
Sept. 30 Sept. 30 Sept. 30
Change Compared to
Prior Year 1997 vs 1996 1997 vs 1996 1997 vs 1996

Sales $ - $(15) $(19)
Gas wholesale and retail
services activities (2) (9) (5)
Operations and maintenance 1 11 12
General taxes, depreciation
and other - (3) (4)

---- ---- ----
Total change $(1) $(16) $(16)
==== ==== ====

Gas Deliveries: Total system deliveries, excluding transport to the MCV
Facility and other miscellaneous transportation, decreased 1.1 percent,
3.8 percent and 3.3 percent, for the three months, nine months and twelve
months ended September 30, 1997, respectively. The table below indicates
total deliveries and the impact of weather.

In bcf
Three Nine Twelve
Months Ended Months Ended Months Ended
September 30 1997 1996 Change 1997 1996 Change 1997 1996 Change

Weather-adjusted
deliveries 30 30 - 228 231 (3) 333 333 -
Impact of weather
and leap year - - - 4 10 (6) 9 22 (13)
System deliveries
excluding
transport to MCV
Facility 30 30 - 232 241 (9) 342 355 (13)
Transport to MCV
Facility 17 16 1 49 49 - 65 62 3
Other Transport-
ation 2 6 (4) 12 25 (13) 17 29 (12)
---- ---- ---- ---- ---- ---- ---- ---- ----

Total deliveries 49 52 (3)) 293 315 (22) 424 446 (22)
==== ==== ==== ==== ==== ==== ==== ==== ====

Cost of Gas Sold:

In Millions
September 30 1997 1996 Change
Three months ended $ 39 $ 51 $ (12)
Nine months ended 472 504 (32)
Twelve months ended 718 742 (24)

The decrease in gas costs for the three months ended September 30, 1997
reflects lower gas prices during 1997. The decreases for the nine month
and twelve month periods ended September 30, 1997 were the result of
decreased 1997 sales reflecting warmer temperatures and an extra day for
leap year in 1996.

Consumer Gas Group Issues

Gas Rate Proceedings: Consumers entered into a special natural gas
transportation contract in response to the customer's proposal to bypass
Consumers' system in favor of a competitive alternative. In 1995, the
MPSC approved the contract but stated that the revenue shortfall created
by the difference between the contract's discounted rate and the floor
price of an MPSC-authorized gas transportation rate must be borne by
Consumers' shareholders. In 1995, Consumers filed an appeal with the
Court of Appeals claiming that the MPSC decision denies Consumers the
opportunity to earn its authorized rate of return and is therefore
unconstitutional. In October 1997, the Court of Appeals issued an opinion
affirming the MPSC's order. Consumers has sought rehearing of the Court
of Appeals opinion.

GCR Matters: In 1995, the MPSC issued an order favorable to Consumers'
position in a $44 million pricing dispute (excluding interest) between
Consumers and certain gas producers gas supply contracts. The court of
appeals has upheld the MPSC order and the producers have now appealed to
the Michigan Supreme Court. Consumers believes the MPSC order correctly
concludes that the producers' theories are without merit and will
vigorously oppose any claims they may raise, but cannot predict the
outcome of this issue.

Gas Environmental Matters: Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some that formerly housed manufactured gas plant facilities.
Consumers estimates its costs related to investigation and remedial action
at $48 million to $98 million. This estimate is based on undiscounted
1997 costs. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination and regulatory requirements,
could affect the estimate of investigation and remedial action costs for
the sites. For further information regarding environmental matters, see
Note 7.

Oil and Gas Exploration and Production

Pretax Operating Income: Pretax operating income for the three and nine
months ended September 30, 1997 increased $7 million and $9 million,
respectively, over the comparable periods in 1996, as a result of a gain
on the sale of the entire interest in oil and gas properties in Yemen, and
higher oil production, offset by lower oil and gas prices and gas
production, and higher operating expenses. Pretax operating income for
the twelve months ended September 30, 1997 increased $17 million over the
comparable period in 1996, as a result of a gain on the sale of oil and
gas properties and higher oil production and prices, offset by lower gas
production and higher operating expenses.

Independent Power Production

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1997 increased $3 million over the same period in
1996, primarily reflecting increased earnings attributed to the Loy Yang
and Jorf Lasfar projects offset by the 1996 sale of a partnership
interest. Pretax operating income for the nine and twelve months ended
September 30, 1997 was $5 million more than the same periods in 1996,
primarily reflecting increased operating income resulting from increased
international earnings, higher electricity sales by the MCV Facility and
the industry expertise service fee income earned in connection with the
Loy Yang transaction in 1997, offset by the 1996 nonrecurring gains,
including the gain on the sale of a power purchase agreement by a
partnership in which CMS Generation owns a 50 percent interest.

Capital Expenditures: In September 1997, a joint venture of CMS
Generation and a unit of ABB, purchased the concession to possess,
operate, maintain and expand the Jorf Lasfar coal-fueled power plant, a
two unit, 660 megawatt facility, in Morocco. This is the first step in
the $1.5 billion transaction for the privatization and expansion of Jorf
Lasfar. CMS Generation and ABB collectively invested approximately $395
million for their equity contribution in the project company. Funds
obtained for the equity investment were provided through equity bridge
loans by a number of private banks. CMS Energy guaranteed CMS
Generation's 50 percent share of the approximately $395 million borrowing
to fund the equity contribution. The initial disbursement of an estimated
additional $920 million of non-recourse debt financing from a consortium
of governmental, multilateral and private financial institutions in
several countries is expected to be drawn later in 1997. Reinvested cash
from operations estimated at $190 million is expected to provide the
balance of the financing needed for the project. Construction has begun
on two new generating units totaling 696 gross megawatts.

In the second quarter of 1997, a consortium comprised of subsidiaries of
CMS Generation and Northern States Power Company as well as Horizon Energy
Australia Investments acquired Loy Yang, Victoria's largest electric
generating plant and Australia's lowest-cost electric generating facility,
in a privatization by the Australian State of Victoria. The associated
coal mine supplies both the Loy Yang A and B plants. Seventy-seven
percent of the consortium's $3.7 billion payment to the government was
financed on a non-recourse basis to CMS Energy and CMS Generation by a
consortium of banks. CMS Generation holds a fifty percent ownership
interest and an affiliate of Northern States Power Company and Horizon
Energy Australia Investments each hold twenty-five percent. Certain
operating and management services for Loy Yang will be provided by the
CMS Generation and Northern States Power Company subsidiaries and their
affiliates.

Natural Gas Transmission, Storage and Processing

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1997 increased $4 million over the comparable 1996
period, primarily reflecting income attributable to the Australian
pipeline acquired in 1997 and expanded domestic operations. Pretax
operating income for the nine and twelve months ended September 30, 1997
increased $7 million and $10 million, respectively, from the same periods
in 1996, reflecting income attributable to domestic and international
operations and a gain on the sale of a portion of the Ames gas gathering
system, partially offset by the 1996 gain resulting from the dissolution
of the Moss Bluff and Grand Lacs Partnerships.

Marketing, Services and Trading

Pretax operating income for the three months ended September 30, 1997 was
unchanged from the comparable 1996 period. Pretax operating income for
the nine and twelve months ended September 30, 1997 decreased $1 million
and $2 million, respectively, from the year-earlier periods, reflecting
lower margins caused by unusually high natural gas prices and higher
operating costs due to business expansion. CMS MST provides energy
commodity marketing, risk management and energy management services
throughout the United States and plans to expand operations worldwide.
Gas marketed for end users was 144 bcf and 84 bcf for the nine months
ended 1997 and 1996, respectively.

Forward-Looking Information

Forward-looking information is included throughout this Form 10-Q.
Material contingencies are also described in the Condensed Notes to
Consolidated Financial Statements and should be read accordingly.

Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include prevailing domestic and foreign governmental policies and
regulatory actions (including those of FERC and the MPSC) with respect to
rates, proposed electric industry restructuring, change in industry and
rate structure, operation of a nuclear power facility, acquisition and
disposal of assets and facilities, operation and construction of plant
facilities, operation and construction of natural gas pipeline and storage
facilities, recovery of the cost of purchased power or natural gas,
decommissioning costs, and present or prospective wholesale and retail
competition, among other important factors. The business and
profitability of CMS Energy are also influenced by economic and geographic
factors, including political and economic risks (particularly those
associated with international development and operations, including
currency fluctuation), changes in environmental laws and policies, weather
conditions, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy, inflation,
capital market conditions, unanticipated development project delays or
changes in project costs, and the ability to secure agreement in pending
negotiations (particularly for projects in development), among other
important factors. All such factors are difficult to predict, contain
uncertainties that may materially affect actual results, and may be beyond
the control of CMS Energy.

Capital Expenditures: CMS Energy estimates the following capital
expenditures, including new lease commitments and investments in
partnerships and unconsolidated subsidiaries, will total $4.0 billion over
the next three years. Cash generated by operations is expected to satisfy
a substantial portion of capital expenditures. Nevertheless, CMS Energy
will continue to evaluate capital markets in 1997 as a potential source of
financing its subsidiaries' investing activities. CMS Energy estimates
capital expenditures by business segment over the next three years as
follows:
In Millions
Years Ended December 31 1997 1998 1999

Consumers electric operations (a) $ 270 $ 295 $ 295
Consumers gas operations (a) 120 120 115
Oil and gas exploration and production 135 150 160
Independent power production (b) 740 368 469
Natural gas transmission and storage 115 156 61
International energy distribution 120 125 125
Marketing, services and trading 40 21 25
------ ------ ------

$1,540 $1,235 $ 1,250
====== ====== ======

(a) These amounts include an attributed portion of Consumers' anticipated
capital expenditures for plant and equipment common to both the electric
and gas businesses.

(b) The 1997 amount includes approximately $500 million for the
acquisition of a 50 percent ownership interest in the Loy Yang A electric
generating plant in Australia.

CMS Energy currently plans to invest $445 million from 1997 to 1999 in its
oil and gas exploration and production operations, primarily in North and
South America, offshore West Africa and North Africa. CMS Energy also
plans to invest $1.6 billion in its independent power production
operations from 1997 to 1999 to pursue acquisitions and development of
electric generating plants in the United States, Latin America, Southern
Asia, Australia, the Pacific Rim region and North Africa. Investments
totaling $332 million from 1997 to 1999 are planned to continue
development of non-utility natural gas storage, gathering and pipeline
operations both domestically and internationally. CMS Energy plans to
invest $370 million from 1997 to 1999 in its international energy
distribution operations related to international expansion. CMS MST plans
to invest $86 million from 1997 to 1999 to provide gas, electric, oil and
coal marketing, risk management and energy management services throughout
the United States and eventually worldwide.

These estimates are prepared for planning purposes and are subject to
revision.

Consumers Electric Outlook

Growth: Consumers expects average annual growth of two and one-half
percent per year in electric system volume over the next five years, based
on the current industry and regulatory configuration in Michigan. Actual
electric sales in future periods may be affected by abnormal weather,
changing economic conditions, or the developing competitive market for
electricity. Consumers continues to work toward retaining its current
retail service customers by offering electric rates that are competitive
with those of other energy providers and by improving reliability and
customer communications. Consumers is also planning for a future
environment in which direct access to alternative sources of energy supply
is another means by which retail service customers can satisfy their power
requirements.

Restructuring: Consumers' electric retail service is affected by
competition in several areas, including the potential installation of
cogeneration or other self-generation facilities by larger industrial
customers; the formation of municipal utilities that could displace retail
service to an entire community; competition from other utilities that
offer flexible rate arrangements designed to encourage movement of
facilities or production to their service areas; economic development
competition between utilities; MPSC direct access programs; and potential
electric industry restructuring by regulatory decisions and state or
federal legislation.

In 1996, the MPSC reduced the rate subsidization of residential customers
by large industrial and commercial customers. In addition, in an effort
to meet the challenge of competition, Consumers contracted with some of
its largest industrial customers to serve certain facilities a number of
years into the future. These contracts have been approved by the MPSC as
part of its phased introduction to competition.

FERC issued Orders 888 and 889, as amended on rehearing, requiring
utilities to provide open access to the interstate transmission grid for
wholesale transactions. Consumers has complied with several FERC
requirements contained in these orders; however, Consumers and Detroit
Edison disagree on the effect of the orders on the Michigan Electric Power
Coordination Center Pool. Consumers proposes to maintain the benefits of
the pool, while Detroit Edison seeks early termination. FERC is expected
to decide the question in 1998.

As part of ongoing proceedings relating to the restructuring of the
electric utility industry in Michigan, in June 1997 the MPSC issued an
order which proposed that Consumers would have to accept competing power
suppliers using its distribution and transmission facilities to serve
retail customers beginning January 1, 1998. By January 1, 2002, all
customers would be free to choose (that is, have direct access to) their
own power suppliers.

The order would allow utilities to recover prudently incurred Transition
Costs through a charge to all direct-access customers through the end of
the transition period in 2007. Further proceedings, as ordered by the
MPSC, later took place to address other features of the open access
programs being considered, including proposals to "true up" Transition
Cost charges for changes in sales and market prices of power purchase
capacity to the extent that they are different from estimates used for
calculating Transition Costs. The June order is subject to claims of
appeal filed with the Court of Appeals and a rehearing petition filed by
Consumers which questions whether the MPSC has the statutory authority to
mandate restructuring on an involuntary basis.

The June 1997 order further stated that Securitization may be a beneficial
mechanism for recovery of Transition Costs, but recognizes that state
legislation is required for Securitization to occur. Michigan legislative
consideration of the entire subject of electric industry restructuring
including Securitization is expected in early 1998. To be acceptable to
Consumers, the legislation would have to provide for full recovery of
Transition Costs. Rate reductions for customers could also be
accomplished if the legislation allowed a Securitization charge to be paid
by all customers over a period of 15 years (the expected term of the "rate
reduction bonds" to be issued as part of the Securitization process). The
legislature is expected to review all of the policy choices made by the
MPSC during the Restructuring proceedings to assure that they are in
accord with those which the legislature believes should be paramount.

Prior to legislative input, Consumers had estimated that it would recover
$1.9 billion (as revised in a June 1997 filing with the MPSC) of
Transition Costs through charges to direct-access customers. A separate
charge to direct-access customers would also recover costs of implementing
a direct-access program totaling an additional $200 million.

On October 29, 1997, the MPSC issued a series of orders relating to its
electric industry restructuring proceedings. The orders primarily
addressed issues involving the design of retail open access tariffs, the
true-up mechanism in connection with the recovery of stranded costs,
suspension of the power supply cost recovery clauses and freezing of power
supply costs, and performance-based rate-making.

The orders were not completely definitive. A number of matters need to be
clarified or supplemented by further MPSC hearings, orders or in
subsequent legislation before any open access program allowing customers
choice of power suppliers with the scope contained in those orders could
be accepted voluntarily by Consumers. Accordingly, Consumers has filed a
petition for rehearing, reconsideration and clarification raising all of
the issues which must be satisfactorily addressed before it could agree.
For further information on Application of SFAS 71, see below.

Application of SFAS 71: Consumers applies the utility accounting
standard, SFAS 71, that recognizes the economic effects of rate regulation
and, accordingly, has recorded regulatory assets and liabilities related
to the generation, transmission and distribution operations of its
business in its financial statements. If rate recovery of generation-
related costs becomes unlikely or uncertain, whether due to competition or
regulatory action, this accounting standard may no longer apply to the
generation segment of Consumers' business. Such a change could result in
either full recovery of generation-related regulatory assets (net of
related regulatory liabilities) or a loss, depending on whether Consumers'
regulators adopt a transition mechanism for the recovery of all or a
portion of these net regulatory assets. In accordance with recently
published Emerging Issues Task Force Issue 97-4, Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101, Consumers can continue to carry its generation-
related regulatory assets or liabilities as long as there is deregulatory
legislation or an MPSC rate order which allows the collection of regulated
cash flows to recover these specific costs or settle obligations. As a
result, the generation portion of net regulatory assets are to be
maintained by the regulated portion of the business until they are
collected, they are impaired, or until the regulated portion of the
business becomes deregulated. Based on a current evaluation of the
various factors and conditions that are expected to affect future cost
recovery, Consumers believes that even if it was to discontinue
application of SFAS 71 for the generation segment of its business, its
regulatory assets, including those related to generation, are probable of
future recovery from the regulated portion of the business.

Consumers Gas Group Outlook

Growth: Consumers currently anticipates gas deliveries (excluding
transportation to the MCV Facility and off-system deliveries) to grow on
an average annual basis between one and two percent over the next five
years based primarily on a steadily growing customer base. Consumers has
several strategies to further increase load. These strategies include
increased efforts to promote natural gas to both current and potential
customers that are using other fuels for space and water heating.
Consumers also plans additional capital expenditures to construct new gas
mains to expand Consumers' system. Actual gas deliveries in future
periods may be affected by abnormal weather, alternative energy prices,
changes in competitive conditions, and the level of natural gas
consumption. Consumers is also offering a variety of energy-related
services to its customers focused upon appliance maintenance, home safety,
and home security.

Gas Orders: In 1996 the MPSC issued an order requesting Consumers and
other local gas distribution companies, whose rates are regulated by the
MPSC, to develop pilot programs that would allow customers to purchase gas
directly from other suppliers and have the gas transported through local
distribution facilities. These pilot programs are to last for two years
and are intended to help the MPSC determine whether it is appropriate to
extend this option to all retail customers. In December 1996, the MPSC
approved Consumers' pilot program for 40,000 customers in Bay County. The
first customer solicitation ended in March 1997 and resulted in one
percent of the customers choosing an alternative supplier for the next
year. Another solicitation period will begin in late 1997 for the period
April 1998 through March 1999; expected customer interest is unknown at
this time.

Application of SFAS 71: Based on a regulated utility accounting standard,
SFAS 71, Consumers is allowed to defer certain costs to the future and
record regulatory assets, based on the recoverability of those costs
through the MPSC's approval. Consumers has evaluated its regulatory
assets related to its gas business, and believes that sufficient
regulatory assurance exists to provide for the recovery of these deferred
costs.

Foreign Currency Translation:

Foreign currency translation adjustments relating to the operation of CMS
Energy's long-term investments in foreign countries are included in common
stockholders' equity. As of September 30, 1997 the foreign currency
translation adjustment was $45 million relating primarily to the U.S. and
Australian Dollar exchange rate fluctuations from the acquisition of Loy
Yang. CMS Energy has presently concluded that the Australian economy is
stable and that currency exchange rate fluctuations over the long term are
not expected to have a material effect on CMS Energy's financial position,
liquidity or results of operations.

Other:

New Accounting Standards: In 1997, the FASB issued SFAS 128, Earnings per
Share, and SFAS 129, Disclosure of Information about Capital Structure,
which are effective for year end 1997 financial statements. In 1997, the
FASB also issued SFAS 130, Reporting Comprehensive Income, and SFAS 131,
Disclosures about Segments of an Enterprise and Related Information, each
of which will require expanded disclosures effective for 1998. Also in
1997, the Emerging Issues Task Force published Issue 97-4, Deregulation of
the Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101. The consensus reached in this issue allows for
regulatory assets and liabilities to be maintained for a portion of a
business which is being deregulated as long as there is deregulatory
legislation or a commission rate order which allows the collection of
regulated cash flows to recover costs or settle obligations. These
regulatory assets and liabilities are maintained by the regulated portion
of a business until they are collected or settled, they are impaired, or
until the regulated portion of the business becomes deregulated. CMS
Energy does not expect the application of these statements to have a
material effect on its financial position, liquidity or results of
operations.

Computer Modifications for Year 2000: CMS Energy and its subsidiaries
utilize software and related technologies throughout the business which
will be affected by the year 2000 date change. Modifications began in
1995 to computer software systems to process year 2000 date transactions.
Anticipated spending for these modifications will be expensed as incurred,
while the costs for new software will be capitalized and amortized over
the software's useful life. CMS Energy does not expect that the cost of
these modifications will have a material effect on its financial position,
liquidity or results of operations.
<PAGE>
<PAGE> 21

<TABLE>
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Electric utility $ 670 $ 655 $1,888 $1,827 $2,507 $2,381
Gas utility 110 123 828 880 1,230 1,274
Oil and gas exploration and production 42 32 110 94 146 120
Independent power production 45 44 116 108 148 133
Natural gas transmission, storage
and processing 22 12 75 40 97 48
Marketing, services and trading 153 59 366 191 433 246
Other 3 4 11 10 16 17
------ ------ ------ ------ ------ ------
1,045 929 3,394 3,150 4,577 4,219
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 80 76 220 219 297 294
Purchased power - related parties 151 150 447 436 600 558
Purchased and interchange power 65 56 180 147 235 189
Cost of gas sold 178 106 829 682 1,144 970
Other 189 186 525 528 734 728
------ ------ ------ ------ ------ ------
663 574 2,201 2,012 3,010 2,739
Maintenance 39 42 122 120 180 167
Depreciation, depletion and amortization 110 99 348 322 467 436
General taxes 48 45 158 149 211 202
------ ------ ------ ------ ------ ------
860 760 2,829 2,603 3,868 3,544
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss)
Electric utility 132 128 342 330 423 399
Gas utility (1) - 100 116 142 158
Oil and gas exploration and production 17 10 37 28 48 31
Independent power production 32 29 67 62 73 68
Natural gas transmission, storage
and processing 9 5 26 19 33 23
Marketing, services and trading - - 1 2 1 3
Other (4) (3) (8) (10) (11) (7)
------ ------ ------ ------ ------ ------
185 169 565 547 709 675
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Accretion income 2 2 6 7 8 10
Accretion expense (4) (7) (13) (21) (14) (28)
Other, net 3 1 5 5 2 6
------ ------ ------ ------ ------ ------
1 (4) (2) (9) (4) (12)
------ ------ ------ ------ ------ ------
Fixed Charges
Interest on long-term debt 72 58 198 174 254 230
Other interest 12 10 34 30 47 43
Capitalized interest (4) (1) (11) (5) (14) (9)
Preferred stock dividends 6 7 20 21 27 28
Trust Preferred Securities distributions 6 2 11 6 13 6
------ ------ ------ ------ ------ ------
92 76 252 226 327 298
------ ------ ------ ------ ------ ------
Income Before Income Taxes 94 89 311 312 378 365
Income Taxes 28 31 107 116 130 131
------ ------ ------ ------ ------ ------
Consolidated Net Income $ 66 $ 58 $ 204 $ 196 $ 248 $ 234
====== ====== ====== ====== ====== ======
Net Income (Loss) Attributable
to Common Stocks
CMS Energy $ 68 $ 61 $ 195 $ 186 $ 235 $ 220
Class G $ (2) $ (3) $ 9 $ 10 $ 13 $ 14
Average Common Shares Outstanding
CMS Energy 96 92 95 92 95 92
Class G 8 8 8 8 8 8
Earnings (Loss) Per Average Common Share
CMS Energy $ .70 $ .65 $ 2.04 $ 2.02 $ 2.47 $ 2.39
Class G $ (.21) $ (.28) $ 1.13 $ 1.38 $ 1.57 $ 1.92
Dividends Declared Per Common Share
CMS Energy $ .30 $ .27 $ .84 $ .75 $ 1.11 $ .99
Class G $ .31 $ .295 $ .90 $ .855 $1.195 $1.135
====== ====== ====== ====== ====== ======
<FN>

The accompanying condensed notes are an integral part of these statements.

/TABLE
<PAGE>
<PAGE> 22

<TABLE>

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Consolidated net income $ 204 $ 196 $ 248 $ 234
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization
(includes nuclear decommissioning of
$37, $37, $49 and $49, respectively) 348 322 467 436
Capital lease and debt discount amortization 36 33 44 44
Deferred income taxes and investment tax credit 20 25 41 35
Accretion expense 13 21 14 28
Accretion income - abandoned Midland project (6) (7) (8) (10)
Power purchases (47) (43) (67) (78)
Undistributed earnings of related parties (44) (54) (53) (60)
Other (11) 11 (3) 6
Changes in other assets and liabilities (150) 16 (179) 178
------- ------ ------- ------
Net cash provided by operating activities 363 520 504 813
------- ------ ------- ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed
under capital lease) (538) (430) (767) (585)
Investments in partnerships and
unconsolidated subsidiaries (588) (147) (604) (215)
Investments in nuclear decommissioning trust funds (37) (37) (49) (49)
Other (27) (2) (23) (11)
Cost to retire property, net (26) (20) (37) (34)
Proceeds from sale of property 46 34 91 55
Acquisition of companies, net of cash acquired - (20) - (19)
------- ------ ------- ------
Net cash used in investing activities (1,170) (622) (1,389) (858)
------- ------ ------- ------
Cash Flows from Financing Activities
Proceeds from bank loans, notes and bonds 827 385 875 507
Proceeds from Trust Preferred Securities 286 97 286 97
Increase (decrease) in notes payable, net 61 - 53 (133)
Issuance of Common Stock 60 29 126 41
Retirement of preferred stock (120) - (120) -
Payment of Common Stock dividends (87) (75) (115) (99)
Retirement of bonds and other long-term debt (73) (37) (73) (37)
Payment of capital lease obligations (35) (33) (42) (44)
Repayment of bank loans (32) (264) (24) (268)
Retirement of Common Stock (2) (1) (2) (1)
------- ------ ------- ------
Net cash provided by financing activities 885 101 964 63
------- ------ ------- ------
Net Increase (Decrease) in Cash and
Temporary Cash Investments 78 (1) 79 18

Cash and Temporary Cash Investments, Beginning of Period 56 56 55 37
------- ------ ------- ------
Cash and Temporary Cash Investments, End of Period $ 134 $ 55 $ 134 $ 55
======= ====== ======= ======

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 23

<TABLE>

CMS Energy Corporation
Consolidated Balance Sheets

ASSETS September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At Cost)
Electric $ 6,447 $ 6,333 $ 6,286
Gas 2,502 2,337 2,362
Oil and gas properties (full-cost method) 1,224 1,140 1,126
Other 99 94 88
------- ------- -------
10,272 9,904 9,862
Less accumulated depreciation, depletion
and amortization 5,189 4,867 4,936
------- ------- -------
5,083 5,037 4,926
Construction work-in-progress 332 243 251
------- ------- -------
5,415 5,280 5,177
------- ------- -------
Investments
Independent power production 819 317 305
Natural gas transmission, storage and processing 249 233 241
First Midland Limited Partnership (Note 2) 239 232 230
Midland Cogeneration Venture Limited
Partnership (Note 2) 163 134 127
Other 112 86 89
------- ------- -------
1,582 1,002 992
------- ------- -------
Current Assets
Cash and temporary cash investments at cost,
which approximates market 134 56 55
Accounts receivable and accrued revenue,
less allowances of $7, $10 and $3,
respectively (Note 4) 384 374 219
Inventories at average cost
Gas in underground storage 253 186 250
Materials and supplies 92 86 82
Generating plant fuel stock 26 30 28
Deferred income taxes 18 48 19
Prepayments and other 113 235 132
------- ------- -------
1,020 1,015 785
------- ------- -------
Non-current Assets
Postretirement benefits 411 435 442
Nuclear decommissioning trust funds 478 386 360
Abandoned Midland Project 98 113 117
Other 496 384 418
------- ------- -------
1,483 1,318 1,337
------- ------- -------
Total Assets $ 9,500 $ 8,615 $ 8,291
======= ======= =======

</TABLE>
<PAGE>
<PAGE> 24

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 1,834 $ 1,702 $ 1,619
Preferred stock of subsidiary 238 356 356
Company-obligated mandatorily redeemable
Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 - -
Company-obligated convertible
Trust Preferred Securities of
CMS Energy Trust I (b) 173 - -
Long-term debt 3,060 2,842 2,996
Non-current portion of capital leases 82 103 92
------- ------- -------
5,607 5,103 5,163
------- ------- -------

Current Liabilities
Current portion of long-term debt
and capital leases 911 409 198
Notes payable 394 333 341
Accounts payable 326 348 260
Accrued taxes 146 262 147
Accrued interest 61 47 51
Power purchases (Note 2) 47 47 90
Accounts payable - related parties 70 63 59
Accrued refunds 7 8 23
Other 191 206 196
------- ------- -------
2,153 1,723 1,365
------- ------- -------

Non-current Liabilities
Deferred income taxes 675 698 651
Postretirement benefits 520 521 528
Deferred investment tax credit 154 161 163
Power purchases (Note 2) 144 178 197
Regulatory liabilities for income taxes, net 86 66 61
Other 161 165 163
------- ------- -------
1,740 1,789 1,763
------- ------- -------

Commitments and Contingencies (Notes 2, 3, 6, 7 and 8)

Total Stockholders' Investment and Liabilities $ 9,500 $ 8,615 $ 8,291
======= ======= =======

<FN>

(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36%
subordinated interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company Financing II is
$124 million principal amount of 8.20% subordinated interest notes due 2027 from Consumers. For further discussion,
see Note 4 to the Consolidated Financial Statements.

(b) As described in Note 4, the primary asset of CMS Energy Trust I is $178 million principal amount of 7.75%
convertible subordinated debentures due 2027 from CMS Energy.
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 25

<TABLE>

CMS Energy Corporation
Consolidated Statements of Common Stockholders' Equity
(Unaudited)

<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
------ ------ ------ ------ ------ ------
Other Paid-in Capital
At beginning of period 2,075 1,967 2,045 1,951 1,979 1,935
Common Stock reacquired (2) (1) (2) (1) (2) (1)
Common Stock issued:
CMS Energy 28 12 56 26 120 41
Class G 2 1 4 3 6 4
------ ------ ------ ------ ------ ------
At end of period 2,103 1,979 2,103 1,979 2,103 1,979
------ ------ ------ ------ ------ ------
Revaluation Capital
At beginning of period (6) (8) (6) (8) (7) (8)
Change in unrealized investment-
gain (loss) 2 1 2 1 3 1
------ ------ ------ ------ ------ ------
At end of period (4) (7) (4) (7) (4) (7)
------ ------ ------ ------ ------ ------
Foreign Currency Translation
At beginning of period - - - - - -
Change in foreign currency
translation (45) - (45) - (45) -
------ ------ ------ ------ ------ ------
At end of period (45) - (45) - (45) -
------ ------ ------ ------ ------ ------
Retained Earnings (Deficit)
At beginning of period (256) (385) (338) (475) (354) (489)
Consolidated net income 66 58 204 196 248 234
Common Stock dividends declared:
CMS Energy (28) (25) (80) (69) (105) (91)
Class G (3) (2) (7) (6) (10) (8)
------ ------ ------ ------ ------ ------
At end of period (221) (354) (221) (354) (221) (354)
------ ------ ------ ------ ------ ------
Total Common Stockholders' Equity $1,834 $1,619 $1,834 $1,619 $1,834 $1,619
====== ====== ====== ====== ====== ======

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 26

CMS Energy Corporation
Condensed Notes to
Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in the 1996 Form 10-K of CMS Energy Corporation which includes
the Report of Independent Public Accountants. Certain prior year amounts
have been reclassified to conform with the presentation in the current
year. In the opinion of management, the unaudited information herein
reflects all adjustments necessary to assure the fair presentation of
financial position, results of operations and cash flows for the periods
presented.

1: Corporate Structure and Basis of Presentation

CMS Energy uses the equity method of accounting for investments in
companies and partnerships where it has more than a 20 percent but less
than a majority ownership interest and includes these results in operating
income. For the three, nine and twelve month periods ended September 30,
1997, undistributed equity earnings were $21 million, $44 million and $53
million, respectively, and $13 million, $54 million and $60 million for
the three, nine and twelve months periods ended September 30, 1996.

2: The Midland Cogeneration Venture

The MCV Partnership, which leases and operates the MCV Facility,
contracted to sell electricity to Consumers for a 35-year period beginning
in 1990 and to supply electricity and steam to Dow. Consumers, through
two wholly owned subsidiaries, holds the following assets related to the
MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings
holds, through the FMLP, a 35 percent lessor interest in the MCV Facility.

Summarized Statements of Income for CMS Midland and CMS Holdings:

In Millions
Three Nine Twelve
Months Ended Months Ended Months Ended
September 30 1997 1996 1997 1996 1997 1996

Pretax operating income $18 $19 $36 $31 $45 $38
Income taxes and other 6 6 11 9 13 11
--- --- --- --- --- ---

Net income $12 $13 $25 $22 $32 $27
=== === === === === ===

Power Purchases from the MCV Partnership: Consumers' annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the
termination of the PPA in 2025. The PPA provides that Consumers is to pay
the MCV Partnership a minimum levelized average capacity charge of 3.77
cents per kWh, a fixed energy charge, and a variable energy charge based
primarily on Consumers' average cost of coal consumed. Consumers is
recovering capacity charges averaging 3.62 cents per kWh for 915 MW of
capacity, the fixed energy charge, and the prescribed energy charges
associated with the scheduled deliveries within certain hourly
availability limits, whether or not those deliveries are scheduled on an
economic basis. Beginning January 1, 1996, Consumers was also permitted
to recover an average capacity charge of 2.86 cents per kWh for the
remaining 325 MW of MCV Facility capacity. The approved average capacity
charge increased incrementally to 3.62 cents per kWh for 109 MW by
January 1, 1997. The recoverable portion of the capacity charge for the
last 216 MW of the 325 MW increases each year until it reaches 3.62 cents
per kWh in 2004 and 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 underrecoveries of power costs under the PPA. At September 30,
1997 and December 31, 1996, the after-tax present value of the PPA
liability totaled $124 million and $147 million, respectively. The
reduction in the liability since December 31, 1996 reflects after-tax cash
underrecoveries of $31 million partially offset by after-tax accretion
expense of $8 million. The undiscounted after-tax amount associated with
the liability totaled $506 million at September 30, 1997. Consumers
anticipates it will continue to experience cash underrecoveries associated
with the PPA as shown below. These after-tax cash underrecoveries were
based on the assumption that the MCV Facility would be available over its
expected life to generate electricity 90 percent of the time. However,
for the first nine months of 1997 the MCV Facility was available 98.9
percent of the time, resulting in the $31 million of after-tax cash
underrecoveries. The underrecovery shown in the table below has been
revised to reflect the anticipated availability of the MCV Facility for
the year 1997.

In Millions
1997 1998 1999 2000 2001

Estimated cash
underrecoveries,
net of tax $40 $23 $22 $21 $20

PSCR Matters Related to Power Purchases from the MCV Partnership: As part
of a 1995 decision in the PSCR reconciliation case for 1993, the MPSC
disallowed a portion of the costs related to purchases from the MCV
Partnership and instead assumed recovery of those costs from wholesale
customers. Consumers believed this was contrary to the terms of an
earlier 1993 settlement order and appealed. The MCV Partnership and ABATE
also filed separate appeals of this order. In November 1996, the Court of
Appeals affirmed the MPSC's 1995 decision. The MCV Partnership filed an
application for leave to appeal with the Michigan Supreme Court.

3: Rate Matters

Electric Proceedings: In 1996, the MPSC issued a final order which
authorized Consumers to recover costs associated with the purchase of the
additional 325 MW of MCV Facility capacity (see Note 2) and to accelerate
recovery of its nuclear plant investment by increasing prospective annual
nuclear plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense. It also
established an experimental direct access program. Customers having a
maximum demand of at least 2 MW are eligible to purchase generation
services directly from any eligible third-party power supplier. The
program is limited to 650 MW of load, of which 410 MW have already been
filled by existing contracts. An additional 140 MW of load may be filled
by new special contracts which the MPSC has approved or by direct-access
customers. The remaining 100 MW must be made available solely to direct-
access customers for at least 18 months. In April 1997, a lottery was
held to select the customers to purchase 100 MW by direct-access. Direct-
access for this 100 MW is expected to begin during the fourth quarter of
1997.

In May 1997, the MPSC authorized Consumers to collect $17 million from
electric customers through a one-time surcharge pertaining to the 1994
PSCR reconciliation. In September 1997, the MPSC further authorized
Consumers to collect $13 million from electric customers through a one-
time surcharge pertaining to the 1995 PSCR reconciliation.

Electric Restructuring: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, in June 1997
the MPSC issued an order which proposed that Consumers would have to
accept competing power suppliers using its distribution and transmission
facilities to serve retail customers beginning January 1, 1998. By
January 1, 2002, all customers would be free to choose (that is, have
direct access to) their own power suppliers.

Gas Proceedings: In the GCR reconciliation proceeding for the period
April 1995 through March 1996, the MPSC staff questioned whether revenue
from gas loaning (which was a new business activity for Consumers) should,
in whole or in part, be immediately passed through to customers. In
August 1997, the MPSC ruled that the gas loaning program was not the same
as the storage service and, therefore, that gas loaning revenue was not
subject to refund.

In 1996, the MPSC authorized Consumers to implement a pilot gas
transportation program in Bay County, Michigan. The pilot program
provides residential and small commercial customers the opportunity to
purchase gas from suppliers other than Consumers for a two-year period
which began April 1997. Out of the 40,000 eligible customers, only 500
volunteered to participate in the program. For those program
participants, Consumers will retain its role as transporter and
distributor of the customers' gas.

In 1995, the MPSC issued an order regarding a $44 million (excluding
interest) gas supply contract pricing dispute between Consumers and
certain gas producers. The order stated that Consumers was not obligated
to seek prior approval of market-based pricing changes that were
implemented under the contracts in question. The producers subsequently
filed a claim of appeal of the MPSC order with the Court of Appeals, and
the Court of Appeals upheld the MPSC order. The producers have appealed
to the Michigan Supreme Court. Consumers believes the MPSC order
correctly concludes that the producers' theories are without merit and
will vigorously oppose any claims they may raise, but cannot predict the
outcome of this issue.

Resolution of the issues discussed in this note is not expected to have a
material effect on CMS Energy's financial position or results of
operations.

4: Short-Term and Long-Term Financings, and Capitalization

CMS Energy: In July 1997, CMS Energy refinanced a $450 million unsecured
revolving credit facility and a $125 million term loan with the $1.125
billion Senior Credit Facilities consisting of a $400 million 364-day
revolving credit facility, a $600 million three-year revolving credit
facility and a five-year $125 million term loan facility. Also, CMS Energy
has available unsecured lines of credit and letters of credit in an
aggregate amount of $155 million. At September 30, 1997 the total amount
utilized under the Senior Credit Facilities and unsecured lines of credit
and letters of credit was $395 million and $15 million, respectively.

In May 1997, CMS Energy and affiliated business trusts filed a shelf
registration statement with the SEC for the issuance and the sale of up to
$300 million of CMS Energy Common Stock, subordinated debentures, stock
purchase contracts, stock purchase units and preferred securities. In
June 1997, 3.45 million units of
7.75 percent Trust Preferred Securities were issued and sold through
CMS Energy Trust I, a wholly owned business trust which CMS Energy
consolidates. Net proceeds from the sale totaled $170 million.
CMS Energy Trust I was formed for the sole purpose of issuing Trust
Preferred Securities. Its primary asset is approximately $178 million
principal amount of 7.75 percent subordinated debentures issued by
CMS Energy which mature in 2027. These Trust Preferred Securities are
convertible into CMS Energy Common Stock at a rate equivalent to a
conversion price of $40.80 per share of CMS Energy Common Stock. Proceeds
of the subordinated debentures were used by CMS Energy for general
corporate purposes including repayment of debt, capital expenditures,
investment in subsidiaries and working capital. CMS Energy's obligations
under the subordinated debentures, the indenture under which the
subordinated debentures were issued, the declaration of trust and the
CMS Energy guarantee provide, in the aggregate, a full irrevocable and
unconditional guarantee of payments of distributions and other amounts due
on the Trust Preferred Securities. For additional information, see
footnote (b) to the Consolidated Balance Sheets.

In September 1997, CMS Energy issued $180 million of senior unsecured
notes due November 15, 2004, at an interest rate of 7.625 percent.
Proceeds from the sale together with other funds were used on October 1,
1997 to discharge, at maturity, $172 million of CMS Energy's Series A
senior deferred coupon notes, and to redeem $175 of CMS Energy's Series B
senior deferred coupon notes at a premium of $3 million.

Consumers: Consumers has FERC authorization to: 1) issue or guarantee up
to $900 million of short-term securities through 1998; and 2) to issue
$380 million of long-term securities with maturities up to 30 years, for
refinancing or refunding purposes, through November 1998.

Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million that are available to finance
seasonal working capital requirements and pay for capital expenditures
between long-term financings. At September 30, 1997, a total of $389
million was outstanding at a weighted average interest rate of 6.2
percent, compared with $340 million outstanding at September 30, 1996, at
a weighted average interest rate of 6.0 percent.

Consumers also has in place a $500 million trade receivables sale program.
At September 30, 1997 and 1996, receivables sold under the program totaled
$250 million and $210 million, respectively. Accounts receivable and
accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.

In 1996, 4 million shares of 8.36 percent Trust Preferred Securities were
issued and sold through Consumers Power Company Financing I, a wholly
owned business trust which Consumers consolidates. Net proceeds from the
sale totaled $97 million. In September 1997, 4.8 million shares of 8.20
percent Trust Preferred Securities were issued and sold through Consumers
Energy Company Financing II, a wholly owned business trust which Consumers
consolidates. Net proceeds from the sale totaled $116 million. Both
trusts were formed for the sole purpose of issuing the Trust Preferred
Securities. Consumers' obligations with respect to the Trust Preferred
Securities under the notes, under the indenture under which the notes have
been issued, under Consumers' guarantee of the Trust Preferred Securities,
and under the declaration by the trust, taken together, constitute a full
and unconditional guarantee by Consumers of the trusts' obligations under
the Trust Preferred Securities. For additional information, see footnote
(a) to the Consolidated Balance Sheets.

In September 1997, Consumers redeemed all outstanding shares of its $7.45,
$7.68, $7.72 and $7.76 preferred stock for $120 million.

5: Earnings Per Share and Dividends

Earnings (loss) per share attributable to Common Stock for the three, nine
and twelve month periods ended September 30, 1997 and September 30, 1996
reflect the performance of Consumers Gas Group. The Class G Common Stock
has participated in earnings and dividends from its original issue date in
July 1995. The allocation of earnings (loss) attributable to each class
of common stock and the related amounts per share are computed by
considering the weighted average number of shares outstanding.

Earnings (loss) attributable to Outstanding Shares are equal to Consumers
Gas Group net income (loss) multiplied by a fraction; the numerator is the
weighted average number of Outstanding Shares during the period and the
denominator is the weighted average number of Outstanding Shares and
Retained Interest Shares during the period. The earnings attributable to
Class G Common Stock on a per share basis for the nine months ended
September 30, 1997 and 1996 are based on 24.65 percent of the income of
Consumers Gas Group and 23.67 percent of the income of the Consumers Gas
Group, respectively.

In February and May 1997, CMS Energy paid dividends of $.27 per share on
CMS Energy Common Stock and $.295 per share on Class G Common Stock. In
August 1997, CMS Energy paid a dividend of $.30 per share on CMS Energy
Common Stock and $.31 per share on Class G Common Stock. In October 1997,
the Board of Directors declared a quarterly dividend of $.30 per share on
CMS Energy Common Stock and $.31 per share on Class G Common Stock to be
paid in November 1997.

6: Risk Management Activities and Derivative Transactions

CMS Energy and its subsidiaries use a variety of derivative instruments
(derivatives), including futures contracts, swaps, options and forward
contracts, to manage exposure to fluctuations in commodity prices,
interest rates and foreign exchange rates. In order for derivatives to
initially qualify for hedge accounting the following criteria must be met:
1) the item to be hedged exposes the enterprise to price, interest or
exchange rate risk; and 2) the derivative reduces that exposure and is
designated as a hedge.

Derivative instruments contain credit risk if the counterparties,
including financial institutions and energy marketers, fail to perform
under the agreements. However, CMS Energy minimizes such risk by
performing financial credit reviews using, among other things, publicly
available credit ratings of such counterparties. The risk of
nonperformance by the counterparties is considered remote.

Commodity Price Hedges: CMS Energy accounts for its commodity price
derivatives as hedges, and as such, defers any changes in market value and
gains and losses resulting from settlements until the hedged transaction
is complete. If there was a loss of correlation between the changes in
(1) the market value of the commodity price contracts and (2) the market
price ultimately received for the hedged item, and the impact was
material, the open commodity price contracts would be marked to market and
gains and losses would be recognized in the income statement currently.

CMS NOMECO periodically enters into oil and gas price hedging arrangements
to mitigate its exposure to price fluctuations on the sale of crude oil
and natural gas. As of December 31, 1996, CMS NOMECO had 1997 commodity
price contracts on 13.8 bcf of gas at prices ranging from $1.92 to $2.80
per MMBtu and on 2.0 million barrels of oil at prices ranging from $19.50
to $22.90 per barrel. During the first nine months of 1997, CMS NOMECO
has made net payments of $4.9 million for settlement of 1997 contracts on
12.0 bcf of gas and 1.8 million barrels of oil. During September 1997,
CMS NOMECO entered into additional 1997 gas price hedging arrangements on
.9 bcf of gas at prices of $3.30 and $3.31 per MMBtu.

CMS NOMECO also has one arrangement which is used to fix the prices that
CMS NOMECO will pay to supply gas for the years 2001 through 2006 by
purchasing the economic equivalent of 10,000 MMBtu per day at a fixed
price, escalating at 8 percent per year thereafter, starting at $2.82 per
MMBtu in 2001. The settlement periods are each a one-year period ending
December 31, 2001 through 2006 on 3.65 million MMBtu. If the floating
price, essentially the then current Gulf Coast spot price, for a period is
higher than the fixed price, the seller pays CMS NOMECO the difference,
and vice versa. If a party's exposure at any time exceeds $5 million,
that party is required to obtain a letter of credit in favor of the other
party for the excess over $5 million and up to $10 million. At September
30, 1997, the other party posted a $3.3 million letter of credit in favor
of CMS NOMECO.

CMS MST uses natural gas futures contracts, options and swaps (which
require a net cash payment for the difference between a fixed and variable
price).

Interest Rates Hedges: CMS Energy and some of its subsidiaries enter into
interest rate swap agreements to exchange variable rate interest payment
obligations to fixed rate obligations without exchanging the underlying
notional amounts. These agreements convert variable rate debt to fixed
rate debt in order to reduce the impact of interest rate fluctuations.
The notional amounts parallel the underlying debt levels and are used to
measure interest to be paid or received and do not represent the amount of
exposure to credit loss. The notional amount of CMS Energy's and its
subsidiaries' interest rate swaps was $1.0 billion at September 30, 1997.
The difference between the amounts paid and received under the swaps is
accrued and recorded as an adjustment to interest expense over the life of
the hedged agreement.

Foreign Exchange Hedges: Forward exchange contracts are used to hedge
certain receivables, payables, and long-term debt relating to foreign
investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from the risk that U.S. dollar net
cash flows resulting from sales to foreign customers and purchases from
foreign suppliers and the repayment of non-U.S. dollar borrowings may be
adversely affected by changes in exchange rates. These contracts do not
subject CMS Energy to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on assets
and liabilities being hedged. The notional amount of the outstanding
foreign exchange contracts was $20 million at September 30, 1997.

7: Commitments and Contingencies

Electric Environmental Matters: The Clean Air Act limits emissions of
sulfur dioxide and nitrogen oxides and requires emissions monitoring.
Consumers' coal-fueled electric generating units burn low-sulfur coal and
are currently operating at or near the sulfur dioxide emission limits that
will be effective in the year 2000. In its effort to comply with the Act,
Consumers has already made capital expenditures totaling $40 million to
install equipment at certain generating units. Consumers estimates
capital expenditures for in-process and proposed modifications at other
coal-fueled units to be an additional $45 million by the year 2000.
Management believes that Consumers' annual operating costs will not be
materially affected as a result of these expenditures.

The Clean Air Act also contains national air quality standards under which
industry must operate. Consumers and certain other subsidiaries of
CMS Energy currently operate within these standards and meet current ozone
and small particle related emission limits. The Act requires the EPA to
periodically review the effectiveness of these standards in preventing
adverse health affects. The EPA recently revised these standards to
further limit small particle and ozone related emissions. CMS Energy and
Consumers support the bipartisan effort in Congress to delay
implementation of the revised standards until the relationship between the
new standards and health improvements is established.

In addition, the EPA has considered recommendations from the Ozone
Transport Assessment Group and petitions from several Northeastern states
to reduce ozone transport across state lines. On October 10, 1997, the
EPA proposed that the State of Michigan impose additional nitrogen oxide
limits on fossil-fuel emitters, such as Consumers' generating units, so as
to reduce statewide nitrogen oxide emissions by 32 percent, as early as
2002. The State of Michigan will have one year to review and challenge
the proposed recommendations, and one year thereafter to implement final
requirements.

The preliminary estimate of the cost of the changes Consumers may have to
make to its fossil-fueled generating units to reduce ozone related
emissions is approximately $175 million. A potentially equivalent amount
may be needed to comply with the new small particle standards.

Consumers is a so-called potentially responsible party at several
contaminated sites being administered under Superfund. Superfund
liability is joint and several and, along with Consumers, there are many
other creditworthy potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based upon past
negotiations, Consumers estimates that its share of the total liability
for the known Superfund sites will be between $2 million and $9 million.
At September 30, 1997, Consumers has accrued $2 million for its estimated
Superfund liability.

Under the Michigan Natural Resources and Environmental Protection Act,
Consumers expects that it will ultimately incur investigation and remedial
action costs at a number of sites and believes that these costs are
properly recoverable in rates under current ratemaking policies.

Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some of the 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. Consumers has prepared plans for remedial
investigation/feasibility studies for several of these sites. Four of the
five plans submitted by Consumers have been approved by the appropriate
environmental regulatory authority in the State of Michigan. Findings for
the two completed remedial investigations indicate that the expenditures
for those two sites are likely to be less than the amounts projected
before the studies were performed. However, these findings may not be
representative of all of the sites. Data available to Consumers and its
continued internal review have resulted in an estimate for all costs
related to investigation and remedial action for all 23 sites of between
$48 million and $98 million. These estimates are based on undiscounted
1997 costs. At September 30, 1997, Consumers has accrued a liability of
$48 million and has established a regulatory asset for approximately the
same amount. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination, and legal and regulatory
requirements, could affect the estimate of remedial action costs for the
sites. In accordance with an MPSC rate order issued in 1996,
environmental clean-up costs above the amount currently being recovered in
rates will be deferred and amortized over ten years. Rate recognition of
amortization expense will not begin until after a prudence review in a
general rate case. The order authorizes current recovery of $1 million
annually. Consumers is continuing discussions with certain insurance
companies regarding coverage for some or all of the costs that may be
incurred for these sites.

Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1,540 million for 1997, $1,235 million for 1998 and
$1,250 million for 1999. For further information regarding capital
expenditures, see Forward-Looking Information in the MD&A.

Other: As of September 30, 1997, CMS Energy and Enterprises have
guaranteed up to $315 million in contingent obligations of unconsolidated
affiliates and unrelated parties.

In October 1997, two independent power producers filed a lawsuit against
Consumers and CMS Energy in a federal court. The suit alleges antitrust
violations relating to contracts which Consumers entered into with some of
its customers as well as claims relating to independent power production
projects. The plaintiffs claim damages of $100 million (which can be
trebled in antitrust cases as provided by law). The transactions of which
plaintiffs complain have been regulated by and subject to the jurisdiction
of the MPSC. CMS Energy believes the lawsuit is without merit and will
vigorously defend against it, but cannot predict the outcome of this
matter.

In addition to the matters disclosed in these Notes, Consumers and certain
other subsidiaries of CMS Energy are parties to certain lawsuits and
administrative proceedings before various courts and governmental agencies
arising from the ordinary course of business and involving personal
injury, property damage, contractual matters, environmental issues,
federal and state taxes, rates, licensing and other matters.

Estimated losses for certain contingencies discussed in this Note have
been accrued. Resolution of these contingencies is not expected to have a
material adverse impact on CMS Energy's financial position or results of
operations.

8: Nuclear Matters

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 June 1997, the NRC approved the
process for unloading spent fuel from a cask with minor weld flaws.
Consumers intends to transfer the spent fuel to a new transportable cask
when one is available. The supplier for the design and fabrication of the
transportable cask has been selected and design work is proceeding.

Consumers is required to make certain calculations and report to the NRC
about the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock events during its remaining license
life, in light of the embrittlement of reactor vessel materials over time
due to operation in a radioactive environment. Based on continuing
analysis of data from testing of similar materials, in 1996 Consumers
received an interim Safety Evaluation Report from the NRC indicating that
the reactor vessel can be safely operated through 2003 before reaching the
NRC's screening criteria for reactor embrittlement. Consumers believes
that with fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007 without
annealing of the reactor vessel, but will continue to monitor the matter.

9: Supplemental Cash Flow Information

For purposes of the Consolidated Statement of Cash Flows, all highly
liquid investments with an original maturity of three months or less are
considered cash equivalents. Other cash flow activities and non-cash
investing and financing activities for the periods ended September 30
were:

In Millions
Nine Twelve
Months Ended Months Ended
1997 1996 1997 1996

Cash transactions
Interest paid (net of
amounts capitalized) $ 201 $ 187 $ 267 $ 236
Income taxes paid
(net of refunds) 57 61 78 70
Non-cash transactions
Nuclear fuel placed
under capital lease $ 4 $ 8 $ 24 $ 10
Other assets placed
under capital leases 5 2 6 4
Common Stock issued to
acquire companies - - - 4
Capital leases refinanced - - - 21
<PAGE>
<PAGE> 36

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying consolidated balance sheets of
CMS ENERGY CORPORATION (a Michigan corporation) and subsidiaries as of
September 30, 1997 and 1996, the related consolidated statements of income
and common stockholders' equity for the three-month, nine-month and
twelve-month periods then ended, and the related consolidated statements
of cash flows for the nine-month and twelve-month periods then ended.
These financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statement of
preferred stock of CMS Energy Corporation and subsidiaries as of December
31, 1996, and the related consolidated statements of income, common
stockholders' equity and cash flows for the year then ended (not presented
herein), and, in our report dated January 24, 1997, we expressed an
unqualified opinion on those statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December
31, 1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

Arthur Andersen LLP

Detroit, Michigan,
November 10, 1997.
<PAGE>
<PAGE> 37

Consumers Energy Company
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A and other
parts of Consumers' 1996 Form 10-K. This MD&A also refers to, and in some
sections specifically incorporates by reference from Consumers Condensed
Notes to Consolidated Financial Statements and should be read in
conjunction with such Statements and Notes. This report contains forward-
looking statements as defined by the Private Securities Litigation Reform
Act of 1995, including without limitation discussions as to expectations,
beliefs, plans, objectives and future financial performance, or
assumptions underlying or concerning matters discussed in this report.
These discussions, and any other discussions contained in this Form 10-Q
that are not historical facts, are forward looking and, accordingly,
involve estimates, assumptions and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in the
forward-looking statements. In addition to certain contingency matters
(and their respective cautionary statements) discussed elsewhere, the
Forward-Looking Information section of this MD&A indicates some important
factors that could cause actual results or outcomes to differ materially
from those addressed in the forward-looking discussions.

Consumers is a combination electric and gas utility company serving the
Lower Peninsula of Michigan and is the principal subsidiary of CMS Energy,
a holding company. Consumers' customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry.

Consolidated Earnings

In Millions
September 30 1997 1996 Change

Three months ended $ 71 $ 60 $ 11
Nine months ended 212 203 9
Twelve months ended 269 249 20

The increase in earnings for the three months ended September 30, 1997
compared to the same 1996 period reflects reduced operation expenses, and
a one-time recognition of interest income from a related-party property
sale. The increase in earnings for the nine months ended September 30,
1997 compared to the same 1996 period reflects the favorable impact of an
electric rate increase received in February 1996 which benefited all nine
months of 1997, recognized interest income as a result of the related-
party property sale, increased electric sales and improved operating
results from the MCV Facility in which Consumers has a 49 percent
interest. Partially offsetting these increases were decreased gas
deliveries due to warmer temperatures during the early part of 1997 and
reduced gas wholesale services revenues in 1997. The increase in earnings
for the twelve months ended September 30, 1997 compared to the same 1996
period reflects the favorable impact in all of the 1997 period of the
electric rate increase received in February 1996, increased electric
sales, the recognition of interest income from the related-party property
sale, increased revenues from the transmission of electricity for others,
and improved operating results from the MCV Facility. Partially
offsetting the increases for the twelve months ended period were decreased
electric revenues because of special contract discounts negotiated with
large industrial customers and decreased gas deliveries due to warmer
temperatures during the first quarter of 1997. For further information,
see the Electric and Gas Utility Results of Operations sections of this
MD&A and Note 3.

Cash Position, Investing and Financing

Operating Activities: Cash from operations is derived from the sale and
transportation of natural gas and the generation, transmission and sale of
electricity. Cash from operations totaled $458 million for nine months
ended September 30, 1997 and 1996. Operating cash is used primarily to
maintain and expand electric and gas systems, retire portions of long-term
debt, and pay dividends.

Investing Activities: Cash used in investing activities totaled $277
million and $359 million for nine months ended September 30, 1997 and
1996, respectively. The cash was used primarily for capital expenditures.
In addition, Consumers received $50 million related to a repurchase of two
shares by CMS Enterprises of its preferred stock.

Financing Activities: Cash used in financing activities totaled $176
million and $101 million for nine months ended September 30, 1997 and
1996, respectively. The increase of $75 million in cash used reflects the
redemption of $120 million of preferred stock partially offset by a $57
million increase in notes payable and an additional $19 million of
proceeds from the issuance of Trust Preferred Securities.

Other Investing and Financing Matters: Consumers has FERC authorization
to: 1) issue or guarantee up to $900 million of short-term securities
through 1998; and 2) to issue $380 million of long-term securities with
maturities up to 30 years, for refinancing or refunding purposes, through
November 1998.

In October 1997, Consumers returned $50 million of paid in capital to
CMS Energy.

Electric Utility Results of Operations

Electric Pretax Operating Income:

In Millions
September 30 1997 1996 Change

Three months ended $132 $128 $ 4
Nine months ended 342 330 12
Twelve months ended 423 399 24

Electric pretax operating income for the three months ended September 30,
1997 compared to the same period for 1996 benefited from reduced operation
expenses, partially offset by higher depreciation and general taxes
resulting from increased investments in facilities and technology to serve
new customers. Electric pretax operating income for the nine and twelve
month periods ended September 30, 1997 benefited from the favorable impact
of increased electric sales, the entire period impact of an electric rate
increase received in February 1996 and reduced operation and maintenance
costs. The increases in the nine and twelve month periods were partly
offset by decreased revenues due to special contract discounts negotiated
with large industrial customers and higher depreciation and general taxes
expense. The following table quantifies these impacts on Pretax Operating
Income:

In Millions
Three Months Nine Months Twelve Months
Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to Prior Year 1997 vs 1996 1997 vs 1996 1997 vs 1996

Sales (including special
contract discounts) $ - $ 4 $ 8
Rate increases and other
regulatory issues 2 12 26
Operations and maintenance 9 8 3
General taxes, depreciation
and other (7) (12) (13)
---- ---- ----
Total change $ 4 $ 12 $ 24
==== ==== ====

<TABLE>
<CAPTION>
In Billions of kWh
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 Change 1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 2.8 2.8 - 8.1 8.2 (0.1) 10.8 10.8 -
Commercial 2.7 2.7 - 7.6 7.5 0.1 10.1 9.8 0.3
Industrial 3.4 3.4 - 9.8 9.5 0.3 13.2 12.7 0.5
Other 0.9 0.9 - 2.3 2.5 (0.2) 3.1 3.2 (0.1)
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Sales 9.8 9.8 - 27.8 27.7 0.1 37.2 36.5 0.7
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

Power Costs:

In Millions
September 30 1997 1996 Change

Three months ended $ 296 $ 282 $ 14
Nine months ended 847 802 45
Twelve months ended 1,132 1,041 91

Electric Utility Issues

In Millions
1997 1998 1999 2000 2001

Estimated cash underrecoveries,
net of tax $40 $23 $22 $21 $20

Nuclear Matters: In January 1997, the NRC issued its Systematic
Assessment of Licensee Performance report for Palisades. The report rated
all areas as good, unchanged from the previous assessment.

Consumers is required to make certain calculations and report to the NRC
about the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock. In 1996, Consumers received an
interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003. Consumers believes that with
a change in fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007.

Palisades' on-site storage pool for spent nuclear fuel is at capacity.
Consequently, NRC-approved dry casks, which are steel and concrete vaults,
are being used for temporary on-site storage.

The Clean Air Act also contains national air quality standards. Consumers
currently operates within these standards and meets current ozone and
small particle related emission limits. The EPA recently revised these
standards to further limit small particle and ozone related emissions and
proposed that the State of Michigan impose additional nitrogen oxide
limits on fossil-fuel emitters, such as Consumers' generating units. The
preliminary estimate of costs to reduce ozone related emissions for
Consumers' fossil-fueled generating units is approximately $175 million.
A potentially equivalent amount may be needed to comply with the new small
particle standards. Consumers supports the bipartisan effort in Congress
to delay implementation of the revised standards until the relationship
between the new standards and health improvements is established.

Other: In October 1997, two independent power producers filed a lawsuit
against Consumers and CMS Energy in a federal court. The suit alleges
antitrust violations relating to contracts which Consumers entered into
with some of its customers as well as claims relating to independent power
production projects. The plaintiffs claim damages of $100 million (which
can be trebled in antitrust cases as provided by law). The transactions
of which plaintiffs complain have been regulated by and subject to the
jurisdiction of the MPSC. Consumers believes the lawsuit is without merit
and will vigorously defend against it, but cannot predict the outcome of
this matter.

Gas Utility Results of Operations

Gas Pretax Operating Income:

In Millions
September 30 1997 1996 Change

Three months ended $ (1) $ - $ (1)
Nine months ended 100 116 (16)
Twelve months ended 142 158 (16)

Gas pretax operating income, while relatively flat for the three month
period, decreased in both the nine month and twelve month periods ended
September 30, 1997 as a result of decreased gas deliveries due to warmer
temperatures during the first quarter of 1997 and an extra day for leap
year in 1996. The nine months ended September 30, 1997 reflects higher
depreciation and general taxes resulting from increased investments in
facilities and technology to serve new customers, partially offset by
lower operations and maintenance expenses. The twelve months ended
September 30, 1997 also reflects higher depreciation and general taxes
from the increased investments to serve new customers, partially offset by
lower operation expenses and benefits from gas services activities. The
following table quantifies these impacts on Pretax Operating Income:

In Millions
Three Months Nine Months Twelve Months
Change Compared to Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Prior Year 1997 vs 1996 1997 vs 1996 1997 vs 1996

Sales $ - $(15) $(19)
Gas wholesale and retail
services activities (2) (9) (5)
Operations and maintenance 1 11 12
General taxes, depreciation
and other - (3) (4)
---- ---- ----
Total change $(1) $(16) $(16)
==== ==== ====

<TABLE>
<CAPTION>
In bcf
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 Change 1997 1996 Change 1997 1996 Change

Weather-adjusted deliveries 30 30 - 228 231 (3) 333 333 -
Impact of weather and leap year - - - 4 10 (6) 9 22 (13)
--- --- --- --- --- --- --- --- ---

System deliveries excluding
transport to MCV Facility 30 30 - 232 241 (9) 342 355 (13)
Transport to MCV Facility 17 16 1 49 49 - 65 62 3
Other Transportation 2 6 (4) 12 25 (13) 17 29 (12)
--- --- --- --- --- --- --- --- ---
Total deliveries 49 52 (3) 293 315 (22) 424 446 (22)
=== === === === === === === === ===
</TABLE>

Cost of Gas Sold:

In Millions
September 30 1997 1996 Change
Three months ended $ 39 $ 51 $ (12)
Nine months ended 472 504 (32)
Twelve months ended 718 742 (24)

Gas Utility Issues

Forward-Looking Information

Forward-looking information is included throughout this report. Material
contingencies are also described in the Notes to Consolidated Financial
Statements and should be read accordingly.

Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include prevailing governmental policies and regulatory actions (including
those of FERC and the MPSC) with respect to rates, proposed electric
industry restructuring, change in industry and rate structure, operation
of a nuclear power facility, acquisition and disposal of assets and
facilities, operation and construction of plant facilities, operation and
construction of natural gas pipeline and storage facilities, recovery of
the cost of purchased power or natural gas, decommissioning costs, and
present or prospective wholesale and retail competition, among other
important factors. The business and profitability of Consumers are also
influenced by economic and geographic factors, including political and
economic risks, changes in environmental laws and policies, weather
conditions, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy, inflation,
capital market conditions, and the ability to secure agreement in pending
negotiations, among other important factors. All such factors are
difficult to predict, contain uncertainties that may materially affect
actual results, and may be beyond the control of Consumers.

Capital Expenditures

Consumers estimates the following capital expenditures, including new
lease commitments, by company and by business segment over the next three
years. These estimates are prepared for planning purposes and are subject
to revision.

In Millions
Years Ended December 31 1997 1998 1999

Consumers
Construction $359 $370 $358
Nuclear fuel lease 14 28 31
Capital leases other than nuclear fuel 14 14 18
Michigan Gas Storage 3 3 3

$390 $415 $410

Electric utility operations (a) $270 $295 $295
Gas utility operations (a) 120 120 115

$390 $415 $410

(a) These amounts include an attributed portion of Consumers' anticipated
capital expenditures for plant and equipment common to both the electric
and gas utility businesses.

Electric Outlook

Gas Outlook

Other

New Accounting Standards: In 1997, the FASB issued SFAS 128, Earnings per
Share, and SFAS 129, Disclosure of Information about Capital Structure,
which are effective for year end 1997 financial statements. In 1997, the
FASB also issued SFAS 130, Reporting Comprehensive Income, and SFAS 131,
Disclosures about Segments of an Enterprise and Related Information, each
of which will require expanded disclosures effective for 1998. Also in
1997, the Emerging Issues Task Force published Issue 97-4, Deregulation of
the Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101. The consensus reached in this issue allows for
regulatory assets and liabilities to be maintained for a portion of a
business which is being deregulated as long as there is deregulatory
legislation or a commission rate order which allows the collection of
regulated cash flows to recover costs or settle obligations. These
regulatory assets and liabilities are maintained by the regulated portion
of a business until they are collected or settled, they are impaired, or
until the regulated portion of the business becomes deregulated.
Consumers does not expect the application of these statements to have a
material effect on its financial position, liquidity or results of
operations.

Computer Modifications for Year 2000: Consumers utilizes software and
related technologies throughout its business which will be affected by the
year 2000 date change. In 1995, Consumers began to modify its computer
software systems to process year 2000 date transactions. Anticipated
spending for these modifications will be expensed as incurred, while the
costs for new software will be capitalized and amortized over the
software's useful life. Consumers does not expect that the cost of these
modifications will have a material effect on its financial position,
liquidity or results of operations.

<PAGE>

(This page intentionally left blank)

<PAGE>
<PAGE> 49

<TABLE>
Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Electric $ 670 $ 655 $1,888 $1,827 $2,507 $2,381
Gas 110 123 828 880 1,230 1,274
Other 19 20 39 33 49 41
------ ------ ------ ------ ------ ------
799 798 2,755 2,740 3,786 3,696
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 80 76 220 219 297 294
Purchased power - related parties 151 150 447 436 600 558
Purchased and interchange power 65 56 180 147 235 189
Cost of gas sold 39 51 472 504 718 742
Other 144 151 404 424 566 591
------ ------ ------ ------ ------ ------
479 484 1,723 1,730 2,416 2,374
Maintenance 38 41 119 117 176 164
Depreciation, depletion and
amortization 88 83 286 273 384 369
General taxes 45 43 148 141 198 192
------ ------ ------ ------ ------ ------
650 651 2,276 2,261 3,174 3,099
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss)
Electric 132 128 342 330 423 399
Gas (1) - 100 116 142 158
Other 18 19 37 33 47 40
------ ------ ------ ------ ------ ------
149 147 479 479 612 597
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Interest and dividends from
affiliates 11 4 20 13 24 17
Accretion income 2 2 6 7 8 10
Accretion expense (4) (7) (13) (21) (14) (28)
Other, net 1 - 1 1 (3) 1
------ ------ ------ ------ ------ ------
10 (1) 14 - 15 -
------ ------ ------ ------ ------ ------
Interest Charges
Interest on long-term debt 34 34 103 104 138 139
Other interest 9 8 25 22 33 33
Capitalized interest - -- - (2) - (3)
------ ------ ------ ------ ------ ------
43 42 128 124 171 169
------ ------ ------ ------ ------ ------
Net Income Before Income Taxes 116 104 365 355 456 428

Income Taxes 36 35 126 125 151 145

Net Income 80 69 239 230 305 283

Preferred Stock Dividends 6 7 20 21 27 28

Trust Preferred Securities
Distributions 3 2 7 6 9 6
------ ------ ------ ------ ------ ------
Net Income Available to
Common Stockholder $ 71 $ 60 $ 212 $ 203 $ 269 $ 249
====== ====== ====== ====== ====== ======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 50

<TABLE>
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 239 $ 230 $ 305 $ 283
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization
(includes nuclear decommissioning of
$37, $37, $49 and $49, respectively) 286 273 384 369
Capital lease and other amortization 35 32 42 44
Deferred income taxes and investment tax credit 11 27 32 32
Accretion expense 13 21 14 28
Accretion income - abandoned Midland project (6) (7) (8) (10)
Undistributed earnings of related parties (35) (30) (45) (39)
Power purchases (47) (43) (67) (78)
Other 4 4 4 5
Changes in other assets and liabilities (42) (49) 9 148
----- ----- ----- -----
Net cash provided by operating activities 458 458 670 782
----- ----- ----- -----
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed
under capital lease) (260) (298) (371) (434)
Investments in nuclear decommissioning trust funds (37) (37) (49) (49)
Cost to retire property, net (26) (20) (37) (34)
Associated company preferred stock redemption 50 - 50 -
Other (4) (4) (4) (6)
----- ----- ----- -----
Net cash used in investing activities (277) (359) (411) (523)
----- ----- ----- -----
Cash Flows from Financing Activities
Retirement of preferred stock (120) - (120) -
Payment of common stock dividends (113) (114) (199) (114)
Retirement of bonds and other long-term debt (51) (37) (51) (37)
Payment of capital lease obligations (34) (32) (42) (43)
Payment of preferred stock dividends (23) (21) (29) (28)
Trust Preferred Securities distributions (7) (6) (9) (6)
Proceeds from Trust Preferred Securities 116 97 116 97
Increase (decrease) in notes payable, net 56 (1) 49 (134)
Contribution from stockholder - 13 - 13
Proceeds from bank loans - - 23 -
----- ----- ----- -----
Net cash used in financing activities (176) (101) (262) (252)
----- ----- ----- -----
Net Increase (Decrease) in Cash and Temporary Cash Investments 5 (2) (3) 7

Cash and Temporary Cash Investments, Beginning of Period 4 14 12 5
----- ----- ----- -----
Cash and Temporary Cash Investments, End of Period $ 9 $ 12 $ 9 $ 12
===== ===== ===== =====
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 51

<TABLE>
Consumers Energy Company
Consolidated Balance Sheets
<CAPTION>
ASSETS September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant (At original cost)
Electric $6,447 $6,333 $6,286
Gas 2,292 2,203 2,268
Other 25 26 25
------ ------ ------
8,764 8,562 8,579
Less accumulated depreciation,
depletion and amortization 4,540 4,269 4,354
------ ------ ------
4,224 4,293 4,225
Construction work-in-progress 146 158 194
------ ------ ------
4,370 4,451 4,419
------ ------ ------
Investments
Stock of affiliates 258 298 338
First Midland Limited Partnership (Note 2) 239 232 230
Midland Cogeneration Venture Limited
Partnership (Note 2) 163 134 127
Other 7 8 8
------ ------ ------
667 672 703
------ ------ ------
Current Assets
Cash and temporary cash investments at cost,
which approximates market 9 4 12
Accounts receivable and accrued revenue, less
allowances of $6, $10 and $2, respectively (Note 4) 47 148 64
Accounts receivable - related parties 87 63 27
Inventories at average cost
Gas in underground storage 253 186 250
Materials and supplies 69 68 71
Generating plant fuel stock 26 30 28
Postretirement benefits 25 25 25
Deferred income taxes 9 27 21
Prepayments and other 51 183 81
------ ------ ------
576 734 579
------ ------ ------
Non-current Assets
Nuclear decommissioning trust funds 478 386 360
Postretirement benefits 411 435 442
Abandoned Midland Project 98 113 117
Other 238 234 278
------ ------ ------
1,225 1,168 1,197
------ ------ ------
Total Assets $6,838 $7,025 $6,898
====== ====== ======
</TABLE>
<PAGE>
<PAGE>
<TABLE>

<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in-capital 502 504 504
Revaluation capital 45 37 30
Retained earnings since December 31, 1992 396 297 326
------ ------ ------
1,784 1,679 1,701
Preferred stock 238 356 356
Company-obligated mandatorily redeemable
Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 - -
Long-term debt 1,462 1,900 1,876
Non-current portion of capital leases 82 100 89
------ ------ ------
3,786 4,135 4,122
------ ------ ------
Current Liabilities
Current portion of long-term debt and
capital leases 483 98 97
Notes payable 389 333 340
Accounts payable 140 212 161
Accounts payable - related parties 75 68 65
Accrued taxes 97 211 96
Power purchases (Note 2) 47 47 90
Accrued interest 25 33 28
Accrued refunds 7 8 23
Other 139 176 173
------ ------ ------
1,402 1,186 1,073
------ ------ ------
Non-current Liabilities
Deferred income taxes 630 646 618
Postretirement benefits 495 500 509
Deferred investment tax credit 152 159 162
Power purchases (Note 2) 144 178 197
Regulatory liabilities for income taxes, net 86 66 61
Other 143 155 156
------ ------ ------
1,650 1,704 1,703
------ ------ ------
Commitments and Contingencies (Notes 2, 3, 5 and 6)

Total Stockholders' Investment and Liabilities $6,838 $7,025 $6,898
====== ====== ======
<FN>
(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36% subordinated
interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company Financing II is $124 million
principal amount of 8.20% subordinated interest notes due 2027 from Consumers. For further discussion, see Note 4.
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 53

<TABLE>
Consumers Energy Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 841 $ 841 $ 841 $ 841 $ 841 $ 841
------- ------- ------- ------- ------- -------
Other Paid-in Capital
At beginning of period 504 504 504 491 504 491
Preferred stock reacquired (2) - (2) - (2) -
Stockholder's contribution - - - 13 - 13
------- ------- ------- ------- ------- -------
At end of period 502 504 502 504 502 504
------- ------- ------- ------- ------- -------
Revaluation Capital
At beginning of period 41 31 37 29 30 22
Change in unrealized
investment - gain (loss) 4 (1) 8 1 15 8
------- ------- ------- ------- ------- -------
At end of period 45 30 45 30 45 30
------- ------- ------- ------- ------- -------
Retained Earnings
At beginning of period 368 305 297 237 326 191
Net income 80 69 239 230 305 283
Common stock dividends declared (43) (39) (113) (114) (199) (114)
Preferred stock dividends declared (6) (7) (20) (21) (27) (28)
Trust Preferred Securities
distributions (3) (2) (7) (6) (9) (6)
------- ------- ------- ------- ------- -------
At end of period 396 326 396 326 396 326
------- ------- ------- ------- ------- -------
Total Common Stockholder's Equity $1,784 $1,701 $1,784 $1,701 $1,784 $1,701
======= ======= ======= ======= ======= =======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 54

Consumers Energy Company
Condensed Notes to Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in the Consumers 1996 Form 10-K which includes the Report of
Independent Public Accountants. In the opinion of management, the
unaudited information herein reflects all adjustments necessary to assure
the fair presentation of financial position, results of operations and
cash flows for the periods presented.

1: Corporate Structure

2: The Midland Cogeneration Venture

Summarized Statements of Income for CMS Midland and CMS Holdings:

In Millions
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Pretax operating income $18 $19 $36 $31 $45 $38
Income taxes and other 6 6 11 9 13 11
--- --- --- --- --- ---
Net income $12 $13 $25 $22 $32 $27
=== === === === === ===
</TABLE>

In Millions
1997 1998 1999 2000 2001

Estimated cash underrecoveries,
net of tax $40 $23 $22 $21 $20

3: Rate Matters

Resolution of the issues discussed in this note is not expected to have a
material effect on Consumers' financial position or results of operations.

4: Short-Term Financings and Capitalization

Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million that are available to finance
seasonal working capital requirements and pay for capital expenditures
between long-term financings. At September 30, 1997, a total of $389
million was outstanding at a weighted average interest rate of 6.2
percent, compared with $340 million outstanding at September 30, 1996, at
a weighted average interest rate of 6.0 percent.

Consumers has entered into interest rate swap agreements (derivatives) to
exchange variable rate interest payment obligations for fixed rate
obligations in order to reduce the impact of interest rate fluctuations.
In order for derivatives to initially qualify for hedge accounting the
following criteria must be met: 1) the item to be hedged exposes the
enterprise to interest rate risk; and 2) the derivative reduces that
exposure and is designated as a hedge. The hedged amounts are used to
measure interest to be paid or received and do not represent the amount of
exposure to principal loss. The hedged amount of Consumers' interest rate
swaps was $416 million at September 30, 1997. The difference between the
amounts paid and received under the swaps is accrued and recorded as an
adjustment to interest expense over the life of the hedged agreement.

Derivative instruments contain credit risk if the counterparties,
including financial institutions, fail to perform under the agreements.
However, Consumers minimizes such risk by performing financial credit
reviews using, among other things, publicly available credit ratings of
such counterparties. The risk of nonperformance by the counterparties is
considered remote.

In 1996, 4 million shares of 8.36 percent Trust Preferred Securities were
issued and sold through Consumers Power Company Financing I, a wholley
owned business trust consolidated with Consumers. Net proceeds from the
sale totaled $97 million. In September 1997, 4.8 million shares of 8.20
percent Trust Preferred Securities were issued and sold through Consumers
Energy Company Financing II, a wholley owned business trust consolidated
with Consumers. Net proceeds from the sale totaled $116 million. Both
trusts were formed for the sole purpose of issuing the Trust Preferred
Securities. Consumers' obligations with respect to the Trust Preferred
Securities under the notes, under the indenture under which the notes have
been issued, under Consumers' guarantee of the Trust Preferred Securities,
and under the declaration by the trust, taken together, constitute a full
and unconditional guarantee by Consumers of the trusts' obligations under
the Trust Preferred Securities. For additional information, see footnote
(a) to the Consolidated Balance Sheets.

In September 1997, Consumers redeemed all outstanding shares of its $7.45,
$7.68, $7.72 and $7.76 preferred stock for $120 million.

Under the provisions of its Articles of Incorporation at September 30,
1997, Consumers had $365 million of unrestricted retained earnings
available to pay common dividends. In October 1997, Consumers declared a
$57 million common dividend to be paid in November 1997.

In October 1997, Consumers returned $50 million of paid in capital to
CMS Energy.

5: Commitments and Contingencies

The Clean Air Act also contains national air quality standards under which
industry must operate. Consumers currently operates within these
standards and meets current ozone and small particle related emission
limits. The Act requires the EPA to periodically review the effectiveness
of these standards in preventing adverse health affects. The EPA recently
revised these standards to further limit small particle and ozone related
emissions. Consumers supports the bipartisan effort in Congress to delay
implementation of the revised standards until the relationship between the
new standards and health improvements is established.

Capital Expenditures: Consumers estimates capital expenditures, including
new lease commitments, of $390 million for 1997, $415 million for 1998 and
$410 million for 1999. For further information, see Capital Expenditures
in Forward-Looking Information in the MD&A.

Other: In October 1997, two independent power producers filed a lawsuit
against Consumers and CMS Energy in a federal court. The suit alleges
antitrust violations relating to contracts which Consumers entered into
with some of its customers as well as claims relating to independent power
production projects. The plaintiffs claim damages of $100 million (which
can be trebled in antitrust cases as provided by law). The transactions
of which plaintiffs complain have been regulated by and subject to the
jurisdiction of the MPSC. Consumers believes the lawsuit is without merit
and will vigorously defend against it, but cannot predict the outcome of
this matter.

In addition to the matters disclosed in these Notes, Consumers and certain
of its subsidiaries are parties to certain lawsuits and administrative
proceedings before various courts and governmental agencies arising from
the ordinary course of business and involving personal injury, property
damage, contractual matters, environmental issues, federal and state
taxes, rates, licensing and other matters.

Estimated losses for certain contingencies discussed in this Note have
been accrued. Resolution of these contingencies is not expected to have a
material adverse impact on Consumers' financial position or results of
operations.

6: Nuclear Matters

Consumers is required to make certain calculations and report to the NRC
about the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock events during its remaining license
life, in light of the embrittlement of reactor vessel materials over time
due to operation in a radioactive environment. Based on continuing
analysis of data from testing of similar materials, in 1996 Consumers
received an interim Safety Evaluation Report from the NRC indicating that
the reactor vessel can be safely operated through 2003 before reaching the
NRC's screening criteria for reactor embrittlement. Consumers believes
that with fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007 without
annealing of the reactor vessel, but will continue to monitor the matter.

7: Supplemental Cash Flow Information

For purposes of the Consolidated Statements of Cash Flows, all highly
liquid investments with an original maturity of three months or less are
considered cash equivalents. Other cash flow activities and non-cash
investing and financing activities were:

In Millions
Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996

Cash transactions
Interest paid
(net of amounts capitalized) $129 $122 $164 $159
Income taxes paid
(net of refunds) 122 105 135 76

Non-cash transactions
Nuclear fuel placed under
capital lease $ 4 $ 8 $ 24 $ 10
Other assets placed under
capital leases 5 2 6 4
Capital leases refinanced - - - 21

<PAGE>
<PAGE> 61

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To Consumers Energy Company:

We have reviewed the accompanying consolidated balance sheets of CONSUMERS
ENERGY COMPANY (a Michigan corporation and wholly owned subsidiary of
CMS Energy Corporation) and subsidiaries as of September 30, 1997 and
1996, the related consolidated statements of income and common
stockholder's equity for the three-month, nine-month and twelve-month
periods then ended, and the related consolidated statements of cash flows
for the nine-month and twelve-month periods then ended. These financial
statements are the responsibility of the Company's management.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statements of
long-term debt and preferred stock of Consumers Energy Company and
subsidiaries as of December 31, 1996, and the related consolidated
statements of income, common stockholder's equity and cash flows for the
year then ended (not presented herein), and, in our report dated January
24, 1997, we expressed an unqualified opinion on those statements. In our
opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.

Arthur
Andersen LLP

Detroit, Michigan,
November 10, 1997.
<PAGE>
<PAGE> 62

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The discussion below is limited to an update of developments that have
occurred in various judicial and administrative proceedings, many of which
are more fully described in CMS Energy's and Consumers' Form 10-K for the
year ended December 31, 1996, and in their Forms 10-Q for the quarters
ended March 31, 1997 and June 30, 1997. Reference is made to the Notes to
the Consolidated Financial Statements included herein for additional
information regarding various pending administrative and judicial
proceedings involving rate, operating and environmental matters.

CONSUMERS STRAY VOLTAGE LITIGATION

Consumers has a number of lawsuits relating to so-called stray voltage,
which results when small electrical currents present in grounded electric
systems are diverted from their intended path. At September 30, 1997,
Consumers had 16 separate stray voltage cases awaiting action at the trial
court level and the number pending has subsequently decreased to 9.
Accordingly, CMS Energy and Consumers believe that the resolution of
remaining lawsuits will not have a material impact on either company.
Absent presently unanticipated further developments, stray voltage
litigation will not be disclosed in future SEC filings.

CMS ENERGY AND CONSUMERS ANTITRUST LITIGATION

In October 1997, Indeck Energy Services, Inc. and Indeck Saginaw Limited
Partnership, independent power producers, filed a lawsuit against
CMS Energy and Consumers in the United States District Court for the
Eastern District of Michigan. The suit alleges antitrust violations
relating to contracts that Consumers entered into with some of its
customers as well as claims relating to independent power production
projects. The plaintiffs claim damages of $100 million (which can be
trebled in antitrust cases as provided by law). The transactions of which
plaintiffs complain have been regulated by and subject to the jurisdiction
of the MPSC. CMS Energy and Consumers presently believe the lawsuit is
entirely without merit and will vigorously defend against it, but cannot
predict the outcome of this matter.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits

(4)(a) - Consumers: Second Supplemental Indenture dated as of
September 4, 1997 between Consumers and
The Bank of New York, as Trustee
(4)(b) - CMS Energy: Fifth Supplemental Indenture dated as of
November 4, 1997, between CMS Energy and
NBD Bank, as Trustee
(12) - CMS Energy: Statements regarding computation of Ratio
of Earnings to Fixed Charges
(15) - CMS Energy: Letter of Independent Public Accountant
(27)(a) - CMS Energy: Financial Data Schedule
(27)(b) - Consumers: Financial Data Schedule
(99) - CMS Energy: Consumers Gas Group Financials

(b) Reports on Form 8-K

Current Reports on Form 8-K dated August 21, 1997 were filed by each of
CMS Energy and Consumers covering matters pursuant to "Item 5. Other
Events."
<PAGE>
<PAGE> 64

SIGNATURES

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

CMS ENERGY CORPORATION
-----------------------
(Registrant)

Dated: November 14, 1997 By A. M. Wright
-----------------------
Alan M. Wright
Senior Vice President,
Chief Financial Officer and Treasurer

CONSUMERS ENERGY COMPANY
-----------------------
(Registrant)

Dated: November 14, 1997 By A. M. Wright
-----------------------
Alan M. Wright
Senior Vice President and
Chief Financial Officer

<PAGE>

<PAGE>
EXHIBIT (4)(a)

====================================

SECOND SUPPLEMENTAL INDENTURE

between

CONSUMERS ENERGY COMPANY

and

THE BANK OF NEW YORK

Dated as of September 4, 1997

====================================<PAGE>
<PAGE>

TABLE OF CONTENTS
PAGE

ARTICLE I.
DEFINITIONS

SECTION 1.1.Definition of Terms . . . . . . . . . . 2

ARTICLE II.
GENERAL TERMS AND CONDITIONS OF THE NOTES

SECTION 2.1.Designation and Principal Amount. . . . 3
SECTION 2.2.Maturity. . . . . . . . . . . . . . . . 3
SECTION 2.3.Form and Payment. . . . . . . . . . . . 3
SECTION 2.4.Global Note . . . . . . . . . . . . . . 3
SECTION 2.5.Interest. . . . . . . . . . . . . . . . 4

ARTICLE III.
REDEMPTION OF THE NOTES

SECTION 3.1.Special Event Redemption. . . . . . . . 5
SECTION 3.2.Optional Redemption by Issuer . . . . . 5
SECTION 3.3.No Sinking Fund . . . . . . . . . . . . 6

ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD

SECTION 4.1.Extension of Interest Payment Period. . 6
SECTION 4.2.Notice of Extension . . . . . . . . . . 6

ARTICLE V.
EXPENSES

SECTION 5.1.Payment of Expenses . . . . . . . . . . 7
SECTION 5.2.Payment Upon Resignation or Removal . . 7

ARTICLE VI.
SUBORDINATION

SECTION 6.1.Agreement to Subordinate. . . . . . . . 7

ARTICLE VII.
COVENANT TO LIST ON EXCHANGE

SECTION 7.1.Listing on an Exchange. . . . . . . . . 8

ARTICLE VIII.
FORM OF NOTES

SECTION 8.1.Form of Note. . . . . . . . . . . . . . 8

ARTICLE IX.
ORIGINAL ISSUE OF NOTES

SECTION 9.1.Original Issue of Notes . . . . . . . . 12

ARTICLE X.
MISCELLANEOUS

SECTION 10.1Provisions of Indenture for the Sole
Benefit of Parties and Holders of
Trust Securities . . . . . . . . . . . . 13
SECTION 10.2Ratification of Indenture . . . . . . . 13
SECTION 10.3.Trustee Not Responsible for Recitals . 13
SECTION 10.4.Governing Law. . . . . . . . . . . . . 13
SECTION 10.5.Separability . . . . . . . . . . . . . 13
SECTION 10.6.Counterparts . . . . . . . . . . . . . 13
<PAGE>
<PAGE> 1

SECOND SUPPLEMENTAL INDENTURE, dated as of September 4, 1997,
(the "Second Supplemental Indenture"), between Consumers Energy Company, a
Michigan Corporation (the "Issuer"), and The Bank of New York, as trustee
(the "Trustee") under the Indenture dated as of January 1, 1996 between
the Issuer and the Trustee (the "Indenture").

WHEREAS, the Issuer executed and delivered the Indenture to the
Trustee to provide for the future issuance of the Issuer's Securities to
be issued from time to time in one or more series as might be determined
by the Issuer under the Indenture, in an unlimited aggregate principal
amount which may be authenticated and delivered as provided in the
Indenture; and

WHEREAS, Section 2.3 of the Indenture permits the terms of any
series of Securities to be established in an indenture supplemental to the
Indenture; and

WHEREAS, Section 8.1(d) of the Indenture provided that a
supplemental indenture may be entered into without the consent of any
Holders of Securities to supplement certain provisions of the Indenture;
and

WHEREAS, Section 8.1(e) of the Indenture provides that a
supplemental indenture may be entered into by the Issuer and the Trustee
without the consent of any Holders of the Securities to establish the form
and terms of the Securities of any series; and

WHEREAS, pursuant to the terms of the Indenture, the Issuer
desires to provide for the establishment of a new series of its Securities
to be known as its 8.20% Subordinated Deferrable Interest Notes due 2027
(the "Notes"), the form and substance of such Notes and the terms,
provisions and conditions thereof to be set forth as provided in the
Indenture and this Second Supplemental Indenture; and

WHEREAS, Consumers Energy Company Financing II, a Delaware
statutory business trust (the "Trust"), has offered to the public $120
million aggregate liquidation amount of its 8.20% Trust Originated
Preferred Securities (the "Preferred Securities"), representing undivided
beneficial interests in the assets of the Trust and proposes to invest
the proceeds from such offering, together with the proceeds of the
issuance and sale by the Trust to the Issuer of $3,711,350 aggregate
liquidation amount of its 8.20% Trust Originated Common Securities
(together the "Trust Securities), in $123,711,350 aggregate principal
amount of the Notes; and

WHEREAS, the Issuer wishes to supplement Section 13.2 of the
Indenture with respect to the Notes and the Preferred Securities; and

WHEREAS, the Issuer has requested that the Trustee execute and
deliver this Second Supplemental Indenture and all requirements necessary
to make this Second Supplemental Indenture a valid instrument in
accordance with its terms, and to make the Notes, when executed by the
Issuer and authenticated and delivered by the Trustee, the valid
obligations of the Issuer, have been performed, and the execution and
delivery of this Second Supplemental Indenture has been duly authorized in
all respects.

NOW THEREFORE, in consideration of the purchase and acceptance
of the Notes by the Holders thereof, and for the purpose of setting forth,
as provided in the Indenture, the form and substance of the Notes and the
terms, provisions and conditions thereof, the Issuer covenants and agrees
with the Trustee as follows:
<PAGE>
<PAGE>

ARTICLE I.
DEFINITIONS

SECTION 1.1.DEFINITION OF TERMS.

Unless the context otherwise requires:

(a)a term defined in the Indenture has the same meaning when
used in this Second Supplemental Indenture;

(b)a term defined anywhere in this Second Supplemental
Indenture has the same meaning throughout;

(c)the singular includes the plural and vice versa;

(d)a reference to a Section or Article is to a Section or
Article of this Second Supplemental Indenture;

(e)headings are for convenience of reference only and do not
affect interpretation;

(f)the following terms have the meanings given to them in the
Declaration: (i) Clearing Agency; (ii) Delaware Trustee; (iii) Redemption
Tax Opinion; (iv) No Recognition Opinion; (v) Preferred Security
Certificate; (vi) Property Trustee; (vii) Regular Trustees; (viii) Special
Event; (ix) Tax Event; (x) Underwriting Agreement; (xi) Investment Company
Event; and (xii) Distribution;

(g)the following terms have the meanings given to them in this
Section 1.1(g):

"Additional Interest" shall have the meaning set forth in
Section 2.5.

"Compounded Interest" shall have the meaning set forth in
Section 4.1.

"Coupon Rate" shall have the meaning set forth in
Section 2.5.

"Declaration" means the Amended and Restated Declaration of
Trust of Consumers Energy Company Financing II, a Delaware statutory
business trust, dated as of September 4, 1997.

"Deferred Interest" shall have the meaning set forth in
Section 4.1.

"Dissolution Event" means that, as a result of the
occurrence and continuation of a Special Event, the Trust is to be
dissolved in accordance with the Declaration, and the Notes held by the
Property Trustee are to be distributed to the holders of the Trust
Securities issued by the Trust pro rata in accordance with the
Declaration.

"Extended Interest Payment Period" shall have the meaning
set forth in Section 4.1.

"Global Note" shall have the meaning set forth in Section
2.4.

"Non Book-Entry Preferred Securities" shall have the
meaning set forth in Section 2.4.

"Optional Redemption Price" shall have the meaning set
forth in Section 3.2.

ARTICLE II.
GENERAL TERMS AND CONDITIONS OF THE NOTES

SECTION 2.1.DESIGNATION AND PRINCIPAL AMOUNT.

There is hereby authorized and established a series of
unsecured Securities designated the "8.20% Subordinated Deferrable
Interest Notes due 2027", limited in aggregate principal amount to
$123,711,350, (except as contemplated in Section 2(f)(2) of the
Indenture).

SECTION 2.2.MATURITY.

The Maturity Date of the Notes is September 1, 2027.

SECTION 2.3.FORM AND PAYMENT.

The Notes shall be issued in fully registered form without
interest coupons. Principal and interest on the Notes issued in
certificated form will be payable, the transfer of such Notes will be
registrable and such Notes will be exchangeable for Notes bearing
identical terms and provisions, at the office or agency of the Trustee in
the Borough of Manhattan, the City of New York; provided, however, that
payment of interest may be made at the option of the Issuer by check
mailed to the Holder at such address as shall appear in the Security
Register or by wire transfer to an account maintained by the Holder.
Notwithstanding the foregoing, so long as the Holder of any Notes is the
Property Trustee, the payment of the principal of and interest (including
Compounded Interest and Additional Interest, if any) on such Notes held by
the Property Trustee will be made at such place and to such account as may
be designated by the Property Trustee.

SECTION 2.4.GLOBAL NOTE.

(a) In connection with a Dissolution Event,

(i) the Notes may be presented to the Trustee by
the Property Trustee in exchange for a global Note in an
aggregate principal amount equal to the aggregate principal
amount of all outstanding Notes (a "Global Note"), to be
registered in the name of the Clearing Agency, or its nominee,
and delivered by the Trustee to the Clearing Agency for
crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees and the Clearing Agency
will act as Depository for the Notes. The Issuer upon any such
presentation, shall execute a Global Note in such aggregate
principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with the Indenture and
this Second Supplemental Indenture. Payments on the Notes
issued as a Global Note will be made to the Depositary; and

(ii)if any Preferred Securities are held in non
book-entry certificated form, the Notes may be presented to the
Trustee by the Property Trustee and any Preferred Security
Certificate which represents Preferred Securities other than
Preferred Securities held by the Clearing Agency or its nominee
("Non Book-Entry Preferred Securities") will be deemed to
represent beneficial interests in Notes presented to the Trustee
by the Property Trustee having an aggregate principal amount
equal to the aggregate liquidation amount of the Non Book-Entry
Preferred Securities until such Preferred Security Certificates
are presented to the Security Registrar for transfer or
reissuance at which time such Preferred Security Certificates
will be cancelled and a Note, registered in the name of the
holder of the Preferred Security Certificate or the transferee
of the holder of such Preferred Security Certificate, as the
case may be, with an aggregate principal amount equal to the
aggregate liquidation amount of the Preferred Security
Certificate cancelled, will be executed by the Issuer and
delivered to the Trustee for authentication and delivery in
accordance with the Indenture and this Second Supplemental
Indenture.

(b) Except as provided in (c) below, a Global Note may be
transferred, in whole but not in part, only to another nominee of the
Depositary, or to a successor Depositary selected or approved by the
Issuer or to a nominee of such successor Depositary.

(c) If at any time the Depositary notifies the Issuer
that it is unwilling or unable to continue as Depositary or if at any time
the Depositary for such series shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended, or other
applicable statute or regulation, and a successor Depositary for such
series is not appointed by the Issuer within 90 days after the Issuer
receives such notice or becomes aware of such condition, as the case may
be, the Issuer will execute, and, subject to Section 2.8 of the Indenture,
the Trustee, upon written notice from the Issuer, will authenticate and
deliver the Notes in definitive registered form, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Note in exchange for such Global Note. In addition,
the Issuer may at any time determine that the Notes shall no longer be
represented by a Global Note. In such event the Issuer will execute, and
subject to Section 2.8 of the Indenture, the Trustee, upon receipt of an
Officers' Certificate evidencing such determination by the Issuer, will
authenticate and deliver the Notes in definitive registered form, in
authorized denominations, and in an aggregate principal amount equal to
the principal amount of the Global Note in exchange for such Global Note.
Upon the exchange of the Global Note for such Notes in definitive
registered form, in authorized denominations, the Global Note shall be
cancelled by the Trustee. Such Notes in definitive registered form issued
in exchange for the Global Note shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Notes to the Depositary for
delivery to the Persons in whose names such Notes are so registered.

SECTION 2.5.INTEREST.

(a) Each Note will bear interest at the rate of 8.20% per
annum (the "Coupon Rate") from the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal
and (to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest, at the Coupon
Rate, compounded quarterly, payable (subject to the provisions of
Article IV) quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, an "Interest Payment Date," commencing on
September 30, 1997), to the Person in whose name such Note or any
predecessor Note is registered, at the close of business on the regular
record date for such interest installment, which, in respect of any Notes
of which the Property Trustee is the Holder or a Global Note, shall be the
close of business on the Business Day next preceding that Interest Payment
Date. Notwithstanding the foregoing sentence, if the Preferred Securities
are no longer in book-entry only form or, except if the Notes are held by
the Property Trustee, the Notes are not represented by a Global Note, the
regular record date for such interest installment shall be the fifteenth
day of the month in which the applicable Interest Payment Date occurs.

(b) The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Except
as provided in the following sentence, the amount of interest payable for
any period shorter than a full quarterly period for which interest is
computed, will be computed on the basis of the actual number of days
elapsed in such a 90-day period. In the event that any date on which
interest is payable on the Notes is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.

(c) If, at any time while the Property Trustee is the
Holder of any Notes, the Trust or the Property Trustee is required to pay
any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other
taxing authority, then, in any case, the Issuer will pay as additional
interest ("Additional Interest") on the Notes held by the Property
Trustee, such additional amounts as shall be required so that the net
amounts received and retained by the Trust and the Property Trustee after
paying such taxes, duties, assessments or other governmental charges will
be equal to the amounts the Trust and the Property Trustee would have
received had no such taxes, duties, assessments or other governmental
charges been imposed.

ARTICLE III.
REDEMPTION OF THE NOTES

SECTION 3.1.SPECIAL EVENT REDEMPTION.

If (a) a Tax Event has occurred and is continuing and (i)
the Issuer has received a Redemption Tax Opinion, or (ii) The Regular
Trustees shall have been informed by tax counsel that a No Recognition
Opinion cannot be delivered to the Trust, or (b) an Investment Company
Event has occurred and is continuing, then, notwithstanding Section 3.2(a)
but subject to Section 3.2(b) and Article Eleven of the Indenture, the
Issuer shall have the right upon not less than 30 days' nor more than 60
days' notice to the Holders of the Notes to redeem the Notes, in whole or
in part, for cash within 90 days' following the occurrence of such Special
Event (the "90 Day Period") at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Redemption Price"), provided
that if at the time there is available to the Issuer or the Trust the
opportunity to eliminate, within the 90 Day Period, the Special Event by
taking some ministerial action ("Ministerial Action"), such as filing a
form or making an election, or pursuing some other similar reasonable
measure which has no adverse effect on the Issuer, the Trust or the
Holders of the Trust Securities issued by the Trust, the Issuer shall
pursue such Ministerial Action in lieu of redemption, and, provided,
further, that the Issuer shall have no right to redeem the Notes while the
Trust is pursuing any Ministerial Action pursuant to its obligations under
the Declaration. The Redemption Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or such earlier time as the
Issuer determines, and the Issuer shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on
the date such Redemption Price is to be paid.

SECTION 3.2.OPTIONAL REDEMPTION BY ISSUER.

(a) Subject to the provisions of Section 3.2(b) and to
the provisions of Article Eleven of the Indenture, the Issuer shall have
the right to redeem the Notes, in whole or in part, from time to time, on
or after September 30, 2002, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Optional Redemption Price").
Any redemption pursuant to this paragraph will be made upon not less than
30 days' nor more than 60 days' notice to the Holder of the Notes, at the
Optional Redemption Price. If the Notes are only partially redeemed
pursuant to this Section 3.2, the Notes will be redeemed on a pro rata
basis provided that if at the time of redemption the Notes are registered
as a Global Note, the Depository shall determine, in accordance with its
procedures, the principal amount of such Notes held by each Holder of
Notes to be redeemed. The Optional Redemption Price shall be paid prior
to 12:00 noon, New York time, on the date of such redemption or at such
earlier time as the Issuer determines and the Issuer shall deposit with
the Trustee an amount sufficient to pay the Optional Redemption Price by
10:00 a.m., New York time, on the date such Optional Redemption Price is
to be paid.

(b) If a partial redemption of the Notes would result in
the delisting of the Preferred Securities from any national securities
exchange or other organization on which the Preferred Securities are then
listed, the Issuer shall not be permitted to effect such partial
redemption and may only redeem the Notes in whole.

SECTION 3.3.NO SINKING FUND.

The Notes are not entitled to the benefit of any sinking
fund.

ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD

SECTION 4.1.EXTENSION OF INTEREST PAYMENT PERIOD.

The Issuer shall have the right, at any time and from time
to time during the term of the Notes, to defer payments of interest by
extending the interest payment period of such Notes for a period not
exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall
be due and payable; provided that no Extended Interest Payment Period may
extend beyond the Maturity Date. To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 4.1,
will bear interest thereon at the Coupon Rate compounded quarterly for
each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the
Issuer shall pay all interest accrued and unpaid on the Notes, including
any Additional Interest and Compounded Interest (together, "Deferred
Interest") that shall be payable to the Holders of the Notes in whose
names the Notes are registered in the Security Register on the First
record date after the end of the Extended Interest Payment Period. Prior
to the termination of any Extended Interest Payment Period, the Issuer may
further extend such period, provided that such period together with all
such further extensions thereof shall not exceed 20 consecutive quarters.
Upon the termination of any Extended Interest Payment Period and upon the
payment of all Deferred Interest then due, the Issuer may commence a new
Extended Interest Payment Period, subject to the foregoing requirements.
No interest shall be due and payable during an Extended Interest Payment
Period, except at the end thereof, but the Issuer may prepay at any time
all or any portion of the interest accrued during an Extended Interest
Payment Period.

The limitations set forth in Section 3.5 of the Indenture
shall apply during any Extended Interest Payment Period.

SECTION 4.2.NOTICE OF EXTENSION.

(a) If the Property Trustee is the only registered Holder
of the Notes at the time the Issuer elects an Extended Interest Payment
Period, the Issuer shall give written notice to the Regular Trustees, the
Property Trustee and the Trustee of its election of such Extended Interest
Payment Period one Business Day before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities issued by
the Trust are payable, or (ii) the date the Trust is required to give
notice of the record date, or the date such Distributions are payable, to
the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Securities, but in any event
at least one Business Day before such record date.

(b) If the Property Trustee is not the only Holder of the
Notes at the time the Issuer elects an Extended Interest Payment Period,
the Issuer shall give the Holders of the Notes and the Trustee written
notice of its election of such Extended Interest Payment Period ten
Business Days before the earlier of (i) the next succeeding Interest
Payment Date, or (ii) the date the Issuer is required to give notice of
the record or payment date of such interest payment to the New York Stock
Exchange or other applicable self-regulatory organization or to Holders of
the Notes, but in any event at least 2 Business Days before such record
date.

(c) The quarter in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the
20 quarters permitted in the maximum Extended Interest Payment Period
permitted under Section 4.1.

ARTICLE V.
EXPENSES

SECTION 5.1.PAYMENT OF EXPENSES.

In connection with the offering, sale and issuance of the
Notes to the Property Trustee and in connection with the sale of the Trust
Securities by the Trust, the Issuer, in its capacity as borrower with
respect to the Notes, shall:

(a) pay all costs and expenses relating to the offering,
sale and issuance of the Notes, including commissions to the underwriters
payable pursuant to the Underwriting Agreement and the Pricing Agreements,
and compensation of the Trustee under the Indenture in accordance with the
provisions of Section 6.6 of the Indenture;

(b) pay all costs and expenses of the Trust (including,
but not limited to, costs and expenses relating to the organization of the
Trust, the offering, sale and issuance of the Trust Securities (including
commissions to the underwriters in connection therewith), the fees and
expenses of the Property Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust, including without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses
and costs and expenses incurred in connection with the acquisition,
financing, and disposition of Trust assets);

(d) pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and all
liabilities, costs and expenses with respect to such taxes of the Trust.

SECTION 5.2.PAYMENT UPON RESIGNATION OR REMOVAL.

Upon termination of this Second Supplemental Indenture or
the Indenture or the removal or resignation of the Trustee pursuant to
Section 6.10 of the Indenture, the Issuer shall pay to the Trustee all
amounts accrued to the date of such termination, removal or resignation.
Upon termination of the Declaration or the removal or resignation of the
Delaware Trustee or the Property Trustee, as the case may be, pursuant to
Section 5.6 of the Declaration, the Issuer shall pay to the Delaware
Trustee or the Property Trustee, as the case may be, all amounts accrued
to the date of such termination, removal or resignation.

ARTICLE VI.
SUBORDINATION

SECTION 6.1.AGREEMENT TO SUBORDINATE.

The Issuer covenants and agrees, and each Holder of Notes
issued hereunder, by such Holder's acceptance thereof likewise covenants
and agrees, that pursuant to Section 2.3(f)(9) of the Indenture all Notes
shall be issued as Subordinated Securities subject to the provisions of
Article Twelve of the Indenture and this Article VI; and each Holder of a
Note by its acceptance thereof accepts and agrees to be bound by such
provisions.

ARTICLE VII.
COVENANT TO LIST ON EXCHANGE

SECTION 7.1.LISTING ON AN EXCHANGE.

In connection with the distribution of the Notes to the
holders of the Preferred Securities upon a Dissolution Event, the Issuer
will use its best efforts to list such Notes on the New York Stock
Exchange or on such other exchange as the Preferred Securities are then
listed.

ARTICLE VIII.
FORM OF NOTES

SECTION 8.1.FORM OF NOTE.

The Notes and the Trustee's Certificate of Authentication
to be endorsed thereon are to be substantially in the following forms and
the Notes shall have such additional terms as may be set forth in such
form:

(FORM OF FACE OF NOTE)

[IF THE NOTE IS TO BE A GLOBAL NOTES, INSERT - This Note is
a Global Note within the meaning of the Indenture hereinafter referred to
and is registered in the name of a Depositary or a nominee of a
Depositary. This Note is exchangeable for Notes registered in the name of
a person other than the Depositary or its nominee only in the limited
circumstances described in the Indenture, and no transfer of this Note
(other than a transfer of this Note as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary) may be registered except
in limited circumstances.

Unless this Note is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New
York, New York) to the issuer or its agent for registration of transfer,
exchange or payment, and any Note issued is registered in the name of Cede
& Co. or such other name as requested by an authorized representative of
The Depository Trust Company and any payment hereon is made to Cede & Co.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an
interest herein.]

No. $

CUSIP NO.

CONSUMERS ENERGY COMPANY

____% SUBORDINATED DEFERRABLE INTEREST NOTES
DUE 2027

Consumers Energy Company, a Michigan corporation (the
"Issuer", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to
pay to ______________, or registered assigns, the principal sum of
_____________ Dollars ($___________) on _________, ____, and to pay
interest on said principal sum from ____________, 19 , or from the most
recent interest payment date (each such date, an "Interest Payment Date")
to which interest has been paid or duly provided for, quarterly (subject
to deferral as set forth herein) in arrears on March 31, June 30,
September 30 and December 31 of each year commencing ___________ at the
rate of ____% per annum until the principal hereof shall have become due
and payable, and on any overdue principal and premium, if any, and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest
at the same rate per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Note is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if
made on such date. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided
in the Indenture, be paid to the person in whose name this Note (or one or
more Predecessor Securities, as defined in said Indenture) is registered
at the close of business on the regular record date for such interest
installment, which shall be the close of business on the Business Day next
preceding such Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF
THE INDENTURE THE NOTES ARE NO LONGER REPRESENTED BY A GLOBAL NOTE --
which shall be the close of business on the 15th day of the month in which
such Interest Payment Date occurs.] If and to the extent the Issuer shall
default in the payment of the interest due on such Interest Payment Date,
interest shall be paid to the person in whose name this Note is registered
at the close of business on a subsequent record date (which shall not be
less than five Business Days prior to the date of payment of such
defaulted interest) established by notice given by mail by or on behalf of
the Issuer to the Holder of this Note not less than 15 days preceding such
subsequent Record Date. The principal of (and premium, if any) and the
interest on this Note shall be payable at the office or agency of the
Trustee in the Borough of Manhattan, the City of New York maintained for
that purpose in any coin or currency of the United States of America that
at the time is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of
the Issuer by check mailed to the registered Holder at such address as
shall appear in the Security Register or by wire transfer to an account
maintained by the Holder. Notwithstanding the foregoing, so long as the
Holder of this Note is the Property Trustee, the payment of the principal
of (and premium, if any) and interest on this Note will be made at such
place and to such account as may be designated by the Property Trustee.

The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness, and this Note is
issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on his
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided and (c) appoints
the Trustee his or her attorney-in-fact for any and all such purposes.
Each Holder hereof, by his or her acceptance hereof, hereby waives all
notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder
upon said provisions.

This Note shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been
signed by or on behalf of the Trustee.

The provisions of this Note are continued on the reverse
side hereof and such continued provisions shall for all purposes have the
same effect as though fully set forth at this place.

IN WITNESS WHEREOF, the Issuer has caused this instrument
to be executed.

Dated

Consumers Energy
Company

[Seal] By:
Name:
Title

Attest:

By:
Name:
Title:

(FORM OF CERTIFICATE OF AUTHENTICATION)

CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series of Securities
described in the within-mentioned Indenture.

[ ]

________________________________
as Trustee

By
Authorized Signatory

(FORM OF REVERSE OF NOTE)

This Note is one of a duly authorized series of Securities of
the Issuer (herein sometimes referred to as the "Notes"), specified in the
Indenture, all issued or to be issued in one or more series under and
pursuant to an Indenture dated as of January 1, 1996, duly executed and
delivered between the Issuer and The Bank of New York, a New York banking
corporation, as Trustee (the "Trustee"), as supplemented by certain
supplemental indentures, including the Second Supplemental Indenture dated
as of _______, 1997, between the Issuer and the Trustee (the Indenture as
so supplemented, the "Indenture"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the
rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders of the Notes. By
the terms of the Indenture, the Notes are issuable in series that may vary
as to amount, date of maturity, rate of interest and in other respects as
provided in the Indenture. This series of Notes is limited in aggregate
principal amount as specified in said Second Supplemental Indenture.

The Issuer shall have the right to redeem this Note at the
option of the Issuer, without premium or penalty, in whole or in part at
any time on or after __________, 2002, or at any time in certain
circumstances upon the occurrence of a Special Event, at a redemption
price equal to 100% of the principal amount plus any accrued but unpaid
interest, to the date of such redemption. Any redemption pursuant to this
paragraph will be made upon not less than 30 days nor more than 60 days'
notice. If the Notes are only partially redeemed by the Issuer pursuant
to an Optional Redemption, the Notes will be redeemed pro rata.

In the event of redemption of this Note in part only, a new
Note or Notes of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.

In case an Event of Default, as defined in the Indenture, shall
have occurred and be continuing, the principal of all of the Notes may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.

The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Notes and other Indenture securities of
each series affected at the time Outstanding and affected (voting as one
class), as defined in the Indenture, to execute supplemental indentures
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying in any manner the rights of the Holders of the
Notes; provided, however, that the Company and the Trustee may not,
without the consent of the Holder of each Note then Outstanding and
affected thereby: (a) change the time of payment of the principal (or any
installment) of any Note, or reduce the principal amount thereof, or
reduce the rate or change the time of payment of interest thereon, or
impair the right to institute suit for the enforcement of any payment on
any Note when due or (b) reduce the percentage in principal amount of the
Notes, the consent of whose Holders is required for any such modification
or for any waiver provided for in the Indenture. The Indenture also
contains provisions providing that prior to the acceleration of the
maturity of any Note or other securities outstanding under the Indenture,
the Holders of a majority in aggregate principal amount of Notes of and
other Securities Outstanding under the Indenture with respect to which a
default or/an Event of Default shall have occurred and be continuing
(voting as one class) may on behalf of the Holders of all such affected
Securities (including the Notes) waive any past default and its
consequences, except a default or an Event of Default in respect of a
covenant or provision of the Indenture or of any Note or other Security
which cannot be modified or amended without the consent of the Holder of
each Note or other Security affected. Any such consent or waiver by the
registered Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Note and of any Note issued in exchange
herefor or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Note.

No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Note at the time and place and at
the rate and in the money herein prescribed.

The Issuer shall have the right at any time during the term of
the Notes and from time to time to extend the interest payment period of
such Notes for up to 20 consecutive quarters (an "Extended Interest
Payment Period"), at the end of which period the Issuer shall pay all
interest then accrued and unpaid (together with interest thereon at the
rate specified for the Notes to the extent that payment of such interest
is enforceable under applicable law). Before the termination of any such
Extended Interest Payment Period, the Issuer may further extend such
Extended Interest Payment Period, provided that such Extended Interest
Payment Period together with all such further extensions thereof shall not
exceed 20 consecutive quarters. At the termination of any such Extended
Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Issuer may commence a
new Extended Interest Payment Period.

As provided in the Indenture and subject to certain limitations
therein set forth, this Note is transferable by the registered Holder
hereof on the Security Register of the Issuer, upon surrender of this Note
for registration of transfer at the office or agency of the Trustee in the
City and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer or the Trustee
duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount and series will
be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Issuer may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.

Prior to due presentment for registration of transfer of this
Note, the Issuer, the Trustee, any paying agent and the Security Registrar
may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Note shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the
Security Registrar) for the purpose of receiving payment of or on account
of the principal hereof and premium, if any, and interest due hereon and
for all other purposes, and neither the Issuer nor the Trustee nor any
paying agent nor any Security Registrar shall be affected by any notice to
the contrary.

No recourse shall be had for the payment of the principal of or
the interest on this Note, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future,
as such, of the Issuer or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.

Notes of this series so issued are issuable only in registered
form without coupons in denominations of $25 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations
herein and therein set forth, Notes of this series so issued are
exchangeable for a like aggregate principal amount of Notes of this series
in authorized denominations, as requested by the Holder surrendering the
same.

All terms used in this Note that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

[END OF FORM OF NOTE]

ARTICLE IX.
ORIGINAL ISSUE OF NOTES

SECTION 9.1. Original Issue of Notes.

Notes in the aggregate principal amount of $123,711,350 may,
upon execution of this Second Supplemental Indenture, be executed by the
Issuer and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and deliver said Notes to or upon the written
order of the Issuer, in accordance with Section 2.4 of the Indenture.

ARTICLE X.
MISCELLANEOUS

SECTION 10.1 Provisions of Indenture for the Sole Benefit of
Parties and Holders of Trust Securities.

Notwithstanding Section 13.2 of the Indenture, for so long as
any Trust Securities remain outstanding, the Issuer's obligations under
the Indenture and this Second Supplemental Indenture will also be for the
benefit of the holders of the Trust Securities, and the Issuer
acknowledges and agrees that such holders will be entitled to enforce
certain payment obligations under the Notes directly against the Issuer to
the extent provided in the Declaration.

SECTION 10.2 Ratification of Indenture.

The Indenture, as supplemented by this Second Supplemental
Indenture, is in all respects ratified and confirmed, and this Second
Supplemental Indenture shall be deemed part of the Indenture in the manner
and to the extent herein and therein provided.

SECTION 10.3.Trustee Not Responsible for Recitals.

The recitals herein contained are made by the Issuer and not by
the Trustee, and the Trustee assumes no responsibility for the correctness
thereof. The Trustee makes no representation as to the validity or
sufficiency of this Second Supplemental Indenture.

SECTION 10.4.Governing Law.

This Second Supplemental Indenture and each Note shall be
deemed to be a contract made under the internal laws of the State of
Michigan, and for all purposes shall be construed in accordance with the
laws of said State, provided, however, that the rights, duties and
obligations of the Trustee are governed and construed in accordance with
the laws of the State of New York.

SECTION 10.5.Separability.

In case any one or more of the provisions contained in this
Second Supplemental Indenture or in the Notes shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of
this Second Supplemental Indenture or of the Notes, but this Second
Supplemental Indenture and the Notes shall be construed as if such invalid
or illegal or unenforceable provision had never been contained herein or
therein.

SECTION 10.6.Counterparts.

This Second Supplemental Indenture may be executed in any
number of counterparts each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.IN
WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed on the date or dates indicated in the
acknowledgements and as of the day and year first above written.

Consumers Energy Company

By: /s/ A.M. Wright
______________________
Name:Alan M. Wright
Title: Senior Vice President and Chief
Financial Officer

[Seal]
Attest:

By: /s/ Joyce H. Norkey
_______________________
Joyce H. Norkey
Assistant Secretary

The Bank of New York, as Trustee

By: /s/ Denise Leonard
_____________________
Name: Denise Leonard
Title: Assistant Treasurer

STATE OF MICHIGAN )
)ss.
COUNTY OF WAYNE )

On the 4th day of September, 1997, before me personally came Alan M.
Wright, to me known, who, being by me duly sworn, did depose and say that
he resides at Ann Arbor, Michigan; that he is Senior Vice President and
Chief Financial Officer of Consumers Energy Company, one of the
corporations described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his name
thereto by like authority.

[Notarial Seal]

/s/ Sherry Ann White
________________________________

Notary Public, Wayne County, Michigan
My Commission Expires: March 7, 2002

<PAGE>
EXHIBIT (4)(b)

FIFTH SUPPLEMENTAL INDENTURE
dated as of November 4, 1997

____________________

This Fifth Supplemental Indenture, dated as of the 4th day
of November, 1997 between CMS Energy Corporation, a corporation duly
organized and existing under the laws of the State of Michigan
(hereinafter called the "Issuer") and having its principal office at
Fairlane Plaza South, Suite 1100, 330 Town Center Drive, Dearborn,
Michigan 48126, and NBD Bank, a Michigan banking corporation (hereinafter
called the "Trustee") and having its principal Corporate Trust Office at
611 Woodward Avenue, Detroit, Michigan 48226.

WITNESSETH:

WHEREAS, the Issuer and the Trustee (formerly known as NBD
Bank, National Association) entered into an Indenture, dated as of
September 15, 1992 (the "Original Indenture"), pursuant to which one or
more series of debt securities of the Issuer (the "Securities") may be
issued from time to time; and

WHEREAS, Section 2.3 of the Original Indenture permits the
terms of any series of Securities to be established in an indenture
supplemental to the Original Indenture; and

WHEREAS, Section 8.1(e) of the Original Indenture provides
that a supplemental indenture may be entered into by the Issuer and the
Trustee without the consent of any Holders of the Securities to establish
the form and terms of the Securities of any series; and

WHEREAS, the Issuer has requested the Trustee to join with
it in the execution and delivery of this Fifth Supplemental Indenture in
order to supplement and amend the Original Indenture by, among other
things, establishing the form and terms of a series of Securities to be
known as the Issuer's "7 3/8% Senior Unsecured Notes Due 2000, Series A" (the
"Series A Notes"), providing for the issuance of the Series A Notes and
amending and adding certain provisions thereof for the benefit of the
Holders of the Series A Notes; and

WHEREAS, the Issuer and certain purchasers of the Series A
Notes are entering into a Registration Rights Agreement dated as of
November 7, 1997 which requires the Issuer to use its best efforts to make
an Exchange Offer which would enable Holders of Series A Notes to exchange
such Series A Notes for Securities not subject to certain restrictions
under the Securities Act or to cause a Shelf Registration Statement to
become effective with respect to the Series A Notes (in each case as
defined in such Registration Rights Agreement); and

WHEREAS, the Issuer wishes to establish the forms and
terms of a series of Securities to be issued in exchange for Series A
Notes as so contemplated, such Securities to be known as the Issuer's "7 3/8%
Senior Unsecured Notes Due 2000, Series B" (the "Series B Notes"), provide
for the issuance of such Notes and amend and add certain provisions to the
Original Indenture for the benefit of the Holders of the Series B Notes;
and

WHEREAS, the Issuer and the Trustee desire to enter into
this Fifth Supplemental Indenture for the purposes set forth in Sections
2.3 and 8.1(e) of the Original Indenture as referred to above; and

WHEREAS, the Issuer has furnished the Trustee with a copy
of the resolutions of its Board of Directors certified by its Secretary or
Assistant Secretary authorizing the execution of this Fifth Supplemental
Indenture; and

WHEREAS, all things necessary to make this Fifth
Supplemental Indenture a valid agreement of the Issuer and the Trustee and
a valid supplement to the Original Indenture have been done,

NOW, THEREFORE, THIS FIFTH SUPPLEMENTAL INDENTURE
WITNESSETH:

For and in consideration of the premises and the purchase
of the Series A Notes and the Series B Notes (such Series A Notes and
Series B Notes being sometimes referred to herein as the "2000 Notes") to
be issued hereunder by holders thereof, the Issuer and the Trustee
mutually covenant and agree, for the equal and proportionate benefit of
the respective holders from time to time of such 2000 Notes, as follows:

ARTICLE I

STANDARD PROVISIONS; DEFINITIONS

SECTION 1.01. STANDARD PROVISIONS. The Original
Indenture together with this Fifth Supplemental Indenture and all previous
indentures supplemental thereto entered into pursuant to the applicable
terms thereof are hereinafter sometimes collectively referred to as the
"Indenture." All capitalized terms which are used herein and not
otherwise defined herein are defined in the Indenture and are used herein
with the same meanings as in the Indenture.

SECTION 1.02. DEFINITIONS. Section 1.1 of the Original
Indenture is amended to insert the new definitions applicable to the 2000
Notes, in the appropriate alphabetical sequence, as follows:

"Amortization Expense" means, for any period, amounts
recognized during such period as amortization of capital leases,
depletion, nuclear fuel, goodwill and assets classified as intangible
assets in accordance with generally accepted accounting principles.

"Applicable Premium" means, with respect to a 2000 Note
(or portion thereof) being redeemed at any time, the excess of (A) the
present value at such time of the principal amount of such 2000 Note (or
portion thereof) being redeemed plus all interest payments due on such
2000 Note (or portion thereof), which present value shall be computed
using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the principal amount of such 2000 Note (or portion thereof) being
redeemed at such time. For purposes of this definition, the present
values of interest and principal payments will be determined in accordance
with generally accepted principles of financial analysis.

"Average Life" means, as of the date of determination,
with respect to any Indebtedness, the quotient obtained by dividing (i)
the sum of the products of (x) the number of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness and (y) the amount of such principal payment by (ii)
the sum of all such principal payments.

"Capital Lease Obligation" of a Person means any
obligation that is required to be classified and accounted for as a
capital lease on the face of a balance sheet of such Person prepared in
accordance with generally accepted accounting principles; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with generally accepted accounting principles; the stated
maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or
assets to which such lease relates.

"Capital Stock" means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents
of or interests in (however designated) corporate stock, including any
Preferred Stock or Letter Stock; provided that Hybrid Preferred Securities
shall not be considered Capital Stock for purposes of this definition.

"Change in Control" means an event or series of events by
which (i) the Issuer ceases to own beneficially, directly or indirectly,
at least 80% of the total voting power of all classes of Capital Stock
then outstanding of Consumers (whether arising from issuance of securities
of the Issuer or Consumers, any direct or indirect transfer of securities
by the Issuer or Consumers, any merger, consolidation, liquidation or
dissolution of the Issuer or Consumers or otherwise); (ii) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the "beneficial owner" (as such term is used in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or
group shall be deemed to have "beneficial ownership" of all shares that
such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the Voting Stock of the Issuer; or (iii)
the Issuer consolidates with or merges into another corporation or
directly or indirectly conveys, transfers or leases all or substantially
all of its assets to any Person, or any corporation consolidates with or
merges into the Issuer, in either event pursuant to a transaction in which
the outstanding Voting Stock of the Issuer is changed into or exchanged
for cash, securities, or other property, other than any such transaction
in which (A) the outstanding Voting Stock of the Issuer is changed into or
exchanged for Voting Stock of the surviving corporation and (B) the
holders of the Voting Stock of the Issuer immediately prior to such
transaction retain, directly or indirectly, substantially proportionate
ownership of the Voting Stock of the surviving corporation immediately
after such transaction.

"CMS Electric and Gas" means CMS Electric and Gas Company,
a Michigan corporation and wholly-owned subsidiary of Enterprises.

"CMS Gas Transmission and Storage" means CMS Gas
Transmission and Storage Company, a Michigan corporation and wholly-owned
subsidiary of Enterprises.

"CMS Generation" means CMS Generation Co., a Michigan
corporation and wholly-owned subsidiary of Enterprises.

"CMS MST" means CMS Marketing, Services and Trading
Company, a Michigan corporation and wholly-owned subsidiary of
Enterprises.

"Consolidated Assets" means, at any date of determination,
the aggregate assets of the Issuer and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles.

"Consolidated Coverage Ratio" with respect to any period
means the ratio of (i) the aggregate amount of Operating Cash Flow for
such period to (ii) the aggregate amount of Consolidated Interest Expense
for such period.

"Consolidated Current Liabilities" means, for any period,
the aggregate amount of liabilities of the Issuer and its Consolidated
Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after (i) eliminating all inter-
company items between the Issuer and any Consolidated Subsidiary and (ii)
deducting all current maturities of long-term Indebtedness, all as
determined in accordance with generally accepted accounting principles.

"Consolidated Indebtedness" means, at any date of
determination, the aggregate Indebtedness of the Issuer and its
Consolidated Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles; provided that Consolidated
Indebtedness shall not include any subordinated debt owned by any Hybrid
Preferred Securities Subsidiary.

"Consolidated Interest Expense" means, for any period, the
total interest expense in respect of Consolidated Indebtedness of the
Issuer and its Consolidated Subsidiaries, including, without duplication,
(i) interest expense attributable to capital leases, (ii) amortization of
debt discount, (iii) capitalized interest, (iv) cash and noncash interest
payments, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net
costs under Interest Rate Protection Agreements (including amortization of
discount) and (vii) interest expense in respect of obligations of other
Persons deemed to be Indebtedness of the Issuer or any Consolidated
Subsidiaries under clause (v) or (vi) of the definition of Indebtedness,
provided, however, that Consolidated Interest Expense shall exclude (a)
any costs otherwise included in interest expense recognized on early
retirement of debt and (b) any interest expense in respect of any
Indebtedness of any Subsidiary of Consumers, CMS Generation, NOMECO,
CMS Electric and Gas, CMS Gas Transmission and Storage, CMS MST or any
other Designated Enterprises Subsidiary, provided that such Indebtedness
is without recourse to any assets of the Issuer, Consumers, Enterprises,
CMS Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission and
Storage, CMS MST or any other Designated Enterprises Subsidiary.

"Consolidated Net Income" means, for any period, the net
income of the Issuer and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles; provided, however, that there shall not be included in such
Consolidated Net Income:

(i) any net income of any Person if such Person is not a
Subsidiary, except that (A) the Issuer's equity in the net income
of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the
Issuer or a Consolidated Subsidiary as a dividend or other
distribution and (B) the Issuer's equity in a net loss of any such
Person for such period shall be included in determining such
Consolidated Net Income;

(ii) any net income of any Person acquired by the Issuer
or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;

(iii) any gain or loss realized upon the sale or other
disposition of any property, plant or equipment of the Issuer or
its Consolidated Subsidiaries which is not sold or otherwise
disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital
Stock of any Person; and

(iv) any net income of any Subsidiary of Consumers,
CMS Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission
and Storage, CMS MST or any other Designated Enterprises
Subsidiary whose interest expense is excluded from Consolidated
Interest Expense, provided, however, that for purposes of this
subsection (iv), any cash, dividends or distributions of any such
Subsidiary to the Issuer shall be included in calculating
Consolidated Net Income.

"Consolidated Net Tangible Assets" means, for any period,
the total amount of assets (less accumulated depreciation or amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Issuer and its
Consolidated Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, and after giving
effect to purchase accounting and after deducting therefrom, to the extent
otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other
than the Issuer or a Restricted Subsidiary; (iii) excess of cost over fair
value of assets of businesses acquired, as determined in good faith by the
Board of Directors as evidenced by Board resolutions; (iv) any revaluation
or other write-up in value of assets subsequent to December 31, 1996, as a
result of a change in the method of valuation in accordance with generally
accepted accounting principles; (v) unamortized debt discount and expenses
and other unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, licenses organization or
developmental expenses and other intangible items; (vi) treasury stock;
and (vii) any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities.

"Consolidated Net Worth" of any Person means the total of
the amounts shown on the consolidated balance sheet of such Person and its
consolidated subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, as of any date
selected by such Person not more than 90 days prior to the taking of any
action for the purpose of which the determination is being made (and
adjusted for any material events since such date), as (i) the par or
stated value of all outstanding Capital Stock plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable
to Exchangeable Stock.

"Consolidated Subsidiary" means, any Subsidiary whose
accounts are or are required to be consolidated with the accounts of the
Issuer in accordance with generally accepted accounting principles.

"Consumers" means Consumers Energy Company, a Michigan
corporation, all of whose common stock is on the date hereof owned by the
Issuer.

"Designated Enterprises Subsidiary" means any wholly-owned
subsidiary of Enterprises formed after the date of this Fifth Supplemental
Indenture which is designated a Designated Enterprises Subsidiary by the
Board of Directors.

"Enterprises" means CMS Enterprises Company, a Michigan
corporation and wholly-owned subsidiary of the Issuer.

"Event of Default" with respect to each series of 2000
Notes has the meaning specified in Article VI of this Fifth Supplemental
Indenture.

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

"Exchangeable Stock" means any Capital Stock of a
corporation that is exchangeable or convertible into another security
(other than Capital Stock of such corporation that is neither Exchangeable
Stock or Redeemable Stock).

"Hybrid Preferred Securities" means any preferred
securities issued by a Hybrid Preferred Securities Subsidiary, where such
preferred securities have the following characteristics:

(i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of
such preferred securities to the Company or Consumers in
exchange for subordinated debt issued by the Company or
Consumers respectively;
(ii) such preferred securities contain terms providing for the
deferral of distributions corresponding to provisions
providing for the deferral of interest payments on such
subordinated debt; and
(iii) the Company or Consumers (as the case may be) makes
periodic interest payments on such subordinated debt,
which interest payments are in turn used by the Hybrid
Preferred Securities Subsidiary to make corresponding
payments to the holders of the Hybrid Preferred
Securities.

"Hybrid Preferred Securities Subsidiary" means any
business trust (or similar entity) (i) all of the common equity interest
of which is owned (either directly or indirectly through one or more
wholly-owned Subsidiaries of the Company or Consumers) at all times by the
Company or Consumers, (ii) that has been formed for the purpose of issuing
Hybrid Preferred Securities and (iii) substantially all of the assets of
which consist at all times solely of subordinated debt issued by the
Company or Consumers (as the case may be) and payments made from time to
time on such subordinated debt.

"Indebtedness" of any Person means, without duplication,

(i) the principal of and premium (if any) in respect of
(A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is
responsible or liable;

(ii) all Capital Lease Obligations of such Person;

(iii) all obligations of such Person issued or assumed as
the deferred purchase price of property, all conditional sale
obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the
ordinary course of business);

(iv) all obligations of such Person for the reimbursement
of any obligor on any letter of credit, bankers' acceptance or
similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);

(v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is
responsible or liable as obligor, guarantor or otherwise; and

(vi) all obligations of the type referred to in clauses
(i) through (v) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation
is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or
the amount of the obligation so secured.

"Interest Payment Date" means May 15, 1998 and each
November 15 and May 15 in each year thereafter.

"Interest Rate Protection Agreement" means any interest
rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect the Issuer or any Subsidiary
against fluctuations in interest rates.

"Letter Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) which is intended to reflect the separate performance of
certain of the businesses or operations conducted by such corporation or
any of its subsidiaries.

"Lien" means any lien, mortgage, pledge, security
interest, conditional sale, title retention agreement or other charge or
encumbrance of any kind.

"Net Cash Proceeds" means, (a) with respect to any Asset
Sale, the aggregate proceeds of such Asset Sale including the fair market
value (as determined by the Board of Directors and net of any associated
debt and of any consideration other than Capital Stock received in return)
of property other than cash, received by the Issuer, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes (whether or not such taxes will actually be paid
or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Issuer and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that
either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts
to be provided by the Issuer or any Restricted Subsidiary of the Issuer as
a reserve against any liabilities associated with such Asset Sale
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all
as determined in conformity with generally accepted accounting principles
and (b) with respect to any issuance or sale or contribution in respect of
Capital Stock, the aggregate proceeds of such issuance, sale or
contribution, including the fair market value (as determined by the Board
of Directors and net of any associated debt and of any consideration other
than Capital Stock received in return) of property other than cash,
received by the Issuer, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof,
provided, however, that if such fair market value as determined by the
Board of Directors of property other than cash is greater than $25
million, the value thereof shall be based upon an opinion from an
independent nationally recognized firm experienced in the appraisal or
similar review of similar types of transactions.

"NOMECO" means, CMS NOMECO Oil & Gas Co., a Michigan
corporation and wholly-owned subsidiary of Enterprises.

"Non-Convertible Capital Stock" means, with respect to any
corporation, any non-convertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into non-convertible
Capital Stock other than Preferred Stock of such corporation; provided,
however, that Non-Convertible Capital Stock shall not include any
Redeemable Stock or Exchangeable Stock.

"Operating Cash Flow" means, for any period, with respect
to the Issuer and its Consolidated Subsidiaries, the aggregate amount of
Consolidated Net Income after adding thereto Consolidated Interest Expense
(adjusted to include costs recognized on early retirement of debt), income
taxes, depreciation expense, Amortization Expense and any noncash
amortization of debt issuance costs, any nonrecurring, noncash charges to
earnings and any negative accretion recognition.

"Other Rating Agency" shall mean any one of Duff & Phelps
Credit Rating Co., Fitch Investors Service, L.P. or Moody's Investors
Service, Inc., and any successor to any of these organizations which is a
nationally recognized statistical rating organization.

"Paying Agent" means any person authorized by the Issuer
to pay the principal of (and premium, if any) or interest on any of the
2000 Notes on behalf of the Issuer. Initially, the Paying Agent for each
series of 2000 Notes shall be the Trustee.

"Predecessor Note" with respect to any particular 2000
Note means every previous 2000 Note evidencing all or a portion of the
same debt as that evidenced by such particular 2000 Note; and, for the
purposes of this definition, any 2000 Note authenticated and delivered
under Section 2.9 of the Indenture in exchange for or in lieu of a
mutilated, destroyed, lost or stolen 2000 Note of the same series shall be
deemed to evidence the same debt as such mutilated, destroyed, lost or
stolen 2000 Note.

"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) that is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation; provided that Hybrid Preferred Securities shall
not be considered Preferred Stock for purposes of this definition.

"Redeemable Stock" means any Capital Stock that by its
terms or otherwise is required to be redeemed prior to the first
anniversary of the Stated Maturity of the Outstanding 2000 Notes or is
redeemable at the option of the holder thereof at any time prior to the
first anniversary of the Stated Maturity of the Outstanding 2000 Notes.

"Restricted Subsidiary" means any Subsidiary (other than
Consumers and its subsidiaries) of the Issuer which, as of the date of the
Issuer's most recent quarterly consolidated balance sheet, constituted at
least 10% of the total Consolidated Assets of the Issuer and its
Consolidated Subsidiaries and any other Subsidiary which from time to time
is designated a Restricted Subsidiary by the Board of Directors provided
that no Subsidiary may be designated a Restricted Subsidiary if,
immediately after giving effect thereto, an Event of Default or event
that, with the lapse of time or giving of notice or both, would constitute
an Event of Default would exist or the Issuer and its Restricted
Subsidiaries could not incur at least one dollar of additional
Indebtedness under Section 5.04, and (i) any such Subsidiary so designated
as a Restricted Subsidiary must be organized under the laws of the United
States or any State thereof, (ii) more than 80% of the Voting Stock of
such Subsidiary must be owned of record and beneficially by the Issuer or
a Restricted Subsidiary and (iii) such Restricted Subsidiary must be a
Consolidated Subsidiary.

"Standard & Poor's" shall mean Standard & Poor's Ratings
Group, a division of McGraw Hill Inc., and any successor thereto which is
a nationally recognized statistical rating organization, or if such entity
shall cease to rate the Outstanding 2000 Notes or shall cease to exist and
there shall be no such successor thereto, any other nationally recognized
statistical rating organization selected by the Issuer which is acceptable
to the Trustee.

"Subordinated Indebtedness" means any Indebtedness of the
Issuer (whether outstanding on the date of this Fifth Supplemental
Indenture or thereafter incurred) which is contractually subordinated or
junior in right of payment to the 2000 Notes.

"Support Obligations" means, for any person, without
duplication, any financial obligation, contingent or otherwise, of such
person guaranteeing or otherwise supporting any debt or other obligation
of any other person in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such debt or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such debt,
(ii) to purchase property, securities or services for the purpose of
assuring the owner of such debt of the payment of such debt, (iii) to
maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such debt, (iv) to provide equity capital under or
in respect of equity subscription arrangements (to the extent that such
obligation to provide equity capital does not otherwise constitute debt),
or (v) to perform, or arrange for the performance of, any non-monetary
obligations or non-funded debt payment obligations of the primary obligor.

"Tax-Sharing Agreement" means the Amended and Restated
Agreement for the Allocation of Income Tax Liabilities and Benefits, dated
January 1, 1994, as amended or supplemented from time to time, by and
among Issuer, each of the members of the Consolidated Group (as defined
therein), and each of the corporations that become members of the
Consolidated Group.

"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two
Business Days prior to the redemption date or, in the case of defeasance,
prior to the date of deposit (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most
nearly equal to the then remaining average life to stated maturity of the
2000 Notes; provided, however, that if the average life to stated maturity
of the 2000 Notes is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given.

"Voting Stock" means securities of any class or classes
the holders of which are ordinarily, in the absence of contingencies,
entitled to vote for corporate directors (or persons performing similar
functions).

Certain terms, used principally in Articles Three, Four
and Seven of this Fifth Supplemental Indenture, are defined in those
Articles.

ARTICLE II

DESIGNATION AND TERMS OF THE SERIES A NOTES; FORMS

SECTION 2.01. ESTABLISHMENT OF SERIES. (a) There is
hereby created a series of Securities to be known and designated as the
"7 3/8% Senior Unsecured Notes Due 2000, Series A" and limited in aggregate
principal amount (except as contemplated in Section 2.3(f)(2) of the
Indenture) to $300,000,000. The Stated Maturity of the Series A Notes is
November 15, 2000.

(b) The Series A Notes will bear interest from the
Original Issue Date, or from the most recent date to which interest has
been paid or duly provided for, at the rate of 7 3/8% per annum stated
therein until the principal thereof is paid or made available for payment.
Interest will be payable semiannually on each Interest Payment Date and at
Maturity, as provided in the form of the Series A Note in Section 2.03
hereof.

(c) The Record Date referred to in Section 2.3(f)(4) of
the Indenture for the payment of the interest on any Series A Note payable
on any Interest Payment Date (other than at Maturity) shall be the 1st day
(whether or not a Business Day) of the calendar month in which such
Interest Payment Date occurs and, in the case of interest payable at
Maturity, the Record Date shall be the date of Maturity.

(d) The payment of the principal of, premium (if any) and
interest on the Series A Notes shall not be secured by a security interest
in any property.

(e) The Series A Notes shall be redeemable at the option
of the Issuer, in whole or in part, at any time and from time to time, at
a redemption price equal to 100% of the principal amount of such Series A
Notes being redeemed plus the Applicable Premium, if any, thereon at the
time of redemption, together with accrued interest, if any, thereon to the
redemption date. In no event will the redemption price ever be less than
100% of the principal amount of the Series A Notes plus accrued interest
to the redemption date. The Series A Notes shall be purchased by the
Issuer at the option of the Holders thereof as provided in Sections 4.01
and 5.06 hereof.

(f) The Series A Notes shall not be convertible.

(g) The Series A Notes will not be subordinated to the
payment of Senior Debt.

(h) The Issuer will not pay any additional amounts on the
Series A Notes held by a Person who is not a U.S. Person in respect of any
tax, assessment or government charge withheld or deducted.

(i) The events specified in Events of Default with respect
to the Series A Notes shall include the events specified in Article Six of
this Fifth Supplemental Indenture. In addition to the covenants set forth
in Article Three of the Original Indenture, the Holders of the Series A
Notes shall have the benefit of the covenants of the Issuer set forth in
Article Five hereto.

SECTION 2.02. FORMS GENERALLY. The Series A Notes and
Trustee's certificates of authentication shall be in substantially the
form set forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted
by the Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Series
A Notes, as evidenced by their execution thereof.

The definitive Series A Notes shall be printed,
lithographed or engraved on steel engraved borders or may be produced in
any other manner, all as determined by the officers executing such Series
A Notes, as evidenced by their execution thereof.

SECTION 2.03. FORM OF FACE OF SERIES A NOTE.

THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE)
AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "U.S. PERSONS" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION
S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING
THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION
OF THE FOREGOING.

CMS ENERGY CORPORATION
7 3/8% SENIOR UNSECURED NOTE DUE 2000, SERIES A

No. ________ $__________

CMS Energy Corporation, a corporation duly organized and
existing under the laws of the State of Michigan (herein called the
"Issuer", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________________________________, or registered assigns, the principal
sum of ____________________ Dollars on November 15, 2000 ("Maturity") and
to pay interest thereon from November 7, 1997 (the "Original Issue Date")
or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually on May 15 and November 15 in each
year, commencing May 15, 1998 and at Maturity at the rate of 7 3/8% per
annum, until the principal hereof is paid or made available for payment.
The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. The
interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Series A Note (or one or more Predecessor Notes)
is registered at the close of business on the Record Date for such
interest, which shall be the 1st day of the calendar month in which such
Interest Payment Date occurs (whether or not a Business Day) except that
the Record Date for interest payable at Maturity shall be the date of
Maturity. Any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Record Date and
may either be paid to the Person in whose name this Series A Note (or one
or more Predecessor Series A Notes) is registered at the close of business
on a subsequent Record Date (which shall be not less than five Business
Days prior to the date of payment of such defaulted interest) for the
payment of such defaulted interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Series A Notes not less than 15 days
preceding such subsequent Record Date.

Payment of the principal of (and premium, if any) and
interest, if any, on this Series A Note will be made at the office or
agency of the Issuer maintained for that purpose in New York, New York
(the "Place of Payment"), in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public
and private debts; provided, however, that at the option of the Issuer
payment of interest (other than interest payable at Maturity) may be made
by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or by wire transfer to an
account designated by such Person not later than ten days prior to the
date of such payment; and provided, further, that if this Series A Note is
a Global Note within the meaning of the Indenture, then each payment
hereunder shall be made by wire transfer to an account or accounts
designated by the Person entitled thereto not later than ten days prior to
the date of such payment.

Reference is hereby made to the further provisions of this
Series A Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual
signature, this Series A Note shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument
to be duly executed under its corporate seal.
Dated:

CMS ENERGY CORPORATION

By____________________________
Its:

Attest:

SECTION 2.04. FORM OF REVERSE OF SERIES A NOTE.
This 7 3/8% Senior Unsecured Note Due 2000, Series A is one
of a duly authorized issue of securities of the Issuer (herein called the
"Series A Notes"), issued and to be issued under an Indenture, dated as of
September 15, 1992, as supplemented by certain supplemental indentures,
including the Fifth Supplemental Indenture, dated as of November 4, 1997
(herein collectively referred to as the "Indenture"), between the Issuer
and NBD Bank, a Michigan banking corporation (formerly known as NBD Bank,
National Association), as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Trustee, and the Holders of the
Series A Notes and of the terms upon which the Series A Notes are, and are
to be, authenticated and delivered. This Series A Note is one of the
series designated on the face hereof, limited in aggregate principal
amount to $300,000,000.

The Series A Notes are subject to redemption at the option
of the Issuer, in whole or in part, upon not more than 60 nor less than 30
days' notice as provided in the Indenture at any time and from time to
time, at a redemption price equal to 100% of the principal amount of such
Series A Notes being redeemed plus the Applicable Premium, if any, thereon
at the time of redemption, together with accrued interest, if any, thereon
to the redemption date, but interest installments whose Stated Maturity is
on or prior to such redemption date will be payable to the Holder of
record at the close of business on the relevant Record Date referred to on
the face hereof, all as provided in the Indenture. In no event will the
redemption price ever be less than 100% of the principal amount of the
Series A Notes plus accrued interest to the redemption date.

The following definitions are used to determine the Applicable
Premium:

"Applicable Premium" means, with respect to a Series A
Note (or portion thereof) being redeemed at any time, the excess of
(A) the present value at such time of the principal amount of such Series
A Note (or portion thereof) being redeemed plus all interest payments due
on such Series A Note (or portion thereof), which present value shall be
computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (B) the principal amount of such Series A Note (or portion
thereof) being redeemed at such time. For purposes of this definition,
the present values of the interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.

"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two
business days prior to the redemption date or, in the case of defeasance,
prior to the date of deposit (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most
nearly equal to the then remaining average life to stated maturity of the
Series A Notes; provided, however, that if the average life to stated
maturity of the Series A Notes is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of
United States Treasury securities for which such yields are given.

In the event of redemption of this Series A Note in part
only, a new Series A Note for the unredeemed portion hereof will be issued
in the name of the Holder hereof upon the cancellation hereof.

If a Change in Control occurs, the Issuer shall notify the
Holder of this Series A Note of such occurrence and such Holder shall have
the right to require the Issuer to make a Required Repurchase of all or
any part of this Series A Note at a Change in Control Purchase Price equal
to 101% of the principal amount of this Series A Note to be so purchased
as more fully provided in the Indenture and subject to the terms and
conditions set forth therein. In the event of a Required Repurchase of
only a portion of this Series A Note, a new Series A Note or Notes for the
unrepurchased portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.

If an Event of Default with respect to this Series A Note
shall occur and be continuing, the principal of this Series A Note may be
declared due and payable in the manner and with the effect provided in the
Indenture.

In any case where any Interest Payment Date, repurchase
date, Stated Maturity or Maturity of any Series A Note shall not be a
Business Day at any Place of Payment, then (notwithstanding any other
provision of the Indenture or this Series A Note), payment of interest or
principal (and premium, if any) need not be made at such Place of Payment
on such date, but may be made on the next succeeding Business Day at such
Place of Payment with the same force and effect as if made on the Interest
Payment Date, repurchase date or at the Stated Maturity or Maturity;
provided that no interest shall accrue on the amount so payable for the
period from and after such Interest Payment Date, redemption date,
repurchase date, Stated Maturity or Maturity, as the case may be, to such
Business Day.

The Indenture contains provisions for defeasance at any
time of (i) the entire indebtedness of this Series A Note or (ii) certain
restrictive covenants and Events of Default with respect to this Series A
Note, in each case upon compliance with certain conditions set forth
therein.

The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of all Outstanding
Series A Notes under the Indenture at any time by the Issuer and the
Trustee with the consent of the Holders of not less than a majority in
principal amount of Securities of all series then Outstanding and affected
(voting as one class).

The Indenture permits the Holders of not less than a
majority in principal amount of Securities of all series at the time
Outstanding with respect to which a default shall have occurred and be
continuing (voting as one class) to waive on behalf of the Holders of all
Outstanding Securities of such series any past default by the Issuer,
provided that no such waiver may be made with respect to a default in the
payment of the principal of or the interest on any Security of such series
or the default by the Issuer in respect of certain covenants or provisions
of the Indenture, the modification or amendment of which must be consented
to by the Holder of each Outstanding Security of each series affected.

As set forth in, and subject to, the provisions of the
Indenture, no Holder of any Series A Note will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default, the Holders of not less than 25%
in principal amount of the Outstanding Securities of each affected series
(voting as one class) shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a
majority in principal amount of the Outstanding Securities of each
affected series (voting as one class) a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted
by the Holder hereof for the enforcement of payment of the principal of
(and premium, if any) or any interest on this Series A Note on or after
the respective due dates expressed herein.

No reference herein to the Indenture and no provision of
this Series A Note or of the Indenture shall alter or impair the
obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Series A Note at the
times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain
limitations therein and herein set forth, the transfer of this Series A
Note is registerable in the Security Register, upon surrender of this
Series A Note for registration of transfer at the office or agency of the
Issuer in any place where the principal of and any premium and interest on
this Series A Note are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Issuer and the
Security Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Series A Notes
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated
transferee or transferees.

The Series A Notes are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Series A Notes are exchangeable for a like aggregate
principal amount of Series A Notes and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration
of transfer or exchange, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.

The Issuer shall not be required to (a) issue, exchange or
register the transfer of this Series A Note for a period of 15 days next
preceding the mailing of the notice of redemption of Series A Notes or (b)
exchange or register the transfer of any Series A Note or any portion
thereof selected, called or being called for redemption, except in the
case of any Series A Note to be redeemed in part, the portion thereof not
so to be redeemed.

Prior to due presentment of this Series A Note for
registration of transfer, the Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Person in whose name this Series A
Note is registered as the owner hereof for all purposes, whether or not
this Series A Note be overdue, and neither the Issuer, the Trustee nor any
such agent shall be affected by notice to the contrary.

All terms used in this Series A Note without definition
which are defined in the Indenture shall have the meanings assigned to
them in the Indenture.<PAGE>
<PAGE>

CERTIFICATE OF TRANSFER

7 3/8% Senior Unsecured Note due 2000, Series A

FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELL(S), ASSIGN(S) AND
TRANSFER(S) UNTO __________________________ PLEASE INSERT SOCIAL SECURITY
NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

- ---------------------
_____________________

(Please print or typewrite name and address including postal zip code, of
assignee)

the within Note and all rights thereunder, and hereby
irrevocably constitutes and appoints

to transfer said Note on the books of the Issuer, with full power of
substitution in the premises.

The undersigned certifies that said Note is being resold, pledged or
otherwise transferred as follows: (check one)

___ to the Issuer;

___ to a Person whom the undersigned reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A
under the Securities Act of 1933, as amended (the "Securities
Act") purchasing for its own account or for the account of a
qualified institutional buyer to whom notice is given that the
resale, pledge or other transfer is being made in reliance on Rule
144A;

___ in an offshore transaction in accordance with Rule 903 or 904 of
Regulation S under the Securities Act;

___ to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution; (attach a copy of an Investment Letter For
Institutional Accredited Investors in the form annexed signed by
an authorized officer of the transferee)

___ as otherwise permitted by the non-registration legend appearing on
this Note; or

___ as otherwise agreed by the Issuer, confirmed in writing to the
Trustee, as follows: (describe)

Dated: <PAGE>
<PAGE>

FORM OF INVESTMENT LETTER FOR INSTITUTIONAL ACCREDITED INVESTORS

[Transferor, Trustee and Issuer Names and Addresses]

Ladies and Gentlemen:

In connection with our proposed purchase of 7 3/8% Senior Unsecured Notes
due 2000, Series A (the "Notes") issued by CMS Energy Corporation
("Issuer"), we confirm that:

1. We have received a copy of the Offering
Memorandum (the "Offering Memorandum") relating to the Notes and
such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agree to
the matters stated under the caption NOTICE TO INVESTORS in such
Offering Memorandum, and the restrictions on duplication or
circulation of, or disclosure relating to, such Offering
Memorandum.

2. We understand that any subsequent transfer of the
Notes is subject to certain restrictions and conditions set forth
in the Indenture relating to Notes (the "Indenture") and that any
subsequent transfer of the Notes is subject to certain
restrictions and conditions set forth under NOTICE TO INVESTORS in
the Offering Memorandum and the undersigned agrees to be bound by,
and not to resell, pledge or otherwise transfer the Notes except
in compliance with such restrictions and conditions and the
Securities Act of 1933, as amended ("Securities Act").

3. We understand that the offer and sale of the
Notes have not been registered under the Securities Act, and that
the Notes may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of
any accounts for which we are acting as hereinafter stated, that
if we sell any Senior Notes, we will do so only (A) to the Issuer,
(B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior
to such transfer, furnishes to the Trustee (as defined in the
Indenture) a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Notes
(substantially in the form of this letter) and, if such transfer
is in respect of an aggregate principal amount of Notes at the
time of transfer of less than $250,000, an opinion of counsel
acceptable to the Issuer that such transfer is in compliance with
the Securities Act, (D) outside the United States in accordance
with Rule 903 or 904 of Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144
under the Securities Act (if available), or (F) pursuant to an
effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing any of the Notes
from us a notice advising such purchaser that resales of the Notes
are restricted as stated herein.

4. We understand that, on any proposed resale of any
Notes, we will be required to furnish to the Trustee and Issuer
such certifications, legal opinions and other information as the
Trustee and Issuer may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a
legend to the foregoing effect.

5. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the
economic risk of our or its investment.

6. We are acquiring the Notes purchased by us for
our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we
exercise sole investment discretion.

You, the Issuer and the Trustee are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding
or official inquiry with respect to the matters covered hereby.

Very truly yours,

By: ____________________
Name:
Title:

[END OF FORM]

SECTION 2.05. FORM OF TRUSTEE'S CERTIFICATE OF
AUTHENTICATION. The Trustee's certificates of authentication shall be in
substantially the following form:

This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.

_____________________________,
as Trustee

By ____________________________
Authorized Officer

SECTION 2.06. The Series A Notes will be initially issued
as Global Notes registered in the name of Cede & Co. (as nominee for the
Depository Trust Company ("DTC"), New York, New York). The Series A Notes
shall contain restrictions on transfer, substantially as described in the
form set forth in Section 2.03. Each Series A Note, whether in the form
of a Global Note or in certificated form, shall bear a non-registration
legend and a Certificate of Transfer, in each case in substantially the
form set forth in such form.

It is contemplated that beneficial interests in Series A
Notes owned by qualified institutional buyers (as defined in Rule 144A
under the Securities Act)("QIBs") or sold to QIBs in reliance upon Rule
144A under the Securities Act will be represented by one or more global
certificates registered in the name of Cede & Co., as registered owner and
as nominee for DTC; beneficial interests in Series A Notes acquired by
foreign purchasers pursuant to Regulation S under the Securities Act will
be evidenced by one or more separate global certificates (each the
"Regulation S Global Certificate"), also registered in the name of Cede &
Co., as registered owner and as nominee for DTC for the accounts of
Euroclear and Cedel Bank; prior to the 40th day after the date of initial
issuance of the Series A Notes, beneficial interests in the Regulation S
Global Certificate may be held only through Euroclear or Cedel Bank;
Series A Notes acquired by Institutional Accredited Investors (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("IAIs") and
other eligible transferees, who are not QIBs and who are not foreign
purchasers pursuant to Regulation S under the Securities Act, will be in
certificated form. The Trustee and the Issuer will have no responsibility
under the Indenture for transfers of beneficial interests in the Series A
Notes. The Trustee shall authenticate and issue new Series A Notes upon a
registration of transfer only upon receipt of a Transfer Certificate in
the form set forth in Section 2.04. The Trustee shall refuse to register
any transfer of a Series A Note in violation of the legend set forth on
such Series A Note and without appropriate completion of the Transfer
Certificate on such Series A Note.

ARTICLE III

DESIGNATION AND TERMS OF THE SERIES B NOTES; FORMS

SECTION 3.01. ESTABLISHMENT OF SERIES. (a) There is
hereby created a series of Securities to be known and designated as the
"7 3/8% Senior Unsecured Notes Due 2000, Series B" and limited in aggregate
principal amount (except as contemplated in Section 2.3(f)(2) of the
Indenture) to $300,000,000 (the "Series B Notes"). The Stated Maturity of
the Series B Notes is November 15, 2000.

(b) The Series B Notes will bear interest from the
Original Issue Date, or from the most recent date to which interest has
been paid or duly provided for, at the rate of 7 3/8% per annum stated
therein until the principal thereof is paid or made available for payment.
Interest will be payable semiannually on each Interest Payment Date and at
Maturity, as provided in the form of the Series B Note in Section 3.03
hereof.

(c) The Record Date referred to in Section 2.3(f)(4) of
the Indenture for the payment of the interest on any Series B Note payable
on any Interest Payment Date (other than at Maturity) shall be the 1st day
(whether or not a Business Day) of the calendar month in which such
Interest Payment Date occurs and, in the case of interest payable at
Maturity, the Record Date shall be the date of Maturity.

(d) The payment of the principal of, premium (if any) and
interest on the Series B Notes shall not be secured by a security interest
in any property.

(e) The Series B Notes shall be redeemable at the option
of the Issuer, in whole or in part, at any time and from time to time, at
a redemption price equal to 100% of the principal amount of such Series B
Notes being redeemed plus the Applicable Premium, if any, thereon at the
time of redemption, together with accrued interest, if any, thereon to the
redemption date. In no event will the redemption price ever be less than
100% of the principal amount of the Series B Notes plus accrued interest
to the redemption date. The Series B Notes shall be purchased by the
Issuer at the option of the Holders thereof as provided in Sections 4.01
and 5.06 hereof.

(f) The Series B Notes shall not be convertible.

(g) The Series B Notes will not be subordinated to the
payment of Senior Debt.

(h) The Issuer will not pay any additional amounts on the
Series B Notes held by a Person who is not a U.S. Person in respect of any
tax, assessment or government charge withheld or deducted.

(i) The events specified in Events of Default with respect
to the Series B Notes shall include the events specified in Article Six of
this Fifth Supplemental Indenture. In addition to the covenants set forth
in Article Three of the Original Indenture, the Holders of the Series B
Notes shall have the benefit of the covenants of the Issuer set forth in
Article Five hereto.

SECTION 3.02. FORMS GENERALLY. The Series B Notes and
Trustee's certificates of authentication shall be in substantially the
form set forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted
by the Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Series
B Notes, as evidenced by their execution thereof.

The definitive Series B Notes shall be printed,
lithographed or engraved on steel engraved borders or may be produced in
any other manner, all as determined by the officers executing such Series
B Notes, as evidenced by their execution thereof.

SECTION 3.03. FORM OF FACE OF SERIES B NOTE.

CMS ENERGY CORPORATION
7-3/8% SENIOR UNSECURED NOTE DUE 2000, SERIES B

No. ________ $__________

CMS Energy Corporation, a corporation duly organized and
existing under the laws of the State of Michigan (herein called the
"Issuer", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________________________________, or registered assigns, the principal
sum of ____________________ Dollars on November 15, 2000 ("Maturity") and
to pay interest thereon from November 7, 1997 (the "Original Issue Date")
or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually on May 15 and November 15 in each
year, commencing May 15, 1998 and at Maturity at the rate of 7-3/8% per
annum, until the principal hereof is paid or made available for payment.
The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. The
interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Series B Note (or one or more Predecessor Series
B Notes) is registered at the close of business on the Record Date for
such interest, which shall be the 1st day of the calendar month in which
such Interest Payment Date occurs (whether or not a Business Day) except
that the Record Date for interest payable at Maturity shall be the date of
Maturity. Any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Record Date and
may either be paid to the Person in whose name this Series B Note (or one
or more Predecessor Series B Notes) is registered at the close of business
on a subsequent Record Date (which shall be not less than five Business
Days prior to the date of payment of such defaulted interest) for the
payment of such defaulted interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Series B Notes not less than 15 days
preceding such subsequent Record Date.

Payment of the principal of (and premium, if any) and
interest, if any, on this Series B Note will be made at the office or
agency of the Issuer maintained for that purpose in New York, New York
(the "Place of Payment"), in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public
and private debts; provided, however, that at the option of the Issuer
payment of interest (other than interest payable at Maturity) may be made
by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or by wire transfer to an
account designated by such Person not later than ten days prior to the
date of such payment; and provided, further, that if this Series B Note is
a Global Note within the meaning of the Indenture, then each payment
hereunder shall be made by wire transfer to an account or accounts
designated by the Person entitled thereto not later than ten days prior to
the date of such payment.

Reference is hereby made to the further provisions of this
Series B Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual
signature, this Series B Note shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument
to be duly executed under its corporate seal.
Dated:

CMS ENERGY CORPORATION

By ____________________________
Its:

Attest:

SECTION 3.04. FORM OF REVERSE OF SERIES B NOTE.
This 7-3/8% Senior Unsecured Note Due 2000, Series B is
one of a duly authorized issue of securities of the Issuer (herein called
the "Series B Notes"), issued and to be issued under an Indenture, dated
as of September 15, 1992, as supplemented by certain supplemental
indentures, including the Fifth Supplemental Indenture, dated as of
November 4, 1997 (herein collectively referred to as the "Indenture"),
between the Issuer and NBD Bank, a Michigan banking corporation (formerly
known as NBD Bank, National Association), as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Issuer, the Trustee, and
the Holders of the Series B Notes and of the terms upon which the Series B
Notes are, and are to be, authenticated and delivered. This Series B Note
is one of the series designated on the face hereof, limited in aggregate
principal amount to $300,000,000.

The Series B Notes are subject to redemption at the option
of the Issuer, in whole or in part, upon not more than 60 nor less than 30
days' notice as provided in the Indenture at any time and from time to
time, at a redemption price equal to 100% of the principal amount of such
Series B Notes being redeemed plus the Applicable Premium, if any, thereon
at the time of redemption, together with accrued interest, if any, thereon
to the redemption date, but interest installments whose Stated Maturity is
on or prior to such redemption date will be payable to the Holder of
record at the close of business on the relevant Record Date referred to on
the face hereof, all as provided in the Indenture. In no event will the
redemption price ever be less than 100% of the principal amount of the
Series B Notes plus accrued interest to the redemption date.

The following definitions are used to determine the Applicable
Premium:

"Applicable Premium" means, with respect to a Series B
Note (or portion thereof) being redeemed at any time, the excess of
(A) the present value at such time of the principal amount of such Series
B Note (or portion thereof) being redeemed plus all interest payments due
on such Series B Note (or portion thereof), which present value shall be
computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (B) the principal amount of such Series B Note (or portion
thereof) being redeemed at such time. For purposes of this definition,
the present values of the interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.

"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two
business days prior to the redemption date or, in the case of defeasance,
prior to the date of deposit (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most
nearly equal to the then remaining average life to stated maturity of the
Series B Notes; provided, however, that if the average life to stated
maturity of the Series B Notes is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of
United States Treasury securities for which such yields are given.

In the event of redemption of this Series B Note in part
only, a new Series B Note for the unredeemed portion hereof will be issued
in the name of the Holder hereof upon the cancellation hereof.

If a Change in Control occurs, the Issuer shall notify the
Holder of this Series B Note of such occurrence and such Holder shall have
the right to require the Issuer to make a Required Repurchase of all or
any part of this Series B Note at a Change in Control Purchase Price equal
to 101% of the principal amount of this Series B Note to be so purchased
as more fully provided in the Indenture and subject to the terms and
conditions set forth therein. In the event of a Required Repurchase of
only a portion of this Series B Note, a new Series B Note or Notes for the
unrepurchased portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.

If an Event of Default with respect to this Series B Note
shall occur and be continuing, the principal of this Series B Note may be
declared due and payable in the manner and with the effect provided in the
Indenture.

In any case where any Interest Payment Date, repurchase
date, Stated Maturity or Maturity of any Series B Note shall not be a
Business Day at any Place of Payment, then (notwithstanding any other
provision of the Indenture or this Series B Note), payment of interest or
principal (and premium, if any) need not be made at such Place of Payment
on such date, but may be made on the next succeeding Business Day at such
Place of Payment with the same force and effect as if made on the Interest
Payment Date, repurchase date or at the Stated Maturity or Maturity;
provided that no interest shall accrue on the amount so payable for the
period from and after such Interest Payment Date, redemption date,
repurchase date, Stated Maturity or Maturity, as the case may be, to such
Business Day.

The Indenture contains provisions for defeasance at any
time of (i) the entire indebtedness of this Series B Note or (ii) certain
restrictive covenants and Events of Default with respect to this Series B
Note, in each case upon compliance with certain conditions set forth
therein.

The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of all Outstanding
Series B Notes under the Indenture at any time by the Issuer and the
Trustee with the consent of the Holders of not less than a majority in
principal amount of Securities of all series then Outstanding and affected
(voting as one class).

As set forth in, and subject to, the provisions of the
Indenture, no Holder of any Series B Note will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default, the Holders of not less than 25%
in principal amount of the Outstanding Securities of each affected series
(voting as one class) shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a
majority in principal amount of the Outstanding Securities of each
affected series (voting as one class) a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted
by the Holder hereof for the enforcement of payment of the principal of
(and premium, if any) or any interest on this Series B Note on or after
the respective due dates expressed herein.

No reference herein to the Indenture and no provision of
this Series B Note or of the Indenture shall alter or impair the
obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Series B Note at the
times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain
limitations therein and herein set forth, the transfer of this Series B
Note is registerable in the Security Register, upon surrender of this
Series B Note for registration of transfer at the office or agency of the
Issuer in any place where the principal of and any premium and interest on
this Series B Note are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Issuer and the
Security Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Series B Notes
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated
transferee or transferees.

The Series B Notes are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Series B Notes are exchangeable for a like aggregate
principal amount of Series B Notes and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

The Issuer shall not be required to (a) issue, exchange or
register the transfer of this Series B Note for a period of 15 days next
preceding the mailing of the notice of redemption of Series B Notes or (b)
exchange or register the transfer of any Series B Note or any portion
thereof selected, called or being called for redemption, except in the
case of any Series B Note to be redeemed in part, the portion thereof not
so to be redeemed.

Prior to due presentment of this Series B Note for
registration of transfer, the Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Person in whose name this Series B
Note is registered as the owner hereof for all purposes, whether or not
this Series B Note be overdue, and neither the Issuer, the Trustee nor any
such agent shall be affected by notice to the contrary.

All terms used in this Series B Note without definition
which are defined in the Indenture shall have the meanings assigned to
them in the Indenture.

FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELL(S), ASSIGN(S) AND
TRANSFER(S) UNTO __________________________ PLEASE INSERT SOCIAL SECURITY
NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

________________
________________

(Please print or typewrite name and address including postal zip code, of
assignee)

the within Note and all rights thereunder, and hereby
irrevocably constitutes and appoints

to transfer said Note on the books of the Issuer, with full power of
substitution in the premises.

Dated:

[END OF FORM]

SECTION 3.05. FORM OF TRUSTEE'S CERTIFICATE OF
AUTHENTICATION. The Trustee's certificates of authentication shall be in
substantially the following form:

This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.

____________________________,
as Trustee

By _________________________
Authorized Officer

ARTICLE IV

CHANGE IN CONTROL

SECTION 4.01. CHANGE IN CONTROL. Upon the occurrence of
a Change in Control (the effective date of such Change in Control being
the "Change in Control Date"), each Holder of a 2000 Note shall have the
right to require that the Issuer repurchase (a "Required Repurchase") all
or any part of such Holder's 2000 Note at a repurchase price payable in
cash equal to 101% of the principal amount of such 2000 Note plus accrued
interest to the Purchase Date (the "Change in Control Purchase Price").

(a) Within 30 days following the Change in Control Date,
the Issuer shall mail a notice (the "Required Repurchase Notice")
to each Holder with a copy to the Trustee stating:

(i) that a Change in Control has occurred and
that such Holder has the right to require the Issuer to
repurchase all or any part of such Holder's 2000 Notes at
the Change in Control Purchase Price;

(ii) the Change in Control Purchase Price;

(iii) the date on which any Required Repurchase
shall be made (which shall be no earlier than 60 days nor
later than 90 days from the date such notice is mailed)
(the "Purchase Date");

(iv) the name and address of the Paying Agent;
and

(v) the procedures that Holders must follow to
cause the 2000 Notes to be repurchased, which shall be
consistent with this Section and the Indenture.

(b) Holders electing to have a 2000 Note repurchased must
deliver a written notice (the "Change in Control Purchase Notice")
to the Paying Agent (initially the Trustee) at its corporate trust
office in Detroit, Michigan, or any other office of the Paying
Agent maintained for such purposes, not later than 30 days prior
to the Purchase Date. The Change in Control Purchase Notice shall
state: (i) the portion of the principal amount of any 2000 Notes
to be repurchased, which portion must be $1,000 or an integral
multiple thereof; (ii) that such 2000 Notes are to be repurchased
by the Issuer pursuant to the change in control provisions of the
Indenture; and (iii) unless the 2000 Notes are represented by one
or more Global Notes, the certificate numbers of the 2000 Notes to
be delivered by the Holder thereof for repurchase by the Issuer.
Any Change in Control Purchase Notice may be withdrawn by the
Holder by a written notice of withdrawal delivered to the Paying
Agent not later than three Business Days prior to the Purchase
Date. The notice of withdrawal shall state the principal amount
and, if applicable, the certificate numbers of the 2000 Notes as
to which the withdrawal notice relates and the principal amount of
such 2000 Notes, if any, which remains subject to a Change in
Control Purchase Notice.

If a 2000 Note is represented by a Global Note (as
described in Article VII below), the Depositary or its nominee
will be the Holder of such 2000 Note and therefore will be the
only entity that can elect a Required Repurchase of such 2000
Note. To obtain repayment pursuant to this Section 4.01 with
respect to such 2000 Note, the beneficial owner of such 2000 Note
must provide to the broker or other entity through which it holds
the beneficial interest in such 2000 Note (i) the Change in
Control Purchase Notice signed by such beneficial owner, and such
signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, and (ii)
instructions to such broker or other entity to notify the
Depositary of such beneficial owner's desire to obtain repayment
pursuant to this Section 4.01. Such broker or other entity will
provide to the Paying Agent (i) the Change in Control Purchase
Notice received from such beneficial owner and (ii) a certificate
satisfactory to the Paying Agent from such broker or other entity
stating that it represents such beneficial owner. Such broker or
other entity will be responsible for disbursing any payments it
receives pursuant to this Section 4.01 to such beneficial owner.

(c) Payment of the Change in Control Purchase Price
for a 2000 Note for which a Change in Control Purchase Notice has
been delivered and not withdrawn is conditioned (except in the
case of a 2000 Note represented by one or more Global Notes) upon
delivery of such 2000 Note (together with necessary endorsements)
to the Paying Agent at its office in Detroit, Michigan, or any
other office of the Paying Agent maintained for such purpose, at
any time (whether prior to, on or after the Purchase Date) after
the delivery of such Change in Control Purchase Notice. Payment
of the Change in Control Purchase Price for such 2000 Note will be
made promptly following the later of the Purchase Date or the time
of delivery of such 2000 Note. If the Paying Agent holds, in
accordance with the terms of the Indenture, money sufficient to
pay the Change in Control Purchase Price of such 2000 Note on the
Business Day following the Purchase Date, then, on and after such
date, interest will cease accruing, and all other rights of the
Holder shall terminate (other than the right to receive the Change
in Control Purchase Price upon delivery of the 2000 Note).

(d) The Issuer shall comply with the provisions of
Regulation 14E and any other tender offer rules under the Exchange
Act, which may then be applicable in connection with any offer by
the Issuer to repurchase 2000 Notes at the option of Holders upon
a Change in Control.

(e) No 2000 Note may be repurchased by the Issuer as
a result of a Change in Control if there has occurred and is
continuing an Event of Default (other than a default in the
Payment of the Change in Control Purchase Price with respect to
the 2000 Notes).

ARTICLE V

ADDITIONAL COVENANTS OF THE ISSUER
WITH RESPECT TO THE 2000 NOTES

SECTION 5.01. EXISTENCE. So long as any of the 2000
Notes are Outstanding, subject to Article Nine of the Original Indenture,
the Issuer will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence.

SECTION 5.02. LIMITATION ON CERTAIN LIENS. (a) So long
as any of the 2000 Notes are outstanding, the Issuer shall not create,
incur, assume or suffer to exist any lien, mortgage, pledge, security
interest, conditional sale, title retention agreement or other charge or
encumbrance of any kind, or any other type of arrangement intended or
having the effect of conferring upon a creditor of the Issuer or any
Subsidiary a preferential interest (hereinafter in this Section referred
to as a "Lien") upon or with respect to any of its property of any
character, including without limitation any shares of Capital Stock of
Consumers or Enterprises, without making effective provision whereby the
2000 Notes shall (so long as any such other creditor shall be so secured)
be equally and ratably secured (along with any other creditor similarly
entitled to be secured) by a direct Lien on all property subject to such
Lien, provided, however, that the foregoing restrictions shall not apply
to:

(i) Liens for taxes, assessments or governmental charges or
levies to the extent not past due;

(ii) pledges or deposits to secure (a) obligations under
workmen's compensation laws or similar legislation, (b) statutory
obligations of the Issuer or (c) Support Obligations;

(iii) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar Liens arising
in the ordinary course of business securing obligations which are not
overdue or which have been fully bonded and are being contested in good
faith;

(iv) purchase money Liens upon or in property acquired and held
by the Issuer in the ordinary course of business to secure the purchase
price of such property or to secure Indebtedness incurred solely for the
purpose of financing the acquisition of any such property to be subject to
such Liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such Lien
shall extend to or cover any property other than the property being
acquired and no such extension, renewal or replacement shall extend to or
cover property not theretofore subject to the Lien being extended, renewed
or replaced, and provided, further, that the aggregate principal amount of
the Indebtedness at any one time outstanding secured by Liens permitted by
this clause (iv) shall not exceed $10,000,000; and

(v) Liens not otherwise permitted by clauses (i) through (iv) of
this Section securing Indebtedness of the Issuer; provided that on the
date such Liens are created, and after giving effect to such Indebtedness,
the aggregate principal amount at maturity of all of the secured
Indebtedness of the Issuer at such date shall not exceed 5% of
Consolidated Net Tangible Assets at such date.

SECTION 5.03. LIMITATION ON CONSOLIDATION, MERGER, SALE
OR CONVEYANCE. So long as any of the 2000 Notes are Outstanding and until
the 2000 Notes are rated BBB- or above (or an equivalent rating) by
Standard & Poor's and one Other Rating Agency (or, if Standard & Poor's
shall change its rating system, an equivalent of such rating then employed
by such organization), at which time the Issuer will be permanently
released from the provisions of this Section 5.03, and subject also to
Article Nine of the Indenture, the Issuer shall not consolidate with or
merge into any other Person or sell, lease or convey the property of the
Issuer in the entirety or substantially as an entirety, unless (i)
immediately after giving effect to such transaction the Consolidated Net
Worth of the surviving entity is at least equal to the Consolidated Net
Worth of the Issuer immediately prior to the transaction, and (ii) after
giving effect to such transaction, the surviving entity would be entitled
to incur at least one dollar of additional Indebtedness (other than
revolving Indebtedness to banks) without violation of the limitations in
Section 5.04 hereof.

SECTION 5.04. LIMITATION ON CONSOLIDATED INDEBTEDNESS.
(a) So long as any of the 2000 Notes are Outstanding and until the 2000
Notes are rated BBB- or above (or an equivalent rating) by Standard &
Poor's and one Other Rating Agency (or, if Standard & Poor's shall change
its rating system, an equivalent of such rating then employed by such
organization), at which time the Issuer will be permanently released from
the provisions of this Section 5.04, the Issuer shall not, and shall not
permit any Consolidated Subsidiary of the Issuer to, issue, create,
assume, guarantee, incur or otherwise become liable for (collectively,
"issue"), directly or indirectly, any Indebtedness unless the Consolidated
Coverage Ratio of the Issuer and its Consolidated Subsidiaries for the
four consecutive fiscal quarters immediately preceding the issuance of
such Indebtedness (as shown by a pro forma consolidated income statement
of the Issuer and its Consolidated Subsidiaries for the four most recent
fiscal quarters ending at least 30 days prior to the issuance of such
Indebtedness after giving effect to (i) the issuance of such Indebtedness
and (if applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if such Indebtedness was issued at the
beginning of the period, (ii) the issuance and retirement of any other
Indebtedness since the first day of the period as if such Indebtedness was
issued or retired at the beginning of the period and (iii) the acquisition
of any company or business acquired by the Issuer or any Subsidiary since
the first day of the period (including giving effect to the pro forma
historical earnings of such company or business), including any
acquisition which will be consummated contemporaneously with the issuance
of such Indebtedness, as if in each case such acquisition occurred at the
beginning of the period) exceeds a ratio of 1.7 to 1.0.

(b) Notwithstanding the foregoing paragraph, the Issuer
or any Restricted Subsidiary may issue, directly or indirectly, the
following Indebtedness:

(1) Indebtedness of the Issuer to banks not to exceed
$1,000,000,000 in aggregate outstanding principal amount at any
time;

(2) Indebtedness (other than Indebtedness described in
clause (1) of this Subsection) outstanding on the date of this
Fifth Supplemental Indenture, as set forth on Schedule 5.04(b)(2)
attached hereto and made a part hereof, and Indebtedness issued in
exchange for, or the proceeds of which are used to refund or
refinance, any Indebtedness permitted by this clause (2);
provided, however, that (i) the principal amount (or accreted
value in the case of Indebtedness issued at a discount) of the
Indebtedness so issued shall not exceed the principal amount (or
accreted value in the case of Indebtedness issued at a discount)
of, premium, if any, and accrued but unpaid interest on, the
Indebtedness so exchanged, refunded or refinanced and (ii) the
Indebtedness so issued (A) shall not mature prior to the stated
maturity of the Indebtedness so exchanged, refunded or refinanced,
(B) shall have an Average Life equal to or greater than the
remaining Average Life of the Indebtedness so exchanged, refunded
or refinanced and (C) if the Indebtedness to be exchanged,
refunded or refinanced is subordinated to the 2000 Notes, the
Indebtedness is subordinated to the 2000 Notes in right of
payment;

(3) Indebtedness of the Issuer owed to and held by a
Subsidiary and Indebtedness of a Subsidiary owed to and held by
the Issuer; provided, however, that, in the case of Indebtedness
of the Issuer owed to and held by a Subsidiary, (i) any subsequent
issuance or transfer of any Capital Stock that results in any such
Subsidiary ceasing to be a Subsidiary or (ii) any transfer of such
Indebtedness (except to the Issuer or a Subsidiary) shall be
deemed for the purposes of this Subsection to constitute the
issuance of such Indebtedness by the Issuer;

(4) Indebtedness of the Issuer issued in exchange for, or
the proceeds of which are used to refund or refinance,
Indebtedness of the Issuer issued in accordance with
Subsection (a) of this Section, provided that (i) the principal
amount (or accreted value in the case of Indebtedness issued at a
discount) of the Indebtedness so issued shall not exceed the
principal amount (or accreted value in the case of Indebtedness
issued at a discount) of, premium, if any, and accrued but unpaid
interest on, the Indebtedness so exchanged, refunded or refinanced
and (ii) the Indebtedness so issued (A) shall not mature prior to
the stated maturity of the Indebtedness so exchanged, refunded or
refinanced, (B) shall have an Average Life equal to or greater
than the remaining Average Life of the Indebtedness so exchanged,
refunded or refinanced and (C) if the Indebtedness to be
exchanged, refunded or refinanced is subordinated to the 2000
Notes, the Indebtedness so issued is subordinated to the 2000
Notes in right of payment;

(5) Indebtedness of a Restricted Subsidiary issued in
exchange for, or the proceeds of which are used to refund or
refinance, Indebtedness of a Restricted Subsidiary issued in
accordance with Subsection (a) of this Section, provided that (i)
the principal amount (or accreted value in the case of
Indebtedness issued at a discount) of the Indebtedness so issued
shall not exceed the principal amount (or accreted value in the
case of Indebtedness issued at a discount) of, premium, if any,
and accrued but unpaid interest on, the Indebtedness so exchanged,
refunded or refinanced and (ii) the Indebtedness so issued (A)
shall not mature prior to the stated maturity of the Indebtedness
so exchanged, refunded or refinanced and (B) shall have an Average
Life equal to or greater than the remaining Average Life of the
Indebtedness so exchanged, refunded or refinanced.

(6) Indebtedness of a Consolidated Subsidiary issued
to acquire, develop, improve, construct or to provide working
capital for a gas, oil or electric generation, exploration,
production, distribution, storage or transmission facility and
related assets, provided that such Indebtedness is without
recourse to any assets of the Issuer, Consumers, Enterprises,
CMS Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission
and Storage, CMS MST or any other Designated Enterprises
Subsidiary;

(7) Indebtedness of a Person existing at the time at
which such person became a Subsidiary and not incurred in
connection with, or in contemplation of, such Person becoming a
Subsidiary. Such Indebtedness shall be deemed to be incurred on
the date the acquired Person becomes a Consolidated Subsidiary;

(8) Indebtedness issued by the Issuer not to exceed
$150,000,000 in aggregate principal amount at any time; and

(9) Indebtedness of a Consolidated Subsidiary in
respect of rate reduction bonds issued to recover electric
restructuring transition costs of Consumers provided that such
Indebtedness is without recourse to the assets of Consumers.

SECTION 5.05. LIMITATION ON RESTRICTED PAYMENTS. (a) So
long as any of the 2000 Notes are Outstanding and until the 2000 Notes are
rated BBB- or above (or an equivalent rating) by Standard & Poor's and one
Other Rating Agency (or, if Standard & Poor's shall change its rating
system, an equivalent of such rating then employed by such organization),
at which time the Issuer will be permanently released from the provisions
of this Section 5.05, the Issuer shall not, and shall not permit any
Restricted Subsidiary of the Issuer, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on the Capital Stock
of the Issuer to the direct or indirect holders of its Capital Stock
(except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase such
Non-Convertible Capital Stock and except dividends or distributions
payable to the Issuer or a Subsidiary), (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Issuer, or (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity or scheduled repayment thereof, any
Subordinated Indebtedness (any such dividend, distribution, purchase,
redemption, repurchase, defeasing, other acquisition or retirement being
hereinafter referred to as a "Restricted Payment") if at the time the
Issuer or such Subsidiary makes such Restricted Payment:

(1) an Event of Default, or an event that with
the lapse of time or the giving of notice or both would constitute
an Event of Default, shall have occurred and be continuing (or
would result therefrom); or

(2) the aggregate amount of such Restricted
Payment and all other Restricted Payments made since May 6, 1997
would exceed the sum of:

(A) $100,000,000;

(B) 100% of Consolidated Net Income, accrued
during the period (treated as one accounting period) from
May 6, 1997 to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such
Restricted Payment (or, in case such sum shall be a
deficit, minus 100% of the deficit); and

(C) the aggregate Net Cash Proceeds received by
the Issuer from the issue or sale of or contribution with
respect to its Capital Stock subsequent to May 6, 1997.

For the purpose of determining the amount of any Restricted Payment not in
the form of cash, the amount shall be the fair value of such Restricted
Payment as determined in good faith by the Board of Directors, provided
that if the value of the non-cash portion of such Restricted Payment as
determined by the Board of Directors is in excess of $25 million, such
value shall be based on the opinion from a nationally recognized firm
experienced in the appraisal of similar types of transactions.

(b) The provisions of Section 5.05(a) shall not prohibit:

(i) any purchase or redemption of Capital Stock
of the Issuer made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of
the Issuer (other than Redeemable Stock or Exchangeable
Stock); provided, however, that such purchase or
redemption shall be excluded from the calculation of the
amount of Restricted Payments;

(ii) dividends or other distributions paid in
respect of any class of the Issuer's Capital Stock issued
in respect of the acquisition of any business or assets by
the Issuer or a Restricted Subsidiary if the dividends or
other distributions with respect to such Capital Stock are
payable solely from the net earnings of such business or
assets;

(iii) dividends paid within 60 days after the
date of declaration thereof if at such date of declaration
such dividend would have complied with this Section;
provided, however, that at the time of payment of such
dividend, no Event of Default shall have occurred and be
continuing (or result therefrom), and provided further,
however, that such dividends shall be included (without
duplication) in the calculation of the amount of
Restricted Payments; or

(iv) payments pursuant to the Tax-Sharing
Agreement.

SECTION 5.06. LIMITATION ON ASSET SALES. So long as
any of the 2000 Notes are outstanding, the Issuer may not sell, transfer
or otherwise dispose of any property or assets of the Issuer, including
Capital Stock of any Consolidated Subsidiary, in one transaction or a
series of transactions in an amount which exceeds $50,000,000 (an "Asset
Sale") unless the Issuer shall (i) apply an amount equal to such excess
Net Cash Proceeds to permanently repay Indebtedness of a Consolidated
Subsidiary or Indebtedness of the Issuer which is pari passu with the 2000
Notes or (ii) invest an equal amount not so used in clause (i) in property
or assets of related business within 24 months after the date of the Asset
Sale (the "Application Period") or (iii) apply such excess Net Cash
Proceeds not so used in (i) or (ii) (the "Excess Proceeds") to make an
offer, within 30 days after the end of the Application Period, to purchase
from the Holders on a pro rata basis an aggregate principal amount of 2000
Notes on the relevant purchase date equal to the Excess Proceeds on such
date, at a purchase price equal to 100% of the principal amount of the
2000 Notes on the relevant purchase date and unpaid interest, if any, to
the purchase date. The Issuer shall only be required to make an offer to
purchase 2000 Notes from Holders pursuant to subsection (iii) if the
Excess Proceeds equal or exceed $25,000,000 at any given time.

The procedures to be followed by the Issuer in making an
offer to purchase 2000 Notes from the Holders with Excess Proceeds, and
for the acceptance of such offer by the Holders, shall be the same as
those set forth in Section 4.01 herein with respect to a Change in
Control.

ARTICLE VI

ADDITIONAL EVENTS OF DEFAULT
WITH RESPECT TO THE 2000 Notes

SECTION 6.01. DEFINITION. All of the events specified in
clauses (a) through (h) of Section 5.1 of the Original Indenture shall be
"Events of Default" with respect to each of the 2000 Notes.

SECTION 6.02. AMENDMENTS TO SECTION 5.1 OF THE ORIGINAL
INDENTURE.

(a) Solely for the purpose of determining Events of
Default with respect to the 2000 Notes, paragraphs (e), (f) and (h) of
Section 5.1 of the Original Indenture shall be amended such that each and
every reference therein to the Issuer shall be deemed to mean either the
Issuer or Consumers.

(b) The following event shall be an "Event of Default"
with respect to the 2000 Notes: default in the payment of any Liquidated
Damages pursuant to the Registration Rights Agreement with respect to any
such 2000 Note, when due and continuance of such default for a period of
30 days.

ARTICLE VII

GLOBAL NOTES

Each series of 2000 Notes will be issued initially in the
form of Global Notes. "Global Note" means a registered 2000 Note
evidencing one or more 2000 Notes issued to a depositary (the
"Depositary") or its nominee, in accordance with this Article and bearing
the legend prescribed in this Article. One or more Global Notes will
represent all 2000 Notes of a series, except as provided in Section 2.06.
The Issuer shall execute and the Trustee shall, in accordance with this
Article and the Issuer Order with respect to each series of 2000 Notes,
authenticate and deliver one or more Global Notes in temporary or
permanent form that (i) shall represent and shall be denominated in an
aggregate amount equal to the aggregate principal amount of the 2000 Notes
of such series to be represented by such Global Note or Notes, (ii) shall
be registered in the name of the Depositary for such Global Note or Notes
or the nominee of such Depositary, (iii) shall be delivered by the Trustee
to such Depositary or pursuant to such Depositary's instructions and (iv)
shall bear a legend substantially to the following effect: "Unless the
Global 2000 Note is presented by an authorized representative of the
Depository to the Issuer or its agent for registration of transfer,
exchange or payment, and any 2000 Note issued is registered in the name of
a nominee of the Depository, or in such other name as is requested by an
authorized representative of the Depository (and any payment is made to
the nominee of the Depository, or to such other entity as is requested by
an authorized representative of the Depository), any transfer, pledge or
other use hereof for value or otherwise by or to any Person is wrongful
inasmuch as the registered owner hereof has an interest herein."

Notwithstanding Section 2.8 of the Indenture, unless and
until it is exchanged in whole or in part for 2000 Notes in definitive
form, a Global Note representing one or more 2000 Notes may not be
transferred except as a whole by the Depositary, to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by such Depositary or any such
nominee to a successor Depositary for 2000 Notes or a nominee of such
successor Depositary.

If at any time the Depositary for the 2000 Notes is
unwilling or unable to continue as Depositary for the 2000 Notes of such
series, the Issuer shall appoint a successor Depositary with respect to
the 2000 Notes of such series. If (A) a successor Depositary for such
2000 Notes is not appointed by the Issuer by the earlier of (i) 90 days
from the date the Issuer receives notice to the effect that the Depositary
is unwilling or unable to act, or the Issuer determines that the
Depositary is unable to act or (ii) the effectiveness of the Depositary's
resignation or failure to fulfill its duties as Depositary, or (B) a
Default or Event of Default has occurred with respect to any 2000 Notes,
the Issuer will execute, and the Trustee, upon receipt of a Issuer Order
for the authentication and delivery of definitive 2000 Notes of such
series, will authenticate and deliver 2000 Notes of such series in
definitive form in an aggregate principal amount equal to the principal
amount of the Global Note or Notes representing such 2000 Notes in
exchange for such Global Note or Notes.

The Issuer may at any time and in its sole discretion
determine that 2000 Notes of either series issued in the form of one or
more Global Notes shall no longer be represented by such Global Note or
Notes. In such event the Issuer will execute, and the Trustee, upon
receipt of a Issuer Order for the authentication and delivery of
definitive 2000 Notes of such series, will authenticate and deliver 2000
Notes of such series in definitive form in an aggregate principal amount
equal to the principal amount of the Global Note or Notes representing
such 2000 Notes in exchange for such Global Note or Notes.

The Depositary for 2000 Notes of either series may
surrender a Global Note or Notes for 2000 Notes of such series in exchange
in whole or in part for 2000 Notes of such series in definitive form on
such terms as are acceptable to the Issuer and such Depositary.
Thereupon, the Issuer shall execute, and the Trustee shall authenticate
and deliver, without service charge:

(i) to each Person specified by such Depositary a new
2000 Note or Notes of such series, of any authorized
denomination as requested by such Person in aggregate
principal amount equal to and in exchange for such
Person's beneficial interest in the Global Note; and

(ii) to such Depositary a new Global Note in a
denomination equal to the difference, if any, between the
principal amount of the surrendered Global Note and the
aggregate principal amount of 2000 Notes of such series in
definitive form delivered to Holders thereof.

In any exchange provided for in this Article, the Issuer
will execute and the Trustee will authenticate and deliver 2000 Notes in
definitive registered form in authorized denominations.

Upon the exchange of a Global Note for 2000 Notes in
definitive form, such Global Note shall be cancelled by the Trustee. 2000
Notes in definitive form issued in exchange for a Global Note pursuant to
this Article shall be registered in such names and in such authorized
denominations as the Depositary for such Global Note, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee or Security Registrar. The Trustee shall deliver
such 2000 Notes to the persons in whose names such 2000 Notes are so
registered.

ARTICLE VIII

DEFEASANCE

All of the provisions of Article Ten of the Original
Indenture shall be applicable to each series of 2000 Notes. Upon
satisfaction by the Issuer of the requirements of Section 10.1(c) of the
Original Indenture, in connection with any covenant defeasance (as
provided in Section 10.1(c) of the Indenture), the Issuer shall be
released from its obligations under Article Nine of the Original Indenture
and under Articles IV and V of this Fifth Supplemental Indenture with
respect to the 2000 Notes.

ARTICLE IX

SUPPLEMENTAL INDENTURES

This Fifth Supplemental Indenture is a supplement to the
Original Indenture. As supplemented by this Fifth Supplemental Indenture,
the Original Indenture is in all respects ratified, approved and
confirmed, and the Original Indenture and this Fifth Supplemental
Indenture shall together constitute one and the same instrument.

TESTIMONIUM

This Fifth Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and
the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Fifth Supplemental Indenture to be duly executed and their respective
corporate seals to be hereunto affixed and attested, all as of the day and
year first written above.

CMS ENERGY CORPORATION

By: /s/ A.M. Wright
______________________________
Alan M. Wright
Senior Vice President,
Chief Financial Officer and
Treasurer

Attest: /s/ Michael D. Van Hemert

(Corporate Seal

NBD BANK
as Trustee

By: /s/ Ernest J. Peck
____________________________
Ernest J. Peck
Vice President

Attest: /s/ Richard J. McCullen
_______________________
Richard J. McCullen
Senior Vice President and Legal Counsel

(Corporate Seal)
<PAGE>
<PAGE>

SCHEDULE 5.04(B)(2)

Indebtedness of CMS Energy Corporation outstanding on October 31, 1997

[CMS Energy to provide]

<PAGE>

<TABLE>

Exhibit (12)
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges and Preferred Securities Dividends and Distributions
(Millions of Dollars)

Nine Months
Ended Years Ended December 31
September 30, 1997 1996 1995 1994 1993 1992
(b)
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined (a)
Consolidated net income (loss) $ 204 $ 240 $ 204 $ 179 $ 155 $(297)
Income taxes 107 139 118 92 75 (146)
Exclude equity basis subsidiaries (61) (85) (57) (18) (6) 10
Fixed charges as defined, adjusted to
exclude capitalized interest of $11, $8,
$8, $6, $5, and $3 million for the nine
months ended September 30, 1997 and for the
years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively 258 310 295 249 253 236
----- ----- ----- ----- ----- -----
Earnings as defined $ 508 $ 604 $ 560 $ 502 $ 477 $(197)
===== ===== ===== ===== ===== =====

Fixed charges as defined (a)
Interest on long-term debt $ 198 $ 230 $ 224 $ 193 $ 204 $ 169
Estimated interest portion of lease rental 6 10 9 9 11 16
Other interest charges 34 43 42 30 32 43
Preferred securities dividends and
distributions 47 54 42 36 17 16
----- ----- ----- ----- ----- -----
Fixed charges as defined $ 285 $ 337 $ 317 $ 268 $ 264 $ 244
===== ===== ===== ===== ===== =====

Ratio of earnings to fixed charges and
preferred securities dividends and
distributions 1.78 1.79 1.77 1.87 1.81 -
===== ===== ===== ===== ===== =====

NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.

(b) For the year ended December 31, 1992, fixed charges exceeded earnings by $441 million. Earnings as defined include
a $520 million pretax loss on the settlement of MCV Power Purchases, $(15) million for potential customer refunds and
other reserves related to 1992 but recorded in 1991, and $6 million relating to CMS Generation Company's reduction in
its investment in The Oxford Energy Company. The ratio of earnings to fixed charges and preferred securities dividends
and distributions would have been 1.29 excluding these amounts.

</TABLE>
<PAGE>

<PAGE>

ARTHUR ANDERSEN LLP

Exhibit (15)

To CMS Energy Corporation:

We are aware that CMS Energy Corporation has incorporated by reference in
its Registration Statements No. 33-29681, No. 33-47629, No. 33-60007, No.
33-61595, No. 33-62573, No. 333-27849, No. 333-32229, No. 333-34087 and
No. 333-37241 its Form 10-Q for the quarter ended September 30, 1997,
which includes our report dated November 10, 1997 covering the unaudited
interim financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11
of the Act.

Arthur Andersen LLP

Detroit, Michigan,
November 10, 1997.

<PAGE>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,347
<OTHER-PROPERTY-AND-INVEST> 2,650
<TOTAL-CURRENT-ASSETS> 1,020
<TOTAL-DEFERRED-CHARGES> 1,483
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,500
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,103
<RETAINED-EARNINGS> (221)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,834
393
238
<LONG-TERM-DEBT-NET> 1,562
<SHORT-TERM-NOTES> 394
<LONG-TERM-NOTES-PAYABLE> 1,498
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 878
0
<CAPITAL-LEASE-OBLIGATIONS> 82
<LEASES-CURRENT> 33
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,539
<TOT-CAPITALIZATION-AND-LIAB> 9,500
<GROSS-OPERATING-REVENUE> 3,394
<INCOME-TAX-EXPENSE> 107
<OTHER-OPERATING-EXPENSES> 2,829
<TOTAL-OPERATING-EXPENSES> 2,936
<OPERATING-INCOME-LOSS> 458
<OTHER-INCOME-NET> (2)
<INCOME-BEFORE-INTEREST-EXPEN> 456
<TOTAL-INTEREST-EXPENSE> 221
<NET-INCOME> 235
31
<EARNINGS-AVAILABLE-FOR-COMM> 204
<COMMON-STOCK-DIVIDENDS> 87
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 363
<EPS-PRIMARY> 2.04<F1>
<EPS-DILUTED> 0
<FN>
<F1> EPS for CMS Energy Common Stock $2.04
EPS for Class G Common Stock $1.13
</FN>

<PAGE>

</TABLE>

<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND
STATEMENT OF COMMON STOCKHOLDER'S EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS ENERGY COMPANY
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,347
<OTHER-PROPERTY-AND-INVEST> 690
<TOTAL-CURRENT-ASSETS> 576
<TOTAL-DEFERRED-CHARGES> 1,225
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,838
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 502
<RETAINED-EARNINGS> 396
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,784
220
238
<LONG-TERM-DEBT-NET> 1,189
<SHORT-TERM-NOTES> 389
<LONG-TERM-NOTES-PAYABLE> 273
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 450
0
<CAPITAL-LEASE-OBLIGATIONS> 82
<LEASES-CURRENT> 33
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,225
<TOT-CAPITALIZATION-AND-LIAB> 6,838
<GROSS-OPERATING-REVENUE> 2,755
<INCOME-TAX-EXPENSE> 126
<OTHER-OPERATING-EXPENSES> 2,276
<TOTAL-OPERATING-EXPENSES> 2,402
<OPERATING-INCOME-LOSS> 353
<OTHER-INCOME-NET> 14
<INCOME-BEFORE-INTEREST-EXPEN> 367
<TOTAL-INTEREST-EXPENSE> 128
<NET-INCOME> 239
27
<EARNINGS-AVAILABLE-FOR-COMM> 212
<COMMON-STOCK-DIVIDENDS> 113
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 458
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

Consumers Gas Group
Management's Discussion and Analysis

This MD&A should be read along with the MD&A and other parts of the 1996
Form 10-K of CMS Energy included and incorporated by reference herein.
CMS Energy has issued shares of Class G Common Stock. This class of
common stock reflects the separate performance of the gas distribution,
storage and transportation businesses conducted by Consumers and Michigan
Gas Storage (collectively, Consumers Gas Group). For further information
regarding the businesses of CMS Energy, including the nature and issuance
of Class G Common Stock, see the MD&A of CMS Energy's Form 10-Q for the
quarter ended September 30, 1997.

Earnings

In Millions
September 30 1997 1996 Change

Three months ended $ (7) $ (9) $ 2
Nine months ended 37 44 (7)
Twelve months ended 52 62 (10)

The increase in earnings for the three months ended September 30, 1997
compared to the same 1996 period reflects reduced operation and
maintenance expenses and the August 1997 recognition of interest income
related to a property sale. Earnings decreased in both the nine month and
twelve month periods ended September 30, 1997 as a result of decreased gas
deliveries due to warmer temperatures during the first quarter of 1997 and
an extra day for leap year in 1996. In addition, the earnings comparisons
for the nine and twelve month periods ended September 30, 1997 reflect
higher depreciation and general taxes, partially offset by lower operation
and maintenance expenses.

Cash Position, Investing and Financing

Operating Activities: Consumers Gas Group's cash requirements are met by
its operating and financing activities. Consumers Gas Group's cash from
operations is derived mainly from Consumers' sale and transportation of
natural gas. Cash from operations for the first nine months of 1997 and
1996 totaled $122 million and $79 million, respectively. The $43 million
increase primarily reflects changes in the timing of cash receipts and
payments related to Consumers Gas Group's operations. Consumers Gas Group
uses its operating cash mainly to maintain and expand its gas utility
transmission and distribution systems and to retire portions of its long-
term debt and pay dividends.

Investing Activities: Cash used in investing activities for the first
nine months of 1997 and 1996 totaled $87 million and $100 million,
respectively. The $13 million decrease in cash used primarily reflects a
decrease in capital expenditures.

Financing Activities: Cash used in financing activities during the first
nine months of 1997 totaled $31 million; and cash provided by financing
activities during the first nine months of 1996 totaled $38 million. The
$69 million increase in cash used primarily reflects an increase in the
retirement of bonds, other long-term debt, preferred stock and the
repayment of bank loans in 1997 compared to 1996.

Other Investing and Financing Matters: Consumers has an agreement
permitting the sale of certain accounts receivable for up to $500 million.
At September 30, 1997, receivables sold totaled $250 million. Consumers
Gas Group's attributed portion of these receivables sold totaled $36
million.

For further information, see Cash Position, Investing and Financing in
CMS Energy's MD&A.

Results of Operations

For a discussion of results of operations, see Consumers Gas Group Results
of Operations in CMS Energy's MD&A.

Gas Issues

For a discussion of Gas Rate Proceedings, GCR Matters and Gas
Environmental Matters, see Consumers Gas Group Issues in CMS Energy's
MD&A.

Forward-Looking Information

For cautionary statements relating to Consumers Gas Group's forward-
looking information, see Forward-Looking Information in CMS Energy's MD&A.

Capital Expenditures: CMS Energy estimates the following capital
expenditures for Consumers Gas Group, including new lease commitments,
over the next three years. These estimates are prepared for planning
purposes and are subject to revision.

In Millions
Years Ended December 31 1997 1998 1999

Gas utility (a) $117 $117 $112
Michigan Gas Storage 3 3 3
---- ---- ----
$120 $120 $115
==== ==== ====

(a) Includes a portion of anticipated capital expenditures common to
Consumers' gas and electric utility businesses.

Consumers Gas Group expects that cash from operations and the ability to
access debt markets will provide necessary working capital and liquidity
to fund future capital expenditures, required debt payments, and other
cash needs in the foreseeable future. For further information regarding
forward-looking information, see the Consumers Gas Group Outlook
discussion in CMS Energy's MD&A.

<PAGE>

(This page intentionally left blank)

<PAGE>
<PAGE> 4

<TABLE>

Consumers Gas Group
Statements of Income
(Unaudited)

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>

Operating Revenue $ 110 $ 123 $ 828 $ 880 $1,230 $1,274
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Cost of gas sold 39 51 472 504 718 742
Other 47 47 128 135 186 194
86 98 600 639 904 936
Maintenance 9 9 24 27 37 39
Depreciation, depletion
and amortization 9 9 64 60 91 86
General taxes 7 7 40 38 56 55
------ ------ ------ ------ ------ ------
111 123 728 764 1,088 1,116
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss) (1) - 100 116 142 158
------ ------ ------ ------ ------ ------
Other Income (Deductions) 1 - - (2) (4) (2)
------ ------ ------ ------ ------ ------
Fixed Charges
Interest on long-term debt 7 7 21 22 29 29
Other interest 3 3 9 8 13 11
Capitalized interest - - - - (1) -
Preferred stock dividends 1 2 4 5 5 6
------ ------ ------ ------ ------ ------
11 12 34 35 46 46
------ ------ ------ ------ ------ ------
Income (Loss) Before Income Taxes (11) (12) 66 79 92 110

Income Taxes (4) (3) 29 35 40 48
------ ------ ------ ------ ------ ------
Net Income (Loss) $ (7) $ (9) $ 37 $ 44 $ 52 $ 62
====== ====== ====== ====== ====== ======
Net Income (Loss) Attributable
to CMS Energy
Shareholders through
Retained Interest $ (5) $ (6) $ 28 $ 34 $ 39 $ 48

Net Income (Loss) Attributable to
Class G Shareholders $ (2) $ (3) $ 9 $ 10 $ 13 $ 14

Average Class G Common
Shares Outstanding 8 8 8 8 8 8

Earnings (Loss) Per Average Class G
Common Share $ (.21) $ (.28) $ 1.13 $ 1.38 $ 1.57 $ 1.92

Dividend Declared Per Class G
Common Share $ .31 $ .295 $ .90 $ .855 $1.195 $1.135
====== ====== ====== ====== ====== ======

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 5

<TABLE>

Consumers Gas Group
Statements of Cash Flows
(Unaudited)

Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 37 $ 44 $ 52 $ 62
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 64 60 91 86
Capital lease and other amortization 3 3 4 5
Deferred income taxes and investment tax credit 7 10 10 4
Other (1) 1 - 1
Changes in other assets and liabilities 12 (39) 27 36
------ ------ ------ ------
Net cash provided by operating activities 122 79 184 194
------ ------ ------ ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets
placed under capital lease) (79) (94) (122) (141)
Cost to retire property, net (6) (7) (8) (11)
Other (2) 1 (2) 2
------ ------ ------ ------
Net cash used in investing activities (87) (100) (132) (150)
------ ------ ------ ------
Cash Flows from Financing Activities
Increase (decrease) in notes payable, net 40 48 1 (5)
Proceeds from long-term note 25 22 25 22
Issuance of common stock 4 3 6 4
Retirement of bonds and other long-term debt (33) (8) (33) (14)
Payment of common stock dividends (29) (27) (39) (36)
Retirement of preferred stock (26) - (26) -
Repayment of bank loans (7) - (7) -
Payment of capital lease obligations (3) (3) (4) (6)
Repayment of long-term note (2) - (2) -
Proceeds from bank loans - - 23 -
Contribution from CMS Energy stockholders - 3 - 12
------ ------ ------ ------
Net cash provided by (used in) financing activities (31) 38 (56) (23)
------ ------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments 4 17 (4) 21

Cash and Temporary Cash Investments, Beginning of Period 15 6 23 2
------ ------ ------ ------
Cash and Temporary Cash Investments, End of Period $ 19 $ 23 $ 19 $ 23
====== ====== ====== ======

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 6

<TABLE>

Consumers Gas Group
Balance Sheets

ASSETS September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At Cost)
Plant and property $2,292 $2,203 $2,268
Less accumulated depreciation, depletion and amortization 1,209 1,133 1,232
------ ------ ------
1,083 1,070 1,036
Construction work-in-progress 28 46 53
------ ------ ------
1,111 1,116 1,089
------ ------ ------

Current Assets
Cash and temporary cash investments at cost, which approximates market 19 15 23
Accounts receivable and accrued revenue, less allowances
of $2, $4 and $1, respectively (Note 4) 33 97 39
Inventories at average cost
Gas in underground storage 253 186 250
Materials and supplies 8 8 9
Deferred income taxes 4 4 7
Trunkline settlement - 25 30
Prepayments and other 20 49 22
------ ------ ------
337 384 380
------ ------ ------

Non-current Assets
Postretirement benefits 145 153 156
Deferred income taxes 12 11 14
Other 60 59 60
------ ------ ------
217 223 230
------ ------ ------
Total Assets $1,665 $1,723 $1,699
====== ====== ======

</TABLE>
<PAGE>
<PAGE> 7

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 382 $ 370 $ 363
Preferred stock 52 78 78
Long-term debt 351 446 423
Non-current portion of capital leases 16 17 18
------ ------ ------
801 911 882
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 100 24 24
Notes payable 154 114 153
Accounts payable 94 85 69
Accrued taxes 30 61 27
Accrued refunds 5 7 22
Accrued interest 3 7 6
Trunkline settlement - 25 30
Other 41 52 44
------ ------ ------
427 375 375
------ ------ ------
Non-current Liabilities
Postretirement benefits 170 171 174
Regulatory liabilities for income taxes, net 178 169 171
Deferred investment tax credit 26 27 27
Other 63 70 70
------ ------ ------
437 437 442
------ ------ ------

Commitments and Contingencies (Notes 3 and 5)

Total Stockholders' Investment and Liabilities $1,665 $1,723 $1,699
====== ====== ======

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 8

<TABLE>

Consumers Gas Group
Statements of Common Stockholders' Equity
(Unaudited)

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $184 $184 $184 $184 $184 $184
---- ---- ---- ---- ---- ----
Other Paid-in Capital
At beginning of period 136 131 134 126 132 116
Common stock issued 2 1 4 3 6 4
CMS Energy stockholders'
contribution - - - 3 - 12
---- ---- ---- ---- ---- ----
At end of period 138 132 138 132 138 132
---- ---- ---- ---- ---- ----
Retained Earnings
At beginning of period 77 65 52 30 47 21
Net income (loss) (7) (9) 37 44 52 62
Common stock dividends
declared (10) (9) (29) (27) (39) (36)
---- ---- ---- ---- ---- ----
At end of period 60 47 60 47 60 47
---- ---- ---- ---- ---- ----
Total Common Stockholders' Equity $382 $363 $382 $363 $382 $363
==== ==== ==== ==== ==== ====

<FN>

The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 9

Consumers Gas Group
Condensed Notes to Financial Statements

These Financial Statements and their related Notes should be read along
with the Financial Statements and Notes contained in the 1996 Form 10-K of
CMS Energy Corporation that includes the Report of Independent Public
Accountants, included and incorporated by reference herein.

1: Corporate Structure

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
For further information regarding the business of CMS Energy, see the
CMS Energy Notes included and incorporated by reference herein.

CMS Energy has issued shares of Class G Common Stock. This class of
common stock reflects the separate performance of the gas distribution,
storage and transportation businesses conducted by Consumers and Michigan
Gas Storage (collectively, Consumers Gas Group). For further information
regarding the nature and issuance of the Class G Common Stock, see
CMS Energy's Note 5 included and incorporated by reference herein.

2: Earnings Per Share and Dividends

Earnings (loss) per share for the three, nine and twelve month periods
ended September 30, 1997 and September 30, 1996 reflect the performance of
Consumers Gas Group. The Class G Common Stock has participated in
earnings and dividends since its original issue date in July 1995. The
earnings (loss) attributable to Class G Common Stock and the related
amounts per share are computed by considering the weighted average number
of shares of Class G Common Stock outstanding.

Earnings attributable to outstanding Class G Common Stock are equal to
Consumers Gas Group's net income multiplied by a fraction; the numerator
is the weighted average number of Outstanding Shares during the period,
and the denominator is the weighted average number of Outstanding Shares
and Retained Interest Shares during the period. The earnings attributable
to Class G Common Stock on a per share basis, for the nine months ended
September 30, 1997 and 1996, are based on 24.65 percent and 23.67 percent
of the income of Consumers Gas Group, respectively.

In February and May 1997, CMS Energy paid dividends of $.295 per share on
Class G Common Stock. In August 1997, CMS Energy paid a dividend of $.31
per share on Class G Common Stock. In October 1997, the Board of
Directors declared a quarterly dividend of $.31 per share on Class G
Common Stock to be paid in November 1997.

3: Rate Matters

For information regarding rate matters directly affecting Consumers Gas
Group, see the Gas Proceedings discussion in CMS Energy's Note 3 included
and incorporated by reference herein.

4: Short-Term and Long-Term Financings

Consumers' short-term and long-term financings are discussed in
CMS Energy's Note 4 included and incorporated by reference herein.

Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold attributable to
Consumers Gas Group at September 30, 1997 and 1996, is estimated by
management to be $36 million and $28 million, respectively. Accounts
receivable and accrued revenue in the balance sheets have been reduced to
reflect receivables sold. The portions of short-term debt and receivables
sold attributed to Consumers Gas Group reflect the high utilization of
short-term borrowing to finance the purchase of gas for storage in the
summer and fall periods. Management believes these allocations to be
reasonable.

5: Commitments and Contingencies

Capital Expenditures: Consumers Gas Group estimates capital expenditures,
including new lease commitments, of $120 million for 1997 and 1998 and
$115 million for 1999. These estimates include an attributed portion of
Consumers' anticipated capital expenditures for common plant and
equipment.

For further information regarding commitments and contingencies directly
affecting Consumers Gas Group (including those involving former
manufactured gas plant sites), see the Environmental Matters and Other
discussions in CMS Energy's Note 7 included and incorporated by reference
herein.

6: Supplemental Cash Flow Information

For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Consumers Gas Group's other cash flow activities and
non-cash investing and financing activities were:

In Millions
Nine Months Ended Twelve Months Ended
September 30 1997 1996 1997 1996

Cash transactions
Interest paid
(net of amounts capitalized) $32 $29 $42 $39
Income taxes paid
(net of refunds) 33 29 37 27

Non-cash transactions
Assets placed under
capital lease $ 1 $ 1 $ 2 $ 2
Capital leases refinanced - - - 9

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<PAGE> 11

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying balance sheets of CONSUMERS GAS GROUP
(representing a business unit of Consumers Energy Company and its wholly-
owned subsidiary, Michigan Gas Storage Company) as of September 30, 1997
and 1996, the related statements of income and common stockholders' equity
for the three-month, nine-month and twelve-month periods then ended, and
the related statements of cash flows for the nine-month and twelve-month
periods then ended. These financial statements are the responsibility of
the Company's management.

We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Consumers Gas Group as of December 31,
1996, and the related statements of income, common stockholders' equity
and cash flows for the year then ended (not presented herein), and, in our
report dated January 24, 1997, we expressed an unqualified opinion on
those statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 1996, is fairly stated, in
all material respects, in relation to the balance sheet from which it has
been derived.

Arthur
Andersen LLP

Detroit, Michigan,
November 10, 1997.
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