CONSUMERS ENERGY CO, 10-Q, 1998-11-13

CONSUMERS ENERGY CO
10-Q, 1998-11-13
ELECTRIC & OTHER SERVICES COMBINED

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<PAGE> 1

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998

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

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

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

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

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

Number of shares outstanding of each of the issuer's classes of common
stock at October 31, 1998:
CMS Energy Corporation:
CMS Energy Common Stock, $.01 par value 103,437,840
CMS Energy Class G Common Stock, no par value 8,411,559
Consumers Energy Company, $10 par value,
privately held by CMS Energy 84,108,789

CMS Energy Corporation
and
Consumers Energy Company

Quarterly reports on Form 10-Q to the Securities and Exchange Commission
for the Quarter Ended September 30, 1998

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
PART I:
CMS Energy Corporation
Management's Discussion and Analysis 8
Consolidated Statements of Income 25
Consolidated Balance Sheets 27
Consolidated Statements of Cash Flows 29
Consolidated Statements of Common Stockholders' Equity 30
Condensed Notes to Consolidated Financial Statements 31
Report of Independent Public Accountants 48
Consumers Energy Company
Management's Discussion and Analysis 50
Consolidated Statements of Income 60
Consolidated Statements of Cash Flows 61
Consolidated Balance Sheets 63
Consolidated Statements of Common Stockholder's Equity 65
Condensed Notes to Consolidated Financial Statements 66
Report of Independent Public Accountants 77
Quantitative and Qualitative Disclosures about Market Risk 78
PART II:
Item 1. Legal Proceedings 78
Item 6. Exhibits and Reports on Form 8-K 79
Signatures 80

<PAGE>
<PAGE> 3

GLOSSARY

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

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

Articles. . . . . . . . . . . . . . . . . . Articles of Incorporation
Attorney General. . . . . . . . . . . . . . Michigan Attorney General

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

CFLCL . . . . . . . . . . . . . . . . . . . Companhia Forcia e Luz
Cataguazes-Leopoldina, a
Brazilian utility
Class G Common Stock. . . . . . . . . . . . One of two classes of common
stock of CMS Energy, no par
value, which reflects the
separate performance of the
Consumers Gas Group
Clean Air Act . . . . . . . . . . . . . . . Federal Clean Air Act, as
amended
CMS Electric and Gas. . . . . . . . . . . . CMS Electric and Gas
Company, a subsidiary of
Enterprises
CMS Energy. . . . . . . . . . . . . . . . . CMS Energy Corporation
CMS Energy Common Stock . . . . . . . . . . One of two classes of common
stock of CMS Energy, par
value $.01 per share
CMS Gas Marketing . . . . . . . . . . . . . CMS Gas Marketing Company, a
subsidiary of Enterprises
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 Oil and Gas . . . . . . . . . . . . . . CMS Oil and Gas Company, 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

Detroit Edison. . . . . . . . . . . . . . . The Detroit Edison Company
DOE . . . . . . . . . . . . . . . . . . . . U.S. Department of Energy
Dow . . . . . . . . . . . . . . . . . . . . The Dow Chemical Company
DSM . . . . . . . . . . . . . . . . . . . . Demand-side management

Enterprises . . . . . . . . . . . . . . . . CMS Enterprises Company, a
subsidiary of CMS Energy
EPA . . . . . . . . . . . . . . . . . . . . Environmental Protection
Agency
EPS . . . . . . . . . . . . . . . . . . . . Earning per share

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

GCR . . . . . . . . . . . . . . . . . . . . Gas cost recovery
Grand Lacs partnership. . . . . . . . . . . Grand Lacs Limited
Partnership, a marketing
center for natural gas
GTNs. . . . . . . . . . . . . . . . . . . . CMS Energy General Term
Notes, $250 million Series
A, $125 million Series B,
$150 million Series C, $200
million Series D and $400
million Series E

Huron . . . . . . . . . . . . . . . . . . . Huron Hydrocarbons, Inc., a
subsidiary of Consumers

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

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

LIHEAP. . . . . . . . . . . . . . . . . . . Low Income Home Energy
Assistance Program
Loy Yang. . . . . . . . . . . . . . . . . . The 2,000 MW brown coal
fueled Loy Yang A power
plant and an associated coal
mine in Victoria, Australia,
in which CMS Generation
holds a 50 percent ownership
interest
Ludington . . . . . . . . . . . . . . . . . Ludington pumped storage
plant, jointly owned by
Consumers and Detroit Edison

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

Natural Gas Act . . . . . . . . . . . . . . Federal Natural Gas Act
NGL . . . . . . . . . . . . . . . . . . . . Natural gas liquids
Nitrotec. . . . . . . . . . . . . . . . . . Nitrotec Corporation, a
propriety gas technology
company in which CMS Gas
Transmission owns an equity
interest
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
Panhandle Companies . . . . . . . . . . . . Panhandle Eastern Pipe Line
Company and its principal
subsidiaries, Trunkline Gas
Company and Pan Gas Storage
Company, as well as
Panhandle Storage Company
and Trunkline LNG Company
PCBs. . . . . . . . . . . . . . . . . . . . Poly chlorinated biphenyls
Pension Plan. . . . . . . . . . . . . . . . The trusteed, non-
contributory, defined
benefit pension plan of
Consumers and CMS Energy
PPA . . . . . . . . . . . . . . . . . . . . The Power Purchase Agreement
between Consumers and the
MCV Partnership with a 35-
year term commencing in
March 1990
ppm . . . . . . . . . . . . . . . . . . . . Parts per million
PSCR. . . . . . . . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . . . . . . . . . . . . . . . Public Utility Holding
Company Act of 1935

Qualifying Facility . . . . . . . . . . . . A facility that produces
electricity or steam and
electricity and meets the
ownership and technical
requirements of PURPA

Retained Interest Shares. . . . . . . . . . Authorized but unissued
shares of Class G Common
Stock not held by holders of
the Outstanding Shares and
attributable to the Retained
Interest

SEC . . . . . . . . . . . . . . . . . . . . Securities and Exchange
Commission
Securitization. . . . . . . . . . . . . . . A financing authorized by
statute in which the
statutorily assured flow of
revenues from a portion of
the rates charged by a
utility to its customers is
set aside and pledged as
security for the repayment
of rate reduction bonds
issued by a special purpose
entity affiliated with such
utility
SERP. . . . . . . . . . . . . . . . . . . . Supplemental Executive
Retirement Plan
Senior Credit Facilities. . . . . . . . . . $725 million senior credit
facilities consisting of a
$600 million three-year
revolving credit facility
and a five-year $125 million
term loan facility
SFAS. . . . . . . . . . . . . . . . . . . . Statement of Financial
Accounting Standards
Superfund . . . . . . . . . . . . . . . . . Comprehensive Environmental
Response, Compensation and
Liability Act

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

Union . . . . . . . . . . . . . . . . . . . Utility Workers of America,
AFL-CIO
UST . . . . . . . . . . . . . . . . . . . . Underground storage tanks

Voluntary Employee Beneficiary
Association . . . . . . . . . . . . . . . A legal entity, established
under guidelines of the
Internal Revenue Code,
through which the company
can provide certain benefits
for its employees or
retirees

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<PAGE>
<PAGE> 8

CMS Energy Corporation
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A and other
parts of CMS Energy's 1997 Form 10-K and the restated financial
information in a Form 8-K dated July 30, 1998. This MD&A also refers to,
and in some sections specifically incorporates by reference from, CMS
Energy's Condensed Notes to Consolidated Financial Statements and should
be read in conjunction with such Statements and Notes. This report
contains forward-looking statements, as defined by the Private Securities
Litigation Reform Act of 1995, that include without limitation,
discussions as to expectations, beliefs, plans, objectives and future
financial performance, or assumptions underlying or concerning matters
discussed in this report. Refer to the Forward-Looking Information
section of this MD&A for 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 is a combination electric and gas utility company serving the
Lower Peninsula of Michigan and 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: acquisition,
development and operation of independent power production facilities; oil
and gas exploration and production; storage, transmission and processing
of natural gas; energy marketing, services and trading; and international
energy distribution.

RESULTS OF OPERATIONS

CMS Energy Consolidated Earnings
. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . In Millions, Except Per Share Amounts
- ------------------------------------------------------------------------
September 30. . . . . . . . . . . . . . . . . 1998 1997(b) Change
- ------------------------------------------------------------------------

Three months ended
Consolidated Net Income . . . . . . . . . . $ 81 $ 60 $ 21
Net Income Attributable
to Common Stocks:
CMS Energy . . . . . . . . . . . . . . . 83 62 21
Class G. . . . . . . . . . . . . . . . . (2) (2) -

. . . . . . . . . . . . . . . . . . . . . .
Earnings Per Average
Common Share:
CMS Energy
Basic . . . . . . . . . . . . . . . .81 .64 .17
Diluted . . . . . . . . . . . . . . .80 .63 .17
Class G. . . . . . . . . . . . . . . . .
Basic and Diluted . . . . . . . . . (.16) (.21) .05

Nine months ended . . . . . . . . . . . . . . (a)
Consolidated Net Income . . . . . . . . . . $234 $185 $ 49
Net Income Attributable
to Common Stocks:
CMS Energy . . . . . . . . . . . . . . . 226 176 50
Class G. . . . . . . . . . . . . . . . . 8 9 (1)
Earnings Per Average
Common Share:
CMS Energy
Basic . . . . . . . . . . . . . . . 2.23 1.85 .38
Diluted . . . . . . . . . . . . . . 2.19 1.83 .36
Class G
Basic and Diluted . . . . . . . . . 1.04 1.13 (.09)

Twelve months ended . . . . . . . . . . . . (a)
Consolidated Net Income . . . . . . . . . . $293 $ 223 $ 70
Net Income Attributable
to Common Stocks:
CMS Energy . . . . . . . . . . . . . . . 279 210 69
Class G. . . . . . . . . . . . . . . . . 14 13 1
Earnings Per Average
Common Share:
CMS Energy . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . 2.77 2.22 .55
Diluted . . . . . . . . . . . . . . 2.73 2.20 .53
Class G
Basic and Diluted . . . . . . . . . 1.73 1.57 .16
====================

(a) Includes the cumulative effect of an accounting change for property
taxes which increased net income attributable to CMS Energy Common Stock
$43 million ($.40 per share - basic and diluted) and Class G Common Stock
$12 million ($.36 per share - basic and diluted). Refer to the discussion
below for further information.

(b) Restated as a result of change in method of accounting for investments
in oil and gas properties. Refer to the discussion below and Note 1 for
further information.

The combined effects of the changes in accounting for oil and gas
investments resulted in decreases to net income of $6 million ($.06 per
share), $19 million ($.19 per share) and $25 million ($.26 per share) for
the three months, nine months and twelve months ended September 30, 1997,
respectively. The following discussion of earnings variations compares
the results of this year's periods to the restated results of last year's
periods.

CMS Energy's earnings for the third quarter of 1998 increased from the
comparable period in 1997 as a result of (1) an increase in earnings from
international independent power production plant operations and gains on
the sales of a biomass power purchase agreement and plant assets and (2)
Consumers' increased electric sales and gas deliveries. Partially
offsetting these increases were (1) lower oil prices and the gain in the
prior period from the sale of oil and gas properties in the oil and gas
exploration and production business and (2) increased interest on long-
term debt due to higher amounts of debt outstanding.

CMS Energy's earnings for the nine months ended September 30, 1998
increased from the comparable period in 1997 as a result of (1)
Consumers' one-time change in accounting for the recognition of property
tax expense from a calendar-year basis to a fiscal-year basis which
resulted in a benefit of $66 million ($43 million after-tax), (2)
Consumers' increased electric sales partially offset by an increase in
general taxes and depreciation, (3) a gain on the sale of Petal Gas
Storage Company by the gas transmission, storage and processing business,
(4) increased income from the international independent power production
business, gains on the sale of two biomass project power purchase
agreements, and gains on the sale of two biomass plants and (5) an
increase in oil production and a decrease in exploration expenses and
depreciation, depletion and amortization expenses. Partially offsetting
these increases were (1) Consumers' decreased gas deliveries due to warmer
temperatures during the winter heating season, (2) an increased provision
for underrecoveries under the PPA of $37 million ($24 million after-tax)
due to higher than expected plant availability of the MCV Facility, (3)
lower earnings from international energy distribution businesses, (4)
lower oil prices and the gain in the prior period from the sale of oil and
gas properties in the oil and gas exploration and production business and
(5) increased interest on long-term debt due to higher amounts of debt
outstanding. For further information on past and future underrecoveries
under the PPA, see Power Purchases from the MCV Partnership in Note 2.

The increase in consolidated net income for the twelve months ended
September 30, 1998 compared to the same period in 1997 reflects (1)
Consumers' change in accounting for property taxes as discussed above and
a $9 million adjustment of Consumers' prior years' income taxes associated
with non-taxable earnings on nuclear decommissioning trust funds, (2)
Consumers' increased electric sales and lower operation and maintenance
expenses partially offset by increased general taxes and depreciation, (3)
an increase in international plants earnings and operating fees from the
independent power production business, gains on the sale of two biomass
project power purchase agreements, and gains on the sale of two biomass
plants, (4) a gain on the sale of Petal Gas Storage Company and a gain on
the sale of Australian gas reserves in the gas transmission, storage and
processing business and (5) an increase in oil production and a decrease
in exploration expenses and depreciation, depletion and amortization
expenses. Partially offsetting these increases were the (1) recognition
of Consumers' after-tax loss associated with the underrecovery of power
costs under the PPA as discussed above, (2) Consumers' decreased gas
deliveries due to warmer weather during the first nine months of 1998, (3)
lower oil prices in the oil and gas exploration and production business,
(4) a scheduled decrease in the industry expertise service fee income
earned in connection with Loy Yang, (5) lower earnings from international
energy distribution businesses and (6) increased interest on long-term
debt due to higher amounts of debt outstanding.

For further information, see the individual results of operations for each
CMS Energy business segment in this MD&A.

Consumers' Electric Business Unit Results of Operations

Electric Pretax Operating Income:
. . . . . . . . . . . . . . . . . . . . . . . In Millions
- ----------------------------------------------------------------------------
. . . . . . . . . . . . Three Months Nine Months Twelve Months
. . . . . . . . . . . . Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to Prior Year. 1998 vs 1997 1998 vs 1997 1998 vs 1997
- -----------------------------------------------------------------------------

Deliveries (including
special contract discounts) . . . . . $ 38 $ 50 $ 51
Other non-commodity revenue . . . . . . (1) (2) (3)
Operations and maintenance . . . . . (11) (1) 15
General taxes, depreciation
and other . . . . . . . . . .. . . . (5) (11) (18)
. . . . . . . . . . . . . . . . . ----------------------------------------
Total change. . . . . . . . . . . . . . $ 21 $ 36 $ 45
. . . . . ========================================

Electric Deliveries: Total electric deliveries increased 10.1 percent for
the three months ended September 30, 1998 over the same period in 1997.
The increase includes a 5.8 percent increase in deliveries to ultimate
customers, primarily within the residential and commercial classes, and an
increase in sales intersystem and wholesale customer deliveries. For the
nine months ended September 30, 1998, total electric deliveries increased
8.2 percent over the comparable 1997 period. Deliveries to ultimate
customers were up 3.4 percent, with the remaining change attributable to
an increase in sales between utility systems and wholesale deliveries.
For the twelve months ended September 30, 1998, total electric deliveries
increased 8.0 percent over the comparable 1997 period. The increase is
primarily attributable to an increase in sales between utility systems and
a 2.7 percent increase in deliveries to ultimate customers.

Power Costs:

. . . . . . . . . . . . . . . . . . . . . . . In Millions
- ------------------------------------------------------------------------
September 30. . . . . . . . . . . . . . . . . 1998 1997 Change
- ------------------------------------------------------------------------

Three months ended. . . . . . . . . . . . . . $ 315 $ 296 $ 19
Nine months ended . . . . . . . . . . . . . . 899 847 52
Twelve months ended . . . . . . . . . . . . . 1,190 1,132 58
=========================================================================

Power costs increased for all the reported periods ended September 30,
1998 compared to 1997. Both internal generation and power purchases from
outside sources increased during these periods to meet increased
deliveries.

Uncertainties: CMS Energy's financial position may be affected by a
number of trends or uncertainties that have had, or CMS Energy reasonably
expects will have, a materially favorable or unfavorable impact on net
sales, revenues, or income from continuing electric operations. Such
uncertainties are: 1) environmental liabilities arising from compliance
with various federal, state and local environmental laws and regulations,
including potential liability or expenses relating to the Michigan Natural
Resources and Environmental Protection Act and Superfund; 2) capital
expenditures for compliance with the Clean Air Act; 3) suits by various
parties relating to the effect of so-called stray voltage on certain
livestock; 4) suits by two independent power producers alleging antitrust
violations and economic losses due to special electric contracts signed by
Consumers; 5) cost recovery relating to the MCV Facility and nuclear plant
investments and an experimental direct-access program; 6) electric
industry restructuring; 7) after-tax cash underrecoveries associated with
power purchases from the MCV Partnership; and 8) Big Rock decommissioning
issues and ongoing issues relating to the storage of spent fuel and the
operating life of Palisades. For detailed information about these trends
or uncertainties see Note 2, "Consumers' Electric Business Unit
Contingencies-Electric Environmental Matters," "Consumers' Electric
Business Unit Contingencies-Stray Voltage," "Consumers' Electric Business
Unit Contingencies-Anti-Trust," "Consumers' Electric Business Unit Rate
Matters-Electric Restructuring," and "Other Consumers' Electric Business
Unit Uncertainties-Nuclear Matters," incorporated by reference herein.

For information about Consumers' electricity option contracts see Note 5,
"Risk Management and Derivatives Transactions-Commodity Price Hedges",
incorporated by reference herein.

Consumers Gas Group Results Of Operations

. . . . . . . . . . . . . . . . . . . . . . . In Millions
- ---------------------------------------------------------------------------
. . . . . . .. . . . . . . Three Months Nine Months Twelve Months
. . . . . . . . . . . . . Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to Prior Year. 1998 vs 1997 1998 vs 1997 1998 vs 1997
- ----------------------------------------------------------------------------

Gas deliveries. . . . . . . . . . . $ 5 $(14) $(15)
Gas wholesale and retail
service activities . . . . . . . . 3 - (2)
Operations and maintenance. . . . .. 1 (8) 6
General taxes, depreciation
and other . . . . . . . . . . . (2) 3 3
- ---------------------------------------------------------------------------
Total change. . . . . . . . . . . . $ 7 $(19) $(8)
===========================================================================

Gas Deliveries: System deliveries for the three month period ended
September 30, 1998, excluding miscellaneous transportation, totaled 31
bcf, an increase of 1 bcf or 3 percent compared to the three month period
ended September 30, 1997. Deliveries for the nine month period ended
September 30, 1998, excluding miscellaneous transportation, totaled 203
bcf, a decrease of 29 bcf or 13 percent compared to the nine month period
ended September 30, 1997. For the twelve month period ended September 30,
1998, deliveries excluding miscellaneous transportation, totaled 311 bcf,
a decrease of 31 bcf or 9 percent compared to the twelve month period
ended September 30, 1997. The decreased deliveries for the nine month and
twelve month periods reflect warmer temperatures primarily for the first
quarter of 1998. Miscellaneous transportation deliveries for the three
month period ended September 30, 1998 totaled 11 bcf, a decrease of 8 bcf,
or 40 percent compared to the three month period ended September 30, 1997.
Miscellaneous transportation deliveries for the nine month period ended
September 30, 1998 totaled 47 bcf, a decrease of 14 bcf, or 23 percent
compared to the nine month period ended September 30, 1997. Miscellaneous
transportation deliveries for the twelve month period ended September 30,
1998 totaled 65 bcf, a decrease of 18 bcf, or 22 percent compared to the
twelve month period ended September 30, 1997.

Cost of Gas Sold:

. . . . . . . . . . . . . . . . . . . . . . . In Millions
- ------------------------------------------------------------------------
September 30. . . . . . . . . .. . . . . 1998 1997 Change
- ------------------------------------------------------------------------

Three months ended. . . . . . . . . . . $ 39 $ 39 $ -
Nine Months ended . . . . . . . . . . . 377 472 (95)
Twelve months ended . . . . . . . . . . 600 718 (118)
==========================================================================

The cost decreases for the nine month and twelve month periods ended
September 30, 1998 were the result of decreased sales and lower gas costs
reflecting warmer temperatures during the winter heating season.

For information about Consumers' gas forward contracts, see Note 5, "Risk
Management Activities and Derivatives Transactions-Commodity Price
Hedges", incorporated by reference herein.

Independent Power Production Results of Operations

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1998 increased $25 million (78 percent) over the
comparable period in 1997. This increase primarily reflects increased
operating income from international plants earnings and fees, a $14
million gain on the sale of a biomass project power purchase agreement,
and a $9 million gain on the sale of two biomass plants, partially offset
by higher net operating expenses and decreased earnings from the MCV
Partnership due to a 1997 property tax adjustment. Pretax operating income
for the nine months ended September 30, 1998 increased $56 million (84
percent) over the comparable period in 1997, primarily reflecting an
increase in international plants earnings and operating fees, a $26
million gain on the sale of two biomass project power purchase agreements,
and a $9 million gain on the sale of two biomass plants, partially offset
by higher net operating expenses and lower industry expertise service fee
income earned in connection with Loy Yang. Pretax operating income for
the twelve months ended September 30, 1998 increased $79 million (108
percent) from the comparable period in 1997, primarily reflecting
increased operating income resulting from increased international and
domestic earnings, construction management fees earned in connection with
Jorf Lasfar, a $26 million gain on the sale of two biomass project power
purchase agreements, and a $9 million gain on the sale of two biomass
plants, partially offset by lower industry expertise service fee income
earned in connection with Loy Yang and higher operating expenses.

Oil and Gas Exploration and Production Results of Operations

In October 1998, CMS Energy Corporation changed the name of its oil and
gas exploration and production business to CMS Oil and Gas Company,
formerly known as CMS NOMECO Oil & Gas Co.

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1998 decreased $11 million (85 percent) from the
comparable period in 1997. This decrease is the result of lower oil
prices and the gain in the prior period from the sale of the entire
interest in oil and gas properties in Yemen, partially offset by an
increase in oil production and a decrease in depreciation, depletion and
amortization charges. Pretax operating income for the nine months ended
September 30, 1998 decreased $4 million (25 percent) over the comparable
period in 1997 due to lower oil prices and the gain in the prior period
from the sale of the entire interest in oil and gas properties in Yemen,
partially offset by increased oil production, decreased exploration
expenses, and decreased depreciation, depletion and amortization expenses.
Pretax operating income for the twelve months ended September 30, 1998 was
unchanged from the comparable period in 1997, primarily due to lower oil
prices, offset by decreased exploration expenses and depreciation,
depletion and amortization expenses, and increased oil volumes.

CMS Oil and Gas changed its method of accounting effective January 1, 1998
for oil and gas operations from the full cost method to the successful
efforts method. CMS Oil and Gas believes that the successful efforts
method will minimize asset write-offs caused by periodic price swings,
which may not be representative of overall or long-term markets, and will
allow its results of operations to be more easily compared to other oil
and gas companies. Nitrotec, in which CMS Gas Transmission has an equity
investment, also elected to convert effective January 1, 1998 from the
full cost method of accounting to the successful efforts method of
accounting. All prior period financial statements have been restated to
conform with successful efforts accounting. The effect, after tax, of the
change in accounting method as of December 31, 1997, was a reduction to
retained earnings of $175 million for CMS Oil and Gas and $15 million for
CMS Gas Transmission, primarily attributable to a decrease in net plant
and property and deferred tax liability of $270 million and $95 million,
respectively, for CMS Oil and Gas and a $15 million decrease in CMS Gas
Transmission's equity investment in Nitrotec.

Natural Gas Transmission, Storage and Processing Results of Operations

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1998 was unchanged from the comparable period in 1997,
primarily as a result of a decrease in earnings from international
operations and higher operating expenses, offset by an increase in
earnings from domestic operations. Pretax operating income for the nine
months ended September 30, 1998 increased $6 million (27 percent) over the
comparable 1997 period primarily reflecting a gain in the first quarter of
1998 on the sale of Petal Gas Storage Company, a gain on the sale of
Australian gas reserves, and lower operating expenses, partially offset by
a gain in the first quarter of 1997 on the sale of a portion of the Ames
gas gathering system and a decrease in earnings from international
operations. Pretax operating income for the twelve months ended September
30, 1998 increased $6 million (22 percent) over the comparable period in
1997, reflecting a gain on the sale of Petal Gas Storage Company and a
gain on the sale of Australian gas reserves, partially offset by the gain
in the first quarter of 1997 on the sale of a portion of the Ames gas
gathering system.

Marketing, Services and Trading Results of Operations

Pretax Operating Income: Pretax operating income for the three months
ended September 30, 1998 increased $2 million from the comparable period
in 1997. This increase is the result of improved margins on electricity
sales combined with increased electric sales volumes, partially offset by
higher operating costs. Pretax operating income for the twelve months
ended September 30, 1998 decreased $5 million from the comparable period
in 1997, primarily reflecting lower gas margins and higher costs
reflecting management's continuing commitment to future electric and
energy management growth, partially offset by higher electric sales
volumes. Electric marketing volumes reached 6.4 million MW for the nine
months ended September 30, 1998 compared to .3 million for the comparable
period in 1997. Gas marketed for end users totaled 223 bcf and 144 bcf
for the nine months ended September 30, 1998 and 1997, respectively.
Energy management service revenues for the nine months ended September 30,
1998 increased 67 percent over the comparable 1997 period.

Market Risk Information

CMS Energy is exposed to market risk including, but not limited to,
changes in interest rates, currency exchange rates, and certain commodity
and equity prices. Derivative instruments including, but not limited to,
futures contracts, swaps, options and forward contracts may be used to
manage these exposures. Derivatives are principally used as hedges and
not for trading purposes. During the third quarter of 1998, trading
activities were immaterial. Regarding hedges, management believes that any
losses incurred on derivative instruments used as a hedge would be offset
by the opposite movement of the underlying hedged item.

Management uses commodity futures contracts, options and swaps (which
require a net cash payment for the difference between a fixed and variable
price) and oil swaps to manage commodity price risk. They also use
forward exchange contracts to hedge certain receivables, payables and
long-term debt relating to foreign investments. Management also uses
equity investments in which CMS Energy or its subsidiaries hold less than
a 20 percent interest. These commodity, financial and equity instruments
do not expose CMS Energy to material market risk.

Interest Rate Risk: Management uses a combination of fixed-rate and
variable-rate debt to reduce interest rate exposure. Interest rate swaps
and rate locks may be used to adjust exposure when deemed appropriate,
based upon market conditions. These strategies attempt to provide and
maintain the lowest cost of capital. The carrying amount of long-term
debt (including current maturities) was $4.4 billion at September 30,
1998 with a fair value (including current maturities) of $4.5 billion.
The fair value of CMS Energy's financial derivative instruments at
September 30, 1998, with a notional amount of $923 million, was $26
million, representing the amount that CMS Energy would have paid to
terminate these agreements on September 30, 1998. In October 1998,
Consumers unwound an interest rate guarantee of $145 million associated
with the issuance of $150 million senior notes. The effective rate of the
debt is 7 percent taking into consideration the issuance costs, interest
rate guarantee and insurance costs. In accordance with SEC disclosure
requirements, CMS Energy performed a sensitivity analysis. The analysis
assesses the potential loss in fair value, cash flows and earnings based
upon hypothetical increases and decreases in market interest rates. A
hypothetical 10 percent adverse shift in market rates in the near term
would not have a material impact on CMS Energy's consolidated financial
position, results of operations or cash flows as of September 30, 1998.

Limitations of the Sensitivity Model: Management does not believe that a
sensitivity analysis alone provides an accurate or reliable method for
monitoring and controlling risk. Therefore, CMS Energy and its
subsidiaries rely on the experience and judgement of senior management and
traders to revise strategies and adjust positions as they deem necessary.
Losses in excess of the amounts determined could occur if market rates or
prices exceed the 10 percent shift used for the analysis. The model
assumes that the maximum exposure associated with purchased options is
limited to premiums paid. The model assumes that the Trust Preferred
Securities are not converted into CMS Energy Common Stock. If the
conversion occurred, the $173 million of Trust Preferred Securities would
be discharged through the issuance of 4.2 million shares of CMS Energy
Common Stock. The model also does not quantify short-term exposure to
hypothetically adverse price fluctuations in inventories.

For a discussion of accounting policies related to derivative
transactions, see Note 5.

CAPITAL RESOURCES AND LIQUIDITY

Cash Position, Investing and Financing

CMS Energy's primary ongoing source of operating cash is dividends from
subsidiaries. During the nine months ended September 30, 1998, Consumers
paid $94 million in common dividends to CMS Energy. In October 1998,
Consumers declared a $68 million common dividend to be paid in November
1998. During 1998, Enterprises paid common dividends and other
distributions of $76 million to CMS Energy. CMS Energy's consolidated
operating cash requirements are met by its operating and financing
activities.

Operating Activities: CMS Energy's consolidated net cash provided by
operating activities is derived mainly from the sale and transportation of
natural gas by Consumers; the generation, transmission, and sale of
electricity by Consumers; the sale of oil and natural gas by CMS Oil and
Gas; the transportation, storage and processing of natural gas by CMS Gas
Transmission; and the production and sale of electricity by other
affiliates. Consolidated cash from operations totaled $386 million and
$334 million for the first nine months of 1998 and 1997, respectively. The
$52 million increase resulted from increases in consolidated net income
and deferred income taxes. These increases were partially offset by a $29
million net decrease reflecting the cumulative effect of the accounting
change for property taxes and an increased provision for underrecoveries
under the PPA, both of which are noncash items. CMS Energy uses its
operating cash primarily to expand its international businesses, to
maintain and expand electric and gas systems of Consumers, to retire
portions of its long-term debt and to pay dividends.

Investing Activities: CMS Energy's consolidated net cash used in
investing activities totaled $690 million and $1,141 million for the first
nine months of 1998 and 1997, respectively. The decrease of $451 million
primarily reflects decreased investments in international projects (1997
included an approximately $500 million investment in Loy Yang).
CMS Energy's 1998 expenditures for its utility and international
businesses were $290 million and $424 million, respectively, compared to
$269 million and $837 million, respectively, during 1997.

Financing Activities: CMS Energy's consolidated net cash provided by
financing activities totaled $336 million and $885 million for the first
nine months of 1998 and 1997, respectively. The decrease of $549 million
in net cash provided by financing activities resulted from an increase of
$524 million in the issuance of new securities (see table below), offset
by increases in the retirement of bonds and other long-term debt ($548
million) and the repayment of bank loans ($488 million).

. . . . . . . . . . . . . . . . . . . . . . . In Millions
- ------------------------------------------------------------------------------
. . . . . . . .. . . . . . . . . . Distribution/ Principal
Month Issued Maturity Interest Rate Amount Use of Proceeds
- ------------------------------------------------------------------------------

CMS Energy
GTNs
Series D . . . . (1) (1) 6.8% (1) $119 General
corporate
purposes
Extendible Tenor
Rate Adjusted
Securities . . January 2005 7.0% 180 Pay down
. . . . . . . . . . . . . borrowings
. . . . . . . . . . . . . . . . . . . . . . . ------
. . . . . . . . . . . . . . . . . . . . . . . $299

Consumers
Senior Notes (2) February.. . . . 2008. 6.375% $250 Pay down
First
. . . . . . . . . . . . . . . . . . . . . . . Mortgage Bonds
and general
. . . . . . . . . . . . . . . . . . . corporate
purposes

Senior Notes (2) March. . . . 2018. 6.875% 225 Pay down First
. . . . . . . . . . . . . . . . . . . . Mortgage Bonds
and pay down
. . . . . . . . . . . . . . . . . . . . borrowings
under credit
. . . . . . . . . . . . . . . . . . . facilities

Senior Notes (2). . .May . 2008 6.2%(3) 250 Pay down First
. . . . . . . . . . . . . . . . . . . .Mortgage Bonds,
long-term bank
debt and
general
corporate
purposes

Senior Notes (2). . June. 2018 6.5%(4) 200 Pay down First
. . . . . . . . . . . . . . . . . . . . Mortgage Bonds
and general
corporate
purposes

Long-Term Bank Debt May 2001-2003. 6.05%(5) 225 Pay down long-
term bank debt

Senior Notes (2). October 2028. 6.5% 150 Pay down long-
term bank debt
and general
. . . . . . . . . . . . . . . . . corporate
purposes
. . . . . . . . . . . . . . . . . . . . . . . --------
Total . . . . . . . . . . . . . . . . . . . . $1,599

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

(1) GTNs are issued from time to time with various maturities. The rate
shown herein is a weighted average interest rate.
(2) The Senior Notes are secured by Consumers' First Mortgage Bonds issued
contemporaneously in a similar amount.
(3) The interest rate may be reset in May 2003.
(4) The interest rate will be reset in June 2005.
(5) The interest rate is variable; weighted average interest rate upon
original issuance was 6.05 percent.

As of September 30, 1998, CMS Energy had an aggregate $684 million in
securities registered for future issuance and sale. CMS Energy also has
Senior Credit Facilities, unsecured lines of credit and letters of credit
as sources of funds needed to fulfill, in whole or in part, material
commitments for capital expenditures. For detailed information, see
"Short-Term and Long-Term Financing, and Capitalization-CMS Energy" in
Note 3, incorporated by reference herein.

Consumers has FERC authorization to issue securities and guarantees.
Consumers has a credit facility, lines of credit and a trade receivable
sale program in place as anticipated sources of funds needed to fulfill,
in whole or in part, material commitments for capital expenditures as of
September 30, 1998. For detailed information, see "Short-Term and Long-
Term Financings, and Capitalization-Consumers" in Note 3, incorporated by
reference herein.

During the nine months ended September 30, 1998, CMS Energy declared and
paid $94 million in cash dividends to holders of CMS Energy Common Stock
and $8 million in cash dividends to holders of Class G Common Stock. In
October 1998, the Board of Directors declared quarterly dividends of $.33
per share on CMS Energy Common Stock and $.325 per share on Class G Common
Stock, payable in November 1998.

In August 1998, CMS Energy filed a shelf registration statement with the
SEC pursuant to Rule 415 of the Securities Act, for the issuance and the
sale of $400 million of GTNs Series E.

On November 10, 1998, CMS Energy sold 4.5 million new shares of CMS Energy
Common Stock in a block trade. The net proceeds of approximately $208
million will be used for general corporate purposes.

Other Investing and Financing Matters: At September 30, 1998, the book
value per share of CMS Energy Common Stock and Class G Common Stock was
$17.98 and $10.57, respectively.

CMS Energy's $400 million, 364-day revolving credit facility expired June
30, 1998, and was not renewed, thus reducing the aggregate amount of the
Senior Credit Facilities from $1.125 billion to $725 million.

In October 1998, CMS Energy exchanged 1.4 million shares of CMS Energy
Common Stock for 100% of the outstanding common stock of Continental
Natural Gas, Inc. ("CNG"), an energy company engaged in gathering,
processing, purchasing and marketing natural gas and natural gas liquids
in Oklahoma and Texas. The acquisition of CNG will be accounted for as a
pooling of interests, and all consolidated financial data for the periods
subsequent to December 31, 1997 will be restated to include the financial
data of CNG. The financial data of the pooled companies prior to January
1, 1998 will not be materially different from that previously reported by
CMS Energy, and thus will not be restated.

On November 2, 1998, CMS Energy announced the execution of a definitive
Stock Purchase Agreement (the "Agreement") with PanEnergy Corp
("PanEnergy") and certain other wholly-owned subsidiaries of Duke Energy
Company to acquire all of the stock of the Panhandle Companies for a cash
payment of $1.9 billion and existing Panhandle Companies debt of $300
million.

Closing of the transaction is subject to Hart-Scott-Rodino pre-merger
notification clearance. The Agreement is subject to termination upon
failure of CMS Energy to satisfy its financing contingency. The Agreement
also provides that if, as a result of CMS's Energy's continuing due
diligence investigation, CMS Energy learns of material facts not
previously disclosed or inconsistent with representations and warranties
made in the Agreement, CMS Energy may, on or prior to November 23, 1998,
notify PanEnergy of its intent to terminate the Agreement and the Agreement
will terminate unless PanEnergy corrects the asserted misrepresentations
within 30 days.

The following discussions contain forward-looking statements. See the
Forward-Looking Information section of this MD&A for some important
factors that could cause actual results or outcomes to differ materially
from those discussed herein.

Capital Expenditures

Looking forward, CMS Energy estimates that capital expenditures, including
new lease commitments and investments in partnerships and unconsolidated
subsidiaries, will total $6.3 billion over the next three years. This
total includes approximately $2.2 billion for the pending acquisition of
the Panhandle Companies as discussed more fully in Note 6, Subsequent
Event. Payment for the purchase of the Panhandle Companies is expected
to be financed as described above. A substantial portion of the remaining
capital expenditures is expected to be satisfied by cash from operations.
Nevertheless, CMS Energy will continue to evaluate capital markets in 1998
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 1998 1999 2000
- ------------------------------------------------------------------------

Consumers electric operations (a) (b) $ 341 $ 380 $ 385
Consumers gas operations (a) 117 125 125
Independent power production 308 410 435
Oil and gas exploration and production 140 165 165
Natural gas transmission and storage 270 2,350(c) 165
International energy distribution 163 150 100
Marketing, services and trading 1 5 15
- ------------------------------------------------------------------------

$1,340 $3,585 $1,390
========================================================================

(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.

(b) These amounts do not include preliminary estimates for capital
expenditures possibly required to comply with recently revised national
air quality standards under the Clean Air Act. For further information
see Note 2.

CMS Energy currently plans investments from 1998 to 2000: (1) for oil and
gas exploration and production operations, primarily in North and South
America, offshore West Africa and North Africa; (2) for independent power
production operations to pursue acquisitions and development of electric
generating plants in the United States, Latin America, Asia, Australia,
the Pacific Rim region, North Africa and the Middle East; (3) to continue
development of non-utility natural gas storage, gathering and pipeline
operations of CMS Gas Transmission, both domestic and international; (4)
to acquire, develop and expand international energy distribution
businesses; and (5) 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.

OUTLOOK

As the deregulation and privatization of the energy industry takes place
in the United States and internationally, CMS Energy has positioned itself
to be a leading international energy infrastructure company developing and
operating energy facilities and providing energy services in major world
growth markets. CMS Energy provides a complete range of international
energy expertise from energy production to consumption. Beyond 1998 it
intends to continue to grow its businesses by finding opportunities to
invest in additional energy infrastructures and to capitalize on being a
major, full-service energy company. CMS Energy will seek to increase its
involvement in energy projects by pursuing opportunities in oil and gas
exploration and production projects, natural gas pipelines, storage and
processing facilities, power generation, and electric and gas distribution
systems around the world. In addition, CMS Energy will focus more on
marketing energy services and trading to take advantage of continued
growth opportunities in both the domestic and international markets.

International Operations Outlook

CMS Energy will continue to grow internationally by investing in multiple
projects in several countries as well as by developing synergistic projects
across its lines of business. CMS Energy believes these integrated projects
will create more opportunities and greater value than individual investments.
Also, CMS Energy will achieve this growth through strategic partnering where
appropriate.

To improve the focus of its international energy businesses, CMS Energy
has separated its development efforts from the operations of its assets.
CMS Energy conducts its development efforts from offices in four regions
of the world: Dearborn, Michigan for The Americas - Northern Hemisphere;
Buenos Aires for The Americas - Southern Hemisphere; London for Africa and
the Middle East; and Singapore for Asia.

CMS Energy's development efforts will focus on countries where there are
multiple investment opportunities across its businesses, high energy
growth expectations, defined legal and regulatory structures, and economic
policies that support private investment. CMS Energy will continue to
create value by using the extensive knowledge and experience it has gained
in the United States over the past century, to gain competitive positions
in these countries.

CMS Energy structures its investments to minimize operational and
financial risks. These risks are mitigated when operating internationally
by working with local partners, utilizing multi-lateral financing
institutions, procuring political risk insurance and hedging foreign
currency exposure where appropriate.

Consumers' Electric Business Unit Outlook

Growth: Consumers expects average annual growth of two and one-half
percent per year in electric system deliveries over the next five years,
absent the impact of restructuring on the industry and its regulation in
Michigan. Abnormal weather, changing economic conditions, or the
developing competitive market for electricity may affect actual electric
sales in future periods.

Electric Restructuring: Consumers' retail electric business is affected
by competition. To meet its challenges, Consumers entered into multi-year
contracts with some of its largest industrial customers to serve certain
facilities. The MPSC has approved these contracts as part of its phased
introduction to competition. Certain customers have the option of
terminating their contracts early.

FERC Orders 888 and 889, as amended, require utilities to provide direct
access to the interstate transmission grid for wholesale transactions.
Consumers and Detroit Edison disagree on the effect of the orders on the
Michigan Electric Power Coordination Center pool. Consumers proposes to
maintain the benefits of the pool through at least December 2000, while
Detroit Edison contends that the pool agreement should be terminated
immediately. Among Consumers' alternatives in the event of the pool being
terminated would be joining an independent system operator. FERC has
indicated this preference for structuring the operations of the electric
transmission grid.

As discussed in the Form 10-K, since June 1997 several orders have been
issued and numerous appeals are pending at the Court of Appeals relating
to the restructuring of the electric utility industry. Consumers cannot
predict the outcome or timing of these matters. For material changes
relating to the restructuring of the electric utility industry see
"Electric Business Unit Rate Matters - Electric Restructuring" in Note 2,
incorporated by reference herein.

Electric Application of SFAS 71: Consumers applies the utility accounting
standard, SFAS 71, that recognizes the economic effects of rate regulation
and, accordingly, has recorded regulatory assets and liabilities related
to the generation, transmission and distribution operations of its
business in its financial statements. Consumers believes that the
generation segment of its business is still subject to rate regulation
based upon its present obligation to continue providing generation service
to its customers, and the lack of definitive deregulation orders. If rate
recovery of generation-related costs becomes unlikely or uncertain,
whether due to competition or regulatory action, this accounting standard
may no longer apply to the generation segment of Consumers' business.
According to Emerging Issues Task Force Issue 97-4, Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101, Consumers can continue to carry its generation-
related regulatory assets or liabilities for the part of the business
being deregulated if deregulatory legislation or an MPSC rate order allows
the collection of cash flows from its regulated transmission and
distribution customers to recover these specific costs or settle
obligations. Because the February 1998 MPSC order allows Consumers to
fully recover its transition costs, Consumers believes that even if it was
to discontinue application of SFAS 71 for the generation segment of its
business, its regulatory assets, including those related to generation,
are probable of future recovery from the regulated portion of the
business. At September 30, 1998, Consumers had $251 million of
generation-related net regulatory assets recorded on its balance sheet,
and a net investment in generation facilities of $1.3 billion included in
electric plant and property. For further information regarding electric
restructuring, see "Electric Restructuring" above.

Consumers' Gas Group Outlook

Growth: Consumers currently anticipates gas deliveries, including gas
customer choice deliveries (excluding transportation to the MCV Facility
and off-system deliveries), to grow at an average annual rate of between
one and two percent over the next five years based primarily on a steadily
growing customer base. Abnormal weather, alternative energy prices,
changes in competitive conditions, and the level of natural gas
consumption may affect actual gas deliveries in future periods. Consumers
is also offering a variety of energy-related services to its customers
focused upon appliance maintenance, home safety, commodity choice and
assistance to customers purchasing heating, ventilation and air
conditioning equipment.

In 1997, LIHEAP provided approximately $64 million in heating assistance
to about 312,000 Michigan households, with approximately 13 percent of the
funds going to Consumers' customers. Congress provided approximately $54
million in funding for Michigan for 1998. In October 1998, Congress
approved funding for fiscal year 1999 of approximately $59 million for
the state of Michigan. Consumers' expects presidential approval of the
funding.

Gas Application of SFAS 71: Based on a regulated utility accounting
standard, SFAS 71, Consumers may 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 Matters

New Accounting Standards

In 1998, the FASB issued SFAS 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits. This standard requires expanded
disclosure effective for 1998. Also in 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,
which will be effective for 1999. CMS Energy does not expect the
application of these standards to materially affect its financial
position, liquidity or results of operations. In addition, in 1998, the
FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, which requires that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. CMS Energy has not yet quantified the
impacts of adopting SFAS 133 on its financial statements and has not
determined the timing of or method of adoption of SFAS 133. However, SFAS
133 could increase volatility in earnings and other comprehensive income.

Year 2000 Computer Modifications

CMS Energy uses software and related technologies throughout its domestic
and international businesses that the year 2000 date change will affect
and, if uncorrected, could cause CMS Energy to, among other things, issue
inaccurate bills, report inaccurate data, incur generating plant outages,
or create energy delivery uncertainties. In 1995, CMS Energy established
a Year 2000 Program to ensure the continued operation of the company at
the turn of the century. CMS Energy's efforts included dividing the
programs requiring modification between critical and noncritical programs.
A formal methodology was established to identify critical business
functions and risk scenarios, develop test plans and expected results, and
execute tests. CMS Energy's Year 2000 Program involves an aggressive,
comprehensive four-phase approach, including impact analysis, remediation,
compliance review, and monitoring/contingency planning.

The impact analysis phase includes the analysis, inventory, prioritization
and remediation plan development for all technology essential to core
business processes. The remediation phase involves testing and
implementation of remediation technology. A mainframe test environment
was established in 1997 and a test environment for network servers and
stand-alone personal computers was established in mid-1998. All essential
corporate business systems have been, or will be, tested in these test
environments. The compliance review phase includes the assembling of
compliance documentation for each technology component as remediation
efforts are completed, and additional verification testing of essential
technology where necessary. The monitoring/contingency planning phase
includes compliance monitoring to ensure that year 2000 problems are not
reintroduced into remediated technology, as well as the development of
contingency plans to address reasonably likely risk scenarios.

State of Readiness: CMS Energy is managing traditional information
technology (IT), which consists of essential business systems such as
payroll, billing, and purchasing, and infrastructure, including mainframe,
wide area network, local area networks, personal computers, radios and
telephone systems. CMS Energy is also managing process control computers
and embedded systems contained in buildings, equipment and energy supply
and delivery systems.

Essential goods and services for CMS Energy are electric fuel supply, gas
fuel supply, independent electric power supplies, facilities, electronic
commerce, telecommunications network carriers, financial institutions,
purchasing vendors, and software and hardware technology vendors. CMS
Energy is addressing the preparedness of these businesses and their risk
through readiness assessment questionnaires.

The status of CMS Energy's Year 2000 Program by phase, with target dates
for completion and current percentage complete based upon software and
hardware inventory counts as of September 30, 1998, is as follows:

Monitoring/
Impact Compliance Contingency
Analysis Remediation Review Planning
- ------------------------------------------------------------------------
(a) (b) (a) (b) (a) (b) (a) (b)

Electric utility 3/98 100% 6/99 53% 6/99 22% 6/99 10%
Gas utility 3/98 100% 6/99 66% 6/99 3% 6/99 10%
Independent power
production 12/98 55% 9/99 17% 9/99 0% 9/99 10%
Oil and gas 12/98 79% 9/99 60% 9/99 0% 9/99 50%
Natural gas
transmission 12/98 45% 9/99 50% 9/99 0% 9/99 5%
Marketing, services
and trading 12/98 77% 9/99 50% 9/99 50% 9/99 10%
Essential goods
and services 6/99 35% N/A 9/99 0% 6/99 10%
==========================================================================

(a) Target date for completion.
(b) Current percentage complete.

Cost of Remediation: CMS Energy will expense anticipated spending for
modifications as incurred, while capitalizing and amortizing the cost for
new software over its useful life. The total estimated cost of the Year
2000 Program is approximately $30 million. Costs incurred through
September 30, 1998 are approximately $15 million. CMS Energy's annual
Year 2000 Program costs have represented approximately 2% to 10% of CMS
Energy's annual IT budget through 1998 and are expected to represent
approximately 25% of CMS Energy's annual IT budget in 1999. Year 2000
compliance work is being funded primarily from operations. The devotion
of CMS Energy resources to the year 2000 problem has not deferred any
material IT projects which could have a material adverse affect on CMS
Energy's financial position, liquidity or results of operations.

Risk Assessment: CMS Energy considers the most reasonably likely worst-
case scenarios to be: (1) a lack of communications to dispatch crews to
electric or gas emergencies, (2) a lack of communications to contact
generating units to balance electrical load, (3) power shortages due to
the lack of stability of the electric grid and (4) a failure of fuel
suppliers to deliver fuel to generating facilities. These scenarios could
result in CMS Energy not being able to generate or distribute enough
energy to meet customer demand for a period of time, which could result in
lost sales and profits. Year 2000 remediation and testing efforts are
concentrating on these risk areas and will continue through the end of
1999. Contingency plans will be revised and executed to further mitigate
the risks associated with these scenarios.

Contingency Plans: Contingency planning efforts are currently underway
for all business systems and providers of essential goods and services.
Extensive contingency plans are already in place in many locations and are
currently being revised for reasonably likely worst-case scenarios related
to year 2000 issues. In many cases, Consumers already has arrangements
with multiple vendors of similar goods and services so that in the event
that one cannot meet its commitments, others can. Current contingency
plans provide for manual dispatching of crews and manual coordination of
electrical load balancing and are being revised to provide for radio or
satellite communications. Coordinated contingency planning efforts are in
progress with third parties to minimize risk to electric generation,
transmission and distribution systems.

Expectations: CMS Energy does not expect that the cost of these
modifications will materially affect its financial position, liquidity, or
results of operations. There can be no guarantee, however, that these
costs, plans or time estimates will be achieved, and actual results could
differ materially.

Because of the integrated nature of CMS Energy's business with other
energy companies, utilities, jointly owned facilities operated by other
entities, and business conducted with suppliers and large customers, CMS
Energy may be indirectly affected by year 2000 compliance complications.
At this time, CMS Energy is unable to anticipate the magnitude of the
operational or financial impact on CMS Energy of year 2000 issues.

Foreign Currency Translation

CMS Energy adjusts common stockholders' equity to reflect foreign currency
translation adjustments for the operation of long-term investments in
foreign countries. As of September 30, 1998 the cumulative foreign
currency translation adjustment was $132 million. The adjustment is
primarily due to the exchange rate fluctuations between the U.S. dollar
and each of the Australian dollar and Brazilian real. From January 1,
1998 through September 30, 1998, the change in the foreign currency
translation adjustment totaled $36 million. Although management currently
believes that the currency exchange rate fluctuations over the long term
will not materially adversely affect CMS Energy's financial position,
liquidity or results of operations, CMS Energy has hedged its exposure to
the Australian dollar and the Brazilian real. CMS Energy uses forward
exchange contracts and collared options to hedge certain receivables,
payables, long-term debt and equity value relating to foreign investments.
The notional amount of the outstanding foreign exchange contracts was $845
million at September 30, 1998, which includes $550 million and $250
million for Australian and Brazilian foreign exchange contracts,
respectively.

Forward-Looking Information

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

Some important factors that could cause actual results or outcomes to
differ are set forth in CMS Energy's 1997 Form 10-K, "Management's
Discussion and Analysis-Forward-Looking Information."

<PAGE> 25

<TABLE>
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
<CAPTION>

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997* 1998 1997* 1998 1997*
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Electric utility $ 729 $ 670 $1,990 $1,888 $2,617 $2,507
Gas utility 117 110 716 828 1,092 1,230
Independent power production 95 45 214 116 266 148
Natural gas transmission, storage and processing 20 19 69 71 94 90
Oil and gas exploration and production 15 30 46 67 72 103
Marketing, services and trading 305 153 748 366 1,074 433
Other 5 3 9 11 11 16
------ ------ ------ ------ ------ ------
1,286 1,030 3,792 3,347 5,226 4,527
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 109 85 273 234 359 316
Purchased power - related parties 143 151 433 447 585 600
Purchased and interchange power 77 65 220 180 282 235
Cost of gas sold 154 164 799 785 1,325 1,100
Other 371 191 830 540 1,031 753
------ ------ ------ ------ ------ ------
854 656 2,555 2,186 3,582 3,004
Maintenance 49 40 128 122 180 180
Depreciation, depletion and amortization 112 108 347 342 472 458
General taxes 49 48 155 157 209 209
------ ------ ------ ------ ------ ------
1,064 852 3,185 2,807 4,443 3,851
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss)
Electric utility 153 132 378 342 468 423
Gas utility 6 (1) 81 100 134 142
Independent power production 57 32 123 67 152 73
Natural gas transmission, storage and processing 6 6 28 22 33 27
Oil and gas exploration and production 2 13 12 16 22 22
Marketing, services and trading 2 - 2 1 (4) 1
Other (4) (4) (17) (8) (22) (12)
------ ------ ------ ------ ------ ------
222 178 607 540 783 676
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Loss on MCV power purchases - - (37) - (37) -
Accretion income 1 2 5 6 7 8
Accretion expense (4) (4) (12) (13) (16) (14)
Other, net (3) 3 2 5 (6) 2
------ ------ ------ ------ ------ ------
(6) 1 (42) (2) (52) (4)
------ ------ ------ ------ ------ ------
Fixed Charges
Interest on long-term debt 79 71 234 198 309 254
Other interest 8 12 33 34 48 47
Capitalized interest (6) (3) (17) (9) (21) (11)
Preferred dividends 5 6 14 20 19 27
Preferred securities distributions 8 6 24 11 31 13
------ ------ ------ ------ ------ ------
94 92 288 254 386 330
------ ------ ------ ------ ------ ------
Income Before Income Taxes 122 87 277 284 345 342

Income Taxes 41 27 86 99 95 119
------ ------ ------ ------ ------ ------
Consolidated Net Income before cumulative
effect of change in accounting principle 81 60 191 185 250 223
Cumulative effect of change in accounting
for property taxes, net of $23 tax (Note 1) - - 43 - 43 -
------ ------ ------ ------ ------ ------
Consolidated Net Income $ 81 $ 60 $ 234 $ 185 $ 293 $ 223
====== ====== ====== ====== ====== ======

</TABLE>

<PAGE>
<PAGE> 26

<TABLE>

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997* 1998 1997* 1998 1997*
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) Attributable to
Common Stocks
CMS Energy $ 83 $ 62 $ 226 $ 176 $ 279 $ 210
Class G $ (2) $ (2) $ 8 $ 9 $ 14 $ 13
------ ------ ------ ------ ------ ------
Average Common Shares Outstanding
CMS Energy 102 96 101 95 101 95
Class G 8 8 8 8 8 8
------ ------ ------ ------ ------ ------
Basic Earnings (Loss) Per Average
Common Share Before Change in
Accounting Principle
CMS Energy $ .81 $ .64 $ 1.83 $ 1.85 $ 2.37 $ 2.22
Class G $ (.16) $ (.21) $ .68 $ 1.13 $ 1.37 $ 1.57
------ ------ ------ ------ ------ ------
Cumulative Effect of Change in Accounting
Principle, Net of Tax, Per Average
Common Share
CMS Energy $ - $ - $ .40 $ - $ .40 $ -
Class G $ - $ - $ .36 $ - $ .36 $ -
------ ------ ------ ------ ------ ------
Basic Earnings (Loss) Per Average
Common Share
CMS Energy $ .81 $ .64 $ 2.23 $ 1.85 $ 2.77 $ 2.22
Class G $ (.16) $ (.21) $ 1.04 $ 1.13 $ 1.73 $ 1.57
------ ------ ------ ------ ------ ------
Diluted Earnings (Loss) Per Average
Common Share
CMS Energy $ .80 $ .63 $ 2.19 $ 1.83 $ 2.73 $ 2.20
Class G $ (.16) $ (.21) $ 1.04 $ 1.13 $ 1.73 $ 1.57
------ ------ ------ ------ ------ ------
Dividends Declared Per Common Share
CMS Energy $ .33 $ .30 $ .93 $ .84 $ 1.23 $ 1.11
Class G $ .325 $ .31 $ .945 $ .90 $ 1.255 $1.195
------ ------ ------ ------ ------ ------

<FN>

* Restated, see Note 1.

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

</TABLE>
<PAGE>
<PAGE> 27

<TABLE>
CMS Energy Corporation
Consolidated Balance Sheets
<CAPTION>

ASSETS September 30 September 30
1998 December 31 1997*
(Unaudited) 1997* (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At Cost)
Electric $ 6,641 $ 6,491 $ 6,447
Gas 2,498 2,528 2,502
Oil and gas properties (successful efforts method) 637 566 533
Other 320 168 100
------- ------- -------
10,096 9,753 9,582
Less accumulated depreciation, depletion and amortization 5,052 4,870 4,784
------- ------- -------
5,044 4,883 4,798
Construction work-in-progress 226 261 332
------- ------- -------
5,270 5,144 5,130
------- ------- -------
Investments
Independent power production 868 792 819
Natural gas transmission, storage and processing 341 241 236
International energy distribution 272 255 65
First Midland Limited Partnership (Note 2) 237 242 239
Midland Cogeneration Venture Limited Partnership (Note 2) 199 171 163
Other 35 45 46
------- ------- -------
1,952 1,746 1,568
------- ------- -------
Current Assets
Cash and temporary cash investments at cost, which approximates market 101 69 136
Accounts receivable and accrued revenue, less allowances
of $8, $7 and $7, respectively (Note 3) 457 495 401
Inventories at average cost
Gas in underground storage 276 197 253
Materials and supplies 91 87 95
Generating plant fuel stock 29 35 26
Deferred income taxes 14 38 18
Prepayments and other 170 235 108
------- ------- -------
1,138 1,156 1,037
------- ------- -------
Non-current Assets
Nuclear decommissioning trust funds 510 486 478
Postretirement benefits 381 404 411
Abandoned Midland Project 77 93 98
Other 602 479 499
------- ------- -------
1,570 1,462 1,486
------- ------- -------
Total Assets $ 9,930 $ 9,508 $ 9,221
======= ======= =======

</TABLE>

<PAGE>
<PAGE> 28

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1998 December 31 1997*
(Unaudited) 1997* (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 1,922 $ 1,787 $ 1,649
Preferred stock of subsidiary 238 238 238
Company-obligated mandatorily redeemable Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 120 120
Company-obligated convertible Trust Preferred Securities of
CMS Energy Trust I (b) 173 173 173
Long-term debt 4,248 3,272 3,060
Non-current portion of capital leases 77 75 82
------- ------- -------
6,878 5,765 5,422
------- ------- -------

Current Liabilities
Current portion of long-term debt and capital leases 171 643 911
Notes payable 302 382 394
Accounts payable 309 398 326
Accrued taxes 144 272 146
Accounts payable - related parties 90 80 70
Accrued interest 64 51 61
Power purchases (Note 2) 47 47 47
Accrued refunds 12 12 7
Other 189 190 191
------- ------- -------
1,328 2,075 2,153
------- ------- -------

Non-current Liabilities
Deferred income taxes 654 648 581
Postretirement benefits 499 514 520
Deferred investment tax credit 144 151 154
Power purchases (Note 2) 134 133 144
Regulatory liabilities for income taxes, net 83 54 86
Other 210 168 161
------- ------- -------
1,724 1,668 1,646
------- ------- -------

Commitments and Contingencies (Note 2)

Total Stockholders' Investment and Liabilities $ 9,930 $ 9,508 $ 9,221
======= ======= =======

<FN>

(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36 percent
subordinated deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company
Financing II is $124 million principal amount of 8.20 percent subordinated deferrable interest notes due 2027 from
Consumers.
(b) The primary asset of CMS Energy Trust I is $178 million principal amount of 7.75 percent convertible subordinated
debentures due 2027 from CMS Energy.

* Restated, see Note 1.

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

</TABLE>

<PAGE>
<PAGE> 29

<TABLE>
CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30 1998 1997* 1998 1997*
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Consolidated net income $ 234 $ 185 $ 293 $ 223
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning of $38, $37, $51 and $49,
respectively) 347 342 472 458
Deferred income taxes and investment tax credit 61 11 74 30
Loss on MCV power purchases 37 - 37 -
Capital lease and debt discount amortization 29 36 37 44
Accretion expense 12 13 16 14
Accretion income - abandoned Midland project (5) (6) (7) (8)
Undistributed earnings of related parties (36) (40) (54) (47)
MCV power purchases (48) (47) (63) (67)
Cumulative effect of accounting change for property taxes (66) - (66) -
Other (8) (10) (7) 7
Changes in other assets and liabilities (171) (150) (56) (179)
------- ------- ------- -------
Net cash provided by operating activities 386 334 676 475
------- ------- ------- -------
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under
capital lease) (448) (509) (617) (740)
Investments in partnerships and unconsolidated subsidiaries (234) (588) (476) (604)
Cost to retire property, net (65) (26) (68) (37)
Investments in nuclear decommissioning trust funds (38) (37) (51) (49)
Investment in Electric Restructuring Implementation Plan (9) - (10) -
Other (7) (27) 8 (23)
Proceeds from sale of property 56 46 59 91
Proceeds from nuclear decommissioning trust funds 43 - 43 -
Proceeds from FMLP 12 - 12 -
------- ------- ------- -------
Net cash used in investing activities (690) (1,141) (1,100) (1,362)
------- ------- ------- -------
Cash Flows from Financing Activities
Proceeds from bank loans, notes and bonds 1,636 827 2,023 875
Issuance of common stock 49 60 213 126
Retirement of bonds and other long-term debt (621) (73) (1,069) (73)
Repayment of bank loans (520) (32) (517) (24)
Payment of common stock dividends (102) (87) (134) (115)
Increase (decrease) in notes payable, net (80) 61 (92) 53
Payment of capital lease obligations (26) (35) (35) (42)
Proceeds from preferred securities - 286 - 286
Retirement of preferred stock - (120) - (120)
Retirement of common stock - (2) - (2)
------- ------- ------- -------
Net cash provided by financing activities 336 885 389 964
------- ------- ------- -------
Net Increase (Decrease) in Cash and Temporary Cash Investments 32 78 (35) 77

Cash and Temporary Cash Investments, Beginning of Period 69 58 136 59
------- ------- ------- -------
Cash and Temporary Cash Investments, End of Period $ 101 $ 136 $ 101 $ 136
======= ======= ======= =======

Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized) $ 229 $ 201 $ 321 $ 267
Income taxes paid (net of refunds) 51 57 61 78
Non-cash transactions
Nuclear fuel placed under capital lease $ 21 $ 4 $ 21 $ 24
Other assets placed under capital leases 11 5 12 6
======= ======= ======= =======
<FN>

All highly liquid investments with an original maturity of three months or less are considered cash equivalents.

*Restated, see Note 1.

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

</TABLE>
<PAGE>
<PAGE> 30

<TABLE>

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

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997* 1998 1997* 1998 1997*
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
------ ------ ------ ------ ----- ------
Other Paid-in Capital
At beginning of period 2,297 2,075 2,267 2,045 2,103 1,979
Common stock reacquired - (2) - (2) - (2)
Common stock issued:
CMS Energy 18 28 45 56 206 120
Class G 1 2 4 4 7 6
------ ------ ------ ------ ------ ------
At end of period 2,316 2,103 2,316 2,103 2,316 2,103
------ ------ ------ ------ ------ ------
Revaluation Capital
At beginning of period (6) (6) (6) (6) (4) (7)
Change in unrealized investment-gain
(loss) (a) (10) 2 (10) 2 (12) 3
------ ------ ------ ------ ------ ------
At end of period (16) (4) (16) (4) (16) (4)
------ ------ ------ ------ ------ ------
Foreign Currency Translation
At beginning of period (123) - (96) - (45) -
Change in foreign currency
translation (a) (9) (45) (36) (45) (87) (45)
------ ------ ------ ------ ------ ------
At end of period (132) (45) (132) (45) (132) (45)
------ ------ ------ ------ ------ ------
Retained Earnings (Deficit)
At beginning of period (292) (435) (379) (504) (406) (514)
Consolidated net income (a) 81 60 234 185 293 223
Common stock dividends declared:
CMS Energy (33) (28) (94) (80) (123) (105)
Class G (3) (3) (8) (7) (11) (10)
------ ------ ------ ------ ------ ------
At end of period (247) (406) (247) (406) (247) (406)
------ ------ ------ ------ ------ ------
Total Common Stockholders' Equity $1,922 $1,649 $1,922 $1,649 $1,922 $1,649
====== ====== ====== ====== ====== ======

(a) Disclosure of Comprehensive Income:
Revaluation capital
Unrealized investment-gain
(loss), net of tax of $5, $-, $5,
$-, $6 and $(1), respectively $ (10) $ 2 $ (10) $ 2 $ (12) $ 3
Foreign currency translation (9) (45) (36) (45) (87) (45)
Consolidated net income 81 60 234 185 293 223
------ ------ ------ ------ ------ ------
Total Consolidated Comprehensive
Income $ 62 $ 17 $ 188 $ 142 $ 194 $ 181
====== ====== ====== ====== ====== ======

<FN>

* Restated, see Note 1.

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

</TABLE>
<PAGE>
<PAGE> 31

CMS Energy Corporation
Condensed Notes to Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in the 1997 Form 10-K and the restated financial information in
a Form 8-K dated July 30, 1998 of CMS Energy, which include the Reports 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, Basis of Presentation And Changes of Significant
Accounting Policies

Corporate Structure and Basis of Presentation

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers is a combination electric and gas utility company serving the
Lower Peninsula of Michigan and 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: acquisition,
development and operation of independent power production facilities; oil
and gas exploration and production; transmission, storage, and processing
of natural gas; energy marketing, services and trading; and international
energy distribution.

CMS Energy uses the equity method of accounting for investments in
companies and partnerships where it has more than a 20 percent but less
than a majority ownership interest and includes these results in operating
income. For the three, nine and twelve month periods ended September 30,
1998, undistributed equity earnings were $2 million, $36 million and $54
million, respectively, compared to $19 million, $40 million and $47
million for the three, nine and twelve month periods ended September 30,
1997.

Foreign currency translation adjustments relating to the operation of CMS
Energy's long-term investments in foreign countries are included in common
stockholders' equity. As of September 30, 1998 the cumulative foreign
currency translation adjustment was $132 million relating primarily to the
U.S. and Australian dollar exchange rate fluctuations related to Loy Yang.
From January 1, 1998 through September 30, 1998, the change in the foreign
currency translation adjustment totaled $36 million.

In October 1998, CMS Energy changed the name of its oil and gas
exploration and production business to CMS Oil and Gas Company, formerly
known as CMS NOMECO Oil & Gas Co.

In 1997, the FASB issued SFAS 130, Reporting Comprehensive Income. This
statement, which is effective for 1998 financial statement reporting,
establishes standards for reporting and display of comprehensive income
and its components. Equity adjustments related to unrealized investment
gains and losses (net of tax) and foreign currency translation, along with
consolidated net income, comprise comprehensive income.

Change in Method of Accounting for Property Taxes

During the first quarter of 1998, Consumers implemented a change in the
method of accounting for property taxes so that such taxes are recognized
during the fiscal period of the taxing authority for which the taxes are
levied. This change provides a better matching of property tax expense
with the services provided by the taxing authorities, and is considered
the most acceptable basis of recording property taxes. Prior to 1998,
Consumers recorded property taxes monthly during the year following the
assessment date (December 31). The cumulative effect of this one-time
change in accounting increased other income by $66 million, and earnings,
net of tax, by $43 million or $.40 per share. The pro forma effect on
prior years' consolidated net income of retroactively recording property
taxes as if the new method of accounting had been in effect for all
periods presented is not material.

Change in Method of Accounting For Investments in Oil and Gas Properties

CMS Oil and Gas elected to convert effective January 1, 1998 from the full
cost method to the successful efforts method of accounting for its
investments in oil and gas properties. CMS Oil and Gas believes this
accounting change will more accurately present the results of its
exploration and development activities and minimize asset write-offs
caused by periodic price swings, which may not be representative of
overall or long-term markets. In addition, the FASB has stated a
preference for the use of successful efforts accounting. Nitrotec, in
which CMS Gas Transmission has an equity investment, also elected to
convert effective January 1, 1998 from the full cost method of accounting
to the successful efforts method of accounting. Accordingly, all prior
period financial statements have been restated to conform with successful
efforts accounting. The effect, after tax, of the change in accounting
method as of December 31, 1997, was a reduction to retained earnings of
$175 million for CMS Oil and Gas and $15 million for CMS Gas
Transmission, primarily attributable to a decrease in net plant and
property and deferred tax liability of $270 million and $95 million,
respectively, for CMS Oil and Gas and a $15 million decrease in CMS Gas
Transmission's equity investment in Nitrotec. For the three, nine and
twelve months ended September 30, 1997, the combined effects of the
changes in accounting method resulted in decreases to net income of $6
million ($.06 per share), $19 million ($.19 per share), and $25 million
($.26 per share), respectively.

Oil and Gas Properties

CMS Oil and Gas utilizes the successful efforts method of accounting for
its investments in oil and gas properties. CMS Oil and Gas capitalizes
the costs of property acquisitions, successful exploratory wells, all
development costs, and support equipment and facilities when incurred. It
expenses unsuccessful exploratory wells when they are determined to be
non-productive. CMS Oil and Gas also charges to expense production costs,
overhead, and all exploration costs other than exploratory drilling as
incurred. Depreciation, depletion and amortization of proved oil and gas
properties is determined on a field-by-field basis using the unit-of-
production method over the life of the remaining proved reserves.

Business Combination

2: Uncertainties

Consumers' Electric Business Unit Contingencies

Electric Environmental Matters: The Clean Air Act limits emissions of
sulfur dioxide and nitrogen oxides and requires emissions monitoring.
Consumers' coal-fueled electric generating units burn low-sulfur coal and
are currently operating at or near the sulfur dioxide emission limits that
will be effective in the year 2000. During the past few years, in order
to comply with the Act, Consumers incurred capital expenditures totaling
$46 million to install equipment at certain generating units. Consumers
estimates capital expenditures for ongoing and proposed modifications at
other coal-fueled units to be an additional $26 million by the year 2000.
Management believes that these expenditures will not materially affect
Consumers' annual operating costs.

Consumers currently operates within all Clean Air Act requirements and
meets current emission limits. The Act requires the EPA to review,
periodically, the effectiveness of the national air quality standards in
preventing adverse health affects. In 1997 the EPA revised these
standards. Monitoring for the new standards is reasonably likely to
result in further limitations on small particulate and ozone related
emissions.

Following completion of the Ozone Transport Assessment Group process and
requests by several Northeastern states, in September 1998, the EPA
Administrator signed final regulations requiring the State of Michigan to
further limit nitrogen oxide emissions. Fossil-fueled emitters, such as
Consumers' generating units, can anticipate reduction in nitrogen oxide
emissions by 2003 to only 32 percent of levels allowed for the year 2000.
The State of Michigan has one year to submit an implementation plan. It
is unlikely that the State of Michigan will establish Consumers' nitrogen
oxide emissions reduction target until mid-to-late 1999. Until this
target is established, the estimated cost of compliance is subject to
significant revision.

The preliminary estimate of capital costs to reduce nitrogen oxide-related
emissions for Consumers' fossil-fueled generating units is approximately
$290 million, plus an additional amount totaling $10 million per year for
operation and maintenance costs. Consumers may need an equivalent amount
of capital expenditures and operation and maintenance costs to comply with
the new small particulate standards. The State of Michigan has objected
to the extent of the required EPA emission reductions. If a court were to
order the EPA to adopt the State of Michigan's position, costs could be
less than the current estimated amounts.

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. Nevertheless, it believes that these
costs are properly recoverable in rates under current ratemaking policies.

Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Superfund liability is
joint and several; along with Consumers, many other creditworthy,
potentially responsible parties with substantial assets cooperate with
respect to the individual sites. Based upon past negotiations, Consumers
estimates that its share of the total liability for the known Superfund
sites will be between $3 million and $9 million. At September 30, 1998,
Consumers has accrued $3 million for its estimated Superfund liability.

While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and PCBs. Consumers does not
believe that any facility in the United States currently accepts the
radioactive portion of that waste. The cost of removal and disposal is
currently unknown. These costs would constitute part of the cost to
decommission the plant, and will be paid from the decommissioning fund.
Consumers is studying the extent of the contamination and reviewing
options.

Stray Voltage: Various parties have sued 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. It
also has an ongoing mitigation program to modify the service of all
customers with livestock.

In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to allow the
claims of over 200 named plaintiffs to be joined in a single action. The
trial court dismissed all of the plaintiffs except the first-named
plaintiff, allowing the others to re-file separate actions. Of the
original plaintiffs, only 49 re-filed separate cases. All of those 49
cases have been resolved. The Michigan Supreme Court remanded the matter,
finding that the proper remedy for misjoinder was not dismissal, but to
automatically allow each case to go forward separately. Consumers filed a
motion for reconsideration with the Michigan Supreme Court, which was
denied. As a result, 21 individual plaintiffs elected to exercise their
right to proceed with separate actions. Consumers has now resolved all 21
of those cases. As of November 3, 1998, Consumers had 3 individual stray
voltage lawsuits awaiting trial court action, down from 12 cases as
reported at year end 1997.

Anti-Trust: In October 1997, two independent power producers sued
Consumers and CMS Energy in a federal court. The suit alleges antitrust
violations relating to contracts which Consumers entered into with some of
its customers and claims relating to power facilities. The plaintiffs
claim damages of $100 million (which a court can treble in antitrust cases
as provided by law). In September 1998, the court issued an opinion and
order granting CMS Energy's motion to dismiss. The court has not yet
ruled on Consumers' motion to dismiss. Consumers believes the lawsuit is
without merit and will vigorously defend against it, but cannot predict
the outcome of this matter.

Consumers' Electric Business Unit Rate Matters

Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase of the
additional 325 MW of MCV Facility capacity (see "Power Purchases from the
MCV Partnership" in this Note) and recover its nuclear plant investment by
increasing prospective annual nuclear plant depreciation expense by $18
million, with a corresponding decrease in fossil-fueled generating plant
depreciation expense. It also established an experimental direct-access
program. Customers having a maximum demand of at least 2 MW are eligible
to purchase generation services directly from any eligible third-party
power supplier and Consumers would transmit the power for a fee. The
direct-access program is limited to 134 MW of load. In accordance with
the MPSC order, Consumers held a lottery in April 1997 to select the
customers to participate in the direct-access program. Subsequently,
direct access for a portion of this 134 MW began in late 1997. Consumers
expects the remaining amount of direct access to begin later in 1998.

In January 1998, the Court of Appeals affirmed an MPSC conclusion that the
MPSC has statutory authority to authorize an experimental electric retail
wheeling program. By its terms, no retail wheeling has yet occurred
pursuant to that program. In October 1998, the Michigan Supreme Court
issued an order granting Consumers' application for leave to appeal. A
decision by the Michigan Supreme Court in this matter is expected in mid-
1999.

For information on other orders, see the Electric Restructuring section
below.

Electric Restructuring: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, in June 1997
the MPSC issued an order proposing that beginning January 1, 1998
Consumers transmit and distribute energy on behalf of competing power
suppliers to serve retail customers.

Subsequent to the June 1997 order, the MPSC issued further restructuring
orders in October 1997 and in January and February 1998. These orders
provide for: 1) the recovery of estimated Transition Costs of $1.755
billion through a charge to all direct-access customers until the end of
the transition period in 2007, subject to an adjustment through a true-up
mechanism; 2) the commencement of the phase-in of direct-access in 1998;
3) the suspension of the power supply cost recovery clause; and 4) all
customers to be free to choose power suppliers on January 1, 2002. See
"Other Electric Uncertainties" below for further information regarding the
effect of the PSCR suspension on the recovery of MCV Facility capacity
charges. Consumers believes that the Transition Cost surcharge will apply
to all customers beginning in 2002. The recovery of prudent costs of
implementing a direct-access program, estimated at an additional $200
million, would be reviewed for prudence and recovered via a charge
approved by the MPSC. Nuclear decommissioning costs will also continue to
be collected through a separate surcharge to all customers. Consumers
expects Michigan legislative consideration of the entire subject of
electric industry restructuring in 1998. To be acceptable to Consumers,
the legislation would have to provide for full recovery of Transition
Costs. Consumers expects the legislature to review all of the policy
choices made by the MPSC during the restructuring proceedings to assure
that they are in accord with those that the legislature believes should be
paramount.

There are numerous appeals pending at the Court of Appeals relating to the
MPSC's restructuring orders, including appeals by Consumers and Detroit
Edison. Consumers believes that the MPSC lacks statutory authority to
mandate industry restructuring, and its appeal is limited to this
jurisdictional issue.

As a result of an informal process involving consultations with MPSC staff
and other interested parties, as directed in the MPSC's February 1998
order, Consumers submitted to the MPSC in June 1998 its plan for
implementing direct access. The primary issues addressed in the plan are:
1) the implementation schedule; 2) the direct-access service options
available to customers and suppliers; 3) the process and requirements for
customers and others to obtain direct-access service; and 4) the roles and
responsibilities for Consumers, customers and suppliers. Under the
schedule in the plan, Consumers will, over the 1998-2001 period, phase-in
750 MW of retail customer load to direct-access customers. At one time,
300 MW of direct-access load was to be opened for bidding in 1998, and an
additional 150 MW each year from 1999 to 2001. This plan is consistent
with the previous orders regarding the phase-in process. Due to the time
required for the MPSC to review the plan, Consumers does not believe
direct access will commence prior to the first quarter of 1999. For
further information regarding the effects of the restructuring on
accounting methods, see Consumers' Electric Business Unit Outlook -
Electric Application of SFAS 71 in the MD&A. CMS Energy cannot predict
the outcome or timing of electric restructuring on CMS Energy's financial
position, liquidity, or results of operations.

On October 2, 1998, Consumers initiated a process for the solicitation of
bids to acquire Consumers' rights to 1,240 MW of contract capacity and
associated energy under its PPA with the MCV Partnership. Consumers'
rights to the 1,240 MW of contract capacity and associated energy are
being offered in one 1,240 MW block or in two 620 MW pieces, for the
period from the effective date in 1999 through either September 2007 or
March 2025.

Consumers has reserved the right at any time, in its sole discretion, to
terminate the bidding process or to reject any or all bids. Consumers
will not consummate a transaction unless important customer benefits flow
from that transaction. Any such transaction would be subject to the
approval of Consumers' Board of Directors and obtaining satisfactory rate
making and accounting treatment from the MPSC and the FERC with respect to
the definitive agreements, including any necessary approval by FERC of the
transfer of the 1,240 MW of contract capacity and associated energy.

In an order issued October 12, 1998, the MPSC delayed its consideration of
the auction process until the definitive agreements with the winning
bidder(s) are presented for review, but stated that Consumers' approach
offers a legitimate way to utilize independent market forces to determine
the above-market or stranded portion of Consumers' obligations under the
PPA with the MCV Partnership. Consumers anticipates that such definitive
agreements, if any, will be negotiated by early February 1999 and
appropriate filings will be made with MPSC for consideration during the
first quarter of 1999.

Other Consumers' Electric Business Unit Uncertainties

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 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 Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
- --------------------------------------------------------------------------

Pretax operating
income $13 $18 $36 $36 $46 $45
Income taxes
and other 4 6 11 11 14 13
- -------------------------------------------------------------------------

Net income $ 9 $12 $25 $25 $32 $32
=========================================================================

Power Purchases from the MCV Partnership- After September 2007, pursuant
to the terms of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Currently, 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 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. The MPSC has, since January 1, 1993, permitted Consumers
to recover capacity charges averaging 3.62 cents per kWh for 915 MW, plus
a substantial portion of the fixed and variable energy charges. Beginning
January 1, 1996, the MPSC has also permitted Consumers to recover capacity
charges for the remaining 325 MW of MCV Facility contract capacity. The
order approving such recovery indicated that the recoverable capacity
charge for the 325 MW would gradually increase from an initial average
charge of 2.86 cents per kWh to an average charge of 3.62 cents per kWh by
2004, which latter would be collected thereafter. Because the MPSC
suspended the PSCR process as part of the electric industry restructuring
order (see "Electric Restructuring" in this Note), Consumers expects to
recover the future increases approved for the 325 MW capacity through an
adjustment to the frozen PSCR level; this adjustment is currently under
consideration by the MPSC.

Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA. At September 30,
1998 and December 31,1997, the after-tax present value of the PPA
liability totaled $118 million and $117 million, respectively. The
increase in the liability since December 31, 1997 reflects an additional
$37 million accrual ($24 million after-tax) for higher than anticipated
MCV Facility availability levels experienced in prior periods and an
after-tax accretion expense of $8 million, partially offset by after-tax
cash underrecoveries of $31 million. The undiscounted after-tax amount
associated with the liability totaled $170 million at September 30, 1998.
The after-tax cash underrecoveries are currently based on the assumption
that the MCV Facility will be available to generate electricity 91.5
percent of the time over its expected life. For the first nine months of
1998 the MCV Facility was available 99.3 percent of the time, resulting in
$14 million over anticipated after-tax cash underrecoveries. Consumers
believes it will continue to experience after-tax cash underrecoveries
associated with the PPA in amounts comparable to those shown below.

In Millions
- ----------------------------------------------------------------------
1998 1999 2000 2001 2002
- ----------------------------------------------------------------------

Estimated cash underrecoveries,
net of tax $37 $22 $21 $20 $19
======================================================================

Consumers bases the above estimated underrecoveries, in part, on an
estimate of the future availability of the MCV Facility. If the MCV
Facility operates at levels above management's estimate over the remainder
of the PPA, Consumers will need to recognize losses for future
underrecoveries larger than amounts previously recorded. Therefore,
Consumers would experience larger amounts of cash underrecoveries than
originally anticipated. Management will continue to evaluate the adequacy
of the accrued liability considering actual MCV Facility operations.

In February 1998, the MCV Partnership filed a claim of appeal from the
January 1998 and February 1998 MPSC orders in the electric utility
industry restructuring. At the same time, the MCV Partnership filed suit
in the U.S. District Court seeking a declaration that the MPSC's failure
to provide Consumers and the MCV Partnership a certain source of recovery
of capacity payments after 2007 deprived the MCV Partnership of its rights
under the Public Utilities Regulatory Policies Act of 1978. The MCV
Partnership is seeking to prohibit the MPSC from implementing portions of
the order.

PSCR Matters Related to Power Purchases from the MCV Partnership- As part
of a 1995 decision in the 1993 PSCR reconciliation case, the MPSC
disallowed a portion of the costs related to purchases from the MCV
Partnership and instead assumed recovery of those costs from wholesale
customers. Consumers believed this was contrary to the terms of an
earlier 1993 settlement order and appealed. The MCV Partnership and ABATE
also filed separate appeals of this order. In November 1996, the Court of
Appeals affirmed the MPSC's 1995 decision. The MCV Partnership filed an
application for leave to appeal with the Michigan Supreme Court which was
denied in January 1998. This matter is now closed.

Nuclear Matters: Consumers filed updated decommissioning information with
the MPSC in 1995 that estimated decommissioning costs for Big Rock and
Palisades. In April 1996, the MPSC issued an order in Consumers' nuclear
decommissioning case, which fully supported Consumers' request and did not
change the overall surcharge revenues collected from retail customers.
The MPSC ordered Consumers to file a report on the adequacy of the
surcharge revenues with the MPSC at three-year intervals beginning in
1998. On March 31, 1998, Consumers filed with the MPSC a new
decommissioning cost estimate for Big Rock and Palisades of $294 million
and $518 million (in 1997 dollars) respectively. The estimated
decommissioning costs decreased from previous estimates primarily due to a
decrease in offsite burial costs. Consumers recommended a reallocation of
its existing surcharge between the two plants on January 1, 1999 to
provide additional funds to decommission Big Rock. Consumers filed a
revision to its Post Shutdown Activities Report (formerly decommissioning
report) with the NRC to reflect the shutdown of Big Rock.

Big Rock is being decommissioned. It was closed permanently on August 29,
1997 because management determined that it would be uneconomical to
operate in an increasingly competitive environment. Consumers had
originally scheduled the plant to close May 31, 2000, at the end of the
plant's operating license. Plant decommissioning began in September 1997
and may take five to ten years to return the site to its original
condition.

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. The NRC suspended the Systematic
Assessment of Licensee Performance process for all licensees. Palisades
was to have been reevaluated in September 1998.

Palisades' temporary on-site storage pool for spent nuclear fuel is at
capacity. Consequently, Consumers is using NRC-approved steel and
concrete vaults, commonly known as "dry casks", for temporary on-site
storage.

As of September 30, 1998 Consumers had loaded 13 dry storage casks with
spent nuclear fuel at Palisades. Consumers plans to load five additional
casks at Palisades in 1999 pending approval by the NRC. In June 1997, the
NRC approved Consumers' process for unloading spent fuel from a cask at
Palisades previously discovered to have minor weld flaws. Consumers
intends to transfer the spent fuel to a new transportable cask when one is
available.

A planned outage for refueling and maintenance at Palisades was completed
June 7, 1998. Consumers replaced 60 nuclear fuel assemblies in the
plant's reactor during the outage.

The NRC requires Consumers to make certain calculations and report to it
on the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock events during its remaining license
life, considering the embrittlement of reactor vessel materials over time
due to operation in a radioactive environment. Based on continuing
analysis of data in December 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, it can operate Palisades to the end of
its license life in the year 2007 without annealing the reactor vessel.
Nevertheless, Consumers will continue to monitor the matter.

Consumers Gas Group Contingencies

Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998 Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites where Consumers has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. 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 of
which Consumers accrued a liability for $48 million. These estimates are
based on undiscounted 1998 costs. As of September 30,1998, Consumers has
a remaining accrued liability of $46 million and a regulatory asset for
approximately the same amount. Any significant change in assumptions,
such as remediation techniques, nature and extent of contamination, and
legal and regulatory requirements, could affect the estimate of remedial
action costs for the sites. According to an MPSC rate order issued in
1996, Consumers will defer and amortize, over a period of ten years,
environmental clean-up costs above the amount currently being recovered in
rates. 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 has initiated a
lawsuit against certain insurance companies regarding coverage for some or
all of the costs that it may incur for these sites.

Consumers Gas Group Matters

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
are being selected on a first-come, first-served basis, up to a limit of
100,000 customers beginning April 1, 1998. As of October 23, 1998, more
than 80,000 customers chose alternative gas suppliers, representing
approximately 24 bcf of gas load. Of these alternative gas suppliers, one
was a CMS Energy affiliate. Up to 100,000 more customers may be added
beginning April 1 of each of the next two years. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. The order allowing the implementation of this program:
1) suspends Consumers' gas cost recovery clause, effective April 1, 1998
for a three-year period, establishing a gas commodity cost at a fixed rate
of $2.84 per mcf; 2) establishes an earnings sharing mechanism that will
provide for refunds to customers if Consumers' earnings during the three-
year term of the program exceed certain pre-determined levels; and 3)
establishes a gas transportation code of conduct that addresses concerns
about the relationship between Consumers and marketers, including its
affiliated marketers. This experimental program will allow competing gas
suppliers, including marketers and brokers, to market natural gas to a
large number of retail customers in direct competition with Consumers. In
January 1998, the Attorney General, ABATE and other parties filed claims
of appeal regarding the program with the Court of Appeals. For further
information regarding the effects of the restructuring on accounting
methods, see Consumers' Gas Group Outlook - Application of SFAS 71 in the
MD&A.

Other Uncertainities

CMS Generation Environmental Matters: CMS Generation does not currently
expect to incur significant capital costs, if any, at its power facilities
to comply with current environmental regulatory standards.

Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1.340 billion for 1998, $3.585 billion for 1999 (which
includes approximately $2.2 billion for pending acquisition of the
Panhandle Companies), and $1.390 billion for 2000. For further
information, see the Capital Resources and Liquidity-Capital Expenditures
in the MD&A.

Other: As of September 30, 1998, CMS Energy and Enterprises have
guaranteed up to $415 million in contingent obligations of unconsolidated
affiliates and related parties.

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

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

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

CMS Energy: CMS Energy's Senior Credit Facilities consist of a $600
million three-year revolving credit facility and a five-year $125 million
term loan facility. Additionally, CMS Energy has unsecured lines of
credit and letters of credit in an aggregate amount of $167 million. At
September 30, 1998, the total amount utilized under the Senior Credit
Facilities was $407 million, including $47 million of contingent
obligations, and under the unsecured lines of credit and letters of credit
was $51 million.

At September 30, 1998 CMS Energy has $123 million of Series A GTNs, $125
million of Series B GTNs, $150 million of Series C GTNs, and $198 million
of Series D GTNs issued and outstanding with weighted average interest
rates of 7.8 percent, 7.9 percent, 7.7 percent, and 7.0 percent,
respectively.

In January 1998, a Delaware statutory business trust established by CMS
Energy sold $180 million of certificates due January 15, 2005 in a public
offering. In exchange for those proceeds, CMS Energy sold to the trust
$180 million aggregate principal amount of 7 percent Extendible Tenor Rate
Adjusted Securities due January 15, 2005. Net proceeds to CMS Energy from
the sale totaled $176 million.

In March 1998, CMS Energy and an affiliated business trust filed a shelf
registration statement with the SEC pursuant to Rule 415 of the Securities
Act, for the issuance and the sale of an additional $200 million of CMS
Energy Common Stock, Class G Common Stock, subordinated debentures, stock
purchase contracts, stock purchase units, and Trust Preferred Securities.

In August 1998, CMS Energy filed a shelf registration statement with the
SEC pursuant to Rule 415 of the Securities Act, for the issuance and the
sale of $400 million of General Term Notes Series E.

On November 10, 1998, CMS Energy sold 4.5 million new shares of CMS Energy
Common Stock in a block trade. The net proceeds of aproximately $208
million will be used for general corporate purposes.

The primary asset of CMS Energy Trust I is $178 million principal amount
of 7.75 percent convertible subordinated debentures due 2027 from CMS
Energy.

Consumers: At November 1, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee through June 2000, up to $900
million of short-term securities outstanding at any one time; 2)
guarantee, through 1999, up to $25 million in loans made by others to
residents of Michigan for making energy-related home improvements; and 3)
issue through June 2000, up to $900 million long-term securities with
maturities up to 30 years for refinancing purposes.

Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $130 million. These facilities are available
to finance seasonal working capital requirements and to pay for capital
expenditures between long-term financings. At September 30, 1998, a total
of $302 million was outstanding at a weighted average interest rate of 6.3
percent, compared with $389 million outstanding at September 30, 1997, at
a weighted average interest rate of 6.2 percent. In January 1998,
Consumers entered into interest rate swaps totaling $300 million. These
swap arrangements have had an immaterial effect on interest expense.

Consumers also has in place a $500 million trade receivables sale program.
At September 30, 1998 and 1997, receivables sold under the program totaled
$307 million and $250 million, respectively. Accounts receivable and
accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.

The primary asset of Consumers Power Company Financing I is $103 million
principal amount of 8.36 percent subordinated deferrable interest notes
due 2015 from Consumers. The primary asset of Consumers Energy Company
Financing II is $124 million principal amount of 8.20 percent subordinated
deferrable interest notes due 2027 from Consumers.

The following table describes the new issuances of long-term financings
which have occurred during 1998 through early November 1998.

In
Millions
- -------------------------------------------------------------------------
Month Interest Principal
Issued Maturity Rate (%) Amount Use of Proceeds
- -------------------------------------------------------------------------

Senior Notes (a) February 2008 6.375 $ 250 Pay down First
Mortgage Bonds
and general
corporate purposes
Senior Notes (a) March 2018 6.875 225 Pay down First
Mortgage Bonds and
other long-term debt
Senior Notes (a) May 2008 6.2 (b) 250 Pay down First
Mortgage Bonds,
long-term bank debt
and general corporate
purposes
Long-Term
Bank Debt May 2001-2003 6.05 (d) 225 Pay down long-term
bank debt and general
corporate purposes
Senior Notes (a) June 2018 6.5 (c) 200 Pay down First Mortgage
Bonds and general
corporate purposes
Senior Notes (e) October 2028 6.5 150 Pay down long-term
bank debt and
general corporate
purposes
- ------------------------------------------------------------------------

Total $1,300
========================================================================

(a) The Senior Notes are secured by Consumers First Mortgage Bonds issued
contemporaneously in a similar amount.
(b) The interest rate may be reset in 2003.
(c) The interest rate will be reset in June 2005.
(d) The interest rate is variable; weighted average interest rate upon
original issuance was 6.05 percent.
(e) The Senior Notes are secured by Consumers First Mortgage Bonds issued
contemporaneously in a similar amount and are insured for full debt
service.

The following table describes the retirements of long-term financings
which have occurred during 1998 through early November 1998.

In
Millions
- ----------------------------------------------------------------------
Month Interest Principal
Retired Maturity Rate (%) Amount
- ----------------------------------------------------------------------

First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
First Mortgage Bonds May 1998 6.875 43
Long-Term Bank Debt May 1998-1999 6.3 (b) 350
First Mortgage Bonds July 1999 8.875 136
First Mortgage Bonds October 1998 6.625 45
Long-Term Bank Debt November 2001-2003 6.05 50
- ----------------------------------------------------------------------

Total $1,077
======================================================================

(a) The interest rate was variable; weighted average interest rate at
December 31, 1997 was 6.4 percent.
(b) The interest rate was variable; weighted average interest rate at
March 31, 1998 was 6.3 percent.

Consumers had unsecured, variable rate long-term bank debt with an
outstanding balance at September 30, 1998 and 1997 of $225 million and
$400 million, respectively. At September 30, 1998 and 1997 the debt
carried weighted average interest rates of 6.1 percent and 6.3 percent,
respectively. In February 1998, Consumers retired $50 million of its $400
million unsecured long-term bank debt. In May 1998, Consumers refinanced
the remaining $350 million unsecured long-term bank debt, in part with
$225 million unsecured long-term bank debt. To cover the remaining $125
million of bank debt refinancing, in May 1998 Consumers issued $250
million of senior notes due 2008, at an interest rate of 6.2 percent. The
$125 million balance of senior notes due 2008 was used for repurchasing
$36 million of 7.375 percent First Mortgage Bonds and for general
corporate purposes.

Under the provisions of its Articles of Incorporation at September 30,
1998, Consumers had $295 million of unrestricted retained earnings
available to pay common dividends. In October 1998, Consumers declared a
$68 million common dividend to be paid in November 1998.

4: Earnings Per Share and Dividends

Earnings per share attributable to Common Stock for the three, nine and
twelve month periods ended September 30, 1998 reflect the performance of
the Consumers Gas Group. The Class G Common Stock has participated in
earnings and dividends from its original issue date in July 1995. The
allocation of earnings 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 attributable to the Outstanding Shares are equal to Consumers Gas
Group net income multiplied by a fraction; the numerator is the weighted
average number of Outstanding Shares during the period and the denominator
is the weighted average number of Outstanding Shares and Retained Interest
Shares during the period. The earnings attributable to Class G Common
Stock on a per share basis for the nine months ended September 30, 1998
and 1997 are based on 25.38 percent and 24.65 percent, respectively, of
the income of Consumers Gas Group.

Computation of Earnings Per Share:

In Millions, Except Per Share Amounts
- ------------------------------------------------------------------------------
Three Months Nine Months Twelve Months
Ended Ended Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------
(b) (a) (b) (a) (b)
Net Income Applicable
to Basic and
Diluted EPS
Consolidated
Net Income $ 81 $ 60 $234 $185 $293 $223
==================================================
Net Income
Attributable to
Common Stocks:
CMS Energy -
Basic EPS $ 83 $ 62 $226 $176 $279 $210
Add conversion of
7.75% Trust
Preferred
Securities
(net of tax) 2 2 6 2 9 2
----------------------------------------------------

CMS Energy -
Diluted EPS $ 85 $ 64 $232 $178 $288 $212
====================================================
Class G:
Basic and
Diluted EPS $ (2) $ (2) $ 8 $ 9 $ 14 $ 13
====================================================

Average Common Shares
Outstanding Applicable
to Basic and
Diluted EPS
CMS Energy:
Average Shares -
Basic 102 96 101 95 101 95
Add conversion
of 7.75% Trust
Preferred
Securities 4 4 4 1 4 1
Options-Treasury
Shares 1 1 1 1 1 1
----------------------------------------------------

Average Shares -
Diluted 107 101 106 97 106 97
====================================================

Class G:
Average Shares
Basic and
Diluted 8 8 8 8 8 8
====================================================

Earnings Per Average
Common Share
CMS Energy:
Basic $ .81 $ .64 $ 2.23 $1.85 $2.77 $2.22
Diluted $ .80 $ .63 $ 2.19 $1.83 $2.73 $2.20
Class G:
Basic and
Diluted $(.16) $(.21) $1.04 $1.13 $1.73 $1.57
================================================================================

(a) Includes the cumulative effect of an accounting change in the first
quarter of 1998 which increased net income attributible to CMS Energy
Common Stock $43 million ($.40 per share - basic and diluted) and Class G
Common Stock $12 million ($.36 per share - basic and diluted).

(b) Restated; see Note 1.

In February and May 1998, CMS Energy paid dividends of $.30 per share on
CMS Energy Common Stock and $.31 per share on Class G Common Stock. In
August 1998, CMS Energy paid dividends of $.33 per share on CMS Energy
Common Stock and $.325 per share on Class G Common Stock. In October 1998,
the Board of Directors declared a quarterly dividend of $.33 per share on
CMS Energy Common Stock and $ .325 per share on Class G Common Stock to be
paid in November 1998.

5: Risk Management Activities and Derivatives Transactions

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

Derivative instruments contain credit risk if the counter parties,
including financial institutions and energy marketers, fail to perform
under the agreements. CMS Energy minimizes such risk by performing
financial credit reviews using, among other things, publicly available
credit ratings of such counter parties. Nonperformance by counter parties
is not expected to have a material adverse impact on CMS Energy's
financial position, liquidity, or results of operations.

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

Consumers uses gas forward contracts and electricity option contracts to
limit its risk associated with gas and electricity price increases. In
both the gas forward contracts and the electricity option contracts, it is
management's intent to take physical delivery of the commodities. For gas
forward contracts, Consumers is obligated to take physical delivery of the
gas and would incur a significant penalty for nonperformance. At
September 30, 1998, Consumers had an exposure to gas price increases if
the cost was to exceed $2.84 per mcf for the following volumes: 5 percent
of its 1998 requirements; 40 percent of its 1999 requirements; and 65
percent of its 2000 requirements. Additional forward contract coverage is
currently under review. The gas forward contracts currently in place were
consummated at prices less than $2.84 per mcf. The contracts are being
used to protect against gas price increases in a three-year experimental
gas program where Consumers is recovering from its customers $2.84 per mcf
for gas delivered.

Consumers enters into electricity option contracts to insure a reliable
source of capacity to meet its customers' electricity requirements and to
limit its risk associated with electricity price increases. It is
management's intent to take physical delivery of the commodity. Consumers
continuously evaluates its daily capacity needs and sells the option
contracts, if marketable, when it has excess daily capacity. Consumers'
maximum exposure associated with these options is limited to premiums
paid.

Consumers purchased $5 million of options to insure a reliable source of
capacity during the summer months of 1998. As a result of weather
conditions and fluctuations in the price of electricity, some options were
sold to third parties for $11 million during June, July, and August 1998.
As of September 30, 1998, all of the remaining options had expired. The
costs relating to the expired options and income received from the sale of
options were reflected as purchased power costs.

CMS Oil and Gas has one arrangement which is used to fix the prices that
CMS Oil and Gas will pay to supply gas to the MCV for the years 2001
through 2006 by purchasing the economic equivalent of 10,000 MMBtu per day
at a fixed price, escalating at 8 percent per year thereafter, starting at
$2.82 per MMBtu in 2001. The settlement periods are each a one-year
period ending December 31, 2001 through 2006 on 3.65 million MMBtu. If
the floating price, essentially the then-current Gulf Coast spot price,
for a period is higher than the fixed price, the seller pays CMS Oil and
Gas the difference, and vice versa. If a party's exposure at any time
exceeds $5 million, that party is required to obtain a letter of credit in
favor of the other party for the excess over $5 million and up to $10
million. At September 30, 1998, no letter of credit was posted by either
party to the agreement. As of September 30, 1998, the fair value of this
contract reflected payment due from CMS Oil and Gas of $13 million.

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

Interest Rate Hedges: CMS Energy and some of its subsidiaries enter into
interest rate swap agreements to exchange variable rate interest payment
obligations to fixed rate obligations without exchanging the underlying
notional amounts. These agreements convert variable rate debt to fixed
rate debt to reduce the impact of interest rate fluctuations. The
notional amounts parallel the underlying debt levels and are used to
measure interest to be paid or received and do not represent the exposure
to credit loss. The notional amount of CMS Energy's and its subsidiaries'
interest rate swaps was $923 million at September 30, 1998. In October
1998, Consumers unwound an interest rate guarantee of $145 million
associated with the issuance of $150 million senior notes. The effective
rate of the debt is 7 percent taking into consideration the issuance
costs, interest rate guarantee and insurance costs. The difference
between the amounts paid and received under the swaps is accrued and
recorded as an adjustment to interest expense over the life of the hedged
agreement.

Foreign Exchange Hedges: CMS Energy uses forward exchange contracts and
collared options to hedge certain receivables, payables, long-term debt
and equity value relating to foreign investments. The purpose of CMS
Energy's foreign currency hedging activities is to protect the company
from the risk that U.S. dollar net cash flows resulting from sales to
foreign customers and purchases from foreign suppliers and the repayment
of non-U.S. dollar borrowings as well as equity reported on the company's
balance sheet, may be adversely affected by changes in exchange rates.
These contracts do not subject CMS Energy to risk from exchange rate
movements because gains and losses on such contracts offset losses and
gains, respectively, on assets and liabilities being hedged. The notional
amount of the outstanding foreign exchange contracts was $845 million at
September 30, 1998, which includes $550 million and $250 million for
Australian and Brazilian foreign exchange contracts, respectively.

6: Subsequent Event

The Panhandle Companies are primarily engaged in the interstate
transportation and storage of natural gas. The assets to be acquired
include 1,400 miles of mainline gas pipeline extending from the Texas Gulf
Coast to Michigan and 1,300 miles of mainline gas pipeline extending from
the Kansas/Oklahoma mid-continent to Michigan, 340 miles of pipeline in
the offshore Gulf of Mexico, 70 billion cubic feet of underground gas
storage facilities, a liquified natural gas port, and unloading and
regasification facilities.

Closing of the transaction is subject to Hart-Scott-Rodino pre-merger
notification clearance. The Agreement is subject to termination upon
failure of CMS Energy to satisfy its financing contingency. The Agreement
also provides that if, as a result of CMS Energy's continuing due
diligence investigation, CMS Energy learns of material facts not
previously disclosed or inconsistent with representations and warranties
made in the Agreement, CMS Energy may, on or prior to November 23, 1998,
notify PanEnergy of its intent to terminate the Agreement and the
Agreement will terminate unless PanEnergy corrects the asserted
misrepresentations within 30 days.

CMS Energy expects to have $1.9 billion of bridge financing commitments
available to fund the purchase price and it anticipates permanent
financing of the acquisition at or near closing with approximately $900
million from the sale of common stock and/or securities convertible into
common stock by CMS Energy and approximately $1 billion from the issuance
of debt securities by the Panhandle Companies. If CMS Energy is unable to
provide the appropriate financing commitments by November 23, 1998 or is
unable to close the purchase when it otherwise would be obligated to
close, it must pay PanEnergy a $75 million termination fee. The closing
is scheduled for January 4, 1999, but may be delayed by mutual agreement.

<PAGE>
<PAGE> 48

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying consolidated balance sheets of
CMS ENERGY CORPORATION (a Michigan corporation) and subsidiaries as of
September 30, 1998 and 1997, the related consolidated statements of income
and common stockholders' equity for the three-month, nine-month, and
twelve-month periods then ended, and the related consolidated statements
of cash flows for the nine-month and twelve-month periods then ended.
These financial statements are the responsibility of the Company's
management.

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

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

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statement of
preferred stock of CMS Energy Corporation and subsidiaries as of December
31, 1997, 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 July 27, 1998, 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, 1997, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

Arthur Andersen LLP

Detroit, Michigan,
November 10, 1998.

<PAGE> 50

Consumers Energy Company
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A and other
parts of Consumers' 1997 Form 10-K. This MD&A also refers to, and in some
sections specifically incorporates by reference, Consumers' Condensed
Notes to Consolidated Financial Statements and should be read in
conjunction with such Statements and Notes. This report contains forward-
looking statements, as defined by the Private Securities Litigation Reform
Act of 1995, that include without limitation, discussions as to
expectations, beliefs, plans, objectives and future financial performance,
or assumptions underlying or concerning matters discussed in this report.
Refer to the Forward-Looking Information section of this MD&A for 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.

Results of Operations

In Millions
September 30 1998 1997 Change
----- ----- ------
Three months ended $ 77 $ 71 $ 6
Nine months ended 239 212 27
Twelve months ended 311 269 42

Net income available to common stockholders was $77 million for the third
quarter of 1998 compared with $71 million for the same 1997 period. The
improved net income reflects increased electric and gas deliveries, the
operation of the gas customer choice program (see note 2, Gas Rate
Matters), along with increased revenues from gas retail and wholesale
services activities. Net income available to common stockholders after
the cumulative effect of a change in accounting for property taxes was
$239 million for the first nine months of 1998 compared with $212 million
for the same 1997 period. The increase in earnings for the first nine
months of 1998 reflects revised accounting to recognize property tax
expense on the fiscal year basis of the taxing units instead of on a
calendar year basis. This one-time change in accounting for property
taxes resulted in a benefit of $66 million ($43 million after-tax).
Earnings for the first nine months of 1998 also reflect the recognition of
a $37 million dollar loss ($24 million after tax) for the underrecovery of
power costs under the PPA. Net income available to common stockholders
was $311 million for the twelve months ended September 30,1998 compared
with $269 million for the same 1997 period. The increase in earnings for
this twelve months reflects the change in accounting for property taxes
implemented during the first half of 1998 as discussed above. In
addition, the improved net income for the twelve months ended
September 30, 1998 reflects an adjustment of prior years' income taxes
associated with non-taxable earnings on nuclear decommissioning trust
funds of $9 million. Partially offsetting these increases were the
recognition, in the first half of 1998, of the loss associated with the
underrecovery of power costs under the PPA as discussed above, and
decreased gas deliveries due to warmer weather during the first half of
1998. The first nine months of 1998 were the fourth warmest since 1864.
For further information concerning results of operations, see the Electric
and Gas Utility Results of Operations sections of this MD&A and Power
Purchases from the MCV Partnership in Note 2.

ELECTRIC UTILITY RESULTS OF OPERATIONS

Electric Pretax Operating Income:

In Millions
September 30 1998 1997 Change
----- ----- ------
Three months ended $ 153 $ 132 $ 21
Nine months ended 378 342 36
Twelve months ended 468 423 45

Electric pretax operating income for all the above periods ended September
30, 1998 benefitted from increased deliveries compared to the same periods
in 1997. These increases were partly offset by increased general taxes
and depreciation associated with additional plant investment. Electric
pretax operating income for the three months ended had increased operation
and maintenance costs while the twelve months ended September 30, 1998
benefited from controlling operation expenses. The following table
quantifies these impacts on pretax operating income.

In Millions
Three Months Nine Months Twelve Months
Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to
Prior Year 1998 vs 1997 1998 vs 1997 1998 vs 1997
------- ------- -------
Deliveries (including special
contract discounts) $ 38 $ 50 $ 51
Other non-commodity revenue (1) (2) (3)
Operations and maintenance (11) (1) 15
General taxes, depreciation
and other (5) (11) (18)
------ ------ ------
Total change $ 21 $ 36 $ 45
====== ====== ======

Electric Deliveries: Total electric deliveries increased 10.1 percent for
the three months ended September 30, 1998 over the same period in 1997.
The increase includes a 5.8 percent increase in deliveries to ultimate
customers, primarily within the residential and commercial classes and an
increase in sales between utility systems and wholesale customer
deliveries. For the nine months ended September 30, 1998, total electric
deliveries increased 8.2 percent over the comparable 1997 period.
Deliveries to ultimate customers were up 3.4 percent, with the remaining
change attributable to an increase in sales between utility systems and
wholesale deliveries. For the twelve months ended September 30, 1998,
total electric deliveries increased 8.0 percent over the comparable 1997
period. The increase is primarily attributable to an increase in sales
between utility systems and a 2.7 percent increase in deliveries to
ultimate customers.

Power Costs:

In Millions
September 30 1998 1997 Change
----- ----- ------
Three months ended $ 315 $ 296 $ 19
Nine months ended 899 847 52
Twelve months ended 1,190 1,132 58

Uncertainties: Consumers' financial position may be affected by a number
of trends or uncertainties that have had, or Consumers reasonably expects
will have, a materially favorable or unfavorable impact on net sales,
revenues, or income from continuing electric operations. Such
uncertainties are: 1) environmental liabilities arising from compliance
with various federal, state and local environmental laws and regulations,
including potential liability or expenses relating to the Michigan Natural
Resources and Environmental Protection Act and Superfund; 2) capital
expenditures for compliance with the Clean Air Act; 3) suits by various
parties relating to the effect of so-called stray voltage on certain
livestock; 4) suits by two independent power producers alleging antitrust
violations and economic losses due to special electric contracts signed by
Consumers; 5) cost recovery relating to the MCV Facility and nuclear plant
investments and an experimental direct-access program; 6) electric
industry restructuring; 7) after-tax cash underrecoveries associated with
power purchases from the MCV Partnership; and 8) Big Rock decommissioning
issues and ongoing issues relating to the storage of spent fuel and the
operating life of Palisades. For detailed information about these trends
or uncertainties see Note 2, Uncertainties, "Electric Contingencies-
Electric Environmental Matters," "Electric Contingencies-Stray Voltage,"
"Electric Contingencies-Anti-Trust," "Electric Rate Matters-Electric
Proceedings," "Electric Rate Matters-Electric Restructuring," "Other
Electric Uncertainties-The Midland Cogeneration Venture-Power Purchases
from the MCV Partnership," and "Other Electric Uncertainties-Nuclear
Matters," incorporated by reference herein.

GAS UTILITY RESULTS OF OPERATIONS

Gas Pretax Operating Income:

In Millions
September 30 1998 1997 Change
----- ----- ------
Three months ended $ 6 $ (1) $ 7
Nine months ended 81 100 (19)
Twelve months ended 134 142 (8)

Gas pretax operating income increased in the three month period ended
September 30, 1998 as a result of increased gas deliveries, operation of
the gas customer choice program (see note 2, Gas Rate Matters) and
increased revenues from gas retail and wholesale services. The change in
general taxes and depreciation for the three month period ended
September 30, 1998 is primarily a timing issue. Warmer temperatures
during the winter heating seasons resulted in reduced gas deliveries which
decreased gas pretax operating income in the nine month and twelve month
periods ended September 30,1998. The decreased gas pretax operating
income for the nine month period ended September 30, 1998 also reflects
higher operations expense. In part, the higher operations expense
reflects the absence of 1997 non-recurring expense reductions for
uncollectible accounts and injuries and damages reserves. Gas pretax
operating income for the three month and twelve month periods ended
September 30, 1998 benefited from controlling operations and maintenance
expenses. Gas wholesale and retail service revenues were down for the
twelve month period ended September 30, 1998 due to the elimination of
surcharges related to past conservation programs. The benefit to gas
pretax operating income from reduced costs in general taxes and
depreciation for the nine month and twelve month periods ended
September 30, 1998 is primarily a timing issue. The following table
quantifies these impacts on pretax operating income.

In Millions
Three Months Nine Months Twelve Months
Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
Change Compared to
Prior Year 1998 vs 1997 1998 vs 1997 1998 vs 1997
----------- ----------- ------------
Gas deliveries $ 5 $(14) $(15)
Gas wholesale and retail
service activities 3 - (2)
Operations and maintenance 1 (8) 6
General taxes, depreciation
and other (2) 3 3
---- ---- ----
Total change $ 7 $(19) $(8)
==== ==== ====

Gas Deliveries: System deliveries for the three month period ended
September 30, 1998, excluding miscellaneous transportation, totaled 31
bcf, an increase of 1 bcf or 3 percent compared to the three month period
ended September 30, 1997. Deliveries for the nine month period ended
September 30, 1998, excluding miscellaneous transportation, totaled 203
bcf, a decrease of 29 bcf or 13 percent compared to the nine month period
ended September 30, 1997. For the twelve month period ended September 30,
1998, deliveries excluding miscellaneous transportation, totaled 311 bcf,
a decrease of 31 bcf or 9 percent compared to the twelve month period
ended September 30, 1997. The decreased deliveries for the nine month and
twelve month periods reflect warmer temperatures primarily for the first
quarter of 1998. Miscellaneous transportation deliveries for the three
month period ended September 30, 1998 totaled 11 bcf, a decrease of 8 bcf
or 40 percent compared to the three month period ended September 30, 1997.
Miscellaneous transportation deliveries for the nine month period ended
September 30, 1998, totaled 47 bcf, a decrease of 14 bcf or 23 percent
compared to the nine month period ended September 30, 1997. Miscellaneous
transportation deliveries for the twelve month period ended September 30,
1998, totaled 65 bcf, a decrease of 18 bcf or 22 percent compared to the
twelve month period ended September 30, 1997.

Cost of Gas Sold:

In Millions
September 30 1998 1997 Change
---- ---- ----
Three months ended $ 39 $ 39 $ -
Nine Months ended 377 472 (95)
Twelve months ended 600 718 (118)

Consumers uses gas forward contracts to limit its risk associated with gas
price increases. It is management's intent to take physical delivery of
the commodity. For gas forward contracts, Consumers is obligated to take
physical delivery of the gas and would incur a significant penalty for
nonperformance. At September 30, 1998, Consumers had an exposure to gas
price increases if the cost was to exceed $2.84 per mcf for the following
volumes: 5 percent of its 1998 requirements; 40 percent of its 1999
requirements; and 65 percent of its 2000 requirements. Additional forward
contract coverage is currently under review. The gas forward contracts
currently in place were consummated at prices less than $2.84 per mcf.
The contracts are being used to protect against gas price increases in a
three-year experimental gas program where Consumers is recovering from its
customers $2.84 per mcf for gas delivered.

Capital Resources and Liquidity

CASH POSITION, INVESTING AND FINANCING

Operating Activities: Consumers derives cash from the sale and
transportation of natural gas and the generation, transmission and sale of
electricity. Cash from operations totaled $452 million and $458 million
for the first nine months of 1998 and 1997, respectively. The $6 million
decrease resulted primarily from the timing of cash payments related to
normal operations. Other items included in income but which had no effect
on cash flow were a one-time change in accounting for property taxes
resulting in a $66 million ($43 million after-tax) gain and the
recognition of a $37 million loss ($24 million after-tax) for the
underrecovery of power costs under the PPA. Consumers uses operating cash
primarily to maintain and expand electric and gas systems, to retire
portions of long-term debt, and to pay dividends.

Investing Activities: Cash used in investing activities totaled $(235)
million and $(277) million for the first nine months of 1998 and 1997,
respectively. The change of $(42) million was primarily the result of
receiving $27 million from the sale of two partnerships, $12 million
distribution from FMLP and $43 million from the nuclear decommissioning
trust funds previously collected from electric customers for
decommissioning Big Rock, offset by the payment of $39 million in cost of
plant retired.

Financing Activities: Cash used in financing activities totaled $(196)
and $(176) million for the first nine months of 1998 and 1997,
respectively. The change of $20 million is primarily the result of a net
increase in cash of $79 million due to refinancing and issuance of
Consumers' debt and $8 million decrease in capital lease payments.
Offsetting this increase was a $60 million increase in the payment of
common stock dividends and a $50 million return of paid in capital to
Consumers' common stockholder.

Consumers has FERC authorization to issue securities and guarantees.
Consumers has a credit facility, lines of credit and a trade receivable
sale program in place as anticipated sources of funds needed to fulfill,
in whole or in part, material commitments for capital expenditures. For
detailed information about these source of funds, see "Authorization" and
"Short-Term Financings" in Note 3.

Outlook

CAPITAL EXPENDITURES OUTLOOK

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 1998(b) 1999 2000
---- ---- ----
Consumers
Construction $388 $465 $490
Nuclear fuel lease 54 20 -
Capital leases other
than nuclear fuel 13 17 17
Michigan Gas Storage 3 3 3
---- ---- ----
$458 $505 $510
==== ==== ====

Electric utility operations (a) $341 $380 $385
Gas utility operations (a) 117 125 125
---- ---- ----
$458 $505 $510
==== ==== ====

(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.

(b) Includes actual amounts incurred during the first three quarters and
estimate for fourth quarter.

ELECTRIC BUSINESS OUTLOOK

Restructuring: Consumers' retail electric business is affected by
competition. To meet its challenges, Consumers entered into multi-year
contracts with some of its largest industrial customers to serve certain
facilities. The MPSC has approved these contracts as part of its phased
introduction to competition. Certain customers have the option of
terminating their contracts early.

As discussed in the Form 10-K, since June 1997 several orders have been
issued and numerous appeals are pending at the Court of Appeals relating
to the restructuring of the electric utility industry. Consumers cannot
predict the outcome or timing of these matters. For material changes
relating to the restructuring of the electric utility industry see
"Electric Rate Matters - Electric Restructuring" in Note 2, incorporated
by reference herein.

GAS BUSINESS OUTLOOK

Other Matters

NEW ACCOUNTING STANDARDS

In 1998, the FASB issued SFAS 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits. This standard requires expanded
disclosure effective for 1998. Also in 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,
which will be effective for 1999. Consumers does not expect the
application of these standards to materially affect its financial
position, liquidity or results of operations. In addition, in 1998, the
FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, which requires that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. Consumers has not yet quantified the
impacts of adopting SFAS 133 on its financial statements and has not
determined the timing of or method of adoption.

YEAR 2000 COMPUTER MODIFICATIONS

Consumers uses software and related technologies throughout its businesses
that the year 2000 date change will affect and, if uncorrected, could
cause Consumers to, among other things, issue inaccurate bills, report
inaccurate data, incur generating plant outages, or create energy delivery
uncertainties. In 1995, Consumers established a Year 2000 Program to
ensure the continued operation of the company at the turn of the century.
Consumers efforts included dividing the programs requiring modification
between critical and noncritical programs. A formal methodology was
established to identify critical business functions and risk scenarios,
develop test plans and expected results, and execute tests. Consumers
Year 2000 Program involves an aggressive, comprehensive, four-phase
approach, including impact analysis, remediation, compliance review, and
monitoring/contingency planning.

The impact analysis phase includes the analysis, inventory, prioritization
and remediation plan development for all technology essential to core
business processes. The remediation phase involves testing and
implementation of remediation technology. A mainframe test environment
was established in 1997 and a test environment for network servers and
stand-alone personal computers was established in mid-1998. All essential
corporate business systems have been, or will be, tested in this test
environment. The compliance review phase includes the assembling of
compliance documentation for each technology component as remediation
efforts are completed, and additional verification testing of essential
technology where necessary. The monitoring/contingency planning phase
includes compliance monitoring to ensure that year 2000 problems are not
reintroduced into remediated technology, as well as the development of
contingency plans to address reasonably likely risk scenarios.

State of Readiness: Year 2000 issues are being managed by the major
departments of Consumers. Traditional information technology consists of
essential business systems such as payroll, billing and purchasing, and
infrastructure, including mainframe, wide area network, local area
networks, personal computers, radios and telephone systems. Process
control computers and embedded systems contained in buildings, equipment
and energy supply and delivery systems are also being managed.

Essential goods and services for Consumers are electric fuel supply, gas
fuel supply, independent electric power supplies, facilities, electronic
commerce, telecommunications network carriers, financial institutions,
purchasing vendors, and software and hardware technology vendors.
Consumers is addressing the preparedness of these businesses and their
risk through readiness assessment questionnaires.

The status of Consumers Year 2000 Program by phase, with target dates for
completion and current percentage complete based upon software and
hardware inventory counts as of September 30, 1998, is as follows:

Monitoring/
Impact Compliance Contingency
Analysis Remediation Review Planning
---------- ----------- ---------- ----------
Business System (a) (b) (a) (b) (a) (b) (a) (b)
Electric 3/98 100% 6/99 53% 6/99 22% 6/99 10%
Gas 3/98 100% 6/99 66% 6/99 3% 6/99 10%
Corporate 3/98 100% 6/99 62% 6/99 3% 6/99 10%
Operating
Services 3/98 100% 6/99 63% 6/99 40% 6/99 10%
Essential Goods
& Services 6/99 35% NA 9/99 0% 6/99 10%

(a) Target date for completion.
(b) Current percentage complete.

Cost of Remediation: Consumers will expense anticipated spending for
modifications as incurred, while capitalizing and amortizing the cost for
new software over its useful life. The total estimated cost of the Year
2000 Program is approximately $22 million. Costs incurred through
September 30, 1998 are $14 million. Consumers annual Year 2000 Program
costs represent approximately 1% to 10% of a typical Consumers annual
information technology budget. Year 2000 compliance work is being funded
primarily from operations. The devotion of Consumers resources to the
year 2000 problem has not deferred any material information technology
projects which could have a material adverse affect on Consumers
financial position, liquidity or results of operations.

Risk Assessment: Consumers considers the most reasonably likely worst-
case scenarios to be: (1) a lack of communications to dispatch crews to
electric or gas emergencies, (2) a lack of communications to contact
generating units to balance electrical load, and (3) power shortages due
to the lack of stability of the regional or national electric grid. These
scenarios could result in Consumers not being able to generate or
distribute enough energy to meet customer demand for a period of time,
which could result in lost sales and profits. Year 2000 remediation and
testing efforts are concentrating on these risk areas and will continue
through the end of 1999. Contingency plans will be revised and executed
to further mitigate the risks associated with these scenarios.

Contingency Plans: Contingency planning efforts are currently underway
for all business systems and providers of essential goods and services.
Extensive contingency plans are already in place in many locations and are
currently being revised for reasonably likely worst-case scenarios related
to year 2000 issues. In many cases, Consumers already has arrangements
with multiple vendors of similar goods and services so that in the event
that one cannot meet its commitments, others can. Current contingency
plans provide for manual dispatching of crews and manual coordination of
electrical load balancing, and are being revised to provide for radio or
satellite communications. Coordinated contingency planning efforts are in
progress with the North American Electric Reliability Council and its
Regional Reliability Councils to minimize risk to electric generation,
transmission and distribution systems.

Expectations: Consumers does not expect that the cost of these
modifications will materially affect its financial position, liquidity, or
results of operations. There can be no guarantee, however, that these
costs, plans or time estimates will be achieved, and actual results could
differ materially.

Because of the integrated nature of Consumers business with other energy
companies, utilities, jointly owned facilities operated by other entities,
and business conducted with suppliers and large customers, Consumers may
be indirectly affected by year 2000 compliance complications. At this
time, Consumers is unable to anticipate the magnitude of the operational
or financial impact on Consumers of year 2000 issues.

Forward-Looking Information

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

Important factors that could cause actual results or outcomes to differ
are set forth in Consumers' 1997 Form 10-K, "Management's Discussion and
Analysis-Forward-Looking Information."

<PAGE>
<PAGE> 60

<TABLE>
Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
In Millions
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Electric $ 729 $ 670 $1,990 $1,888 $2,617 $2,507
Gas 117 110 716 828 1,092 1,230
Other 14 19 37 39 48 49
------ ------ ------ ------ ------ ------
860 799 2,743 2,755 3,757 3,786
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 95 80 246 220 323 297
Purchased power - related parties 143 151 433 447 585 600
Purchased and interchange power 77 65 220 180 282 235
Cost of gas sold 39 39 377 472 600 718
Other 147 144 409 404 548 566
------ ------ ------ ------ ------ ------
501 479 1,685 1,723 2,338 2,416
Maintenance 48 38 126 119 177 176
Depreciation, depletion and amortization 93 88 291 286 395 384
General taxes 47 45 146 148 199 198
------ ------ ------ ------ ------ ------
689 650 2,248 2,276 3,109 3,174
------ ------ ------ ------ ------ ------
Pretax Operating Income
Electric 153 132 378 342 468 423
Gas 6 (1) 81 100 134 142
Other 12 18 36 37 46 47
------ ------ ------ ------ ------ ------
171 149 495 479 648 612
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Loss on MCV power purchases - - (37) - (37) -
Dividends and interest from affiliates 4 11 11 20 15 24
Accretion income 1 2 5 6 7 8
Accretion expense (4) (4) (12) (13) (16) (14)
Other, net 1 1 3 1 - (3)
------ ------ ------ ------ ------ ------
2 10 (30) 14 (31) 15
------ ------ ------ ------ ------ ------
Interest Charges
Interest on long-term debt 35 34 103 103 137 138
Other interest 9 9 28 25 39 33
Capitalized interest - - - - (1) -
------ ------ ------ ------ ------ ------
44 43 131 128 175 171
------ ------ ------ ------ ------ ------

Net Income Before Income Taxes 129 116 334 365 442 456
Income Taxes 43 36 111 126 137 151
------ ------ ------ ------ ------ ------

Net Income before cumulative effect of change
in accounting principle 86 80 223 239 305 305
Cumulative effect of change in accounting for
property taxes, net of $23 tax (Note 1) - - 43 - 43 -
------ ------ ------ ------ ------ ------

Net Income 86 80 266 239 348 305
Preferred Stock Dividends 5 6 14 20 19 27
Preferred Securities Distributions 4 3 13 7 18 9
------ ------ ------ ------ ------ ------

Net Income Available to Common Stockholder $ 77 $ 71 $ 239 $ 212 $ 311 $ 269
====== ====== ====== ====== ====== ======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 61

<TABLE>
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>

Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997
---- ---- ---- ----
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 266 $239 $ 348 $ 305
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $38, $37, $51 and $49, respectively) 291 286 395 384
Loss on MCV power purchases 37 - 37 -
Capital lease and other amortization 27 35 36 42
Deferred income taxes and investment tax credit 21 11 24 32
Accretion expense 12 13 16 14
Accretion income - abandoned Midland project (5) (6) (7) (8)
Undistributed earnings of related parties (37) (35) (48) (45)
MCV power purchases (48) (47) (63) (67)
Cumulative effect of accounting change (66) - (66) -
Changes in other assets and liabilities (46) (38) 81 13
---- ---- ---- ----
Net cash provided by operating activities 452 458 753 670
---- ---- ---- ----
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease) (258) (260) (358) (371)
Associated company preferred stock redemption 50 50 50 50
Proceeds from nuclear decommissioning trust funds 43 - 43 -
Proceeds from the sale of two partnerships 27 - 27 -
Proceeds from FMLP 12 - 12 -
Investment in Electric Restructuring Implementatioin Plan (9) - (10) -
Investments in nuclear decommissioning trust funds (38) (37) (51) (49)
Cost to retire property, net (65) (26) (68) (37)
Other 3 (4) 4 (4)
---- ---- ---- ----
Net cash used in investing activities (235) (277) (351) (411)
---- ---- ---- ----
Cash Flows from Financing Activities
Proceeds from senior notes 914 - 914 -
Retirement of bonds and other long-term debt (759) (51) (759) (51)
Payment of common stock dividends (173) (113) (278) (199)
Increase (decrease) in notes payable, net (75) 56 (87) 49
Contribution from stockholder (50) - (100) -
Payment of capital lease obligations (26) (34) (36) (42)
Payment of preferred stock dividends (14) (23) (19) (29)
Preferred securities distributions (13) (7) (18) (9)
Retirement of preferred stock - (120) - (120)
Proceeds from Trust Preferred Securities - 116 - 116
Proceeds from bank loans - - - 23
---- ---- ---- ----
Net cash provided by (used in) financing activities (196) (176) (383) (262)
---- ---- ---- ----
Net Increase (Decrease) in Cash and Temporary Cash Investments 21 5 19 (4)

Cash and Temporary Cash Investments, Beginning of Period 7 4 9 13
---- ---- ---- ----
Cash and Temporary Cash Investments, End of Period $ 28 $ 9 $ 28 $ 9
==== ==== ==== ====

Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997
---- ---- ---- ----
In Millions
Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized) $ 128 $ 129 $ 165 $ 164
Income taxes paid (net of refunds) 113 122 108 135
Non-cash transactions
Nuclear fuel placed under capital lease $ 21 $ 4 $ 21 $ 24
Other assets placed under capital leases 11 5 12 6
==== ==== ==== ====
<FN>

All highly liquid investments with an original maturity of three months or less are considered cash equivalents.
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 63

<TABLE>
Consumers Energy Company
Consolidated Balance Sheets
<CAPTION>
ASSETS September 30 September 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant (At original cost)
Electric $6,641 $6,491 $6,447
Gas 2,328 2,322 2,292
Other 26 24 25
------ ------ ------
8,995 8,837 8,764
Less accumulated depreciation, depletion and amortization 4,748 4,603 4,540
------ ------ ------
4,247 4,234 4,224
Construction work-in-progress 165 145 146
------ ------ ------
4,412 4,379 4,370
------ ------ ------
Investments
Stock of affiliates 227 278 258
First Midland Limited Partnership (Note 2) 237 242 239
Midland Cogeneration Venture Limited Partnership (Note 2) 199 171 163
Other - 7 7
------ ------ ------
663 698 667
------ ------ ------
Current Assets
Cash and temporary cash investments at cost, which approximates market 28 7 9
Accounts receivable and accrued revenue, less allowances
of $5, $6 and $6, respectively (Note 3) - 82 47
Accounts receivable - related parties 77 62 87
Inventories at average cost
Gas in underground storage 276 197 253
Materials and supplies 65 63 69
Generating plant fuel stock 29 35 26
Postretirement benefits 25 25 25
Deferred income taxes - 22 9
Prepayments and other 124 161 51
------ ------ ------
624 654 576
------ ------ ------
Non-current Assets
Nuclear decommissioning trust funds 510 486 478
Postretirement benefits 380 404 411
Abandoned Midland Project 77 93 98
Other 250 235 238
------ ------ ------
1,217 1,218 1,225
------ ------ ------
Total Assets $6,916 $6,949 $6,838
====== ====== ======
</TABLE>

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in capital 402 452 502
Revaluation capital 57 58 45
Retained earnings since December 31, 1992 429 363 396
------ ------ ------
1,729 1,714 1,784
Preferred stock 238 238 238
Company-obligated mandatorily redeemable preferred securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 120 120
Long-term debt 1,977 1,369 1,462
Non-current portion of capital leases 77 74 82
------ ------ ------
4,241 3,615 3,786
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 146 579 483
Notes payable 302 377 389
Accounts payable 160 171 140
Accrued taxes 109 244 97
Accounts payable - related parties 72 79 75
Power purchases (Note 2) 47 47 47
Accrued interest 26 32 25
Accrued refunds 12 12 7
Deferred income taxes 4 - -
Other 143 136 139
------ ------ ------
1,021 1,677 1,402
------ ------ ------
Non-current Liabilities
Deferred income taxes 661 688 630
Postretirement benefits 467 489 495
Power purchases (Note 2) 134 133 144
Deferred investment tax credit 142 149 152
Regulatory liabilities for income taxes, net 83 54 86
Other 167 144 143
------ ------ ------
1,654 1,657 1,650
------ ------ ------
Commitments and Contingencies (Note 2)

Total Stockholders' Investment and Liabilities $6,916 $6,949 $6,838
====== ====== ======

<FN>
(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36% subordinated
deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company Financing II is $124
million principal amount of 8.20% subordinated deferrable interest notes due 2027 from Consumers.

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

</TABLE>
<PAGE>
<PAGE> 65

<TABLE>
Consumers Energy Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 841 $ 841 $ 841 $ 841 $ 841 $ 841
------- ------- ------- ------- ------- -------
Other Paid-in Capital
At beginning of period 452 504 452 504 502 504
Return of stockholder's contribution (50) - (50) - (100) -
Preferred stock reacquired - (2) - (2) - (2)
------- ------- ------- ------- ------- -------
At end of period 402 502 402 502 402 502
------- ------- ------- ------- ------- -------
Revaluation Capital
At beginning of period 59 41 58 37 45 30
Change in unrealized investment -
gain (loss) (a) (2) 4 (1) 8 12 15
------- ------- ------- ------- ------- -------
At end of period 57 45 57 45 57 45
------- ------- ------- ------- ------- -------
Retained Earnings
At beginning of period 396 368 363 297 396 326
Net income (a) 86 80 266 239 348 305
Common stock dividends declared (44) (43) (173) (113) (278) (199)
Preferred stock dividends declared (5) (6) (14) (20) (19) (27)
Preferred securities distributions (4) (3) (13) (7) (18) (9)
------- ------- ------- ------- ------- -------
At end of period 429 396 429 396 429 396
------- ------- ------- ------- ------- -------
Total Common Stockholder's Equity $1,729 $1,784 $1,729 $1,784 $1,729 $1,784
======= ======= ======= ======= ======= =======

(a) Disclosure of Comprehensive Income:
Revaluation capital
Unrealized investment - gain (loss),
net of tax of $(1), $2, $-, $4,
$7 and $8, respectively $ (2) $ 4 $ (1) $ 8 $ 12 $ 15
Net income 86 80 266 239 348 305
------- ------- ------- ------- ------- -------
Total Comprehensive Income $ 84 $ 84 $ 265 $ 247 $ 360 $ 320
======= ======= ======= ======= ======= =======
<FN>
The accompanying condensed notes are an integral part of these statements.

</TABLE>
<PAGE>
<PAGE> 66

Consumers Energy Company
Condensed Notes to Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in Consumers' 1997 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 and Change of Significant Accounting Policies

CORPORATE STRUCTURE

IMPLEMENTATION OF NEW ACCOUNTING STANDARD

In 1997, the FASB issued SFAS 130, Reporting Comprehensive Income. This
statement, which is effective for 1998 financial statement reporting,
establishes standards for reporting and display of comprehensive income
and its components. Equity adjustments related to unrealized investment
gains and losses (net of tax), along with consolidated net income,
comprise comprehensive income.

CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES

During the first quarter of 1998, Consumers implemented a change in the
method of accounting for property taxes so that such taxes are recognized
during the fiscal period of the taxing authority for which the taxes are
levied. This change provides a better matching of property tax expense
with the services provided by the taxing authorities, and is considered
the most acceptable basis of recording property taxes. Prior to 1998,
Consumers recorded property taxes monthly during the year following the
assessment date (December 31). The cumulative effect of this one-time
change in accounting increased other income by $66 million, and earnings,
net of tax, by $43 million. The pro forma effect on prior years'
consolidated net income of retroactively recording property taxes as if
the new method of accounting had been in effect for all periods presented
is not material.

2: Uncertainties

ELECTRIC CONTINGENCIES

ELECTRIC RATE MATTERS

For information on other orders, see the Electric Restructuring section
below.

As a result of an informal process involving consultations with MPSC staff
and other interested parties, as directed in the MPSC's February 1998
order, Consumers submitted to the MPSC in June 1998 its plan for
implementing direct access. The primary issues addressed in the plan are:
1) the implementation schedule; 2) the direct-access service options
available to customers and suppliers; 3) the process and requirements for
customers and others to obtain direct-access service; and 4) the roles and
responsibilities for Consumers, customers and suppliers. Under the
schedule in the plan, Consumers will, over the 1998-2001 period, phase in
750 MW of retail customer load to direct-access customers. At one time,
300 MW of direct-access load was to be opened for bidding in 1998, and an
additional 150 MW each year from 1999 to 2001. This plan is consistent
with the previous orders regarding the phase-in process. Due to the time
required for the MPSC to review the plan, Consumers does not believe
direct access will commence prior to the first quarter of 1999. For
further information regarding the effects of the restructuring on
accounting methods, see Electric Business Outlook - Electric Application
of SFAS 71 in the MD&A. Consumers cannot predict the outcome or timing of
electric restructuring on Consumers' financial position, liquidity, or
results of operations.

OTHER ELECTRIC UNCERTAINTIES

Summarized Statements of Income for CMS Midland and CMS Holdings-

In Millions
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Pretax operating
income $13 $18 $36 $36 $46 $45
Income taxes
and other 4 6 11 11 14 13
---- ---- ---- ---- ---- ----
Net income $ 9 $12 $25 $25 $32 $32
==== ==== ==== ==== ==== ====

Power Purchases from the MCV Partnership- After September 2007, pursuant
to the terms of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Currently, 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 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. The MPSC has, since January 1, 1993, permitted Consumers
to recover capacity charges averaging 3.62 cents per kWh for 915 MW, plus
a substantial portion of the fixed and variable energy charges. Beginning
January 1, 1996, the MPSC has also permitted Consumers to recover capacity
charges for the remaining 325 MW of MCV Facility contract capacity. The
order approving such recovery indicated that the recoverable capacity
charge for the 325 MW would gradually increase from an initial average
charge of 2.86 cents per kWh to an average charge of 3.62 cents per kWh by
2004, which latter amount would be collected thereafter. Because the MPSC
suspended the PSCR process as part of the electric industry restructuring
order (see "Electric Restructuring" in this Note), Consumers expects to
recover the future increases approved for the 325 MW capacity through an
adjustment to the frozen PSCR level; this adjustment is currently under
consideration by the MPSC.

In Millions
1998 1999 2000 2001 2002

Estimated cash
underrecoveries,
net of tax $37 $22 $21 $20 $19

A planned outage for refueling and maintenance at Palisades was completed
June 7, 1998. Consumers replaced 60 nuclear fuel assemblies in the
plant's reactor during the outage.

Capital Expenditures: Consumers estimates electric capital expenditures,
including new lease commitments, of $341 million for 1998, $380 million
for 1999, and $385 million for 2000. For further information, see the
Capital Expenditures Outlook section in the MD&A.

GAS CONTINGENCIES

Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998 Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites where Consumers has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. 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,
of which Consumers accrued a liability for $48 million. These estimates
are based on undiscounted 1998 costs. As of September 30,1998, Consumers
has a remaining accrued liability of $46 million and a regulatory asset
for approximately the same amount. Any significant change in assumptions,
such as remediation techniques, nature and extent of contamination, and
legal and regulatory requirements, could affect the estimate of remedial
action costs for the sites. According to an MPSC rate order issued in
1996, Consumers will defer and amortize, over a period of ten years,
environmental clean-up costs above the amount currently being recovered in
rates. 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 has initiated a
lawsuit against certain insurance companies regarding coverage for some or
all of the costs that it may incur for these sites.

GAS RATE MATTERS

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
are being selected on a first-come, first-served basis, up to a limit of
100,000 customers beginning April 1, 1998. As of October 23, 1998, more
than 80,000 customers chose alternative gas suppliers, representing
approximately 24 bcf of gas load. Of these alternative gas suppliers, one
was a CMS Energy affiliate. Up to 100,000 more customers may be added
beginning April 1 of each of the next two years. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. The order allowing the implementation of this program:
1) suspends Consumers' gas cost recovery clause, effective April 1, 1998
for a three-year period, establishing a gas commodity cost at a fixed rate
of $2.84 per mcf; 2) establishes an earnings sharing mechanism that will
provide for refunds to customers if Consumers' earnings during the three-
year term of the program exceed certain pre-determined levels; and 3)
establishes a gas transportation code of conduct that addresses concerns
about the relationship between Consumers and marketers, including its
affiliated marketers. This experimental program will allow competing gas
suppliers, including marketers and brokers, to market natural gas to a
large number of retail customers in direct competition with Consumers. In
January 1998, the Attorney General, ABATE and other parties filed claims
of appeal regarding the program with the Court of Appeals. At September
30, 1998, Consumers had an exposure to gas price increases if the cost was
to exceed $2.84 per mcf for the following volumes: 5 percent of its 1998
requirements; 40 percent of its 1999 requirements; and 65 percent of its
2000 requirements. Additional forward coverage is currently under review.
The forward contracts currently in place were consummated at prices less
than $2.84 per mcf. The contracts are being used to manage Consumers'
exposure to gas commodity cost increases in a three-year experimental gas
program. For further information regarding the effects of the
restructuring on accounting methods, see Gas Business Outlook -
Application of SFAS 71 in the MD&A.

OTHER GAS UNCERTAINTIES

Capital Expenditures: Consumers estimates gas capital expenditures,
including new lease commitments, of $117 million for 1998, $125 million
for 1999, and $125 million for 2000. For further information, see the
Capital Expenditures Outlook section in the MD&A.

In addition to the matters disclosed in this note, 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. These lawsuits and proceedings may
involve personal injury, property damage, contractual matters,
environmental issues, federal and state taxes, rates, licensing and other
matters.

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

3: Short-Term Financings and Capitalization

Authorization: At November 1, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee through June 2000, up to $900
million of short-term securities outstanding at any one time; 2)
guarantee, through 1999, up to $25 million in loans made by others to
residents of Michigan for making energy-related home improvements; and 3)
issue through June 2000, up to $900 million long-term securities with
maturities up to 30 years for refinancing purposes.

Short-Term Financings: Consumers has an unsecured $425 million credit
facility and unsecured lines of credit aggregating $130 million. These
facilities are available to finance seasonal working capital requirements
and to pay for capital expenditures between long-term financings. At
September 30, 1998, a total of $302 million was outstanding at a weighted
average interest rate of 6.3 percent, compared with $389 million
outstanding at September 30, 1997, at a weighted average interest rate of
6.2 percent. In January 1998, Consumers entered into interest rate swaps
totaling $300 million. These swap arrangements have had an immaterial
effect on interest expense.

Capital Stock: The primary asset of Consumers Power Company Financing I
is $103 million principal amount of 8.36 percent subordinated deferrable
interest notes due 2015 from Consumers. The primary asset of Consumers
Energy Company Financing II is $124 million principal amount of 8.20
percent subordinated deferrable interest notes due 2027 from Consumers.

Long-Term Financings: The following table describes the new issuances of
long-term financings which have occurred during 1998 through early
November 1998.

<TABLE>
<CAPTION>
In Millions
Month Interest Principal
Issued Maturity Rate (%) Amount Use of Proceeds
- ---------------- ------ -------- ------- --------- ---------------------------
<S> <C> <C> <C> <C> <C>
Senior Notes (a) February 2008 6.375 $ 250 Pay down First Mortgage Bonds
and general corporate purposes
Senior Notes (a) March 2018 6.875 225 Pay down First Mortgage Bonds
and other long-term debt
Senior Notes (a) May 2008 6.2 (b) 250 Pay down First Mortgage Bonds,
long-term bank debt and
general corporate purposes
Long-Term
Bank Debt May 2001-2003 6.05 (d) 225 Pay down long-term bank debt
and general corporate purposes
Senior Notes (a) June 2018 6.5 (c) 200 Pay down First Mortgage Bonds and
general corporate purposes
Senior Notes (e) October 2028 6.5 150 Pay down long-term bank debt
and general corporate purposes
-------
Total $1,300

<FN>

</TABLE>

In October 1998, Consumers unwound an interest rate guarantee of $145
million associated with the issuance of $150 million senior notes. The
effective rate of the debt is 7 percent taking into consideration the
issuance costs, interest rate guarantee and insurance costs.

The following table describes the retirements of long-term financings
which have occurred during 1998 through early November 1998.

In Millions
Month Interest Principal
Retired Maturity Rate (%) Amount
------- ------- ------- ----------
First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
First Mortgage Bonds May 1998 6.875 43
Long-Term Bank Debt May 1998-1999 6.3 (b) 350
First Mortgage Bonds July 1999 8.875 136
First Mortgage Bonds October 1998 6.625 45
Long-Term Bank Debt November 2001-2003 6.05 50
-----
Total $1,077
=====

<PAGE>
<PAGE> 77

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To Consumers Energy Company:

We have reviewed the accompanying consolidated balance sheets of CONSUMERS
ENERGY COMPANY (a Michigan corporation and wholly owned subsidiary of
CMS Energy Corporation) and subsidiaries as of September 30, 1998 and
1997, the related consolidated statements of income and common
stockholder's equity for the three-month, nine-month, and twelve-month
periods then ended, and the related consolidated statements of cash flows
for the nine-month and twelve-month periods then ended. These financial
statements are the responsibility of the Company's management.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statements of
long-term debt and preferred stock of Consumers Energy Company and
subsidiaries as of December 31, 1997, 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
26, 1998, 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, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.

Arthur Andersen LLP

Detroit, Michigan,
November 10, 1998.

<PAGE> 78

Quantitative and Qualitative
Disclosures about Market Risk

CMS Energy

Quantitative and Qualitative Disclosures About Market Risk is contained in
PART I: CMS Energy Corporation Management's Discussion and Analysis which
is incorporated by reference herein.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The discussion below is limited to an update of developments that have
occurred in various judicial and administrative proceedings, many of which
are more fully described in CMS Energy's and Consumers' Form 10-K for the
year ended December 31, 1997, and in their Form 10-Q for the quarters
ended March 31, and June 30, 1998. Reference is made to the Notes to the
Consolidated Financial Statements included herein for additional
information regarding various pending administrative and judicial
proceedings involving rate, operating and environmental matters.

Consumers Stray Voltage Litigation

For a discussion of Consumers' stray voltage litigation see Note 2,
subsection "Stray Voltage" of the Condensed Notes to the Consolidated
Financial Statements in Part I of this Report, incorporated by reference
herein.

CMS Energy and Consumers Antitrust Litigation

For a discussion of CMS Energy's and Consumers' antitrust litigation see
Note 2, subsection "Anti-Trust" of the Condensed Notes to the Consolidated
Financial Statements in Part I of this Report, incorporated by reference
herein.

CMS Energy Independent Power Production Project Litigation

In August 1995, William R. Williams and two of his corporations, Altresco
Philippines, Inc. and WRW Corporation (formerly Altresco International,
Inc.), filed a lawsuit against CMS Generation in connection with a project
to be developed in the Philippines by Luzon Power Associates, Inc. in
which CMS Generation owned a 50 percent interest. The plaintiffs' claims
primarily relate to a confidentiality agreement between the parties and
CMS Generation's alleged violation of a restrictive covenant in the
confidentiality agreement. The plaintiffs claimed direct damages of
approximately $85 million and indirect damages in a like amount from loss
of future business, plus punitive damages, interest, and attorney's fees.
Arbitration was completed in June 1998 and a decision by the International
Chamber of Commerce ("ICC"), International Court of Arbitration was
rendered in September 1998. The ICC ruled that the plaintiffs are entitled
to a sum of $3 million in direct damages together with interest thereon at
7 percent per annum, plus a total of $3.7 million in attorneys fees and
costs. Related litigation in Denver Federal District Court remains
pending, with a trial scheduled for April 1999.

ITEM 6. Exhibits and Reports on Form 8-K

(a) List of Exhibits

(4)(a) - Consumers: Third Supplemental Indenture dated as of
October 29, 1998, between Consumers and The
Chase Manhattan Bank, as Trustee
(4)(b) - Consumers: Seventy-fourth Supplemental Indenture dated as
of October 29, 1998, between Consumers and The
Chase Manhattan Bank, as Trustee
(12) - CMS Energy: Statements regarding computation of Ratio of
Earnings to Fixed Charges
(15)(a) - Consumers: Letter of Independent Public Accountant
(15)(b) - CMS Energy: Letter of Independent Public Accountant
(27)(a) - CMS Energy: Financial Data Schedule
(27)(b) - Consumers: Financial Data Schedule
(99) - CMS Energy: Consumers Gas Group Financials

(b) Reports on Form 8-K

A Current Report on Form 8-K dated October 2, 1998 was filed by each of
CMS Energy and Consumers, and Current Reports on Form 8-K dated June 23,
July 30, October 2, and November 3, 1998 were filed by CMS Energy, all
covering matters pursuant to "Item 5. Other Events."

<PAGE>

<PAGE>
<PAGE> 80

SIGNATURES

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

CMS ENERGY CORPORATION
(Registrant)

Dated: November 12, 1998 By_____________________

Alan M. Wright
Senior Vice President and
Chief Financial Officer

CONSUMERS ENERGY COMPANY
(Registrant)

Dated: November 12, 1998 By_____________________

Alan M. Wright
Senior Vice President and
Chief Financial Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

CMS ENERGY CORPORATION

AND

CONSUMERS ENERGY COMPANY

FORM 10-Q

EXHIBITS

FOR QUARTER ENDED SEPTEMBER 30, 1998

EXHIBIT INDEX

Exhibit
Numbers Description

(4)(a) Consumers: Third Supplemental Indenture dated as of October
29, 1998, between Consumers and The Chase Manhattan Bank, as
Trustee
(4)(b) Consumers: Seventy-fourth Supplemental Indenture dated as of
October 29, 1998, between Consumers and The Chase Manhattan
Bank, as Trustee
(12) CMS Energy: Statements regarding computation of Ratio
of Earnings to Fixed Charges
(15)(a) Consumers: Letter of Independent Public Accountant
(15)(b) CMS Energy: Letter of Independent Public Accountant
(27)(a) CMS Energy: Financial Data Schedule
(27)(b) Consumers: Financial Data Schedule
(99) CMS Energy: Consumers Gas Group Financials

<PAGE>

Exhibit (4)(a)

THIRD SUPPLEMENTAL INDENTURE
dated as of October 29, 1998

____________________

This Third Supplemental Indenture, dated as of the 29th
day of October, 1998 between Consumers Energy Company, a corporation duly
organized and existing under the laws of the State of Michigan
(hereinafter called the "Company") and having its principal office at 212
West Michigan Avenue, Jackson, Michigan 49201, and The Chase Manhattan
Bank, a New York corporation (hereinafter called the "Trustee") and having
an office at 450 W. 33rd Street, 15th Floor, New York, New York, 10001.

WITNESSETH:

WHEREAS, the Company and the Trustee entered into an
Indenture, dated as of February 1, 1998 (the "Original Indenture"),
pursuant to which one or more series of debt of the Company (the "Notes")
may be issued from time to time; and

WHEREAS, Section 2.01 of the Original Indenture permits
the terms of any series of Notes to be established in an indenture
supplemental to the Original Indenture; and

WHEREAS, Section 13.01 of the Original Indenture provides
that a supplemental indenture may be entered into by the Company and the
Trustee without the consent of any Holders of the Notes to establish the
form and terms of the Notes of any series; and

WHEREAS, the Company 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 Notes to be known
as the Company's "6.50% Senior Secured Insured Quarterly Notes due October
1, 2028" (the "Senior Secured Insured Quarterly Notes"); and

WHEREAS, the Company and the Trustee desire to enter into
this Third Supplemental Indenture for the purposes set forth in Sections
2.01 and 13.01 of the Original Indenture as referred to above; and

WHEREAS, the Company has furnished the Trustee with a
Board Resolution authorizing the execution of this Third Supplemental
Indenture; and

WHEREAS, all things necessary to make this Third
Supplemental Indenture a valid agreement of the Company 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 Senior Secured Insured Quarterly Notes to be issued hereunder by
holders thereof, the Company and the Trustee mutually covenant and agree,
for the equal and proportionate benefit of the respective holders from
time to time of the Senior Secured Insured Quarterly Notes as follows:

ARTICLE I
STANDARD PROVISIONS; DEFINITIONS

SECTION 1.01. Standard Provisions. The Original
Indenture together with this Third Supplemental Indenture are hereinafter
sometimes collectively referred to as the "Indenture." All capitalized
terms which are used herein and not otherwise defined herein or in Exhibit
A hereto are defined in the Original Indenture and are used herein with
the same meanings as in the Original Indenture.

ARTICLE II
DESIGNATION AND TERMS OF THE NOTES; FORMS

SECTION 2.01. Establishment of Series. There is hereby
created a series of Notes to be known and designated as the "6.5% Senior
Secured Insured Quarterly Notes due October 1, 2028," such series limited
in aggregate principal amount (except as contemplated in Section 2.05(c)
of the Original Indenture) to $150,000,000. The form and terms of the
Senior Secured Insured Quarterly Notes are established in the form of
Senior Secured Insured Quarterly Notes attached hereto as Exhibit A.

ARTICLE III
DEFINITIONS

SECTION 3.01 Definitions. The following defined terms
used herein shall, unless the context otherwise requires, have the
meanings specified below.

"Holder" means any person in whose name a Senior Secured
Insured Quarterly Note is registered on the records of the Depository.

"Insurance Trustee" means United States Trust Company of
New York, or any successor thereto, as the Insurance Trustee under the
Policy.

"Insurer" means Ambac Assurance Corporation, a Wisconsin-
domiciled stock insurance company.

"Interest Payment Dates" means January 1, April 1, July 1
and October 1 of each year.

"Original Issue Date" means October 29, 1998.

"Paying Agent" means any Person (including the Company
acting as Paying Agent) authorized by the Company to pay the principal of
or interest on the Senior Secured Insured Quarterly Notes on behalf of the
Company.

"Policy" shall mean the financial guaranty insurance
policy issued by the Insurer insuring the payment when due of the
principal of and interest on the Senior Secured Insured Quarterly Notes as
provided therein.

"Redemption Date" means with respect to any Senior Secured
Insured Quarterly Note to be redeemed, in whole or in part, the date fixed
for such redemption by or pursuant to this Indenture.

"Redemption Price" means with respect to any Senior
Secured Insured Quarterly Note to be redeemed, the price at which it is to
be redeemed pursuant to this Indenture.

"Regular Record Date" means the 15th calendar day of the
month preceding the month in which the respective Interest Payment Date
occurs (whether or not a Business Day).

"Stated Maturity" means October 1, 2028.

ARTICLE IV
PAYMENT OF PRINCIPAL AND INTEREST

SECTION 4.01. Payment of Principal and Interest. The
principal of the Senior Secured Insured Quarterly Notes shall be due at
Stated Maturity (unless earlier redeemed). The unpaid principal amount of
the Senior Secured Insured Quarterly Notes shall bear interest at the rate
of 6.50% per annum until paid or duly provided for. Interest shall be
paid quarterly in arrears on each Interest Payment Date to the Person in
whose name the Senior Secured Insured Quarterly Notes are registered on
the Regular Record Date for such Interest Payment Date. Any such interest
that is not so punctually paid or duly provided for will forthwith cease
to be payable to the Holders on such Regular Record Date and may either be
paid to the Person or Persons in whose name the Senior Secured Insured
Quarterly Notes are registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of the Senior Secured
Insured Quarterly Notes not less than ten days prior to such Special
Record Date.

Payments of interest on the Senior Secured Insured
Quarterly Notes will include interest accrued to but excluding the
respective Interest Payment Dates. Interest payments for the Senior
Secured Insured Quarterly Notes shall be computed and paid on the basis of
a 360-day year of twelve 30 day months.

ARTICLE V
REDEMPTION

SECTION 5.01. Redemption at the Company's Option. The
Senior Secured Insured Quarterly Notes shall be subject to redemption at
the option of the Company, in whole or in part, without premium or
penalty, at any time or from time to time on or after October 1, 2003,
upon not less than 30 nor more than 60 days' notice, at a Redemption Price
equal to 100% of the principal amount to be redeemed plus accrued but
unpaid interest to the Redemption Date.

If notice of redemption is given as aforesaid, the Senior
Secured Insured Quarterly Notes so to be redeemed shall, on the Redemption
Date, become due and payable at the Redemption Price together with any
accrued interest thereon, and from and after such date (unless the Company
shall default in the payment of the Redemption Price and accrued interest)
the Senior Secured Insured Quarterly Notes shall cease to bear interest.
If any Senior Secured Insured Quarterly Note called for redemption shall
not be paid upon surrender thereof for redemption, the principal shall,
until paid, bear interest from the Redemption Date at 6.5%. Subject to
the foregoing and applicable law (including without limitation, United
States federal securities laws), the Company or its affiliates may, at any
time and from time to time, purchase outstanding Senior Secured Insured
Quarterly Notes by tender, in the open market or by private agreement.

SECTION 5.02. Redemption at the Holder's Option. For
purposes of this Section 5.02 a "Beneficial Owner" means the Person who
has the right to sell, transfer or otherwise dispose of an interest in
Senior Secured Insured Quarterly Notes and the right to receive the
proceeds therefrom, as well as the interest and principal payable to the
Holder thereof. In general, a determination of beneficial ownership in
the Senior Secured Insured Quarterly Notes will be determined by the
Company, in its sole discretion, which determinations shall be final and
binding on all parties.

Unless the Senior Secured Insured Quarterly Notes have
been declared due and payable prior to their maturity by reason of an
Event of Default, the personal representative or other Person authorized
to represent the estate of the deceased Beneficial Owner or from a
surviving joint tenant(s) or tenant(s) by the entirety (each, a
"Representative") of a deceased Beneficial Owner has the right to request
redemption prior to Stated Maturity of all or part of such interest,
expressed in integral multiples of $1,000 principal amount, in the Senior
Secured Insured Quarterly Notes, and the Company will redeem the same
subject to the limitations that the Company will not be obligated to
redeem, during the period from the Original Issue Date through and
including October 1, 1999 (the "Initial Period"), and during any twelve-
month period which ends on and includes each October 1 thereafter (each
such twelve-month period being hereinafter referred to as a "Subsequent
Period"), (i) on behalf of a deceased Beneficial Owner any interest in the
Senior Secured Insured Quarterly Notes which exceeds an aggregate
principal amount of $25,000 or (ii) interests in the Senior Secured
Insured Quarterly Notes in an aggregate principal amount exceeding
$3,000,000. A request for redemption may be initiated by the
Representative of a deceased Beneficial Owner at any time and in any
principal amount in integral multiples of $1,000. Representatives of
deceased Beneficial Owners must make arrangements with the Participant
through whom such interest is owned in order that timely presentation of
redemption requests can be made by the Participant to the Trustee. If the
Company, although not obligated to do so, chooses to redeem interests of
any deceased Beneficial Owner in the Senior Secured Insured Quarterly
Notes in the Initial Period or any Subsequent Period in excess of the
$25,000 limitation, such redemption, to the extent that it exceeds the
$25,000 limitation for any deceased Beneficial Owner, shall not be
included in the computation of the $3,000,000 limitation for such Initial
Period or such Subsequent Period, as the case may be, or for any
succeeding Subsequent Period. Any Senior Secured Insured Note (or portion
thereof) tendered pursuant to a redemption request may be withdrawn by a
written request by the Representative received by the Trustee at least 10
days prior to its repayment.

Subject to the $25,000 and $3,000,000 limitations, the
Company will, after the death of any Beneficial Owner, redeem the interest
of such Beneficial Owner in the Senior Secured Insured Quarterly Notes on
the next Interest Payment Date following receipt by the Trustee of a
redemption request received at least 20 days in advance of the next
Interest Payment Date. The Trustee will notify the Company promptly after
receipt of any redemption request and the Company will provide all funds
necessary for such redemption prior to the date of redemption to the
Paying Agent. If redemption requests exceed the aggregate principal
amount of interests in Senior Secured Insured Quarterly Notes required to
be redeemed during the Initial Period or during any Subsequent Period,
then such excess redemption requests will be applied in the order received
by the Trustee to successive Subsequent Periods, regardless of the number
of Subsequent Periods required to redeem such interests. All redemption
requests will be redeemed in the order in which the trustee receives the
redemption request. To obtain repayment pursuant to a redemption request,
the Representative must provide to the Participant (i) a written request
for repayment signed by the Representative, and such signature must be
guaranteed by a member firm of a registered national securities exchange
or of the NASD or a commercial bank or trust company having an office or
correspondent in the United States, (ii) appropriate evidence satisfactory
to the Company and the Trustee that (A) the Representative has authority
to act on behalf of the deceased Beneficial Owner, (B) the death of such
Beneficial Owner has occurred and (C) the deceased was the owner of a
beneficial interest in such Senior Secured Insured Quarterly Note at the
time of death, (iii) if applicable, a properly executed assignment or
endorsement, and (iv) if the beneficial interest in such Senior Secured
Insured Quarterly Note is held by a nominee of the deceased Beneficial
Owner, a certificate satisfactory to the Trustee from such nominee
attesting to the deceased's ownership of a beneficial interest in such
Senior Secured Insured Quarterly Note. The Participant will provide these
documents to the Trustee. All questions as to the eligibility or validity
of any exercise of redemption on behalf of a deceased Beneficial Owner
will be determined by the Company, in its sole discretion, which
determinations will be final and binding on all parties.

For purposes of this Section 5.02 an interest in Senior
Secured Insured Quarterly Notes held in tenancy by the entirety, joint
tenancy or by tenants in common will be deemed to be held by a single
Beneficial Owner and the death of a tenant by the entirety, joint tenant
or tenant in common will be deemed the death of a Beneficial Owner. The
death of a Person who, during his lifetime, was entitled to substantially
all of the rights of a Beneficial Owner of an interest in the Senior
Secured Insured Quarterly Notes will be deemed the death of the Beneficial
Owner, regardless of the recordation of such interest on the records of
the Participant, if such rights can be established to the satisfaction of
the Participant and the Company.

In the case of any redemption request which is presented
pursuant to this Section 5.02 and which has not been fulfilled at the time
the Company gives notice of its election to partially redeem Senior
Secured Insured Quarterly Notes pursuant to Section 5.01 hereof, such
interest or portion thereof shall not be subject to redemption pursuant to
such Section 5.01, but shall remain subject to redemption pursuant to this
Section 5.02

ARTICLE VI
SPECIAL INSURANCE PROVISIONS

SECTION 6.01. Insurer as Third Party Beneficiary. To
the extent that the Indenture confers upon or gives or grants to the
Insurer any right, remedy or claim, the Insurer is hereby explicitly
recognized as being a third-party beneficiary hereunder and may enforce
any such right remedy or claim conferred, given or granted hereunder.

SECTION 6.02. Notices and Information.

(a) The Company shall furnish to the Insurer:

(1) Any notice that is required to be
given to a Holder of the Senior Secured Insured Quarterly Notes or to the
Trustee pursuant to the Indenture.

(2) As soon as practicable after the
filing thereof, a copy of any financial statement of the Company and a
copy of any audit and annual report of the Company; a copy of any notice
to be given to the registered owners of the Senior Secured Insured
Quarterly Notes including, without limitation, notice of any redemption of
or defeasance of the Senior Secured Insured Quarterly Notes; and such
additional information it may reasonably request.

b. The Company will permit the Insurer to have
access to and to make copies of all books and records relating to the
Senior Secured Insured Quarterly Notes at any reasonable time.

c. Notwithstanding any other provision of the
Indenture, the Trustee and the Company shall notify the Insurer in
accordance with Section 6.06 if at any time after such amounts are due to
be paid to the Trustee or Paying Agent there are insufficient moneys to
make any payments of principal and/or interest as required and promptly
upon the occurrence of any Event of Default hereunder.

All notices and information required to be given to the
Insurer shall be in writing and shall be sent by overnight delivery to
Ambac Assurance Corporation, One State Street Plaza, New York, NY 10004,
Attention: Dennis Pidherny.

SECTION 6.03. Concerning the Special Insurance Provisions. The
provisions of this Article VI shall apply notwithstanding anything in the
Indenture to the contrary, but only so long as the Policy shall be in full
force and effect and the Insurer is not in default thereunder.

SECTION 6.04. Amendments. Any provision of the Indenture
expressly recognizing or granting rights in or to the Insurer may not be
amended in any manner which affects the rights of the Insurer hereunder
without the prior written consent of the Insurer.

SECTION 6.05. Defeasance. Notwithstanding anything herein to
the contrary, in the event that the principal and/or interest due on the
Senior Secured Insured Quarterly Notes shall be paid by the Insurer
pursuant to the Policy, the Senior Secured Insured Quarterly Notes shall
remain Outstanding for all purposes, not be defeased or otherwise
satisfied and not be considered paid by the Company, and the assignment
and pledge of moneys held in trust by the Trustee and all covenants,
agreements and other obligations of the Company to the registered owners
shall continue to exist and shall run to the benefit of the Insurer, and
the Insurer shall be subrogated to the rights of such registered owners.

SECTION 6.06. Insurer's Rights to Notice; Subrogation.As long as
the Policy shall be in full force and effect, the Company, the Trustee and
any Paying Agent agree to comply with the following provisions:

(a) If the Trustee or Paying Agent determines
that there will be insufficient funds to pay the principal of or interest
on the Senior Secured Insured Quarterly Notes on an Interest Payment Date,
the Trustee or Paying Agent shall so notify the Insurer within one
business day after such determination. Such notice shall specify the
amount of the anticipated deficiency, the Senior Secured Insured Quarterly
Notes to which such deficiency is applicable and whether such Senior
Secured Insured Quarterly Notes will be deficient as to principal or
interest, or both. The Insurer will make payments of principal or
interest due on the Senior Secured Insured Quarterly Notes on or before
the first day next following the date on which the Insurer shall have
received notice of nonpayment from the Trustee or Paying Agent.

(b) The Trustee or Paying Agent shall, after
giving notice to the Insurer as provided in (a) above, make available to
the Insurer and, at the Insurer's direction, to the Insurance Trustee, the
registration books of the Company maintained by the Trustee or Paying
Agent and all records relating to the Senior Secured Insured Quarterly
Notes maintained by the Trustee or the Paying Agent under the Indenture.

(c) The Trustee or Paying Agent shall provide
the Insurer and the Insurance Trustee with a list of registered owners of
Senior Secured Insured Quarterly Notes entitled to receive principal or
interest payments from the Insurer under the terms of the Policy, and
shall make arrangements with the Insurance Trustee (i) to mail checks or
pay by wire transfer to the registered owners of Senior Secured Insured
Quarterly Notes entitled to receive all or partial interest payments from
the Insurer and (ii) to pay principal upon Senior Secured Insured
Quarterly Notes surrendered to the Insurance Trustee by the registered
owners of Senior Secured Insured Quarterly Notes entitled to receive full
or partial principal payments from the Insurer.

(d) The Trustee or Paying Agent shall, at the
time it provides notice to the Insurer pursuant to (a) above, notify
registered owners of Senior Secured Insured Quarterly Notes entitled to
receive the payment of principal or interest thereon from the Insurer (i)
as to the fact of such entitlement, (ii) that the Insurer will remit to
them all or a part of the interest payments next coming due upon proof of
any Holder's entitlement to interest payments and delivery to the
Insurance Trustee, in form satisfactory to the Insurance Trustee, of an
appropriate assignment of the registered owner's right to payment, (iii)
that should they be entitled to receive full payment of principal from the
Insurer, they must surrender their Senior Secured Insured Quarterly Notes
(along with an appropriate instrument of assignment in form satisfactory
to the Insurance Trustee to permit ownership of such Senior Secured
Insured Quarterly Notes to be registered in the name of the Insurer) for
payment to the Insurance Trustee, and not the Trustee or Paying Agent and
(iv) that should they be entitled to receive partial payment of principal
from the Insurer, they must surrender their Senior Secured Insured
Quarterly Notes for payment thereon first to the Trustee or Paying Agent
who shall note on such Senior Secured Insured Quarterly Notes the portion
of the principal paid by the Company through the Trustee or Paying Agent
and then, along with an appropriate instrument of assignment in form
satisfactory to the Insurance Trustee, to the Insurance Trustee, which
will then pay the unpaid portion of principal.

e. In the event that the Trustee or Paying Agent
has notice that any payment of principal of or interest on Senior Secured
Insured Quarterly Notes which has become Due for Payment (as defined in
the Policy) and which is made to a Holder of Senior Secured Insured
Quarterly Notes by or on behalf of the Company has been deemed a
preferential transfer and theretofore recovered from its registered owner
pursuant to the United States Bankruptcy Code by a trustee in bankruptcy
in accordance with the final, nonappealable order of a court having
competent jurisdiction, the Trustee or Paying Agent shall, at the time the
Insurer is notified pursuant to (a) above, notify all registered owners
that in the event that any registered owner's payment is so recovered,
such registered owner will be entitled to payment from the Insurer to the
extent of such recovery if sufficient funds are not otherwise available,
and the Trustee or Paying Agent shall furnish to the Insurer its records
evidencing the payments of principal of and interest on the Senior Secured
Insured Quarterly Notes which have been made by the Trustee or Paying
Agent and subsequently recovered from registered owners and the dates on
which such payments were made.

f. In addition to those rights granted the
Insurer under the Indenture, the Insurer shall, to the extent it makes
payment of principal of or interest on the Senior Secured Insured
Quarterly Notes, become subrogated to the rights of the recipients of such
payments in accordance with the terms of the Policy, and to evidence such
subrogation (i) in the case of subrogation as to claims for past due
interest, the Trustee or Paying Agent shall note the Insurer's rights as
subrogee on the registration books of the Company maintained by the
Trustee or Paying Agent upon receipt from the Insurer of proof of the
payment of interest thereon to the registered owners of the Senior Secured
Insured Quarterly Notes, and (ii) in the case of subrogation as to claims
for past due principal, the Trustee or Paying Agent shall note the
Insurer's rights as subrogee on the registration books of the Company
maintained by the Trustee or Paying Agent upon surrender of the Senior
Secured Insured Quarterly Notes by the registered owners thereof together
with proof from the Insurer of the payment of principal thereof.

SECTION 6.07. Insurer's Rights Concerning the Trustee.

(a) The Insurer shall receive prompt written
notice from the Company of any Trustee or Paying Agent resignation.

(b) Notwithstanding any other provision of the
Indenture, in determining whether the rights of the Holders of Senior
Secured Insured Quarterly Notes will be adversely affected in any material
respect by any action taken pursuant to the terms and provisions of the
Indenture, the Trustee or Paying Agent shall consider the effect on the
Holders of Senior Secured Insured Quarterly Notes as if there were no
Policy.

SECTION 6.08. Insurer's Rights. Anything in the Indenture
to the contrary notwithstanding, upon the occurrence and continuance of an
Event of Default, so long as the Policy shall be in full force and effect
and the Insurer is not in default under the terms of the Policy, the
Insurer shall be entitled to control and direct the enforcement of all
rights and remedies granted to the Holders of Senior Insured Quarterly
Notes. In the event that any Holder of the Senior Secured Insured
Quarterly Notes is entitled to a vote under the terms of the Indenture,
such Holder shall appoint the Insurer by a written proxy instrument as
their proxy for such vote in accordance with Section 11.04.

ARTICLE VII
SUPPLEMENTAL INDENTURES

SECTION 7.01. Effect On Original Indenture 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.

ARTICLE VIII
MISCELLANEOUS

SECTION 8.01. Counterparts. 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.

SECTION 8.02. Recitals. The recitals contained herein
shall be taken as the statements of the Company and the Trustee assumes no
responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Third
Supplemental Indenture.

SECTION 8.03. Governing Law. This Third Supplemental
Indenture shall be governed by and construed in accordance with the laws
of the jurisdiction which govern the Original Indenture and its
construction.<PAGE>
<PAGE>

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.

CONSUMERS ENERGY COMPANY

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

Attest: /s/ Thomas A. McNish
_______________________
Name: Thomas A. McNish
Title:Vice President and Secretary

(Corporate Seal)

THE CHASE MANHATTAN BANK,
AS TRUSTEE

By: /s/ Glenn G. McKeever
___________________________
Name:
Title:

Attest:

(Corporate Seal)<PAGE>
<PAGE>

EXHIBIT A

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN
WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS
SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON
OTHER THAN SUCH DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
__________________________________________________________________________

No.:
$150,000,000
CONSUMERS ENERGY COMPANY
6.50% SENIOR SECURED INSURED QUARTERLY NOTES (IQ NOTES)
DUE OCTOBER 1, 2028

CUSIP: 210518BE5

CONSUMERS ENERGY COMPANY, a Michigan corporation (herein called
the "Company," which term includes any successor corporation under the
Indenture referred to herein), for value received, hereby promises to pay
to:

CEDE & CO.

or registered assigns, the principal sum of

*ONE HUNDRED AND FIFTY MILLION DOLLARS*

on October 1, 2028 and to pay interest on such principal sum at the rate
of six and one-half percent (6.50%) per annum.

The Company will pay interest quarterly in arrears January 1
(beginning January 1, 1999), April 1, July 1 and October 1 (each such date
an "Interest Payment Date"), until the principal hereof is otherwise paid
or duly provided for. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture (as defined below), be paid to the holder (the "Holder") of this
Note (or one or more predecessor Notes) of record at the close of business
on the regular record date (the "Regular Record Date") for such Interest
Payment Date, which, except in the case of interest payable at the Stated
Maturity (as defined in the Indenture), shall be the fifteenth calendar
day of the month preceding the month in which the respective Interest
Payment Date occurs (whether or not a Business Day), and, in the case of
interest payable at the Stated Maturity, shall be the date such that
interest payable at the Stated Maturity is payable to the same Person to
whom principal on this Note is payable. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record
Date by virtue of his having been such Holder, and may be paid to the
Holder of this Note (or one or more predecessor Notes) of record at the
close of business on a special record date (the "Special Record Date")
fixed by the Company for the payment of such defaulted interest, notice
whereof shall be given to Holders not less than 10 days prior to such
Special Record Date, all as more fully provided in the Indenture.

Payment of the principal of this Note and the interest thereon
will be made at the office or agency of the Company in the Borough of
Manhattan, City and State of New York in such currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.

Financial Guaranty Insurance Policy No. FG0372BE (the "Policy")
with respect to payments due for principal of and interest on this Note
has been issued by Ambac Assurance Corporation (the "Insurer"). The
Policy has been delivered to United States Trust Company of New York, as
the insurance trustee (the "Insurance Trustee") under said Policy and will
be held by such Insurance Trustee or any successor insurance trustee. The
Policy is on file and available for inspection at the principal office of
the Insurance Trustee and a copy thereof may be secured from the Insurer
or the Insurance Trustee. All payments required to be made under the
Policy shall be made in accordance with the provisions thereof. The owner
of this Note acknowledges and consents to the subrogation rights of the
Insurer as more fully set forth in the Policy.
<PAGE>
<PAGE>

CONSUMERS ENERGY COMPANY
6.50% Senior Secured Insured Quarterly Notes (IQ Notes) Due October 1,
2028

This Note is one of a duly authorized issue of debt securities of
the Company (herein called the "Securities"), issuable in one or more
series, issued and to be issued under and pursuant to an Indenture dated
as of February 1, 1998, as previously supplemented and as further
supplemented by that certain Third Supplemental Indenture, dated as of
October 29, 1998 (such Indenture, as so supplemented, the "Indenture"),
duly executed and delivered by the Company to The Chase Manhattan Bank, as
trustee (the "Trustee," which term includes any successor trustee under
the Indenture), and is one of a series limited in aggregate principal
amount to One Hundred and Fifty Million Dollars ($150,000,000) and
designated as 6.50% Senior Secured Insured Quarterly Notes (IQ Notes) Due
October 1, 2028 (the "Notes"). Reference is hereby made to the Indenture
for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the
Holders of Securities (including Holders of the Notes).

The Notes are subject to defeasance at the option of the Company
as provided in the Indenture.

As long as this Note is represented in global form (the "Global
Security") registered in the name of DTC or its nominee, except as
provided in the Indenture and subject to certain limitations therein set
forth, no Global Security shall be exchangeable or transferrable.

If an Event of Default (as defined in the Indenture) with respect
to the Notes shall occur and be continuing, the principal plus any accrued
interest may be declared due and payable in the manner and with the effect
and subject to the conditions provided in the Indenture.

Prior to the Release Date (as hereinafter defined), the Notes will
be secured by first mortgage bonds (the "Senior IQ Mortgage Bonds")
delivered by the Company to the Trustee for the benefit of the Holders of
the Notes, issued under the Indenture, dated as of September 1, 1945, from
the Company to The Chase Manhattan Bank, as trustee (the "Mortgage
Trustee"), as amended and supplemented by various supplemental indentures
and as supplemented by the Seventy-Fourth Supplemental Indenture, dated
October 29, 1998, providing for a series of first mortgage bonds relating
to the Notes (collectively, the "Mortgage"). Reference is made to the
Mortgage and the Indenture for a description of the rights of the Trustee
as holder of the Senior IQ Mortgage Bonds, the property mortgaged and
pledged, the nature and extent of the security, the rights of the holders
of first mortgage bonds under the Mortgage and the rights of the Company
and of the Mortgage Trustee in respect thereof, the duties and immunities
of the Mortgage Trustee and the terms and conditions upon which the Senior
IQ Mortgage Bonds are secured and the circumstances under which additional
first mortgage bonds may be issued.

From and after such time as all first mortgage bonds (other than
Senior IQ Mortgage Bonds) issued under the Mortgage have been retired
through payment, redemption or otherwise at, before or after the maturity
thereof (the "Release Date"), the Senior IQ Mortgage Bonds shall cease to
secure the Notes in any manner. In certain circumstances prior to the
Release Date as provided in the Indenture, the Company is permitted to
reduce the aggregate principal amount of a series of Senior IQ Mortgage
Bonds held by the Trustee, but in no event prior to the Release Date to an
amount less than the aggregate outstanding principal amount of the series
of Notes initially issued contemporaneously with such Senior IQ Mortgage
Bonds.

The Indenture permits the amendment thereof and the modification
of the rights and obligations of the Company and the rights of the Holders
under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the
Securities then Outstanding (as defined in the Indenture) of all series
which are affected by such amendment or modification, except that certain
amendments which do not adversely affect the rights of any Holder of the
Securities may be made without the approval of Holders of the Securities.
No amendment or modification may, among other things, change the Stated
Maturity of any Security, reduce the principal amount thereof, reduce the
rate or change the time of payment of any interest thereon, or reduce the
aforesaid majority in aggregate principal amount of Securities of any
series, the consent of the Holders of which is required for any such
amendment or modification, without the consent of each Security holder
affected.

Any provision of the Indenture expressly recognizing or granting
rights in or to the Insurer may not be amended in any manner which affects
the rights of the Insurer hereunder without the prior written consent of
the Insurer.

Notwithstanding any provision in the Indenture or any provision of
this Note, the Holder of this Note shall have the right, which is absolute
and unconditional, to receive payment of the principal of (and premium, if
any) and interest on this Note at the times, place and rate, and in the
currency herein prescribed.

The Company shall have the right, subject to the terms and
conditions of the Indenture, to redeem this Note, in whole or in part,
without premium or penalty, at any time or from time to time on or after
October 1, 2003, at a Redemption Price equal to 100% of the principal
amount to be redeemed plus accrued but unpaid interest to the Redemption
Date. If any Note called for redemption shall not be paid upon surrender
thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at 6.50%.

In addition, at the option of any deceased Beneficial Owner's
Representative (as such terms are defined in the Indenture), interests in
Notes are redeemable at 100% of their principal amount, plus accrued
interest, subject to certain limitations provided in the Indenture.

In the event of redemption of this Note in part only, a new Note
or Notes of this series for the unredeemed portion hereof will be issued
in the name of the Holder hereof upon surrender of the Note or the Note
will be reduced in accordance with the provisions of the Indenture. The
Notes will not have a sinking fund.

THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN.

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

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

IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.

CONSUMERS ENERGY COMPANY

By: ________________________________
Name:
Title:

Attested: _______________________________
Name:
Title:

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

Dated:___________________________________

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

THE CHASE MANHATTAN BANK
as Trustee

By: _________________________________
Authorized Officer<PAGE>
<PAGE>

SCHEDULE OF EXCHANGES OF INTERESTS IN THE NOTE

The following exchanges of interests in this Note have been made:

Principal
Amount of
this NoteSignature of
Amount ofAmount of followingauthorized
Date of Decrease increase such decreasesignatory
Exchange in this Notein this Note(or increase)of Trustee
________ _________________________________________________

ASSIGNMENT FORM

To assign this Note, fill in the form below:
I or we assign and transfer this Note to

__________________
__________________

Insert assignee's social security or tax I.D. no.

__________________________________________________________________________
(Print or type assignee's name, address and zip code)
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
and all rights thereunder and irrevocably appoint ________________________
__________________________________________________________________________

agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.

__________________________________________________________________________
Dated: _________________________________________________
____________________________

THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS IT APPEARS ON THE FIRST PAGE OF THE WITHIN NOTE.

Signature Guarantee: ____________________________________

THE SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR
INSTITUTION" THAT IS A MEMBER OR PARTICIPANT IN A "SIGNATURE GUARANTEE
PROGRAM" (E.G., THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE
STOCK EXCHANGE MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE, INC.
MEDALLION PROGRAM).<PAGE>
<PAGE>

EXHIBIT B

CERTIFICATE OF AUTHENTICATION

This is one of the Senior Secured Insured Quarterly Notes
referred to in the within-mentioned Indenture.

THE CHASE MANHATTAN BANK,
as Trustee

By: _______________________
Authorized Signatory

Dated:<PAGE>
<PAGE>
EXHIBIT C

FORM OF REQUEST FOR REDEMPTION

CONSUMERS ENERGY COMPANY

6.50% Senior Secured Insured Quarterly Notes

due October 1, 2028

CUSIP No. 210518BE5

The undersigned Participant does hereby certify, pursuant to
Section 5.01 of the Supplemental Indenture dated as of October 29, 1998 to
the Indenture dated as of February 1, 1998 between CONSUMERS ENERGY
COMPANY (the "Company") and THE CHASE MANHATTAN BANK, as trustee (the
"Trustee"), to the Company and the Trustee that:

1. [Name of deceased Beneficial Owner] is deceased.

2. [Name of deceased Beneficial Owner] had a $__________
interest in the Company's ____% Senior Secured Insured Quarterly Notes due
October 1, 2028 (the "Notes").

3. [Name of Representative] is [Beneficial Owner's personal
representative/other person authorized to represent the estate of the
Beneficial Owner/surviving joint tenant/surviving tenant by the entirety]
of [Name of deceased Beneficial Owner] and has delivered to the
undersigned a request for redemption in form satisfactory to the
undersigned, requesting that $__________ [$ 1,000 or an integral multiple
thereof] be redeemed pursuant to said Section 108. Such request and the
documents accompanying such request, all of which are satisfactory to the
undersigned, are delivered herewith.

4. [Name of Participant] holds the interest in the Notes
with respect to which this Request for Redemption is being made on behalf
of [Name of deceased Beneficial Owner].

<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Request for Redemption as of __________, ____.

[Name of Participant]

By:________________________________

Name: __________________________

Title:__________________________

Signature Guarantee
For Use by Eligible Institutions Only

Name of Guarantor _______________

Authorized Signature________________

<PAGE>

Exhibit (4)(b)

SEVENTY-FOURTH SUPPLEMENTAL INDENTURE

Providing among other things for

FIRST MORTGAGE BONDS,

6.50% Senior Secured Insured Quarterly Notes due October 1, 2028

______________

Dated as of October 29, 1998

______________

CONSUMERS ENERGY COMPANY

THE CHASE MANHATTAN BANK,

Trustee

Counterpart ______ of 100<PAGE>
<PAGE> 1

SEVENTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of October 29,
1998 (herein sometimes referred to as "this Supplemental Indenture"), made
and entered into by and between CONSUMERS ENERGY COMPANY, a corporation
organized and existing under the laws of the State of Michigan, with its
principal executive office and place of business at 212 West Michigan
Avenue, in Jackson, Jackson County, Michigan 49201, formerly known as
Consumers Power Company, (hereinafter sometimes referred to as the
"Company"), and THE CHASE MANHATTAN BANK, a corporation organized and
existing under the laws of the State of New York, with its corporate trust
offices at 450 W. 33rd Street, in the Borough of Manhattan, The City of
New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945
between Consumers Power Company, a Maine corporation (hereinafter
sometimes referred to as the "Maine corporation"), and City Bank Farmers
Trust Company (Citibank, N.A., successor, hereinafter sometimes referred
to as the "Predecessor Trustee"), securing bonds issued and to be issued
as provided therein (hereinafter sometimes referred to as the
"Indenture"),

WHEREAS at the close of business on January 30, 1959, City Bank
Farmers Trust Company was converted into a national banking association
under the title "First National City Trust Company"; and

WHEREAS at the close of business on January 15, 1963, First
National City Trust Company was merged into First National City Bank; and

WHEREAS at the close of business on October 31, 1968, First
National City Bank was merged into The City Bank of New York, National
Association, the name of which was thereupon changed to First National
City Bank; and

WHEREAS effective March 1, 1976, the name of First National City
Bank was changed to Citibank, N.A.; and

WHEREAS effective July 16, 1984, Manufacturers Hanover Trust
Company succeeded Citibank, N.A. as Trustee under the Indenture; and

WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger
to Manufacturers Hanover Trust Company as Trustee under the Indenture; and

WHEREAS effective July 15, 1996, The Chase Manhattan Bank
(National Association), merged with and into Chemical Bank which
thereafter was renamed The Chase Manhattan Bank as Trustee under the
Indenture; and

WHEREAS the Indenture was executed and delivered for the purpose
of securing such bonds as may from time to time be issued under and in
accordance with the terms of the Indenture, the aggregate principal amount
of bonds to be secured thereby being limited to $5,000,000,000 at any one
time outstanding (except as provided in Section 2.01 of the Indenture),
and the Indenture describes and sets forth the property conveyed thereby
and is filed in the Office of the Secretary of State of the State of
Michigan and is of record in the Office of the Register of Deeds of each
county in the State of Michigan in which this Supplemental Indenture is to
be recorded; and

WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of
the Secretary of State of the State of Michigan and is of record in the
Office of the Register of Deeds of each county in the State of Michigan in
which this Supplemental Indenture is to be recorded; and

WHEREAS the Company and the Maine corporation entered into an
Agreement of Merger and Consolidation, dated as of February 14, 1968,
which provided for the Maine corporation to merge into the Company; and

WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was
merged into the Company and the name of the Company was changed from
"Consumers Power Company of Michigan" to "Consumers Power Company"; and

WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which
provided, among other things, for the assumption of the Indenture by the
Company; and

WHEREAS said Sixteenth Supplemental Indenture became effective on
the effective date of such Agreement of Merger and Consolidation; and

WHEREAS the Company has succeeded to and has been substituted for
the Maine corporation under the Indenture with the same effect as if it
had been named therein as the mortgagor corporation; and

WHEREAS effective March 11, 1997, the name of Consumers Power
Company was changed to Consumers Energy Company; and

WHEREAS, the Company has entered into an Indenture dated as of
February 1, 1998, as amended and supplemented, ("Senior Note Indenture")
with The Chase Manhattan Bank, as trustee ("Senior Note Trustee")
providing for the issuance of notes thereunder, and pursuant to such
Senior Note Indenture the Company has agreed to issue to the Senior Note
Trustee, as security for the notes ("Senior Notes") to be issued
thereunder, a new series of bonds under the Indenture at the time of
authentication of each series of Senior Notes issued under such Senior
Note Indenture; and

WHEREAS, for such purposes the Company desires to issue a new
series of bonds, to be designated First Mortgage Bonds, 6.50% Senior
Secured Insured Quarterly Notes due October 1, 2028 each of which bonds
shall also bear the descriptive title "First Mortgage Bond" (hereinafter
provided for and hereinafter sometimes referred to as the "Senior IQ Note
Bonds"), the bonds of which series are to be issued as registered bonds
without coupons and are to bear interest at the rate per annum specified
herein and are to mature October 1, 2028; and

WHEREAS, the Senior IQ Note Bonds shall be issued to the Senior
Note Trustee in connection with the issuance by the Company of its 6.50%
Senior Secured Insured Quarterly Notes due October 1, 2028, (the "Notes");
and

WHEREAS each of the registered bonds without coupons of the Senior
IQ Note Bonds and the Trustee's Authentication Certificate thereon are to
be substantially in the following forms, to wit:

<PAGE>
<PAGE> 3

[FORM OF REGISTERED BOND OF THE SENIOR IQ NOTE BONDS]

[FACE]

NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE, THIS
BOND IS NOT ASSIGNABLE OR TRANSFERABLE EXCEPT AS PERMITTED OR REQUIRED BY
SECTION 4.04 OF THE INDENTURE, DATED AS OF FEBRUARY 1, 1998 BETWEEN
CONSUMERS ENERGY COMPANY AND THE CHASE MANHATTAN BANK, AS TRUSTEE.

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND, 6.50% SENIOR SECURED INSURED QUARTERLY NOTES
DUE OCTOBER 1, 2028

No. $

CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to The
Chase Manhattan Bank, as trustee under the Senior Note Indenture
hereinafter referred to, or registered assigns, the principal sum of One
Hundred Fifty Million Dollars on October 1, 2028, and to pay to the
registered holder hereof interest on said sum from the latest quarterly
interest payment date to which interest has been paid on the bonds of this
series preceding the date hereof, unless the date hereof be an interest
payment date to which interest is being paid, in which case from the date
hereof, or unless the date hereof is prior to January 1, 1999, in which
case from October 29, 1998, (or if this bond is dated between the record
date for any interest payment date and such interest payment date, then
from such interest payment date, provided, however, that if the Company
shall default in payment of the interest due on such interest payment
date, then from the next preceding quarterly interest payment date to
which interest has been paid on the bonds of this series, or if such
interest payment date is January 1, 1999, from October 29, 1998), at the
rate per annum of 6.50% until the principal hereof shall have become due
and payable, payable on each January 1, April 1, July 1 and October 1 in
each year, commencing January 1, 1999.

Under an Indenture dated as of February 1, 1998 (hereinafter
sometimes referred to as the "Senior Note Indenture"), between Consumers
Energy Company and The Chase Manhattan Bank, as trustee (hereinafter
sometimes called the "Senior Note Trustee"), the Company will issue,
concurrently with the issuance of this bond, an issue of notes under the
Senior Note Indenture entitled 6.50% Senior Secured Insured Quarterly
Notes due October 1, 2028 (the "Notes"). Pursuant to Article IV of the
Senior Note Indenture, this bond is issued to the Senior Note Trustee to
secure any and all obligations of the Company under the Notes and any
other series of senior notes from time to time outstanding under the
Senior Note Indenture. Payment of principal of, or premium, if any, or
interest on, the Notes shall constitute payments on this bond as further
provided herein and in the supplemental indenture pursuant to which this
bond has been issued (the "Supplemental Indenture").

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

This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate
hereon.

IN WITNESS WHEREOF, Consumers Energy Company has caused this bond
to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof,
and its corporate seal or a facsimile thereof to be affixed hereto or
imprinted hereon and attested by its Secretary or one of its Assistant
Secretaries by his or her signature or a facsimile thereof.

CONSUMERS ENERGY COMPANY,

Dated: By ___________________

Its ___________________

Attest: ____________________
Secretary

[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]

TRUSTEE'S AUTHENTICATION CERTIFICATE

This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.

THE CHASE MANHATTAN BANK, Trustee

By _________________________
Authorized Officer

[REVERSE]

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND, 6.50% SENIOR SECURED INSURED QUARTERLY NOTES
DUE OCTOBER 1, 2028

The interest payable on any January 1, April 1, July 1 and
October 1 (each "Interest Payment Date") will, subject to certain
exceptions provided in the Indenture hereinafter mentioned, be paid to the
person in whose name this bond is registered at the close of business on
the record date, which shall be on the fifteenth calendar day of the month
preceding the month in which the respective Interest Payment Date occurs
("Record Date"), or, if such Record Date shall be a legal holiday or a day
on which banking institutions in the City of New York, New York or the
City of Detroit, Michigan are authorized by law to close, the next
succeeding day which shall not be a legal holiday or a day on which such
institutions are so authorized to close. The principal of and the
premium, if any, and the interest on this bond shall be payable at the
office or agency of the Company in the City of Jackson, Michigan
designated for that purpose, in any coin or currency of the United States
of America which at the time of payment is legal tender for public and
private debts.

Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Notes, whether at maturity or prior
to maturity by redemption or otherwise or upon provision for the payment
thereof having been made in accordance with Section 5.01(a) of the Senior
Note Indenture, Senior IQ Note Bonds in a principal amount equal to the
principal amount of such Notes and having both a corresponding maturity
date and interest rate shall, to the extent of such payment of principal,
premium, if any, and interest, be deemed paid and the obligation of the
Company thereunder to make such payment shall be discharged to such extent
and, in the case of the payment of principal (and premium, if any) such
bonds of said series shall be surrendered to the Company for cancellation
as provided in Section 4.08 of the Senior Note Indenture. The Trustee may
at anytime and all times conclusively assume that the obligation of the
Company to make payments with respect to the principal of and premium, if
any, and interest on the Senior IQ Note Bonds, so far as such payments at
the time have become due, has been fully satisfied and discharged pursuant
to the foregoing sentence unless and until the Trustee shall have received
a written notice from the Senior Note Trustee signed by one of its
officers stating (i) that timely payment of, or premium or interest on,
the Notes has not been made, (ii) that the Company is in arrears as to the
payments required to be made by it to the Senior Note Trustee pursuant to
the Senior Note Indenture, and (iii) the amount of the arrearage.

For purposes of Section 4.09 of the Senior Note Indenture, this
bond shall be deemed to be the "related series of Senior Note First
Mortgage Bonds" in respect of the Notes.

This bond is one of the bonds issued and to be issued from
time to time under and in accordance with and all secured by an Indenture
dated as of September 1, 1945, given by the Company (or its predecessor,
Consumers Power Company, a Maine corporation) to City Bank Farmers Trust
Company (The Chase Manhattan Bank, successor) (hereinafter sometimes
referred to as the "Trustee"), and indentures supplemental thereto,
heretofore or hereafter executed, to which indenture and indentures
supplemental thereto (hereinafter referred to collectively as the
"Indenture") reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security and the
rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect
of such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which
may vary as to date, amount, date of maturity, rate of interest and in
other respects as provided in the Indenture.

The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified
by reason of the Company's interest therein) at the time outstanding,
including, if more than one series of bonds shall be at the time
outstanding, not less than sixty per centum in principal amount of each
series affected, to effect, by an indenture supplemental to the Indenture,
modifications or alterations of the Indenture and of the rights and
obligations of the Company and the rights of the holders of the bonds and
coupons; provided, however, that no such modification or alteration shall
be made without the written approval or consent of the holder hereof which
will (a) extend the maturity of this bond or reduce the rate or extend the
time of payment of interest hereon or reduce the amount of the principal
hereof, or (b) permit the creation of any lien, not otherwise permitted,
prior to or on a parity with the lien of the Indenture, or (c) reduce the
percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.

The Company reserves the right, without any consent, vote or other
action by holders of bonds of this series or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of
which are required to approve any supplemental indenture (other than any
supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per
centum (including sixty per centum of each series affected) to not less
than a majority in principal amount of the bonds at the time outstanding
or (b) in case fewer than all series are affected, not less than a
majority in principal amount of the bonds of all affected series, voting
together.

This bond is not redeemable except on the respective dates, in the
respective principal amounts and for the respective redemption prices
which correspond to the redemption dates for, the principal amounts to be
redeemed of, and the redemption prices for, the Notes, and except upon
written demand of the Senior Note Trustee following the occurrence of an
Event of Default under the Senior Note Indenture and the acceleration of
the senior notes, as provided in Section 8.01 of the Senior Note
Indenture. This bond is not redeemable by the operation of the
improvement fund or the maintenance and replacement provisions of the
Indenture or with the proceeds of released property.

This bond shall not be assignable or transferable except as
permitted or required by Section 4.04 of the Senior Note Indenture. Any
such transfer shall be effected at the Investor Services Department of the
Company, as transfer agent (hereinafter referred to as "corporate trust
office"). This bond shall be exchangeable for other registered bonds of
the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at said corporate trust office
of the transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any
registration of transfer or exchange of bonds of said series other than
for any tax or taxes or other governmental charge required to be paid by
the Company.

As provided in Section 4.11 of the Senior Note Indenture, from and
after the Release Date (as defined in the Senior Note Indenture), the
obligations of the Company with respect to this bond shall be deemed to be
satisfied and discharged, this bond shall cease to secure in any manner
any senior notes outstanding under the Senior Note Indenture, and,
pursuant to Section 4.08 of the Senior Note Indenture, the Senior Note
Trustee shall forthwith deliver this bond to the Company for cancellation.

In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on
the conditions, at the time, in the manner and with the effect provided in
the Indenture.

No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this bond, or for any claim based hereon,
or otherwise in respect hereof or of the Indenture, to or against any
incorporator, stockholder, director or officer, past, present or future,
as such, of the Company, or of any predecessor or successor company,
either directly or through the Company, or such predecessor or successor
company, or otherwise, under any constitution or statute or rule of law,
or by the enforcement of any assessment or penalty, or otherwise, all such
liability of incorporators, stockholders, directors and officers, as such,
being waived and released by the holder and owner hereof by the acceptance
of this bond and being likewise waived and released by the terms of the
Indenture.

____________________

AND WHEREAS all acts and things necessary to make the bonds of the
Senior IQ Note Bonds, when duly executed by the Company and authenticated
by the Trustee or its agent and issued as prescribed in the Indenture, as
heretofore supplemented and amended, and this Supplemental Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute the Indenture, as supplemented and amended as aforesaid, as
well as by this Supplemental Indenture, a valid, binding and legal
instrument for the security thereof, have been done and performed, and the
creation, execution and delivery of this Supplemental Indenture and the
creation, execution and issuance of bonds subject to the terms hereof and
of the Indenture, as so supplemented and amended, have in all respects
been duly authorized;

NOW, THEREFORE, in consideration of the premises, of the
acceptance and purchase by the holders thereof of the bonds issued and to
be issued under the Indenture, as supplemented and amended as above set
forth, and of the sum of One Dollar duly paid by the Trustee to the
Company, and of other good and valuable considerations, the receipt
whereof is hereby acknowledged, and for the purpose of securing the due
and punctual payment of the principal of and premium, if any, and interest
on all bonds now outstanding under the Indenture and the $150,000,000
principal amount of Senior IQ Note Bonds proposed to be issued initially
and all other bonds which shall be issued under the Indenture, as
supplemented and amended from time to time, and for the purpose of
securing the faithful performance and observance of all covenants and
conditions therein, and in any indenture supplemental thereto, set forth,
the Company has given, granted, bargained, sold, released, transferred,
assigned, hypothecated, pledged, mortgaged, confirmed, set over,
warranted, alienated and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage,
confirm, set over, warrant, alien and convey unto The Chase Manhattan
Bank, as Trustee, as provided in the Indenture, and its successor or
successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and
to all the property, described in Section 13 hereof, together (subject to
the provisions of Article X of the Indenture) with the tolls, rents,
revenues, issues, earnings, income, products and profits thereof,
excepting, however, the property, interests and rights specifically
excepted from the lien of the Indenture as set forth in the Indenture.

TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises,
property, franchises and rights, or any thereof, referred to in the
foregoing granting clause, with the reversion and reversions, remainder
and remainders and (subject to the provisions of Article X of the
Indenture) the tolls, rents, revenues, issues, earnings, income, products
and profits thereof, and all the estate, right, title and interest and
claim whatsoever, at law as well as in equity, which the Company now has
or may hereafter acquire in and to the aforesaid premises, property,
franchises and rights and every part and parcel thereof.

SUBJECT, HOWEVER, with respect to such premises, property,
franchises and rights, to excepted encumbrances as said term is defined in
Section 1.02 of the Indenture, and subject also to all defects and
limitations of title and to all encumbrances existing at the time of
acquisition.

TO HAVE AND TO HOLD all said premises, property, franchises and
rights hereby conveyed, assigned, pledged or mortgaged, or intended so to
be, unto the Trustee, its successor or successors in trust and their
assigns forever;

BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or
hereafter authenticated and delivered under and secured by the Indenture
and interest coupons appurtenant thereto, pursuant to the provisions of
the Indenture and of any supplemental indenture, and for the enforcement
of the payment of said bonds and coupons when payable and the performance
of and compliance with the covenants and conditions of the Indenture and
of any supplemental indenture, without any preference, distinction or
priority as to lien or otherwise of any bond or bonds over others by
reason of the difference in time of the actual authentication, delivery,
issue, sale or negotiation thereof or for any other reason whatsoever,
except as otherwise expressly provided in the Indenture; and so that each
and every bond now or hereafter authenticated and delivered thereunder
shall have the same lien, and so that the principal of and premium, if
any, and interest on every such bond shall, subject to the terms thereof,
be equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the
execution and delivery thereof.

AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as
supplemented and amended as above set forth, are to be issued,
authenticated and delivered, and all said premises, property, franchises
and rights hereby and by the Indenture and indentures supplemental thereto
conveyed, assigned, pledged or mortgaged, or intended so to be, are to be
dealt with and disposed of under, upon and subject to the terms,
conditions, stipulations, covenants, agreements, trusts, uses and purposes
expressed in the Indenture, as supplemented and amended as above set
forth, and the parties hereto mutually agree as follows:

SECTION 1. There is hereby created one series of bonds (the
"Senior IQ Note Bonds") designated as hereinabove provided, which shall
also bear the descriptive title "First Mortgage Bond", and the form
thereof shall be substantially as hereinbefore set forth. Senior IQ Note
Bonds shall be issued in the aggregate principal amount of $150,000,000,
shall mature on October 1, 2028 and shall be issued only as registered
bonds without coupons in denominations of $1,000 and any multiple thereof.
The serial numbers of bonds of the Senior IQ Note Bonds shall be such as
may be approved by any officer of the Company, the execution thereof by
any such officer either manually or by facsimile signature to be
conclusive evidence of such approval. Senior IQ Note Bonds shall bear
interest at a rate of 6.50% per annum until the principal thereof shall
have become due and payable, payable quarterly on January 1, April 1,
July 1 and October 1 in each year commencing January 1, 1999. The
principal of and the premium, if any, and the interest on said bonds
shall be payable in any coin or currency of the United States of America
which at the time of payment is legal tender for public and private debts,
at the office or agency of the Company in the City of Jackson, Michigan
designated for that purpose.

Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Notes whether at maturity or prior
to maturity by redemption or otherwise or upon provision for the payment
thereof having been made in accordance with Section 5.01(a) of the Senior
Note Indenture, Senior IQ Note Bonds in a principal amount equal to the
principal amount of such Notes and having both a corresponding maturity
date and interest rate shall, to the extent of such payment of principal,
premium, if any, and interest, be deemed paid and the obligation of the
Company thereunder to make such payment shall be discharged to such extent
and, in the case of the payment of principal (and premium, if any) such
bonds of said series shall be surrendered to the Company for cancellation
as provided in Section 4.08 of the Senior Note Indenture. The Trustee may
at anytime and all times conclusively assume that the obligation of the
Company to make payments with respect to the principal of and premium, if
any, and interest on the Senior IQ Note Bonds, so far as such payments at
the time have become due, has been fully satisfied and discharged pursuant
to the foregoing sentence unless and until the Trustee shall have received
a written notice from the Senior Note Trustee signed by one of its
officers stating (i) that timely payment of, or premium or interest on,
the Notes has not been so made, (ii) that the Company is in arrears as to
the payments required to be made by it to the Senior Note Trustee pursuant
to the Senior Note Indenture, and (iii) the amount of the arrearage.

Each Senior IQ Note Bond is to be issued to and registered in the
name of The Chase Manhattan Bank, as trustee, or a successor trustee (said
trustee or any successor trustee being hereinafter referred to as the
"Senior Note Trustee") under the Indenture, dated as of February 1, 1998
(hereinafter sometimes referred to as the "Senior Note Indenture") between
Consumers Energy Company and the Senior Note Trustee, to secure any and
all obligations of the Company under the Notes and any other series of
senior notes from time to time outstanding under the Senior Note
Indenture.

The Senior IQ Note Bonds shall not be assignable or transferable
except as permitted or required by Section 4.04 of the Senior Note
Indenture. Any such transfer shall be effected at the Investor Services
Department of the Company, as transfer agent (hereinafter referred to as
"corporate trust office"). The Senior IQ Note Bonds shall be exchangeable
for other registered bonds of the same series, in the manner and upon the
conditions prescribed in the Indenture, upon the surrender of such bonds
at said corporate trust office of the transfer agent. However,
notwithstanding the provisions of Section 2.05 of the Indenture, no charge
shall be made upon any registration of transfer or exchange of bonds of
said series other than for any tax or taxes or other governmental charge
required to be paid by the Company.

SECTION 2. Senior IQ Note Bonds shall not be redeemable except on
the respective dates, in the respective principal amounts and for the
respective redemption prices which correspond to the redemption dates for,
the principal amounts to be redeemed of, and the redemption prices for,
the Notes, and except as set forth in Section 3 hereof.

In the event the Company redeems any Notes prior to maturity in
accordance with the provisions of the Senior Note Indenture or in
accordance with the provisions of the Third Supplemental Indenture to the
Senior Note Indenture dated as of October 29, 1998 (the "Third
Supplemental Indenture to the Senior Note Indenture"), the Senior Note
Trustee shall on the same date deliver to the Company the Senior IQ Note
Bonds in principal amounts corresponding to the Notes so redeemed, as
provided in Section 4.08 of the Senior Note Indenture. The Company agrees
to give the Trustee and the Senior Note Trustee notice of any such
redemption of the Notes on or before the date fixed for any such
redemption.

In the event a Beneficial Owner (as such term is defined in the
Third Supplemental Indenture to the Senior Note Indenture) redeems any
Notes prior to maturity in accordance with the provisions of the Third
Supplemental Indenture to the Senior Note Indenture, the Senior Note
Trustee shall on the same date deliver to the Company the Senior IQ Note
Bonds in principal amounts corresponding to the Notes so redeemed, as
provided in Section 4.08 of the Senior Note Indenture. The Company agrees
to give the Trustee and the Senior Note Trustee notice of any such
redemption of the Notes on or before the date fixed for any such
redemption.

Senior IQ Note Bonds are not redeemable by the operation of the
improvement fund or the maintenance and replacement provisions of this
Indenture or with the proceeds of released property.

SECTION 3. Upon the occurrence of an Event of Default under the
Senior Note Indenture and the acceleration of the Notes, the Senior IQ
Note Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand (hereinafter called a "Redemption Demand") from the Senior
Note Trustee stating that there has occurred under the Senior Note
Indenture both an Event of Default and a declaration of acceleration of
payment of principal, accrued interest and premium, if any, on the Notes,
specifying the last date to which interest on such notes has been paid
(such date being hereinafter referred to as the "Initial Interest Accrual
Date") and demanding redemption of Senior IQ Note Bonds. The Company
waives any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Senior IQ Note Bonds by the Senior Note
Trustee to the Trustee, the Senior IQ Note Bonds shall be redeemed at a
redemption price equal to the principal amount thereof plus accrued
interest thereon from the Initial Interest Accrual Date to the date of the
Redemption Demand; provided, however, that in the event of a recision of
acceleration of senior notes pursuant to the last paragraph of
Section 8.01(a) of the Senior Note Indenture, then any Redemption Demand
shall thereby be deemed to be rescinded by the Senior Note Trustee; but no
such recision or annulment shall extend to or affect any subsequent
default or impair any right consequent thereon.

SECTION 4. For purposes of Section 4.09 of the Senior Note
Indenture, this bond shall be deemed to be the "related series of Senior
Note First Mortgage Bonds" in respect of the Notes.

SECTION 5. As provided in Section 4.11 of the Senior Note
Indenture, from and after the Release Date (as defined in the Senior Note
Indenture), the obligations of the Company with respect to the Senior IQ
Note Bonds (the "Bonds") shall be deemed to be satisfied and discharged,
the Bonds shall cease to secure in any manner any senior notes outstanding
under the Senior Note Indenture, and, pursuant to Section 4.08 of the
Senior Note Indenture, the Senior Note Trustee shall forthwith deliver the
Bonds to the Company for cancellation.

SECTION 6. The Company reserves the right, without any consent,
vote or other action by the holder of the Senior IQ Note Bonds or the
holders of any Notes, or of any subsequent series of bonds issued under
the Indenture, to make such amendments to the Indenture, as supplemented,
as shall be necessary in order to amend Section 17.02 to read as follows:

SECTION 17.02. With the consent of the holders
of not less than a majority in principal amount of the
bonds at the time outstanding or their attorneys-in-fact
duly authorized, or, if fewer than all series are
affected, not less than a majority in principal amount of
the bonds at the time outstanding of each series the
rights of the holders of which are affected, voting
together, the Company, when authorized by a resolution,
and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or modifying
the rights and obligations of the Company and the rights
of the holders of any of the bonds and coupons; provided,
however, that no such supplemental indenture shall
(1) extend the maturity of any of the bonds or reduce the
rate or extend the time of payment of interest thereon, or
reduce the amount of the principal thereof, or reduce any
premium payable on the redemption thereof, without the
consent of the holder of each bond so affected, or
(2) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of this
Indenture, without the consent of the holders of all the
bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of
which are required to approve any such supplemental
indenture, without the consent of the holders of all the
bonds then outstanding. For the purposes of this Section,
bonds shall be deemed to be affected by a supplemental
indenture if such supplemental indenture adversely affects
or diminishes the rights of holders thereof against the
Company or against its property. The Trustee may in its
discretion determine whether or not, in accordance with
the foregoing, bonds of any particular series would be
affected by any supplemental indenture and any such
determination shall be conclusive upon the holders of
bonds of such series and all other series. Subject to the
provisions of Sections 16.02 and 16.03 hereof, the Trustee
shall not be liable for any determination made in good
faith in connection herewith.

Upon the written request of the Company,
accompanied by a resolution authorizing the execution of
any such supplemental indenture, and upon the filing with
the Trustee of evidence of the consent of bondholders as
aforesaid (the instrument or instruments evidencing such
consent to be dated within one year of such request), the
Trustee shall join with the Company in the execution of
such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture.

It shall not be necessary for the consent of the
bondholders under this Section to approve the particular
form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance
thereof.

The Company and the Trustee, if they so elect,
and either before or after such consent has been obtained,
may require the holder of any bond consenting to the
execution of any such supplemental indenture to submit his
bond to the Trustee or to ask such bank, banker or trust
company as may be designated by the Trustee for the
purpose, for the notation thereon of the fact that the
holder of such bond has consented to the execution of such
supplemental indenture, and in such case such notation, in
form satisfactory to the Trustee, shall be made upon all
bonds so submitted, and such bonds bearing such notation
shall forthwith be returned to the persons entitled
thereto.

Prior to the execution by the Company and the
Trustee of any supplemental indenture pursuant to the
provisions of this Section, the Company shall publish a
notice, setting forth in general terms the substance of
such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the
principal of any of the bonds shall be payable, or, if all
bonds outstanding shall be registered bonds without
coupons or coupon bonds registered as to principal, such
notice shall be sufficiently given if mailed, first class,
postage prepaid, and registered if the Company so elects,
to each registered holder of bonds at the last address of
such holder appearing on the registry books, such
publication or mailing, as the case may be, to be made not
less than thirty days prior to such execution. Any
failure of the Company to give such notice, or any defect
therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.

SECTION 7. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and
all indentures supplemental thereto shall be read, taken and construed as
one and the same instrument.

SECTION 8. Nothing contained in this Supplemental Indenture
shall, or shall be construed to, confer upon any person other than a
holder of bonds issued under the Indenture, as supplemented and amended as
above set forth, the Company, the Trustee and the Senior Note Trustee, for
the benefit of the holder or holders of the Notes, any right or interest
to avail himself of any benefit under any provision of the Indenture, as
so supplemented and amended.

SECTION 9. The Trustee assumes no responsibility for or in
respect of the validity or sufficiency of this Supplemental Indenture or
of the Indenture as hereby supplemented or the due execution hereof by the
Company or for or in respect of the recitals and statements contained
herein (other than those contained in the sixth and seventh recitals
hereof), all of which recitals and statements are made solely by the
Company.

SECTION 10. This Supplemental Indenture may be simultaneously
executed in several counterparts and all such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.

SECTION 11. In the event the date of any notice required or
permitted hereunder or the date of maturity of interest on or principal of
the Senior IQ Note Bonds or the date fixed for redemption or repayment of
the Senior IQ Note Bonds shall not be a Business Day, then
(notwithstanding any other provision of the Indenture or of any
supplemental indenture thereto) such notice or such payment of such
interest or principal need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made
on the date fixed for such notice or as if made on the date of maturity or
the date fixed for redemption or repayment, and no interest shall accrue
for the period from and after such date. "Business Day" means, with
respect to this Section 11, a day of the year on which banks are not
required or authorized to close in New York City or Detroit, Michigan.

SECTION 12. This Supplemental Indenture and the Senior IQ Note
Bonds shall be governed by and deemed to be a contract under, and
construed in accordance with, the laws of the State of Michigan, and for
all purposes shall be construed in accordance with the laws of such state,
except as may otherwise be required by mandatory provisions of law.

SECTION 13. Detailed Description of Property Mortgaged:

ELECTRIC GENERATING PLANTS AND DAMS

All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, including all powerhouses, buildings,
reservoirs, dams, pipelines, flumes, structures and works and the land on
which the same are situated and all water rights and all other lands and
easements, rights of way, permits, privileges, towers, poles, wires,
machinery, equipment, appliances, appurtenances and supplies and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such plants and stations or any of
them, or adjacent thereto.

II.

ELECTRIC TRANSMISSION LINES

All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including towers, poles, pole lines, wires, switches, switch
racks, switchboards, insulators and other appliances and equipment, and
all other property, real or personal, forming a part of or appertaining to
or used, occupied or enjoyed in connection with such transmission lines or
any of them or adjacent thereto; together with all real property, rights
of way, easements, permits, privileges, franchises and rights for or
relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or
highways, within as well as without the corporate limits of any municipal
corporation. Also all the real property, rights of way, easements,
permits, privileges and rights for or relating to the construction,
maintenance or operation of certain transmission lines, the land and
rights for which are owned by the Company, which are either not built or
now being constructed.

III.

ELECTRIC DISTRIBUTION SYSTEMS

All the electric distribution systems of the Company, constructed
or otherwise acquired by it and not heretofore described in the Indenture
or any supplement thereto and not heretofore released from the lien of the
Indenture, including substations, transformers, switchboards, towers,
poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such distribution systems or any of them or
adjacent thereto; together with all real property, rights of way,
easements, permits, privileges, franchises, grants and rights, for or
relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways
within as well as without the corporate limits of any municipal
corporation.

IV.

ELECTRIC SUBSTATIONS,
SWITCHING STATIONS AND SITES

All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, for transforming, regulating, converting or
distributing or otherwise controlling electric current at any of its
plants and elsewhere, together with all buildings, transformers, wires,
insulators and other appliances and equipment, and all other property,
real or personal, forming a part of or appertaining to or used, occupied
or enjoyed in connection with any of such substations and switching
stations, or adjacent thereto, with sites to be used for such purposes.

GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
DESULPHURIZATION STATIONS, METERING STATIONS,
ODORIZING STATIONS, REGULATORS AND SITES

All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of
the Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the lien of the Indenture, for compressing, processing,
desulphurizing, metering, odorizing and regulating manufactured or natural
gas at any of its plants and elsewhere, together with all buildings,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with any of such purposes, with sites to be used for
such purposes.

VI.

GAS STORAGE FIELDS

The natural gas rights and interests of the Company, including
wells and well lines (but not including natural gas, oil and minerals),
the gas gathering system, the underground gas storage rights, the
underground gas storage wells and injection and withdrawal system used in
connection therewith, constructed or otherwise acquired by it and not
heretofore described in the Indenture or any supplement thereto and not
heretofore released from the lien of the Indenture: In the Overisel Gas
Storage Field, located in the Township of Overisel, Allegan County, and in
the Township of Zeeland, Ottawa County, Michigan; in the Northville Gas
Storage Field located in the Township of Salem, Washtenaw County, Township
of Lyon, Oakland County, and the Townships of Northville and Plymouth and
City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field,
located in the Township of Salem, Allegan County, and in the Township of
Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located
in the Townships of Ray and Armada, Macomb County, Michigan; in the Lenox
Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the
Township of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage
Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco,
China, Cottrellville and Ira, St. Clair County, Michigan; in the Swan
Creek Gas Storage Field, located in the Township of Casco and Ira, St.
Clair County, Michigan; and in the Hessen Gas Storage Field, located in
the Townships of Casco and Columbus, St. Clair, Michigan.

VII.

GAS TRANSMISSION LINES

All the gas transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including gas mains, pipes, pipelines, gates, valves, meters
and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, right of way,
easements, permits, privileges, franchises and rights for or relating to
the construction, maintenance or operation thereof, through, over, under
or upon any private property or any public streets or highways, within as
well as without the corporate limits of any municipal corporation.

VIII.

GAS DISTRIBUTION SYSTEMS

All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including tunnels, conduits, gas mains and pipes, service
pipes, fittings, gates, valves, connections, meters and other appliances
and equipment, and all other property, real or personal, forming a part of
or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all
real property, rights of way, easements, permits, privileges, franchises,
grants and rights, for or relating to the construction, maintenance or
operation thereof, through, over, under or upon any private property or
any public streets or highways within as well as without the corporate
limits of any municipal corporation.

IX.

OFFICE BUILDINGS,
SERVICE BUILDINGS, GARAGES, ETC.

All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the
Indenture, together with the land on which the same are situated and all
easements, rights of way and appurtenances to said lands, together with
all furniture and fixtures located in said buildings.

TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT

All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the line of the Indenture, used or available for use in the
operation of its properties, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in
connection with such telephone properties or any of them or adjacent
thereto; together with all real estate, rights of way, easements, permits,
privileges, franchises, property, devices or rights related to the
dispatch, transmission, reception or reproduction of messages,
communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment
installed in buildings used as general and regional offices, substations
and generating stations and all telephone lines erected on towers and
poles; and all radio communication equipment of the Company, together with
all property, real or personal (except any in the Indenture expressly
excepted), fixed stations, towers, auxiliary radio buildings and
equipment, and all appurtenances used in connection therewith, wherever
located, in the State of Michigan.

XI.

OTHER REAL PROPERTY

All other real property of the Company and all interests therein,
of every nature and description (except any in the Indenture expressly
excepted) wherever located, in the State of Michigan, acquired by it and
not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the line of the Indenture. Such real
property includes but is not limited to the following described property,
such property is subject to any interests that were excepted or reserved
in the conveyance to the Company:

Alcona County

Certain land in Caledonia Township, Alcona County, Michigan
described as:

The East 330 feet of the South 660 feet of the SW 1/4 of
the SW 1/4 of Section 8, T28N, R8E, except the West 264
feet of the South 330 feet thereof; said land being more
particularly described as follows: To find the place of
beginning of this description, commence at the Southwest
corner of said section, run thence East along the South
line of said section 1243 feet to the place of beginning
of this description, thence continuing East along said
South line of said section 66 feet to the West 1/8 line of
said section, thence N 02 09' 30" E along the said West
1/8 line of said section 660 feet, thence West 330 feet,
thence S 02 09' 30" W, 330 feet, thence East 264 feet,
thence S 02 09' 30" W, 330 feet to the place of
beginning.

Allegan County

Certain land in Lee Township, Allegan County, Michigan described
as:

The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

Alpena County

Certain land in Wilson and Green Townships, Alpena County,
Michigan described as:

All that part of the S'ly 1/2 of the former Boyne City-
Gaylord and Alpena Railroad right of way, being the
Southerly 50 feet of a 100 foot strip of land formerly
occupied by said Railroad, running from the East line of
Section 31, T31N, R7E, Southwesterly across said
Section 31 and Sections 5 and 6 of T30N, R7E and
Sections 10, 11 and the E1/2 of Section 9, except the West
1646 feet thereof, all in T30N, R6E.

Antrim County

Certain land in Mancelona Township, Antrim County, Michigan
described as:

The S 1/2 of the NE 1/4 of Section 33, T29N, R6W,
excepting therefrom all mineral, coal, oil and gas and
such other rights as were reserved unto the State of
Michigan in that certain deed running from the State of
Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97
of Deeds on page 682 of Antrim County Records.

Arenac County

Certain land in Standish Township, Arenac County, Michigan
described as:

A parcel of land in the SW 1/4 of the NW 1/4 of
Section 12, T18N, R4E, described as follows: To find the
place of beginning of said parcel of land, commence at the
Northwest corner of Section 12, T18N, R4E; run thence
South along the West line of said section, said West line
of said section being also the center line of East City
Limits Road 2642.15 feet to the W 1/4 post of said section
and the place of beginning of said parcel of land; running
thence N 88 26' 00" E along the East and West 1/4 line of
said section, 660.0 feet; thence North parallel with the
West line of said section, 310.0 feet; thence S 88 26'
00" W, 330.0 feet; thence South parallel with the West
line of said section, 260.0 feet; thence S 88 26' 00" W,
330.0 feet to the West line of said section and the center
line of East City Limits Road; thence South along the said
West line of said section, 50.0 feet to the place of
beginning.

Barry County

Certain land in Johnstown Township, Barry County, Michigan
described as:

A strip of land 311 feet in width across the SW 1/4 of the
NE 1/4 of Section 31, T1N, R8W, described as follows: To
find the place of beginning of this description, commence
at the E 1/4 post of said section; run thence N 00 55'
00" E along the East line of said section, 555.84 feet;
thence N 59 36' 20" W, 1375.64 feet; thence N 88 30'
00" W, 130 feet to a point on the East 1/8 line of said
section and the place of beginning of this description;
thence continuing N 88 30' 00" W, 1327.46 feet to the
North and South 1/4 line of said section; thence S 00 39'
35" W along said North and South 1/4 line of said section,
311.03 feet to a point, which said point is 952.72 feet
distant N'ly from the East and West 1/4 line of said
section as measured along said North and South 1/4 line of
said section; thence S 88 30' 00" E, 1326.76 feet to the
East 1/8 line of said section; thence N 00 47' 20" E
along said East 1/8 line of said section, 311.02 feet to
the place of beginning.

Bay County

Certain land in Frankenlust Township, Bay County, Michigan
described as:

The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2
of the SE 1/4 of Section 9, T13N, R4E.

<PAGE>
<PAGE>
Benzie County

Certain land in Benzonia Township, Benzie County, Michigan
described as:

A parcel of land in the Northeast 1/4 of Section 7,
Township 26 North, Range 14 West, described as beginning
at a point on the East line of said Section 7, said point
being 320 feet North measured along the East line of said
section from the East 1/4 post; running thence West 165
feet; thence North parallel with the East line of said
section 165 feet; thence East 165 feet to the East line of
said section; thence South 165 feet to the place of
beginning.

Branch County

Certain land in Girard Township, Branch County, Michigan described
as:

A parcel of land in the NE1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South
quarter line of said section at a point 1278.27 feet
distant South of the North quarter post of said section,
said distance being measured along the North and South
quarter line of said section, running thence S89 21'E 250
feet, thence North along a line parallel with the said
North and South quarter line of said section 200 feet,
thence N89 21'W 250 feet to the North and South quarter
line of said section, thence South along said North and
South quarter line of said section 200 feet to the place
of beginning.

Calhoun County

Certain land in Convis Township, Calhoun County, Michigan
described as:

A parcel of land in the SE 1/4 of the SE 1/4 of
Section 32, T1S, R6W, described as follows: To find the
place of beginning of this description, commence at the
Southeast corner of said section; run thence North along
the East line of said section 1034.32 feet to the place of
beginning of this description; running thence N 89 39'
52" W, 333.0 feet; thence North 290.0 feet to the South
1/8 line of said section; thence S 89 39' 52" E along
said South 1/8 line of said section 333.0 feet to the East
line of said section; thence South along said East line of
said section 290.0 feet to the place of beginning.
(Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the
Northeast corner of said section assumed as North.)

Cass County

Certain easement rights located across land in Marcellus Township,
Cass County, Michigan described as:

The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.

Charlevoix County

Certain land in South Arm Township, Charlevoix County, Michigan
described as:

A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner
of said section and running thence North along the West
line of said section 788.25 feet to a point which is
528 feet distant South of the South 1/8 line of said
section as measured along the said West line of said
section; thence N 89 30' 19" E, parallel with said South
1/8 line of said section 442.1 feet; thence South 788.15
feet to the South line of said section; thence S 89 29'
30" W, along said South line of said section 442.1 feet to
the place of beginning.

Cheboygan County

Certain land in Inverness Township, Cheboygan County, Michigan
described as:

A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW
frl 1/4, running thence East on the East and West quarter
line of said Section, 40 rods, thence South parallel to
the West line of said Section 40 rods, thence West 40 rods
to the West line of said Section, thence North 40 rods to
the place of beginning.

Clare County

Certain land in Frost Township, Clare County, Michigan described
as:

The East 150 feet of the North 225 feet of the NW 1/4 of
the NW 1/4 of Section 15, T20N, R4W.

Clinton County

Certain land in Watertown Township, Clinton County, Michigan
described as:

The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and
the North 165 feet of the NW 1/4 of the NE 1/4 of the
SE 1/4 of Section 22, T5N, R3W.

Crawford County

Certain land in Lovells Township, Crawford County, Michigan
described as:

A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South
89 53'30" East along North section line 105.78 feet to
point of beginning; thence South 89 53'30" East along
North section line 649.64 feet; thence South 55 42'30"
East 340.24 feet; thence South 55 44'37" East 5,061.81
feet to the East section line; thence South 00 00'08" West
along East section line 441.59 feet; thence
North 55 44'37" West 5,310.48 feet; thence North 55 42'30"
West 877.76 feet to point of beginning.

Eaton County

Certain land in Eaton Township, Eaton County, Michigan described
as:

A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of
this description commence at the Southwest corner of said
section; run thence N 89 51' 30" E along the South line
of said section 400 feet to the place of beginning of this
description; thence continuing N 89 51' 30" E, 500 feet;
thence N 00 50' 00" W, 600 feet; thence S 89 51' 30" W
parallel with the South line of said section 500 feet;
thence S 00 50' 00" E, 600 feet to the place of
beginning.

Emmet County

Certain land in Wawatam Township, Emmet County, Michigan described
as:

The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.

Genesee County

Certain land in Argentine Township, Genesee County, Michigan
described as:

A parcel of land of part of the SW 1/4 of Section 8, T5N,
R5E, being more particularly described as follows:

Beginning at a point of the West line of Duffield Road,
100 feet wide, (as now established) distant 829.46 feet
measured N01 42'56"W and 50 feet measured S88 14'04"W from
the South quarter corner, Section 8, T5N, R5E; thence
S88 14'04"W a distance of 550 feet; thence N01 42'56"W a
distance of 500 feet to a point on the North line of the
South half of the Southwest quarter of said Section 8;
thence N88 14'04"E along the North line of South half of
the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road,
100 feet wide (as now established); thence S01 42'56"E
along the West line of said Duffield Road a distance of
500 feet to the point of beginning.

Gladwin County

Certain land in Secord Township, Gladwin County, Michigan
described as:

The East 400 feet of the South 450 feet of Section 2,
T19N, R1E.

Grand Traverse County

Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest
corner of said section, running thence S 89 19'15" E along
the North line of said section and the center line of
Clouss Road 225 feet, thence South 400 feet, thence
N 89 19'15" W 225 feet to the West line of said section
and the center line of Hannah Road, thence North along the
West line of said section and the center line of Hannah
Road 400 feet to the place of beginning for this
description.

Gratiot County

Certain land in Washington Township, Gratiot County, Michigan
described as:

Commencing at the Northeast corner of Section 10, T9N,
R2W, running thence West along the North line of said
section a distance of 194.5 feet, thence S0 07'10"W
200 feet to a point, thence East 194.5 feet to the East
line of said Section 10, thence N0 07'10"E along the East
line of said section a distance of 200 feet to the point
of beginning.

Hillsdale County

Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

Lots numbered three (3) and four (4) of Block three (3) of
Harvey Smiths Southern Addition to the Village of
Litchfield according to the recorded plat thereof as
recorded in Liber AK of deeds, page 490.

Huron County

Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

The North 1/2 of the Northwest 1/4 of Section 15, T15N,
R9E.

Ingham County

Certain land in Vevay Township, Ingham County, Michigan described
as:

A parcel of land 660 feet wide in the Southwest 1/4 of
Section 7 lying South of the centerline of Sitts Road as
extended to the North-South 1/4 line of said Section 7,
T2N, R1W, more particularly described as follows:
Commence at the Southwest corner of said Section 7, thence
North along the West line of said Section 2502.71 feet to
the centerline of Sitts Road; thence South 89 54'45" East
along said centerline 2282.38 feet to the place of
beginning of this description; thence continuing South
89 54'45" East along said centerline and said centerline
extended 660.00 feet to the North-South 1/4 line of said
section; thence South 00 07'20" West 1461.71 feet; thence
North 89 34'58" West 660.00 feet; thence North 00 07'20"
East 1457.91 feet to the centerline of Sitts Road and the
place of beginning.

Ionia County

Certain land in Sebewa Township, Ionia County, Michigan described
as:

A strip of land 280 feet wide across that part of the
SW 1/4 of the NE 1/4 of Section 15, T5N, R6W, described as
follows: To find the place of beginning of this
description commence at the E 1/4 corner of said section;
run thence N 00 05' 38" W along the East line of said
section, 1218.43 feet; thence S 67 18' 24" W,
1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing
S 67 18' 24" W, 1426.28 feet to the North and South 1/4
line of said section at a point which said point is 105.82
feet distant N'ly of the center of said section as
measured along said North and South 1/4 line of said
section; thence N 00 04' 47" E along said North and South
1/4 line of said section, 303.67 feet; thence N 67 18'
24" E, 1425.78 feet to the East 1/8 line of said section;
thence S 00 00' 26" E along said East 1/8 line of said
section, 303.48 feet to the place of beginning. (Bearings
are based on the East line of Section 15, T5N, R6W, from
the E 1/4 corner of said section to the Northeast corner
of said section assumed as N 00 05' 38" W.)

Iosco County

Certain land in Alabaster Township, Iosco County, Michigan
described as:

A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of
this description commence at the N 1/4 post of said
section; run thence South along the North and South 1/4
line of said section, 1354.40 feet to the place of
beginning of this description; thence continuing South
along the said North and South 1/4 line of said section,
165.00 feet to a point on the said North and South 1/4
line of said section which said point is 1089.00 feet
distant North of the center of said section; thence West
440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section
and the place of beginning.

Isabella County

Certain land in Chippewa Township, Isabella County, Michigan
described as:

The North 8 rods of the NE 1/4 of the SE 1/4 of
Section 29, T14N, R3W.

Jackson County

Certain land in Waterloo Township, Jackson County, Michigan
described as:

A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as
follows: To find the place of beginning of this
description commence at the E 1/4 post of said section;
run thence N 01 03' 40" E along the East line of said
section 13335.45 feet to the North 1/8 line of said
section and the place of beginning of this description;
thence N 89 32' 00" W, 2677.7 feet to the North and South
1/4 line of said section; thence S 00 59' 25" W along the
North and South 1/4 line of said section 22.38 feet to the
North 1/8 line of said section; thence S 89 59' 10" W
along the North 1/8 line of said section 2339.4 feet to
the center line of State Trunkline Highway M-52; thence
N 53 46' 00" W along the center line of said State
Trunkline Highway 414.22 feet to the West line of said
section; thence N 00 55' 10" E along the West line of
said section 74.35 feet; thence S 89 32' 00" E,
5356.02 feet to the East line of said section; thence
S 01 03' 40" W along the East line of said section
250 feet to the place of beginning.

Kalamazoo County

Certain land in Alamo Township, Kalamazoo County, Michigan
described as:

The South 350 feet of the NW 1/4 of the NW 1/4 of
Section 16, T1S, R12W, being more particularly described
as follows: To find the place of beginning of this
description, commence at the Northwest corner of said
section; run thence S 00 36' 55" W along the West line of
said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 36' 55" W along said
West line of said section 350.18 feet to the North 1/8
line of said section; thence S 87 33' 40" E along the
said North 1/8 line of said section 1325.1 feet to the
West 1/8 line of said section; thence N 00 38' 25" E
along the said West 1/8 line of said section 350.17 feet;
thence N 87 33' 40" W, 1325.25 feet to the place of
beginning.

Kalkaska County

Certain land in Kalkaska Township, Kalkaska County, Michigan
described as:

The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W,
excepting therefrom all mineral, coal, oil and gas and
such other rights as were reserved unto the State of
Michigan in that certain deed running from the Department
of Conservation for the State of Michigan to George Welker
and Mary Welker, his wife, dated October 9, 1934 and
recorded December 28, 1934 in Liber 39 on page 291 of
Kalkaska County Records, and subject to easement for
pipeline purposes as granted to Michigan Consolidated Gas
Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska
County Records.

Kent County

Certain land in Caledonia Township, Kent County, Michigan
described as:

A parcel of land in the Northwest fractional 1/4 of
Section 15, T5N, R10W, described as follows: To find the
place of beginning of this description commence at the
North 1/4 corner of said section, run thence S 0 59'
26" E along the North and South 1/4 line of said section
2046.25 feet to the place of beginning of this
description, thence continuing S 0 59' 26" E along said
North and South 1/4 line of said section 332.88 feet,
thence S 88 58' 30" W 2510.90 feet to a point herein
designated "Point A" on the East bank of the Thornapple
River, thence continuing S 88 53' 30" W to the center
thread of the Thornapple River, thence NW'ly along the
center thread of said Thornapple River to a point which
said point is S 88 58' 30" W of a point on the East bank
of the Thornapple River herein designated "Point B", said
"Point B" being N 23 41' 35" W 360.75 feet from said
above-described "Point A", thence N 88 58' 30" E to said
"Point B", thence continuing N 88 58' 30" E 2650.13 feet
to the place of beginning. (Bearings are based on the
East line of Section 15, T5N, R10W between the East 1/4
corner of said section and the Northeast corner of said
section assumed as N 0 59' 55" W.)

Lake County

Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

A strip of land 50 feet wide East and West along and
adjoining the West line of highway on the East side of the
North 1/2 of Section 13 T18N, R12W. Also a strip of land
100 feet wide East and West along and adjoining the East
line of the highway on the West side of following
described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

Lapeer County

Certain land in Hadley Township, Lapeer County, Michigan described
as:

The South 825 feet of the W 1/2 of the SW 1/4 of
Section 24, T6N, R9E, except the West 1064 feet thereof.

Leelanau County

Certain land in Cleveland Township, Leelanau County, Michigan
described as:

The North 200 feet of the West 180 feet of the SW 1/4 of
the SE 1/4 of Section 35, T29N, R13W.

Lenawee County

Certain land in Madison Township, Lenawee County, Michigan
described as:

A strip of land 165 feet wide off the West side of the
following described premises: The E1/2 of the SE1/4 of
Section 12. The E1/2 of the NE1/4 and the NE1/4 of the SE1/4 of
Section 13, being all in T7S, R3E, excepting therefrom a
parcel of land in the E1/2 of the SE1/4 of Section 12, T7S,
R3E, beginning at the Northwest corner of said E1/2 of the
SE1/4 of Section 12, running thence East 4 rods, thence
South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.

Livingston County

Certain land in Cohoctah Township, Livingston County, Michigan
described as:

Parcel 1

The East 390 feet of the East 50 rods of the SW 1/4 of
Section 30, T4N, R4E.

Parcel 2

A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of
this description commence at the N 1/4 post of said
section; run thence N 89 13' 06" W along the North line
of said section, 330 feet to the place of beginning of
this description; running thence S 00 52' 49" W,
2167.87 feet; thence N 88 59' 49" W, 60 feet; thence
N 00 52' 49" E, 2167.66 feet to the North line of said
section; thence S 89 13' 06" E along said North line of
said section, 60 feet to the place of beginning.

Mackinac County

Certain easement rights located across land in Moran Township,
Mackinac County, Michigan described as:

A 20 foot wide strip of land, 10 feet on each side of the
hereinafter described center line, through Lots 16, 17 and
21, Block 12 of Partition Plat of Private Claim No. 1,
Section 23, Township 40 North, Range 4 West: Said center
line being described as beginning at Edison Sault Electric
Company's existing 35 foot service pole located 200 feet,
more or less, Northerly of the shoreline of the Straits of
Mackinac, running thence Easterly to a point approximately
20 feet Westerly of the center line of Lakehead Pipeline
Company's existing 20 inch pipeline, thence Northerly and
Easterly along and approximately 20 feet Westerly and
Northerly of the center line of said 20 inch existing
pipeline to a certain Michigan Bell Telephone Company's
existing pole located Easterly of the Westerly line of
Lot 22, Block 12 of Partition Plat of Private Claim No. 1
in said Section 23.

Macomb County

Certain land in Macomb Township, Macomb County, Michigan described
as:

A parcel of land commencing on the West line of the E 1/2
of the NW 1/4 of fractional Section 6, 20 chains South of
the NW corner of said E 1/2 of the NW 1/4 of Section 6;
thence South on said West line and the East line of A.
Henry Kotner's Hayes Road Subdivision #15, according to
the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4
line of said Section 6; thence East on said East and West
1/4 line 8.93 chains; thence North parallel with the said
West line of the E 1/2 of the NW 1/4 of Section 6, 24.36
chains; thence West 8.93 chains to the place of beginning,
all in T3N, R13E.

Manistee County

Certain land in Manistee Township, Manistee County, Michigan
described as:

A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of
this description, commence at the Southwest corner of said
section; run thence East along the South line of said
section 832.2 feet to the place of beginning of this
description; thence continuing East along said South line
of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of
beginning, excepting therefrom the South 2 rods thereof
which was conveyed to Manistee Township for highway
purposes by a Quitclaim Deed dated June 13, 1919 and
recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
Manistee County Records.

Mason County

Certain land in Riverton Township, Mason County, Michigan
described as:

Parcel 1

The South 10 acres of the West 20 acres of the S 1/2 of
the NE 1/4 of Section 22, T17N, R17W.

Parcel 2

A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing
16 rods South of the Northwest corner of the NW 1/4 of the
SW 1/4 of Section 22, T17N, R17W, running thence South 64
rods, thence NE'ly and N'ly and NW'ly along the W'ly line
of said highway to the place of beginning, together with
any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion
of the hereinbefore mentioned highway lying adjacent to
the E'ly line of said above described land.

Mecosta County

Certain land in Wheatland Township, Mecosta County, Michigan
described as:

A parcel of land in the SW1/4 of the SW1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner
of said section; thence East along the South line of
Section 133 feet; thence North parallel to the West
section line 133 feet; thence West 133 feet to the West
line of said Section; thence South 133 feet to the place
of beginning.

Midland County

Certain land in Ingersoll Township, Midland County, Michigan
described as:

The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.

Missaukee County

Certain land in Norwich Township, Missaukee County, Michigan
described as:

A parcel of land in the NW 1/4 of the NW 1/4 of
Section 16, T24N, R6W, described as follows: Commencing
at the Northwest corner of said section, running thence
N 89 01' 45" E along the North line of said section
233.00 feet; thence South 233.00 feet; thence S 89 01'
45" W, 233.00 feet to the West line of said section;
thence North along said West line of said section 233.00
feet to the place of beginning. (Bearings are based on
the West line of Section 16, T24N, R6W, between the
Southwest and Northwest corners of said section assumed as
North.)

Monroe County

Certain land in LaSalle Township, Monroe County, Michigan
described as:

A strip of land 150 feet in width across part of the S 1/2
of the SE 1/4 of Section 35, T7S, R8E, described as
follows: To find the place of beginning of this
description commence at the S 1/4 post of said section;
run thence N 89 30' 20" E along the South line of said
section 2118.39 feet to the place of beginning of this
description; thence continuing N 89 30' 20" E along said
South line of said section 198.56 feet to the NW'ly right-
of-way line of Highway I-75, so called; thence N 40 26'
30" E along the NW'ly line of said highway 477.72 feet to
the East line of said section; thence N 00 25' 15" W
along the East line of said section 229.27 feet; thence
S 40 26' 30" W, 781.21 feet to the place of beginning.

Montcalm County

Certain land in Crystal Township, Montcalm County, Michigan
described as:

The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N,
R5W.

Montmorency County

Certain land in the Village of Hillman, Montmorency County,
Michigan described as:

Lot 14 of Hillman Industrial Park, being a subdivision in
the South 1/2 of the Northwest 1/4 of Section 24, T31N,
R4E, according to the plat thereof recorded in Liber 4 of
Plats on Pages 32-34, Montmorency County Records.

Muskegon County

Certain land in Casnovia Township, Muskegon County, Michigan
described as:

The West 433 feet of the North 180 feet of the South
425 feet of the SW 1/4 of Section 3, T10N, R13W.

Newaygo County

Certain land in Ashland Township, Newaygo County, Michigan
described as:

The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

Oakland County

Certain land in Wixcom City, Oakland County, Michigan described
as:

The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N,
R8E, more particularly described as follows: Commence at
the NW corner of said Section 8, thence N 87 14' 29" E
along the North line of said Section 8 a distance of
451.84 feet to the place of beginning for this
description; thence continuing N 87 14' 29" E along said
North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4
of said Section 8; thence S 02 37' 09" E along said East
line a distance of 160.0 feet; thence S 87 14' 29" W a
distance of 75.0 feet; thence N 02 37' 09" W a distance
of 160.0 feet to the place of beginning.

Oceana County

Certain land in Crystal Township, Oceana County, Michigan
described as:

The East 290 feet of the SE 1/4 of the NW 1/4 and the East
290 feet of the NE 1/4 of the SW 1/4, all in Section 20,
T16N, R16W.

Ogemaw County

Certain land in West Branch Township, Ogemaw County, Michigan
described as:

The South 660 feet of the East 660 feet of the NE 1/4 of
the NE 1/4 of Section 33, T22N, R2E.

Osceola County

Certain land in Hersey Township, Osceola County, Michigan
described as:

A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the
Northeast corner of said Section; thence West along the
North Section line 999 feet to the point of beginning of
this description; thence S 01 54' 20" E 1327.12 feet to
the North 1/8 line; thence S 89 17' 05" W along the North
1/8 line 330.89 feet; thence N 01 54' 20" W 1331.26 feet
to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.

Oscoda County

Certain land in Comins Township, Oscoda County, Michigan described
as:

The East 400 feet of the South 580 feet of the W 1/2 of
the SW 1/4 of Section 15, T27N, R3E.

Otsego County

Certain land in Corwith Township, Otsego County, Michigan
described as:

Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said
section; running thence S 89 04' 06" E along the North
line of said section, 330.00 feet; thence S 00 28' 43" E,
400.00 feet; thence N 89 04' 06" W, 330.00 feet to the
North and South 1/4 line of said section; thence N 00 28'
43" W along the said North and South 1/4 line of said
section, 400.00 feet to the point of beginning; subject to
the use of the N'ly 33.00 feet thereof for highway
purposes.

Ottawa County

Certain land in Robinson Township, Ottawa County, Michigan
described as:

The North 660 feet of the West 660 feet of the NE 1/4 of
the NW 1/4 of Section 26, T7N, R15W.

Presque Isle County

Certain land in Belknap and Pulawski Townships, Presque Isle
County, Michigan described as:

Part of the South half of the Northeast quarter,
Section 24, T34N, R5E, and part of the Northwest quarter,
Section 19, T34N, R6E, more fully described as:
Commencing at the East 1/4 corner of said Section 24;
thence N 00 15'47" E, 507.42 feet, along the East line of
said Section 24 to the point of beginning; thence
S 88 15'36" W, 400.00 feet, parallel with the North 1/8
line of said Section 24; thence N 00 15'47" E,
800.00 feet, parallel with said East line of Section 24;
thence N 88 15'36"E, 800.00 feet, along said North 1/8
line of Section 24 and said line extended; thence
S 00 15'47" W, 800.00 feet, parallel with said East line
of Section 24; thence S 88 15'36" W, 400.00 feet, parallel
with said North 1/8 line of Section 24 to the point of
beginning.

Together with a 33 foot easement along the West 33 feet of
the Northwest quarter lying North of the North 1/8 line of
Section 24, Belknap Township, extended, in Section 19,
T34N, R6E.

Roscommon County

Certain land in Backus Township, Roscommon County, Michigan
described as:

A parcel of land the NW 1/4 of the NE 1/4 of the NE 1/4 of
Section 18, T22N, R2W described as commencing at the North
quarter corner thereof; thence North 89 00'56" East along
the North Section line 208 feet to the point of beginning;
thence continue East along the North line of said Section
245 feet; thence South 00 59'03" East 233 feet; thence
South 89 00'57" West 245 feet; thence North 00 59'03" West
233 feet to the point of beginning.

Saginaw County

Certain land in Chapin Township, Saginaw County, Michigan
described as:

A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of
this description commence at the Southwest corner of said
section; run thence North along the West line of said
section 1581.4 feet to the place of beginning of this
description; thence continuing North along said West line
of said section 230 feet to the center line of a creek;
thence S 70 07' 00" E along said center line of said
creek 196.78 feet; thence South 163.13 feet; thence West
185 feet to the West line of said section and the place of
beginning.

Sanilac County

Certain easement rights located across land in Minden Township,
Sanilac County, Michigan described as:

The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83
feet thereof.

Shiawassee County

Certain land in Burns Township, Shiawassee County, Michigan
described as:

The South 330 feet of the E 1/2 of the NE 1/4 of
Section 36, T5N, R4E.

St. Clair County

Certain land in Ira Township, St. Clair County, Michigan described
as:

The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N,
R15E.

St. Joseph County

Certain land in Mendon Township, St. Joseph County, Michigan
described as:

The North 660 feet of the West 660 feet of the NW 1/4 of
SW 1/4, Section 35, T5S, R10W.

Tuscola County

Certain land in Millington Township, Tuscola County, Michigan
described as:

A strip of land 280 feet wide across the East 96 rods of
the South 20 rods of the N 1/2 of the SE 1/4 of
Section 34, T10N, R8E, more particularly described as
commencing at the Northeast corner of Section 3, T9N, R8E,
thence S 89 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 11'
50" W a distance of 1398.67 feet to the South 1/8 line of
said Section 34 and the place of beginning for this
description; thence continuing N 18 11' 50" W a distance
of 349.91 feet; thence N 89 57' 01" W a distance of
294.80 feet; thence S 18 11' 50" E a distance of
350.04 feet to the South 1/8 line of said Section 34;
thence S 89 58' 29" E along the South 1/8 line of said
section a distance of 294.76 feet to the place of
beginning.

Van Buren County

Certain land in Covert Township, Van Buren County, Michigan
described as:

All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17
rods of the North 80 rods, being more particularly
described as follows: To find the place of beginning of
this description commence at the N 1/4 post of said
section; run thence N 89 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of
this description; thence continuing N 89 29' 20" E along
said North line of said section 288.29 feet; thence S 00
44' 00" E, 1531.92 feet; thence S 89 33' 30" W,
568.79 feet to the North and South 1/4 line of said
section; thence N 00 44' 00" W along said North and South
1/4 line of said section 211.4 feet; thence N 89 29'
20" E, 280.5 feet; thence N 00 44' 00" W, 1320 feet to
the North line of said section and the place of beginning.

Washtenaw County

Certain land in Manchester Township, Washtenaw County, Michigan
described as:

A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of
beginning of this description commence at the Northwest
corner of said section; run thence East along the North
line of said section 1355.07 feet to the West 1/8 line of
said section; thence S 00 22' 20" E along said West 1/8
line of said section 927.66 feet to the place of beginning
of this description; thence continuing S 00 22' 20" E
along said West 1/8 line of said section 660 feet to the
North 1/8 line of said section; thence N 86 36' 57" E
along said North 1/8 line of said section 660.91 feet;
thence N 00 22' 20" W, 660 feet; thence S 86 36' 57" W,
660.91 feet to the place of beginning.

Wayne County

Certain land in Livonia City, Wayne County, Michigan described as:

Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance
of 253 feet to the point of beginning; thence continuing
North along the East line of Section 6 a distance of
50 feet; thence Westerly parallel to the South line of
Section 6, a distance of 215 feet; thence Southerly
parallel to the East line of Section 6 a distance of
50 feet; thence easterly parallel with the South line of
Section 6 a distance of 215 feet to the point of
beginning.

Wexford County

Certain land in Selma Township, Wexford County, Michigan described
as:

A parcel of land in the NW1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section
at a point 200 feet East of the West line of said section,
running thence East along said North section line 450
feet, thence South parallel with said West section line
350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West
section line 350 feet to the place of beginning.SECTION
14. The Company is a transmitting utility under
Section 9401(5) of the Michigan Uniform Commercial Code
(M.C.L. 440.9401(5)) as defined in M.C.L. 440.9105(n).

IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its
Chairman of the Board, President, a Vice President or its Treasurer and
its corporate seal to be hereunto affixed and to be attested by its
Secretary or an Assistant Secretary, and said The Chase Manhattan Bank, as
Trustee as aforesaid, to evidence its acceptance hereof, has caused this
Supplemental Indenture to be executed in its corporate name by a Vice
President and its corporate seal to be hereunto affixed and to be attested
by a Trust Officer, in several counterparts, all as of the day and year
first above written.
CONSUMERS ENERGY COMPANY

(SEAL) By /s/ A.M. Wright
_________________________
Alan M. Wright
Attest: Senior Vice President and
Chief Financial Officer

/s/ Joyce H. Norkey
____________________________
Joyce H. Norkey
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/s/ Kimberly A. Connelly
____________________________
Kimberly A. Connelly

/s/ Sammie B. Dalton
____________________________
Sammie B. Dalton

STATE OF MICHIGAN)
ss.
COUNTY OF JACKSON)

The foregoing instrument was acknowledged before me this 29th day
of October, 1998, by Alan M. Wright, Senior Vice President and Chief
Financial Officer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on
behalf of the corporation.

/s/ Margaret Hillman
______________________________
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2000
<PAGE>
<PAGE>

THE CHASE MANHATTAN BANK, AS TRUSTEE

(SEAL) By /s/ Glenn G. McKeever
______________________________
Attest: Vice President

/s/ T. O'Brien
____________________________
Senior Trust Officer
T. O'Brien

Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of

/s/ Natalie B. Pesce
____________________________
Natalie B. Pesce
Administrator

/s/ Eric S. Butler
____________________________
Eric S. Butler
Administrator

STATE OF NEW YORK)
ss.
COUNTY OF NEW YORK)

The foregoing instrument was acknowledged before me this 29th day
of October, 1998, by Glenn G. McKeever, a Vice President of THE CHASE
MANHATTAN BANK, a New York corporation, on behalf of the corporation.

/s/ Emily Fayan
______________________________
Notary Public
[Seal] New York County, New York
My Commission Expires: 12/31/98

Prepared by: When recorded, return to:
Kimberly A. ConnellyConsumers Energy Company
212 West Michigan AvenueGeneral Services Real Estate Department
Jackson, MI 49201 Attn: Nancy P. Fisher, P-21-410B
1945 W. Parnall Road
Jackson, MI 49201

<PAGE>

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

Nine Months
Ended Years Ended December 31
September 30, 1998 1997 1996 1995 1994 1993
(b)
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined (a)
Consolidated net income $ 191 $ 244 $ 224 $ 195 $ 177 $ 130
Income taxes 86 108 137 113 91 62
Exclude equity basis subsidiaries (75) (80) (85) (57) (18) (6)
Fixed charges as defined, adjusted to
exclude capitalized interest of $17, $13,
$5, $4, $2, and $2 million for the nine
months ended September 30, 1998 and
for the years ended December 31, 1997,
1996, 1995, 1994 and 1993, respectively 293 360 313 299 253 247

Earnings as defined $ 495 $ 632 $ 589 $ 550 $ 503 $ 433

Fixed charges as defined (a)
Interest on long-term debt $ 234 $ 273 $ 230 $ 224 $ 193 $ 204
Estimated interest portion of lease rental 5 8 10 9 9 12
Other interest charges 33 49 43 42 30 25
Preferred securities dividends and
distributions 58 67 54 42 36 17

Fixed charges as defined $ 330 $ 397 $ 337 $ 317 $ 268 $ 258

Ratio of earnings to fixed charges and
preferred securities dividends and distributions 1.50 1.59 1.75 1.74 1.88 1.68

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

(b) Excludes a cumulative effect of change in accounting after-tax gain of $43 million.

</TABLE>
<PAGE>

<PAGE>

ARTHUR ANDERSEN LLP

Exhibit (15)

To Consumers Energy Company:

We are aware that Consumers Energy Company has incorporated by reference
in its Registration Statements No. 333-63969 and No. 333-64323 its Form
10-Q for the quarter ended September 30, 1998, which includes our report
dated November 10, 1998 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities
Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our firm or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.

Arthur Andersen
LLP

Detroit, Michigan,
November 10, 1998.

<PAGE>

ARTHUR ANDERSEN LLP

Exhibit (15)

To CMS Energy Corporation:

We are aware that CMS Energy Corporation has incorporated by reference in
its Registration Statements No. 33-29681, No. 33-47629, No. 33-60007, No.
33-61595, No. 33-62573, No. 333-32229, No. 333-48899, No. 333-60795 and
No. 333-63229 its Form 10-Q for the quarter ended September 30, 1998,
which includes our report dated November 10, 1998 covering the unaudited
interim financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11
of the Act.

Arthur Andersen
LLP

Detroit, Michigan,
November 10, 1998.

<PAGE>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,391
<OTHER-PROPERTY-AND-INVEST> 2,831
<TOTAL-CURRENT-ASSETS> 1,138
<TOTAL-DEFERRED-CHARGES> 1,570
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,930
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,316
<RETAINED-EARNINGS> (247)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,922
393
238
<LONG-TERM-DEBT-NET> 1,522
<SHORT-TERM-NOTES> 302
<LONG-TERM-NOTES-PAYABLE> 2,726
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 131
0
<CAPITAL-LEASE-OBLIGATIONS> 77
<LEASES-CURRENT> 40
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,431
<TOT-CAPITALIZATION-AND-LIAB> 9,930
<GROSS-OPERATING-REVENUE> 3,792
<INCOME-TAX-EXPENSE> 109
<OTHER-OPERATING-EXPENSES> 3,185
<TOTAL-OPERATING-EXPENSES> 3,294
<OPERATING-INCOME-LOSS> 498
<OTHER-INCOME-NET> 24
<INCOME-BEFORE-INTEREST-EXPEN> 522
<TOTAL-INTEREST-EXPENSE> 250
<NET-INCOME> 272
38
<EARNINGS-AVAILABLE-FOR-COMM> 234
<COMMON-STOCK-DIVIDENDS> 102
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 386
<EPS-PRIMARY> 2.23<F1>
<EPS-DILUTED> 2.19
<FN>
<F1> EPS for CMS Energy Common Stock $2.23
EPS for Class G Common Stock $1.04
</FN>

</TABLE>

<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND
STATEMENT OF COMMON STOCKHOLDER'S EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS ENERGY COMPANY
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,391
<OTHER-PROPERTY-AND-INVEST> 684
<TOTAL-CURRENT-ASSETS> 624
<TOTAL-DEFERRED-CHARGES> 1,217
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,916
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 402
<RETAINED-EARNINGS> 429
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,729
220
238
<LONG-TERM-DEBT-NET> 861
<SHORT-TERM-NOTES> 302
<LONG-TERM-NOTES-PAYABLE> 1,116
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 106
0
<CAPITAL-LEASE-OBLIGATIONS> 77
<LEASES-CURRENT> 40
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,284
<TOT-CAPITALIZATION-AND-LIAB> 6,916
<GROSS-OPERATING-REVENUE> 2,743
<INCOME-TAX-EXPENSE> 134
<OTHER-OPERATING-EXPENSES> 2,248
<TOTAL-OPERATING-EXPENSES> 2,382
<OPERATING-INCOME-LOSS> 361
<OTHER-INCOME-NET> 36
<INCOME-BEFORE-INTEREST-EXPEN> 397
<TOTAL-INTEREST-EXPENSE> 131
<NET-INCOME> 266
27
<EARNINGS-AVAILABLE-FOR-COMM> 239
<COMMON-STOCK-DIVIDENDS> 173
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 452
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

Consumers Gas Group
Management's Discussion and Analysis

In 1995, CMS Energy issued a total of 7.62 million 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 Company, a subsidiary of
Consumers (collectively, Consumers Gas Group). Accordingly, this MD&A
should be read along with the MD&A in the 1997 Annual Report of CMS Energy
included and incorporated by reference herein.

CMS Energy is the parent holding company of Consumers and CMS Enterprises
Company. 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 businesses of
CMS Energy, including the nature and issuance of Class G Common Stock, see
the MD&A of CMS Energy.

Results of Operations

In Millions
- --------------------------------------------------------------------------
September 30 1998 1997 Change
__________________________________________________________________________

Three months ended $(5) $(7) $2
Nine months ended 35 37 (2)
Twelve months ended 58 52 6
==========================================================================

The increase in earnings for the three months ended September 30, 1998
compared to the same 1997 period reflects increased gas deliveries, the
operation of the gas customer choice program and increased revenues from
gas retail and wholesale services activities. The decrease in earnings
for the first nine months of 1998 compared to the same 1997 period
reflects decreased gas deliveries due to warmer 1998 temperatures. The
first nine months of 1998 were the fourth warmest since 1864. Revenues
were down for the nine month period ended September 30, 1998 due to the
elimination of surcharges related to past conservation programs.
Partially offsetting the decrease for the nine month period ended
September 30, 1998 was the benefit resulting from an accounting change for
property taxes. The recognition of property tax expense was changed from
expensing on a calendar year basis to a fiscal year basis which resulted
in a benefit of $18 million ($12 million after-tax). This one-time
benefit helped to offset the warmest winter since 1880. The increase in
earnings for the twelve months ended September 30, 1998 compared to the
1997 period reflects the change in accounting for property taxes
implemented in March 1998 as discussed above. Partially offsetting these
increases were decreased gas deliveries due to warmer winter temperatures
during the 1997/1998 winter heating season and reduced revenues due to the
elimination of surcharges related to past conservation programs.

Gas Issues

For a discussion of Consumers Gas Group operating issues, see Consumers
Gas Group Results of Operations-Uncertainties in CMS Energy's MD&A.

Cash Position, Investing and Financing

Operating Activities: Consumers Gas Group's cash requirements are met by
its operating and financing activities. Consumers Gas Group's cash from
operations is derived mainly from Consumers' sale and transportation of
natural gas. Cash from operations for the first nine months of 1998 and
1997 totaled $66 million and $122 million, respectively. The $56 million
decrease is due primarily to higher gas inventory balances because of
lower sales as a result of warmer weather, the noncash effect of the
property tax accounting change and a decrease in accounts payable.
Consumers Gas Group uses its operating cash mainly to maintain and expand
its gas utility transmission and distribution systems and to retire
portions of its long-term debt and pay dividends.

Investing Activities: Cash used in investing activities for the first
nine months of 1998 and 1997 totaled $84 million and $87 million,
respectively. The $3 million decrease in cash used primarily reflects an
increase in the proceeds received from the sale of assets.

Financing Activities: Cash provided by financing activities during the
first nine months of 1998 totaled $20 million compared to cash used in
financing activities during the first nine months of 1997 of $31 million.
The $51 million increase in cash provided primarily reflects an increase
in the proceeds from senior notes, partially offset by an increase in the
retirement of bonds and other long-term debt, and the return of CMS Energy
stockholders' contributions.

Other Investing and Financing Matters: Consumers has an agreement
permitting the sale of certain accounts receivable for up to $500 million.
At September 30, 1998, receivables sold under the program totaled $307
million. Consumers Gas Group's attributed portion of receivables sold
under the program totaled $52 million. Accounts receivable and accrued
revenue in the Consolidated Balance Sheets have been reduced to reflect
receivables sold. For detailed information, see "Short-Term and Long-Term
Financings, and Capitalization" in CMS Energy's Note 3.

Forward-Looking Information

For cautionary statements relating to Consumers Gas Group's forward-
looking information, see the Forward-Looking Information section 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 1998 1999 2000
- -----------------------------------------------------------------

Gas utility (a) $114 $122 $122
Michigan Gas Storage 3 3 3
_______________________
$117 $125 $125
=================================================================

(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
the outlook of Consumers Gas Group, see the Consumers Gas Group Outlook
discussion in CMS Energy's MD&A.

<PAGE>
<PAGE> 4

<TABLE>
Consumers Gas Group
Statements of Income
(Unaudited)
<CAPTION>

Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 117 $ 110 $ 716 $ 828 $1,092 $1,230
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Cost of gas sold 39 39 377 472 600 718
Other 46 47 136 128 183 186
------ ------ ------ ------ ------ ------
85 86 513 600 783 904
Maintenance 8 9 25 24 34 37
Depreciation, depletion
and amortization 10 9 60 64 89 91
General taxes 8 7 37 40 52 56
------ ------ ------ ------ ------ ------
111 111 635 728 958 1,088
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss) 6 (1) 81 100 134 142
------ ------ ------ ------ ------ ------
Other Income (Deductions) - 1 - - (2) (4)
------ ------ ------ ------ ------ ------
Fixed Charges
Interest on long-term debt 7 7 21 21 28 29
Other interest 3 3 11 9 15 13
Capitalized interest - - - - - (1)
Preferred stock dividends 1 1 3 4 4 5
------ ------ ------ ------ ------ ------
11 11 35 34 47 46
------ ------ ------ ------ ------ ------
Income (Loss) Before Income Taxes (5) (11) 46 66 85 92

Income Taxes - (4) 23 29 39 40
------ ------ ------ ------ ------ ------
Net Income (Loss) before cumulative
effect of change in accounting
principle (5) (7) 23 37 46 52
Cumulative effect of change in
accounting for property taxes,
net of $6 tax - - 12 - 12 -
------ ------ ------ ------ ------ ------
Net Income (Loss) $ (5) $ (7) $ 35 $ 37 $ 58 $ 52
====== ====== ====== ====== ====== ======
Net Income (Loss) Attributable to
CMS Energy Shareholders through
Retained Interest $ (3) $ (5) $ 27 $ 28 $ 44 $ 39
------ ------ ------ ------ ------ ------
Net Income (Loss) Attributable to
Class G Shareholders $ (2) $ (2) $ 8 $ 9 $ 14 $ 13
------ ------ ------ ------ ------ ------
Average Class G Common Shares
Outstanding 8 8 8 8 8 8
------ ------ ------ ------ ------ ------
Basic and Diluted Earnings (Loss)
Per Average Class G Common Share
Before Change in Accounting
Principle $ (.16) $ (.21) $ .68 $ 1.13 $ 1.37 $ 1.57
------ ------ ------ ------ ------ ------
Cumulative Effect of Change in
Accounting Principle, Net of Tax,
Per Average Class G Common Share $ - $ - $ .36 $ - $ .36 $ -
------ ------ ------ ------ ------ ------
Basic and Diluted Earnings (Loss)
Per Average Class G Common Share $ (.16) $ (.21) $ 1.04 $ 1.13 $ 1.73 $ 1.57
------ ------ ------ ------ ------ ------
Dividend Declared Per Class G
Common Share $ .325 $ .31 $ .945 $ .90 $1.255 $1.195
====== ====== ====== ====== ====== ======
<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)
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997
In Millions
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 35 $ 37 $ 58 $ 52
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 60 64 89 91
Deferred income taxes and investment tax credit 11 7 9 10
Capital lease and other amortization 5 3 6 4
Other - (1) - -
Cumulative effect of accounting change for
property taxes (18) - (18) -
Changes in other assets and liabilities (27) 12 23 27
------ ------ ------ ------
Net cash provided by operating activities 66 122 167 184
------ ------ ------ ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under
capital lease) (81) (79) (115) (122)
Cost to retire property, net (7) (6) (10) (8)
Proceeds from the sale of Marysville assets 3 - 3 -
Other 1 (2) 3 (2)
------ ------ ------ ------
Net cash used in investing activities (84) (87) (119) (132)
------ ------ ------ ------
Cash Flows from Financing Activities
Proceeds from senior notes 182 - 182 -
Increase in notes payable, net 37 40 2 1
Contribution of CMS Energy stockholders 15 - 15 -
Issuance of common stock 4 4 7 6
Retirement of bonds and other long-term debt (150) (40) (150) (40)
Return of CMS Energy stockholders' contribution (32) - (71) -
Payment of common stock dividends (31) (29) (42) (39)
Payment of capital lease obligations (5) (3) (6) (4)
Proceeds from long-term note - 25 - 25
Proceeds from bank loans - - - 23
Retirement of preferred stock - (26) - (26)
Repayment of long-term note - (2) - (2)
------ ------ ------ ------
Net cash provided by (used in) financing activities 20 (31) (63) (56)
------ ------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments 2 4 (15) (4)

Cash and Temporary Cash Investments, Beginning of Period 2 15 19 23
------ ------ ------ ------
Cash and Temporary Cash Investments, End of Period $ 4 $ 19 $ 4 $ 19
====== ====== ====== ======
Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized) $ 29 $ 32 $ 39 $ 42
Income taxes paid (net of refunds) 35 37 38 41
Non-cash transactions
Assets placed under capital lease $ 5 $ 2 $ 6 $ 2
====== ====== ====== ======

<FN>

All highly liquid investments with an original maturity of three months or less are considered cash equivalents.

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

</TABLE>
<PAGE>
<PAGE> 6

<TABLE>
Consumers Gas Group
Balance Sheets
<CAPTION>

ASSETS September 30 September 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions
<S> <C> <C> <C>
Plant and Property (At Cost)
Plant and property $2,328 $2,322 $2,292
Less accumulated depreciation, depletion and amortization 1,213 1,231 1,209
------ ------ ------
1,115 1,091 1,083
Construction work-in-progress 31 28 28
------ ------ ------
1,146 1,119 1,111
------ ------ ------

Current Assets
Cash and temporary cash investments at cost, which approximates market 4 2 19
Accounts receivable and accrued revenue, less allowances
of $3, $3 and $2, respectively (Note 3) 5 53 33
Inventories at average cost
Gas in underground storage 276 197 253
Materials and supplies 6 7 8
Deferred income taxes - 6 4
Prepayments and other 40 51 20
------ ------ ------
331 316 337
------ ------ ------

Non-current Assets
Postretirement benefits 134 142 145
Deferred income taxes 14 6 12
Other 62 61 60
------ ------ ------
210 209 217
------ ------ ------
Total Assets $1,687 $1,644 $1,665
====== ====== ======

</TABLE>

<PAGE>
<PAGE> 7

<TABLE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES September 30 September 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions
<S> <C> <C> <C>
Capitalization
Common stockholders' equity $ 349 $ 358 $ 382
Preferred stock 52 52 52
Long-term debt 449 333 351
Non-current portion of capital leases 16 16 16
------ ------ ------
866 759 801
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 39 118 100
Notes payable 156 119 154
Accounts payable 86 94 94
Accrued taxes 34 65 30
Accrued refunds 10 10 5
Accrued interest 6 4 3
Deferred income taxes 4 - -
Other 43 44 41
------ ------ ------
378 454 427
------ ------ ------
Non-current Liabilities
Regulatory liabilities for income taxes, net 183 173 178
Postretirement benefits 162 168 170
Deferred investment tax credit 24 25 26
Other 74 65 63
------ ------ ------
443 431 437
------ ------ ------
Commitments and Contingencies (Note 4)

Total Stockholders' Investment and Liabilities $1,687 $1,644 $1,665
====== ====== ======

<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)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 1998 1997 1998 1997 1998 1997
In Millions
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $184 $184 $184 $184 $184 $184
---- ---- ---- ---- ---- ----
Other Paid-in Capital
At beginning of period 84 136 102 134 138 132
Common stock issued 1 2 4 4 7 6
CMS Energy stockholders' contribution 15 - 15 - 15 -
Return of CMS Energy stockholders'
contribution (11) - (32) - (71) -
---- ---- ---- ---- ---- ----
At end of period 89 138 89 138 89 138
---- ---- ---- ---- ---- ----
Retained Earnings
At beginning of period 92 77 72 52 60 47
Net income (loss) (5) (7) 35 37 58 52
Common stock dividends declared (11) (10) (31) (29) (42) (39)
---- ---- ---- ---- ---- ----
At end of period 76 60 76 60 76 60
---- ---- ---- ---- ---- ----
Total Common Stockholders' Equity $349 $382 $349 $382 $349 $382
==== ==== ==== ==== ==== ====

<FN>

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

</TABLE>
<PAGE>
<PAGE> 9

Consumers Gas Group
Condensed Notes to Financial Statements

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 businesses of CMS Energy, see the
Notes to 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 Company, a subsidiary of Consumers (collectively, Consumers
Gas Group). For further information regarding the nature and issuance of
the Class G Common Stock, see Note 4 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.

These Financial Statements and their related Notes should be read along
with the Financial Statements and Notes contained in the 1997 Annual
Report of CMS Energy that includes the Report of Independent Public
Accountants, included and incorporated by reference herein.

Change In Method of Accounting For Property Taxes

During the first quarter of 1998, Consumers Gas Group implemented a change
in the method of accounting for property taxes so that taxes are
recognized during the fiscal period of the taxing authority for which the
taxes are levied. This change provides a better matching of property tax
expenses with the services provided by the taxing authorities, and is
considered the most acceptable basis of recording property taxes. Prior
to 1998, Consumers Gas Group recorded property taxes monthly during the
year following the assessment date (December 31). The cumulative effect
of this one-time change in accounting increased other income by $18
million, and earnings net of tax, by $12 million. The pro forma effect on
prior years' consolidated net income of retroactively recording property
taxes as if the new method of accounting had been in effect for all
periods presented is not material.

2: Earnings Per Share and Dividends

Earnings per share for the three month period ended September 30, 1998 and
September 30, 1997 reflect the performance of Consumers Gas Group. The
Class G Common Stock has participated in earnings and dividends since its
original issue date in July 1995. The earnings (loss) attributable to
Class G Common Stock and the related amounts per share are computed by
considering the weighted average number of shares of Class G Common Stock
outstanding.

Earnings attributable to outstanding Class G Common Stock are equal to
Consumers Gas Group's net income multiplied by a fraction; the numerator
is the weighted average number of Outstanding Shares during the period,
and the denominator is the weighted average number of Outstanding Shares
and Retained Interest Shares during the period. The earnings attributable
to Class G Common Stock on a per share basis, for the nine months ended
September 30, 1998 and 1997, are based on 25.38 percent and 24.65 percent
of the income of Consumers Gas Group, respectively.

In February and May 1998, CMS Energy declared and paid dividends of $.31
per share on Class G Common Stock. In July 1998, the Board of Directors
declared a quarterly dividend of $.325 per share on Class G Common Stock
which was paid in August 1998. This represents an increase in the
annualized dividend on Class G Common Stock to $1.30 per share from the
previous dividend of $1.24 per share (a 4.8 percent increase). In October
1998, the Board of Directors declared a quarterly dividend of .325 per
share on Class G Common Stock to be paid in November 1998.

3: Short-Term And Long-Term Financings, and Capitalization

Short-Term Financings: Consumers' short-term financings are discussed in
Consolidated Financial Statements of CMS Energy Note 3 included and
incorporated by reference herein.

Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold attributable to
Consumers Gas Group at September 30, 1998 and 1997, is estimated by
management to be $52 million and $36 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 attributable 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. The allocation of short-term financings and
related interest charges to Consumers Gas Group generally follows the
ratio of gas utility assets to total Consumers' assets. Additionally, the
carrying costs for Consumers' sales of certain of its accounts receivable
under its trade receivable purchase and sale agreement generally are
allocated to Consumers Gas Group based on the ratio of customer revenues
contributed by Consumers' gas customers to total Consumers' revenue. As a
result of the centralized management of short-term financing, the amounts
allocated to Consumers Gas Group are further adjusted in both the seasonal
gas inventory build-up period (second and third quarters) and the high
seasonal gas sales period (first and fourth quarters) to more closely
reflect the higher short-term financing requirements of the inventory
build-up period and conversely the lower financing requirements during the
higher sales periods. Management believes these allocations to be
reasonable.

Capital Stock and Long-Term Debt: Consumers Gas Group's capital stock and
long-term debt, including debt resulting from the sale of Trust Preferred
Securities, have been allocated based on the ratio of gas utility assets
(including common assets attributed to the gas utility segment) to total
Consumers' assets. Management believes these measurements are reasonable.
For information regarding the long-term debt and capital stock of
CMS Energy and Consumers, see Note 3 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.

4: Commitments and Contingencies

Capital Expenditures: Consumers Gas Group estimates capital expenditures,
including new lease commitments, of $117 million for 1998, $125 million
for 1999, and $125 million for 2000. 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 Consumers Gas Group Contingencies
and Consumers Gas Group Matters in CMS Energy's Note 2 included and
incorporated by reference herein.

<PAGE> 11

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying balance sheets of CONSUMERS GAS GROUP
(representing a business unit of Consumers Energy Company and its wholly-
owned subsidiary, Michigan Gas Storage Company) as of September 30, 1998
and 1997, the related statements of income and common stockholders' equity
for the three-month, nine-month, and twelve-month periods then ended, and
the related consolidated statements of cash flows for the nine-month and
twelve-month periods then ended. These financial statements are the
responsibility of the Company's management.

We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Consumers Gas Group as of December 31,
1997, 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 26, 1998, we expressed an unqualified opinion on
those statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 1997, is fairly stated, in
all material respects, in relation to the balance sheet from which it has
been derived.

Arthur Andersen LLP

Detroit, Michigan,
November 10, 1998.
<PAGE>