CONSUMERS ENERGY CO, 10-Q, 1997-05-14

CONSUMERS ENERGY CO
10-Q, 1997-05-14
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 March 31, 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 April 30, 1997:
CMS Energy Corporation:
CMS Energy Common Stock, $.01 par value 95,337,648
CMS Energy Class G Common Stock, no par value 7,965,981
Consumers Energy Company, $10 par value, privately held
by CMS Energy 84,108,789

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<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 March 31, 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. . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 20
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Common Stockholders' Equity . . . . . . . 23
Condensed Notes to Consolidated Financial Statements . . . . . . . . 24
Report of Independent Public Accountants . . . . . . . . . . . . . . 31
Consumers Energy Company
Management's Discussion and Analysis . . . . . . . . . . . . . . . . 32
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . 43
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 44
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . 45
Consolidated Statements of Common Stockholder's Equity . . . . . . . 47
Condensed Notes to Consolidated Financial Statements . . . . . . . . 48
Report of Independent Public Accountants . . . . . . . . . . . . . . 53
PART II:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 54
Item 4. Submission of Matters to a Vote of Security Holders . . . . 54
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 55
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

<PAGE>
<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

bcf . . . . . . . . . . . . . Billion cubic feet
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 on November
15, 1990
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 . . . . . . . . . . . . . Earnings per share

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

GCR . . . . . . . . . . . . . Gas cost recovery
GTNs. . . . . . . . . . . . . CMS Energy General Term Notes(Registered
Trademark), $250 million Series A, $125
million Series B and $150 million Series C
GVK . . . . . . . . . . . . . GVK Industries, the developer of an
independent power project in Jegurupadu,
Andhra Pradesh, India

Kwh . . . . . . . . . . . . . Kilowatt-hour

Ludington . . . . . . . . . . Ludington pumped storage plant, jointly owned
by Consumers and Detroit Edison

MCV Facility. . . . . . . . . A natural gas-fueled, combined-cycle
cogeneration facility operated by the MCV
Partnership
MCV Partnership . . . . . . . Midland Cogeneration Venture Limited
Partnership
MD&A. . . . . . . . . . . . . Management's Discussion and Analysis
Michigan Gas Storage. . . . . Michigan Gas Storage Company, a subsidiary of
Consumers
MMBtu . . . . . . . . . . . . Million British thermal unit
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
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

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CMS Energy Corporation
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A in
CMS Energy's 1996 Form 10-K. 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 document.
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; energy marketing, risk management
and energy management services to large customers; storage, transmission
and processing of natural gas; and international energy distribution.

Consolidated Earnings

In Millions, Except Per Share Amounts
March 31 1997 1996 Change

Three months ended
Consolidated Net Income $ 84 $ 88 $ (4)
Net Income Attributable to
Common Stocks: CMS Energy 75 76 (1)
Class G 9 12 (3)
Earnings Per Average
Common Share: CMS Energy .79 .83 (.04)
Class G 1.18 1.50 (.32)

Twelve months ended
Consolidated Net Income $ 236 $ 206 $ 30
Net Income Attributable to
Common Stocks: CMS Energy 225 191 34
Class G 11 15 (4)
Earnings Per Average
Common Share: CMS Energy 2.41 2.12 .29
Class G 1.53 1.90(a) (.37)

(a) Class G shares were issued on July 21, 1995. Proforma earnings per
share, assuming Class G shares were outstanding during the entire twelve
month period ended March 31, 1996, would be $1.88.

The decrease in consolidated net income for the 1997 first quarter
compared to 1996 reflects decreased Consumers' gas deliveries due to
warmer 1997 first quarter temperatures, decreased Consumers' gas wholesale
services revenues in 1997, and decreased Consumers' electric revenues from
special contract discounts negotiated with large industrial customers.
Partially offsetting these decreases were the favorable impact of
Consumers' electric rate increase received in February 1996 which
benefited the entire first quarter of 1997 and improved operating results
from the MCV Facility in which Consumers has a 49 percent interest. The
increase in consolidated net income for the twelve months ended March 1997
compared to the 1996 period reflects the favorable impact of Consumers'
electric rate increase received in February 1996, revenues from value-
added services and Consumers' wholesale services activities, and improved
operating results from the MCV Facility. In addition, other operating
income increased during the twelve months ended March 1997 due to a FERC-
ordered refund received by the MCV Partnership from a gas pipeline
supplier. Consolidated net income was also affected by increased earnings
from CMS Gas Transmission's 25 percent ownership interest in TGN and
increased equity earnings resulting from the buy-out of a power purchase
agreement from a partnership in which CMS Generation owns a 50 percent
ownership interest. Partially offsetting these increases were decreased
Consumers' electric revenues because of special contract discounts
negotiated with large industrial customers and decreased Consumers' gas
deliveries due to warmer temperatures during the first quarter of 1997.
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
its subsidiaries. In April 1997, Consumers declared a $70 million common
dividend to be paid to CMS Energy in May 1997. Consumers had temporarily
suspended its common dividends from mid-1995 until early 1996 to improve
its capital structure. In the first quarter of 1997, Enterprises paid
common dividends and other distributions of $21 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
Consumers' sale and transportation of natural gas, Consumers' generation,
transmission, and sale of electricity and CMS NOMECO's sale of oil and
natural gas. Consolidated cash from operations totaled $379 million and
$349 million for the first three months of 1997 and 1996, respectively.
The $30 million increase resulted from changes in the timing of cash
receipts and payments related to Consumers' operations, offset by reduced
cash from Consumers' gas sales. CMS Energy uses its operating cash
primarily to expand its international businesses, maintain and expand
Consumers' electric and gas systems, retire portions of its long-term debt
and pay dividends.

Investing Activities: Net cash used in investing activities totaled $157
million and $225 million for the first three months of 1997 and 1996,
respectively. The decrease of $68 million primarily reflects a decrease
in investments in partnerships and unconsolidated subsidiaries, partially
offset by an increase in capital expenditures during 1997. CMS Energy's
1997 expenditures for its utility and international businesses were $82
million and $62 million, respectively.

Financing Activities: Net cash used in financing activities totaled $221
million and $138 million for the first three months of 1997 and 1996,
respectively. The increase of $83 million in cash outflows primarily
reflects the issuance of preferred securities in 1996.

In 1996, CMS Energy filed shelf registration statements with the SEC for
the issuance and sale of up to $125 million of Series B GTNs and $150
million Series C GTNs, with net proceeds to be used for general corporate
purposes. During the first quarter of 1997 CMS Energy issued $22 million
of Series B and $11 million of Series C GTNs. At March 31, 1997,
CMS Energy had $250 million of Series A GTNs, $125 million of Series B
GTNs and $11 million of Series C GTNs issued and outstanding with
weighted-average interest rates of 7.7 percent, 7.9 percent and 7.9
percent, respectively.

In 1996, CMS Energy filed a shelf registration statement with the SEC for
the issuance and the sale of up to $500 million of senior and subordinated
debt securities. 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 pay down debt with the remainder to fund
CMS Energy's equity commitment in connection with the acquisition of a 50
percent interest in the 2,000 MW Loy Yang A electric generating plant and
associated mine facilities in the State of Victoria, Australia.

In the first quarter of 1997, CMS Energy declared and paid $26 million in
cash dividends to holders of CMS Energy Common Stock and $2 million in
cash dividends to holders of Class G Common Stock. In April 1997, the
Board of Directors declared quarterly dividends of $.27 per share on
CMS Energy Common Stock and $.295 per share on Class G Common Stock to be
paid in May 1997.

Other Investing and Financing Matters: CMS Energy has available
unsecured, committed lines of credit totaling $155 million and a $450
million unsecured revolving credit facility. At March 31, 1997 and 1996,
the total amount utilized under these facilities was $216 million and $242
million, respectively. In addition, CMS Energy currently has an unsecured
$125 million term loan. CMS Energy is negotiating with a group of banks
to replace the unsecured revolving credit facility and the term loan with
a credit facility or facilities consisting of a combination of unsecured
revolving credit and term loan tranches. CMS Energy expects that the
aggregate borrowing capacity under the new facility or facilities may
range from $725 million to $1.125 billion. CMS Energy expects to enter
into such new credit facility or facilities in the second quarter of 1997.
CMS Energy would also continue to have available the unsecured, committed
lines of credit totaling $155 million. CMS Energy will continue to
evaluate capital markets in 1997 as a source of financing its
subsidiaries' investing activities and required debt retirements.

Consumers has several unsecured, committed lines of credit totaling $120
million and a $425 million working capital facility available to meet
short-term borrowing requirements to finance working capital and gas in
storage, and to pay for capital expenditures between long-term financings.
At March 31, 1997 and 1996, the total outstanding under these facilities
was $88 million and $38 million, respectively. Consumers has FERC
authorization to issue or guarantee up to $900 million of short-term
securities through 1998 and to issue $500 million of long-term securities
through November 1998 for refinancing or refunding purposes. An agreement
is also in place permitting the sales of certain accounts receivable for
up to $500 million. At March 31, 1997 and 1996, receivables sold totaled
$398 million and $280 million, respectively.

At March 31,1997, the book value per share of CMS Energy Common Stock and
Class G Common Stock was $17.62 and $12.06, respectively.

Consumers' Electric Business Unit Results of Operations

Electric Pretax Operating Income:

In Millions
Three Months Twelve Months
Ended March 31 Ended March 31
Change Compared to Prior Year 1997 vs 1996 1997 vs 1996

Sales (including special contract discounts) $(3) $(12)
Rate increases and other regulatory issues 9 51
Operations and maintenance (3) (4)
General taxes and depreciation (3) (11)
---- ----

Total change $ - $ 24
==== ====

Electric Sales: Total electric sales remained unchanged for the first
quarter while showing a 3.4 percent increase for the twelve months ended
March 31, 1997 over the comparable 1996 period. The table below reflects
electric kWh sales by class of customer for both periods:

In Billions of kWh
Three Months Ended Twelve Months Ended
March 31 1997 1996 Change 1997 1996 Change

Residential 2.9 3.0 (0.1) 10.9 10.9 -
Commercial 2.4 2.4 - 10.0 9.8 0.2
Industrial 3.0 2.9 0.1 13.0 12.6 0.4
Other 0.7 0.7 - 3.2 2.6 0.6
---- ---- ---- ---- ---- ----

Total sales 9.0 9.0 - 37.1 35.9 1.2
==== ==== ==== ==== ==== ====

Power Costs:

In Millions
March 31 1997 1996 Change

Three months ended $ 282 $ 260 $ 22
Twelve months ended 1,110 1,003 107

The cost increases for the three month and twelve month periods ended
March 31, 1997 reflect greater power purchases from outside sources to
meet sales demand.

Consumers' Electric Business Unit Issues

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 MPSC currently allows Consumers to
recover substantially all payments for 915 MW of capacity purchased from
the MCV Partnership. 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 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.
In 1992, Consumers recognized a loss for the present value of the
estimated future underrecoveries of power purchases from the MCV
Partnership and that estimate remains unchanged.

Consumers anticipates it will continue to experience cash underrecoveries
associated with the PPA as shown below. These after-tax cash
underrecoveries totaled $10 million for the first three months of 1997.
For further information, see Note 2.

In Millions
1997 1998 1999 2000 2001

Estimated cash under-
recoveries, net of tax $28 $23 $22 $21 $20

The amount of underrecoveries of power costs continues to be based, in
part, on management's best assessment 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, future losses will need to be
recognized over and above 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 facility operations.

Electric Rate Proceedings: In 1996, the MPSC issued a final order which
authorized Consumers to recover the costs associated with the purchase of
the additional 325 MW of MCV Facility capacity and to accelerate recovery
of its nuclear plant investment by charging $18 million of annual steam
production plant depreciation expense to the nuclear production
depreciation reserve. It also established a 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 discussion
on these issues, see Notes 2 and 3.

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 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 a change in fuel management designed to minimize
embrittlement, Palisades might 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.

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. For further information,
see Note 7.

Electric Environmental Matters: The Clean Air Act contains significant
environmental constraints under which utilities will operate in the
future. While the Act's provisions will require that certain capital
expenditures be made to comply with nitrogen oxide emission limits,
generating units are currently operating at or near the sulfur dioxide
emission limits that will be effective in the year 2000. Management does
not believe that these expenditures will have a material effect on annual
operating costs.

Consumers is a so-called potentially responsible party at several sites
being administered under Superfund. In addition, there are numerous
credit worthy, potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that the liability at any
of the known Superfund sites, individually or in total, will have a
material adverse effect on CMS Energy's financial position, liquidity or
results of operations. For further information regarding electric
environmental matters, see Note 6.

Stray Voltage: A number of lawsuits have been filed against Consumers
relating to the effect of so-called stray voltage on certain livestock.
As of April 30, 1997, 18 separate stray voltage lawsuits were awaiting
trial court action, down from 22 lawsuits at year end 1996. CMS Energy
believes that the resolution of the remaining lawsuits will not have a
material impact on its financial position, liquidity or results of
operations.

Consumers Gas Group Results of Operations

Gas Pretax Operating Income:

In Millions
Three Months Twelve Months
Ended March 31 Ended March 31
Change Compared to Prior Year 1997 vs 1996 1997 vs 1996

Sales $ (17) $(19)
Recovery of gas costs and other issues - 4
Gas wholesale services activities (1) 5
Operations and maintenance 4 (3)
General taxes, depreciation and other (1) -
---- ----

Total change $(15) $(13)
==== ====

Gas Deliveries: Total system deliveries, excluding transport to the MCV
Facility and other miscellaneous transportation, decreased 7.8 percent and
4.2 percent for the quarter and twelve months ended March 31, 1997,
respectively. The decreased deliveries for both periods reflect warmer
temperatures during 1997. The table below indicates total deliveries and
the impact of weather.

In bcf
Three Months Ended Twelve Months Ended
March 31 1997 1996 Change 1997 1996 Change

Weather-adjusted deliveries
(variance reflects growth) 146 145 1 335 332 3
Impact of weather and leap year (4) 9 (13) 5 23 (18)
---- ---- ---- ---- ---- ----
System deliveries excluding
transport to MCV Partnership 142 154 (12) 340 355 (15)
Transport to MCV Partnership 17 17 - 66 56 10
Other Transportation 9 14 (5) 24 24 -
---- ---- ---- ---- ---- ----

Total deliveries 168 185 (17) 430 435 (5)
==== ==== ==== ==== ===== ====
Cost of Gas Sold:

In Millions
March 31 1997 1996 Change

Three months ended $314 $346 $(32)
Twelve months ended 718 739 (21)

The decreases for the three month and twelve month periods ended March 31,
1997 were the result of decreased sales reflecting warmer temperatures and
an extra day for leap year in 1996.

Consumers Gas Group Issues

Gas Rate Proceedings: Consumers entered into a special natural gas
transportation contract with one of its transportation customers in
response to the customer's proposal to bypass Consumers' system in favor
of a competitive alternative. The contract provides for discounted gas
transportation rates in an effort to induce the customer to remain on
Consumers' system. 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, which is still
pending, claiming that the MPSC decision denies Consumers the opportunity
to earn its authorized rate of return and is therefore unconstitutional.

GCR Matters: In 1995, the MPSC issued an order regarding a $44 million
(excluding interest) gas supply contract pricing dispute between Consumers
and certain intrastate producers. The order stated that Consumers was not
obligated to seek prior approval of market-based pricing provisions 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. 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.

In the GCR reconciliation proceeding for the period April 1995 through
March 1996, an issue has arisen questioning 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. The ALJ issued a
proposal for decision in January 1997 that agreed with the MPSC staff's
position that the gas loaning program uses storage assets of Consumers and
therefore recommended that 90 percent of the revenue should be refunded to
customers. As of March 31, 1997, $7 million would be subject to refund if
the MPSC adopts the ALJ position. Consumers will continue to oppose this
view before the MPSC.

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.
Data available, and continued internal review of these former manufactured
gas plant sites, have resulted in an estimate for all costs related to
investigation and remedial action of between $48 million and $98 million.
These estimates are based on undiscounted 1997 costs. At March 31, 1997,
Consumers has accrued a liability for $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 regulatory requirements, could affect the estimate of
remedial action costs for the sites. For further information regarding
environmental matters, see Note 6.

Oil and Gas Exploration and Production

Pretax Operating Income: Pretax operating income for the three months
ended March 31, 1997 was the same as the comparable period in 1996, as a
result of higher oil production volumes offset by lower oil and gas prices
and gas volumes, and higher operating expenses. Pretax operating income
for the twelve months ended March 31, 1997 increased $15 million over the
twelve months ended March 31, 1996, primarily due to higher sales volumes
and oil sales prices and income attributable to the acquisition of Terra.

Capital Expenditures: Capital expenditures for the three months ended
March 31, 1997 relate primarily to the development of existing oil and gas
reserves.

Independent Power Production

Pretax Operating Income: Pretax operating income for the three months
ended March 31, 1997 increased $4 million from the same period in 1996,
primarily reflecting higher electricity sales by the Midland Cogeneration
Venture, additional generating capacity and improved equity earnings.
These increases were partially offset because the first quarter 1996
included a gain resulting from a lawsuit settlement. Pretax operating
income for the twelve months ended March 31, 1997 increased $33 million
from the same period in 1996, primarily reflecting a gain on the sale of a
power purchase agreement by a partnership in which CMS Generation owns a
50 percent interest, a gain on the sale of a partnership interest in 1996
and increased operating income resulting from higher electricity sales by
the MCV and a refund received by the MCV Partnership.

Capital Expenditures and Other: In 1996, CMS Generation, through a
subsidiary, commenced construction of the La Plata Cogeneration Plant, a
128 MW natural gas-fueled, combined-cycle power plant in Buenos Aires
Province, Argentina. Construction of the $110 million plant being built
on the site of a petroleum refinery owned and operated by YPF S.A.,
Argentina's largest oil company, is scheduled to be completed by the fall
of 1997. Also in 1996, CMS Generation increased its ownership interest in
the project from 39 percent to 100 percent by purchasing the remaining 61
percent from a consortium of Argentine investors. The Overseas Private
Investment Corporation is expected to provide $75 million in non-recourse
project financing for the facility.

In 1996, CMS Generation, through a subsidiary, and an affiliate of ABB
signed an agreement with Morocco's national utility, Office National de
l'Electricite, for the privatization, expansion and operation of the 1,320
MW Jorf Lasfar coal-fueled power plant located southwest of Casablanca.
The agreement covers the purchase and operation of two existing 330 MW
electric generating units and construction and operation of another two
330 MW electric generating units by CMS Generation and ABB.
CMS Generation and ABB each will hold a 50 percent interest in the plant.
CMS Energy posted a $30 million conditional letter of credit to ensure
closing under the agreement, which is targeted for the third quarter of
1997 and includes over $1 billion in debt financing. Construction of the
second two units will begin shortly thereafter.

In 1996, CMS Generation, through a subsidiary, increased its ownership
interest in CTM to 81 percent. In 1996, CTM began a project to repower
its electric generating plant in Western Argentina's Mendoza Province.
CMS Generation currently plans to invest $185 million to refurbish and
repower the facility resulting in an increase in the plant's available net
output from 243 MW to 506 MW. Capital markets financing of $85 million is
targeted for the first half of 1997.

In the first quarter of 1997, the plant built by GVK began generating
electricity from all three of its combustion turbines. CMS Generation
holds a 25.25 percent interest in GVK and operates the 235 MW plant.
Construction is continuing on the steam turbine of the combined-cycle
facility which has an estimated total cost of $260 million. GVK has
received a Government of India counter-guarantee of performance of certain
obligations under the power purchase agreement by the Andhra Pradesh State
Electricity Board and has completed financing in April 1997.

As of January 1, 1997, Jamaica Private Power Company achieved commercial
operation of the two diesel generators at its 60 MW diesel-fired
independent power project in Kingston, Jamaica. CMS Generation, through a
subsidiary, holds a 44 percent interest in Jamaica Private Power Company
and a 60 percent interest in Private Power Operators Limited, which will
operate the plant. Construction on the balance of the plant, including
the 4 MW waste heat steam turbine, will be complete in the first half of
1997.

In the first quarter of 1997, CMS Generation, through a subsidiary,
acquired a 29.5 percent interest in a 48 MW fossil-fueled plant in
Cavite, on the island of Luzon in the Philippines. CMS Generation also
negotiated the purchase of a further interest which could take its
ultimate interest to 44 percent, and has plans to increase the plant's
generating capacity to 63 MW in 1998.

In March 1997, CMS Generation formed a joint venture with the Thailand-
based EGCO Engineering & Services Company Limited, an affiliate of
Electric Generating Authority of Thailand, the country's national electric
utility, to operate and maintain private power plants in Thailand. The
joint venture, known as CMESCO, signed a contract with Thailand's Amata-
EGCO Power Limited, to operate and maintain a 170 MW gas-fired
cogeneration plant in July 1997. The combined-cycle power plant is now
under construction, with completion scheduled in 1998.

In May 1997, a consortium comprised of subsidiaries of CMS Generation and
NRG Energy, Inc. as well as Horizon Energy Australia Investments acquired
the Loy Yang A power facility in a privatization by the Australian State
of Victoria. Loy Yang A is Victoria's largest electric generating plant
and Australia's lowest-cost electric generating facility. The consortium
purchased the 2,000 MW, brown coal-fueled Loy Yang A plant and an
associated coal mine supplying both the Loy Yang A and B plants at a
purchase price of $3.7 billion. Seventy seven percent of this acquisition
cost was project financed by a consortium of banks with the remaining
twenty three percent of the payment to the government comprised of partner
equity. CMS Generation holds a fifty percent ownership interest and NRG
Energy and Horizon Energy Australia Investments each hold twenty five
percent. Certain operating and management services for Loy Yang A will be
provided by the CMS Generation and NRG Energy subsidiaries and their
affiliates.

Natural Gas Transmission, Storage and Processing

Pretax Operating Income: Pretax operating income for the three months
ended March 31, 1997 increased $3 million from the same period in 1996,
primarily reflecting new pipeline, storage and processing investments,
continued growth of existing projects and a gain on the sale of a portion
of the Ames gas gathering system. Pretax operating income for the twelve
months ended March 31, 1997 increased $13 million from the twelve months
ended March 31, 1996, reflecting new pipeline, storage and processing
investments, primarily TGN, the continued growth of existing projects, and
the exchange of ownership interests in the Moss Bluff and Grands Lacs
partnerships.

Capital Expenditures and Other: In the first quarter of 1997, CMS Gas
Transmission and ENDESA, Chile's largest electricity generation and
transmission company, signed an agreement to develop an integrated $820
million project to construct a 930 kilometer pipeline that will transport
natural gas across the Andes Mountains from northern Argentina to markets
in northern Chile. A 720 MW gas-fueled, combined-cycle generating plant
is planned to be built in two stages at the end of the pipeline in Chile
by a consortium including Enterprises. Construction is scheduled to
begin in 1997, with gas transportation and plant operations expected in
1999.

In the first quarter of 1997, CMS Gas Transmission with Columbia Gas
System, Inc., MCN Energy Group and Westcoast Energy announced a proposed
$600 million pipeline project to carry up to 650 million cubic feet per
day of natural gas to New York and other eastern markets. The Millennium
Pipeline would provide a new, 380-mile link through a connection with the
Great Lakes and TransCanada pipeline systems, flowing western Canadian and
U.S. gas to northeastern markets. Construction is scheduled to begin mid-
1999, and gas deliveries are planned to begin in time for the 1999 winter
heating season.

In May 1997, CMS Gas Transmission announced it will acquire the 420-
kilometer (260-mile) Western Australia Natural Gas (WANG) Pipeline near
Perth, Australia. CMS Gas Transmission agreed to purchase the West
Australian Petroleum-operated assets from Chevron, Texaco, Mobil and
Shell. Included in the acquisition are 30 bcf of proven natural gas
reserves with two gas production licenses and an associated gas storage
facility in pre-operational testing. Terms of the purchase were not
disclosed.

Marketing, Services and Trading

CMS MST was formed as part of CMS Energy's expansion and reorganization of
its energy marketing business. This restructuring is expected to
significantly improve CMS Energy's competitive position in the energy
marketplace throughout the U.S. and abroad. CMS MST will provide gas,
electric, oil and coal marketing, risk management and energy management
services throughout the United States and eventually worldwide. Gas
marketed for end users was 33 bcf and 29 bcf for the first quarter of
1997 and 1996, respectively.

International Energy Distribution

Capital Expenditures: In 1996, a seven-company consortium in which
CMS Electric and Gas holds a 40 percent interest, acquired 90 percent of
the outstanding shares of EDEER S.A. for $160 million. EDEER S.A. serves
over 200,000 customers, primarily residential and commercial, in a 55,000
square kilometer area. In 1996, the Entre Rios Province transferred
ownership and operating management of EDEER S.A. to the consortium.

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 the FERC and the MPSC) with respect
to rates, industry and rate structure, operation of nuclear power
facilities, 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 others. 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 $3.2 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 $ 277 $ 257
Consumers gas operations (a) 115 103 103
Oil and gas exploration and production 135 150 165
Independent power production (b) 698 173 117
Natural gas transmission and storage 110 100 75
International energy distribution 120 100 100
Marketing, services and trading 17 7 3
------ ------ ------

$1,465 $ 910 $ 820

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

(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 privatization of the
Loy Yang A electric generating plant in Australia.

CMS Energy currently plans to invest $450 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 $988 million 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 $285 million from 1997 to 1999, relating to non-utility gas
operations, are planned to continue development of natural gas storage,
gathering and pipeline operations both domestically and internationally.
CMS Energy plans to invest $320 million from 1997 to 1999 in its
international energy distribution operations related to international
expansion. CMS MST plans to invest $27 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: Consumers expects average annual growth of
two to three percent per year in electric system sales over the next five
years, based on the current industry 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 open access is the predominant means by which retail
service customers obtain their power requirements.

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 would 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
caused by regulatory decisions and new 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 or are under
review at the MPSC. FERC issued Orders 888 and 889, as amended on
rehearing, requiring utilities to provide open access to the interstate
transmission grid for wholesale transactions. Several FERC requirements
have been implemented. However, one unresolved issue concerns the
Michigan Electric Power Coordination Center Pool, currently operated
jointly by Consumers and Detroit Edison. Consumers proposes to maintain
the benefits of the pool, while Detroit Edison seeks to terminate the
power pool agreement. The FERC is expected to rule on this issue in 1997.

In 1996, the MPSC staff recommended: 1) a program of direct access to
alternative sources of energy supply by retail electric customers starting
in 1997 and phasing in all customers through 2004; and 2) that Consumers
recover its transition costs through either a transition charge over a
ten-year period ending 2007 only to customers electing direct access or,
if the utility has been enabled to issue rate reduction bonds, through a
securitization charge to all customers over the term of the bonds.
Consumers would continue to provide delivery service to direct access
customers. In March 1997, Consumers filed data with the MPSC which
estimated that the portion of Consumers' transition costs which would be
recovered in the transition charge to direct access customers through 2007
would be $1.8 billion. Direct access implementation costs aggregating an
additional $200 million would also be recovered by a separate charge to
direct access customers. Alternatively, if the securitization approach is
pursued, the resulting securitization charge would be paid by all
Consumers customers to service $4 billion of rate reduction bonds. The $4
billion in rate reduction bonds includes the $1.8 billion of costs that
would otherwise have been recovered in the transition charge to direct
access customers, as well as the costs that would otherwise have been
recovered from customers on bundled rates prior to getting choice.
Consumers' data indicate that the securitization approach results in more
than a $200 million annual savings to customers compared to the rates they
would pay under the MPSC staff program in the absence of securitization
because the assumed 15-year repayment period of the bonds allows the cost
reimbursement by the customer to be spread out over a longer period than
without securitization and because securitization allows securitized costs
to be financed at a lower rate.

Several of the elements of electric utility restructuring will need to be
addressed in legislation, including assurance of full transition cost
recovery, securitization of rate reduction bonds and generation
deregulation. Consumers currently expects that electric utility
restructuring will occur in a manner consistent with the MPSC staff
report, but cannot predict with certainty the timing of actual
implementation, the extent of customer choice, or resultant financial
impacts. Refer to the Consumers 1996 Form 10-K for further details.

Consumers currently applies the utility accounting standard, SFAS 71, that
recognizes the economic effects of rate regulation and, accordingly,
Consumers recorded regulatory assets and liabilities related to its
generation, transmission and distribution operations 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 Consumers' generation segment.
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.
Based on a current evaluation of the various factors and conditions that
are expected to affect future cost recovery, Consumers believes even if it
was to discontinue application of SFAS 71 for the generation segment of
its business, that its regulatory assets, including those related to
generation, are probable of future recovery.

Consumers Gas Group Outlook: 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 increase load requirements.
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. In addition, as air quality standards continue to become
more stringent, management believes that greater opportunities exist for
converting industrial boiler load and other processes to natural gas.
Consumers also plans additional capital expenditures to construct new gas
mains that are expected 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.

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 pipelines.
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 -
March 1999; expected customer interest is unknown at this time.

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.

Other

New Accounting Standards: In 1997, the FASB issued SFAS 128, Earnings per
Share, which is effective for year end 1997 financial statements. The
Earnings per Share statement requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Basic EPS
excludes such dilution. The company is in the process of quantifying the
effect of applying the statement.
<PAGE>
<PAGE> 19

<TABLE>
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C>
Operating Revenue
Electric utility $ 620 $ 591 $2,474 $2,328
Gas utility 498 548 1,231 1,261
Oil and gas exploration and production 35 31 134 107
Independent power production 29 27 143 100
Natural gas transmission, storage and processing 26 12 76 32
Marketing, services and trading 99 71 286 209
Other 6 3 19 19
------ ------ ------ ------
1,313 1,283 4,363 4,056
------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 69 73 292 289
Purchased power - related parties 151 140 600 507
Purchased and interchange power 62 47 218 207
Cost of gas sold 416 411 1,002 927
Other 169 170 735 695
------ ------ ------ ------
867 841 2,847 2,625
Maintenance 41 40 179 180
Depreciation, depletion and amortization 131 124 448 426
General taxes 61 59 204 199
------ ------ ------ ------
1,100 1,064 3,678 3,430
------ ------ ------ ------
Pretax Operating Income (Loss)
Electric utility 106 106 412 388
Gas utility 78 93 143 156
Oil and gas exploration and production 9 9 39 24
Independent power production 10 6 72 39
Natural gas transmission, storage and processing 9 6 29 16
Marketing, services and trading 1 2 1 3
Other - (3) (11) -
------ ------ ------ ------
213 219 685 626
------ ------ ------ ------
Other Income (Deductions)
Accretion income 2 3 9 11
Accretion expense (5) (7) (19) (30)
Other, net 1 2 (1) 6
------ ------ ------ ------
(2) (2) (11) (13)
------ ------ ------ ------
Fixed Charges
Interest on long-term debt 60 57 233 225
Other interest 11 12 43 43
Capitalized interest (3) (2) (9) (9)
Preferred dividends 7 7 28 28
Preferred securities distributions 2 1 8 1
------ ------ ------ ------
77 75 303 288
------ ------ ------ ------
Income Before Income Taxes 134 142 371 325

Income Taxes 50 54 135 119
------ ------ ------ ------
Consolidated Net Income $ 84 $ 88 $ 236 $ 206
====== ====== ====== ======
Net Income Attributable to Common Stocks CMS Energy $ 75 $ 76 $ 225 $ 191
Class G $ 9 $ 12 $ 11 $ 15
------ ----- ------ -----
Average Common Shares Outstanding CMS Energy 95 92 93 90
Class G 8 8 8 8
------ ----- ------ -----
Earnings Per Average Common Share CMS Energy $ .79 $ .83 $ 2.41 $ 2.12
Class G $ 1.18 $ 1.50 $ 1.53 $ 1.90
------ ----- ------ -----
Dividends Declared Per Common Share CMS Energy $ .27 $ .24 $ 1.05 $ .93
Class G $ .295 $ .28 $1.165 $ .84
====== ===== ====== =====
<FN>

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

/TABLE
<PAGE>
<PAGE> 20

<TABLE>

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Consolidated net income $ 84 $ 88 $ 236 $ 206
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning of $13, $13, $48
and $51, respectively) 131 124 448 426
Capital lease and debt discount amortization 8 9 40 52
Deferred income taxes and investment tax credit 3 6 43 52
Accretion expense 5 7 19 30
Accretion income - abandoned Midland project (2) (3) (9) (11)
Power purchases (15) (12) (66) (112)
Undistributed earnings of related parties (13) (21) (56) (62)
Other (6) 7 8 14
Changes in other assets and liabilities 184 144 28 106
------ ------ ------ ------
Net cash provided by operating activities 379 349 691 701
------ ------ ------ ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under
capital lease) (132) (110) (681) (514)
Investments in nuclear decommissioning trust funds (13) (13) (48) (51)
Investments in partnerships and unconsolidated subsidiaries (12) (71) (104) (301)
Cost to retire property, net (4) (6) (28) (39)
Acquisition of companies, net of cash acquired - (20) - (10)
Deferred demand-side management costs - (2) (4) (10)
Other (9) (3) - (12)
Proceeds from sale of property 13 - 92 22
------ ------ ------ ------
Net cash used in investing activities (157) (225) (773) (915)
------ ------ ------ ------
Cash Flows from Financing Activities
Increase (decrease) in notes payable, net (245) (303) 50 (97)
Payment of common stock dividends (28) (24) (107) (90)
Repayment of bank loans (27) (246) (38) (255)
Payment of capital lease obligations (8) (9) (38) (36)
Retirement of bonds and other long-term debt - - (37) (33)
Retirement of common stock - - (1) (1)
Proceeds from bank loans, notes and bonds 70 339 164 464
Issuance of common stock 17 8 104 159
Proceeds from preferred securities - 97 - 97
------ ------ ------ ------
Net cash provided by (used in) financing activities (221) (138) 97 208
------ ------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments 1 (14) 15 (6)

Cash and Temporary Cash Investments, Beginning of Period 56 56 42 48
------ ------ ------ ------
Cash and Temporary Cash Investments, End of Period $ 57 $ 42 $ 57 $ 42
====== ====== ====== ======

<FN>

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

</TABLE>
<PAGE>
<PAGE> 21

<TABLE>

CMS Energy Corporation
Consolidated Balance Sheets

ASSETS March 31 March 31
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At Cost)
Electric $ 6,412 $ 6,333 $ 6,130
Gas 2,374 2,337 2,287
Oil and gas properties (full-cost method) 1,154 1,140 1,096
Other 95 94 86
-------- -------- --------
10,035 9,904 9,599
Less accumulated depreciation, depletion and amortization 4,991 4,867 4,747
-------- -------- --------
5,044 5,037 4,852
Construction work-in-progress 235 243 200
-------- -------- --------
5,279 5,280 5,052
-------- -------- --------
Investments
Independent power production 325 318 297
Natural gas transmission, storage and processing 235 233 235
First Midland Limited Partnership (Note 2) 235 232 226
Midland Cogeneration Venture Limited Partnership (Note 2) 140 134 104
Other 88 86 25
-------- -------- --------
1,023 1,003 887
-------- -------- --------
Current Assets
Cash and temporary cash investments at cost, which approximates market 57 56 42
Accounts receivable and accrued revenue, less allowances
of $9, $10 and $3, respectively (Note 4) 301 373 356
Inventories at average cost
Gas in underground storage 51 186 39
Materials and supplies 89 86 85
Generating plant fuel stock 44 30 16
Deferred income taxes 42 48 22
Prepayments and other 185 235 186
-------- -------- --------
769 1,014 746
-------- -------- --------
Non-current Assets
Postretirement benefits 427 435 458
Nuclear decommissioning trust funds 401 386 323
Abandoned Midland Project 108 113 126
Other 396 384 441
-------- -------- --------
1,332 1,318 1,348
-------- -------- --------
Total Assets $ 8,403 $ 8,615 $ 8,033
======== ======== ========

</TABLE>
<PAGE>
<PAGE> 22

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES March 31 March 31
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 1,775 $ 1,702 $ 1,541
Preferred stock of subsidiary 356 356 356
Company-obligated mandatorily redeemable preferred securities
of Consumers Power Company Financing I (a) 100 100 100
Long-term debt 2,629 2,842 3,094
Non-current portion of capital leases 99 103 98
-------- -------- --------
4,959 5,103 5,189
-------- -------- --------

Current Liabilities
Current portion of long-term debt and capital leases 668 409 113
Notes payable 88 333 38
Accounts payable 323 348 267
Accrued taxes 228 262 223
Accounts payable - related parties 65 63 60
Accrued interest 49 47 49
Power purchases (Note 2) 47 47 90
Accrued refunds 6 8 28
Other 189 206 187
-------- -------- --------
1,663 1,723 1,055
-------- -------- --------

Non-current Liabilities
Deferred income taxes 689 698 638
Postretirement benefits 529 521 539
Power purchases (Note 2) 167 178 215
Deferred investment tax credit 158 161 168
Regulatory liabilities for income taxes, net 75 66 53
Other 163 165 176
-------- -------- --------
1,781 1,789 1,789
-------- -------- --------

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

Total Stockholders' Investment and Liabilities $ 8,403 $ 8,615 $ 8,033
======== ======== ========

<FN>

(a) As described in Note 4 to the Consolidated Financial Statements, 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 accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 23

<TABLE>

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

Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 1 $ 1 $ 1 $ 1
------ ------ ------ ------
Other Paid-in Capital
At beginning of period 2,045 1,951 1,959 1,734
Common stock reacquired - - (1) (1)
Common stock issued:
CMS Energy 16 7 99 100
Class G 1 1 5 125
Common stock reissued - - - 1
------ ------ ------ ------
At end of period 2,062 1,959 2,062 1,959
------ ------ ------ ------
Revaluation Capital
At beginning of period (6) (8) (8) 1
Change in unrealized investment-gain (loss) - - 2 (9)
------ ------ ------ ------
At end of period (6) (8) (6) (8)
------ ------ ------ ------
Retained Earnings (Deficit)
At beginning of period (338) (475) (411) (527)
Consolidated net income 84 88 236 206
Common stock dividends declared:
CMS Energy (26) (22) (98) (84)
Class G (2) (2) (9) (6)
------ ------ ------ ------
At end of period (282) (411) (282) (411)
------ ------ ------ ------
Total Common Stockholders' Equity $1,775 $1,541 $1,775 $1,541
====== ====== ====== ======

<FN>

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

</TABLE>
<PAGE>
<PAGE> 24

CMS Energy Corporation
Condensed Notes to Consolidated Financial Statements

These 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 that 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 and twelve month periods ended March 31, 1997,
undistributed equity earnings were $13 million and $56 million,
respectively, and $21 million and $62 million for the three and twelve
months periods ended March 31, 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 Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996

Pretax operating income $8 $2 $46 $27
Income taxes and other 2 - 14 7
--- --- --- ---

Net income $6 $2 $32 $20
=== === === ===

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 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 previously recognized a loss in 1992 for the present value of
the estimated future underrecoveries of power costs under the PPA.
Consumers believes that the original loss recorded remains adequate. At
March 31, 1997 and December 31, 1996, the after-tax present value of the
PPA liability totaled $140 million and $147 million, respectively. The
reduction in the liability since December 31, 1996 reflects after-tax cash
underrecoveries of $10 million partially offset by after-tax accretion
expense of $3 million. The undiscounted after-tax amount associated with
the liability totaled $535 million at March 31, 1997. Consumers
anticipates it will continue to experience cash underrecoveries associated
with the PPA as shown below.

In Millions
1997 1998 1999 2000 2001

Estimated cash under-
recoveries, net of tax $28 $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 order. Consumers and the MCV Partnership
filed petitions for rehearing of the Court of Appeals opinion, which were
denied in January 1997.

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 charging $18 million of annual
steam production plant depreciation expense to the nuclear production
depreciation reserve. It also established a 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 sales, of which 410 MW has
already been filled by existing contracts. An additional 140 MW may be
filled by new special contracts which Consumers has signed and submitted
to the MPSC for approval or direct access customers and 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.

Gas Proceedings: In the GCR reconciliation proceeding for the period April
1995 through March 1996, an issue has arisen questioning 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. The ALJ
issued a proposal for decision in January 1997 that agreed with the MPSC
staff's position that the gas loaning program uses storage assets of
Consumers and therefore recommended that 90 percent of the revenue should
be refunded to customers. As of March 31, 1997, $7 million would be
subject to refund if the MPSC adopts the ALJ position. Consumers will
continue to oppose this view before the MPSC.

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

In 1995, the MPSC issued an order regarding a $44 million (excluding
interest) gas supply contract pricing dispute between Consumers and
certain intrastate 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.
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

CMS Energy has available unsecured, committed lines of credit totaling
$155 million and a $450 million unsecured revolving credit facility. At
March 31, 1997 and 1996, the total amount utilized under these facilities
was $216 million and $242 million, respectively. In addition, CMS Energy
currently has an unsecured $125 million term loan. CMS Energy is
negotiating with a group of banks to replace the unsecured revolving
credit facility and the term loan with a credit facility or facilities
consisting of a combination of unsecured revolving credit and term loan
tranches. CMS Energy expects that the aggregate borrowing capacity under
the new facility or facilities may range from $725 million to $1.125
billion. CMS Energy expects to enter into such new credit facility or
facilities in the second quarter of 1997. CMS Energy would also continue
to have available the unsecured, committed lines of credit totaling $155
million.

During the first quarter of 1997 CMS Energy issued $22 million of Series B
and $11 million of Series C GTNs. At March 31, 1997, CMS Energy had
issued and outstanding $250 million of Series A GTNs, $125 million of
Series B GTNs and $11 million of Series C GTNs with weighted-average
interest rates of 7.7 percent, 7.9 percent and 7.9 percent, respectively.

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 pay down debt with the remainder to fund CMS Energy's equity
commitment in connection with the acquisition of a 50 percent interest in
the 2,000 MW Loy Yang A electric generating plant and associated mine
facilities in the State of Victoria, Australia..

Consumers

Consumers has FERC authorization to issue or guarantee up to $900 million
of short-term debt through 1998. Consumers has an unsecured $425 million
facility, and unsecured committed lines of credit aggregating $120 million
that are used to finance seasonal working capital requirements. At
March 31, 1997, a total of $88 million was outstanding at a weighted
average interest rate of 6.8 percent, compared with $38 million
outstanding at March 31, 1996, at a weighted average interest rate of 6.2
percent.

Consumers has also in place a $500 million trade receivables purchase and
sale program. At March 31, 1997 and 1996, receivables sold under the
agreement totaled $398 million and $280 million, respectively. Accounts
receivable and accrued revenue in the Consolidated Balance Sheets have
been reduced to reflect receivables sold.

In 1996, four million shares of 8.36 percent Trust Originated Preferred
Securities were issued and sold through Consumers Power Company Financing
I, a business trust wholly owned by Consumers. Net proceeds from the sale
totaled $97 million. Consumers Power Company Financing I was formed for
the sole purpose of issuing the Trust Originated Preferred Securities.
Its primary asset is $103 million principal amount of 8.36 percent
unsecured subordinated deferrable interest notes issued by Consumers which
mature in 2015. Consumers' obligations with respect to the Trust
Originated Preferred Securities under the notes, under the indenture under
which the notes have been issued, under Consumers' guarantee of the Trust
Originated Preferred Securities, and under the declaration by the trust,
taken together, constitute a full and unconditional guarantee by Consumers
of the trust's obligations under the Trust Originated Preferred
Securities.

Under the provisions of its Articles of Incorporation at March 31, 1997,
Consumers had $343 million of unrestricted retained earnings available to
pay common dividends. In April 1997, Consumers declared a $70 million
common dividend to be paid in May 1997.

5: Earnings Per Share and Dividends

In April 1997, Consumers declared a $70 million common dividend to be paid
to CMS Energy in May 1997. In the first quarter of 1997, Enterprises paid
common dividends and other distributions of $21 million to CMS Energy.

Earnings per share attributable to Common Stock, for the three and twelve
month periods ended March 31, 1997 and the three months ended March 31,
1996 reflect the performance of the Consumers Gas Group. Earnings per
share attributable to Common Stock, for the twelve months ended March 31,
1996 reflect the performance of the Consumers Gas Group since initial
issuance of Class G Common Stock during the third quarter of 1995. The
Class G Common Stock has participated in earnings and dividends from its
issue date. 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 represents 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 three months ended
March 31, 1997 and 1996, are based on 24.29 percent of the income of the
Consumers Gas Group and 23.72 percent of the income of the Consumers Gas
Group since the initial issuance, respectively.

In January and April 1997, the Board of Directors declared a quarterly
dividend of $.27 per share on CMS Energy Common Stock and $.295 per share
on Class G Common Stock, payable in February and May 1997, respectively.

6: Commitments and Contingencies

Environmental Matters: Consumers is a so-called potentially responsible
party at several sites being administered under Superfund. Superfund
liability is joint and several and along with Consumers, there are
numerous credit worthy, 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 sites will be between $2 million and $9 million. At March
31, 1997, Consumers has accrued $2 million for its estimated losses.

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 March 31, 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.

The Clean Air Act contains provisions that limit emissions of sulfur
dioxide and nitrogen oxides and require 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. The Act's provisions required
Consumers to make 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-fired
units to be an additional $35 million by the year 2000. Management
believes that Consumers' annual operating costs will not be materially
affected as a result of these expenditures.

Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1,465 million for 1997, $910 million for 1998 and $820
million for 1999. For further information regarding capital expenditures,
see Forward-Looking Information in the MD&A.

Other: As of March 31, 1997, CMS Energy and Enterprises have guaranteed
up to $102 million in contingent obligations of unconsolidated affiliates
and unrelated parties.

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 contracts on
13.8 bcf of gas for the delivery months of January though December 1997 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. CMS NOMECO had
made net payments of $4.0 million for settlement of January, February, and
March 1997 contracts on 4.0 bcf of gas and 810,000 bbls of oil. As of
March 31, 1997, the fair value of the remaining 1997 gas and oil contracts
reflected a net payment due to CMS NOMECO of $1.6 million. These
arrangements are accounted for as hedges; accordingly, gains or losses are
deferred and recognized at such time as the hedged transaction is
completed. 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 also has one arrangement which is used to fix the prices that
CMS NOMECO will pay to supply gas for the years 2001 - 2006 by purchasing
the economic equivalent of 10,000 MMBtu per day at a fixed, escalated
price 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
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 March 31, 1997, neither party was required to post a
letter of credit. As of March 31, 1997, the fair value of this contract
reflected [$13] million due to the seller, representing the amount
CMS NOMECO would have to pay to terminate the agreement.

A number of lawsuits have been filed against Consumers relating to the
effect of so-called stray voltage on certain livestock. Claimants contend
that stray voltage results when low-level electrical currents present in
grounded electrical systems are diverted from their intended path.
Consumers maintains a policy of investigating all customer calls regarding
stray voltage and working with customers to address their concerns and has
an ongoing mitigation program to modify the service of all customers with
livestock. As of April 30, 1997, Consumers had 18 separate stray voltage
lawsuits awaiting trial court action, down from 22 lawsuits at year end
1996.

In addition to the matters disclosed in these notes, CMS Energy and
Consumers and certain of their 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 impact on CMS Energy's financial position or results of
operations.

7: Nuclear Matters

Consumers has loaded 13 dry storage casks with spent nuclear fuel at
Palisades. In a review of the cask manufacturer's quality assurance
program, indications of minor flaws in welds in the steel liner of one of
the loaded casks were detected. Radiographic examination of the casks has
found all other welds acceptable. The cask in which the minor flaws were
detected continues to store spent fuel safely and there is no requirement
for its replacement. Nevertheless, Consumers plans to remove the spent
fuel and insert it into a transportable cask. Bids are currently being
taken for the design and fabrication of the transportable cask.

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
might 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.

8: 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. Other cash flow activities and non-cash investing and
financing activities for the periods ended March 31 were:

In Millions
Three Months Ended Twelve Months Ended
1997 1996 1997 1996

Cash transactions
Interest paid (net of amounts
capitalized) $ 63 $ 60 $257 $215
Income taxes paid (net of refunds) - 2 80 36

Non-cash transactions
Nuclear fuel placed
under capital lease $ 3 $ - $ 31 $ 20
Other assets placed
under capital leases 2 1 4 4
Common Stock issued to
acquire companies - - - 66
Assumption of debt - - - 4
Capital leases refinanced - - - 21

<PAGE>
<PAGE> 31

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
March 31, 1997 and 1996, and the related consolidated statements of
income, common stockholders' equity and cash flows for the three-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,
May 9, 1997.
<PAGE>
<PAGE> 32

Consumers Energy Company
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A in
Consumers' 1996 Form 10-K. 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 document.
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
March 31 1997 1996 Change

Three months ended $ 88 $ 94 $ (6)
Twelve months ended 254 234 20

The decrease in earnings for the first quarter of 1997 compared to the
same 1996 period reflects decreased gas deliveries due to warmer 1997
temperatures, decreased gas wholesale services revenues in 1997 and
decreased electric revenues because of special contract discounts
negotiated with large industrial customers. Partially offsetting these
decreases were the favorable impact of an electric rate increase received
in February 1996 which benefited the entire first quarter of 1997 and
improved operating results from the MCV Facility in which Consumers has a
49 percent interest. The increase in earnings for the twelve months ended
1997 compared to the 1996 period reflects the favorable impact of an
electric rate increase received in February 1996, revenues from value-
added services and gas wholesale services activities, and improved
operating results from the MCV Facility. In addition, other operating
income increased during the twelve months ended 1997 due to a FERC-ordered
refund received by the MCV Partnership from a gas pipeline supplier.
Partially offsetting these increases 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 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 $368 million and $308
million for the first three months of 1997 and 1996, respectively. The
$60 million increase resulted from changes in the timing of cash receipts
and payments related to Consumers' operations, offset by reduced cash from
gas sales. 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 $98
million and $103 million for the first three months of 1997 and 1996,
respectively. The cash was used primarily for capital expenditures.

Financing Activities: Cash used in financing activities totaled $262
million and $211 million for the first three months of 1997 and 1996,
respectively. The increase of $51 million in cash used reflects the 1997
absence of proceeds from preferred securities sold in 1996 offset by a
reduction in the decrease of notes payable.

Other Investing and Financing Matters: Several unsecured, committed lines
of credit totaling $120 million and a $425 million working capital
facility are available to meet short-term borrowing requirements to
finance working capital and gas in storage, and to pay for capital
expenditures between long-term financings. At March 31, 1997 and 1996,
the total outstanding under these facilities was $88 million and $38
million, respectively. Consumers has FERC authorization to issue or
guarantee up to $900 million of short-term securities through 1998 and to
issue $500 million of long-term securities through November 1998 for
refinancing or refunding purposes. An agreement is also in place
permitting the sales of certain accounts receivable for up to $500
million. At March 31, 1997 and 1996, receivables sold totaled $398
million and $280 million, respectively.

Electric Utility Results of Operations

Electric Pretax Operating Income:

In Millions
March 31 1997 1996 Change

Three months ended $ 106 $ 106 $ -
Twelve months ended 412 388 24

Electric pretax operating income for all periods ending March 31, 1997
benefited from the favorable impact of an electric rate increase received
in February 1996. The first quarter of 1997 reflects three months of rate
increase compared to two months for the comparable quarter in 1996. The
twelve months ended 1997 reflects a full twelve months of rate increase
compared to only two months for the comparable period in 1996. The twelve
months ended 1997 also benefited from increased electric sales and lower
maintenance expenses when compared to the 1996 period. The increases in
both periods were partly offset by decreased revenues because of special
contract discounts negotiated with large industrial customers. The first
quarter of 1997 also reflects higher operating expenses than the
comparable 1996 period. During the twelve months ended 1997 there were
higher operation, depreciation and general tax expenses than in the
comparable prior period. The following table quantifies these impacts on
Pretax Operating Income:

In Millions
Three Months Twelve Months
Ended March 31 Ended March 31
Change Compared to Prior Year 1997 vs 1996 1997 vs 1996

Sales (including special
contract discounts) $(3) $(12)
Rate increases and other
regulatory issues 9 51
Operations and maintenance (3) (4)
General taxes and depreciation (3) (11)
---- ----
Total change $ - $ 24
==== ====
Electric Sales: Total electric sales remained unchanged for the first
quarter while showing a 3.4 percent increase for the twelve months ended
March 31, 1997 over the comparable 1996 period. The table below reflects
electric kWh sales by class of customer for both periods:

In Billions of kWh
Three Months Ended Twelve Months Ended
March 31 1997 1996 Change 1997 1996 Change

Residential 2.9 3.0 (0.1) 10.9 10.9 -
Commercial 2.4 2.4 - 10.0 9.8 0.2
Industrial 3.0 2.9 0.1 13.0 12.6 0.4
Other 0.7 0.7 - 3.2 2.6 0.6
---- ---- ---- ---- ---- ----
Total sales 9.0 9.0 - 37.1 35.9 1.2
==== ==== ==== ==== ==== ====
Power Costs:

In Millions
March 31 1997 1996 Change

Three months ended $ 282 $ 260 $ 22
Twelve months ended 1,110 1,003 107

The cost increases for the three month and twelve month periods ended
March 31, 1997 reflect greater power purchases from outside sources to
meet sales demand.

Electric Utility Issues

In Millions
1997 1998 1999 2000 2001

Estimated cash under-
recoveries, net of tax $28 $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 a so-called potentially responsible party at several sites
being administered under Superfund. In addition, there are numerous
credit worthy, potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that the 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 electric environmental
matters, see Note 5.

Stray Voltage: A number of lawsuits have been filed against Consumers
relating to the effect of so-called stray voltage on certain livestock.
As of April 30, 1997, 18 separate stray voltage lawsuits were awaiting
trial court action, down from 22 lawsuits at year end 1996. Consumers
believes that the resolution of the remaining lawsuits will not have a
material impact on its financial position, liquidity or results of
operations.

Gas Utility Results of Operations

Gas Pretax Operating Income:

In Millions
March 31 1997 1996 Change

Three months ended $ 78 $ 93 $(15)
Twelve months ended 143 156 (13)

Gas pretax operating income decreased in both the three month and twelve
month periods ended March 31, 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 first quarter of 1997 also
reflects higher depreciation and general tax expenses, partially offset by
lower operation and maintenance expenses. The decrease in gas pretax
operating income for the twelve months ended March 31, 1997 also reflects
higher operation, depreciation and general tax expenses, partially offset
by lower maintenance expenses and benefits from gas wholesale services
activities. The following table quantifies these impacts on Pretax
Operating Income:

In Millions
Three Months Twelve Months
Ended March 31 Ended March 31
Change Compared to Prior Year 1997 vs 1996 1997 vs 1996

Sales $(17) $(19)
Recovery of gas costs and other issues - 4
Gas wholesale services activities (1) 5
Operations and maintenance 4 (3)
General taxes, depreciation and other (1) -
---- ----
Total change $(15) $(13)
==== ====

In bcf
Three Months Ended Twelve Months Ended
March 31 1997 1996 Change 1997 1996 Change

Weather-adjusted deliveries
(variance reflects growth) 146 145 1 335 332 3
Impact of weather and leap year (4) 9 (13) 5 23 (18)
--- --- --- --- --- ---
System deliveries excluding
transport to MCV Partnership 142 154 (12) 340 355 (15)
Transport to MCV Partnership 17 17 - 66 56 10
Other Transportation 9 14 (5) 24 24 -
--- --- --- --- --- ---
Total deliveries 168 185 (17) 430 435 (5)
=== === === === === ===
Cost of Gas Sold:

In Millions
March 31 1997 1996 Change

Three months ended $314 $346 $(32)
Twelve months ended 718 739 (21)

The decreases for the three month and twelve month periods ended March 31,
1997 were the result of decreased sales reflecting warmer temperatures and
an extra day for leap year in 1996.

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 the FERC and the MPSC) with respect to rates, industry and rate
structure, operation of nuclear power facilities, 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
others. 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 $356 $334 $330
Nuclear fuel lease 14 27 13
Capital leases other than nuclear fuel 12 16 14
Michigan Gas Storage 3 3 3
---- ---- ----
$385 $380 $360
==== ==== ====
Electric utility operations (a) $270 $277 $257
Gas utility operations (a) 115 103 103
---- ---- ----
$385 $380 $360
==== ==== ====
(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: Consumers expects average annual growth of two to three
percent per year in electric system sales over the next five years, based
on the current industry 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 open access is the predominant means by which retail service
customers obtain their power requirements.

Gas Outlook: 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 increase load requirements. 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. In addition, as air quality standards continue to become more
stringent, management believes that greater opportunities exist for
converting industrial boiler load and other processes to natural gas.
Consumers also plans additional capital expenditures to construct new gas
mains that are expected 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.

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. Consumers
does not expect the application of these statements to have a material
effect on its financial position, liquidity or results of operations.

<PAGE> 42

(This page intentionally left blank)

<PAGE>
<PAGE> 43

<TABLE>
Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Operating Revenue
Electric $ 620 $ 591 $2,474 $2,328
Gas 498 548 1,231 1,261
Other 9 4 49 33
------ ------ ------ ------
1,127 1,143 3,754 3,622
------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 69 73 292 289
Purchased power - related parties 151 140 600 507
Purchased and interchange power 62 47 218 207
Cost of gas sold 314 346 718 739
Other 130 132 583 574
------ ------ ------ ------
726 738 2,411 2,316
Maintenance 40 39 174 178
Depreciation, depletion and amortization 111 108 374 364
General taxes 57 56 192 191
------ ------ ------ ------
934 941 3,151 3,049
------ ------ ------ ------
Pretax Operating Income
Electric 106 106 412 388
Gas 78 93 143 156
Other 9 3 48 29
------ ------ ------ ------
193 202 603 573
------ ------ ------ ------
Other Income (Deductions)
Dividends from affiliates 4 4 17 16
Accretion income 2 3 9 11
Accretion expense (5) (7) (19) (30)
Other, net 1 - (4) 4
------ ------ ------ ------
2 - 3 1
------ ------ ------ ------
Interest Charges
Interest on long-term debt 35 35 138 140
Other interest 8 8 31 37
Capitalized interest - (1) (1) (3)
------ ------ ------ ------
43 42 168 174
------ ------ ------ ------
Net Income Before Income Taxes 152 160 438 400

Income Taxes 55 58 148 137
------ ------ ------ ------
Net Income 97 102 290 263

Preferred Stock Dividends 7 7 28 28

Preferred Securities Distributions 2 1 8 1
------ ------ ------ ------
Net Income Available to Common Stockholder $ 88 $ 94 $ 254 $ 234
====== ====== ====== ======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 44

<TABLE>
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Million
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 97 $ 102 $ 290 $ 263
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $13, $13, $48 and $51, respectively) 111 108 374 364
Capital lease and other amortization 8 9 39 36
Deferred income taxes and investment tax credit - 3 46 37
Accretion expense 5 7 19 30
Accretion income - abandoned Midland project (2) (3) (9) (11)
Undistributed earnings of related parties (9) (4) (46) (30)
Power purchases (15) (12) (66) (112)
Other 1 3 3 6
Changes in other assets and liabilities 172 95 80 58
----- ----- ----- -----
Net cash provided by operating activities 368 308 730 641
----- ----- ----- -----
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease) (77) (83) (404) (422)
Investments in nuclear decommissioning trust funds (13) (13) (48) (51)
Cost to retire property, net (4) (6) (28) (39)
Other (4) 1 (4) 2
Deferred demand-side management costs - (2) (4) (10)
----- ----- ----- -----
Net cash used in investing activities (98) (103) (488) (520)
----- ----- ----- -----
Cash Flows from Financing Activities
Increase (decrease) in notes payable, net (245) (303) 50 (97)
Payment of capital lease obligations (8) (9) (38) (36)
Payment of preferred stock dividends (7) (7) (28) (28)
Preferred securities distributions (2) (1) (8) (1)
Retirement of bonds and other long-term debt - (1) (37) (1)
Proceeds from preferred securities - 97 - 97
Contribution from stockholder - 13 - 13
Payment of common stock dividends - - (200) (70)
Proceeds from bank loans - - 23 -
----- ----- ----- -----
Net cash used in financing activities (262) (211) (238) (123)
----- ----- ----- -----
Net Increase (Decrease) in Cash and Temporary Cash Investments 8 (6) 4 (2)

Cash and Temporary Cash Investments, Beginning of Period 4 14 8 10
----- ----- ----- -----
Cash and Temporary Cash Investments, End of Period $ 12 $ 8 $ 12 $ 8
===== ===== ===== =====
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 45

<TABLE>
Consumers Energy Company
Consolidated Balance Sheets
<CAPTION>
ASSETS March 31 March 31
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant (At original cost)
Electric $6,412 $6,333 $6,130
Gas 2,242 2,203 2,207
Other 26 26 26
------ ------ ------
8,680 8,562 8,363
Less accumulated depreciation, depletion and amortization 4,378 4,269 4,195
------ ------ ------
4,302 4,293 4,168
Construction work-in-progress 114 158 199
------ ------ ------
4,416 4,451 4,367
------ ------ ------
Investments
Stock of affiliates 295 298 336
First Midland Limited Partnership (Note 2) 235 232 226
Midland Cogeneration Venture Limited Partnership (Note 2) 140 134 104
Other 9 8 9
------ ------ ------
679 672 675
------ ------ ------
Current Assets
Cash and temporary cash investments at cost, which approximates market 12 4 8
Accounts receivable and accrued revenue, less allowances
of $8, $10 and $3, respectively (Note 4) 61 148 173
Accounts receivable - related parties 62 63 12
Inventories at average cost
Gas in underground storage 51 186 39
Materials and supplies 72 68 74
Generating plant fuel stock 44 30 16
Postretirement benefits 25 25 25
Deferred income taxes 21 27 23
Prepayments and other 132 183 143
------ ------ ------
480 734 513
------ ------ ------
Non-current Assets
Postretirement benefits 427 435 458
Nuclear decommissioning trust funds 401 386 323
Abandoned Midland Project 108 113 126
Other 239 234 309
------ ------ ------
1,175 1,168 1,216
------ ------ ------
Total Assets $6,750 $7,025 $6,771
====== ====== ======
</TABLE>
<PAGE>
<PAGE> 46

<TABLE>
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES March 31 March 31
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 504 504 504
Revaluation capital 36 37 29
Retained earnings since December 31, 1992 385 297 331
------ ------ ------
1,766 1,679 1,705
Preferred stock 356 356 356
Company-obligated mandatorily redeemable preferred securities
of Consumers Power Company Financing I (a) 100 100 100
Long-term debt 1,652 1,900 1,923
Non-current portion of capital leases 97 100 96
------ ------ ------
3,971 4,135 4,180
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 348 98 89
Accrued taxes 190 211 201
Accounts payable 164 212 165
Notes payable 88 333 38
Accounts payable - related parties 70 68 64
Power purchases (Note 2) 47 47 90
Accrued interest 25 33 26
Accrued refunds 6 8 28
Other 147 176 166
------ ------ ------
1,085 1,186 867
------ ------ ------
Non-current Liabilities
Deferred income taxes 633 646 599
Postretirement benefits 508 500 520
Power purchases (Note 2) 167 178 215
Deferred investment tax credit 157 159 166
Regulatory liabilities for income taxes, net 75 66 53
Other 154 155 171
------ ------ ------
1,694 1,704 1,724
------ ------ ------

Commitments and Contingencies (Notes 2, 3, 5 and 6)

Total Stockholders' Investment and Liabilities $6,750 $7,025 $6,771
====== ====== ======
<FN>
(a) As described in Note 4 to the Consolidated Financial Statements, 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 accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 47

<TABLE>
Consumers Energy Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 841 $ 841 $ 841 $ 841
------- ------- ------- -------
Other Paid-in Capital
At beginning of period 504 491 504 491
Stockholder's contribution - 13 - 13
------- ------- ------- -------
At end of period 504 504 504 504
------- ------- ------- -------
Revaluation Capital
At beginning of period 37 29 29 17
Change in unrealized investment-gain (loss) (1) - 7 12
------- ------- ------- -------
At end of period 36 29 36 29
------- ------- ------- -------
Retained Earnings
At beginning of period 297 237 331 167
Net income 97 102 290 263
Common stock dividends declared - - (200) (70)
Preferred stock dividends declared (7) (7) (28) (28)
Preferred securities distributions (2) (1) (8) (1)
------- ------- ------- -------
At end of period 385 331 385 331
------- ------- ------- -------
Total Common Stockholder's Equity $ 1,766 $ 1,705 $ 1,766 $ 1,705
======= ======= ======= =======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 48

Consumers Energy Company
Condensed Notes to Consolidated Financial Statements

These 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 that 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 Twelve Months Ended
March 31 1997 1996 1997 1996

Pretax operating income $8 $2 $46 $27
Income taxes and other 2 - 14 7
--- --- --- ---
Net income $6 $2 $32 $20
=== === === ===
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 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.

In Millions
1997 1998 1999 2000 2001

Estimated cash under-
recoveries, net of tax $28 $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

5: Commitments and Contingencies

Capital Expenditures: Consumers estimates capital expenditures, including
new lease commitments, of $385 million for 1997, $380 million for 1998 and
$360 million for 1999. For further information regarding capital
expenditures, see Forward-Looking Information in the MD&A.

Other: A number of lawsuits have been filed against Consumers relating to
the effect of so-called stray voltage on certain livestock. Claimants
contend that stray voltage results when low-level electrical currents
present in grounded electrical systems are diverted from their intended
path. Consumers maintains a policy of investigating all customer calls
regarding stray voltage and working with customers to address their
concerns and has an ongoing mitigation program to modify the service of
all customers with livestock. As of April 30, 1997, Consumers had 18
separate stray voltage lawsuits awaiting trial court action, down from 22
lawsuits at year end 1996.

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 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
might 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

In Millions
Three Months Twelve Months
Ended Ended
March 31 1997 1996 1997 1996

Cash transactions
Interest paid (net of amounts
capitalized) $ 48 $ 45 $160 $164
Income taxes paid (net of refunds) 1 5 115 48

Non-cash transactions
Nuclear fuel placed under capital lease $ 3 $ - $ 31 $ 20
Other assets placed under capital leases 2 1 4 4
Capital leases refinanced - - - 21

<PAGE>
<PAGE> 53

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 March 31, 1997 and 1996,
and the related consolidated statements of income, common stockholder's
equity and cash flows for the three-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,
May 9, 1997.
<PAGE>
<PAGE> 54

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' Forms 10-K for the
year ended December 31, 1996. Reference is made to the Condensed Notes to
the Consolidated Financial Statements included herein for additional
information regarding various pending administrative and judicial
proceedings involving rate, operating and environmental matters.

CMS ENERGY EXEMPTION UNDER PUHCA

CMS Energy is exempt from registration under PUHCA. In addition to a
specific challenge to CMS Energy's exemption, there have been various
generic administrative and legislative proposals to repeal or revise PUHCA
in recent years. In April 1997, a bill was introduced in the United
States Senate which would repeal PUHCA without at the same time
deregulating the electric industry. The bill was referred to the Senate
Banking, Housing and Urban Affairs Committee, the chairman of which is a
co-sponsor of the bill.

CONSUMERS STRAY VOLTAGE LAWSUITS

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 April 30, 1997,
Consumers had 18 separate stray voltage cases awaiting action at the trial
court level.

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

At Consumers' Special Meeting of Shareholders held on March 10, 1997, the
shareholders approved an amendment to Consumers' Articles of Incorporation
changing the name from Consumers Power Company to Consumers Energy
Company. The vote was 84,108,789 shares in favor of the amendment, with
no shares voted against or abstaining.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits

(4) - CMS Energy: Third Supplemental Indenture dated as of May
6, 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) - CMS Energy: Restated 1996 Financial Data Schedules
(27)(c) - CMS Energy: Restated 1995 Financial Data Schedules
(27)(d) - CMS Energy: Restated 1994 Financial Data Schedules
(27)(e) - Consumers: Financial Data Schedule
(27)(f) - Consumers: Restated 1996 Financial Data Schedules
(27)(g) - Consumers: Restated 1995 Financial Data Schedules
(27)(h) - Consumers: Restated 1994 Financial Data Schedules
(99) - CMS Energy: Consumers Gas Group Financials

(b) Reports on Form 8-K

A Current Report on Form 8-K dated March 7, 1997 was filed by each of
CMS Energy and Consumers covering matters pursuant to "Item 5. Other
Events."
<PAGE>
<PAGE> 56

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

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

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

<PAGE>

EXHIBIT (4)
THIRD SUPPLEMENTAL INDENTURE
dated as of May 6, 1997

____________________

This Third Supplemental Indenture, dated as of the 6th day
of May, 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 Third 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 "8-1/8% Senior Unsecured Notes Due 2002" (the "2002
Notes"), providing for the issuance of the 2002 Notes and amending and
adding certain provisions thereof for the benefit of the Holders of the
2002 Notes; and

WHEREAS, the Issuer and the Trustee desire to enter into
this Third 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 Third Supplemental
Indenture; and

WHEREAS, all things necessary to make this Third
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 THIRD SUPPLEMENTAL INDENTURE
WITNESSETH:

For and in consideration of the premises and the purchase
of the 2002 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 the
2002 Notes, as follows:

ARTICLE I
STANDARD PROVISIONS; DEFINITIONS

SECTION 1.01. STANDARD PROVISIONS. The Original
Indenture together with this Third 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 2002
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.

"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.

"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 Capital" means, at any date of
determination, the sum of (a) Consolidated Indebtedness, (b) consolidated
equity of the common stockholders of the Issuer and the Consolidated
Subsidiaries, (c) consolidated equity of the preference stockholders of
the Issuer and the Consolidated Subsidiaries and (d) consolidated equity
of the preferred stockholders of the Issuer and the Consolidated
Subsidiaries, in each case determined at such date 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.

"Consolidated Interest Expense" means, for any period, the
total interest expense in respect of 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 Third 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 the 2002 Notes has the
meaning specified in Article V of this Third 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).

"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 November 15, 1997 and each
May 15 and November 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 the Issuer.

"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
2002 Notes on behalf of the Issuer.

"Predecessor 2002 Note" of any particular 2002 Note means
every previous 2002 Note evidencing all or a portion of the same debt as
that evidenced by such particular 2002 Note; and, for the purposes of the
definition, any 2002 Note authenticated and delivered under Section 2.9 of
the Indenture in exchange for or in lieu of a mutilated, destroyed, lost
or stolen 2002 Note shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen 2002 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.

"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 2002 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 2002 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 $1 of additional Indebtedness under
Section 4.03, 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 2002 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 Third Supplemental
Indenture or thereafter incurred) which is contractually subordinated or
junior in right of payment to the 2002 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.

"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 Third Supplemental Indenture, are defined in those
Articles.

ARTICLE II

DESIGNATION AND TERMS OF THE 2002 NOTES; FORMS

SECTION 2.01. ESTABLISHMENT OF SERIES. (a) There is
hereby created a series of Securities to be known and designated as the
"8-1/8% Senior Unsecured Notes Due 2002" and limited in aggregate
principal amount (except as contemplated in Section 2.3(f)(2) of the
Indenture) to $350,000,000. The Stated Maturity of the 2002 Notes is May
15, 2002.

(b) The 2002 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 8-1/8% 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 2002 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 2002 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 2002 Notes shall not be secured by a security interest in
any property.

(e) The 2002 Notes shall not be redeemable. The 2002
Notes shall be purchased by the Issuer at the option of the Holders
thereof as provided in Sections 3.01 and 4.05 hereof.

(f) The 2002 Notes shall not be convertible.

(g) The 2002 Notes will not be subordinated to the payment
of Senior Debt.

(h) The Issuer will not pay any additional amounts on the
2002 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 2002 Notes shall include the events specified in Article Five of
this Third Supplemental Indenture. In addition to the covenants set forth
in Article Three of the Original Indenture, the Holders of the 2002 Notes
shall have the benefit of the covenants of the Issuer set forth in Article
Four hereto.

SECTION 2.02. FORMS GENERALLY. The 2002 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 2002
Notes, as evidenced by their execution thereof.

The definitive 2002 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 2002 Notes, as
evidenced by their execution thereof.

<PAGE>
<PAGE> 18

SECTION 2.03. FORM OF FACE OF 2002 NOTE.

CMS ENERGY CORPORATION
8-1/8% SENIOR UNSECURED NOTES DUE 2002

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 May 15, 2002 ("Maturity") and to
pay interest thereon from May 6, 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 November 15, 1997 and at Maturity at the rate of 8-1/8% per
annum, until the principal hereof is paid or made available for payment.
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 2002 Note (or one or more Predecessor 2002
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 2002 Note (or one or
more Predecessor 2002 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 2002 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 2002 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. If the date on which payment of principal or
interest on this 2002 Note becomes due is not a Business Day, then such
principal or interest shall be due and payable on the next succeeding
Business Day.

Reference is hereby made to the further provisions of this
2002 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 2002 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:

<PAGE>
<PAGE> 19

SECTION 2.04. FORM OF REVERSE OF 2002 NOTE.

This 8-1/8% Senior Unsecured Note Due 2002 is one of a
duly authorized issue of securities of the Issuer (herein called the "2002
Notes"), issued and to be issued under an Indenture, dated as of September
15, 1992, as supplemented by certain supplemental indentures, including
the Third Supplemental Indenture, dated as of May 6, 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, the Holders of the 2002 Notes and
of the terms upon which the 2002 Notes are, and are to be, authenticated
and delivered. This 2002 Note is one of the series designated on the face
hereof, limited in aggregate principal amount to $350,000,000.

The 2002 Notes are not subject to redemption.

If a Change in Control occurs, the Issuer shall notify the
Holder of this 2002 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 2002 Note at a Change in Control Purchase Price equal to 101%
of the principal amount of this 2002 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 2002 Note, a new 2002 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 2002 Note
shall occur and be continuing, the principal of this 2002 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 2002 Note shall not be a Business
Day at any Place of Payment, then (notwithstanding any other provision of
the Indenture or this 2002 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 2002 Note or (ii) certain
restrictive covenants and Events of Default with respect to this 2002
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
2002 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 2002 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 2002 Note on or after the
respective due dates expressed herein.

No reference herein to the Indenture and no provision of
this 2002 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 2002 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 set forth, the transfer of this 2002 Note is
registerable in the Security Register, upon surrender of this 2002 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 2002
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 2002 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 2002 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, 2002 Notes are exchangeable for a like aggregate
principal amount of 2002 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.

Prior to due presentment of this 2002 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 2002 Note is
registered as the owner hereof for all purposes, whether or not this 2002
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 2002 Note without definition which
are defined in the Indenture shall have the meanings assigned to them in
the Indenture.

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

ARTICLE III

CHANGE OF CONTROL

SECTION 3.01. CHANGE OF 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 2002 Note shall have the
right to require that the Issuer repurchase (a "Required Repurchase") all
or any part of such Holder's 2002 Note at a repurchase price payable in
cash equal to 101% of the principal amount of such 2002 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 2002 Notes at
the Change of Control Purchase Price;

(ii) the Change of 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 2002 Notes to be repurchased, which shall be
consistent with this Section and the Indenture.

(b) Holders electing to have a 2002 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 2002 Notes
to be repurchased, which portion must be $1,000 or an integral
multiple thereof; (ii) that such 2002 Notes are to be repurchased
by the Issuer pursuant to the change in control provisions of the
Indenture; and (iii) unless the 2002 Notes are represented by one
or more Global Notes, the certificate numbers of the 2002 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 2002 Notes as
to which the withdrawal notice relates and the principal amount of
such 2002 Notes, if any, which remains subject to a Change in
Control Purchase Notice.

If a 2002 Note is represented by a Global Note (as
described in Article VI below), the Depositary or its nominee will
be the Holder of such 2002 Note and therefore will be the only
entity that can elect a Required Repurchase of such 2002 Note. To
obtain repayment pursuant to this Section 3.01 with respect to
such 2002 Note, the beneficial owner of such 2002 Note must
provide to the broker or other entity through which it holds the
beneficial interest in such 2002 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 3.01. Such broker or other entity will
provide to the Paying Agent (i) the Change of 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 3.01 to such beneficial owner.

(c) Payment of the Change of Control Purchase Price
for a 2002 Note for which a Change in Control Purchase Notice has
been delivered and not withdrawn is conditioned (except in the
case of a 2002 Note represented by one or more Global Notes) upon
delivery of such 2002 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 of Control Purchase Price for such 2002 Note will be
made promptly following the later of the Purchase Date or the time
of delivery of such 2002 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 2002 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
of Control Purchase Price upon delivery of the 2002 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 2002 Notes at the option of Holders upon
a Change in Control.

(e) No 2002 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 2002 Notes).

ARTICLE IV
ADDITIONAL COVENANTS OF THE ISSUER
WITH RESPECT TO THE 2002 NOTES

SECTION 4.01. LIMITATION ON CERTAIN LIENS. (a) So long
as any of the 2002 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
2002 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 at any one time
outstanding;

(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 4.02. LIMITATION ON CONSOLIDATION, MERGER, SALE
OR CONVEYANCE. So long as any of the 2002 Notes are Outstanding and until
the 2002 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), and subject also to Article Nine of the Indenture,
at which time the Issuer will be permanently released from the provisions
of this Section 4.02, 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
4.03 hereof.

SECTION 4.03. LIMITATION ON CONSOLIDATED INDEBTEDNESS.
(a) So long as any of the 2002 Notes are Outstanding and until the 2002
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 4.013, 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
Third Supplemental Indenture, as set forth on Schedule 4.03(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 2002 Notes, the
Indebtedness is subordinated to the 2002 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 2002
Notes, the Indebtedness so issued is subordinated to the 2002
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 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) So
long as the 2002 Notes are Outstanding and until the 2002 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 4.04, 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 the date of
this Third Supplemental Indenture 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
the date of this Third Supplemental Indenture 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 the date of
this Third Supplemental Indenture.

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 4.04(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 4.05. LIMITATION ON ASSET SALES. So long as any
of the 2002 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 2002
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 2002
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
2002 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 2002 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 2002 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 3.01 herein with respect to a Change in
Control.

ARTICLE V
ADDITIONAL EVENTS OF DEFAULT
WITH RESPECT TO THE 2002 NOTES

SECTION 5.01. 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 the 2002 Notes.

SECTION 5.02. AMENDMENTS TO SECTION 5.1 OF THE ORIGINAL
INDENTURE. Solely for the purpose of determining Events of Default with
respect to the 2002 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.

ARTICLE VI

GLOBAL NOTES

The 2002 Notes will be issued initially in the form of
Global Notes. "Global Note" means a registered 2002 Note evidencing one
or more 2002 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 2002 Notes.
The Issuer shall execute and the Trustee shall, in accordance with this
Article and the Issuer Order with respect to the 2002 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 2002 Notes 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 2002 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
2002 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 2002 Notes in definitive
form, a Global Note representing one or more 2002 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 2002 Notes or a nominee of such
successor Depositary.

If at any time the Depositary for the 2002 Notes is
unwilling or unable to continue as Depositary for the 2002 Notes, the
Issuer shall appoint a successor Depositary with respect to the 2002
Notes. If a successor Depositary for the 2002 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, the Issuer will execute, and the Trustee, upon
receipt of a Issuer Order for the authentication and delivery of
definitive 2002 Notes, will authenticate and deliver 2002 Notes in
definitive form in an aggregate principal amount equal to the principal
amount of the Global Note or Notes representing such 2002 Notes in
exchange for such Global Note or Notes.

The Issuer may at any time and in its sole discretion
determine that the 2002 Notes 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 2002 Notes,
will authenticate and deliver 2002 Notes in definitive form in an
aggregate principal amount equal to the principal amount of the Global
Note or Notes representing such 2002 Notes in exchange for such Global
Note or Notes.

The Depositary for such 2002 Notes may surrender a Global
Note or Notes for such 2002 Notes in exchange in whole or in part for 2002
Notes 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
2002 Note or Notes, 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 2002 Notes 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 2002 Notes in
definitive registered form in authorized denominations.

Upon the exchange of a Global Note for 2002 Notes in
definitive form, such Global Note shall be cancelled by the Trustee. 2002
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 2002 Notes to the persons in whose names such 2002 Notes are so
registered.

ARTICLE VII

DEFEASANCE

All of the provisions of Article Ten of the Original
Indenture shall be applicable to the 2002 Notes. Upon satisfaction by the
Issuer of the requirements of Section 10.1(c) of the 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 III and IV of
this Third Supplemental Indenture with respect to the 2002 Notes.

ARTICLE VIII
SUPPLEMENTAL INDENTURES

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

TESTIMONIUM

This Third 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
Third 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

Attest: /s/ T. A. McNish

(Corporate Seal)

NBD BANK
as Trustee

By: /s/ Ernest J. Peck

Attest: /s/ Monica M. Barbour

(Corporate Seal)<PAGE>
<PAGE> 1

Rev 05/06/97

SCHEDULE 4.03(B)(2)

INDEBTEDNESS SCHEDULE
As of May 5, 1997

I. CMS ENERGY - DIRECT OBLIGATIONS

A. Letter of Credit dated as of December 9, 1994, issued by Bank of
Tokyo-Mitsubishi pursuant to CMS Energy $450MM Credit Agreement on
behalf of CMS Energy in connection with the obligation of CMS
NOMECO Oil & Gas Co. for the Colon Project in Venezuela.
Beneficiary - Banco Latino Americano de Exportaciones SA (BLADEX).
Termination Date: June 30, 1997

Outstanding
___________
$22,107,168

B. Letter of Credit July 18, 1991, issued by Bank of Tokyo-Mitsubishi
pursuant to CMS Energy $450MM Credit Agreement on behalf of CMS
Energy in connection with the obligation of CMS Generation Co. for
the Chateaugay Project. Beneficiary - New York State Electric &
Gas Corporation. Termination Date: April 29, 1998

Outstanding
___________
$ 6,000,000

C. Deferred Coupon Notes, Series A due 1997 and Series B due 1999.

Outstanding
___________
Series A - $172,000,000
Series B - $175,098,000

D. General Term Notes, various maturities, 3-year, 5-year and 7-year
tenors;

The latest maturity for General Term Notes outstanding as of March
31, 1997 is March 15, 2004.

Outstanding
___________
Series A - $249,637,000
Series B - $ 124,810,000
Series C - $ 40,038,000

E. CMS Energy, as Indemnitor of various CMS subsidiaries' surety
bonds.

Outstanding
___________
$604,000

Oxford Tire Recycling, Inc: $500,000
St Clair Underground Storage: $104,000

F. Amended and Restated Aircraft Lease, dated as of January 29, 1995,
(Supplement No. 1 thereto,), between Fleet Credit Corporation and
CMS Capital; sublease to CMS Energy dated January 29, 1995 [those
rights suspended from June 25, 1996 - May 26, 1997-- the term of a
subsequent sublease to Aetna Life Insurance Company]. The lease
between Fleet Credit Corporation and CMS Capital was subsequently
assigned to MDFC Equipment Leasing Corporation as of June 28, 1995.
Termination Date: January 28, 2000

Cumulative Remaining Lease Payments
___________________________________
$4,092,000

G. Aircraft Lease Agreement, dated as of December 29, 1995, between
Pitney Bowes Credit Corporation and CMS Energy Corporation.
Termination Date: April 1, 2006

Cumulative Remaining Lease Payments
___________________________________
$15,150,248

H. Letter of Credit issued by Union Bank of California pursuant to the
terms of the Bank Guaranty, dated as of April 30, 1996 made by BNP
in favor of ONE on behalf of CMS Energy for the purpose of securing
the performance by JLEC of its obligations under the Protocol dated
April 26, 1996 between JLEC and ONE to secure the financial closing
of the project in accordance with the terms of the Protocol.
Termination Date: August 29, 1997

Outstanding
___________
$30,000,000

I. $50MM Letter of Credit Reimbursement Agreement dated as of March
20, 1996 among CMS Energy and The Chase Manhattan Bank as Agent.
Termination Date: March 19, 1999

Outstanding
___________
$21,301,873*

*Of this amount, $0 Direct Obligation of CMS Energy; $21,301,873
Contingent Obligation of CMS Energy. Letters of Credit issued
pursuant to Accession Agreements are as follows:

CMS Generation Grayling Company - $1,264,002
Centrales Termicas Mendoza, S.A. - $10,037,871
Sociedad Inversora En Distribucion
De Electricidad S.A. - $10,000,000
[Contingent Obligations of CMS Energy, Items E, J and K]

II. CMS ENERGY - CONTINGENT OBLIGATIONS

CMS MARKETING, SERVICES AND TRADING

A. CMS Energy Guaranty of CMS Marketing, Services and Trading Company
transportation obligations to Great Lakes Gas Transmission Company
dated October 31, 1990. [See also CMS MS&T - Direct Obligations,
Item A]

B. Credit Agreement for transportation service between ANR and CMS
Marketing, Services and Trading; guaranteed by CMS Energy, dated as
of June 2, 1988. [See also CMS MS&T - Direct Obligations, Item B]

CMS LAND COMPANY

C. $2.3MM Bay Harbor Company, L.L.C. Promissory Note to Holnam Inc.,
dated as of July 14, 1994. CMS Energy Guaranty for not more than
50% of the total note. Termination Date: July 14, 1997 [Direct
obligation of Bay Harbor Company, L.L.C.]

Outstanding
___________
$1,150,000

CMS GENERATION CO. AND ITS SUBSIDIARIES

D. CMS Generation Filer City, Inc. and Western Michigan Cogeneration
Limited Partnership Letter of Credit Reimbursement Agreement, dated
August 31, 1990, with Comerica required to cover a Construction and
Term Loan dated July 1, 1988 (Series A) and July 1, 1990 (Series
B). CMS Energy Corporation, Guarantor. Beneficiary - Prudential
Insurance Company, Trustee - Connecticut Bank & Trust. [Direct
obligation of CMS Generation Filer City, Inc.]

Outstanding
___________
Series A - $3,210,664 (Termination Date: 9/30/97)
Series B - $ 664,756 (Termination Date: 9/30/97)

E. Letter of Credit dated as of July 7, 1993, issued pursuant to CMS
Energy $50MM Letter of Credit Reimbursement Agreement with Chase
Manhattan, dated March 20, 1996, for the account of CMS Generation
Grayling Company (per Accession Agreement dated March 20, 1996) for
the 8 megawatt increase occurring August 13, 1991. Beneficiary -
Consumers Power Company. Termination Date: June 9, 1997 [Direct
obligation of CMS Generation Grayling Company]

Outstanding
___________
$1,264,002

F. CMS Generation Co. (El Chocon Project) Letter of Credit
Reimbursement Agreement, dated as of August 18, 1993 with Chase
Manhattan originally three letters of credit issued under facility
for a total amount of $66,315,934, each letter of credit dated as
of July 14, 1993. CMS Energy Corporation, Guarantor.

Beneficiary - Estado Nacional Argentino.
Termination Date: August 29, 1997 [See also CMS
Generation - Direct Obligations, Item B]

Outstanding
___________
$380,000

G. $56.1MM Credit Agreement dated as of December 15, 1993 between
Hidroelectra El Chocon S.A. and Chase Manhattan. CMS Energy
Corporation, Guarantor of 25%. Beneficiary - Chase Argentina.
[Direct obligation of Hidroelectra El Chocon S.A.] Termination
Date: April 1, 2003

Outstanding
___________
$12,990,100

H. Exeter Energy Limited Partnership ("Exeter") obligation under an
Electricity Purchase Agreement (the "Agreement") with Connecticut
Light and Power ("CL&P") and as additional collateral for CL&P's
financial accommodations to Exeter under the Agreement. CMS Energy
Corporation, Guarantor of such obligations as per Guarantee
Agreement dated as of August 1, 1993. Termination Date: November
1, 2021 [Direct obligation of Exeter Energy Limited Partnership]

Outstanding
___________
$8,600,000

I. Service Fee Support Agreement dated as of March 1, 1994, between
CMS Energy Corporation and Comerica Bank, the Trustee for the
Genesee Power Station Limited Partnership Tax Exempt bond
financing. CMS Energy is required to make support payments to the
Trustee for the benefit of bondholders in the event that Genesee
experiences a debt service deficiency caused by high fuel prices.
Termination Date: 2021 [Direct obligation of Genesee Power Station
Limited Partnership]

Maximum Exposure
________________
$3,000,000

J. Letter of Credit dated August 15, 1996, issued pursuant to CMS
Energy $50MM Letter of Credit Reimbursement Agreement with The
Chase Manhattan Bank, dated March 20, 1996, for the account of
Centrales Termicas Mendoza, S.A. (per Accession Agreement dated
July 31, 1996) in support of gas transportation contract.
Beneficiary - TGN. Termination Date: August 15, 1997 Automatic
one-year extensions. [Direct obligation of Centrales Termicas
Mendoza, S.A. - CMS = 80.55%]

Outstanding
___________
$10,037,871

K. Letter of Credit dated April 10, 1997, issued pursuant to CMS
Energy $50MM Letter of Credit Reimbursement Agreement with The
Chase Manhattan Bank, dated March 20, 1996, for the account of
Sociedad Inversora En Distribucion De Electricidad S.A. in support
of ESEBA bid. Beneficiary - Provincia De Buenos Aires (Ministerio
De Orbras Y Servicios Publicos). Termination Date: June 21, 1997
[Direct obligation of Sociedad Inversora En Distribucion De
Electricidad S.A.]

Outstanding
___________
$5,261,000

<PAGE>

<TABLE>
Exhibit (12)
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges
(Millions of Dollars)

Three Months
Ended Years Ended December 31
March 31, 1997 1996 1995 1994 1993 1992
(b)
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined (a)
Consolidated net income (loss) $ 84 $ 240 $ 204 $ 179 $ 155 $(297)
Income taxes 50 139 118 92 75 (146)
Exclude equity basis subsidiaries (16) (85) (57) (18) (6) 10
Fixed charges as defined, adjusted to
exclude capitalized interest of $3, $8,
$8, $6, $5, and $3 million for the three
months ended March 31, 1997 and for the
years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively 80 310 295 249 253 236
----- ----- ----- ----- ----- -----
Earnings as defined $ 198 $ 604 $ 560 $ 502 $ 477 $(197)
===== ===== ===== ===== ===== =====

Fixed charges as defined (a)
Interest on long-term debt $ 60 $ 230 $ 224 $ 193 $ 204 $ 169
Estimated interest portion of lease rental 2 10 9 9 11 16
Other interest charges 11 43 42 30 32 43
Preferred securities dividends and
distributions 14 54 42 36 17 16
----- ----- ----- ----- ----- -----
Fixed charges as defined $ 87 $ 337 $ 317 $ 268 $ 264 $ 244
===== ===== ===== ===== ===== =====

Ratio of earnings to fixed charges 2.28 1.79 1.77 1.87 1.81 -
===== ===== ===== ===== ===== =====
<FN>
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 would have been 1.29 excluding
these amounts.

</TABLE>
<PAGE>

<PAGE>

Exhibit (15)

ARTHUR ANDERSEN LLP

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. 33-64044, No.
33-60007, No. 33-61595, No. 33-62573, No. 333-16793 and No. 333-17289 its
Form 10-Q for the quarter ended March 31, 1997, which includes our report
dated May 9, 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,
May 9, 1997.

<PAGE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,393
<OTHER-PROPERTY-AND-INVEST> 1,909
<TOTAL-CURRENT-ASSETS> 769
<TOTAL-DEFERRED-CHARGES> 1,332
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,403
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,062
<RETAINED-EARNINGS> (282)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,775
100
356
<LONG-TERM-DEBT-NET> 1,667
<SHORT-TERM-NOTES> 88
<LONG-TERM-NOTES-PAYABLE> 962
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 628
0
<CAPITAL-LEASE-OBLIGATIONS> 99
<LEASES-CURRENT> 40
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,682
<TOT-CAPITALIZATION-AND-LIAB> 8,403
<GROSS-OPERATING-REVENUE> 1,313
<INCOME-TAX-EXPENSE> 50
<OTHER-OPERATING-EXPENSES> 1,100
<TOTAL-OPERATING-EXPENSES> 1,150
<OPERATING-INCOME-LOSS> 163
<OTHER-INCOME-NET> (2)
<INCOME-BEFORE-INTEREST-EXPEN> 161
<TOTAL-INTEREST-EXPENSE> 68
<NET-INCOME> 93
9
<EARNINGS-AVAILABLE-FOR-COMM> 84
<COMMON-STOCK-DIVIDENDS> 28
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 379
<EPS-PRIMARY> .79<F1>
<EPS-DILUTED> 0
<FN>
<F1> EPS for CMS Energy Common Stock $ .79
EPS for Class G Common Stock $1.18
</FN>

<PAGE>

</TABLE>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,344 4,358 4,396 4,428
<OTHER-PROPERTY-AND-INVEST> 1,595 1,708 1,773 1,855
<TOTAL-CURRENT-ASSETS> 746 746 785 1,014
<TOTAL-DEFERRED-CHARGES> 1,348 1,339 1,337 1,318
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 8,033 8,151 8,291 8,615
<COMMON> 1 1 1 1
<CAPITAL-SURPLUS-PAID-IN> 1,959 1,967 1,979 2,045
<RETAINED-EARNINGS> (411) (385) (354) (338)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,541 1,575 1,619 1,702
100 100 100 100
356 356 356 356
<LONG-TERM-DEBT-NET> 1,868 2,145 2,044 1,892
<SHORT-TERM-NOTES> 38 108 341 333
<LONG-TERM-NOTES-PAYABLE> 1,226 971 952 950
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 68 93 161 370
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 98 94 92 103
<LEASES-CURRENT> 45 38 37 39
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,685 2,663 2,582 2,764
<TOT-CAPITALIZATION-AND-LIAB> 8,033 8,151 8,291 8,615
<GROSS-OPERATING-REVENUE> 1,283 2,221 3,150 4,333
<INCOME-TAX-EXPENSE> 54 85 116 139
<OTHER-OPERATING-EXPENSES> 1,064 1,843 2,603 3,642
<TOTAL-OPERATING-EXPENSES> 1,121 1,934 2,728 3,795
<OPERATING-INCOME-LOSS> 162 287 422 538
<OTHER-INCOME-NET> (2) (6) (9) (11)
<INCOME-BEFORE-INTEREST-EXPEN> 163 287 422 541
<TOTAL-INTEREST-EXPENSE> 67 131 199 265
<NET-INCOME> 96 156 223 276
8 18 27 36
<EARNINGS-AVAILABLE-FOR-COMM> 88 138 196 240
<COMMON-STOCK-DIVIDENDS> 24 48 75 103
<TOTAL-INTEREST-ON-BONDS> 0 0 0 133
<CASH-FLOW-OPERATIONS> 349 486 520 661
<EPS-PRIMARY> .83<F1> 1.37<F1> 2.02<F1> 2.45<F1>
<EPS-DILUTED> 0 0 0 0
<FN>
<F1> EPS for CMS Energy Common Stock $ .83 $1.37 $2.02 $2.45
EPS for Class G Common Stock $1.50 $1.66 $1.38 $1.82
</FN>

<PAGE>

</TABLE>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995 DEC-31-1995
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,263 4,294 4,318 4,377
<OTHER-PROPERTY-AND-INVEST> 1,184 1,226 1,447 1,515
<TOTAL-CURRENT-ASSETS> 598 651 742 910
<TOTAL-DEFERRED-CHARGES> 1,293 1,312 1,343 1,341
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 7,338 7,483 7,850 8,143
<COMMON> 1 1 1 1
<CAPITAL-SURPLUS-PAID-IN> 1,734 1,740 1,935 1,951
<RETAINED-EARNINGS> (527) (513) (489) (475)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,209 1,229 1,439 1,469
0 0 0 0
356 356 356 356
<LONG-TERM-DEBT-NET> 2,021 2,038 1,997 1,866
<SHORT-TERM-NOTES> 135 309 474 341
<LONG-TERM-NOTES-PAYABLE> 766 710 766 1,040
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 142 142 164 161
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 103 109 101 106
<LEASES-CURRENT> 38 39 43 46
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,569 2,552 2,502 2,750
<TOT-CAPITALIZATION-AND-LIAB> 7,338 7,483 7,850 8,143
<GROSS-OPERATING-REVENUE> 1,117 1,952 2,821 3,890
<INCOME-TAX-EXPENSE> 53 74 103 118
<OTHER-OPERATING-EXPENSES> 905 1,613 2,330 3,271
<TOTAL-OPERATING-EXPENSES> 958 1,692 2,441 3,400
<OPERATING-INCOME-LOSS> 159 260 380 490
<OTHER-INCOME-NET> 0 (3) (8) (11)
<INCOME-BEFORE-INTEREST-EXPEN> 159 262 380 490
<TOTAL-INTEREST-EXPENSE> 66 129 193 258
<NET-INCOME> 93 133 187 232
7 14 21 28
<EARNINGS-AVAILABLE-FOR-COMM> 86 119 166 204
<COMMON-STOCK-DIVIDENDS> 18 37 60 84
<TOTAL-INTEREST-ON-BONDS> 0 0 0 135
<CASH-FLOW-OPERATIONS> 330 405 389 682
<EPS-PRIMARY> .99 1.36 1.90<F1> 2.27<F1>
<EPS-DILUTED> 0 0 0 0
<FN>
<F1> EPS for CMS Energy Common Stock $1.90 $2.27
EPS for Class G Common Stock $(.17) $ .38
</FN>

<PAGE>

</TABLE>

<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994 DEC-31-1994
<PERIOD-START> JAN-01-1994 JAN-01-1994 JAN-01-1994
<PERIOD-END> JUN-30-1994 SEP-30-1994 DEC-31-1994
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,165 4,216 4,285
<OTHER-PROPERTY-AND-INVEST> 969 1,008 1,029
<TOTAL-CURRENT-ASSETS> 642 670 832
<TOTAL-DEFERRED-CHARGES> 1,233 1,271 1,232
<OTHER-ASSETS> 0 0 0
<TOTAL-ASSETS> 7,009 7,165 7,378
<COMMON> 1 1 1
<CAPITAL-SURPLUS-PAID-IN> 1,688 1,694 1,701
<RETAINED-EARNINGS> (630) (608) (595)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,058 1,087 1,107
0 0 0
356 356 356
<LONG-TERM-DEBT-NET> 2,005 2,015 2,001
<SHORT-TERM-NOTES> 129 401 339
<LONG-TERM-NOTES-PAYABLE> 402 363 708
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 226 200 21
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 124 118 108
<LEASES-CURRENT> 36 38 43
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,672 2,587 2,695
<TOT-CAPITALIZATION-AND-LIAB> 7,009 7,165 7,378
<GROSS-OPERATING-REVENUE> 1,935 2,701 3,614
<INCOME-TAX-EXPENSE> 64 88 92
<OTHER-OPERATING-EXPENSES> 1,647 2,285 3,100
<TOTAL-OPERATING-EXPENSES> 1,718 2,382 3,203
<OPERATING-INCOME-LOSS> 217 319 411
<OTHER-INCOME-NET> (5) (8) (3)
<INCOME-BEFORE-INTEREST-EXPEN> 219 320 419
<TOTAL-INTEREST-EXPENSE> 101 155 216
<NET-INCOME> 118 165 203
10 17 24
<EARNINGS-AVAILABLE-FOR-COMM> 108 148 179
<COMMON-STOCK-DIVIDENDS> 31 49 67
<TOTAL-INTEREST-ON-BONDS> 0 0 113
<CASH-FLOW-OPERATIONS> 444 424 612
<EPS-PRIMARY> 1.27 1.73 2.09
<EPS-DILUTED> 0 0 0

<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,393
<OTHER-PROPERTY-AND-INVEST> 702
<TOTAL-CURRENT-ASSETS> 480
<TOTAL-DEFERRED-CHARGES> 1,175
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,750
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 504
<RETAINED-EARNINGS> 385
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,766
100
356
<LONG-TERM-DEBT-NET> 1,228
<SHORT-TERM-NOTES> 88
<LONG-TERM-NOTES-PAYABLE> 424
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 308
0
<CAPITAL-LEASE-OBLIGATIONS> 97
<LEASES-CURRENT> 40
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,379
<TOT-CAPITALIZATION-AND-LIAB> 6,750
<GROSS-OPERATING-REVENUE> 1,127
<INCOME-TAX-EXPENSE> 55
<OTHER-OPERATING-EXPENSES> 934
<TOTAL-OPERATING-EXPENSES> 989
<OPERATING-INCOME-LOSS> 138
<OTHER-INCOME-NET> 2
<INCOME-BEFORE-INTEREST-EXPEN> 140
<TOTAL-INTEREST-EXPENSE> 43
<NET-INCOME> 97
9
<EARNINGS-AVAILABLE-FOR-COMM> 88
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 368
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

<PAGE>

</TABLE>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,344 4,358 4,396 4,428
<OTHER-PROPERTY-AND-INVEST> 698 711 726 695
<TOTAL-CURRENT-ASSETS> 513 501 579 734
<TOTAL-DEFERRED-CHARGES> 1,216 1,199 1,197 1,168
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 6,771 6,769 6,898 7,025
<COMMON> 841 841 841 841
<CAPITAL-SURPLUS-PAID-IN> 504 504 504 504
<RETAINED-EARNINGS> 331 305 326 297
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,705 1,681 1,701 1,679
100 100 100 100
356 356 356 356
<LONG-TERM-DEBT-NET> 1,520 1,522 1,473 1,475
<SHORT-TERM-NOTES> 38 108 340 333
<LONG-TERM-NOTES-PAYABLE> 403 403 403 425
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 45 46 60 59
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 96 92 89 100
<LEASES-CURRENT> 44 37 37 39
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,493 2,455 2,369 2,496
<TOT-CAPITALIZATION-AND-LIAB> 6,771 6,769 6,898 7,025
<GROSS-OPERATING-REVENUE> 1,141 1,938 2,740 3,770
<INCOME-TAX-EXPENSE> 58 88 125 150
<OTHER-OPERATING-EXPENSES> 939 1,607 2,261 3,159
<TOTAL-OPERATING-EXPENSES> 1,000 1,702 2,395 3,321
<OPERATING-INCOME-LOSS> 141 236 345 449
<OTHER-INCOME-NET> 0 0 0 1
<INCOME-BEFORE-INTEREST-EXPEN> 144 243 354 462
<TOTAL-INTEREST-EXPENSE> 42 82 124 166
<NET-INCOME> 102 161 230 296
8 18 27 36
<EARNINGS-AVAILABLE-FOR-COMM> 94 143 203 260
<COMMON-STOCK-DIVIDENDS> 0 75 114 200
<TOTAL-INTEREST-ON-BONDS> 0 0 0 133
<CASH-FLOW-OPERATIONS> 308 453 458 672
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0

<PAGE>

</TABLE>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995 DEC-31-1995
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,263 4,294 4,318 4,377
<OTHER-PROPERTY-AND-INVEST> 655 667 681 697
<TOTAL-CURRENT-ASSETS> 464 561 618 686
<TOTAL-DEFERRED-CHARGES> 1,174 1,185 1,200 1,194
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 6,556 6,707 6,817 6,954
<COMMON> 841 841 841 841
<CAPITAL-SURPLUS-PAID-IN> 491 491 491 491
<RETAINED-EARNINGS> 167 136 191 237
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,516 1,487 1,545 1,598
0 0 0 0
356 356 356 356
<LONG-TERM-DEBT-NET> 1,550 1,551 1,518 1,519
<SHORT-TERM-NOTES> 135 309 474 341
<LONG-TERM-NOTES-PAYABLE> 404 404 403 403
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 10 10 45 45
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 103 109 101 104
<LEASES-CURRENT> 38 39 43 45
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,461 2,461 2,354 2,572
<TOT-CAPITALIZATION-AND-LIAB> 6,556 6,707 6,817 6,954
<GROSS-OPERATING-REVENUE> 1,032 1,783 2,554 3,511
<INCOME-TAX-EXPENSE> 54 79 112 133
<OTHER-OPERATING-EXPENSES> 840 1,477 2,109 2,947
<TOTAL-OPERATING-EXPENSES> 896 1,562 2,230 3,092
<OPERATING-INCOME-LOSS> 136 221 324 419
<OTHER-INCOME-NET> 1 1 1 2
<INCOME-BEFORE-INTEREST-EXPEN> 139 228 334 433
<TOTAL-INTEREST-EXPENSE> 45 88 132 178
<NET-INCOME> 94 140 202 255
7 14 21 28
<EARNINGS-AVAILABLE-FOR-COMM> 87 126 181 227
<COMMON-STOCK-DIVIDENDS> 0 70 70 70
<TOTAL-INTEREST-ON-BONDS> 0 0 0 135
<CASH-FLOW-OPERATIONS> 309 344 318 642
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0

<PAGE>

</TABLE>

<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994 DEC-31-1994
<PERIOD-START> JAN-01-1994 JAN-01-1994 JAN-01-1994
<PERIOD-END> JUN-30-1994 SEP-30-1994 DEC-31-1994
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,165 4,216 4,285
<OTHER-PROPERTY-AND-INVEST> 622 631 644
<TOTAL-CURRENT-ASSETS> 622 660 717
<TOTAL-DEFERRED-CHARGES> 1,182 1,211 1,163
<OTHER-ASSETS> 0 0 0
<TOTAL-ASSETS> 6,591 6,718 6,809
<COMMON> 841 841 841
<CAPITAL-SURPLUS-PAID-IN> 491 491 491
<RETAINED-EARNINGS> 93 107 80
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,436 1,450 1,427
0 0 0
356 356 356
<LONG-TERM-DEBT-NET> 1,554 1,556 1,549
<SHORT-TERM-NOTES> 129 401 339
<LONG-TERM-NOTES-PAYABLE> 192 145 404
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 214 189 9
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 116 109 108
<LEASES-CURRENT> 35 37 36
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,570 2,486 2,596
<TOT-CAPITALIZATION-AND-LIAB> 6,591 6,718 6,809
<GROSS-OPERATING-REVENUE> 1,808 2,513 3,356
<INCOME-TAX-EXPENSE> 72 99 107
<OTHER-OPERATING-EXPENSES> 1,524 2,110 2,861
<TOTAL-OPERATING-EXPENSES> 1,603 2,219 2,981
<OPERATING-INCOME-LOSS> 205 294 375
<OTHER-INCOME-NET> (3) (4) 1
<INCOME-BEFORE-INTEREST-EXPEN> 209 300 389
<TOTAL-INTEREST-EXPENSE> 78 117 163
<NET-INCOME> 131 183 226
10 17 24
<EARNINGS-AVAILABLE-FOR-COMM> 121 166 202
<COMMON-STOCK-DIVIDENDS> 82 113 176
<TOTAL-INTEREST-ON-BONDS> 0 0 113
<CASH-FLOW-OPERATIONS> 370 349 598
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0

<PAGE>

</TABLE>

<PAGE> 1

Consumers Gas Group
Management's Discussion and Analysis

This MD&A should be read along with the MD&A in 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.

Earnings

In Millions
March 31 1997 1996 Change

Three months ended $39 $48 $(9)
Twelve months ended 50 61 (11)

The decrease in earnings for both the three months and twelve months ended
periods in 1997 compared to 1996 reflect lower gas deliveries resulting
from warmer temperatures during the first quarter of 1997. In addition,
the reduced deliveries reflect an extra day for leap year in 1996. The
quarter ended earnings comparison also reflects higher depreciation and
general tax expenses, partially offset by lower operation and maintenance
expenses. The twelve-month ended earnings comparison reflects higher
operation, depreciation and general tax expenses, partially offset by
lower 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 three months of 1997 and
1996 totaled $157 million and $98 million, respectively. The $59 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 totaled $25
million for the first three months of 1997 and 1996.

Financing Activities: Cash used in financing activities during the first
three months of 1997 and 1996 totaled $139 million and $75 million,
respectively. The $64 million increase reflects the reduction of
allocated long-term debt and the 1997 absence of proceeds from preferred
securities sold in 1996.

Other Investing and Financing Matters: Consumers has an agreement
permitting the sale of certain accounts receivable for up to $500 million.
At March 31, 1997, receivables sold totaled $398 million. Consumers Gas
Group's attributed portion of these receivables sold totaled $178 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) $112 $100 $100
Michigan Gas Storage 3 3 3
---- ---- ----
$115 $103 $103
==== ==== ====
(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> 3

(This page intentionally left blank)

<PAGE>
<PAGE> 4

<TABLE>

Consumers Gas Group
Statements of Income
(Unaudited)

Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C>

Operating Revenue $ 498 $ 548 $1,231 $1,261
------ ------ ------ ------
Operating Expenses
Operation
Cost of gas sold 314 346 718 739
Other 39 42 190 187
------ ------ ------ ------
353 388 908 926
Maintenance 8 9 38 38
Depreciation, depletion and amortization 38 37 88 87
General taxes 21 21 54 54
------ ------ ------ ------
420 455 1,088 1,105
------ ------ ------ ------
Pretax Operating Income 78 93 143 156
------ ------ ------ ------
Other Income (Deductions) (1) (1) (6) (1)
------ ------ ------ ------
Fixed Charges
Interest on long-term debt 7 8 29 29
Other interest 3 3 12 12
Capitalized interest - - (1) (1)
Preferred dividends 1 1 6 6
------ ------ ------ ------
11 12 46 46
------ ------ ------ ------
Income Before Income Taxes 66 80 91 109

Income Taxes 27 32 41 48
------ ------ ------ ------
Net Income $ 39 $ 48 $ 50 $ 61
====== ====== ====== ======
Net Income Attributable to CMS Energy Shareholders
through Retained Interest $ 30 $ 36 $ 39 $ 46
====== ====== ====== ======
Net Income Attributable to Class G Shareholders $ 9 $ 12 $ 11 $ 15
====== ====== ====== ======
Average Class G Common Shares Outstanding 8 8 8 8
====== ====== ====== ======
Earnings Per Average Class G Common Share $ 1.18 $ 1.50 $ 1.53 $ 1.90
====== ====== ====== ======
Dividend Declared Per Class G Common Share $ .295 $ .28 $1.165 $ .84
====== ====== ====== ======

<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)

Three Months Ended Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 39 $ 48 $ 50 $ 61
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 38 37 88 87
Capital lease and other amortization 1 1 4 5
Deferred income taxes and investment tax credit 4 5 12 2
Other (2) 1 (1) 2
Changes in other assets and liabilities 77 6 47 5
------ ------ ------ ------
Net cash provided by operating activities 157 98 200 162
------ ------ ------ ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease) (22) (24) (135) (127)
Cost to retire property, net (2) (2) (9) (10)
Other (1) 1 (1) 4
------ ------ ------ ------
Net cash used in investing activities (25) (25) (145) (133)
------ ------ ------ ------
Cash Flows from Financing Activities
Increase (decrease) in notes payable, net (97) (90) 2 5
Retirement of bonds and other long-term debt (23) - (31) (5)
Payment of common stock dividends (10) (9) (38) (67)
Repayment of bank loans (6) - (6) (1)
Repayment of long-term note (2) - (2) -
Payment of capital lease obligations (1) (1) (4) (5)
Proceeds from bank loans - - 23 -
Proceeds from long-term note - 22 - 22
Contribution from CMS Energy stockholders - 3 - 21
------ ------ ------ ------
Net cash used in financing activities (139) (75) (56) (30)
------ ------ ------ ------
Net Decrease in Cash and Temporary Cash Investments (7) (2) (1) (1)

Cash and Temporary Cash Investments, Beginning of Period 9 5 3 4
------ ------ ------ ------
Cash and Temporary Cash Investments, End of Period $ 2 $ 3 $ 2 $ 3
====== ====== ====== ======

<FN>

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

</TABLE>
<PAGE>
<PAGE> 6

<TABLE>

Consumers Gas Group
Balance Sheets

ASSETS March 31 March 31
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At cost)
Plant and property $2,242 $2,203 $2,207
Less accumulated depreciation, depletion and amortization 1,177 1,133 1,216
------ ------ ------
1,065 1,070 991
Construction work-in-progress 21 46 48
------ ------ ------
1,086 1,116 1,039
------ ------ ------

Current Assets
Cash and temporary cash investments at cost, which approximates market 2 9 3
Accounts receivable and accrued revenue, less allowances
of $2, $4 and $1, respectively (Note 4) 152 97 254
Inventories at average cost
Gas in underground storage 51 186 39
Materials and supplies 8 8 10
Trunkline settlement 18 25 30
Deferred income taxes 5 4 8
Prepayments and other 36 49 39
------ ------ ------
272 378 383
------ ------ ------

Non-current Assets
Postretirement benefits 150 153 162
Deferred income taxes 11 11 14
Other 60 59 76
------ ------ ------
221 223 252
------ ------ ------
Total Assets $1,579 $1,717 $1,674
====== ====== ======

</TABLE>
<PAGE>
<PAGE> 7

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES March 31 March 31
1997 December 31 1996
(Unaudited) 1996 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 393 $ 364 $ 381
Preferred stock 78 78 78
Long-term debt 364 446 433
Non-current portion of capital leases 16 17 20
------ ------ ------
851 905 912
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 73 24 23
Accrued taxes 58 61 70
Accounts payable 69 85 84
Trunkline settlement 18 25 30
Notes payable 17 114 15
Accrued interest 5 7 6
Accrued refunds 5 7 25
Other 41 52 46
------ ------ ------
286 375 299
------ ------ ------
Non-current Liabilities
Postretirement benefits 173 171 178
Regulatory liabilities for income taxes, net 175 169 167
Deferred investment tax credit 26 27 28
Other 68 70 90
------ ------ ------
442 437 463
------ ------ ------

Commitments and Contingencies (Notes 3 and 5)

Total Stockholders' Investment and Liabilities $1,579 $1,717 $1,674
====== ====== ======

<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 Twelve Months Ended
March 31 1997 1996 1997 1996
In Millions
<S> <C> <C> <C> <C>
Common Stock
At beginning and end of period $184 $184 $184 $184
---- ---- ---- ----
Other Paid-in Capital
At beginning of period 128 125 128 107
CMS Energy stockholders' contribution - 3 - 21
---- ---- ---- ----
At end of period 128 128 128 128
---- ---- ---- ----
Retained Earnings
At beginning of period 52 30 69 75
Net income 39 48 50 61
Common stock dividends declared (10) (9) (38) (67)
---- ---- ---- ----
At end of period 81 69 81 69
---- ---- ---- ----
Total Common Stockholders' Equity $393 $381 $393 $381
==== ==== ==== ====

<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
Notes to the Consolidated Financial Statements 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 nature and issuance of the Class G Common Stock, see Note 5
to the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.

2: Earnings Per Share and Dividends

Earnings per share for the three and twelve month periods ended March 31,
1997 and the three months ended March 31, 1996, reflects the performance
of Consumers Gas Group. Earnings per share for the twelve months ended
March 31, 1996 reflects the performance of Consumers Gas Group since the
initial issuance of the Class G Common Stock in 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 three months ended
March 31, 1997 and 1996, are based on 24.29 percent and 23.72 percent of
the income of Consumers Gas Group.

In January and April 1997, the Board of Directors declared a quarterly
dividend of $.295 per share on Class G Common Stock, payable in
February and May 1997, respectively.

3: Rate Matters

For information regarding rate matters directly affecting Consumers Gas
Group, see the Gas Proceedings discussion in Note 3 to the Consolidated
Financial Statements of CMS Energy included and incorporated by reference
herein.

4: Short-Term and Long-Term Financings

Consumers' short-term and long-term financings are discussed in Note 4 to
the Consolidated Financial Statements of CMS Energy 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 March 31, 1997 and 1996, is estimated by management
to be $178 million and $141 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 $115 million for 1997 and $103 million
for 1998 and 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 Note 6 to the Consolidated Financial Statements of
CMS Energy 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
Three Months Twelve Months
Ended Ended
March 31 1997 1996 1997 1996

Cash transactions
Interest paid (net of amounts
capitalized) $12 $11 $39 $39
Income taxes paid (net of refunds) - 2 31 27

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

<PAGE>
<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 March 31, 1997 and
1996, and the related statements of income, common stockholders' equity
and cash flows for the three-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,
May 9, 1997.
<PAGE>