MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
10-Q, 1999-11-12
ELECTRIC SERVICES
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<PAGE>   1


                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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, 1999


                                       OR


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934


For the transition period from                         to
                               -----------------------   --------------------

Commission file number (Under the Securities Act of 1933) 33-37977

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                MICHIGAN                                     38-2726166
- --------------------------------------           ------------------------------
     State or other jurisdiction of                       (I.R.S.Employer
     incorporation or organization)                       Identification No.)


       100 PROGRESS PLACE, MIDLAND, MICHIGAN                    48640
- ---------------------------------------------------      ----------------------
      (Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code          (517) 839-6000
                                                          ------------------


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


<PAGE>   2



                          PART I. FINANCIAL INFORMATION
                          Item 1. Financial Statements

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                        CONSOLIDATED BALANCE SHEETS AS OF
                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                     September 30,
                                                                                          1999              December 31,
ASSETS                                                                                (Unaudited)               1998
                                                                                     -------------       ---------------
<S>                                                                                 <C>                 <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                         $     168,057       $       193,116
   Restricted cash and cash equivalents                                                      5,669                 8,913
   Accounts and notes receivable                                                           110,442               104,315
   Gas inventory                                                                            17,078                15,144
   Unamortized property taxes                                                               23,088                15,742
   Prepaid expenses and other                                                                5,233                 4,031
                                                                                     -------------       ---------------
     Total current assets                                                                  329,567               341,261
                                                                                     -------------       ---------------

PROPERTY, PLANT AND EQUIPMENT:
   Property, plant and equipment                                                         2,406,721             2,392,829
   Pipeline                                                                                 21,222                21,222
                                                                                     -------------       ---------------
     Total property, plant and equipment                                                 2,427,943             2,414,051

   Accumulated depreciation                                                               (692,177)             (640,659)
                                                                                     -------------       ---------------
     Net property, plant and equipment                                                   1,735,766             1,773,392
                                                                                     -------------       ---------------

OTHER ASSETS:
   Restricted investment securities held-to-maturity                                       139,837               143,444
   Deferred financing costs, net of accumulated amortization of
        $11,174 and $10,416, respectively                                                    7,403                 8,161
   Prepaid gas costs, materials and supplies                                                23,858                20,248
                                                                                     -------------       ---------------
     Total other assets                                                                    171,098               171,853
                                                                                     -------------       ---------------

TOTAL ASSETS                                                                         $   2,236,431       $     2,286,506
                                                                                     =============       ===============

LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable and accrued liabilities                                          $      50,276       $        60,718
   Interest payable                                                                         37,648                78,959
   Current portion of long-term debt                                                       139,095                64,331
                                                                                     -------------       ---------------
     Total current liabilities                                                             227,019               204,008
                                                                                     -------------       ---------------

NON-CURRENT LIABILITIES:
   Long-term debt                                                                        1,584,865             1,723,960
   Other                                                                                     1,463                   990
                                                                                     -------------       ---------------
     Total non-current liabilities                                                       1,586,328             1,724,950
                                                                                     -------------       ---------------

CONTINGENCIES (Note 6)

TOTAL LIABILITIES                                                                        1,813,347             1,928,958
                                                                                     -------------       ---------------

PARTNERS' EQUITY                                                                           423,084               357,548
                                                                                     -------------       ---------------

TOTAL LIABILITIES AND PARTNERS' EQUITY                                               $   2,236,431       $     2,286,506
                                                                                     =============       ===============
</TABLE>



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


                                      -1-
<PAGE>   3



                 MIDLAND COGENERATON VENTURE LIMITED PARTNERSHIP
                CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                                 (In Thousands)




<TABLE>
<CAPTION>


                                                       Three Months Ended                   Nine Months Ended
                                                          September 30,                       September 30,
                                                 --------------------------------    ---------------------------------
                                                     1999              1998               1999              1998
                                                 --------------    --------------    ---------------    --------------
<S>                                               <C>              <C>               <C>                <C>
OPERATING REVENUES:
   Capacity                                       $    105,110     $     102,677     $      305,577     $     304,489
   Electric                                             47,444            47,005            149,903           147,422
   Steam and other                                       2,714             6,322             10,010            20,016
                                                  ------------     -------------     --------------     -------------

     Total operating revenues                          155,268           156,004            465,490           471,927
                                                  ------------     -------------     --------------     -------------

OPERATING EXPENSES:
   Fuel costs                                           61,405            60,739            179,350           185,681
   Depreciation                                         23,771            23,807             71,270            73,365
   Operations                                            3,465             3,574             10,819            11,279
   Maintenance                                           3,033             3,070              9,278             9,053
   Property and single business taxes                    6,529             6,439             19,416            19,276
   Administrative, selling and general                   2,253             1,898              7,292             6,832
                                                  ------------     -------------     --------------     -------------

     Total operating expenses                          100,456            99,527            297,425           305,486
                                                  ------------     -------------     --------------     -------------

OPERATING INCOME                                        54,812            56,477            168,065           166,441
                                                  ------------     -------------     --------------     -------------

OTHER INCOME (EXPENSE):
   Interest and other income                             5,094             4,627             14,429            16,161
   Interest expense                                    (38,042)          (39,366)          (116,958)         (123,002)
                                                  ------------     -------------     --------------     -------------

     Total other income (expense), net                 (32,948)          (34,739)          (102,529)         (106,841)
                                                  ------------     -------------     --------------     -------------

NET INCOME                                        $     21,864     $      21,738     $       65,536     $      59,600
                                                  ============     =============     ==============     =============
</TABLE>


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


                                      -2-
<PAGE>   4


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
             CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>


                                                                                Nine Months Ended
                                                                               September 30, 1999
                                                               ----------------------------------------------------
                                                                  General           Limited
                                                                 Partners           Partners            Total
                                                               --------------    ---------------    ---------------

<S>                                                            <C>               <C>                <C>
       BALANCE, BEGINNING OF PERIOD                            $      299,927    $        57,621    $       357,548


       Net income                                                      57,058              8,478             65,536


                                                               --------------    ---------------    ---------------

       BALANCE, END OF PERIOD                                  $      356,985    $        66,099    $       423,084
                                                               ==============    ===============    ===============
</TABLE>








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



                                      -3-
<PAGE>   5



                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>


                                                                                              Nine Months Ended
                                                                                                September 30,
                                                                                    --------------------------------------
                                                                                         1999                  1998
                                                                                    ----------------      ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                 <C>                   <C>
   Net income                                                                       $        65,536       $        59,600

   Adjustments to reconcile net income to net cash provided by
     operating activities

   Depreciation and amortization                                                             72,028                74,162
   (Increase) in accounts receivable                                                         (6,127)               (4,037)
   (Increase) decrease in gas inventory                                                      (1,934)                  124
   (Increase) in unamortized property taxes                                                  (7,346)               (6,055)
   (Increase) decrease in prepaid expenses and other                                         (1,202)                  359
   (Increase) decrease in prepaid gas costs, materials and supplies                          (3,610)                   71
   (Decrease) increase in accounts payable and accrued liabilities                          (10,442)                1,787
   (Decrease) in interest payable                                                           (41,311)              (46,130)
   Increase in other non-current liabilities                                                    473                   166
                                                                                    ---------------       ---------------
     Net cash provided by operating activities                                               66,065                80,047
                                                                                    ---------------       ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Plant modifications and purchases of plant and equipment                                 (33,644)              (32,178)
                                                                                    ---------------       ---------------

     Net cash used in investing activities                                                  (33,644)              (32,178)
                                                                                    ---------------       ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of financing obligation                                                        (64,331)             (140,950)
   Maturity of restricted investment securities held-to-maturity                            300,202               269,113
   Purchase of restricted investment securities held-to-maturity                           (296,595)             (272,395)
                                                                                    ---------------       ---------------

     Net cash used in financing activities                                                  (60,724)             (144,232)
                                                                                    ---------------       ---------------

NET DECREASE IN CASH, CASH EQUIVALENTS AND
   RESTRICTED CASH - CURRENT
                                                                                            (28,303)              (96,363)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT BEGINNING
   OF PERIOD                                                                                202,029               234,526
                                                                                    ---------------       ---------------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT END OF
   PERIOD                                                                           $       173,726       $       138,163
                                                                                    ===============       ===============
</TABLE>

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


                                      -4-
<PAGE>   6




                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



These consolidated financial statements and condensed notes should be read along
with the audited financial statements and notes as contained in the Annual
Report on Form 10-K for the year ended December 31, 1998 of Midland Cogeneration
Venture Limited Partnership ("MCV") which includes the Report of Independent
Public Accountants. In the opinion of management, the unaudited information
herein reflects all adjustments (which include only normal recurring
adjustments) necessary to assure the fair presentation of financial position,
results of operations and cash flows for the periods presented. Prior period
amounts have been reclassified for comparative purposes. These reclassifications
had no effect on net income. The consolidated financial statements include the
accounts of MCV and its wholly-owned subsidiaries. All material transactions and
balances among entities which comprise MCV have been eliminated in the
consolidated financial statements.

(1)  THE PARTNERSHIP AND ASSOCIATED RISKS

     MCV was organized to construct, own and operate a combined-cycle, gas-fired
     cogeneration facility (the "Facility") located in Midland, Michigan. MCV
     was formed on January 27, 1987, and the Facility entered into commercial
     operation in 1990.

     In 1992, MCV acquired the outstanding common stock of PVCO Corp., a
     previously inactive company. MCV and PVCO Corp. entered into a partnership
     agreement to form MCV Gas Acquisition General Partnership ("MCV GAGP") for
     the purpose of buying and selling natural gas on the spot market and other
     transactions involving natural gas activities. Currently, MCV GAGP is not
     actively engaged in any business activity.

     The Facility was originally designed to provide approximately 1,370
     megawatts ("MW") of electricity and approximately 1.5 million pounds of
     process steam per hour. Subsequent improvements to the Facility have
     increased net electrical generating capacity. MCV has entered into three
     principal energy sales agreements. MCV has contracted to supply up to 1,240
     MW of electric capacity ("Contract Capacity") to Consumers Energy Company
     ("Consumers") under the Power Purchase Agreement ("PPA"), for resale to its
     customers, to supply electricity and steam to The Dow Chemical Company
     ("Dow") under the Steam and Electric Power Agreement ("SEPA") and to supply
     steam to Dow Corning Corporation ("DCC") under the Steam Purchase Agreement
     ("SPA"). From time to time, MCV enters into other short-term sales
     agreements for the sale of excess capacity and/or energy available above
     MCV's internal use and obligations under the PPA, SEPA and SPA. Results of
     operations are primarily dependent on successfully operating the Facility
     at or near contractual capacity levels and on Consumers' honoring its
     obligations under the PPA with MCV. Sales pursuant to the PPA have
     historically accounted for over 90% of MCV's revenues.

     The PPA permits Consumers, under certain conditions, to reduce the capacity
     and energy charges payable to MCV and/or to receive refunds of capacity and
     energy charges paid to MCV if the Michigan Public Service Commission
     ("MPSC") does not permit Consumers to recover from its customers the
     capacity and energy charges specified in the PPA (the "regulatory out"
     provision). Pursuant to Amendment 3 of the PPA, for the first 17-1/2 years
     of commercial operation, the capacity charge may not be reduced below an
     average capacity rate of 3.77 cents per kWh for the available Contract
     Capacity notwithstanding the "regulatory out" provision. Consumers and MCV
     are required to support and defend the terms of the PPA.

     The Facility is a qualifying cogeneration facility ("QF") originally
     certified by the Federal Energy Regulatory Commission ("FERC") under the
     Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"). In
     order to maintain QF status, certain operating and efficiency standards
     must be maintained on a calendar-year basis and certain ownership
     limitations must be met. In the case of a topping-cycle generating plant
     such as the Facility, the applicable operating standard requires that the
     portion of total energy output that is put to some useful purpose other
     than facilitating the production of power (the "Thermal Percentage") be at
     least 5%. In addition, the Facility must achieve a PURPA efficiency
     standard (the sum of the useful power output plus one-half of the useful
     thermal energy output, divided by the energy input (the "Efficiency
     Percentage")) of at least 45%. If the Facility maintains a Thermal
     Percentage of 15% or higher, the required Efficiency Percentage is reduced
     to 42.5%. Since 1990, the Facility has achieved the applicable Thermal and
     Efficiency Percentages. For the nine months ended September 30, 1999, the
     Facility achieved a Thermal Percentage of 17.8% and a



                                      -5-
<PAGE>   7

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     PURPA Efficiency Percentage of 47.1%. The loss of QF status could, among
     other things, cause the Facility to lose its rights under PURPA to sell
     power to Consumers at Consumers' "avoided cost" and subject the Facility to
     additional federal and state regulatory requirements. MCV believes that the
     Facility will meet the required Thermal and the corresponding Efficiency
     Percentages in 1999 and beyond.

     MCN Energy Group Inc. ("MCN"), the parent company of Source Midland Limited
     Partnership ("SMLP") and a 50% partner of MEI Limited Partnership ("MEI")
     through SMLP, both partners of MCV, announced on October 5, 1999 that it
     has signed a definitive merger agreement with DTE Energy Company. The
     merger has been unanimously approved by the Board of Directors of both
     companies. The transaction is subject to the approval of the shareholders
     of both companies, regulatory approvals and other customary merger
     conditions. The transaction is expected to close in the second quarter of
     2000. Since the merger would cause SMLP and MEI to become electric
     utilities under PURPA, MCV expects that MCN will sell its interest in the
     MCV partnerships or make other arrangements in order to keep the utility
     ownership in MCV below 50% in compliance with PURPA QF ownership
     requirements. In the event MCN fails to take such action, the MCV Amended
     and Restated Limited Partnership Agreement provides for automatic
     assignment or extinguishment of such partnership interests in order to
     assure compliance with the ownership requirements under PURPA. Currently,
     MCV meets the ownership requirements of PURPA.

     The Facility is wholly dependent upon natural gas for its fuel supply and a
     substantial portion of the Facility's operating expenses consist of the
     costs of natural gas. MCV recognizes that its existing gas contracts are
     not sufficient to satisfy the anticipated gas needs over the term of the
     PPA and, as such, no assurance can be given as to the availability or price
     of natural gas after the expiration of the existing gas contracts.
     Commencing in 1998, and each year thereafter, MCV must provide at Consumers
     request, continuing annual assurances of such capability for each
     succeeding five-year period. If MCV is unable to provide these continuing
     assurances, Consumers is entitled to withhold in a separate escrow fund a
     portion of capacity charges until these assurances are provided. MCV
     believes it can meet the requirement of continuing assurances. In addition,
     to the extent that the costs associated with production of electricity rise
     faster than the energy charge payments, MCV's financial performance will be
     negatively affected. The amount of such impact will depend upon the amount
     of the average energy charge payable under the PPA, which is based upon
     costs incurred at Consumers' coal-fired plants and upon the amount of
     energy scheduled by Consumers for delivery under the PPA. However, given
     the unpredictability of these factors, the overall economic impact upon MCV
     of changes in energy charges payable under the PPA and in future fuel costs
     under new or existing contracts cannot accurately be predicted.

     At both the state and federal level, efforts continue on restructuring the
     electric industry. Two issues generally involved in these restructuring
     efforts which could impact MCV the most are stranded assets or transition
     cost recovery by utilities for PPA charges and contract (PPA) sanctity. At
     the state level, the MPSC entered a series of orders from June 5, 1997
     through February 11, 1998 (collectively the "Restructuring Orders"), now
     final at the MPSC level, mandating that utilities "wheel" third-party power
     to the utilities' customers, thus permitting customers to choose their
     power provider. MCV, as well as others, filed an appeal in the Michigan
     Court of Appeals. In June 1999, the Michigan Supreme Court issued an
     opinion in the appeal of an order in an MPSC "retail wheeling" experiment
     case holding, among other things, that the MPSC lacks the statutory
     authority to mandate that utilities transmit power of third parties to the
     utilities' customers ("Michigan Supreme Court Order"). While this Michigan
     Supreme Court Order was not directed at the Restructuring Orders, it is
     likely to be applied to them. On August 17, 1999, the MPSC issued an order
     making retail wheeling under the Restructuring Orders voluntary on the part
     of the utilities. On September 1, 1999, Consumers filed a statement with
     the MPSC stating that it intends to voluntarily implement the Restructuring
     Orders.

     At the federal level, MCV filed a complaint in the U.S. District Court for
     the Western District of Michigan challenging the Restructuring Orders. In
     an order dated July 7, 1999, the U.S. District Court for the Western
     District of Michigan granted MCV's Motion for Summary Judgment declaring
     that the Restructuring Orders are preempted by PURPA and the Supremacy
     Clause of the United States Constitution to the extent that they prohibit
     any utility from recovering from its customers any charge for avoided costs
     (or "stranded costs") to be paid to MCV and the other QFs under PURPA
     pursuant to their PPAs. The order further provides that the



                                      -6-
<PAGE>   8

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     MPSC's prior orders approving the avoided cost rates set forth in MCV's and
     the other QFs' PPAs take precedence over the Restructuring Orders. The
     Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
     enjoined from enforcing the Restructuring Orders in any manner which denies
     any utility from recovering its avoided costs as set forth in MCV's and the
     other QFs' PPAs or which precludes them from recovering the full avoided
     cost rate as set forth in the PPAs, including but not limited to
     interpreting or enforcing the Restructuring Orders to preclude any utility
     from recovering all or any portion of its avoided costs previously approved
     by the MPSC from its customers, whether before, during, or after the year
     2007. This order and the Commission's August 17, 1999 order are being
     appealed.

     To date, these restructuring efforts have not negatively impacted MCV's
     cash flow, but if the MPSC's Restructuring Orders are construed so as to
     deny stranded cost recovery of above-market PPA costs, and if such order is
     not reversed on appeal, MCV's cash flows may be negatively impacted in the
     period after 2007. MCV continues to monitor and participate in these
     matters as appropriate, and to evaluate potential impacts on both cash
     flows and recoverability of the carrying value of property, plant and
     equipment. MCV management cannot, at this time, predict the impact or
     outcome of these matters.

(2)  SIGNIFICANT ACCOUNTING POLICIES

     Fair Value of Financial Instruments

     The carrying amounts of cash, cash equivalents and short-term investments
     approximate fair value because of the short maturity of these instruments.
     MCV's short-term investments, which are made up of investment securities
     held-to-maturity, as of September 30, 1999 and December 31, 1998, have
     original maturity dates of less than one year. The unique nature of the
     negotiated financing obligation discussed in Note 5 makes it impractical to
     estimate the fair value of the lessor group ("Owner Participants")
     underlying debt and equity instruments supporting such financing
     obligation.

     Forward Foreign Exchange Contracts

     An amended service agreement was entered into between MCV and ABB Power
     Generation ("ABB Power") (the "amended Service Agreement"), under which ABB
     Power provides hot gas path parts for MCV's twelve gas turbines through the
     sixth series of major gas turbine generator ("GTG") inspections, which are
     expected to be completed by year-end 2008. The payments due to ABB Power
     under this amended Service Agreement are adjusted annually based on the
     ratio of the U.S. dollar to Swiss franc currency exchange rate. MCV
     maintains a foreign currency hedging program to be used only with respect
     to MCV payments subject to foreign currency exposure under the amended
     Service Agreement.

     To manage this currency exchange rate risk and hedge against adverse
     currency fluctuations impacting the payments under this amended Service
     Agreement, MCV periodically enters into forward purchase contracts for
     Swiss francs. The forward foreign currency exchange contracts qualify as
     hedges under Statement of Financial Accounting Standards ("SFAS") 52,
     "Foreign Currency Translation," since they hedge the identifiable foreign
     currency commitment of the amended Service Agreement. The gains and losses
     on these transactions, accounted for as hedges, are deferred on the balance
     sheet and included in the measurement of the underlying capitalized major
     renewal costs when incurred. As of September 30, 1999, MCV had forward
     purchase contracts involving Swiss Francs in the notional amount of $5.0
     million, with a deferred $.1 million loss, recorded in prepaid expenses and
     other. On December 29, 1998, MCV closed out its forward purchase contracts
     involving Swiss francs in the notional amount of $10.0 million, resulting
     in a deferred $1.0 million gain recorded in current liabilities.

     Natural Gas Options and Futures
     To manage market risks associated with the volatility of natural gas
     prices, MCV maintains a gas hedging program. MCV enters into natural gas
     options and futures contracts in order to hedge against unfavorable changes
     in the market price of natural gas in future months when gas is expected to
     be needed. These financial


                                      -7-
<PAGE>   9

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     instruments are being utilized only to secure anticipated natural gas
     requirements necessary for projected electric sales at a cost of gas less
     than that available under MCV's long-term natural gas contracts and to
     hedge sales of natural gas previously obtained in order to optimize MCV's
     existing gas supply, storage and transportation arrangements. The natural
     gas futures contracts qualify as hedges under SFAS 80, "Accounting for
     Futures Contracts," since the contracts cover probable future transactions.

     Cash is deposited with the broker in a margin account, at the time futures
     or options contracts are initiated. The change in market value of these
     contracts requires adjustment of the margin account balances. The margin
     balance, recorded in prepaid expenses and other, was $.9 million and $.5
     million as of September 30, 1999 and December 31, 1998, respectively. MCV's
     deferred gains and losses on futures and options contracts, recorded in
     current liabilities, will be offset by the corresponding underlying
     physical transaction and then included in operating expenses as part of
     fuel cost in the same period the natural gas is burned to operate the
     Facility. As of September 30, 1999, MCV had net open futures and options
     contracts of 2.0 Billion cubic feet ("Bcf") with a deferred gain of $.1
     million. As of December 31, 1998, MCV had net open futures and options
     contracts of 1.7 Bcf with a deferred gain of $.9 million. In addition, MCV
     recorded approximately $.1 million in net deferred losses on contracts
     closed prior to September 30, 1999, related to 1999 and 2000 purchase
     commitments, and had approximately $.2 million in net deferred gains on
     contracts closed prior to December 31, 1998, related to 1999 purchase
     commitments.

     Interest Rate Swap Hedges

     To manage the effects of interest rate volatility on interest income while
     maximizing return on permitted investments, MCV established an interest
     rate hedging program. The notional amounts of the hedges are tied directly
     to MCV's anticipated cash investments, without physically exchanging the
     underlying notional amounts.

     Cash may be deposited with the broker at the time the interest rate swap
     transactions are initiated. The change in market value of these contracts
     may require further adjustment of the margin account balance. The margin
     balance recorded in prepaid expenses and other, was approximately $.2
     million and $.2 million, as of September 30, 1999 and December 31, 1998,
     respectively. In December 1998 and December 1997, MCV entered into separate
     interest rate swap hedges in the notional amount of $20 million each, with
     the periods of performance from July 23, 1999 through January 23, 2000 and
     from April 1, 1998 through December 1, 2002, respectively. The difference
     between the amounts received and paid under the interest rate swap
     transaction is accrued and recorded as an adjustment to the interest income
     over the life of the hedged agreement. For the year-to-date period ending
     September 30, 1999, MCV had an immaterial net gain under the interest rate
     swap hedges while for the year ended 1998, MCV had an immaterial loss under
     the December 1997 interest rate swap hedge.

     New Accounting Standard

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
     No. 133, "Accounting for Derivative Instruments and Hedging Activities".
     This statement establishes accounting and reporting standards requiring
     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 in some cases allows a derivative's gains
     and losses to offset related results on the hedged item in the income
     statement or permits recognition of the hedge results in other
     comprehensive income. In June 1999, the FASB issued SFAS No. 137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective Date of FASB Statement No. 133." This statement defers the
     effective date of SFAS No. 133 to fiscal years beginning after June 15,
     2000. MCV expects to adopt the new statement effective January 1, 2001. MCV
     is continuing to study the impact of SFAS No. 133, however, MCV does not
     expect the application of this standard to materially affect its financial
     position or results of operations.



                                      -8-
<PAGE>   10

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


(3) RESTRICTED CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES HELD-TO-MATURITY

    Current and non-current restricted cash and cash equivalents and investment
    securities held-to-maturity consist of the following as of (in thousands):

<TABLE>
<CAPTION>


                                                                           September 30,          December 31,
                                                                               1999                   1998
                                                                         ----------------       ----------------
    <S>                                                                  <C>                    <C>
    Current:
    Funds restricted for plant modifications                             $         5,669        $         8,913
                                                                         ===============        ===============

    Non-current:
    Funds restricted for rental payments  pursuant to the Overall Lease
      Transaction                                                        $       138,380        $       142,453

    Funds restricted for management non-qualified plans                            1,457                    991
                                                                         ---------------        ---------------

    Total                                                                $       139,837        $       143,444
                                                                         ===============        ===============

<CAPTION>

(4) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts payable and accrued liabilities consist of the following as of (in
thousands):

                                                                           September 30,          December 31,
                                                                               1999                   1998
                                                                          ----------------      ----------------
<S>                                                                      <C>                    <C>
     Accounts payable
       Related parties                                                    $       11,768        $        17,231
       Trade creditors                                                            22,916                 27,457
     Property and single business taxes                                           13,089                 11,822
     Other                                                                         2,503                  4,208
                                                                         ---------------        ---------------

     Total                                                                        50,276        $        60,718
                                                                          ==============        ===============

<CAPTION>

(5)  LONG-TERM DEBT

     Long-term debt consists of the following as of (in thousands):
                                                                           September 30,          December 31,
                                                                               1999                   1998
                                                                          ----------------       ---------------
<S>                                                                      <C>                    <C>
     Financing obligation, maturing through 2015, effective interest
     rate of approximately 8.7%, payable in semi-annual installments
     of principal and interest, secured by property, plant and equipment  $      1,723,960       $    1,788,291

     Less current portion                                                         (139,095)             (64,331)
                                                                          ----------------       --------------

     Total long-term debt                                                 $      1,584,865       $    1,723,960
                                                                          ================       ==============
</TABLE>




                                      -9-
<PAGE>   11

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



     Financing Obligation

     In 1990, MCV obtained permanent financing for the Facility by entering into
     sale and leaseback agreements ("Overall Lease Transaction") with the Owner
     Participants, related to substantially all of MCV's fixed assets. Proceeds
     of the financing were used to retire borrowings outstanding under existing
     loan commitments, make a capital distribution to the Partners and retire a
     portion of the notes issued by MCV to MEC Development Corporation ("MDC")
     in connection with the transfer of certain assets by MDC to MCV. In
     accordance with SFAS No. 98, "Accounting For Leases," the sale and
     leaseback transaction has been accounted for as a financing arrangement.

     Interest and fees incurred related to long-term debt arrangements during
     the nine months ended September 30, 1999 and 1998 were $116.2 million and
     $122.1 million, respectively. Interest and fees paid for the nine months
     ended September 30, 1999 and 1998 were $157.5 million and $168.3 million,
     respectively.

(6)  CONTINGENCIES

     PPA - Settlement of PPA Issues

     MCV and Consumers entered into a settlement agreement ("Settlement
     Agreement"), effective January 1, 1999, which resolves (for the various
     time periods specified in the Settlement Agreement, but in no event sooner
     than 2002) all disputed issues under the PPA and includes definitive
     obligations for Consumers to make energy payments calculated in accordance
     with the PPA. MCV recognized a one-time net $6.4 million increase in
     electric revenues in the first quarter of 1999 based upon the resolution of
     these issues. On an ongoing basis and for the various time periods
     specified in the Settlement Agreement, the Settlement Agreement is not
     expected to materially affect MCV's earnings and cash flows.

     PPA - Sale and Assignment

     On March 10, 1999, Consumers announced that it signed a contract with PECO
     Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
     associated energy to PECO from the MCV PPA beginning January 1, 2002 and
     ending in September 2007. In addition, Consumers will sell PECO between 100
     MW to 150 MW in 1999 through 2001. The announcement also states the
     contract with PECO is subject to satisfactory regulatory approvals. On
     March 19, 1999, Consumers filed an application with the MPSC seeking
     regulatory approval of various ratemaking and accounting treatments
     associated with the PECO contract. On April 30, 1999, the MPSC entered an
     order which did not grant all of the relief Consumers requested, but does
     permit the transaction to go forward. Consumers sought clarification and/or
     rehearing of that order. On August 31, 1999, the Commission entered an
     order on rehearing, clarifying and amending its April 30, 1999 order.
     Consumers has asked the Commission for clarification of its August 31, 1999
     order. At this time, MCV Management cannot predict whether Consumers will
     accept the MPSC's orders. MCV does not expect the sale of Consumers' rights
     to capacity and associated energy under the PPA to materially affect its
     financial position or results of operations.



                                      -10-
<PAGE>   12


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



(7)  PARTNERS' EQUITY AND RELATED PARTY TRANSACTIONS

     The following table summarizes the nature and amount of each of MCV's
     Partner's equity interest, interest in profits and losses of MCV at
     September 30, 1999, and the nature and amount of related party transactions
     or agreements that existed with the Partners or affiliates as of September
     30, 1999 and 1998, and for each of the nine month periods ended September
     30, (in thousands).


<TABLE>
<CAPTION>

Equity Partner, Type of Partner and  Equity
      Nature of Related Party        Interest  Interest Related Party Transactions and Agreements              1999      1998
- -----------------------------------  --------  -------- ----------------------------------------------       --------  --------

<S>                                  <C>          <C>    <C>                                                <C>       <C>
CMS Midland, Inc.                    $207,311     49.0%  Power purchase agreements                           $441,621  $439,827
  General Partner; wholly-owned                          Purchases under gas transportation agreements         14,251     7,221
  subsidiary of Consumers Energy                         Purchases under spot gas agreements                      207       487
  Company (formerly Consumers                            Purchases under gas supply agreements                  6,765     6,543
  Power Company)                                         Gas storage agreement                                  1,922     1,922
                                                         Land lease/easement agreements                           450       450
                                                         Accounts receivable                                   46,212    49,176
                                                         Accounts payable                                       6,719    15,871
                                                         Gas exchanges                                            430     1,148

The Dow Chemical Company               44,718      7.5   Steam and electric power agreement                    20,165    30,918
  Limited Partner                                        Steam purchase agreement - Dow Corning Corp
                                                         (affiliate)                                            2,415     2,353
                                                         Purchases under demineralized water supply
                                                         agreement                                              4,688     4,723
                                                         Accounts receivable                                    1,948     1,822
                                                         Accounts payable                                         519       521
                                                         Standby and backup fees                                  489       572

Source Midland Limited Partnership     71,273     18.1   Purchases under spot gas agreements                    3,466     5,832
  ("SMLP") General Partner; wholly-                      Purchases under gas supply agreements                 10,035     9,621
  owned limited partnership of MCN                       Accounts receivable                                    2,058        --
  Energy Group Inc.                                      Accounts payable                                       1,323     1,794
                                                         Gas exchanges                                          5,950        --
                                                         Partner cash withdrawal (including accrued
                                                         interest) (1)                                         23,601    18,091

Coastal Midland, Inc. ("Coastal")      42,763     10.9   Purchases under gas transportation agreements         10,203    10,112
  General Partner; wholly-owned                          Purchases under spot gas agreement                     3,623     9,691
  subsidiary of The Coastal                              Purchases under gas supply agreement                   3,008     2,875
  Corporation                                            Gas agency agreement                                   1,337     1,137
                                                         Deferred reservation charges under gas purchase
                                                         agreement                                              5,910     4,925
                                                         Accounts receivable                                       --        79
                                                         Accounts payable                                       3,207     2,818
                                                         Gas exchanges                                            749     4,998
                                                         Partner cash withdrawal (including accrued
                                                         interest) (1)                                         20,823    15,936

MEI Limited Partnership ("MEI") (2)                      MEI - Under Ownership of Coastal and SMLP
  A General and Limited Partner;                         See related party activity listed under Coastal
  50% interest owned by Coastal                            Midland, Inc. and Source Midland Limited Partnership
  Midland, Inc. and 50% interest
  owned by SMLP
                                                         MEI - Under Ownership of ASEA Brown Boveri, Inc.
      General Partnership Interest     35,638      9.1   Gas turbine maintenance and spare parts agreement         --    23,377
      Limited Partnership Interest      3,563       .9

Micogen Limited Partnership            17,817      4.5   MLP - Under Ownership of The Coastal Corporation
  ("MLP") Limited Partner; owned                         See related party activity listed under Coastal
  by subsidiaries of The Coastal                         Midland Inc.
  Corporation (3)

C-E Midland Energy, Inc. ("C-E") (4)       --       --   Service Agreement                                         --     1,252
  Interest in MCV acquired by MEI
  Limited Partnership

Alanna Corporation                       1 (5)  .00001   Note receivable                                            1         1
  Limited Partner; wholly-owned
  subsidiary of Alanna Holdings
  Corporation
</TABLE>




                                      -11-
<PAGE>   13

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



Footnotes to Partners' Equity and Related Party Transactions

(1)  Letters of credit have been issued and recorded as notes receivables from
     various equity partners, pursuant to the Participation Agreement. In the
     case of SMLP, the amount includes their share of the cash available to MEI
     Limited Partnership ("MEI"). In the case of Coastal Midland, Inc.
     ("Coastal"), the amount includes their share of cash available to both MEI
     and Micogen Limited Partnership ("MLP").
(2)  On June 16, 1998, Coastal and SMLP, each acquired a 50% interest in MEI.
     All MEI related party activity under the ownership of Coastal and SMLP is
     shown under the equity partners, Coastal and SMLP. All MEI related party
     activity under the ownership of ASEA Brown Boveri, Inc. is for the period
     ended June 16, 1998, and as of June 16, 1998.
(3)  On April 30, 1998 Coastal and an affiliate of The Coastal Corporation
     acquired all of the partnership interests in MLP from Fluor Corporation
     ("Fluor"). All MLP related party activity under the ownership of The
     Coastal Corporation is shown under the equity partner, Coastal, which is
     also wholly-owned by The Coastal Corporation.
(4)  C-E Midland Energy, Inc.'s ("C-E") limited partnership interest was
     acquired by MEI, which was subsequently acquired by Coastal and SMLP. All
     C-E related party activity under the ownership of ASEA Brown Boveri, Inc.
     is for the period ended June 16, 1998 and as of June 16, 1998.
(5)  Alanna's capital stock is pledged to secure MCV's obligation under the
     lease and other overall lease transaction documents.






                                      -12-
<PAGE>   14
       Item 2. Management's Discussion and Analysis of Financial Condition
                        and Results of Operations (MD&A)

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


This MD&A should be read along with the MD&A in the Annual Report on Form 10-K
for the year ended December 31, 1998 of the Midland Cogeneration Venture Limited
Partnership ("MCV").

Results of Operations:

Operating Revenues Statistics

The following represents significant operating revenue statistics for the
following periods (dollars in thousands except average rates):

<TABLE>
<CAPTION>

                                                                  Three Months Ended                 Nine Months Ended
                                                                    September 30,                      September 30,
                                                             -----------------------------    -------------------------------
                                                                 1999            1998              1999               1998
                                                            -------------    -------------    ------------      -------------
<S>                                                          <C>              <C>              <C>              <C>
Operating Revenues                                            $  155,268       $  156,004       $  465,490       $  471,927

Capacity Revenue                                              $  105,110       $  102,677       $  305,577       $  304,489
   PPA Contract Capacity (MW)                                      1,240            1,240            1,240            1,240
   Billed PPA Availability (1)                                      98.5%            99.3%            98.5%            99.3%

Electric Revenue                                              $   47,444       $   47,005       $  149,903       $  147,422
   PPA Delivery as a Percentage of Contract Capacity                74.9%            76.3%            77.5%            81.1%
   PPA, SEPA and Other Electric Deliveries (MWh)               2,289,643        2,247,027        6,866,662        7,027,697
   Average PPA Variable Energy Rate ($/MWh)                   $    15.85       $    16.63       $    16.10       $    16.83
   Average PPA Fixed Energy Rate ($/MWh)                      $     3.50       $     3.70       $     3.53       $     3.76

Steam Revenue                                                 $    2,714       $    2,504       $   10,010       $    8,563
   Steam Deliveries (Mlbs)                                     1,216,600        1,199,045        4,288,880        4,127,163

Other Revenue                                                 $       --       $    3,818       $       --       $   11,453
</TABLE>

(1) As part of the Settlement Agreement (see Part I, Item 1, "Condensed Notes to
    Unaudited Consolidated Financial Statements," Note 6, "Contingencies, PPA -
    "Settlement of PPA Issues", effective January 1, 1999, MCV agreed not to
    bill Consumers for PPA availability greater than 98.5% in each calendar
    year.

Comparison of the Three Months ended September 30, 1999 and 1998

Overview

For the third quarter of 1999, MCV recorded net income of $21.9 million as
compared to net income of $21.7 million for the third quarter of 1998. The
slight earnings increase for the third quarter of 1999 from 1998 is primarily
due to increased capacity and electric revenues outside of the PPA and lower
interest expense on MCV's financing obligation. This increase is partially
offset by the expiration of the installment payments under the SEPA with Dow.



                                      -13-
<PAGE>   15


Operating Revenues

For the third quarter of 1999, MCV's operating revenues decreased by $.7 million
from the third quarter of 1998. This decrease is due to the expiration of the
installment payments under the SEPA with Dow, lower energy rates under the PPA
and lower capacity revenues under the PPA resulting from the capping of the
capacity payments under the Settlement Agreement. This decrease was partially
offset by additional capacity revenues and electric sales outside of the PPA.

Operating Expenses

For the third quarter of 1999, MCV's operating expenses were $100.5 million,
which includes $61.4 million of fuel costs. During this period, MCV purchased
approximately 20.5 Bcf of natural gas, of which a net .8 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period. MCV consumed 20.2 Bcf, of which .5 Bcf of this total was gas provided by
Dow. The average commodity cost of fuel for the third quarter of 1999 was $2.57
per MMBtu. For the third quarter of 1998, MCV's operating expenses were $99.5
million, which includes $60.7 million of fuel costs. During this period, MCV
purchased approximately 20.3 Bcf of natural gas, of which .7 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period, MCV consumed 20.3 Bcf, of which .7 Bcf of this total was gas provided by
Dow. The average commodity cost of fuel for the third quarter of 1998 was $2.53
per MMBtu. Fuel costs for the third quarter of 1999 compared to 1998 increased
$.7 million. This increase was primarily due to a higher average commodity cost
of fuel resulting from higher gas cost on the spot market and due to a higher
overall electric dispatch.

For the third quarter of 1999, operating expenses other than fuel costs
increased $.3 million from the third quarter of 1998. All expenses incurred in
these periods were considered normal expenditures to achieve the recorded
operating revenues.

Other Income (Expenses)

The increase in interest and other income in the third quarter of 1999 compared
to 1998 reflects a higher average investment partially offset by lower interest
rates on MCV's average cash investments. The decrease in interest expense in the
third quarter of 1999 from the third quarter of 1998 is due to a lower principal
balance on MCV's financing obligation.

Comparison of the Nine Months ended September 30, 1999 and 1998

Overview

For the first nine months of 1999, MCV recorded net income of $65.5 million as
compared to net income of $59.6 million for the first nine months of 1998. The
earnings increase for the first nine months of 1999 over 1998 is primarily due
to a Settlement Agreement between MCV and Consumers effective January 1, 1999,
which resolved a number of disputed issues under the PPA between the parties.
MCV recognized a one-time net $6.4 million increase in operating revenues in
1999 based upon the resolution of these issues. Also contributing to this
increase was additional power sales outside of the PPA, lower interest expense
on MCV's financing obligation and lower depreciation expense. This increase was
partially offset by lower revenues from Dow.

Operating Revenues

For the first nine months of 1999, MCV's operating revenues decreased by $6.4
million from the first nine months of 1998. This decrease is due to the
expiration of the installment payments under the SEPA with Dow, a lower electric
dispatch under the PPA, resulting from Consumers change to economic dispatch of
the facility in mid-March 1998, lower energy rates under the PPA and lower
capacity revenues under the PPA resulting from the capping of the capacity
payments under the Settlement Agreement. This decrease was partially offset by
the $6.4 million increase in electric revenues as a result of the Settlement
Agreement with Consumers and additional capacity revenues and electric sales
outside of the PPA.



                                      -14-
<PAGE>   16

Operating Expenses

For the first nine months of 1999, MCV's operating expenses were $297.4 million,
which includes $179.4 million of fuel costs. During this period, MCV purchased
approximately 62.6 Bcf of natural gas, of which a net 2.8 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period, MCV consumed 61.2 Bcf, of which 1.4 Bcf of this total was gas provided
by Dow. The average commodity cost of fuel for the first nine months of 1999 was
$2.46 per MMBtu. For the first nine months of 1998, MCV's operating expenses
were $305.5 million, which includes $185.7 million of fuel costs. During this
period, MCV purchased approximately 64.4 Bcf of natural gas, of which 2.4 Bcf
was used for transportation fuel and as a net change to gas in storage. During
this same period MCV consumed 64.4 Bcf, or which 2.4 Bcf of this total was gas
provided by Dow. The average commodity cost of fuel for the first nine months of
1998 was $2.45 per MMBtu. Fuel costs for the first nine months of 1999 compared
to 1998 decreased $6.3 million. This decrease was primarily due to a lower
electric dispatch by Consumers under the PPA.

For the first nine months of 1999, operating expenses other than fuel costs
decreased $1.8 million from the first nine months of 1998, primarily resulting
from lower depreciation expense. All other expenses incurred in these periods
were considered normal expenditures to achieve the recorded operating revenues.

Other Income (Expenses)

The decrease in interest and other income in the first nine months of 1999
compared to 1998 reflects the 1998 accrual for the interest income refund from
Great Lakes Gas Transmission, pursuant to a Federal Appeals Court decision made
in January, 1998 and lower interest rates during 1999 on MCV's average cash
investments. The decrease in interest expense in the first nine months of 1999
from the first nine months 1998 is due to a lower principal balance on MCV's
financing obligation.

Market Risk Sensitivity

Market risks relating to MCV's operations result primarily from changes in
commodity prices, interest rates and foreign exchange rates. To address these
risks, MCV enters into various hedging transactions as described below. MCV does
not use financial instruments for trading purposes and does not use leveraged
instruments. Fair values included herein have been determined based upon quoted
market prices. The information presented below should be read in conjunction
with Note 2, " Significant Accounting Policies" and Note 5, "Long-Term Debt" to
the Unaudited Consolidated Financial Statements of MCV.

Interest Rate Risks. In 1990, MCV obtained permanent financing for the Facility
by entering into sale and leaseback agreements ("Overall Lease Transaction")
with a lessor group, related to substantially all of MCV's fixed assets. In
accordance with SFAS No. 98, "Accounting For Leases," the sale and leaseback
transaction has been accounted for as a financing arrangement. Under the terms
of the Overall Lease Transaction, MCV sold undivided interests in all of the
fixed assets of the Facility for approximately $2.3 billion, to the Owner Trusts
established for the benefit of the Owner Participants. The financing
arrangement, entered into for a term of 25 years, maturing in 2015, has an
effective interest rate of approximately 8.7%, payable in semi-annual
installments of principal and interest. Due to the unique nature of the
negotiated financing obligation it is impractical to estimate the fair value of
the Owner Participants' underlying debt and equity instruments supporting this
financing obligation.

The carrying amounts of MCV's short-term investments approximate fair value
because of the short term maturity of these instruments. MCV's short-term
investments are made up of investment securities held to maturity and as of
September 30, 1999 have original maturity dates of less than one year. In
addition, to manage the effects of interest rate volatility on interest income
while maximizing return on permitted investments, MCV has established an
interest rate hedging program.

For MCV's debt obligations, the table below presents principal cash flows and
the related interest rate by expected maturity dates. The interest rate reflects
the fixed effective rate of interest of the financing arrangement. For the
interest rate swap transactions, the table presents the notional amounts and
related interest rates by fiscal year of maturity. The variable rates presented
are the average of the forward rates for the term of each contract, as valued at
September 30, 1999:



                                      -15-
<PAGE>   17

<TABLE>
<CAPTION>

                                                                    Expected Maturity
                           -------------------------------------------------------------------------------------------------
                              2000        2001        2002        2003        2004      Thereafter     Total      Fair Value
                              ----        ----        ----        ----        ----      ----------     -----      ----------
<S>                         <C>         <C>         <C>         <C>         <C>          <C>         <C>           <C>
Debt:
Long-Term Debt
Fixed Rate                   $288.6      $292.2      $309.2      $214.0      $247.9      $1,542.6     $2,894.5       N/A
    (in millions)
Avg. Interest Rate              8.7%        8.7%        8.7%        8.7%        8.7%          8.7%         8.7%

Interest Rate Swaps:
- -------------------
Variable to Fixed            $ 20.0                                                                                  $(.1)
    (in millions)
Avg. Pay Rate                  6.22%
Avg. Receive Rate              4.89%

Floating to Floating                                 $ 20.0                                                          $(.1)
    (in millions)
Avg. Pay Rate                                          6.41%
Avg. Receive Rate                                      6.22%
</TABLE>


Commodity Risk. MCV is a purchaser of natural gas. MCV enters into natural gas
futures and option contracts in order to hedge against unfavorable changes in
the market price of natural gas in future months when gas is expected to be
needed. These financial instruments are being utilized only to secure
anticipated natural gas requirements necessary for projected electric sales at a
cost of gas less than that available under MCV's long term natural gas contracts
and to hedge sales of natural gas previously obtained in order to optimize MCV's
existing gas supply, storage and transportation arrangements. The natural gas
futures and option contracts qualify as hedges under SFAS No. 80, "Accounting
for Futures Contracts," since the contracts cover probable future transactions.
MCV's futures and forward contracts generally have maturities not exceeding
twelve months.

The following table provides information about MCV's futures contracts that are
sensitive to changes in natural gas prices; these futures contracts have
maturity dates ranging from one to nine months. The table presents the carrying
amounts and fair values at September 30, 1999:

<TABLE>
<CAPTION>

                                                          Expected Maturity in      Fair Value
                                                          --------------------      ----------
                                                              1999/2000
                                                              ---------
<S>                                                          <C>                     <C>
Futures Contracts:
Contract Volumes (10,000 MMBtu) Long/Buy                          300                      --
Contract Volumes (10,000 MMBtu) Short/Sold                        (95)
Weighted Average Price Long (per 10,000 MMBtu)                 $2.447                  $2.522
Weighted Average Price Short (per 10,000 MMBtu)                $2.846                  $2.941
Contract Amount ($US in Millions)                              $  4.6                  $  4.8
</TABLE>

Foreign Currency Risks. MCV periodically enters into foreign exchange forward
purchase contracts for Swiss Francs to hedge its foreign currency exposure
against adverse currency fluctuations impacting the payments under the amended
Service Agreement with ABB Power. The gains and losses on these transactions,
accounted for as hedges, are deferred on the balance sheet and included in the
measurement of the underlying capitalized major renewal costs when incurred.
Forward contracts which are entered into have maturity dates of less than one
year. As of September 30, 1999, MCV had forward purchase contracts involving
Swiss Francs in the notional amount of $5.0 million, with a deferred $.1 million
loss.

Liquidity and Financial Resources

During the nine months ended September 30, 1999 and 1998, net cash generated by
MCV's operations was $66.1 million and $80.0 million, respectively. The primary
use of net cash was for the payment of principal on the financing obligation and
capital expenditures. MCV's cash and cash equivalents have a normal cycle of
collecting six months of revenues less operating expenses prior to making the
semiannual interest and principal payments of the financing obligation due in
January and July for the next sixteen years. During 1999 and 1998, MCV paid the
basic rent requirements of $221.7 million and $309.0 million, respectively, as
required under the Overall Lease



                                      -16-
<PAGE>   18

Transaction. MCV also has arranged for a $50 million working capital line
("Working Capital Facility") from the Bank of Montreal to provide temporary
financing, as necessary, for operations. The Working Capital Facility has been
secured by MCV's natural gas inventory and earned receivables. At any given
time, borrowings and letters of credit are limited by the amount of the
borrowing base, defined as 90% of earned receivables. The borrowing base varies
over the month as receivables are earned, billed and collected. At September 30,
1999, the borrowing base was $43.0 million. The Working Capital Facility term
currently extends to August 31, 2001. MCV did not utilize the Working Capital
Facility during the first nine months of 1999, except for letters of credit
associated with normal business practices. MCV believes that amounts available
under the Working Capital Facility will be sufficient to meet any working
capital shortfalls which might occur.

For the foreseeable future, MCV expects to fund current operating expenses,
payments under the amended Service Agreement and rental payments primarily
through cash flow from operations. If necessary, MCV could fund any operating
cash flow shortfalls from cash reserves to the extent available for such
purposes. As of September 30, 1999, there was $323.8 million (which includes
$79.0 million reserved for capital improvements and spare parts purchases),
including accrued interest, in available reserves for such purposes.

Outlook

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995. The following discussion of the outlook for MCV contains certain
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995 (the "Act"), including, without limitation, discussion as to
expectations, beliefs, plans, objectives and future financial performance, or
assumptions underlying or concerning matters discussed reflecting MCV's current
expectations of the manner in which the various factors discussed therein may
affect its business in the future. Any matters that are not historical facts are
forward-looking and, accordingly, involve estimates, assumptions, and
uncertainties which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. Accordingly, this "Safe
Harbor" Statement contains additional information about such factors relating to
the forward-looking statements. There is no assurance that MCV's expectations
will be realized or that unexpected events will not have an adverse impact on
MCV's business.

Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include the
final outcome of the MPSC Restructuring Orders and challenges thereto,
governmental policies, legislation and other regulatory actions (including those
of the Michigan Legislature, Congress, Federal Energy Regulatory Commission and
the Michigan Public Service Commission) with respect to cost recovery under the
PPA, industry restructuring or deregulation, operation and construction of plant
facilities including natural gas pipeline and storage facilities, and present or
prospective wholesale and retail competition, among others. The business and
profitability of MCV is also influenced by other factors such as weather
conditions, pricing and transportation of commodities, environmental
legislation/regulation, Year 2000 compliance issues and inflation, among other
important factors. All such factors are difficult to predict, contain
uncertainties which may materially affect actual results, and are beyond the
control of MCV.

Results of operations are largely dependent on successfully operating the
Facility at or near contractual capacity levels, the availability of natural
gas, the level of energy rates paid to MCV relative to the cost of fuel used for
generation, Consumers' performance of its obligations under the PPA and
maintenance of the Facility's QF status.

Operating Outlook. In the first nine months of 1999, approximately 69% of PPA
revenues were capacity payments which are billed on availability, subject to an
annual availability cap of 98.5% pursuant to the Settlement Agreement, beginning
January 1, 1999. PPA availability was 99.4% in 1998 and 98.9% in 1997.
Availability depends on the level of scheduled and unscheduled maintenance
outages, and on the sustained level of output from each of the GTGs and the
steam turbines. MCV expects long-term PPA availability to exceed 90%.

In mid-March 1998, Consumers began economically dispatching the Facility by
scheduling energy deliveries on an economic basis relative to the cost of other
energy resources, instead of at the higher dispatch levels experienced over the
past several years. MCV consequently has seen both electric operating revenues
and operating costs decline. However, MCV Management does not expect this change
to have a material impact on MCV's financial position.



                                      -17-
<PAGE>   19

Natural Gas. The Facility is wholly dependent upon natural gas for its fuel
supply and a substantial portion of the Facility's operating expenses consist of
the costs of natural gas. While MCV continues to pursue the acquisition of fuel
supply beyond the year 2004, MCV recognizes that its existing gas contracts are
not sufficient to satisfy the anticipated gas needs over the term of the PPA
and, as such, no assurance can be given as to the availability or price of
natural gas after the expiration of the existing gas contracts.

Energy Rates and Cost of Production. Under the PPA, energy charges are based on
the costs associated with fuel inventory, operations and maintenance, and
administrative and general expenses associated with certain of Consumers' coal
plants. However, MCV's costs of producing electricity are tied, in large part,
to the cost of natural gas. To the extent that the costs associated with
production of electricity with natural gas rise faster than the energy charge
payments, which are based largely on Consumers' coal plant operation and
maintenance costs, MCV's financial performance would be negatively affected. For
the period April 1990 through September 1999, the energy charge (fixed and
variable) paid to MCV has declined by .36 cents per kWh, while the average
variable cost of delivered fuel for the period 1990 - 1998, has risen by $0.26
per MMBtu.

The divergence between variable revenues and costs will become greater if the
energy charge (based largely on the cost of coal) declines or escalates more
slowly than the spot market or contract prices under which MCV purchases fuel
(contract prices generally escalate at a fixed price, a fixed price with an
escalator, an index based on Consumers' energy charges under the PPA, or a
combination thereof). The difference could be further exacerbated in
approximately five years as MCV's gas contracts begin to expire if the cost of
uncontracted fuel is materially higher than the prices in the expiring
contracts.

Capacity and Energy Payments Under the PPA. The PPA permits Consumers, under
certain conditions, to reduce the capacity and energy charges payable to MCV
and/or to receive refunds of capacity and energy charges paid to MCV if the MPSC
does not permit Consumers to recover from its customers the capacity and energy
charges specified in the PPA (the "regulatory out" provision). Pursuant to
Amendment 3 of the PPA, for the first 17-1/2 years of commercial operation, the
capacity charge may not be reduced below an average capacity rate of 3.77 cents
per kWh for the available Contract Capacity notwithstanding the "regulatory out"
provision. Consumers and MCV are required to support and defend the terms of the
PPA.

MCV and Consumers entered into a Settlement Agreement, effective January 1,
1999, which resolves (for the various time periods specified in the Settlement
Agreement, but in no event sooner than 2002) all disputed issues under the PPA
and includes definitive obligations for Consumers to make energy payments
calculated in accordance with the PPA. MCV recognized a one-time net $6.4
million increase in electric revenues in the first quarter of 1999 based upon
the resolution of these issues. On an ongoing basis and for the various time
periods specified in the Settlement Agreement, the Settlement Agreement is not
expected to materially affect MCV's earnings and cash flows.

PPA - Sale and Assignment.

On March 10, 1999, Consumers announced that it signed a contract with PECO
Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
associated energy to PECO from the MCV PPA beginning January 1, 2002 and ending
in September 2007. In addition, Consumers will sell PECO between 100 MW to 150
MW in 1999 through 2001. The announcement also states the contract with PECO is
subject to satisfactory regulatory approvals. On March 19, 1999, Consumers filed
an application with the MPSC seeking regulatory approval of various ratemaking
and accounting treatments associated with the PECO contract. On April 30, 1999,
the MPSC entered an order which did not grant all of the relief Consumers
requested, but does permit the transaction to go forward. Consumers sought
clarification and/or rehearing of that order. On August 31, 1999, the Commission
entered an order on rehearing, clarifying and amending its April 30, 1999 order.
Consumers has asked the Commission for clarification of its August 31, 1999
order. At this time, MCV Management cannot predict whether Consumers will accept
the MPSC's orders. MCV does not expect the sale of Consumers' rights to capacity
and associated energy under the PPA to materially affect its financial position
or results of operations.

Michigan Electric Industry Restructuring Proceedings. On December 20, 1996, the
MPSC issued an order on its own motion to consider the restructuring of the
electric industry in Michigan. After public hearings and contested case hearings
the MPSC issued orders on June 5, 1997, October 29, 1997, January 14, 1998 and
February 11, 1998



                                      -18-
<PAGE>   20

(collectively the "Restructuring Orders"). While the Restructuring Orders are
not entirely clear, they generally provide for a transition to a competitive
regime whereby electric retail customers will be able to chose their power
supplier and pay negotiated or market-based rates for such power supply. The
Restructuring Orders also mandate that utilities "wheel" third-party power to
the utilities' customers. An issue involved in this restructuring which could
significantly impact MCV is stranded cost recovery. The Restructuring Orders
allow recovery by utilities (including Consumers) of stranded costs including
capacity charges previously approved by the MPSC in power contracts incurred
during the regulated era that will be above market prices during the new
competitive regime. However, it appears that stranded cost recovery of
above-market capacity charges in power purchase contracts (i.e., MCV's PPA) is
limited to the period 1998 through 2007 (MCV's PPA expires in 2025). The
Restructuring Orders do not specifically address the recovery of PPA capacity
charges after 2007. The Restructuring Orders permitted Consumers to elect to
suspend the power supply cost recovery ("PSCR") process and freeze its PSCR rate
factor through which charges under the PPA are recovered from retail customers.
The MPSC has suspended the annual PSCR (plan and reconciliation case) process
indefinitely, and froze Consumers' PSCR rate factor. The suspension of the PSCR
process and the PSCR "rate freeze" were effective January 1, 1998, and are to
remain in effect through 2001. This PCSR rate freeze is subject to the final
outcome of Consumers' 1997 PSCR reconciliation case (conducted by the MPSC to
reconcile actual costs incurred by Consumers in providing power supply to its
retail customers with actual revenue it collected that same year) for which
rehearing petitions have been filed at the MPSC. This case will determine the
level at which Consumers' PSCR rates (including recover of MCV capacity and
energy charges) will be frozen during the period 1998 through 2001. MCV is a
party in the 1997 PSCR reconciliation case.

In the restructuring cases before the MPSC, MCV has advocated, among other
things, full recovery of PPA charges (capacity and energy) for the life of the
PPA. MCV, as well as others, filed an appeal in the Michigan Court of Appeals
and a complaint in the U.S. District Court for the Western District of Michigan
challenging the Restructuring Orders. In June 1999, the Michigan Supreme Court
issued an opinion in an MPSC "retail wheeling" experiment case holding, among
other things, that the MPSC lacks the statutory authority to mandate that
utilities transmit power of third parties to the utilities' customers ("Michigan
Supreme Court Order"). While this Michigan Supreme Court Order was not directed
at the Restructuring Orders, it is likely to be applied to them. On August 17,
1999, the MPSC issued an order making retail wheeling under the Restructuring
Orders voluntary on the part of the utilities. On September 1, 1999, Consumers
filed a statement with the MPSC stating that it intends to voluntarily implement
the Restructuring Orders. In an order dated July 7, 1999, the U.S. District
Court granted MCV's Motion for Summary Judgment declaring that the Restructuring
Orders are preempted by PURPA and the Supremacy Clause of the United States
Constitution to the extent that they prohibit any utility from recovering from
its customers any charge for avoided costs (or "stranded costs") to be paid to
MCV and the other QFs under PURPA pursuant to their PPAs. The order further
provides that the MPSC's prior orders approving the avoided cost rates set forth
in MCV's and the other QFs' PPAs take precedence over the Restructuring Orders.
The Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
enjoined from enforcing the Restructuring Orders in any manner which denies any
utility from recovering its avoided costs as set forth in MCV's and the other
QFs' PPAs or which precludes them from recovering the full avoided cost rate as
set forth in the PPAs, including but not limited to interpreting or enforcing
the Restructuring Orders to preclude any utility from recovering all or any
portion of its avoided costs previously approved by the MPSC from its customers,
whether before, during, or after the year 2007. This order and the Commission's
August 17, 1999 order are being appealed. The Michigan legislature has also
begun the process to consider electric industry restructuring and deregulation.
While restructuring could have a material impact on MCV, MCV Management cannot,
at this time, predict the impact or the outcome of these administrative,
judicial and legislative proceedings.

Federal Electric Industry Restructuring. FERC has jurisdiction over wholesale
energy sales in interstate commerce and is moving towards "market" based pricing
of electricity in some circumstances as opposed to traditional cost-based
pricing. In April 1996, FERC issued Order No. 888 requiring all utilities FERC
regulates to file uniform transmission tariffs providing for, among other
things, non-discriminatory "open access" to all wholesale buyers and sellers,
including the transmission owner, on terms and conditions established by FERC.
Order No. 888 also requires utilities to "functionally unbundle" transmission
and separate transmission personnel from those responsible for marketing
generation. Appeals of Order No. 888 and subsequent related orders are pending
before the United States Court of Appeals for the D.C. Circuit. In addition,
several bills have been introduced in Congress to require states to permit
consumers to choose their supplier of electricity and manage other issues such
as transition cost recovery and FERC jurisdiction of retail electric sales. MCV
Management cannot predict the impact on MCV or the outcome of these proceedings.




                                      -19-
<PAGE>   21

Maintaining QF Status. In the case of a topping-cycle generating plant such as
the Facility, to maintain QF Status the applicable operating standard requires
that the portion of total energy output that is put to some useful purpose other
than facilitating the production of power (the "Thermal Percentage") be at least
5%. In addition, the plant must achieve and maintain an average PURPA efficiency
standard (the sum of the useful power output plus one-half of the useful thermal
energy output, divided by the energy input (the "Efficiency Percentage")) of at
least 45%. However, if the plant maintains a Thermal Percentage of 15% or
higher, the required Efficiency Percentage is reduced to 42.5%. The tests are
applied on a calendar year basis. The Facility has achieved the applicable
Efficiency Percentage of 42.5% in each year since commercial operation, and in
the years 1995 through 1998 the Facility achieved an Efficiency Percentage in
excess of 45%.

The Facility's achievement of a Thermal Percentage of 15% (thereby requiring
compliance with the reduced Efficiency Percentage of 42.5%) is dependent upon
both the amount of Dow and DCC steam purchases and the level of electricity
generated by the Facility. Dow has agreed to take as much steam as is necessary
for the Facility to retain its QF status under the FERC regulations in effect on
November 1, 1986 (which regulations have not been revised in relevant part in
any material respect), subject to an annual average purchase obligation of no
less than approximately 440,000 lbs/hr. of steam (less amounts supplied by the
Standby Facilities and less 50% of the amount sold by MCV to other steam
customers). The SEPA can be terminated by Dow under certain circumstances. Such
termination would likely lead to a loss of QF status for the Facility. Dow and
DCC steam purchases for the first nine months of 1999 averaged 654,491 lbs/hr.
Actual steam usage has varied and will vary with product mix, seasonal delivery
fluctuations and other factors which may change over time. MCV believes annual
steam sales will be sufficient to allow the Facility to exceed the 15% Thermal
Percentage.

MCV believes that the Facility will be able to maintain QF status and be capable
of achieving a 45% PURPA Efficiency Percentage on a long-term basis. However, no
assurance can be given that factors outside MCV's control will not cause the
Facility to fail to satisfy the annual PURPA qualification requirements and thus
lose its QF status. In 1998, MCV achieved an Efficiency Percentage of 45.7% and
a Thermal Percentage of 17.3%. During the first nine months of 1999, MCV
achieved an Efficiency Percentage of 47.1% and a Thermal Percentage of 17.8%.

MCN Energy Group Inc. ("MCN"), the parent company of Source Midland Limited
Partnership ("SMLP") and a 50% partner of MEI Limited Partnership ("MEI")
through SMLP, both partners of MCV, announced on October 5, 1999 that it has
signed a definitive merger agreement with DTE Energy Company. The merger has
been unanimously approved by the Board of Directors of both companies. The
transaction is subject to the approval of the shareholders of both companies,
regulatory approvals and other customary merger conditions. The transaction is
expected to close in the second quarter of 2000. Since the merger would cause
SMLP and MEI to become electric utilities under PURPA, MCV expects that MCN will
sell its interest in the MCV partnerships or make other arrangements in order to
keep the utility ownership in MCV below 50% in compliance with PURPA QF
ownership requirements. In the event MCN fails to take such action, the MCV
Amended and Restated Limited Partnership Agreement provides for automatic
assignment or extinguishment of such partnership interests in order to assure
compliance with the ownership requirements under PURPA. Currently, MCV meets the
ownership requirements of PURPA.

The loss of QF status could, among other things, cause the Facility to lose its
right under PURPA to sell power to Consumers at Consumers' "avoided cost" and
subject the Facility to additional federal and state regulatory requirements,
including the Federal Power Act (under which FERC has authority to establish
rates for electricity, which may be different than existing contractual rates).
If the Facility were to lose its QF status, the Partners of MCV, the Owner
Participants, the bank acting as the Owner Trustee and their respective parent
companies could become subject to regulation under the 1935 Act (under which,
among other things, the Securities and Exchange Commission has authority to
order divestiture of assets under certain circumstances). The loss of QF status
would not, however, entitle Consumers to terminate the PPA. Under the PPA,
Consumers is obligated to continue purchasing power from MCV at FERC-approved
rates (provided that the FERC-approved rates do not exceed the existing
contractual rates) and MCV, not Consumers, is entitled to terminate the PPA
(which MCV has covenanted not to do under the Participation Agreements). There
can be no assurance that FERC-approved rates would be the same as the rates
currently in effect under the PPA. If the FERC-approved rates are materially
less than the rates under the PPA, MCV may not have sufficient revenue to make
rent payments under the Overall Lease Transaction. The loss of QF status would
constitute an Event of Default under the Lease (and a corresponding Event of
Default under the Indenture) unless, among other requirements, FERC approves (or
accepts for filing) rates under the PPA or



                                      -20-
<PAGE>   22

other contracts of MCV for the sale of electricity sufficient to meet certain
target coverage ratios (as defined in the Overall Lease Transaction).

Year 2000
Risks of MCV's Year 2000 Issues. MCV utilizes information technologies and
non-information technologies (collectively "Systems") in the Facility, some of
which may be affected by the year 2000 ("Y2K") date change. If uncorrected, the
Y2K date change could cause, among other things, MCV to incur failures and
outages of the Facility's generating equipment, the equipment operating systems
and business systems. In particular, if MCV's critical systems, i.e., GTGs,
steam turbines and the control system, are adversely affected, these negative
conditions could result in a failure to keep the GTGs running and inhibit MCV's
ability to produce electricity and steam.

Because of the integrated nature of MCV's business with third party suppliers,
customers and other vendors (collectively "associates") MCV may also be affected
by Y2K compliance complications of these associates. MCV's key associates
include vendors supplying MCV's plant control system, natural gas vendors,
Consumers as a transmission provider and certain financial institutions. Y2K
compliance complications of these associates could adversely impact MCV's
ability to transmit power and cause difficulties in obtaining natural gas to
fuel the Facility, among other things.

State of Readiness. In 1997, MCV staff developed a Y2K plan to address the
Systems. MCV's Y2K plan addresses the Y2K issues in four phases: (1) the
awareness phase, completed in April 1998, brought the Y2K issues to the
attention of all employees; (2) the assessment phase, completed in September
1998, identified, inventoried and prioritized all Systems; (3) the renovation
phase, now complete, consisted of converting and replacing Systems or components
and applications in Systems which are business critical and non Y2K compliant;
and (4) the validation and testing phase, which culminated in the successful
integrated testing of the plant control system in October 1999. Testing and
validation of the business network and associated applications were completed
successfully in early 1999. As a result of MCV's efforts, the GTGs, steam
turbine and back-pressure steam turbine and all critical plant and business
systems appear to have no Y2K problems.

In 1997, MCV began contacting key associates to determine their organizations'
Y2K state of preparedness and is continuing to follow up based on each entity's
Y2K target completion dates. In addition, Y2K status and readiness meetings have
been and will continue to be conducted with key gas suppliers, customers and
other third-party entities. At this time, there are no indications that critical
third parties will not be Y2K ready.

Contingency Plans. MCV has developed and continues to refine various contingency
plans and procedures which include alternative operating plans for the most
reasonably likely worst-case scenarios. These plans and procedures outline
alternate methods of operations (manual or otherwise) and all resources
required, including staffing needs where necessary. Training and refresher
training of plant personnel has begun and will be conducted throughout the
remainder of the year on emergency and manual operations of plant equipment and
emergency communication systems.

Costs. Anticipated spending to make the Systems Y2K compliant will be expensed
as incurred, except costs for new software which will be capitalized and
amortized over the software's useful life. At this time, MCV estimates the
aggregate expenditures for Y2K compliance and new software to be $300,000. This
estimate does not include any estimated costs that may be incurred by MCV as a
result of the failure of any associate to become Y2K compliant or costs to
implement any contingency plans.

See Part I, Item 1, "Financial Statements -- Notes 1 and 6 to the Condensed
Notes to Unaudited Consolidated Financial Statements" for a further discussion
of associated risks and contingencies.



                                      -21-
<PAGE>   23

                           PART II. OTHER INFORMATION

                            Item 1. Legal Proceedings


Settlement of Power Purchase Agreement Issues Relating to Capacity and Energy
Charges

MCV and Consumers entered into a settlement agreement ("Settlement Agreement"),
effective January 1, 1999, which resolves (for the various time periods
specified in the Settlement Agreement, but in no event sooner than 2002) all
disputed issues under the PPA and includes definitive obligations for Consumers
to make energy payments calculated in accordance with the PPA. MCV recognized a
one-time net $6.4 million increase in electric revenues in the first quarter of
1999 based upon the resolution of these issues. On an ongoing basis and for the
various time periods specified in the Settlement Agreement, the Settlement
Agreement is not expected to materially affect MCV's earnings and cash flows.

PPA - Sale or Assignment

On March 10, 1999, Consumers announced that it signed a contract with PECO
Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
associated energy to PECO from the MCV PPA beginning January 1, 2002 and ending
in September 2007. In addition, Consumers will sell PECO between 100 MW to 150
MW in 1999 through 2001. The announcement also states the contract with PECO is
subject to satisfactory regulatory approvals. On March 19, 1999, Consumers filed
an application with the MPSC seeking regulatory approval of various ratemaking
and accounting treatments associated with the PECO contract. On April 30, 1999,
the MPSC entered an order which did not grant all of the relief Consumers
requested, but does permit the transaction to go forward. Consumers sought
clarification and/or rehearing of that order. On August 31, 1999, the Commission
entered an order on rehearing, clarifying and amending its April 30, 1999 order.
Consumers has asked the Commission for clarification of its August 31, 1999
order. At this time, MCV Management cannot predict whether Consumers will accept
the MPSC's orders. MCV does not expect the sale of Consumers' rights to capacity
and associated energy under the PPA to materially affect its financial position
or results of operations.

Michigan Electric Industry Restructuring Proceedings

On December 20, 1996, the MPSC issued an order on its own motion to consider the
restructuring of the electric industry in Michigan. After public hearings and
contested case hearings the MPSC issued orders on June 5, 1997, October 29,
1997, January 14, 1998 and February 11, 1998 (collectively the "Restructuring
Orders"). While the Restructuring Orders are not entirely clear, they generally
provide for a transition to a competitive regime whereby electric retail
customers will be able to chose their power supplier and pay negotiated or
market-based rates for such power supply. The Restructuring Orders also mandate
that utilities "wheel" third-party power to the utilities' customers. An issue
involved in this restructuring which could significantly impact MCV is stranded
cost recovery. The Restructuring Orders allow recovery by utilities (including
Consumers) of stranded costs including capacity charges previously approved by
the MPSC in power contracts incurred during the regulated era that will be above
market prices during the new competitive regime. However, it appears that
stranded cost recovery of above-market capacity charges in power purchase
contracts (i.e., MCV's PPA) is limited to the period 1998 through 2007 (MCV's
PPA expires in 2025). The Restructuring Orders do not specifically address the
recovery of PPA capacity charges after 2007. The Restructuring Orders permitted
Consumers to elect to suspend the PSCR process and freeze its PSCR rate factor
through which charges under the PPA are recovered from retail customers. The
MPSC has suspended the annual PSCR (plan and reconciliation case) process
indefinitely, and froze Consumers' PSCR rate factor. The suspension of the PSCR
process and the PSCR "rate freeze" were effective January 1, 1998, and are to
remain in effect through 2001. This PSCR rate freeze is subject to the final
outcome of Consumers' 1997 PSCR reconciliation case (conducted by the MPSC to
reconcile actual costs incurred by Consumers in providing power supply to its
retail customers with actual revenue it collected that same year) for which
rehearing petitions have been filed at the MPSC. This case will determine the
level at which Consumers' PSCR rates (including recovery of MCV capacity and
energy charges) will be frozen during the period 1998 through 2001. MCV is a
party in the 1997 PSCR reconciliation case.



                                      -22-
<PAGE>   24

In the restructuring cases before the MPSC, MCV has advocated, among other
things, full recovery of PPA charges (capacity and energy) for the life of the
PPA. MCV, as well as others, filed an appeal in the Michigan Court of Appeals
and a complaint in the U.S. District Court for the Western District of Michigan
challenging the Restructuring Orders. In June 1999, the Michigan Supreme Court
issued an opinion in an MPSC "retail wheeling" experiment case holding, among
other things, that the MPSC lacks the statutory authority to mandate that
utilities transmit power of third parties to the utilities' customers ("Michigan
Supreme Court Order"). While this Michigan Supreme Court Order was not directed
at the Restructuring Orders, it is likely to be applied to them. On August 17,
1999, the MPSC issued an order making retail wheeling under the Restructuring
Orders voluntary on the part of the utilities. On September 1, 1999, Consumers
filed a statement with the MPSC stating that it intends to voluntarily implement
the Restructuring Orders. In an order dated July 7, 1999, the U.S. District
Court granted MCV's Motion for Summary Judgment declaring that the Restructuring
Orders are preempted by PURPA and the Supremacy Clause of the United States
Constitution to the extent that they prohibit any utility from recovering from
its customers any charge for avoided costs (or "stranded costs") to be paid to
MCV and the other QFs under PURPA pursuant to their PPAs. The order further
provides that the MPSC's prior orders approving the avoided cost rates set forth
in MCV's and the other QFs' PPAs take precedence over the Restructuring Orders.
The Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
enjoined from enforcing the Restructuring Orders in any manner which denies any
utility from recovering its avoided costs as set forth in MCV's and the other
QFs' PPAs or which precludes them from recovering the full avoided cost rate as
set forth in the PPAs, including but not limited to interpreting or enforcing
the Restructuring Orders to preclude any utility from recovering all or any
portion of its avoided costs previously approved by the MPSC from its customers,
whether before, during, or after the year 2007. This order and the Commission's
August 17, 1999 order are being appealed. The Michigan legislature has also
begun the process to consider electric industry restructuring and deregulation.
While restructuring could have a material impact on MCV, MCV Management cannot,
at this time, predict the impact or the outcome of these administrative,
judicial and legislative proceedings.

Federal Electric Industry Restructuring
FERC has jurisdiction over wholesale energy sales in interstate commerce and is
moving towards "market" based pricing of electricity in some circumstances as
opposed to traditional cost-based pricing. In April 1996, FERC issued Order No.
888 requiring all utilities FERC regulates to file uniform transmission tariffs
providing for, among other things, non-discriminatory "open access" to all
wholesale buyers and sellers, including the transmission owner, on terms and
conditions established by FERC. Order No. 888 also requires utilities to
"functionally unbundle" transmission and separate transmission personnel from
those responsible for marketing generation. Appeals of Order No. 888 and
subsequent related orders are pending before the United States Court of Appeals
for the D.C. Circuit. In addition, several bills have been introduced in
Congress to require states to permit consumers to choose their supplier of
electricity and manage other issues such as transition cost recovery and FERC
jurisdiction of retail electric sales. MCV Management cannot predict the impact
on MCV or the outcome of these proceedings.

Property Tax Appeal

MCV has filed property tax appeals contesting the assessed value of MCV's
property for 1997 and 1998 taxes, which are pending before the Michigan Tax
Tribunal. MCV also filed an appeal for 1999 taxes.
MCV Management cannot predict the outcome of these proceedings.




                                      -23-
<PAGE>   25

                    Item 6. Exhibits and Reports on Form 8-K


a.)  List of Exhibits

     (10) Gas Sales Agreement, dated July 1, 1999, between MCV and CMS Marketing
          Services and Trading Company.

     (27) Financial Data Schedule

b.)  Reports on Form 8-K




                                      -24-
<PAGE>   26

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                     MIDLAND COGENERATION VENTURE
                                           LIMITED PARTNERSHIP
                                     ---------------------------------------
                                             (Registrant)




Dated:  November 12, 1999            /s/ James M. Kevra
        --------------------         --------------------------------------
                                                James M. Kevra
                                      President and Chief Executive Officer



Dated:  November 12, 1999            /s/ James M. Rajewski
        --------------------         ---------------------------------------
                                                James M. Rajewski
                                         Vice President and Controller
                                        (Principal Accounting Officer)



                                      -25-
<PAGE>   27




                                 EXHIBIT INDEX



EXHIBIT NO.                     DESCRIPTION
- -----------                     -----------

    10              Gas Sales Agreement, dated July 1, 1999,
                    between MCV and CMS Marketing Services and
                    Trading Company

    27              Financial Data Schedule

<PAGE>   1

                                                                      EXHIBIT 10

                               GAS SALES AGREEMENT

This Agreement is made this 1st day of July, 1999, between Midland Cogeneration
Venture Limited Partnership ("MCV" or "Buyer") and CMS Marketing, Services and
Trading Company ("Seller") for the purpose of entering into a long-term gas
supply arrangement on the terms and conditions which follow. In this Agreement,
Seller and Buyer may also be referred to individually as "Party" or collectively
as "Parties."

1.  Definitions. The following terms, when used in this Agreement, shall have
    the following meanings:

         A)   The term "Agreement" means this Agreement and all Exhibits hereto.

         B)   The term "business day" shall mean any day other than a day on
              which banks in Michigan are allowed by law to be closed.

         C)   The term "Btu" shall mean one (1) British Thermal Unit, the amount
              of heat required to raise the temperature of one (1) pound of
              water one (1) degree Fahrenheit at sixty (60) degrees Fahrenheit.
              BTU is measured on a dry basis.

         D)   The term "Contract Year" shall mean any calendar year during the
              term of this Agreement.

         E)   The term "cubic foot of gas" shall mean the volume of gas
              contained in one (1) cubic foot of space at a pressure of fourteen
              and seventy-three hundredths (14.73) dry psia, at a temperature of
              sixty degrees (60 degrees) Fahrenheit.



                                                                    Page 1 OF 31
<PAGE>   2


         F)   The term "day" shall mean a period of twenty-four (24) consecutive
              hours (23 hours when changing from Standard to Daylight time and
              25 hours when changing back to Standard time), beginning and
              ending at 9:00 a.m. Central clock time.

         G)   The term "Disputed Amount" shall have the meaning set forth in
              Section 5A(ii).

         H)   The term "gas" shall mean any mixture of hydrocarbon and
              non-combustible gases in a gaseous form, consisting primarily of
              methane, and includes natural gas produced from gas wells (gas
              well gas), gas which immediately prior to being produced from a
              reservoir is in solution with crude oil, or dispersed in an
              intimate association with crude oil, or in contact with crude oil
              across a gas-oil contact (casinghead gas), or residue gas
              resulting from the processing of either or both casinghead gas and
              gas well gas.

         I)   The term "Mcf" shall mean one thousand (1,000) cubic feet of gas.

         J)   The term "MMBtu" shall mean a quantity of gas equal to one million
              (1,000,000) Btu which is equivalent to one (1) dekatherm.

         K)   The term "month" shall mean the period beginning at 9:00 a.m.
              Central clock time on the first day of any calendar month and
              ending at 9:00 a.m. Central clock time on the first day of the
              next succeeding calendar month.

         L)   The term "NYMEX" shall mean the New York Mercantile Exchange Henry
              Hub natural gas futures contract traded on the New York Mercantile
              Exchange. Should the NYMEX cease to be traded, Buyer and Seller
              shall

                                                                    Page 2 of 31

<PAGE>   3

              identify and agree on a replacement index. In the event that Buyer
              and Seller cannot agree on a replacement index within 30 days,
              either Party may request the matter be submitted to an expert for
              determination in accordance with Section 17 (G) hereof.

         M)   The term "Point of Delivery" shall mean the point where Seller
              delivers gas to Buyer as set forth in this Agreement.

         N)   The term "Prime Rate" shall mean the fluctuating per annum lending
              rate of interest from time to time published by CITIBANK, NA, or
              its successor, for its best commercial customers.

         O)   The term "psia" shall mean pounds per square inch absolute.

         P)   The term "psig" shall mean pounds per square inch gauge.

         Q)   The term "Transporter" shall mean any pipeline transporting gas
              subject to this Agreement.

         R)   The term "Trunkline " shall mean the Trunkline Gas Company.

         S)   The term "Undisputed Amount" shall have the meaning set forth in
              section 5A(ii).

2.  Quantity. Seller agrees to deliver and sell, and MCV agrees to receive and
    purchase 12,000 MMBtu/day, on a firm basis in accordance with the terms and
    conditions of this Agreement.

3.  Price.



                                                                    Page 3 of 31

<PAGE>   4

         A)   The price to be paid by Buyer to Seller for all quantities of gas
              delivered hereunder in a given month, exclusive of all taxes and
              other adjustments or costs herein otherwise expressly provided
              for, shall be equal to the average MMBtu price for such month
              under a natural gas contract traded on the NYMEX with the average
              being determined utilizing the MMBtu price as of the close of the
              trading day for the last three days of trading for each such
              month, minus $0.085 per MMBtu.

         B)   Seller shall be responsible for all taxes prior to the Point of
              Delivery. MCV shall be responsible for all taxes at and after the
              Point of Delivery.

4.  Term.  Deliveries of gas shall commence on November 1, 2004 and continue
    through February 28, 2007.

5.  Billing and Payment.

         A)   Billing and payment procedures are as follows:

              (i)   After the delivery of gas has commenced hereunder, Seller
                    shall, on or about the tenth day of each month, render to
                    Buyer a statement showing the estimated (or actual if
                    available) quantity of gas delivered at each Point of
                    Delivery during the prior month, and the amounts due Seller
                    hereunder. Seller shall also render to Buyer, if necessary,
                    a separate statement showing the adjustment, if any,
                    required to conform the prior month's estimated and actual
                    deliveries and prices. Payment of the amount due based on
                    such



                                                                    Page 4 of 31
<PAGE>   5

                    statements shall be made by Buyer to Seller by wire transfer
                    with immediately available funds on or before the later of
                    (a) ten (10) days following receipt of such statement or (b)
                    the twentieth (20th) day of the month. If the due date falls
                    on a day which is not a business day, then payment shall be
                    made on the next business day. If the Buyer bills Seller the
                    same procedure shall be followed as set forth in this
                    subparagraph.

              (ii)  In the event that either Party shall in good faith dispute
                    any portion of the amount shown in the other Party's
                    statement (hereinafter called the "Disputed Amount"), the
                    disputing Party shall (a) notify the other Party in writing
                    as to the Disputed Amount, and (b) pay the remaining
                    undisputed portion of the other Party's statement when due
                    (hereinafter, the "Undisputed Amount").

              (iii) If it is determined that the failure to pay any Undisputed
                    Amount of any statement was not justifiable, interest on
                    such Undisputed Amount shall accrue at a rate per annum
                    equal to the Prime Rate, plus one percent (1.0%), from the
                    time payment would have been due until the time payment is
                    made, but in no event shall the interest on such unpaid
                    portion exceed the applicable lawful nonusurious rate of
                    interest. Payment of any previously unpaid Undisputed Amount
                    shall be credited first to all interest accrued and then to
                    principle.



                                                                    Page 5 of 31
<PAGE>   6

         B)   Each Party hereto shall have the right, upon reasonable written
              notice, during normal business hours and at its own expense to
              examine the books and records of the other Party to the extent
              necessary to verify the accuracy of any statement, charge,
              computation or demand made under or pursuant to this Agreement.
              Such examination shall be conducted no more than once in a
              twelve-month period. Any error or discrepancy in statements
              furnished pursuant to this Agreement shall be promptly reported to
              Seller or Buyer, as applicable, and proper adjustment thereof
              shall be made within thirty (30) days after final determination of
              the correct volumes or amounts involved; provided, however, that,
              if no such errors or discrepancies are reported to Seller or
              Buyer, as applicable, within two (2) years from the end of the
              calendar year in which such errors or discrepancies occurred, the
              same shall be conclusively deemed to be correct.


6.  Deliveries.

         A)   Exhibit A hereto sets forth the Point(s) of Delivery (Primary and
              Secondary) under this Agreement. Seller shall not use any other
              point to deliver gas without Buyer's written consent which Buyer
              may grant or withhold at its sole discretion. Secondary Point(s)
              of Delivery may be utilized over Primary Point(s) of Delivery,
              provided Buyer's Transporter accepts delivery at a Secondary
              Point(s) of Delivery.


                                                                    Page 6 of 31

<PAGE>   7

         B)   To the extent that the procedures for the delivery of gas set
              forth herein conflict with the rules and tariffs of any
              Transporter, the Transporter's rules and tariffs will control and
              the Parties shall cooperate fully with each other in complying
              with such rules and tariffs.

7.  Title. Title and risk of loss to gas delivered hereunder shall pass from
    Seller to Buyer at the Point of Delivery.

8.  Delivery Pressure. Seller shall be required to deliver or cause delivery of
    the gas at the Point of Delivery hereunder against the varying pressures in
    the facilities of Buyer's Transporter(s); provided however, Seller shall
    have the right but not the obligation to install compression.

9.  Quality of Gas. The gas to be delivered hereunder shall comply with the
    quality requirements of the Buyer's Transporter.

10. Measurement And Tests of Gas. The quantity and quality of gas delivered to
    the Buyer's account at the Point of Delivery shall be determined by the
    Buyer's Transporter in accordance with the then current standard terms and
    conditions applicable to Buyer's Transporter's gas transportation contracts.

11. Warranty of Title. Seller hereby warrants (i) that it has title to all gas
    sold hereunder or the right to sell such gas, (ii) that it has the right to
    sell same to Buyer and (iii) that



                                                                    Page 7 of 31
<PAGE>   8


    all such gas shall be free from any and all liens and adverse claims of any
    nature whatsoever. Seller agrees to indemnify and hold Buyer harmless,
    including but not limited to, all costs, damages and expenses (including
    Buyer's reasonable attorney fees) incurred by Buyer in defending against any
    liens or adverse claims of any nature whatsoever, in addition to any other
    remedies Buyer may have hereunder or at law.

12. Credit Worthiness.

         12.1   This Agreement is subject to Seller providing Buyer a guaranty
                from CMS Enterprises Company, Inc. (CMS Enterprises) in the form
                attached hereto as Exhibit "B".

         12.2   At any time, and from time to time during the term of this
                Agreement, if a Material Adverse Change (as such term is defined
                in Section 12.3) has occurred then MCV may demand and Seller
                shall provide additional Performance Assurance (as such term is
                defined in Section 12.3) equal to $1,500,000 within 30 days of
                such demand.

         12.3   The term "Material Adverse Change" shall mean CMS Enterprises
                having consolidated net worth of less than $5 billion as
                presented in its financial statements. Once each quarter during
                the term of this Agreement, the Seller will provide to MCV a
                financial statement for CMS Enterprises. Once each year, the
                Seller will provide to MCV an audited financial statement for
                CMS Enterprises. The term "Performance Assurance" means
                collateral in the form of either cash, Letters of Credit (as
                defined in this section 12.3), or a parental guaranty from CMS
                Energy Corporation.


                                                                    Page 8 of 31

<PAGE>   9

                If the collateral is in the form of cash, then such cash shall
                be placed in a segregated, interest-bearing escrow account on
                deposit with a major U.S. commercial bank having a credit rating
                of at least "A-" from Standard and Poor's or "A3" from Moody's
                (interest to accrue to the Party posting the collateral). The
                term "Letter of Credit" means one or more irrevocable,
                transferable standby letters of credit from a major U.S.
                commercial bank or foreign bank with a U.S. office having a
                credit rating of at least "A-" from Standard & Poor's or "A3"
                from Moody's.

13. Right to Early Termination.

         (A)    In addition to any other remedy of Buyer under law or provided
                under this Agreement, Buyer shall have the right at its election
                to terminate this Agreement upon twenty (20) days written notice
                to Seller, if Seller, for any reason, other than (i) Force
                Majeure, (ii) Buyer's failure to take, or (iii) a failure by
                Buyer to pay any Undisputed Amounts, fails, over a period of at
                least sixty (60) days, to deliver an average of ninety percent
                (90%) of the agreed quantity and provided further that such
                failure occurred not more than one hundred forty (140) days
                immediately preceding the giving of such notice of termination.
                Seller shall have twenty (20) days after receipt of such
                cancellation notice to cure any failure in which case Buyer's
                cancellation is null and void and this Agreement shall remain in
                full force and effect.

         (B)    In addition to the other remedies of Seller under law or
                provided under this Agreement, Seller shall have the right at
                its election to terminate this



                                                                    Page 9 of 31
<PAGE>   10

                Agreement upon twenty (20) days written notice to Buyer if
                Buyer, for any reason, other than (I) Force Majeure, (ii)
                Seller's failure to deliver, or (iii) a failure by Seller to pay
                any Undisputed Amounts, fails, over a period of at least sixty
                (60) days, to take a volume of gas not less than an average of
                ninety percent (90%) of the agreed quantity, and provided
                further that such failure occurred not more than one hundred
                forty (140) days immediately preceding the giving of such notice
                of termination. Buyer shall have twenty (20) days after receipt
                of such cancellation notice to cure any failure in which case
                Seller's cancellation is null and void and this Agreement shall
                remain in full force and effect.

14. Assignment.

         A.     This Agreement shall be binding upon and inure to the benefit of
                the successors and permitted assignees of the respective Parties
                hereto, and the covenants, conditions, rights and obligations of
                this Agreement shall run for the full term of this Agreement. No
                assignment of this Agreement, in whole or in part, will be made
                without the prior written consent of the non-assigning Party,
                which consent will not be unreasonably withheld or delayed;
                provided, either Party may transfer its interest to any parent
                or affiliate by assignment, merger or otherwise without the
                prior approval of the other Party. Upon any transfer and
                assumption, the transferor shall not be relieved of or
                discharged from any obligations hereunder.

         B.     Seller acknowledges that pursuant to a certain Gas Backup
                Agreement and Amendments thereto among Consumers Power Company
                (now known as



                                                                   Page 10 of 31
<PAGE>   11

                Consumers Energy Company), The Dow Chemical Company (Dow) and
                Midland Cogeneration Venture Limited Partnership dated January
                27, 1987, Buyer may be required to make an assignment to Dow of
                certain rights under this Agreement. Seller specifically agrees
                to accept such assignments, if any, made by Buyer to Dow in
                accordance with the aforementioned Gas Backup Agreement;
                provided, however, that such assignment shall not relieve Buyer
                of its obligations under this Agreement absent Seller's written
                consent.

         C.     Nothing herein contained shall prevent or restrict either Party
                from pledging, granting a security interest in, or assigning as
                collateral all or any portion of such Party's interest to secure
                any debt or obligation of such Party under any mortgage, deed of
                trust, security agreement or similar instrument.

         D.     Either Party desiring to make an assignment for which consent
                has been given by the other Party may upon request obtain a
                written consent within sixty (60) days to such assignment from
                the other Party evidencing its consent.

15. Notices. Except as otherwise herein provided, any notice, request, demand or
    statement given in writing or required to be given in writing by the terms
    of this Agreement shall be deemed given when deposited in the government
    mail, postage prepaid, as certified mail, directed to the post office
    address of the Parties as follows:



                                                                   Page 11 of 31
<PAGE>   12


    TO SELLER:
    For Invoices and Payments: Andrew V. Coppola
                               CMS Marketing, Services and Trading Company
                               One Jackson Square; Jackson, MI  49201
                               Telephone No: (517)-768-2020
                               Telecopier:   (517)-768-2110

    For All Other Notices:     Andrew V. Coppola
                               CMS Marketing, Services and Trading Company
                               One Jackson Square; Jackson, MI  49201
                               Telephone No: (517)-768-2020
                               Telecopier:   (517)-768-2110

    TO BUYER:
    For Invoices and Payments: Midland Cogeneration Venture
                                  Limited Partnership
                               100 Progress Place; Midland, MI  48640
                               Attention:  Gas Supply Accounting
                               Telephone No.: (517) 839-6067
                               Telecopier:    (517) 839-6793

    For All Other Notices:     Midland Cogeneration Venture
                                  Limited Partnership
                               100 Progress Place; Midland, MI  48640
                               Attention:  V.P. Energy Supply & Marketing
                               Telephone No.: (517) 839-6067
                               Telecopier:    (517) 839-6793

    or at such other address as either Party may from time to time specify as
    its address for such purposes by registered or certified letter addressed to
    the other Party. Notices, requests, demands or statements made in person, or
    by telephone, telecopier, telex or wire shall be deemed given when received
    provided, however, that if such notice is received after 5:00 p.m.
    (recipient's local time), it shall not be effective until the next business
    day.

      Gas nomination notices will be made in accordance with the terms and
    conditions applicable to Buyer's Transporter.


                                                                   Page 12 of 31
<PAGE>   13

16. Remedies.  In the event Seller fails to deliver the daily quantities for
    reasons not otherwise excused by Force Majeure, Seller shall be responsible
    for any incremental gas costs incurred by MCV in replacing such gas. MCV
    agrees to use commercially reasonable efforts to purchase replacement gas.
    Seller's obligation to pay MCV for incremental replacement gas costs (and
    any transportation penalties or transportation demand charges resulting from
    unused transportation) shall be MCV's sole and exclusive remedy for Seller's
    failure to deliver except as provided in Section 13. In the event that MCV
    fails to take gas for reasons not otherwise excused by Force Majeure, MCV
    shall pay Seller for any incremental decrease in the resale price of such
    gas. Seller agrees to use commercially reasonable efforts to resell such
    deficiency gas. MCV's obligation to pay Seller for such decrease (and any
    transportation penalties or transportation demand charges resulting from
    unused transportation) shall be Seller's sole and exclusive remedy for MCV's
    failure to take gas except as provided in Section 13.

17. Arbitration.

         A)   If the Parties are unable to resolve a disagreement arising under
              this Agreement such disagreement shall be settled by arbitration.
              Either Party may then commence arbitration by serving written
              notice thereof on the other Party designating the issue(s) to be
              arbitrated.

         B)   The Parties shall each appoint one (1) arbitrator and the two (2)
              arbitrators so appointed will select a third arbitrator, all of
              such arbitrators



                                                                   Page 13 of 31
<PAGE>   14

              to be qualified by education, knowledge, and experience to resolve
              the dispute or controversy. If either Party fails to appoint an
              arbitrator within ten (10) days after a request for such
              appointment is made by the other Party in writing, or if the two
              (2) appointed fail, within ten (10) days after the appointment of
              the second, to agree on a third arbitrator, the arbitrator or
              arbitrators necessary to complete a board of three (3) arbitrators
              will be appointed upon application by either Party therefor to the
              American Arbitration Association.

         C)   The jurisdiction of the arbitrators will be limited to the
              issue(s) referred to arbitration and the arbitration shall be
              conducted pursuant to the guidelines set forth by the American
              Arbitration Association; provided, however, that should there be
              any conflict between such guidelines and the procedures set forth
              in this Agreement, the terms of this Agreement shall control.

         D)   Within fifteen (15) days following selection of the third
              arbitrator, each Party shall furnish the arbitrators in writing
              its position regarding the issue(s) being arbitrated. The
              arbitrators may, if they deem necessary, convene a hearing
              regarding the issue(s) being arbitrated. Within thirty (30) days
              following the later of the appointment of the third arbitrator or
              of the hearing, if one is held, the arbitrators shall notify the
              Parties in writing as to which of the two (2) positions submitted
              is most consistent with the meaning of this Agreement with respect
              to the issue(s) being arbitrated. No other position may be
              selected. Such decision shall be binding on the



                                                                   Page 14 of 31
<PAGE>   15

              Parties hereto and shall remain in effect until and unless changed
              in accordance with the provisions of this Agreement.

         E)   Enforcement of the award may be entered in any court having
              jurisdiction over the Parties.

         F)   Each Party will pay the expenses of the arbitrator selected by or
              for it, and the expense of its respective counsel, witnesses and
              employees. All other costs of arbitration will be equally divided
              between the Parties.

         G)   This subsection shall apply only to the issue of selecting a
              replacement index for NYMEX. In the event that Buyer and Seller
              cannot agree on a replacement index within 30 days, either Party
              may request the matter be submitted to an expert for determination
              by providing the other Party with written notice of its election.
              In such event, the Parties shall attempt to agree upon a single
              expert with academic training and industry experience relevant to
              determining the matter in dispute. If the Parties are unable to
              agree upon a single expert within 30 days after the date of the
              notice of election, each Party shall select an expert and the two
              selected experts shall together select a third expert to serve on
              a panel to determine the disputed matter. The Parties shall each
              submit to the expert (or panel of experts, as applicable) all
              relevant information concerning the disputed matter within 30 days
              after the selection of the last expert. The final decision of the
              expert (or panel of experts, as applicable) shall be delivered to
              the Parties in writing, shall constitute the final resolution of
              all matters so determined, and shall be binding upon the


                                                                   Page 15 of 31
<PAGE>   16

              Parties. Unless the expert (or panel of experts, as applicable)
              directs otherwise, the fees of the expert (or panel of experts, as
              applicable) and the cost of conducting the investigation shall be
              shared equally by the Parties. Each Party shall bear its own costs
              and expenses and those of its counsel. Enforcement of the decision
              may be entered in any court having jurisdiction over the Parties.

18. Force Majeure. The term "Force Majeure" as employed herein for all purposes
    relating hereto, shall mean acts of God, strikes, lockouts or other
    industrial disturbances, acts of public enemy, wars, blockades,
    insurrections, riots, epidemics, landslides, lightning, earthquakes,
    hurricanes, explosions, fires, arrests and restraints of governments and
    people, civil disturbance, mechanical breakdowns or repairs of MCV's plant
    or pipeline facilities or those of any Transporter used to transport gas
    hereunder, inability of any Party hereto to obtain necessary materials,
    supplies or permits due to existing or future rules, regulations, orders,
    laws or proclamations of governmental authorities (federal, state or local),
    including both civil and military, and any other causes whether of the kind
    herein enumerated or otherwise, not within the control of the Party claiming
    suspension and which by the exercise of due diligence such Party is unable
    to prevent or to overcome.

19. Transportation. Both Parties shall cooperate in an effort to eliminate
    imbalances on either Party's transporting pipeline(s). The Parties further
    agree that if any imbalance penalties or charges (including cash out
    charges) are imposed on a Party


                                                                   Page 16 of 31

<PAGE>   17


    as a result of the other Party's failure to deliver or accept the required
    quantities, then the failing Party shall reimburse the non-failing Party for
    such charges or penalties.

20. Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUCTED ACCORDING TO THE
    LAWS OF THE STATE OF MICHIGAN.

21. Miscellaneous.

         A)   No waiver by either Seller or Buyer of any default by the other
              under this Agreement shall operate as a waiver of any future
              default, whether of like or different character or nature.

         B)   The descriptive headings of particular provisions of this
              Agreement are for the purpose of facilitating administration and
              shall not be construed as having any substantive effect on the
              terms of this Agreement.

         C)   The Parties agree to proceed with due diligence and make good
              faith effort to obtain such governmental authorizations as may be
              necessary to enable performance of this Agreement.

         D)   This Agreement is subject to the January 27, 1987, Gas Supply
              Option between Buyer and Dow and to Dow's rights under a certain
              Gas Backup Agreement with Buyer and Consumers Power Company dated
              January 27, 1987 and the Amendments thereto.

         E)   If any provision of this Agreement is determined to be invalid,
              void or unenforceable by any court having jurisdiction, such
              determination shall



                                                                   Page 17 of 31

<PAGE>   18

              not invalidate void or make unenforceable any other provision of
              this Agreement.

         F)   Neither Buyer nor Seller shall disclose to any third Party other
              than its partners, parents, affiliates, directors, officers,
              employees, consultants, representatives, agents or those third
              parties providing financing to it, any information received from
              the other Party that is explicitly marked "Confidential" (such
              information hereinafter referred to as ("Confidential
              Information"); provided however, that nothing shall be deemed
              Confidential Information which:

                   (i)   is part of the public domain;

                   (ii)  becomes publicly known otherwise than through an
                         action or inaction of the receiving Party;

                   (iii) is independently developed by the receiving Party;

                   (iv)  or is required to be disclosed pursuant to any law,
                         rule, or regulation, or pursuant to any order of a
                         governmental instrumentality, provided that the Party
                         receiving the order shall, if feasible, notify the
                         other Party of any such requirement at least ten (10)
                         days before compliance is required, and if so requested
                         by the other Party, shall use reasonable efforts to
                         oppose the required disclosure, as appropriate under
                         the circumstances, or to otherwise make such disclosure
                         pursuant to a protective order or other similar
                         arrangement for confidentiality.



                                                                   Page 18 of 31
<PAGE>   19

         G)       This Agreement may be amended only by a written instrument
                  executed by the Parties hereto. This Agreement, the Guaranty
                  (Exhibit B attached hereto), and the Consent and Agreement
                  (Exhibit C attached hereto) contain the entire understanding
                  of the Parties with respect to the matter contained in said
                  documents. There are no promises, covenants or undertakings
                  other than those expressly set forth in said documents.

         H)       Buyer represents and warrants that it has full and complete
                  authority to enter into and to perform this Agreement. Seller
                  represents and warrants that it has full and complete
                  authority to enter into and to perform this Agreement. Each
                  person who executes this Agreement on behalf of Buyer
                  represents and warrants that he or she has full and complete
                  authority to do so and that Buyer will be bound thereby. Each
                  person who executes this Agreement on behalf of Seller
                  represents and warrants that he or she has full and complete
                  authority to do so and that Seller will be bound thereby.

         I)       Notwithstanding anything to the contrary contained in this
                  Agreement, the liabilities and obligations of MCV arising out
                  of, or in connection with, this Agreement or any other
                  agreements entered into pursuant hereto shall not be enforced
                  by any action or proceeding wherein damages or any money
                  judgment or specific performance of any covenant in any such
                  document and whether based upon contract, warranty,
                  negligence, indemnity, strict liability or otherwise, shall be
                  sought against the assets of the partners of MCV. By entering
                  into this Agreement, Seller waives any



                                                                   Page 19 of 31
<PAGE>   20

                  and all right to sue for, seek or demand any judgement against
                  such partners and their affiliates, other than MCV by reason
                  of the performance by MCV of its obligations under this
                  Agreement or any other agreements entered into pursuant
                  hereto, except to the extent such partners are legally
                  required to be named in any action to be brought against MCV.

22.  Limitations: NEITHER PARTY HERETO SHALL BE LIABLE TO THE OTHER PARTY FOR
     ANY CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES ARISING OUT OF, OR
     RELATED TO, A BREACH OF THIS AGREEMENT EXCEPT TO THE EXTENT EXPRESSLY
     PROVIDED FOR IN THIS AGREEMENT.

         IN WITNESS WHEREOF, this Agreement is executed in multiple originals
effective as of the day and year first herein above written.

BUYER                 MIDLAND COGENERATION VENTURE
                       LIMITED PARTNERSHIP


                      By:   LeRoy W. Smith
                         ---------------------------------------------
                      Name:  LeRoy W. Smith
                      Title: Vice President Energy Supply & Marketing


SELLER                CMS MARKETING, SERVICES AND
                       TRADING COMPANY


                      By:   David B. Geyer
                         ---------------------------------------------
                      Name:  David B. Geyer
                      Title: Vice President Risk Management




                                                                   Page 20 of 31
<PAGE>   21

                                    EXHIBIT A

                               POINTS OF DELIVERY


PRIMARY

Trunkline Gas Company

         Lagloria-Mobil Point 81582

SECONDARY

Available points set forth in Section 2.2 of Trunkline's Rate Schedule FT.













                                                                   Page 21 of 31
<PAGE>   22

                                    EXHIBIT B

                                    GUARANTY


         Guaranty dated effective as of the 9th day of August, 1999, by CMS
Enterprises Company, Inc., a Michigan corporation (hereinafter referred to as
the "Guarantor"), in favor of Midland Cogeneration Venture Limited Partnership,
a Michigan limited partnership (hereinafter referred to as "Creditor").

         WHEREAS, Creditor and CMS Marketing, Services and Trading Company
(hereinafter referred to as "Debtor") have entered into a certain Gas Sales
Agreement dated July 1, 1999 (hereinafter referred to as the "Contract"); and

         WHEREAS, as a condition precedent to Creditor's entering into the
Contract, Guarantor has agreed to provide this Guaranty as provided herein;

         NOW, THEREFORE, for and in consideration of the premises, Guarantor
hereby agrees as follows:

1.   Guaranty.  Guarantor unconditionally guarantees to Creditor the payment of
     amounts due and payable by Debtor pursuant to the Contract (such
     obligations being hereinafter referred to as the "Obligations"); provided,
     however, that as to Obligations which Guarantor is called upon to honor,
     Guarantor is and shall be entitled to assert any and all claims,
     counterclaims, defenses, offsets and other rights which Debtor could assert
     against Creditor with respect to the Obligations, except as provided in
     paragraph 7 below. In the event Debtor defaults in the payment of any of
     the Obligations, upon five days written notice to Guarantor at the address
     provided below, Guarantor shall make such payment or otherwise cause same
     to be paid.




                                                                   Page 22 of 31
<PAGE>   23

2.   Termination. This Guaranty is continuing and irrevocable and shall remain
     in full force and effect until such time as all of the Obligations have
     been fully satisfied, performed and discharged.

3.   Waivers. Except as is otherwise provided in this Guaranty, Guarantor waives
     notice of acceptance of the Guaranty contained herein, presentment, demand,
     notice of dishonor, protest and notice of protest, and prosecution of
     litigation in connection with the Obligations.

4.   Assignment. Neither Guarantor nor Creditor may assign its respective rights
     or obligations under this Guaranty without the other's written consent.
     Subject to the foregoing, this Guaranty shall be binding upon and inure to
     the benefit of the Parties hereto and their respective successors,
     permitted assigns, and legal representatives.

5.   Notices. Any notice or other communication required or permitted to be
     given to Guarantor under this Guaranty shall be deemed to have been given
     when delivered personally or otherwise actually received or on the fourth
     (4th) day after being deposited in the United States mail if registered or
     certified, postage prepaid, or one (1) day after delivery to a nationally
     recognized overnight courier service, fee prepaid, return receipt
     requested, if in writing and addressed as follows: as per Section 15 of the
     Agreement.

6.   Applicable Law. This Guaranty shall in all respects be governed by,
     enforced under and construed in accordance with the laws of the state of
     Michigan.




                                                                   Page 23 of 31
<PAGE>   24

7.   Effect of Certain Events. Guarantor agrees that Guarantor's liability
     hereunder will not be released, reduced, impaired or affected by the
     occurrence of any one or more of the following events:

     a. The insolvency, bankruptcy, reorganization, or disability of Debtor;

     b. The renewal, consolidation, extension, modification, or amendment from
        time to time of the Contract;

     c. The failure, delay, waiver, or refusal by Creditor to exercise any right
        or remedy held by Creditor with respect to the Contract;

     d. The sale, encumbrance, transfer or other modification of the ownership
        of Debtor or the change in the financial condition or management of
        Debtor.

        IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty effective
as of the date first written above.


                                          David B. Geyer
                                    ----------------------------------------
                                    BY:   David B. Geyer
                                       -------------------------------------













                                                                   Page 24 of 31
<PAGE>   25

                                    EXHIBIT C
                              CONSENT AND AGREEMENT

         CONSENT AND AGREEMENT, dated as of August 9, 1999, made by CMS
Marketing, Services and Trading, (the "undersigned") to the parties whose names
appear on Schedule A attached hereto (the "Transaction Parties"), provides as
follows:

         1. Midland Cogeneration Venture Limited Partnership ("MCV"), and the
undersigned entered into the Gas Sales Agreement, dated July 1, 1999, as the
same may be amended, modified or supplemented from time to time in accordance
with the provisions thereof and of this Consent and Agreement (the "Contract").
MCV was the owner of an approximately 1370 MW gas-fired cogeneration facility in
Midland, Michigan (the "Facility"). Pursuant to several separate Participation
Agreements, each dated as of June 1, 1990, MCV sold and leased-back several
separate Undivided Interests in the Facility under several separate Leases each
having a basic term of 25 years. The general structure of the sale and
lease-back transactions is described in more detail in Schedule B attached
hereto.

         2. The undersigned hereby acknowledges notice of the sale and
lease-back transactions described in Schedule B and receipt of a photocopy of
each Participation Agreement (including Appendix A thereto but excluding other
Appendices, Exhibits and Schedules referenced therein unless specifically
requested). Photocopies of the related Transaction Documents will be made
available by MCV to the undersigned at its request for inspection. The
undersigned further acknowledges and consents to the assignments of and Liens on
the Contract pursuant to the Transaction Documents related to each sale and
lease-back transaction, and hereby agrees with each of the Transaction Parties
(provided, however, that each of the Indenture Trustees will have the rights set
forth herein only until the undersigned receives written notice from such
Indenture Trustee that the related Undivided Interest in the Facility is no
longer subject to the Lien of the Indenture to which such Indenture Trustee is a
party and the Secured Notes issued pursuant to such Indenture have been paid in
full) that:

            (a) Each Owner Trustee and each related Indenture Trustee shall be
entitled, after a Lease Event of Default or an Indenture Event of Default under
the Lease or the Indenture, as the case may be, to which such Person is a party,
to exercise any and all rights of MCV under the Contract in accordance with the
terms of the related Lease, the related Lessee Security Agreement, the related
Indentures and this Consent and Agreement, and the undersigned will comply in
all respects with such exercise by any of such Persons.

            (b) The undersigned will give each owner Trustee and Indenture
Trustee prompt written notice of any default of which it has knowledge under the
Contract which, if not cured, would give the undersigned the right to suspend
its performance under, or to terminate, the Contract. Each Owner Trustee and
Indenture Trustee (and their respective designee(s)) shall have the right,
within 30 days (or such







                                                                   Page 25 of 31
<PAGE>   26

longer period, not to exceed 90 days, as may reasonably be required to cure
defaults other than defaults in respect to the nonpayment of money by MCV) of
receipt by each such Person of such written notice, to cure such default.

            (c) In the event any Owner Trustee or Indenture Trustee succeeds to
MCV's rights or interests under the Contract after a Lease Event of Default or
an Indenture Event of Default under the Lease or the Indenture, as the case may
be, to which such Person is a party, whether by foreclosure or otherwise, such
Person shall have the right to exercise all rights of MCV under such Contract,
and the undersigned will comply in all respects with such exercise by such
Person.

            (d) The exercise of remedies under any Lease or foreclosure of any
Indenture, whether by judicial proceedings or under power of sale contained in
such Indenture or otherwise or any conveyance from MCV or any Owner Trustee to
either related Indenture Trustee in lieu thereof, following a Lease Event of
Default or Indenture Event of Default under the Lease or the Indenture, as the
case may be, to which such Person is a party, shall not require the further
consent of the undersigned.

         3. It is understood and agreed that the Contract and this Consent and
Agreement are subject to all tariffs and all Applicable Laws relating to such
services. Except as required, in the undersigned's reasonable opinion or by any
Applicable Law, the undersigned will not, without the prior written consent of
each Owner Trustee and Indenture Trustee (unless MCV delivers to the undersigned
a certificate stating that such consent is not required by the terms of the
related Transaction Documents), cancel, amend, modify or terminate or accept any
cancellation, amendment, modification or termination thereof, except if such
cancellation or termination is in accordance with the express terms of the
Contract, but subject to the rights of each Owner Trustee and Indenture Trustee
to cure any defaults and to keep the Contract in full force and effect as
provided in Section 2(b) above.

         4. In the event that any Owner Trustee or Indenture Trustee (or their
respective designee(s)) assumes the Contract or otherwise elects to perform the
duties of MCV under the Contract, such Person shall not have any personal
liability to the undersigned for the performance of MCV's obligations under the
Contract, it being understood that the sole recourse of the undersigned seeking
enforcement of such obligations shall be to such Person's interest in the
Facility and the related rights and Revenues therefrom.

         5. If the Contract is rejected by a trustee or debtor-in-possession in
any bankruptcy, insolvency or similar proceeding involving any Persons other
than the undersigned, or is terminated for any other reason (except as a result
of a default which was not appropriately cured as provided herein and in the
Contract), and if, (i) within 30 days thereafter, MCV (in the case of a
bankruptcy, insolvency or similar proceeding involving any Owner Trustee or
Owner Participant), any Owner Trustee, Indenture Trustee or their respective
successors or assigns so request and (ii) all payment defaults under the
Contract have been cured, the undersigned will execute and deliver






                                                                   Page 26 of 31
<PAGE>   27

to the Person or Persons making such request in proportion to their respective
interests in the Contract a new Contract for the services remaining to be
performed under the original Contract and containing the same terms and
conditions as the original Contract (except for any requirements which have been
fulfilled prior to such termination). Such new Contract also shall be subject to
the terms of this Consent and Agreement.

         6. The undersigned acknowledges that after the end of the respective
Lease Terms and during the respective Residual Terms, each Owner Trustee, as the
assignee of an Undivided Interest in the Contract pursuant to the related
Facility Agreements Assignment, shall have all of the rights and shall be liable
for all of the obligations (to the extent of its respective Undivided Interest
Percentage) on a non-recourse basis of MCV under the Contract. The undersigned
further acknowledges that MCV shall be the initial Operator of the Facility
under the Operating Agreement and further agree that the Owner Trustees may
appoint any Person to serve as a successor Operator thereunder so long as such
Person satisfies the requirements set forth in the Operating Agreement.

         7. No termination, amendment or waiver of any provision of this Consent
and Agreement or consent to any departure by the undersigned from any provision
of this Consent and Agreement shall be effective unless the same shall be in
writing and signed by the Owner Trustees, the Indenture Trustees and MCV and
then such waiver or consent shall be effective only in a specified instance for
the specific purpose for which it was given.

         8. This Consent and Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan, and shall be binding on the
parties hereto and their respective successors and assigns.

         IN WITNESS WHEREOF, the undersigned by its officers thereunto duly
authorized, have duly executed this Agreement as of the day and year first above
written.
                                  By:      David B. Geyer
                                     ---------------------------------------

                                  Title: Vice President of Risk Management
                                        ------------------------------------

Seen and Agreed to this
 9th day of August,   1999.

MIDLAND COGENERATION VENTURE
 LIMITED PARTNERSHIP, as
 Lessee
                                  By:    MIDLAND COGENERATION
                                         VENTURE

                                         LeRoy Smith
                                         -------------------------------

                                  Title: V. P. Energy Supply & Marketing
                                         -------------------------------




                                                                   Page 27 of 31
<PAGE>   28

                                   SCHEDULE A



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP,
as Lessee,


FIRST MIDLAND LIMITED PARTNERSHIP,
DCC PROJECT FINANCE ONE, INC.,
EDISON CAPITAL (formerly, Mission Funding Epsilon),
BELL ATLANTIC CREDIT CORPORATION (formerly, NYNEX Credit Company),
RESOURCES CAPITAL MANAGEMENT CORPORATION,
as the several Owner Participants,


STATE STREET BANK AND TRUST COMPANY
(formerly, Fleet National Bank, Shawmut Bank Connecticut, National Association,
and The Connecticut National Bank),
not in its individual capacity but solely as Owner Trustee
under several separate Trust Agreements,


UNITED STATES TRUST COMPANY OF NEW YORK,
not in its individual capacity but solely as Senior Indenture Trustee under
several separate Senior Trust Indenture, Leasehold Mortgage and Security
Agreements for the benefit of the Senior Secured Notes,


FIRST UNION NATIONAL BANK
(formerly, Meridian Trust Company),
not in its individual capacity but solely as Subordinated Indenture Trustee
under several separate Subordinated Trust Indenture,
Leasehold Mortgage and Security Agreements
for the benefit of the Subordinated Secured Notes, and


MIDLAND FUNDING CORPORATION I AND
MIDLAND FUNDING CORPORATION II,
as purchasers of the Secured Notes.






                                                                   Page 28 of 31
<PAGE>   29

                                   SCHEDULE B


                  A. As described below, the Owner Participants named in
Schedule A acquired separate Undivided Interests in the Facility and leased such
Undivided Interests back to MCV through separate Owner Trustees acting on behalf
of separate Owner Trusts. The beneficial interest in each Owner Trust is held by
Owner Participant.

                  B. For purposes of this Schedule B and the Consent and
Agreement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in Appendix A to the several separate
Amended and Restated Participation Agreements (the "Participation Agreements"),
each dated as of June 1, 1990, to which MCV, an Owner Participant, the related
Owner Trustee, the related Indenture Trustees, the Funding Corporations, MDC and
the Institutional Senior Bond Purchasers named therein are parties. The rules of
usage set forth in such Appendices also shall apply hereto; provided, that when
the terms defined in Appendix A to a particular Participation Agreement as
relating only to the transaction contemplated therein are used in the plural
herein, such terms are intended to apply to the terms applicable to the
transactions contemplated by all Participation Agreements collectively. In
addition, the word "related", when used with respect to any Person, interest,
instrument, agreement or document, shall denote a Person which is a party to, or
an interest, instrument, agreement or document which is a part of, the
transaction contemplated in a particular Participation Agreement and the
Transaction Documents referred to in such Participation Agreement.

                  C. Pursuant to a related Participation Agreement, MCV sold and
transferred to each Owner Trustee, and each Owner Trustee acquired, subject to
Dow's Prior Rights and Consumers' Prior Rights, an Undivided Interest in the
Facility equal to the respective Undivided Interest Percentage of such Owner
Trustee (with the Undivided Interests in the Initial Assets having been sold and
transferred on the First Closing Date and the Undivided Interests in the Second
Closing Assets being sold and transferred on the Second Closing Date). Each
Owner Trustee leased its Undivided Interest in the Facility back to the Lessee
pursuant to a related Lease, under which MCV has the use, possession and control
of the Undivided Interest in the Facility for the related Lease Term (with the
Undivided Interests in the Initial Assets having been leased on the First
Closing Date and the Undivided Interests in the Second Closing Assets being so
leased on the Second Closing Date).

                  D. On the Second Closing Date, (i) MCV assigned to each Owner
Trustee a separate Undivided Interest in the Facility Agreements and the
Cogeneration Agreements pursuant to a related Facility Agreements Assignment and
a related Cogeneration Agreements Assignment, respectively, (ii) each Owner
Trustee assumed the obligations of MCV under the PPA and the SEPA, to the extent
of its respective Undivided Interest Percentage, pursuant to a related
Cogeneration Agreements Assignment, (iii) pursuant to the related Lease, each
Owner Trustee subassigned its





                                                                   Page 29 of 31
<PAGE>   30

Undivided Interests in the Cogeneration Agreements and Facility Agreements back
to MCV for the respective Lease Term, subject to the Lien of the related
Indentures, and MCV, as lessee, accepted such subassignment, and (iv) MCV
granted to each Owner Trustee a Lien on, without limitation, MCV's right, title
and interest in the related Undivided Interests in the Cogeneration Agreements
and the Facility Agreements (and the Revenues therefrom) as collateral security
for the related Secured Obligations pursuant to a related Lessee Security
Agreement.

                  E. Each Owner Trustee, as provided in the related
Participation Agreement, financed a portion of the Purchase Price for its
Undivided Interest in the Facility with the proceeds of Senior Secured Notes
issued by it to Midland Funding Corporation I pursuant to a related Senior Trust
Indenture and related Subordinated Secured Notes issued by it to Midland Funding
Corporation II pursuant to a related Subordinated Trust Indenture, and Midland
Funding Corporation I and Midland Funding Corporation II purchased such Secured
Notes.

                  F. Each Owner Trustee granted to the related Indenture
Trustees Liens on, among other things, the Owner Trustee's Undivided Interests
in the Facility, the Cogeneration Agreements and the Facility Agreements, the
Site Interest and its interest in certain of the related Transaction Documents
as collateral security for the Owner Trustee's obligations under the related
Secured Notes.

                  G. On the Second Closing Date, the Funding Corporations issued
Bonds pursuant to a Senior Collateral Trust Indenture and a Subordinated
Collateral Trust Indenture, respectively, for the purpose of participating in
the payment of the Purchase Price for each Undivided Interest in the Facility
and acquiring the funds necessary to purchase the Senior Secured Notes and the
Subordinated Secured Notes pursuant to a related Participation Agreement. The
Funding Corporations secured their obligations under the Bonds by a pledge to
the related Collateral Trust Trustees of the related Secured Notes (and the
collateral security therefor) held by the Funding Corporations.

                  H. MCV, each Owner Trustee and Indenture Trustee and the
Working Capital Lender, on the Second Closing Date, entered into an
Intercreditor Agreement with the Collateral Agent providing for the deposit with
and disbursement of all Revenues from the Undivided Interests in the Project by
the Collateral Agent.






                                                                   Page 30 of 31
<PAGE>   31

                  I. MCV and each Owner Trustee also entered into an Operating
Agreement appointing MCV as the initial operator of the Project during the
respective Residual Terms, commencing on the Operation Commencement Date (as
such term is defined in the Operating Agreement).

                  J. On the Second Closing Date, in order to obtain necessary
working capital for the operation of the Facility, MCV obtained the Working
Capital Line from the Working Capital Lender and granted to the Working Capital
Lender first priority Liens on MCV's right, title and interest (as subassignee
of the separate Undivided Interests in the Cogeneration Agreements and the
Facility Agreements during the respective Lease Terms) in and to (i) all Earned
Receivables, (ii) its Natural Gas Inventory and (iii) the Gas Brokering
Contract.

                  K. Each Owner Trustee has agreed to reassign its Undivided
Interest in the Project (including the Undivided Interest in the Facility
Agreements) and the Site Interest back to MCV at the expiration of the related
Support Term.






                                                                   Page 31 of 31

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THE
MIDLAND COGENERATION VENTURE FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                         173,726
<SECURITIES>                                   139,837
<RECEIVABLES>                                  110,442
<ALLOWANCES>                                         0
<INVENTORY>                                     17,078
<CURRENT-ASSETS>                               329,567
<PP&E>                                       2,427,943
<DEPRECIATION>                                 692,177
<TOTAL-ASSETS>                               2,236,431
<CURRENT-LIABILITIES>                          227,019
<BONDS>                                      1,584,865
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                     423,084
<TOTAL-LIABILITY-AND-EQUITY>                 2,236,431
<SALES>                                              0
<TOTAL-REVENUES>                               465,490
<CGS>                                                0
<TOTAL-COSTS>                                  297,425
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             116,958
<INCOME-PRETAX>                                      0
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    65,536
<EPS-BASIC>                                          0
<EPS-DILUTED>                                        0


</TABLE>


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