CMS ENERGY CORP (Form: 10-Q, Received: 10/25/2012 12:11:32)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2012

	OR

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

Commission		Registrant; State of Incorporation;	IRS Employer
File Number		Address; and Telephone Number	Identification No.
1-9513		CMS ENERGY CORPORATION	38-2726431
		(A Michigan Corporation)
		One Energy Plaza, Jackson, Michigan 49201
		(517) 788-0550

1-5611		CONSUMERS ENERGY COMPANY	38-0442310
		(A Michigan Corporation)
		One Energy Plaza, Jackson, Michigan 49201
		(517) 788-0550

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.

CMS Energy Corporation : Yes x No o Consumers Energy Company : Yes x No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

CMS Energy Corporation : Yes x No o Consumers Energy Company : Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

CMS Energy Corporation :

Large accelerated filer x

Accelerated filer o

Non-Accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Consumers Energy Company :

Large accelerated filer o

Accelerated filer o

Non-Accelerated filer x

Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

CMS Energy Corporation : Yes o No x Consumers Energy Company : Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at October 12, 2012:

CMS Energy Corporation:

CMS Energy Common Stock, $0.01 par value (including 1,296,406 shares owned by Consumers Energy Company)		265,203,743
Consumers Energy Company:
Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation		84,108,789

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CMS Energy Corporation

Consumers Energy Company

Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended

September 30, 2012

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	Page

Glossary	3
Filing Format	8
Forward-Looking Statements and Information	8

Part I. Financial Information

Item 1. Consolidated Financial Statements (Unaudited)
CMS Energy Corporation	32
Consumers Energy Company	40
Notes to the Unaudited Consolidated Financial Statements	47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risk	72
Item 4. Controls and Procedures	72

Part II. Other Information

Item 1. Legal Proceedings	72
Item 1A. Risk Factors	72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3. Defaults Upon Senior Securities	73
Item 4. Mine Safety Disclosures	73
Item 5. Other Information	73
Item 6. Exhibits	74
Signatures	75

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GLOSSARY

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

2008 Energy Law		Comprehensive energy reform package enacted in Michigan in 2008

2011 Form 10-K		Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2011

ABATE		Association of Businesses Advocating Tariff Equity

ASU		Financial Accounting Standards Board Accounting Standards Update

Bay Harbor		A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002

bcf		Billion cubic feet of gas

Big Rock		Big Rock Point nuclear power plant, formerly owned by Consumers

CAIR		The Clean Air Interstate Rule

Cantera Gas Company		Cantera Gas Company LLC, a non-affiliated company, formerly known as CMS Field Services

Cantera Natural Gas, Inc.		Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services

CCB		Coal combustion by-product

CEO		Chief Executive Officer

CFO		Chief Financial Officer

CKD		Cement kiln dust

Clean Air Act		Federal Clean Air Act, as amended

Clean Water Act		Federal Water Pollution Control Act, as amended

CMS Capital		CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy

CMS Energy		CMS Energy Corporation, the parent of Consumers and CMS Enterprises

CMS Enterprises		CMS Enterprises Company, a wholly owned subsidiary of CMS Energy

CMS ERM		CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises

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CMS Field Services		CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission

CMS Gas Transmission		CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises

CMS Land		CMS Land Company, a wholly owned subsidiary of CMS Capital

CMS MST		CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM in 2004

Consumers		Consumers Energy Company, a wholly owned subsidiary of CMS Energy

CSAPR		The Cross-State Air Pollution Rule

Customer Choice Act		Customer Choice and Electricity Reliability Act, a Michigan statute

Detroit Edison		The Detroit Edison Company, a non-affiliated company

Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010

DOE		U.S. Department of Energy

DOJ		U.S. Department of Justice

EBITDA		Earnings before interest, taxes, depreciation, and amortization

EnerBank		EnerBank USA, a wholly owned subsidiary of CMS Capital

Entergy		Entergy Corporation, a non-affiliated company

EPA		U.S. Environmental Protection Agency

EPS		Earnings per share

Exchange Act		Securities Exchange Act of 1934, as amended

FDIC		Federal Deposit Insurance Corporation

FERC		The Federal Energy Regulatory Commission

fine particulate matter		Particulate matter that is 2.5 microns or less in diameter

FLI Liquidating Trust		Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity

FMB		First mortgage bond

FOV		Finding of Violation

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FTR		Financial transmission right

GAAP		U.S. Generally Accepted Accounting Principles

GCR		Gas cost recovery

ISFSI		Independent spent fuel storage installation

kWh		Kilowatt-hour, a unit of energy equal to one thousand watt-hours

LIBOR		The London Interbank Offered Rate

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

MACT		Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source

MATS		Mercury and Air Toxic Standards, which limit mercury, acid gases, and other toxic pollution from coal-fueled and oil-fueled power plants

MCIT		Michigan Corporate Income Tax

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MDEQ		Michigan Department of Environmental Quality

MDL		A pending multi-district litigation case in Nevada

MGP		Manufactured gas plant

Midwest Energy Market		An energy market developed by MISO to provide day-ahead and real-time market information and centralized dispatch for market participants

MISO		The Midwest Independent Transmission System Operator, Inc.

mothball		To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts

MPSC		Michigan Public Service Commission

MW		Megawatt, a unit of power equal to one million watts

MWh		Megawatt-hour, a unit of energy equal to one million watt-hours

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NOV		Notice of Violation

NPDES		National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act

NREPA		Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation

NSR		New Source Review, a construction-permitting program under the Clean Air Act

NYMEX		The New York Mercantile Exchange

OPEB		Postretirement benefit plans other than pensions

Palisades		Palisades nuclear power plant, sold by Consumers to Entergy in 2007

Panhandle		Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage Company, Panhandle Storage Company, and Panhandle Holding Company, a former wholly owned subsidiary of CMS Gas Transmission

PCB		Polychlorinated biphenyl

Pension Plan		Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle

PSCR		Power supply cost recovery

PSD		Prevention of Significant Deterioration

REC		Renewable energy credit established under the 2008 Energy Law

Renewable Operating Permit		Michigan’s Title V permitting program under the Clean Air Act

RMRR		Routine maintenance, repair, and replacement

ROA		Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act

SEC		U.S. Securities and Exchange Commission

SERP		Supplemental Executive Retirement Plan

Sherman Act		Sherman Antitrust Act, enacted in 1890

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Smart Energy		Consumers’ grid modernization project, which includes the installation of smart meters that transmit and receive data, a two-way communications network, and modifications to Consumers’ existing information technology system to manage the data and enable changes to key business processes

Superfund		Comprehensive Environmental Response, Compensation, and Liability Act

Supplemental Environmental Projects		Environmentally beneficial projects that a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform

Title V		A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S.

Trunkline		Trunkline Gas Company, LLC, a non-affiliated company

Trust Preferred Securities		Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts

XBRL		eXtensible Business Reporting Language

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FILING FORMAT

This combined Form 10-Q is separately filed by CMS Energy and Consumers. Information in this combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ debt securities and holders of such debt securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.

This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the 2011 Form 10-K.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-Q and other written and oral statements that CMS Energy and Consumers make may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include, but are not limited to, the following, all of which are potentially significant:

· the impact of regulation by the MPSC or FERC and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures;

· potentially adverse regulatory treatment or failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities, including the treatment of Consumers’ pilot gas revenue decoupling mechanism;

· the adoption of federal or state laws or regulations or changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, including those related to energy policy and ROA, the environment, regulation, health care reforms, taxes, accounting matters, and other business issues that could have an impact on CMS Energy’s or Consumers’ businesses or financial results, including laws or regulations regarding climate change and air emissions and potential effects of the Dodd-Frank Act and related regulations on CMS Energy, Consumers, or any of their affiliates;

· potentially adverse regulatory or legal interpretations or decisions regarding environmental matters, or delayed regulatory treatment or permitting decisions that are or could come before the MDEQ and/or EPA, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;

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· changes in energy markets, including availability and price of electric capacity and the timing and extent of changes in commodity prices and availability of coal, natural gas, natural gas liquids, electricity, oil, and certain related products;

· the price of CMS Energy common stock, the credit ratings of CMS Energy and Consumers, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ interest costs and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates;

· the investment performance of the assets of CMS Energy’s and Consumers’ pension and benefit plans and the discount rates applicable to the plans’ obligations, and the resulting impact on future funding requirements;

· the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’ revenues, ability to collect accounts receivable from customers, or cost and availability of capital;

· changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;

· population changes in the geographic areas where CMS Energy and Consumers conduct business;

· national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;

· loss of customer demand for electric generation supply to alternative energy suppliers;

· federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;

· the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;

· the availability, cost, coverage, and terms of insurance, the stability of insurance providers, and the ability of Consumers to recover the costs of any insurance from customers;

· the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities;

· factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction material pricing, availability of qualified construction personnel, permitting, and government approvals;

· factors affecting operations, such as costs and availability of personnel, equipment, and materials, unusual weather conditions, catastrophic weather-related damage, scheduled or unscheduled equipment outages, maintenance or repairs, environmental incidents, and electric transmission and distribution or gas pipeline system constraints;

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· potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, or operations due to accidents, explosions, physical disasters, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;

· changes or disruption in fuel supply, including but not limited to rail or vessel transport of coal and pipeline transport of natural gas;

· potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident;

· technological developments in energy production, storage, delivery, usage, and metering, including Smart Energy and the success of its implementation;

· the impact of CMS Energy’s and Consumers’ integrated business software system and its operation on their activities, including utility customer billing and collections;

· adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;

· the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;

· restrictions imposed by various financing arrangements and regulatory requirements on the ability of Consumers and other subsidiaries of CMS Energy to transfer funds to CMS Energy in the form of cash dividends, loans, or advances;

· earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts;

· changes in financial or regulatory accounting principles or policies, including a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and

· other matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

For additional details regarding these and other uncertainties, see Part I – Item 1. Consolidated Financial Statements (Unaudited) – Notes to the Unaudited Consolidated Financial Statements – Note 3: Contingencies and Commitments and Note 4: Regulatory Matters; Part I – Item 2. MD&A – Outlook; and Part II – Item 1A. Risk Factors.

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CMS Energy Corporation

Consumers Energy Company

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This MD&A is a combined report of CMS Energy and Consumers.

EXECUTIVE OVERVIEW

CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic independent power producer. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, owns and operates power generation facilities.

CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.

CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services; electric distribution and generation; gas transmission, storage, and distribution; and other energy-related services. Their businesses are affected primarily by:

· regulation and regulatory matters;

· economic conditions;

· weather;

· energy commodity prices;

· interest rates; and

· CMS Energy’s and Consumers’ securities’ credit ratings.

CMS Energy’s business strategy has emphasized the key elements depicted below:

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S AFE , E XCELLENT O PERATIONS

The safety of employees, customers, and the general public remains a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. From 2007 to 2011, Consumers achieved a 73 percent reduction in the annual number of recordable safety incidents.

C USTOMER V ALUE

Consumers is undertaking a number of initiatives that reflect its intensified customer focus. Consumers’ planned investments in reliability are aimed at improving safety, reducing customer outage frequency, reducing repetitive outages, and increasing customer satisfaction. Also, in order to minimize increases in customer rates, Consumers has undertaken several initiatives to reduce costs through a voluntary separation plan, accelerated pension funding, health-care cost sharing, negotiated labor agreements, information system efficiencies, and productivity improvement programs. Consumers considers these and other aspects of its customer value initiative to be important to its success.

U TILITY I NVESTMENT

Consumers expects to make capital investments of $6.5 billion from 2013 through 2017. Consumers has limited its capital investment program to those investments it believes are needed to provide safe, reliable, and efficient service to its customers. Consumers’ capital investment program is expected to result in annual rate base growth of five to seven percent while allowing Consumers to maintain sustainable customer base rate increases (excluding PSCR and GCR charges) at or below the rate of inflation.

Among the key components of Consumers’ investment program are projects that will enhance customer value. Consumers’ planned distribution investments of $1.7 billion comprise $0.9 billion of electric utility projects to improve reliability and increase capacity and $0.8 billion of gas utility projects to increase capacity and deliverability and enhance pipeline integrity. Consumers also expects to spend $1.2 billion on environmental investments needed to comply with state and federal laws and regulations. An additional $1.3 billion of planned reliability investments at Consumers are aimed at reducing outages and improving customer satisfaction; these investments comprise $0.9 billion at the electric utility to strengthen circuits and substations, replace poles, and upgrade the Ludington pumped-storage plant, and $0.4 billion at the gas utility to replace mains and enhance transmission and storage systems.

Renewable energy projects are another major component of Consumers’ planned capital investments. Consumers expects to spend $0.4 billion on renewable energy investments, under an MPSC-approved renewable energy plan, from 2013 through 2017. The 2008 Energy Law requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions. Consumers has historically included renewable resources as part of its portfolio, with about five percent of its present power supply coming from such renewable sources as hydroelectric, landfill gas, biomass, and wind.

Consumers’ Smart Energy program, with an estimated total project capital cost of $0.8 billion, also represents a major capital investment. The full-scale deployment of advanced metering infrastructure began in August 2012 and is planned to continue through 2019. Consumers will have spent $0.2 billion through 2012 on its Smart Energy program, and expects to spend an additional $0.3 billion, following a phased approach, from 2013 through 2017.

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R EGULATION

Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. Important regulatory events and developments are summarized below.

· Electric Rate Case: In June 2012, the MPSC authorized an annual rate increase of $118 million, based on a 10.3 percent authorized return on equity. Consumers filed an application in September 2012 to reconcile the total revenues collected under rates self-implemented in December 2011 to those that would have been collected under final rates. This reconciliation requests that the MPSC find that no refund is required.

Consumers filed a new general electric rate case with the MPSC in September 2012, seeking an annual rate increase of $148 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. Costs associated with these investments represent 85 percent of the total annual rate increase requested. The filing also seeks approval of several rate adjustment mechanisms, including a mechanism that would reconcile annually Consumers’ actual nonfuel revenues with the revenues approved by the MPSC, and a mechanism that would allow recovery in 2014 of an additional $83 million associated with incremental 2014 investments, subject to reconciliation.

· Gas Rate Case: In June 2012, the MPSC authorized an annual rate increase of $16 million, based on a 10.3 percent authorized return on equity. In September 2012, Consumers filed an application to reconcile the total revenues under rates self-implemented in March 2012 to those that would have been collected under the final rates. As a result of the reconciliation, which found that a refund was required, Consumers had a $2 million regulatory liability recorded at September 30, 2012.

· Revenue Decoupling Mechanisms: In April 2012, the Michigan Court of Appeals ruled in an appeal filed by ABATE that disputed the MPSC’s decision to authorize an electric revenue decoupling mechanism for Detroit Edison. The Court concluded that the MPSC lacks statutory authority to approve or direct the use of a revenue decoupling mechanism for electric providers. As a result, Consumers determined that it no longer met the accounting criteria for recognition of a regulatory asset under an alternative revenue program and, at March 31, 2012, wrote off its $59 million electric revenue decoupling mechanism regulatory asset covering the period December 2009 through November 2011. In August 2012, the MPSC dismissed Consumers’ reconciliation of the electric revenue decoupling mechanism for the period December 2009 through November 2010. Consumers’ second reconciliation remains pending with the MPSC. Consumers expects the MPSC to dismiss this reconciliation.

In September 2011, Consumers filed its first reconciliation of the gas revenue decoupling mechanism, requesting recovery of $16 million from customers for the period June 2010 through May 2011. This mechanism, which was extended through April 2012 and was not affected by the Court of Appeals decision on electric decoupling, allowed Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from the difference between the level of average sales per customer adopted in the order and actual average weather-adjusted sales per customer, subject to certain conditions. Certain parties have filed in opposition to the reconciliation.

Consumers filed its final reconciliation of the gas revenue decoupling mechanism in August 2012, requesting recovery of $17 million from customers for the period June 2011 through April 2012. At September 30, 2012, Consumers had a $33 million regulatory asset recorded for gas revenue decoupling.

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· DOE Settlement: In 2011, Consumers entered into an agreement with the DOE to settle for $120 million its claims related to the DOE’s failure to accept spent nuclear fuel and filed an application with the MPSC regarding the allocation of the $120 million settlement amount.

The 2008 Energy Law limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At September 30, 2012, Consumers’ electric deliveries under the ROA program were at the ten percent limit. In March 2012, a bill was introduced to the Michigan Senate and House of Representatives that, upon enactment, would revise the 2008 Energy Law and allow customers then on the ROA program waiting list to switch their service to an alternative electric supplier. Presently, the proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is 24 percent. The revision also proposes an increase in the cap of six percentage points per year from 2013 through 2015. As a counterpoint to this proposal, another bill was introduced to the Michigan Senate and House of Representatives in June 2012 that, if enacted, would likely phase out electric choice and return the state’s electric industry to full regulation. Consumers is unable to predict the outcome of these two legislative proposals.

A proposal to raise Michigan’s renewable energy requirement will be included on the November 2012 statewide ballot. The proposal, if passed, would amend the Michigan Constitution to require Michigan utilities to obtain at least 25 percent of their electric energy from clean renewable energy sources such as wind, solar, biomass, and hydropower by 2025. The proposed amendment would also limit to not more than one percent per year electric utility rate increases charged to customers only to achieve compliance with the renewable energy standard, and would allow annual extensions of the deadline to the 25 percent standard in order to prevent rate increases over the one percent limit.

Environmental regulation is another area of importance for CMS Energy and Consumers, and they are monitoring numerous legislative and regulatory initiatives, including initiatives to regulate greenhouse gases, and related litigation.

In July 2011, the EPA finalized CSAPR, which was intended to replace CAIR. In December 2011, due to litigation surrounding CSAPR, the U.S. Court of Appeals for the D.C. Circuit issued a stay of CSAPR, stating that CAIR would remain in place while the court considers the issues. In August 2012, the Court voided CSAPR and held that CAIR would remain in place until the EPA promulgated a new rule. In October 2012, the EPA sought a rehearing of this ruling.

Additionally, in February 2012, the EPA published its final MACT emission standards for electric generating units, based on Section 112 of the Clean Air Act, calling the final rule MATS. Although numerous parties, including the State of Michigan, have sought to extend the deadline of MATS, it is expected to take effect in 2015. CMS Energy and Consumers are continuing to assess the impact and cost associated with these rules and developments.

F INANCIAL P ERFORMANCE IN 2012 AND B EYOND

For the nine months ended September 30, 2012, CMS Energy’s net income available to common stockholders was $315 million, and diluted EPS were $1.17. This compares with net income available to common stockholders of $374 million and diluted EPS of $1.43 for the nine months ended September 30, 2011. The main factors contributing to the decline in earnings in 2012 were the write-off of Consumers’ electric revenue decoupling mechanism regulatory asset, as discussed above, and the absence of a tax benefit recognized in 2011 related to the enactment of the MCIT.

A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.

CMS Energy and Consumers believe that economic conditions in Michigan are improving. Although Michigan’s economy continues to be affected by the recession and its impact on the state’s automotive industry and by high unemployment rates, there are indications that the recession has eased in Michigan.

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Consumers expects its electric sales to increase by about one percent annually through 2017, driven largely by the continued rise in industrial production. Consumers is projecting that its gas sales will remain stable through 2017. This outlook reflects growth in gas demand offset by energy efficiency and conservation.

As Consumers seeks to continue to receive fair and timely regulatory treatment, delivering customer value will remain a key strategic priority. To keep costs down for its utility customers, Consumers has set goals to achieve further annual productivity improvements. Additionally, Consumers will strive to give priority to capital investments that increase customer value or lower costs.

Consumers expects to continue to have sufficient capacity to fund its investment-based growth plans. CMS Energy also expects its sources of liquidity to remain sufficient to meet its cash requirements. CMS Energy and Consumers will continue to monitor developments in the financial and credit markets, as well as government policy responses to those developments, for potential implications for their businesses and their future financial needs.

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RESULTS OF OPERATIONS

CMS E NERGY C ONSOLIDATED R ESULTS OF O PERATIONS


In Millions, Except Per Share Amounts
	Three Months Ended					Nine Months Ended
September 30	2012		2011		Change	2012		2011		Change
Net Income Available to
Common Stockholders	$ 148		$ 139		$ 9	$ 315		$ 374		$ (59	)
Basic Earnings Per Share	$ 0.56		$ 0.55		$ 0.01	$ 1.21		$ 1.49		$ (0.28	)
Diluted Earnings Per Share	$ 0.55		$ 0.53		$ 0.02	$ 1.17		$ 1.43		$ (0.26	)


In Millions
	Three Months Ended					Nine Months Ended
September 30	2012		2011		Change	2012		2011		Change
Electric utility	$ 165		$ 159		$ 6	$ 297		$ 309		$ (12	)
Gas utility	(3	)	(5	)	2	61		88		(27	)
Enterprises	5		4		1	9		36		(27	)
Corporate interest and other	(19	)	(19	)	-	(59	)	(61	)	2
Discontinued operations	-		-		-	7		2		5
Net Income Available to
Common Stockholders	$ 148		$ 139		$ 9	$ 315		$ 374		$ (59	)

Presented in the following table are specific after-tax changes to net income available to common stockholders for 2012 versus 2011:


In Millions
	September 30, 2012 better/(worse) than 2011
Reasons for the change	Three Months Ended		Nine Months Ended
Gas sales	$ -		$ (49)
Electric sales	7		13
Electric and gas rate orders	21		72
Electric and gas decoupling	2		(12)
Recovery of development costs related to canceled
coal-fueled plant	-		9
Higher depreciation and property tax	(12)		(21)
Other	(10)	$ 8	(7)	$ 5

Subsidiary earnings of enterprises segment		(2)		-
Lower corporate fixed charges, higher EnerBank earnings,
and other		-		5
Charge to write off electric decoupling regulatory asset		-		(36	)
Absence of tax benefit related to MCIT enactment in 2011		-		(32	)
Other		3		(1	)
Total change		$ 9		$ (59	)

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C ONSUMERS E LECTRIC U TILITY R ESULTS OF O PERATIONS


			In Millions
September 30	2012	2011	Change
Net Income Available to Common Stockholders
Three months ended	$ 165	$ 159	$ 6
Nine months ended	297	309	(12	)


In Millions
	September 30, 2012 better/(worse) than 2011
Reasons for the change	Three Months Ended		Nine Months Ended
Electric deliveries and rate increases	$ 52		$ 40
Power supply costs and related revenue	-		2
Other income, net of expenses	(8	)	(10	)
Maintenance and other operating expenses	(1	)	3
Depreciation and amortization	(17	)	(30	)
General taxes	(9	)	(7	)
Interest charges	5		9
Income taxes	(16	)	(19	)
Total change	$ 6		$ (12	)

Electric deliveries and rate increases: For the three months ended September 30, 2012, electric delivery revenues increased $52 million compared with 2011. This variance was due to additional revenues of $30 million resulting from the June 2012 rate order, $13 million from increased surcharge revenues, and a $9 million increase in other revenues. Deliveries to end-use customers were 10.5 billion kWh in 2012 and 10.4 billion kWh in 2011.

For the nine months ended September 30, 2012, electric delivery revenues increased $40 million compared with 2011. This variance was due to additional revenues of $81 million resulting from the June 2012 rate order and from Consumers’ self-implemented rate increase in December 2011, $12 million from higher deliveries in 2012, and a $33 million increase in surcharge revenues. These increases were offset partially by a $59 million charge to write off Consumers’ electric decoupling mechanism regulatory asset, and the absence, in 2012, of $27 million of electric decoupling revenues recognized in 2011. Deliveries to end-use customers were 29.1 billion kWh in 2012, an increase of 0.4 billion kWh, or 1.4 percent, compared with 2011.

Other income, net of expenses: For the three months ended September 30, 2012, other income decreased $8 million compared with 2011, and for the nine months ended September 30, 2012, other income decreased $10 million compared with 2011. These decreases were due primarily to contributions related to a 2012 Michigan ballot proposal.

Maintenance and other operating expenses: For the nine months ended September 30, 2012, maintenance and other operating expenses decreased $3 million compared with 2011. This decrease reflected the authorized recovery of $14 million associated with Consumers’ canceled coal-fueled plant, a $9 million reduction in service restoration costs, and a $2 million decrease in other operating expenses. These decreases were offset partially by $8 million of voluntary separation program expenses and $14 million related to higher energy optimization program costs.

Depreciation and amortization: For the three months ended September 30, 2012, depreciation and amortization expense increased $17 million compared with 2011, and for the nine months ended September 30, 2012, depreciation and amortization expense increased $30 million compared with 2011. These variances were due primarily to increased plant in service and an increase in depreciation expense authorized in a June 2012 rate order.

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General Taxes : For the three months ended September 30, 2012, general taxes increased $9 million compared with 2011, and for the nine months ended September 30, 2012, general taxes increased $7 million compared with 2011. These increases were due primarily to the absence, in 2012, of a favorable Michigan single business tax audit.

Interest Charges : For the three months ended September 30, 2012, interest charges decreased $5 million compared with 2011, and for the nine months ended September 30, 2012, interest charges decreased $9 million compared with 2011. These decreases were due primarily to lower average debt levels and lower average interest rates in 2012.

Income taxes: For the three months ended September 30, 2012, income taxes increased $16 million compared with 2011. This increase was due primarily to higher electric utility earnings and a change from the Michigan Business Tax to the MCIT in January 2012.

For the nine months ended September 30, 2012, income taxes increased $19 million compared with 2011. This increase was due primarily to higher electric utility earnings, a change from the Michigan Business Tax to the MCIT in January 2012, and the absence, in 2012, of a benefit related to the Medicare Part D Subsidy.

C ONSUMERS G AS U TILITY R ESULTS OF O PERATIONS


			In Millions
September 30	2012		2011		Change
Net Income (Loss) Available to Common Stockholders
Three months ended	$ (3	)	$ (5	)	$ 2
Nine months ended	61		88		(27	)


			In Millions
	September 30, 2012 better/(worse) than 2011
Reasons for the change	Three Months Ended		Nine Months Ended
Gas deliveries and rate increases	$ 6				$ (26	)
Other income, net of expenses	(1	)			(2	)
Maintenance and other operating expenses	2				(6	)
Depreciation and amortization	-				(5	)
General taxes	(4	)			(5	)
Interest charges	3				6
Income taxes	(4	)			11
Total change	$ 2				$ (27	)

Gas deliveries and rate increases: For the three months ended September 30, 2012, gas delivery revenues increased $6 million compared with 2011, due primarily to an increase in energy optimization surcharge revenues in 2012. Gas deliveries, including transportation to end-use customers, were 25 bcf in 2012 and 2011.

For the nine months ended September 30, 2012, gas delivery revenues decreased $26 million compared with 2011. This decrease reflected a $71 million reduction resulting from lower customer deliveries, due primarily to milder weather in early 2012. The decrease was offset partially by $19 million of additional revenues from March 2012 and May 2011 rate increases, an $11 million increase in surcharge revenues, and a $15 million increase related to lower system losses. Gas deliveries, including transportation to end-use customers, were 172 bcf in 2012, a decrease of 33 bcf, or 16 percent, compared with 2011.

Maintenance and other operating expenses: For the nine months ended September 30, 2012, maintenance and other operating expenses increased $6 million compared with 2011. This increase was

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due to $11 million of higher energy optimization program costs and $4 million of voluntary separation program expenses, offset partially by $9 million of lower gas distribution operating expenses.

Depreciation and amortization: For the nine months ended September 30, 2012, depreciation and amortization expense increased $5 million compared with 2011, due to increased plant in service.

General Taxes : For the three months ended September 30, 2012, general taxes increased $4 million compared with 2011, and for the nine months ended September 30, 2012, general taxes increased $5 million compared with 2011. These increases were due primarily to the absence, in 2012, of a favorable Michigan single business tax audit.

Interest Charges : For the three months ended September 30, 2012, interest charges decreased $3 million compared with 2011, and for the nine months ended September 30, 2012, interest charges decreased $6 million compared with 2011. These decreases were due primarily to lower average debt levels and lower average interest rates in 2012.

Income taxes: For the three months ended September 30, 2012, income taxes increased $4 million compared with 2011, due primarily to higher gas utility earnings.

For the nine months ended September 30, 2012, income taxes decreased $11 million compared with 2011, due primarily to lower gas utility earnings.

E NTERPRISES R ESULTS OF O PERATIONS


			In Millions
September 30	2012	2011	Change
Net Income Available to Common Stockholders
Three months ended	$ 5	$ 4	$ 1
Nine months ended	9	36	(27	)

For the three months ended September 30, 2012, net income of the enterprises segment increased $1 million compared with 2011, due primarily to an insurance settlement.

For the nine months ended September 30, 2012, net income of the enterprises segment decreased $27 million compared with 2011. This change was due primarily to the absence, in 2012, of a $28 million income tax benefit resulting from the enactment of the MCIT in May 2011.

C ORPORATE I NTEREST AND O THER R ESULTS OF O PERATIONS


					In Millions
September 30	2012		2011		Change
Net Loss Available to Common Stockholders
Three months ended	$ (19	)	$ (19	)	$ -
Nine months ended	(59	)	(61	)	2

For the nine months ended September 30, 2012, corporate interest and other net expenses decreased $2 million compared with 2011, due primarily to higher net earnings at EnerBank.

D ISCONTINUED O PERATIONS

For the nine months ended September 30, 2012, income from discontinued operations was $7 million, reflecting the elimination of a liability associated with a prior asset sale, compared with income from

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discontinued operations of $2 million in 2011, which was due to a favorable legal settlement related to a previously sold business.

CASH POSITION, INVESTING, AND FINANCING

At September 30, 2012, CMS Energy had $159 million of consolidated cash and cash equivalents, which included $31 million of restricted cash and cash equivalents. Consumers had $87 million of consolidated cash and cash equivalents, which included $30 million of restricted cash and cash equivalents.

O PERATING A CTIVITIES

Presented in the following table are specific components of net cash provided by operating activities for the nine months ended September 30, 2012 and 2011:


					In Millions
Nine Months Ended September 30	2012		2011		Change
CMS Energy, including Consumers
Net income	$ 317		$ 376		$ ( 59	)
Non-cash transactions 1	825		742		83
	1,142		1,118		24
Postretirement benefits contributions	(54	)	(56	)	2
Decrease in core working capital 2	-		199		(199	)
Other changes in assets and liabilities, net	(154	)	(66	)	(88	)
Net cash provided by operating activities	$ 934		$ 1,195		$ ( 261	)
Consumers
Net income	$ 361		$ 400		$ ( 39	)
Non-cash transactions 1	712		655		57
	1,073		1,055		18
Postretirement benefits contributions	(51	)	(53	)	2
Decrease in core working capital 2	13		201		(188	)
Other changes in assets and liabilities, net	(10	)	42		(52	)
Net cash provided by operating activities	$ 1,025		$ 1,245		$ ( 220	)

1	Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items.

2	Core working capital comprises accounts receivable and accrued revenues, inventories, and accounts payable.

For the nine months ended September 30, 2012, net cash provided by operating activities at CMS Energy decreased $261 million compared with 2011, and net cash provided by operating activities at Consumers decreased $220 million compared with 2011. The decreases were due primarily to lower gas sales and a smaller reduction in core working capital.

I NVESTING A CTIVITIES

Presented in the following table are specific components of net cash used in investing activities for the nine months ended September 30, 2012 and 2011:


					In Millions
Nine Months Ended September 30	2012		2011		Change
CMS Energy, including Consumers
Capital expenditures	$ (861	)	$ (624	)	$ (237	)
Costs to retire property and other	(77	)	(128	)	51
Net cash used in investing activities	$ (938	)	$ (752	)	$ (186	)
Consumers
Capital expenditures	$ (857	)	$ (618	)	$ (239	)
Costs to retire property and other	(43	)	(65	)	22
Net cash used in investing activities	$ (900	)	$ (683	)	$ (217	)

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For the nine months ended September 30, 2012, net cash used in investing activities at CMS Energy increased $186 million compared with 2011, and net cash used in investing activities at Consumers increased $217 million compared with 2011. The increases were due primarily to increases in capital expenditures.

F INANCING A CTIVITIES

Presented in the following table are specific components of net cash used in financing activities for the nine months ended September 30, 2012 and 2011:


					In Millions
Nine Months Ended September 30	2012		2011		Change
CMS Energy, including Consumers
Issuance of FMBs, senior notes, and other debt	$ 1,325		$ 433		$ 892
Retirement of debt and other debt maturity payments	(1,166	)	(343	)	(823	)
Common stock issued	27		26		1
Payments of common stock dividends	(188	)	(159	)	(29	)
Other financing activities	(27	)	(26	)	(1	)
Net cash used in financing activities	$ (29	)	$ (69	)	$ 40
Consumers
Issuance of FMBs	$ 725		$ -		$ 725
Retirement of debt and other debt maturity payments	(703	)	(70	)	(633	)
Payments of common stock dividends	(302	)	(292	)	(10	)
Stockholder contribution from CMS Energy	150		125		25
Other financing activities	(23	)	(23	)	-
Net cash used in financing activities	$ (153	)	$ (260	)	$ 107

For the nine months ended September 30, 2012, net cash used in financing activities at CMS Energy decreased $40 million compared with 2011, and net cash used in financing activities at Consumers decreased $107 million compared with 2011. These decreases were due primarily to an increase in net debt issuances.

RETIREMENT BENEFITS

Presented in the following table are the most recent estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions through 2014:


				In Millions
	Pension Cost	OPEB Cost	Pension Contribution	OPEB Contribution
CMS Energy, including Consumers
2012	$ 103	$ 74	$ -	$ 65
2013	122	76	-	74
2014	118	92	104	76
Consumers
2012	$ 100	$ 75	$ -	$ 64
2013	119	78	-	73
2014	115	94	101	75

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Contribution estimates comprise amounts required for pension and discretionary contributions for OPEB. Consumers’ pension and OPEB costs are recoverable through its general ratemaking process. Actual future costs and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan and OPEB participants.

For additional details on retirement benefits, see Note 10: Retirement Benefits.

CAPITAL RESOURCES AND LIQUIDITY

CMS Energy uses dividends from its subsidiaries and external financing and capital transactions to invest in its utility and non-utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation, and potentially by provisions under the Federal Power Act and the Natural Gas Act and FERC requirements. For additional details on Consumers’ dividend restrictions, see Note 5: Financings and Capitalization – Dividend Restrictions. For the nine months ended September 30, 2012, Consumers paid $302 million in common stock dividends to CMS Energy.

In June 2011, CMS Energy entered into a continuous equity offering program under which CMS Energy may sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $50 million. In June 2012 and June 2011, CMS Energy issued common stock under this program and received net proceeds of $15 million in each period.

Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other obligations.

CMS Energy’s and Consumers’ access to the financial and capital markets depends on their credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets and, barring major market dislocations or disruptions, they expect to continue to have such access. If access to these markets were to become diminished or otherwise restricted, however, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. CMS Energy and Consumers had the following secured revolving credit facilities available at September 30, 2012:


					In Millions
	Amount of Facility	Amount Borrowed	Letters of Credit Outstanding	Amount Available	Expiration Date
CMS Energy
Revolving credit facility 1	$ 550	$ -	$ 2	$ 548	March 2016
Consumers
Revolving credit facility 2	$ 500	$ -	$ 2	$ 498	March 2016
Revolving credit facility 2	150	-	-	150	April 2017
Revolving credit facility 2	30	-	30	-	September 2014

1	Obligations under this facility are secured by Consumers common stock.

2	Obligations under this facility are secured by FMBs of Consumers.

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CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ revolving accounts receivable sales program, which allows it to transfer up to $250 million of accounts receivable as a secured borrowing. At September 30, 2012, $250 million of accounts receivable were eligible for transfer under this program.

Certain of CMS Energy’s and Consumers’ credit agreements and debt indentures contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At September 30, 2012, no events of default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements or debt indentures. CMS Energy and Consumers were each in compliance with these limits as of September 30, 2012, as presented in the following table:


			September 30, 2012
Credit Agreement, Indenture, or Facility	Description		Limit	Actual
CMS Energy
$550 million revolving credit agreement and
$180 million term loan credit agreement	Debt to EBITDA	<	6.0 to 1.0	4.8 to 1.0
Senior notes indenture	Interest Coverage	>	1.6 to 1.0	4.0 to 1.0
$180 million term loan credit agreement	Interest Coverage	>	2.0 to 1.0	4.0 to 1.0
Consumers
$500 million, $150 million, and $30 million revolving credit
agreements, $375 million term loan credit agreement, and
$35 million and $68 million reimbursement agreements	Debt to Capital	<	0.65 to 1.0	0.48 to 1.0
$250 million accounts receivable purchase agreement	Debt to Capital	<	0.70 to 1.0	0.48 to 1.0

Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to fund their contractual obligations for the remainder of 2012 and beyond.

O FF -B ALANCE -S HEET A RRANGEMENTS

CMS Energy, Consumers, and certain of their subsidiaries also enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable; the maximum obligation under indemnities for which such amounts were estimable was $512 million at September 30, 2012. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 3: Contingencies and Commitments – Guarantees.

OUTLOOK

Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-Looking Statements and Information; Note 3: Contingencies and Commitments; and Part II – Item 1A. Risk Factors.

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C ONSUMERS E LECTRIC U TILITY B USINESS O UTLOOK AND U NCERTAINTIES

Balanced Energy Initiative: Consumers continues to experience increasing demand for electricity due to Michigan’s recovering economy and increased use of air conditioning, consumer electronics, and other electric devices. In July 2012, customers set a new all-time peak demand record of 9,006 MW.

In December 2011, Consumers formally canceled its plans to build an 830-MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects present and anticipated market conditions, new environmental standards, and Consumers’ expectations of the generation sources that will provide the best energy value to customers. Consumers also plans to mothball seven of its smaller coal-fueled units in 2015. Consumers will continue to evaluate its options for the plants, which include:

· installing more environmental equipment on the units to reduce emissions further in order to meet new environmental standards and continue to operate the units;

· seeking an extension of compliance deadlines for new environmental standards;

· converting the units to natural gas instead of coal;

· decommissioning the units; and

· a combination of these options, depending on customer needs and market conditions.

With the potential closure of these plants, Consumers could experience a shortfall in generation capacity of up to 1,500 MW as early as 2015. In order to address future capacity requirements and growing electric demand in Michigan, Consumers developed a balanced energy initiative, a comprehensive energy resource plan designed to meet the short-term and long-term electricity needs of its customers through:

· energy efficiency;

· demand management;

· expanded use of renewable energy;

· development of new power plants;

· power or generating asset purchases to complement existing generating sources; and

· continued operation or upgrade of existing units.

Renewable Energy Plan: Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Law. This law requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.5 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable energy resource. Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years.

The 2008 Energy Law also requires Consumers to obtain 500 MW of capacity from renewable energy resources by 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties. To meet its renewable capacity requirements, Consumers expects to add more than 500 MW of owned or contracted renewable capacity by 2015. Through September 2012, Consumers has contracted for the purchase of 299 MW of nameplate capacity from renewable energy suppliers, which represents 60 percent of the 2015 renewable capacity requirement.

In November 2011, Consumers began construction of Lake Winds ® Energy Park, a 100-MW wind park in Mason County, Michigan. Consumers expects the wind park to be operational in late 2012. Consumers will continue development of Cross Winds ® Energy Park, its 150-MW wind park in Tuscola County, Michigan, scheduled for operation by late 2015, as well as seek other opportunities for wind generation development in support of the renewable capacity standards. Consumers expects to meet its 2015 renewable capacity requirement with a combination of owned and contracted renewable capacity.

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Energy Optimization Plan: The 2008 Energy Law requires Consumers to achieve energy savings equivalent to annual sales reduction targets through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in customers’ natural gas use by December 31, 2015. Under its energy optimization plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. In September 2012, the MPSC authorized Consumers to collect $15 million from customers as an incentive payment for exceeding statutory savings targets under both its gas and electric energy optimization plans during 2011. Consumers estimates that, through its gas and electric energy optimization programs, its customers realized $115 million in energy savings during 2011.

Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from economic and financial instability in the automotive and real estate sectors. Consumers believes economic conditions in Michigan are improving, and expects weather-adjusted electric deliveries to increase in 2012 by one percent compared with 2011.

Consumers expects average electric delivery growth of about one percent annually over the next five years. This increase reflects growth in electric demand, offset partially by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:

· energy conservation measures and results of energy efficiency programs;

· fluctuations in weather; and

· changes in economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity.

Electric ROA: The Customer Choice Act allows all of Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Law revised the Customer Choice Act by limiting alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At September 30, 2012, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 784 MW of generation service to ROA customers. Based on 2011 weather-adjusted retail sales, Consumers expects 2012 electric deliveries under the ROA program to be at a similar level to 2011.

In March 2012, a bill was introduced to the Michigan Senate and House of Representatives that, upon enactment, would revise the 2008 Energy Law and allow customers then on the ROA program waiting list to switch their service to an alternative electric supplier. Presently, the proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is 24 percent. The revision also proposes an increase in the cap of six percentage points per year from 2013 through 2015. As a counterpoint to this proposal, another bill was introduced to the Michigan Senate and House of Representatives in June 2012 that would likely phase out electric choice and return the state’s electric industry to full regulation. Consumers is unable to predict the outcome of these two legislative proposals.

Electric Transmission: In July 2011, FERC issued an order in a rulemaking proceeding concerning regional electric transmission planning and cost allocations. In August 2011, Consumers and several other electric utilities filed a joint petition seeking clarification/rehearing of FERC’s July order and opposing the allocation methodology. In May 2012, FERC issued an order denying the utilities’

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clarification/rehearing requests on this order. Following this denial, Consumers and several other electric utilities filed a petition for review of FERC’s order with the U.S. Court of Appeals.

In a related matter, in 2010, MISO filed and FERC approved a tariff revision proposing a cost allocation methodology for a new category of transmission projects. Under this tariff revision, the cost of these new transmission projects will be spread proportionally across the Midwest Energy Market. Consumers believes that Michigan customers will bear additional costs under MISO’s tariff without receiving comparable benefits from these projects. In December 2011, Consumers, along with the Michigan Attorney General, ABATE, Detroit Edison, the Michigan Municipal Electric Association, and the Michigan Public Power Agency, filed a petition for review of FERC’s order with the U.S. Court of Appeals for the Seventh Circuit following FERC’s denial of their request for rehearing opposing the allocation methodology in the MISO tariff revision. Regardless of the outcome of this appeal, Consumers expects to continue to recover transmission expenses, including those associated with the MISO tariff revision, through the PSCR process.

Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. See Note 4: Regulatory Matters for details on the following electric rate matters:

· electric rate case;

· Big Rock decommissioning;

· electric revenue decoupling mechanism;

· renewable energy plan; and

· energy optimization plan.

Pending Electric Rate Case: In September 2012, Consumers filed an application with the MPSC seeking an annual rate increase of $148 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. Costs associated with these investments represent 85 percent of the total annual rate increase requested. The filing also seeks approval of several rate adjustment mechanisms, including a mechanism that would reconcile annually Consumers’ actual nonfuel revenues with the revenues approved by the MPSC, and a mechanism that would allow recovery in 2014 of an additional $83 million associated with incremental 2014 investments, subject to reconciliation.

Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur expenditures of $1.5 billion from 2012 through 2018 to continue to comply with the Clean Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters:

Air Quality: In July 2011, the EPA released CSAPR, a final replacement rule for CAIR, which requires Michigan and 27 other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground-level ozone and fine particle pollution in other downwind states. This rule had mandated emission reductions beginning in 2012, which CMS Energy and Consumers were prepared to meet through fuel blend changes. In December 2011, due to litigation surrounding CSAPR, the U.S. Court of Appeals for the D.C. Circuit issued a stay of CSAPR, stating that CAIR would remain in place while the court considers the issues. In August 2012, the Court voided CSAPR and held that CAIR would remain in place until the EPA promulgated a new rule. In October 2012, the EPA sought a rehearing of this ruling.

In February 2012, the EPA published its final MACT emission standards for electric generating units, based on Section 112 of the Clean Air Act, calling the final rule MATS. Under MATS, all of Consumers’ existing coal-fueled electric generating units are required to add additional controls for hazardous air

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pollutants. Generally, existing units must meet the standards within three to four years of issuance of the final rule.

Presently, Consumers’ strategy to comply with CAIR, CSAPR or its replacement rule, and MATS involves the installation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA rulemakings, litigation, and congressional action. This evaluation could result in:

· changes in environmental compliance costs related to Consumers’ coal-fueled power plants;

· a change in the fuel mix at coal-fueled and oil-fueled power plants;

· changes in how certain plants are used; and

· the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units.

The MDEQ renewed and issued the B.C. Cobb Renewable Operating Permit in August 2011 after an extensive review and a public comment period. In October 2011, the Sierra Club and the Natural Resources Defense Council filed a petition with the EPA to object to the MDEQ’s issuance of the state Renewable Operating Permit, alleging that the facility is not in compliance with certain provisions of the Clean Air Act, including NSR and Title V. Consumers responded to these allegations in December 2011. The EPA could either deny the petition outright or grant the petition and remand the matter to the MDEQ for further action. Consumers believes these claims are baseless, but is unable to predict the outcome of this petition.

Fine Particulate Matter: In June 2012, the EPA proposed revisions that would raise the air quality standard for fine particulate matter. The revisions are designed to protect human health as well as regulate visibility in urban areas. The final standard is due to be finalized by December 2012. While Consumers expects that short-term impacts of the proposed changes would be limited, the longer-term impacts could include further pressure in Michigan for reductions in fine particulate matter.

Greenhouse Gases: In the recent past, there have been numerous legislative and regulatory initiatives at the state, regional, and national levels that involve the regulation of greenhouse gases. Consumers continues to monitor and comment on these initiatives and also follows litigation involving greenhouse gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and timing of any final legislation.

In 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, which sets greenhouse gas emissions limits that define when permits are required for new and existing industrial facilities under NSR PSD and Title V Renewable Operating Permit programs. Numerous parties challenged this rule in the U.S. Court of Appeals for the D.C. Circuit. In June 2012, the U.S. Court of Appeals for the D.C. Circuit upheld the Tailoring Rule and dismissed challenges to it and to three other greenhouse gas rules. Some parties have sought a rehearing, which is pending. Consumers does not expect to incur significant expenditures to comply with this rule.

In March 2012, the EPA released its proposed “Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units” pursuant to Section 111 of the Clean Air Act. This proposed rule applies only to new fossil-fuel-fired steam electric generating units. The standard would require that carbon dioxide emissions not exceed those of a modern, efficient natural gas combined-cycle plant, regardless of fuel type. Consumers submitted comments on the proposed rule in June 2012. The EPA is also expected to propose emissions guidelines within the next year for states to regulate greenhouse gas emissions from existing generating units under Section 111(d) of the Clean Air Act. Under the expected schedule, states will be required to submit plans to the EPA within nine months of issuance of the final rule and guidelines. Consumers will continue to monitor activity regarding any proposed regulations involving new source performance standards.

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Litigation, as well as federal laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted or ratified, could require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

CCBs: In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. A final rule may be issued in late 2012, but the EPA may first publish additional information for public comment, which could delay the rule well into 2013. Michigan already regulates CCBs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs, including regulation as either a nonhazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial reuse of this product, which would result in a significant increase in the amount of coal ash requiring costly disposal. Additionally, if the cost of upgrading existing coal ash disposal areas to meet hazardous waste landfill standards were to become economically prohibitive, existing coal ash disposal areas could close, requiring Consumers to find costly alternative arrangements for disposal. Consumers is unable to predict the impacts from this wide range of possible outcomes, but significant expenditures are likely.

Water: In March 2011, the EPA issued a proposed rule to regulate existing electric generating plant cooling water intake systems under Section 316(b) of the Clean Water Act aimed at reducing alleged harmful impacts on fish and shellfish. Consumers continues to evaluate this proposed rule and its potential impacts on Consumers’ plants. A final rule is expected in mid-2013. Consumers also expects the EPA to propose new regulations in 2013 for wastewater discharges from electric generating plants that will require physical and/or chemical treatment facilities for all wastewater. A final rule is expected in 2014.

PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase out equipment containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. To comply with this proposed rule, Consumers could incur substantial costs associated with existing electrical equipment potentially containing PCBs. A proposal is expected in late 2012.

Other electric environmental matters could have a major impact on Consumers’ outlook. For additional details on other electric environmental matters, see Note 3: Contingencies and Commitments – Consumers Electric Utility Contingencies – Electric Environmental Matters.

C ONSUMERS G AS U TILITY B USINESS O UTLOOK AND U NCERTAINTIES

Gas Deliveries: Consumers expects weather-adjusted gas deliveries in 2012 to decline by one percent compared with 2011. Over the next five years, Consumers expects average gas deliveries to remain stable. This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this trend due to:

· fluctuations in weather;

· use by independent power producers;

· availability and development of renewable energy sources;

· changes in gas prices;

· Michigan economic conditions, including population trends and housing activity;

· the price of competing energy sources or fuels; and

· energy efficiency and conservation impacts.

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Gas Transportation: In July 2012, Trunkline filed a proposal with FERC to cease transporting natural gas through one of its two main transmission pipelines serving Michigan. More than 60 percent of the natural gas supplied to Consumers’ gas customers is delivered by Trunkline’s two main transmission pipelines. In August 2012, Consumers filed a motion with FERC to protest against the proposed abandonment on the grounds that it would negatively impact customers and that it could hamper the development of natural gas-fueled electric generation in Michigan. The Governor, the MPSC, and various other parties have also filed protests with FERC. If Trunkline’s proposal is granted, the abandonment could result in higher gas prices and reduced availability for Michigan gas customers.

Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas rate case and gas revenue decoupling mechanism, see Note 4: Regulatory Matters.

Gas Depreciation: In August 2012, the MPSC approved a settlement agreement in Consumers’ gas depreciation case. The depreciation rates, which will become effective in January 2013, will result in a $5 million decrease in annual gas depreciation expense for Consumers.

Gas Pipeline Safety: In January 2012, President Obama signed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. The law reauthorizes existing federal pipeline safety programs of the Pipeline and Hazardous Materials Safety Administration through 2015 and it contains provisions mandating:

· an increase in the maximum fine for safety violations to $2 million;

· an increase in the number of pipeline inspectors;

· a study regarding application of integrity management requirements outside of “high consequence areas;”

· a survey regarding existing plans for safe management and replacement of cast iron pipelines;

· prescribed notification and on-site incident response times;

· installation of automatic or remotely controlled shut-off valves on new or replaced pipelines where feasible;

· historical design and construction documentation to verify maximum allowable operating pressures; and

· establishment of new regulations for testing (pressure tests or equivalent methods) of previously untested pipelines in high-consequence areas.

Consumers continues to comply with laws and regulations governing natural gas pipeline safety. These laws and regulations could cause Consumers to incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects that it would be able to recover the costs in rates, consistent with the recovery of other reasonable costs of complying with laws and regulations.

Gas Environmental Estimates: Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Note 3: Contingencies and Commitments – Consumers Gas Utility Contingencies – Gas Environmental Matters.

C ONSUMERS O THER O UTLOOK AND U NCERTAINTIES

Smart Energy: Consumers’ grid modernization effort continues. In August 2012, Consumers began installing smart meters in Muskegon County. One of the functions of smart meters is to allow customers to monitor and manage their energy usage, which should help reduce demand during critical peak times, resulting in lower peak capacity requirements. The installation of smart meters should also provide for both operational and customer benefits. Consumers expects to have 53,000 residential and small business customers in Muskegon County upgraded to smart meters by the end of 2012 and to install 200,000 smart meters throughout western Michigan in each of the years 2013 and 2014. By mid-2013, Consumers should be able to begin reading meters remotely; further functionality will be added in 2013 and 2014.

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Consumers also plans to install communication modules on gas meters in areas where Consumers provides both electricity and natural gas to customers.

E NTERPRISES O UTLOOK AND U NCERTAINTIES

The primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.

Trends, uncertainties, and other matters that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:

· indemnity and environmental remediation obligations at Bay Harbor;

· obligations related to a tax claim from the government of Equatorial Guinea;

· the outcome of certain legal proceedings;

· impacts of declines in electricity prices on the profitability of the enterprises segment’s generating units;

· representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with previous sales of assets;

· changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings;

· changes in various environmental laws, regulations, principles, or practices, or in their interpretation; and

· economic conditions in Michigan, including population trends and housing activity.

For additional details regarding the enterprises segment’s uncertainties, see Note 3: Contingencies and Commitments.

O THER O UTLOOK AND U NCERTAINTIES

EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. EnerBank represented two percent of CMS Energy’s net assets at September 30, 2012, and four percent of CMS Energy’s net income available to common stockholders for the nine months ended September 30, 2012. The carrying value of EnerBank’s loan portfolio was $513 million at September 30, 2012. Its loan portfolio was funded primarily by deposit liabilities of $488 million. Twelve-month rolling average default rates on loans held by EnerBank have declined from 1.0 percent at September 30, 2011 to 0.8 percent at September 30, 2012. CMS Energy is required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. Presently, EnerBank meets or exceeds all of its capital requirements.

Voluntary Separation Program: In April 2012, CMS Energy announced a voluntary separation program for its salaried employees. The separation date for the majority of employees who participated in the program was July 1, 2012. Management approved 232 employees for early separation and CMS Energy recorded a charge of $12 million related to this program during the three months ended June 30, 2012.

Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 3: Contingencies and Commitments and Note 4: Regulatory Matters.

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NEW ACCOUNTING STANDARDS

For details regarding the implementation of new accounting standards during the nine months ended September 30, 2012, see Note 1: New Accounting Standards.

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CMS Energy Corporation

Consolidated Statements of Income

(Unaudited)

					In Millions
	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011

Operating Revenue	$ 1,507		$ 1,464		$ 4,583		$ 4,883

Operating Expenses
Fuel for electric generation	190		199		446		504
Purchased and interchange power	386		365		1,037		968
Purchased power – related parties	23		23		65		64
Cost of gas sold	80		107		763		1,095
Maintenance and other operating expenses	295		301		872		868
Depreciation and amortization	138		120		440		404
General taxes	53		33		170		151
Gain on asset sales, net	(1	)	-		(1	)	-
Total operating expenses	1,164		1,148		3,792		4,054

Operating Income	343		316		791		829

Other Income (Expense)
Interest income	1		4		3		8
Allowance for equity funds used during construction	2		1		6		4
Income from equity method investees	5		4		13		10
Other income	3		3		9		12
Other expense	(11	)	(3	)	(16	)	(8	)
Total other income	-		9		15		26

Interest Charges
Interest on long-term debt	92		99		280		298
Other interest expense	5		6		16		18
Allowance for borrowed funds used during construction	(1	)	(1	)	(3	)	(3	)
Total interest charges	96		104		293		313

Income Before Income Taxes	247		221		513		542
Income Tax Expense	98		81		203		168

Income From Continuing Operations	149		140		310		374
Income From Discontinued Operations, Net of Tax of $-, $-, $4, and $1	-		-		7		2

Net Income	149		140		317		376
Income Attributable to Noncontrolling Interests	1		1		2		2

Net Income Available to Common Stockholders	$ 148		$ 139		$ 315		$ 374

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		In Millions, Except Per Share Amounts
	Three Months Ended		Nine Months Ended
September 30	2012	2011	2012	2011

Net Income Attributable to Common Stockholders
Amounts attributable to continuing operations	$ 148	$ 139	$ 308	$ 372
Amounts attributable to discontinued operations	-	-	7	2
Net income available to common stockholders	$ 148	$ 139	$ 315	$ 374

Income Attributable to Noncontrolling Interests
Amounts attributable to continuing operations	$ 1	$ 1	$ 2	$ 2
Amounts attributable to discontinued operations	-	-	-	-
Income attributable to noncontrolling interests	$ 1	$ 1	$ 2	$ 2

Basic Earnings Per Average Common Share
Basic earnings from continuing operations	$ 0.56	$ 0.55	$ 1.18	$ 1.48
Basic earnings from discontinued operations	-	-	0.03	0.01
Basic earnings attributable to common stock	$ 0.56	$ 0.55	$ 1.21	$ 1.49

Diluted Earnings Per Average Common Share
Diluted earnings from continuing operations	$ 0.55	$ 0.53	$ 1.14	$ 1.42
Diluted earnings from discontinued operations	-	-	0.03	0.01
Diluted earnings attributable to common stock	$ 0.55	$ 0.53	$ 1.17	$ 1.43

Dividends Declared Per Common Share	$ 0.24	$ 0.21	$ 0.72	$ 0.63

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

Consolidated Statements of Comprehensive Income

(Unaudited)


					In Millions
	Three Months Ended			Nine Months Ended
September 30	2012	2011		2012	2011

Net Income Attributable to CMS Energy
Net income	$ 149	$ 140		$ 317	$ 376
Income attributable to noncontrolling interests	1	1		2	2
Net income attributable to CMS Energy	148	139		315	374

Retirement Benefits Liability
Retirement benefits liability adjustments, net of tax of
$-, $1, $-, and $1	1	-		3	1

Investments
Unrealized gain (loss) on investments, net of tax of
$1, $-, $1, and $-	1	(2	)	3	(1	)

Other Comprehensive Income	2	(2	)	6	-

Total Comprehensive Income	$ 150	$ 137		$ 321	$ 374

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

Consolidated Statements of Cash Flows

(Unaudited)

			In Millions
Nine Months Ended September 30	2012		2011

Cash Flows from Operating Activities
Net income	$ 317		$ 376
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	440		404
Deferred income taxes and investment tax credit	193		149
Postretirement benefits expense	141		124
Other non-cash operating activities	51		65
Postretirement benefits contributions	(54	)	(56	)
Changes in other assets and liabilities
Decrease in accounts receivable, notes receivable, and accrued revenue	99		295
Increase in inventories	(83	)	(106	)
Decrease in deferred property taxes	140		133
Increase (decrease) in accounts payable	(16	)	10
Decrease in accrued expenses	(251	)	(227	)
Decrease (increase) in other current and non-current assets	1		(23	)
Increase (decrease) in other current and non-current liabilities	(44	)	51
Net cash provided by operating activities	934		1,195

Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)	(861	)	(624	)
Cost to retire property	(32	)	(43	)
Increase in EnerBank loans receivable	(32	)	(60	)
Other investing activities	(13	)	(25	)
Net cash used in investing activities	(938	)	(752	)

Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	1,300		375
Proceeds from EnerBank notes, net	25		58
Issuance of common stock	27		26
Retirement of long-term debt	(1,166	)	(300	)
Payment of DOE liability	-		(43	)
Payment of common stock dividends	(188	)	(159	)
Payment of capital and finance lease obligations and other financing costs	(27	)	(26	)
Net cash used in financing activities	(29	)	(69	)

Net Increase (Decrease) in Cash and Cash Equivalents, Including Assets Held for Sale	(33	)	374
Decrease in Cash and Cash Equivalents Included in Assets Held for Sale	-		2

Net Increase (Decrease) in Cash and Cash Equivalents	(33	)	376
Cash and Cash Equivalents, Beginning of Period	161		247

Cash and Cash Equivalents, End of Period	$ 128		$ 623

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

Consolidated Balance Sheets

(Unaudited)

ASSETS


		In Millions
	September 30	December 31
	2012	2011

Current Assets
Cash and cash equivalents	$ 128	$ 161
Restricted cash and cash equivalents	31	27
Accounts receivable and accrued revenue, less allowances of $30 in
2012 and $35 in 2011	667	869
Notes receivable	28	49
Accounts receivable – related parties	11	10
Accrued power supply revenue	15	-
Inventories at average cost
Gas in underground storage	986	929
Materials and supplies	99	92
Generating plant fuel stock	187	166
Deferred income taxes	-	24
Deferred property taxes	119	187
Regulatory assets	27	1
Prepayments and other current assets	62	50
Total current assets	2,360	2,565

Plant, Property, and Equipment
Plant, property, and equipment, gross	15,103	14,751
Less accumulated depreciation and amortization	5,047	4,901
Plant, property, and equipment, net	10,056	9,850
Construction work in progress	1,134	783
Total plant, property, and equipment	11,190	10,633

Other Non-current Assets
Regulatory assets	2,273	2,466
Accounts and notes receivable, less allowances of $5 in 2012 and 2011	512	462
Investments	56	50
Other	217	276
Total other non-current assets	3,058	3,254

Total Assets	$ 16,608	$ 16,452

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LIABILITIES AND EQUITY


			In Millions
	September 30		December 31
	2012		2011

Current Liabilities
Current portion of long-term debt, capital and finance lease obligations	$ 510		$ 1,057
Accounts payable	491		575
Accounts payable – related parties	9		9
Accrued rate refunds	17		30
Accrued interest	64		101
Accrued taxes	83		282
Deferred income taxes	52		-
Regulatory liabilities	122		125
Other current liabilities	137		159
Total current liabilities	1,485		2,338

Non-current Liabilities
Long-term debt	6,711		6,040
Non-current portion of capital and finance lease obligations	155		167
Regulatory liabilities	1,939		1,875
Postretirement benefits	1,291		1,289
Asset retirement obligations	264		254
Deferred investment tax credit	44		46
Deferred income taxes	1,156		1,035
Other non-current liabilities	323		336
Total non-current liabilities	11,883		11,042

Commitments and Contingencies (Notes 3, 4, 5, 7, and 8)

Equity
Common stockholders equity
Common stock, authorized 350.0 shares; outstanding 263.9 shares in 2012
and 254.1 shares in 2011	3		3
Other paid-in capital	4,662		4,627
Accumulated other comprehensive loss	(43	)	(49	)
Accumulated deficit	(1,426	)	(1,553	)
Total common stockholders equity	3,196		3,028
Noncontrolling interests	44		44
Total equity	3,240		3,072

Total Liabilities and Equity	$ 16,608		$ 16,452

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

Consolidated Statements of Changes in Equity

(Unaudited)

							In Millions
	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011

Total Equity at Beginning of Period	$ 3,155		$ 3,002		$ 3,072		$ 2,837

Common Stock
At beginning of period	3		3		3		2
Common stock issued	-		-		-		1
At end of period	3		3		3		3

Other Paid-in Capital
At beginning of period	4,664		4,621		4,627		4,588
Common stock issued	7		7		38		35
Common stock reissued	-		-		6		5
Common stock repurchased	(9	)	(6	)	(9	)	(6	)
At end of period	4,662		4,622		4,662		4,622

Accumulated Other Comprehensive Loss
At beginning of period	(45	)	(38	)	(49	)	(40	)
Retirement benefits liability
At beginning of period	(46	)	(38	)	(48	)	(39	)
Retirement benefits liability adjustments	1		-		3		1
At end of period	(45	)	(38	)	(45	)	(38	)
Investments
At beginning of period	2		1		-		-
Unrealized gain (loss) on investments	1		(2	)	3		(1	)
At end of period	3		(1	)	3		(1	)
Derivative instruments
At beginning and end of period	(1	)	(1	)	(1	)	(1	)
At end of period	(43	)	(40	)	(43	)	(40	)

Accumulated Deficit
At beginning of period	(1,511	)	(1,628	)	(1,553	)	(1,757	)
Net income attributable to CMS Energy	148		139		315		374
Common stock dividends declared	(63	)	(53	)	(188	)	(159	)
At end of period	(1,426	)	(1,542	)	(1,426	)	(1,542	)

Noncontrolling Interests
At beginning of period	44		44		44		44
Income attributable to noncontrolling interests	1		1		2		2
Distributions and other changes in noncontrolling interests	(1	)	(1	)	(2	)	(2	)
At end of period	44		44		44		44

Total Equity at End of Period	$ 3,240		$ 3,087		$ 3,240		$ 3,087

The accompanying notes are an integral part of these statements.

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Consumers Energy Company

Consolidated Statements of Income

(Unaudited)

							In Millions
	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011

Operating Revenue	$ 1,448		$ 1,397		$ 4,405		$ 4,688

Operating Expenses
Fuel for electric generation	166		175		382		442
Purchased and interchange power	379		362		1,019		954
Purchased power – related parties	23		24		65		64
Cost of gas sold	74		88		734		1,038
Maintenance and other operating expenses	284		286		827		824
Depreciation and amortization	137		119		436		401
General taxes	51		38		165		153
Total operating expenses	1,114		1,092		3,628		3,876

Operating Income	334		305		777		812

Other Income (Expense)
Interest income	-		2		2		6
Interest and dividend income – related parties	1		1		1		1
Allowance for equity funds used during construction	2		1		6		4
Other income	3		3		14		16
Other expense	(11	)	(3	)	(16	)	(8	)
Total other income (expense)	(5	)	4		7		19

Interest Charges
Interest on long-term debt	56		62		175		188
Other interest expense	4		5		12		14
Allowance for borrowed funds used during construction	(1	)	(1	)	(3	)	(3	)
Total interest charges	59		66		184		199

Income Before Income Taxes	270		243		600		632
Income Tax Expense	107		88		239		232

Net Income	163		155		361		400
Preferred Stock Dividends	1		1		2		2

Net Income Available to Common Stockholder	$ 162		$ 154		$ 359		$ 398

The accompanying notes are an integral part of these statements.

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Consumers Energy Company

Consolidated Statements of Comprehensive Income

(Unaudited)

				In Millions
	Three Months Ended		Nine Months Ended
September 30	2012	2011	2012	2011

Net Income	$ 163	$ 155	$ 361	$ 400

Retirement Benefits Liability
Retirement benefits liability adjustments, net of tax of $- for all periods presented	1	-	2	1

Investments
Unrealized loss on investments, net of tax (tax benefit) of $1, $-, $(1), and $(1)	-	-	-	(1	)

Other Comprehensive Income	1	-	2	-

Total Comprehensive Income	$ 164	$ 155	$ 363	$ 400

The accompanying notes are an integral part of these statements.

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Consumers Energy Company

Consolidated Statements of Cash Flows

(Unaudited)


In Millions

Nine Months Ended September 30	2012		2011

Cash Flows from Operating Activities
Net income	$ 361		$ 400
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	436		401
Deferred income taxes and investment tax credit	92		85
Postretirement benefits expense	138		117
Other non-cash operating activities	46		52
Postretirement benefits contributions	(51	)	(53	)
Changes in other assets and liabilities
Decrease in accounts receivable, notes receivable, and accrued revenue	98		283
Increase in inventories	(81	)	(109	)
Decrease in deferred property taxes	140		133
Increase (decrease) in accounts payable	(4	)	27
Decrease in accrued expenses	(143	)	(126	)
Decrease (increase) in other current and non-current assets	2		(25	)
Increase (decrease) in other current and non-current liabilities	(9	)	60
Net cash provided by operating activities	1,025		1,245

Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)	(857	)	(618	)
Cost to retire property	(32	)	(43	)
Other investing activities	(11	)	(22	)
Net cash used in investing activities	(900	)	(683	)

Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	725		-
Retirement of long-term debt	(703	)	(27	)
Payment of DOE liability	-		(43	)
Payment of common stock dividends	(302	)	(292	)
Payment of preferred stock dividends	(2	)	(2	)
Stockholder contribution	150		125
Payment of capital and finance lease obligations and other financing costs	(21	)	(21	)
Net cash used in financing activities	(153	)	(260	)

Net Increase (Decrease) in Cash and Cash Equivalents	(28	)	302

Cash and Cash Equivalents, Beginning of Period	85		71

Cash and Cash Equivalents, End of Period	$ 57		$ 373

The accompanying notes are an integral part of these statements.

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Consumers Energy Company

Consolidated Balance Sheets

(Unaudited)

ASSETS


In Millions


	September 30		December 31
	2012		2011

Current Assets
Cash and cash equivalents		$ 57		$ 85
Restricted cash and cash equivalents		30		26
Accounts receivable and accrued revenue, less allowances of $28 in 2012 and $33 in 2011		659		860
Notes receivable		-		23
Accounts receivable – related parties		1		1
Accrued power supply revenue		15		-
Inventories at average cost
Gas in underground storage		982		929
Materials and supplies		95		88
Generating plant fuel stock		186		164
Deferred property taxes		119		187
Regulatory assets		27		1
Prepayments and other current assets		56		43
Total current assets		2,227		2,407

Plant, Property, and Equipment
Plant, property, and equipment, gross		14,968		14,621
Less accumulated depreciation and amortization		4,988		4,846
Plant, property, and equipment, net		9,980		9,775
Construction work in progress		1,133		782
Total plant, property, and equipment		11,113		10,557

Other Non-current Assets
Regulatory assets		2,273		2,466
Accounts and notes receivable		26		1
Investments		31		35
Other		134		196
Total other non-current assets		2,464		2,698

Total Assets		$ 15,804		$ 15,662

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LIABILITIES AND EQUITY


In Millions

	September 30		December 31
	2012		2011

Current Liabilities
Current portion of long-term debt, capital and finance lease obligations		$ 62		$ 363
Accounts payable		480		561
Accounts payable – related parties		11		11
Accrued rate refunds		17		30
Accrued interest		34		73
Accrued taxes		198		287
Deferred income taxes		101		73
Regulatory liabilities		122		125
Other current liabilities		105		119
Total current liabilities		1,130		1,642

Non-current Liabilities
Long-term debt		4,308		3,987
Non-current portion of capital and finance lease obligations		155		167
Regulatory liabilities		1,939		1,875
Postretirement benefits		1,229		1,225
Asset retirement obligations		263		253
Deferred investment tax credit		44		46
Deferred income taxes		1,881		1,817
Other non-current liabilities		252		256
Total non-current liabilities		10,071		9,626

Commitments and Contingencies (Notes 3, 4, 5, 7, and 8)

Equity
Common stockholder equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods		841		841
Other paid-in capital		3,107		2,957
Accumulated other comprehensive loss		-		(2	)
Retained earnings		611		554
Total common stockholder equity		4,559		4,350
Preferred stock		44		44
Total equity		4,603		4,394

Total Liabilities and Equity		$ 15,804		$ 15,662

The accompanying notes are an integral part of these statements.

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Consumers Energy Company

Consolidated Statements of Changes in Equity

(Unaudited)


In Millions

	Three Months Ended				Nine Months Ended
September 30		2012		2011		2012		2011

Total Equity at Beginning of Period		$ 4,584		$ 4,353		$ 4,394		$ 4,180

Common Stock
At beginning and end of period		841		841		841		841

Other Paid-in Capital
At beginning of period		3,107		2,957		2,957		2,832
Stockholder contribution		-		-		150		125
At end of period		3,107		2,957		3,107		2,957

Accumulated Other Comprehensive Loss
At beginning of period		(1	)	-		(2	)	-
Retirement benefits liability
At beginning of period		(18	)	(15)		(19	)	(16	)
Retirement benefits liability adjustments		1		-		2		1
At end of period		(17	)	(15)		(17	)	(15	)
Investments
At beginning of period		17		15		17		16
Unrealized loss on investments		-		-		-		(1	)
At end of period		17		15		17		15
At end of period		-		-		-		-

Retained Earnings
At beginning of period		593		511		554		463
Net income		163		155		361		400
Common stock dividends declared		(144	)	(96)		(302	)	(292	)
Preferred stock dividends declared		(1	)	(1)		(2	)	(2	)
At end of period		611		569		611		569

Preferred Stock
At beginning and end of period		44		44		44		44

Total Equity at End of Period		$ 4,603		$ 4,411		$ 4,603		$ 4,411

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation

Consumers Energy Company

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

These interim consolidated financial statements have been prepared by CMS Energy and Consumers in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP. CMS Energy and Consumers have reclassified certain prior period amounts to conform to the presentation in the current period. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations, and cash flows for the periods presented. The notes to the consolidated financial statements and the related consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the 2011 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.

1: NEW ACCOUNTING STANDARDS

I MPLEMENTATION OF N EW A CCOUNTING S TANDARDS

ASU 2011-05, Presentation of Comprehensive Income: This standard, which became effective January 1, 2012 for CMS Energy and Consumers, eliminates the option of reporting other comprehensive income and its components on the statement of changes in equity. Prior to the implementation of this standard, both CMS Energy and Consumers used this option for their consolidated financial statements. Under the standard, entities are required to present either a single continuous statement of comprehensive income, containing both net income and components of other comprehensive income, or two separate consecutive statements. CMS Energy and Consumers have chosen to present two separate consecutive statements. This standard affects only the presentation of comprehensive income on CMS Energy’s and Consumers’ consolidated financial statements.

ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs: This standard, which became effective January 1, 2012 for CMS Energy and Consumers, is the result of a joint project of the Financial Accounting Standards Board and the International Accounting Standards Board. The primary objective of the standard is to ensure that fair value has the same meaning under GAAP and International Financial Reporting Standards and to establish common fair value measurement guidance in the two sets of standards. The standard does not change the overall fair value model in GAAP, but it amends various fair value principles and establishes additional disclosure requirements. This standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position, but did require additional disclosures.

2: FAIR VALUE MEASUREMENTS

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

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· Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, interest rates and yield curves observable at commonly quoted intervals, forward prices, credit risks, default rates, and inputs derived from or corroborated by observable market data.

· Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.

A SSETS AND L IABILITIES M EASURED AT F AIR V ALUE ON A R ECURRING B ASIS

Presented in the following tables are CMS Energy’s and Consumers’ assets and liabilities, by level within the fair value hierarchy, recorded at fair value on a recurring basis:


			In Millions
September 30, 2012	Total	Level 1	Level 2	Level 3
CMS Energy, including Consumers
Assets
Cash equivalents	$ 60	$ 60	$ -	$ -
Restricted cash equivalents	14	14	-	-
Nonqualified deferred compensation plan assets	5	5	-	-
SERP
Cash equivalents	1	1	-	-
Mutual funds	128	128	-	-
Derivative instruments
Commodity contracts	6	1	1	4
Total	$ 214	$ 209	$ 1	$ 4
Liabilities
Nonqualified deferred compensation plan liabilities	$ 5	$ 5	$ -	$ -
Derivative instruments
Commodity contracts	6	-	3	3
Total	$ 11	$ 5	$ 3	$ 3
Consumers
Assets
Cash equivalents	$ 17	$ 17	$ -	$ -
Restricted cash equivalents	13	13	-	-
CMS Energy common stock	31	31	-	-
Nonqualified deferred compensation plan assets	3	3	-	-
SERP
Cash equivalents	1	1	-	-
Mutual funds	86	86	-	-
Derivative instruments
Commodity contracts	4	-	-	4
Total	$ 155	$ 151	$ -	$ 4
Liabilities
Nonqualified deferred compensation plan liabilities	$ 3	$ 3	$ -	$ -
Total	$ 3	$ 3	$ -	$ -

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			In Millions
December 31, 2011	Total	Level 1	Level 2	Level 3
CMS Energy, including Consumers
Assets
Cash equivalents	$ 109	$ 109	$ -	$ -
Restricted cash equivalents	15	15	-	-
Nonqualified deferred compensation plan assets	4	4	-	-
SERP
Cash equivalents	1	1	-	-
Mutual funds	113	113	-	-
Derivative instruments
Commodity contracts	3	1	-	2
Total	$ 245	$ 243	$ -	$ 2
Liabilities
Nonqualified deferred compensation plan liabilities	$ 4	$ 4	$ -	$ -
Derivative instruments
Commodity contracts	7	-	3	4
Total	$ 11	$ 4	$ 3	$ 4
Consumers
Assets
Cash equivalents	$ 56	$ 56	$ -	$ -
Restricted cash equivalents	14	14	-	-
CMS Energy common stock	35	35	-	-
Nonqualified deferred compensation plan assets	3	3	-	-
SERP
Cash equivalents	1	1	-	-
Mutual funds	74	74	-	-
Derivative instruments
Commodity contracts	2	-	-	2
Total	$ 185	$ 183	$ -	$ 2
Liabilities
Nonqualified deferred compensation plan liabilities	$ 3	$ 3	$ -	$ -
Total	$ 3	$ 3	$ -	$ -

Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity.

Nonqualified Deferred Compensation Plan Assets: The nonqualified deferred compensation plan assets consist of various mutual funds that are valued using a market approach. CMS Energy and Consumers value these assets using the daily quoted net asset values that are publicly available and are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in other non-current assets on their consolidated balance sheets.

SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP cash equivalents consist of a money market fund with daily liquidity. The SERP invests in mutual funds that hold primarily fixed-income instruments of varying maturities. In order to meet their investment objectives, the funds hold investment-grade debt securities, and may invest a portion of their assets in high-yield securities, foreign debt, and derivative instruments. CMS Energy and Consumers value these funds using the daily quoted net asset values that are publicly available and are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report their SERP assets in other non-current assets on their consolidated balance sheets. For additional details about SERP securities, see Note 7: Financial Instruments.

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Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what is owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report these liabilities in other non-current liabilities on their consolidated balance sheets.

Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices, as well as derivatives valued using Level 2 inputs, including commodity forward prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy and Consumers have classified certain derivatives as Level 3 since the fair value measurements incorporate assumptions that cannot be observed or confirmed through market transactions.

The most significant derivatives classified as Level 3 are a power option sold by CMS ERM and FTRs held by Consumers. The power option sold by CMS ERM is valued using unobservable assumptions about price volatility and the pricing differential between the delivery point and the nearest active market. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements. Under regulatory accounting, all changes in fair value associated with FTRs are deferred as regulatory assets or liabilities until the instruments are settled. In valuing their derivative instruments not classified as Level 1, CMS Energy and Consumers may incorporate adjustments for credit risk, or the risk of nonperformance, as deemed appropriate. CMS Energy and Consumers apply credit risk adjustments, where appropriate, to the net receivable from or payable to each counterparty. For additional details about derivative contracts, see Note 8: Derivative Instruments.

A SSETS AND L IABILITIES M EASURED AT F AIR V ALUE ON A R ECURRING B ASIS USING S IGNIFICANT L EVEL 3 I NPUTS

Presented in the following tables are reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS Energy and Consumers:


					In Millions
	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011
CMS Energy, including Consumers
Balance at beginning of period	$ 3		$ -		$ (2	)	$ (3)
Total gains (losses) included in earnings 1	(1	)	(1	)	1		(1)
Total gains (losses) offset through regulatory accounting	1		(1	)	8		1
Purchases	-		-		-		1
Settlements	(2	)	1		(6	)	1
Balance at end of period	$ 1		$ (1	)	$ 1		$ (1)
Unrealized gains (losses) included in earnings relating to
assets and liabilities still held at end of period 1	$ (1	)	$ (1	)	$ 1		$ -
Consumers
Balance at beginning of period	$ 5		$ 3		$ 2		$ 1
Total gains (losses) offset through regulatory accounting	1		(1	)	8		1
Purchases	-		-		-		1
Settlements	(2	)	-		(6	)	(1)
Balance at end of period	$ 4		$ 2		$ 4		$ 2

1 CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair value measurements in earnings as a component of operating revenue or maintenance and other operating expenses on its consolidated statements of income.

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3: CONTINGENCIES AND COMMITMENTS

CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could have a material effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter.

CMS E NERGY C ONTINGENCIES

Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications which compile and report index prices. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy.

Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, are named as defendants in various lawsuits arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Colorado, Kansas, Missouri, and Wisconsin. The following provides more detail on these proceedings:

· In 2005, CMS Energy, CMS MST, and CMS Field Services were named as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas allegedly purchased from defendants.

· In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas reporting activities.

· Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas reporting activities. Plaintiffs are seeking full refund damages.

· A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute.

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The plaintiffs are seeking full consideration damages, plus exemplary damages and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new complaint in the U.S. District Court for the Eastern District of Michigan. In 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants’ motion to dismiss the Michigan complaint on statute-of-limitations grounds and all CMS Energy defendants have been dismissed from the Arandell (Michigan) action.

· Another class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

· In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001.

After removal to federal court, all of the cases described above were transferred to the MDL. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS Energy defendants remained parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. In 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case and the Arandell (Wisconsin) case was reinstated against CMS ERM. In July 2011, all claims against remaining CMS Energy defendants in the MDL cases were dismissed based on FERC preemption. Plaintiffs have filed appeals in all of the cases. The issues on appeal are whether the district court erred in dismissing the cases based on FERC preemption and denying the plaintiffs’ motions for leave to amend their complaints to add a federal Sherman Act antitrust claim. The plaintiffs did not appeal the dismissal of CMS Energy as a defendant in these cases, but other CMS Energy entities remain as defendants. Oral argument on the appeal was held before the Ninth Circuit Court in San Francisco in October 2012.

These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could have a material adverse impact on CMS Energy’s liquidity, financial condition, and results of operations.

Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDEQ, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of response activities, including constructing a leachate collection system in one area where CKD-impacted groundwater was entering Little Traverse Bay. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project. In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an Administrative Order on Consent under Superfund, and the EPA approved a Removal Action Work Plan to address contamination issues. A number of remediation measures were subsequently completed. In June 2012, CMS Energy and the MDEQ finalized an agreement that established the final remedies and the future release criteria at the site. CMS Energy is in the process of completing all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit issued in 2010. This permit requires renewal every five years.

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Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. In October 2010, CMS Land and other parties received a demand for payment from the EPA in the amount of $7 million, plus interest, whereby the EPA is seeking recovery, as allowed under Superfund, of the EPA’s response costs incurred at the Bay Harbor site. CMS Land communicated to the EPA in November 2010 that it does not believe that this is a valid claim.

CMS Energy has recorded a cumulative charge related to Bay Harbor of $226 million, which includes accretion expense. At September 30, 2012, CMS Energy had a recorded liability of $64 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities at December 31, 2010. The undiscounted amount of the remaining obligation is $85 million. CMS Energy expects to pay $4 million during the remainder of 2012, $10 million in 2013, $5 million in 2014, $4 million in 2015, $4 million in 2016, and the remaining amount thereafter on long-term liquid disposal and operating and maintenance costs.

CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:

· a significant increase in the cost of the present long-term water disposal strategy;

· requirements to alter the present long-term water disposal strategy upon expiration of the NPDES permit if the MDEQ or EPA identify a more suitable alternative;

· an increase in the number of contamination areas;

· the nature and extent of contamination;

· delays in the receipt of requested permits;

· delays following the receipt of any requested permits due to legal appeals of third parties;

· unanticipated difficulties in meeting the technical commitments in the agreement with the MDEQ;

· additional or new legal or regulatory requirements; or

· new or different landowner claims.

Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial results. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter.

Equatorial Guinea Tax Claim: In January 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $142 million in taxes, plus interest, in connection with the sale. CMS Energy has concluded that the government’s tax claim is without merit. The government of Equatorial Guinea indicated through a request for arbitration in October 2011 that it still intends to pursue its claim. CMS Energy is vigorously contesting the claim, and cannot predict the financial impact or outcome of this matter.

Panhandle Tax Indemnification: CMS Energy recorded a liability in 2003 for an indemnification provided in conjunction with the sale of Panhandle. As of March 31, 2012 the statute of limitations had expired for this indemnification. Accordingly, CMS Energy eliminated the liability during the three months ended March 31, 2012 and recognized an after-tax benefit of $7 million in discontinued operations.

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C ONSUMERS E LECTRIC U TILITY C ONTINGENCIES

Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.

Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites will be between $4 million and $7 million. At September 30, 2012, Consumers had a recorded liability of $4 million, the minimum amount in the range of its estimated probable NREPA liability.

Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party at the Kalamazoo River Superfund site. The notification claimed that the EPA has reason to believe Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. Consumers responded to the EPA in 2010, stating that it has no information showing that it disposed of PCBs or arranged for disposal or treatment of PCB-containing material at portions of the site and requesting further information from the EPA before Consumers would commit to perform or finance cleanup activities at the site. In April 2011, Consumers received a follow-up letter from the EPA requesting that Consumers, as a potentially responsible party at the Kalamazoo River Superfund site, agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek. The letter also indicated that under Sections 106 and 107 of Superfund, Consumers may be liable for reimbursement of the EPA’s costs and potential penalties for noncompliance with any unilateral order that the EPA may issue requiring performance under the removal action plan. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. In August 2011, the EPA announced that it would proceed with the removal action plan and would continue to pursue potentially responsible parties to perform or pay for some or all of the work. The EPA has provided limited information regarding Consumers’ potential responsibility for contamination at the site and has not yet given an indication of the share of any cleanup costs for which Consumers could be held responsible. Consumers continues to investigate the EPA’s claim that it disposed of PCBs or arranged for disposal or treatment of PCB-containing material at portions of the site. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river.

Based on its experience, Consumers estimates that its share of the total liability for other known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At September 30, 2012, Consumers had a recorded liability of $2 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable Superfund liability.

The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund liability.

Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non-PCB material. Consumers has had several communications with the

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EPA regarding this matter. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.

Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received an NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. Consumers has responded formally to the NOV/FOV denying the allegations. In addition, in 2008, Consumers received an NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to review under the NSR. The EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits from the EPA or state regulatory agencies to modify their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.

Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Projects, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. The potential costs relating to these matters could be material and the extent of cost recovery cannot be reasonably estimated. Although Consumers cannot predict the financial impact or outcome of these matters, Consumers expects that it would be able to recover some or all of the costs in rates, consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

Nuclear Matters : The matters discussed in this section relate to Consumers’ previously owned nuclear generating plants.

In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which Consumers and other utilities participated, had not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel. A number of court decisions have supported the right of utilities to pursue damage claims in the U.S. Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002.

In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120 million. In September 2011, Consumers filed an application with the MPSC regarding the regulatory treatment of the settlement amount. For further information, see Note 4: Regulatory Matters.

As part of the agreement with the DOE, Consumers settled its liability to the DOE to fund the disposal of spent nuclear fuel used at Palisades and Big Rock before 1983. This liability, which totaled $163 million, comprised $44 million collected from customers for spent nuclear fuel disposal fees and $119 million of interest accrued on those fees, and was to be paid no later than when the DOE began accepting delivery of spent nuclear fuel. CMS Energy and Consumers classified the liability as long-term debt on their consolidated balance sheets.

Following the settlement, Consumers terminated its letter of credit to Entergy, which Consumers had provided as security for its retained obligation to the DOE in connection with its sale of Palisades and the Big Rock ISFSI to Entergy in 2007.

In its November 2010 electric rate case order, the MPSC had directed Consumers to establish an independent trust fund for the amount payable to the DOE. Following its settlement with the DOE, Consumers petitioned the MPSC to relieve it of the obligation to fund the trust.

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C ONSUMERS G AS U TILITY C ONTINGENCIES

Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site.

At September 30, 2012, Consumers had a recorded liability of $125 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. Consumers based the discount rate on the interest rate for 20-year U.S. Treasury securities at December 31, 2011. The undiscounted amount of the remaining obligation is $137 million. Consumers expects to incur remediation and other response activity costs during the remainder of 2012 and in each of the next four years as follows:


				In Millions
	2012	2013	2014	2015	2016
Consumers
Remediation and other response activity costs	$ 7	$ 11	$ 11	$ 20	$ 11

Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.

Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At September 30, 2012, Consumers had a regulatory asset of $153 million related to the MGP sites.

C ONSUMERS O THER C ONTINGENCIES

Other Environmental Matters: Consumers initiated preliminary investigations during 2012 at a number of potentially contaminated sites it presently owns with the intention of determining whether any contamination exists and the extent of any identified contamination. The sites to be investigated include combustion turbine sites, generating sites, compressor stations, and above-ground storage tanks. Evidence of contamination led Consumers to plan remedial investigations and certain interim response measures at some of these sites. The cost of these activities has been incorporated into Consumers’ estimated liability for NREPA sites. Consumers will continue its preliminary investigations at other potentially contaminated sites through 2013. Consumers cannot predict an outcome at this stage of the investigations.

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G UARANTEES

Presented in the following table are CMS Energy’s and Consumers’ guarantees at September 30, 2012:


					In Millions
Guarantee Description	Issue Date	Expiration Date	Maximum Obligation		Carrying Amount
CMS Energy, including Consumers
Indemnity obligations from asset sales and		Various through
other agreements	Various	September 2029	$ 512	1	$ 15
		Various through
Guarantees	Various	March 2021	60		1
Consumers
		Various through
Indemnity obligations and other guarantees	Various	September 2029	$ 30		$ 1

1 The majority of this amount arises from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy, other than Consumers, indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.

Presented in the following table is additional information regarding CMS Energy’s and Consumers’ guarantees:


Guarantee Description	How Guarantee Arose	Events That Would Require Performance
CMS Energy, including Consumers
Indemnity obligations from asset	Stock and asset sale	Findings of misrepresentation, breach of
sales and other agreements	agreements	warranties, tax claims, and other specific
		events or circumstances

Guarantees	Normal operating activity	Nonperformance or non-payment by a
		subsidiary under a related contract
Consumers
Indemnity obligations and other guarantees	Normal operating activity	Nonperformance or claims made by third
		party under a related contract

CMS Energy, Consumers, and certain other subsidiaries of CMS Energy also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.

O THER C ONTINGENCIES

Other: In addition to the matters disclosed in this Note and Note 4: Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non-compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial condition, or liquidity.

4: REGULATORY MATTERS

Rate matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers and have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.

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There are multiple appeals pending that involve various issues concerning cost allocation among customers, the allocation of refunds among customer groups, and the adequacy of the evidence supporting the recovery of Smart Energy investments. Consumers is unable to predict the outcome of these appeals.

C ONSUMERS’ E LECTRIC U TILITY

Electric Rate Case: In June 2011, Consumers filed an application with the MPSC seeking an annual rate increase of $195 million, based on a 10.7 percent authorized return on equity, in order to recover new investment in system reliability, environmental compliance, and technology enhancements. Consumers self-implemented an annual rate increase of $118 million in December 2011, subject to refund with interest. In June 2012, the MPSC authorized an annual rate increase of $118 million, based on a 10.3 percent authorized return on equity. Consumers filed an application in September 2012 to reconcile the total revenues collected during self-implementation to those that would have been collected under final rates. This reconciliation requests that the MPSC find that no refund is required.

The annual rate increase authorized by the MPSC included a $20 million increase in annual depreciation expense resulting from the new depreciation rates that the MPSC approved in June 2011 in Consumers’ electric depreciation case. These new depreciation rates went into effect with the June 2012 electric rate case order.

Also included in the authorized annual rate increase was the recovery of $14 million of development costs associated with Consumers’ proposed 830-MW coal-fueled plant. The MPSC authorized Consumers to recover these costs over a three-year period. Consumers canceled its plans to build this plant in December 2011, after having written off its development costs of $22 million in 2010. At June 30, 2012, Consumers recorded a $14 million regulatory asset for the recovery of these costs with a corresponding benefit recognized in earnings. In September 2012, a party in Consumers’ electric rate case filed an appeal with the Michigan Court of Appeals to dispute the MPSC’s conclusion that authorized Consumers to recover these costs.

Big Rock Nuclear Decommissioning: The MPSC and FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock decommissioning trust fund because the collection period for an MPSC-authorized decommissioning surcharge expired.

In 2010, the MPSC concluded that certain revenues collected during a statutory rate freeze from 2001 through 2003 should have been deposited in the Big Rock decommissioning trust fund and ordered Consumers to refund $85 million of revenue collected in excess of decommissioning costs plus interest. Consumers completed this refund in 2011. Consumers filed an appeal with the Michigan Court of Appeals in 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should be subject to refund. In January 2012, the Michigan Court of Appeals rejected Consumers’ appeal. In March 2012, Consumers filed an appeal with the Michigan Supreme Court to dispute this decision. The Michigan Supreme Court denied Consumers’ appeal in June 2012.

Consumers has an $85 million regulatory asset recorded for $30 million it paid to Entergy to assume ownership responsibility for the Big Rock ISFSI and for $55 million of nuclear fuel storage costs it incurred as a result of the DOE’s failure to accept nuclear fuel. Consumers filed a complaint against the DOE in 2002 for this failure. In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120 million; Consumers recorded a $120 million regulatory liability related to this settlement. In September 2011, Consumers filed an application with the MPSC requesting authority to utilize $85 million of the settlement amount as recovery of its regulatory asset, and to refund to customers $23 million previously collected through rates for spent nuclear fuel costs. Various parties are opposing this request, seeking additional refunds, or seeking other relief. In September 2012, the administrative

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law judge issued a proposal for decision recommending that Consumers refund $44 million of the settlement proceeds to customers and retain the remaining balance of $76 million. Consumers has filed exceptions to this recommendation.

Electric Revenue Decoupling Mechanism: The MPSC’s 2009 electric rate case order authorized Consumers to implement an electric revenue decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended through November 2011 in the 2010 electric rate case order, allowed Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. Various parties filed appeals concerning Consumers’ electric revenue decoupling mechanism.

In March 2011, Consumers filed its first reconciliation of the electric revenue decoupling mechanism with the MPSC, requesting recovery of $27 million from customers for the period December 2009 through November 2010. Consumers filed its second reconciliation of the electric revenue decoupling mechanism in March 2012, requesting recovery of $32 million from customers for the period December 2010 through November 2011.

In April 2012, the Michigan Court of Appeals ruled in an appeal filed by ABATE that disputed the MPSC’s decision to authorize an electric revenue decoupling mechanism for Detroit Edison. The Court concluded that the MPSC lacks statutory authority to approve or direct the use of a revenue decoupling mechanism for electric providers. As a result, Consumers determined that it no longer met the accounting criteria for recognition of a regulatory asset under an alternative revenue program, and wrote off its $59 million electric revenue decoupling mechanism regulatory asset at March 31, 2012.

In August 2012, the MPSC dismissed Consumers’ reconciliation of the electric revenue decoupling mechanism for the period December 2009 through November 2010. Consumers’ second reconciliation remains pending with the MPSC. Consumers expects the MPSC to dismiss this reconciliation.

Renewable Energy Plan: In June 2011, Consumers filed with the MPSC its second annual report and reconciliation for its renewable energy plan, requesting approval of its plan costs for 2010. In March 2012, the MPSC approved Consumers’ renewable energy plan reconciliation.

Consumers filed its third annual report and reconciliation with the MPSC in June 2012, requesting approval of its reconciliation of renewable energy plan costs for 2011.

In October 2011, Consumers filed an application for the biennial review and approval of its renewable energy plan. In May 2012, the MPSC approved Consumers’ settlement agreement in this case, reducing the renewable energy surcharge by an annual amount of $3 million, to $20 million.

Energy Optimization Plan: In August 2011, Consumers filed an amended energy optimization plan with the MPSC, requesting approval of the additional spending necessary to exceed the statutory savings targets for 2012 through 2015 specified in the 2008 Energy Law. The MPSC approved Consumers’ amended energy optimization plan in April 2012.

In May 2012, Consumers filed its third annual report and reconciliation for its energy optimization plan, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2011. In September 2012, the MPSC approved Consumers’ settlement agreement and authorized Consumers to collect $15 million from customers as an incentive payment for exceeding statutory savings targets under both its gas and electric energy optimization plans during 2011. Consumers will collect this incentive over seven months beginning in June 2013.

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C ONSUMERS’ G AS U TILITY

Gas Rate Case: In September 2011, Consumers filed an application with the MPSC seeking an annual rate increase of $49 million, based on a 10.7 percent authorized return on equity, in order to recover investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers. Consumers self-implemented an annual rate increase of $23 million in March 2012, subject to refund with interest.

In June 2012, the MPSC approved Consumers’ settlement agreement and authorized an annual rate increase of $16 million, based on a 10.3 percent authorized return on equity. In September 2012, Consumers filed an application to reconcile the total revenues collected during self-implementation to those that would have been collected under the final rates. As a result of the reconciliation, which found that a refund was required, Consumers had a $2 million regulatory liability recorded at September 30, 2012.

Gas Revenue Decoupling Mechanism: The MPSC’s 2009 gas rate case order authorized Consumers to implement a gas revenue decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended through April 2012, allowed Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from the difference between the level of average sales per customer adopted in the order and actual average weather-adjusted sales per customer. This mechanism was not affected by the Michigan Court of Appeals decision on electric decoupling.

In September 2011, Consumers filed its first reconciliation of the gas revenue decoupling mechanism with the MPSC, requesting recovery of $16 million from customers for the period June 2010 through May 2011. The matter remains pending before the MPSC. Certain parties have filed in opposition to this reconciliation.

Consumers filed its second reconciliation of the gas revenue decoupling mechanism in August 2012, requesting recovery of $17 million from customers for the period June 2011 through April 2012.

At September 30, 2012, Consumers had a $33 million regulatory asset recorded for gas revenue decoupling. If the MPSC were to reject all or a major portion of Consumers’ requested recovery from its gas revenue decoupling mechanism or if the recovery period were to be substantially delayed, Consumers could be required to write off all or a portion of the related regulatory asset.

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5: FINANCINGS AND CAPITALIZATION

Presented in the following table is a summary of major long-term debt transactions during the nine months ended September 30, 2012:

	Principal			Issue/Retirement
	(In Millions)	Interest Rate		Date	Maturity Date
Debt Issuances
CMS Energy
Senior notes	$ 300	5.05	%	March 2012	March 2022
Term loan facility 1,2	180	variable		February 2012 and July 2012	December 2016
CMS Energy Total	480
Consumers
FMB	375	2.85	%	May 2012	May 2022
Term loan facility 3	350	variable		June 2012	March 2013
Tax-exempt bonds 4	68	variable		August 2012	April 2018
Tax-exempt bonds 4	35	variable		August 2012	April 2035
Consumers Total	828
Total	$ 1,308

Debt Retirements
CMS Energy
Contingently convertible senior notes 5	$ 226	2.88	%	January 2012 and April 2012	December 2024
Trust Preferred Securities	29	7.75	%	February 2012	July 2027
Senior notes	150	variable		July 2012	January 2013
CMS Energy Total	405
Consumers
FMB	300	5.00%		February 2012	February 2012
FMB	375	5.38%		May 2012	April 2013
Tax-exempt bonds 4	68	variable		August 2012	April 2018
Tax-exempt bonds 4	35	variable		August 2012	April 2035
Consumers Total	778
Total	$ 1,183

1 Outstanding borrowings bear interest at an annual interest rate of LIBOR plus 2.5 percent.

2 CMS Energy used these proceeds to retire the 7.75 percent Trust Preferred Securities and floating-rate senior notes due January 2013.

3 In June 2012, Consumers entered into a short-term credit agreement permitting Consumers to borrow up to $375 million. Outstanding borrowings bear interest at an annual interest rate of LIBOR plus 0.8 percent.

4 In August 2012, Consumers utilized the Michigan Strategic Fund for the issuance of $68 million and $35 million of tax-exempt Michigan Strategic Fund revenue bonds. The bonds, which are backed by letters of credit and collateralized by Consumers’ FMBs, are subject to optional tender by the holders that would result in remarketing. Consumers used the proceeds to redeem $103 million of tax-exempt bonds in August 2012.

5 CMS Energy’s contingently convertible notes. See the “Contingently Convertible Securities” section in this Note for further discussion of the conversions.

In July 2012, Consumers executed a bond purchase agreement under which it will issue, in a December 2012 private placement, $52 million of 3.19 percent FMBs due 2024, $35 million of 3.39 percent FMBs due 2027, and $263 million of 4.31 percent FMBs due 2042.

Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at September 30, 2012:


							In Millions
Expiration Date	Amount of Facility		Amount Borrowed		Letters of Credit Outstanding		Amount Available
CMS Energy
March 31, 2016 1	$ 550		$ -		$ 2		$ 548
Consumers
March 31, 2016 2	$ 500		$ -		$ 2		$ 498
April 18, 2017 2		150		-		-		150
September 9, 2014 2		30		-		30		-

1 Obligations under this facility are secured by Consumers common stock. CMS Energy’s average borrowings during the nine months ended September 30, 2012 were $1 6 million, with a weighted-average annual interest rate of 2.26 percent, representing LIBOR plus 2.00 percent.

2 Obligations under this facility are secured by FMBs of Consumers.

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Short-term Borrowings: Under Consumers’ revolving accounts receivable sales program, Consumers may transfer up to $250 million of accounts receivable, subject to certain eligibility requirements. These transactions are accounted for as short-term secured borrowings. At September 30, 2012, $250 million of accounts receivable were eligible for transfer, and no accounts receivable had been transferred under the program. During the nine months ended September 30, 2012, Consumers’ average short-term borrowings totaled $11 million, with a weighted average annual interest rate of 0.9 percent.

Contingently Convertible Securities: Presented in the following table are the significant terms of CMS Energy’s contingently convertible securities at September 30, 2012:


Security	Maturity	Outstanding (In Millions)	Adjusted Conversion Price	Adjusted Trigger Price
5.50% senior notes	2029	$ 172	$ 13.94	$ 18.12

During 20 of the last 30 trading days ended September 30, 2012, the adjusted trigger-price contingencies were met for the contingently convertible senior notes, and as a result, the senior notes are convertible at the option of the note holders for the three months ending December 31, 2012.

Presented in the following table are details about conversions of contingently convertible securities during the nine months ended September 30, 2012:


	Conversion Date	Principal Converted (In Millions)		Conversion Value per $1,000 of Principal		Shares of Common Stock Issued on Settlement	Cash Paid on Settlement (In Millions)
2.875% senior notes due 2024	January 2012	$ 73		$ 1,738.99		2,464,138	$ 73
	April 2012		153		1,774.98	5,381,349		153

Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at September 30, 2012, payment of common stock dividends by CMS Energy was limited to $1.4 billion.

Under the provisions of its articles of incorporation, at September 30, 2012, Consumers had $550 million of unrestricted retained earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.

For the nine months ended September 30, 2012, CMS Energy received $302 million of common stock dividends from Consumers.

Issuance of Common Stock: In June 2011, CMS Energy entered into a continuous equity offering program under which CMS Energy may sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $50 million. In June 2012, under this program, CMS Energy issued 650,235 shares of common stock at an average price of $23.07 per share, resulting in net proceeds of $15 million. CMS Energy has issued a total of 1,413,160 shares of common stock under this program, resulting in net proceeds of $30 million.

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6: EARNINGS PER SHARE – CMS ENERGY

Presented in the following table are CMS Energy’s basic and diluted EPS computations based on income from continuing operations:


In Millions, Except Per Share Amounts
	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011
Income Available to Common Stockholders
Income from continuing operations		$ 149		$ 140		$ 310		$ 374
Less income attributable to noncontrolling interests		1		1		2		2
Income from Continuing Operations Available to
Common Stockholders – Basic and Diluted		$ 148		$ 139		$ 308		$ 372
Average Common Shares Outstanding
Weighted average shares – basic		262.9		251.3		259.9		250.5
Add dilutive contingently convertible securities		5.1		11.3		7.2		11.4
Add dilutive non-vested stock awards and options		1.0		0.6		1.0		0.4
Add dilutive convertible debentures		-		0.7		-		-
Weighted average shares – diluted		269.0		263.9		268.1		262.3
Income from Continuing Operations per Average
Common Share Available to Common Stockholders
Basic		$ 0.56		$ 0.55		$ 1.18		$ 1.48
Diluted		0.55		0.53		1.14		1.42

C ONTINGENTLY C ONVERTIBLE S ECURITIES

When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy common stock, exceeds the principal value of that security.

N ON-VESTED S TOCK A WARDS

CMS Energy’s non-vested stock awards are composed of participating and non-participating securities. The participating securities accrue cash dividends when common stockholders receive dividends. Since the recipient is not required to return the dividends to CMS Energy if the recipient forfeits the award, the non-vested stock awards are considered participating securities. As such, the participating non-vested stock awards were included in the computation of basic EPS. The non-participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non-participating securities are also forfeited. Accordingly, the non-participating awards and stock dividends were included in the computation of diluted EPS, but not basic EPS.

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C ONVERTIBLE D EBENTURES

CMS Energy redeemed all of its outstanding 7.75 percent Trust Preferred Securities in February 2012. For each of the nine-month periods ended September 30, 2012 and September 30, 2011, the Trust Preferred Securities would have increased diluted EPS had they been included in the calculation. Using the if-converted method, the debentures would have had the following impacts on the calculation of diluted EPS:


In Millions
	Nine Months Ended
September 30	2012		2011
Increase to numerator from assumed reduction in
interest expense		$ -		$ 1
Increase to denominator from assumed conversion of
debentures into common shares		0.2		0.7

7: FINANCIAL INSTRUMENTS

Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’s and Consumers’ financial instruments that are not recorded at fair value. The table does not include information on cash, cash equivalents, short-term accounts and notes receivable, short-term investments, and current liabilities since the carrying amount of these items approximate their fair values because of their short-term nature. For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 2: Fair Value Measurements.


In Millions
	September 30, 2012										December 31, 2011
	Carrying		Fair Value								Carrying
	Amount		Total		Level 1		Level 2		Level 3		Amount		Fair Value
CMS Energy, including Consumers
Securities held to
maturity		$ 8		$ 9		$ -		$ 9		$ -		$ 7		$ 7
Notes receivable 1		513		541		-		-		541		480		504
Long-term debt 2		7,199		8,251		-		8,251		-		7,073		8,025
Consumers
Long-term debt 3		$ 4,348		$ 4,987		$ -		$ 4,987		$ -		$ 4,326		$ 4,882

1 Includes current portion of notes receivable of $27 million at September 30, 2012 and $19 million at December 31, 2011.

2 Includes current portion of long-term debt of $488 million at September 30, 2012 and $1,033 million at December 31, 2011.

3 Includes current portion of long-term debt of $40 million at September 30, 2012 and $339 million at December 31, 2011.

Notes receivable consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates market interest rates as well as assumptions about the remaining life of the loans and credit risk.

CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At September 30, 2012 and December 31, 2011, CMS Energy’s long-term debt included $103 million principal amount that was supported by third-party credit enhancements. This entire principal amount was at Consumers.

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Presented in the following table are CMS Energy’s and Consumers’ investment securities classified as available for sale or held to maturity:


In Millions
	September 30, 2012								December 31, 2011
			Unrealized		Unrealized		Fair				Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
CMS Energy, including Consumers
Available for sale
SERP
Mutual funds		$ 124		$ 4		$ -		$ 128		$ 113		$ -		$ -		$ 113
Held to maturity
Debt securities		8		1		-		9		7		-		-		7
Consumers
Available for sale
SERP
Mutual funds		$ 84		$ 2		$ -		$ 86		$ 74		$ -		$ -		$ 74
CMS Energy
common stock		6		25		-		31		7		28		-		35

The mutual funds classified as available for sale hold primarily fixed-income instruments of varying maturities. During the nine months ended September 30, 2012, CMS Energy contributed $13 million to the SERP, which included a contribution of $9 million by Consumers. The contributions were used to acquire additional shares in the mutual funds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank.

Sales activity for CMS Energy’s and Consumers’ investment securities was insignificant for each of the three-month and nine-month periods ended September 30, 2012 and 2011. In January 2012, based on a donation commitment made in 2011, Consumers transferred shares of CMS Energy common stock to a related charitable foundation and recognized a gain of $5 million in income to reflect the excess of fair value over cost of the stock donated. In January 2011, based on a donation commitment made in 2010, Consumers transferred shares of CMS Energy common stock to a related charitable foundation and recognized a gain of $4 million in income to reflect the excess of fair value over cost of the stock donated.

8: DERIVATIVE INSTRUMENTS

In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, options, and swaps. The contracts used to manage market risks may qualify as derivative instruments. Neither CMS Energy nor Consumers enters into any derivatives for trading purposes.

Commodity Price Risk : In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:

· they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas);

· they qualify for the normal purchases and sales exception; or

· there is not an active market for the commodity.

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Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal it purchases. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. Since Consumers is subject to regulatory accounting, the resulting fair value gains and losses would be deferred as regulatory assets or liabilities and would not affect net income.

Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion-related transmission charges. FTRs are accounted for as derivatives. Under regulatory accounting, all changes in fair value associated with these instruments are deferred as regulatory assets or liabilities until the instruments are settled.

CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives.

The fair value of CMS Energy’s commodity contracts not designated as hedging instruments and recorded in other assets was $6 million at September 30, 2012 and $3 million at December 31, 2011. The fair value of Consumers’ commodity contracts not designated as hedging instruments and recorded in other assets was $4 million at September 30, 2012 and $2 million at December 31, 2011. The fair value of CMS Energy’s commodity contracts not designated as hedging instruments and recorded in other liabilities was $6 million at September 30, 2012 and $7 million at December 31, 2011. Consumers did not have any contracts recorded as liabilities at September 30, 2012 and December 31, 2011.

Presented in the following table are the location and amount of the gains (losses) on derivatives recognized in CMS Energy’s consolidated statements of income for its derivatives not designated as hedging instruments:

In Millions

	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011
CMS Energy
Commodity contracts
Operating revenue	$ (2	)	$ (1	)	$ 1		$ (1	)
Fuel for electric generation	-		-		(2	)	-
Cost of gas sold	1		-		1		-
Purchased and interchange power	-		-		(1	)	-
Total CMS Energy	$ (1	)	$ (1	)	$ (1	)	$ (1	)

Consumers’ gains on FTRs deferred as regulatory liabilities were $1 million for the three months ended September 30, 2012 and $8 million for the nine months ended September 30, 2012. Consumers’ losses on FTRs deferred as regulatory assets were $1 million for the three months ended September 30, 2011 and its gains on FTRs deferred as regulatory liabilities were $1 million for the nine months ended September 30, 2011.

CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were $4 million at September 30, 2012 and $4 million at December 31, 2011.

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9: NOTES RECEIVABLE

Presented in the following table are details of CMS Energy’s and Consumers’ current and non-current notes receivable:


In Millions
	September 30, 2012		December 31, 2011
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$ 27		$ 19
Other		1		30
Non-current
EnerBank notes receivable, net of allowance for loan losses		486		461
Other		26		1
Total notes receivable		$ 540		$ 511
Consumers
Current
Other		$ -		$ 23
Non-current
Other		26		1
Total notes receivable		$ 26		$ 24

EnerBank notes receivable are unsecured consumer installment loans for financing home improvements.

The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

Presented in the following table are the changes in the allowance for loan losses:


					In Millions

	Three Months Ended				Nine Months Ended
September 30	2012		2011		2012		2011
Balance at beginning of period	$ 5		$ 5		$ 5		$ 5
Charge-offs	(2	)	(1	)	(4	)	(4	)
Recoveries	1		-		1		1
Provision for loan losses	1		1		3		3
Balance at end of period	$ 5		$ 5		$ 5		$ 5

Loans that are 30 days or more past due are considered delinquent. Presented in the following table is the delinquency status of EnerBank’s consumer loans:

In Millions

	Past Due 30-59 Days		Past Due 60-89 Days		Past Due Over 90 Days		Total Delinquent		Current		Total Outstanding
September 30, 2012	$ 1		$ 1		$ 1		$ 3		$ 510		$ 513
December 31, 2011		1		-		1		2		478		480

At September 30, 2012 and December 31, 2011, $1 million of EnerBank’s loans had been modified as troubled debt restructurings.

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10: RETIREMENT BENEFITS

CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different plans.

Presented in the following tables are the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:


				In Millions

	Pension
	Three Months Ended		Nine Months Ended
September 30	2012	2011	2012	2011
CMS Energy, including Consumers
Net periodic pension cost
Service cost	$ 12	$ 12	$ 36	$ 36
Interest expense	24	25	74	75
Expected return on plan assets	(31)	(28)	(94)	(84)
Amortization of:
Net loss	19	16	57	47
Prior service cost	1	1	4	4
Net periodic pension cost	$ 25	$ 26	$ 77	$ 78
Consumers
Net periodic pension cost
Service cost	$ 12	$ 12	$ 35	$ 35
Interest expense	24	24	72	73
Expected return on plan assets	(30)	(27)	(91)	(82)
Amortization of:
Net loss	18	15	55	46
Prior service cost	1	1	4	4
Net periodic pension cost	$ 25	$ 25	$ 75	$ 76

CMS Energy’s and Consumers’ expected long-term rate of return on Pension Plan assets is 7.75 percent. For the twelve months ended September 30, 2012, the actual return on Pension Plan assets was 18.6 percent, and for the twelve months ended September 30, 2011, the actual return was 2.0 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.


In Millions

	OPEB
	Three Months Ended		Nine Months Ended
September 30	2012	2011	2012	2011
CMS Energy, including Consumers
Net periodic OPEB cost
Service cost	$ 8	$ 7	$ 24	$ 20
Interest expense	21	20	62	58
Expected return on plan assets	(17)	(17)	(50)	(50)
Amortization of:
Net loss	12	7	35	23
Prior service credit	(5)	(5)	(15)	(15)
Net periodic OPEB cost	$ 19	$ 12	$ 56	$ 36
Consumers
Net periodic OPEB cost
Service cost	$ 7	$ 7	$ 23	$ 20
Interest expense	20	19	60	56
Expected return on plan assets	(15)	(15)	(46)	(46)
Amortization of:
Net loss	12	7	35	23
Prior service credit	(5)	(5)	(15)	(15)
Net periodic OPEB cost	$ 19	$ 13	$ 57	$ 38

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11: INCOME TAXES

Presented in the following table is a reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate from continuing operations, excluding noncontrolling interests:


Nine Months Ended September 30	2012		2011
CMS Energy, including Consumers
U.S. federal income tax rate	35.0	%	35.0	%
Increase (decrease) in income taxes from:
MCIT law change, net of federal expense	-		(5.9	)
Other state and local income taxes, net of federal benefit	4.7		3.4
Other, net	-		(1.4	)
Effective income tax rate	39.7	%	31.1	%
Consumers
U.S. federal income tax rate	35.0	%	35.0	%
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit	5.0		3.1
Other, net	(0.2	)	(1.4	)
Effective income tax rate	39.8	%	36.7	%

In May 2012, the Internal Revenue Service completed its audit of CMS Energy and its subsidiaries for 2008 and 2009, as well as its audit of research and development tax credit claims for 2001 through 2009. The audits resulted in a $45 million increase in the net operating loss carryforward. The impact to net income as a result of the completion of the audits was $1 million.

12: REPORTABLE SEGMENTS

Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate the performance of each segment based on its contribution to net income available to CMS Energy’s common stockholders. The reportable segments for CMS Energy and Consumers are:

CMS Energy:

· electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;

· gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan;

· enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and

· other, including EnerBank, corporate interest and other expenses, and discontinued operations.

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Consumers:

· electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;

· gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and

· other, including a consolidated special-purpose entity for the sale of accounts receivable.

Presented in the following tables is financial information by reportable segment:


In Millions

	Three Months Ended		Nine Months Ended
September 30	2012	2011	2012	2011
CMS Energy, including Consumers
Operating Revenue
Electric utility	$ 1,239	$ 1,180	$ 3,073	$ 3,026
Gas utility	209	217	1,332	1,662
Enterprises	44	56	136	161
Other	15	11	42	34
Total Operating Revenue – CMS Energy	$ 1,507	$ 1,464	$ 4,583	$ 4,883
Consumers
Operating Revenue
Electric utility	$ 1,239	$ 1,180	$ 3,073	$ 3,026
Gas utility	209	217	1,332	1,662
Total Operating Revenue – Consumers	$ 1,448	$ 1,397	$ 4,405	$ 4,688
CMS Energy, including Consumers
Net Income (Loss) Available to Common Stockholders
Electric utility	$ 165	$ 159	$ 297	$ 309
Gas utility	(3)	(5)	61	88
Enterprises	5	4	9	36
Other	(19)	(19)	(52)	(59)
Total Net Income Available to Common Stockholders –
CMS Energy	$ 148	$ 139	$ 315	$ 374
Consumers
Net Income (Loss) Available to Common Stockholder
Electric utility	$ 165	$ 159	$ 297	$ 309
Gas utility	(3)	(5)	61	88
Other	-	-	1	1
Total Net Income Available to Common Stockholder –
Consumers	$ 162	$ 154	$ 359	$ 398

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		In Millions

	September 30, 2012	December 31, 2011
CMS Energy, including Consumers
Plant, Property, and Equipment, Gross
Electric utility	$ 10,647	$ 10,400
Gas utility	4,306	4,206
Enterprises	112	109
Other	38	36
Total Plant, Property, and Equipment, Gross – CMS Energy	$ 15,103	$ 14,751
Consumers
Plant, Property, and Equipment, Gross
Electric utility	$ 10,647	$ 10,400
Gas utility	4,306	4,206
Other	15	15
Total Plant, Property, and Equipment, Gross – Consumers	$ 14,968	$ 14,621
CMS Energy, including Consumers
Total Assets
Electric utility 1	$ 10,135	$ 9,938
Gas utility 1	5,032	4,956
Enterprises	176	242
Other	1,265	1,316
Total Assets – CMS Energy	$ 16,608	$ 16,452
Consumers
Total Assets
Electric utility 1	$ 10,135	$ 9,938
Gas utility 1	5,032	4,956
Other	637	768
Total Assets – Consumers	$ 15,804	$ 15,662

1 Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE S ABOUT MARKET RISK

There have been no material changes to market risk as previously disclosed in Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in the 2011 Form 10-K.

ITEM 4. CONTROLS AND PROC EDURES

CMS E NERGY

Disclosure Controls and Procedures: CMS Energy’s management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, CMS Energy’s CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.

Internal Control Over Financial Reporting: There have not been any changes in CMS Energy’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

C ONSUMERS

Disclosure Controls and Procedures: Consumers’ management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Consumers’ CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.

Internal Control Over Financial Reporting: There have not been any changes in Consumers’ internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

CMS Energy and Consumers are parties to various lawsuits and regulatory matters in the ordinary course of business. For information regarding material legal proceedings, including updates to information reported under Part I – Item 3. Legal Proceedings, in the 2011 Form 10-K, see Part I – Item 1 – Note 3: Contingencies and Commitments, and Note 4: Regulatory Matters.

ITEM 1A. RISK FACTORS

There have been no material changes to the Risk Factors as previously disclosed in Part I – Item 1A. Risk Factors, in the 2011 Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Unregistered Sales of Equity Securities

None.

(c) Issuer Repurchases of Equity Securities

Presented in the following table are CMS Energy’s repurchases of equity securities for the three months ended September 30, 2012:


			Total Number of	Maximum Number of
			Shares Purchased as	Shares That May Yet Be
	Total Number of		Part of Publicly	Purchased Under Publicly
	Shares	Average Price	Announced Plans or	Announced Plans or
Period	Purchased 1	Paid per Share	Programs	Programs
July 1, 2012 to July 31, 2012	3,132	$ 23.51	-	-
August 1, 2012 to
August 31, 2012	356,989	23.89	-	-
September 1, 2012 to
September 30, 2012	-	-	-	-
Total	360,121	$ 23.89	-	-

1 Common shares were purchased to satisfy the minimum statutory income tax withholding obligation for common shares that have vested under the Performance Incentive Stock Plan. Shares repurchased have a value based on the market price on the vesting date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The agreements included as exhibits to this Form 10-Q filing are included solely to provide information regarding the terms of the agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers, or other parties to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect. The statements were qualified by disclosures of the parties to each of the agreements that may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied to other investors. Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated. The representations and warranties may not describe the actual state of affairs of the parties to each agreement.

Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com, and through the SEC’s website at www.sec.gov.

Exhibits		Description
4.1	—	119 th Supplemental Indenture dated as of August 3, 2012 between Consumers and The Bank of New York Mellon, as Trustee
12.1	—	Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
12.2	—	Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
31.1	—	CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	—	CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	—	Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.4	—	Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	—	CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	—	Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS 1	—	XBRL Instance Document
101.SCH 1	—	XBRL Taxonomy Extension Schema
101.CAL 1	—	XBRL Taxonomy Extension Calculation Linkbase
101.DEF 1	—	XBRL Taxonomy Extension Definition Linkbase
101.LAB 1	—	XBRL Taxonomy Extension Labels Linkbase
101.PRE 1	—	XBRL Taxonomy Extension Presentation Linkbase

1 The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.”

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SIGNATURES

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

		CMS ENERGY CORPORATION
		(Registrant)



Dated: October 25, 2012	By:	/s/ Thomas J. Webb

		Thomas J. Webb
		Executive Vice President and
		Chief Financial Officer



		CONSUMERS ENERGY COMPANY
		(Registrant)



Dated: October 25, 2012	By:	/s/ Thomas J. Webb

		Thomas J. Webb
		Executive Vice President and
		Chief Financial Officer

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EXHIBITS

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CMS ENERGY’S AND CONSUMERS’ EXHIBIT INDEX

Exhibits		Description
4.1	—	119 th Supplemental Indenture dated as of August 3, 2012 between Consumers and The Bank of New York Mellon, as Trustee
12.1	—	Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
12.2	—	Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
31.1	—	CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	—	CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	—	Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.4	—	Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	—	CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	—	Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS 1	—	XBRL Instance Document
101.SCH 1	—	XBRL Taxonomy Extension Schema
101.CAL 1	—	XBRL Taxonomy Extension Calculation Linkbase
101.DEF 1	—	XBRL Taxonomy Extension Definition Linkbase
101.LAB 1	—	XBRL Taxonomy Extension Labels Linkbase
101.PRE 1	—	XBRL Taxonomy Extension Presentation Linkbase

1 The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.”

Exhibit 4.1

ONE HUNDRED NINETEENTH SUPPLEMENTAL INDENTURE

Providing among other things for

FIRST MORTGAGE BONDS,

2012-2 Collateral Series (Interest Bearing)

and

FIRST MORTGAGE BONDS,

2012-3 Collateral Series (Interest Bearing)

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

Dated as of August 3, 2012

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

CONSUMERS ENERGY COMPANY

THE BANK OF NEW YORK MELLON,

TRUSTEE

Counterpart ____ of 90

THIS ONE HUNDRED NINETEENTH SUPPLEMENTAL INDENTURE, dated as of August 3, 2012 (herein sometimes referred to as “ this Supplemental Indenture ”), made and entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized and existing under the laws of the State of Michigan, with its principal executive office and place of business at One Energy Plaza, in Jackson, Jackson County, Michigan 49201, formerly known as Consumers Power Company (hereinafter sometimes referred to as the “ Company ”), and THE BANK OF NEW YORK MELLON (formerly known as The Bank of New York), a New York banking corporation, with its corporate trust offices at 101 Barclay St., New York, New York 10286 (hereinafter sometimes referred to as the “ Trustee ”), as Trustee under the Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine corporation (hereinafter sometimes referred to as the “ Maine corporation ”), and City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter sometimes referred to as the “ Predecessor Trustee ”), securing bonds issued and to be issued as provided therein (hereinafter sometimes referred to as the “ Indenture ”),

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

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

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

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

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

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

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

WHEREAS, effective November 11, 2001, The Chase Manhattan Bank merged with Morgan Guaranty Trust Company of New York and the surviving corporation was renamed JPMorgan Chase Bank; and

WHEREAS, effective November 13, 2004, the name of JPMorgan Chase Bank was changed to JPMorgan Chase Bank, N.A.; and

WHEREAS, effective October 2, 2006, The Bank of New York succeeded JPMorgan Chase Bank, N.A. as Trustee under the Indenture; and

WHEREAS, effective July 1, 2008, the name of The Bank of New York was changed to The Bank of New York Mellon; and

WHEREAS, the Indenture was executed and delivered for the purpose of securing such bonds as may from time to time be issued under and in accordance with the terms of the Indenture, the aggregate principal amount of bonds to be secured thereby being limited to $6,000,000,000 at any one time outstanding (except as provided in Section 2.01 of the Indenture), and the Indenture describes and sets forth the property conveyed thereby and is filed in the Office of the Secretary of State of the State of Michigan and is of record in the Office of the Register of Deeds of each county in the State of Michigan in which this Supplemental Indenture is to be recorded; and

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

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

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

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

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

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

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

WHEREAS, the Company has entered into a Reimbursement Agreement dated as of August 3, 2012 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Reimbursement Agreement - $35 million Series 2005 Bonds ”) with the banks party thereto from time to time and JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent for the banks thereunder and pursuant to such Reimbursement Agreement - $35 million

Series 2005 Bonds, the Company has agreed to issue to JPM, for the benefit of the banks, as evidence of and security for the Obligations (as such term is defined in the Reimbursement Agreement - $35 million Series 2005 Bonds), a new series of bonds under the Indenture; and

WHEREAS, the Company has entered into a Reimbursement Agreement dated as August 3, 2012 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Reimbursement Agreement - $67.7 million Series 2008 Bonds ”) with the banks party thereto from time to time and JPM, as administrative agent for the banks thereunder and pursuant to such Reimbursement Agreement - $67.7 million Series 2008 Bonds, the Company has agreed to issue to JPM, for the benefit of the banks, as evidence of and security for the Obligations (as such term is defined in the Reimbursement Agreement - $67.7 million Series 2008 Bonds), a new series of bonds under the Indenture; and

WHEREAS, for such purposes the Company desires to issue two new series of bonds, to be designated: i) First Mortgage Bonds, 2012-2 Collateral Series (Interest Bearing); and ii) First Mortgage Bonds, 2012-3 Collateral Series (Interest Bearing), which bonds (a) shall also bear the descriptive title “ First Mortgage Bond ” (hereinafter provided for and hereinafter sometimes referred to as the “ 2012-2 Collateral Bonds ” and “ 2012-3 Collateral Bonds ”, respectively and sometimes referred to as collectively the “ Collateral Bonds ”), (b) are to be issued as registered bonds without coupons, (c) are to bear interest at the respective rate per annum specified herein and (d) are to mature on the applicable Termination Date (as such term is defined in the Reimbursement Agreement - $35 million Series 2005 and the Reimbursement Agreement - $67.7 million Series 2008, respectively); and

WHEREAS, the 2012-2 Collateral Bonds and the Trustee’s Authentication Certificate thereon are to be substantially in the following form, to wit:

[FORM OF REGISTERED BOND

OF THE 2012-2 COLLATERAL BONDS]

[FACE]

CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2012-2 COLLATERAL SERIES (INTEREST BEARING)

No. 1

$35,486,111.22

$35,000,000 Michigan Strategic Fund Variable Rate Limited Obligation Revenue Bonds (Consumers Energy Company Project), Series 2005 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Reimbursement Agreement - $35 million Series 2005 ”), or registered assigns, on the Maturity Date (defined below) the principal sum of Thirty-Five Million Four Hundred Eighty Six Thousand One Hundred Eleven Dollars and Twenty-Two Cents ($35,486,111.22) or such lesser principal amount as shall be equal to the aggregate principal amount of the Obligations (as defined in the Reimbursement Agreement - $35 million Series 2005), outstanding on the Termination Date (as defined in the Reimbursement Agreement -$35 million Series 2005) (the “ Maturity Date ”), but not in excess, however, of the principal amount of this bond, and to pay interest thereon at the Interest Rate (as defined below) until the principal hereof is paid or duly made available for payment on the Maturity Date, or, in the event of redemption of this bond, until the redemption date, or in the event of default in the payment of the principal hereof, until the Company’s obligations with respect to the payment of such principal shall be discharged as provided in the Indenture (as defined on the reverse hereof). For all purposes of this bond, any reference to the principal amount of the Obligations shall mean Obligations of any nature, other than interest thereon and fees due under the Reimbursement Agreement - $35 million Series 2005. Interest on this bond shall be payable on each Interest Payment Date (as defined below), commencing on the first Interest Payment Date next succeedingAugust 3, 2012. If the Maturity Date falls on a day which is not a Business Day, as defined below, principal and any interest payable with respect to the Maturity Date will be paid on the immediately preceding Business Day. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions, be paid to the person in whose name this bond (or one or more predecessor bonds) is registered at the close of business on the Record Date (as defined below); provided, however, that interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. Should the Company default in the payment of interest (“ Defaulted Interest ”), the Defaulted Interest shall be paid to the person in whose name this bond (or one or more predecessor bonds) is registered on a subsequent record date fixed by the Company, which subsequent record date shall be fifteen (15) days prior to the payment of such Defaulted Interest. As used herein, (A) “ Business Day ” shall mean any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system; (B) “ Interest Payment Date ” shall mean each date on which Obligations constituting interest and/or fees are due and payable from time to time pursuant to the Reimbursement Agreement - $35 million Series 2005; (C) “ Interest Rate ” shall mean a rate of interest per annum, adjusted as necessary, to result in an interest payment equal to the aggregate amount of Obligations constituting interest and fees due under the Reimbursement Agreement - $35 million Series 2005 on the applicable Interest Payment Date; and (D) “ Record Date ” with respect to any Interest Payment Date shall mean the day (whether or not a Business Day) immediately next preceding such Interest Payment Date. Payment of the principal of and interest on this bond will be made in immediately available funds at the office or agency of the Company maintained for that purpose in the City of Jackson, Michigan, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

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

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

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

CONSUMERS ENERGY COMPANY

Dated:

By:
Printed:
Title:

Attest:

TRUSTEE’S AUTHENTICATION CERTIFICATE

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

THE BANK OF NEW YORK MELLON, Trustee

By:

Authorized Officer

[REVERSE]

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND
2012-2 COLLATERAL SERIES (INTEREST BEARING)

This bond is one of the bonds of a series designated as First Mortgage Bonds, 2012-2 Collateral Series (Interest Bearing) (sometimes herein referred to as the “ 2012-2 Collateral Bonds ”) issued under and in accordance with and secured by an Indenture dated as of September 1, 1945, given by the Company (or its predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers Trust Company (The Bank of New York Mellon, successor) (hereinafter sometimes referred to as the “ Trustee ”), together with indentures supplemental thereto, heretofore or hereafter executed, to which indenture and indentures supplemental thereto (hereinafter referred to collectively as the “ Indenture ”) reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights, duties and immunities thereunder of the Trustee and the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the limitations on such rights. By the terms of the Indenture, the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest and in other respects as provided in the Indenture.

The 2012-2 Collateral Bonds are to be issued and delivered to the Agent in order to evidence and secure the obligation of the Company under the Reimbursement Agreement - $35 million Series 2005 to make payments to the Banks under the Reimbursement Agreement - $35 million Series 2005 and to provide the Banks the benefit of the lien of the Indenture with respect to the 2012-2 Collateral Bonds.

The obligation of the Company to make payments with respect to the principal of 2012-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payments shall be due, the then due principal of the Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Obligations means that if any payment is made on the principal of the Obligations, a corresponding payment obligation with respect to the principal of the 2012-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Obligations discharges the outstanding obligation with respect to such Obligations. No such payment of principal shall reduce the principal amount of the 2012-2 Collateral Bonds.

The obligation of the Company to make payments with respect to the interest on 2012-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 means that if any payment is made on the interest and/or fees under the Reimbursement Agreement - $35 million

Series 2005, a corresponding payment obligation with respect to the interest on the 2012-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 discharges the outstanding obligation under the Reimbursement Agreement - $35 million Series 2005 with respect to such interest and/or fees.

The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of, and interest on, this bond, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2012-2 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Agent in connection with the Obligations pursuant to the Reimbursement Agreement - $35 million Series 2005, and (iii) the amount of the arrearage.

If an Event of Default (as defined in the Reimbursement Agreement - $35 million Series 2005) with respect to the payment of the principal of and interest on and fees due under the Obligations shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the principal of and interest on the 2012-2 Collateral Bonds equal to, with respect to principal, the amount of such unpaid principal of the Obligations (but in no event in excess of the principal amount of the 2012-2 Collateral Bonds) and, with respect to interest, the amount of such unpaid interest on and fees due under the Obligations.

This bond is not redeemable, except upon written demand of the Agent following the occurrence of an Event of Default under the Reimbursement Agreement - $35 million Series 2005 and a declaration of acceleration under Section 8.2 of the Reimbursement Agreement - $35 million Series 2005. This bond is not redeemable by the operation of the improvement fund or the maintenance and replacement provisions of the Indenture or with the proceeds of released property.

In case of certain defaults as specified in the Indenture, the principal of this bond may be declared or may become due and payable on the conditions, at the time, in the manner and with the effect provided in the Indenture. The holders of certain specified percentages of the bonds at the time outstanding, including in certain cases specified percentages of bonds of particular series, may in certain cases, to the extent and as provided in the Indenture, waive certain defaults thereunder and the consequences of such defaults.

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

(b) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce the percentage of the principal amount of the bonds the holders of which are required to approve any such supplemental indenture.

The Company reserves the right, without any consent, vote or other action by holders of the 2012-2 Collateral Bonds or any other series created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to reduce the percentage of the principal amount of bonds the holders of which are required to approve any supplemental indenture (other than any supplemental indenture which is subject to the proviso contained in the immediately preceding sentence) (a) from not less than seventy-five per centum (including sixty per centum of each series affected) to not less than a majority in principal amount of the bonds at the time outstanding or (b) in case fewer than all series are affected, not less than a majority in principal amount of the bonds of all affected series, voting together.

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

This bond shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

The Agent shall surrender this bond to the Trustee when all of the principal of, interest on and fees due under the Obligations arising under the Reimbursement Agreement - $35 million Series 2005, shall have been duly paid, and the Reimbursement Agreement - $35 million Series 2005 and Letter of Credit (as defined in the Reimbursement Agreement - $35 million Series 2005) issued pursuant thereto shall have been terminated.

[END OF FORM OF REGISTERED BOND

OF THE 2012-2 COLLATERAL BONDS]

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WHEREAS, the 2012-3 Collateral Bonds and the Trustee’s Authentication Certificate thereon are to be substantially in the following form, to wit:

[FORM OF REGISTERED BOND

OF THE 2012-3 COLLATERAL BONDS]

[FACE]

CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2012-3 COLLATERAL SERIES (INTEREST BEARING)

No. 1

$68,640,277.78

CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the “ Company ”), for value received, hereby promises to pay to JPMorgan Chase Bank, N.A., as administrative agent, (in such capacity, the “ Agent ”) for the Banks under and as defined in the Reimbursement Agreement, dated as of August 3, 2012 among the Company, the Banks named therein and from time to time party thereto, and the Agent entered into in connection with the $67,700,000 Michigan Strategic Fund Variable Rate Limited Obligation Refunding Revenue Bonds (Consumers Energy Company Project), Series 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Reimbursement Agreement - $67.7 million Series 2008 ”), or registered assigns, on the Maturity Date (defined below) the principal sum of Sixty-Eight Million Six Hundred Forty Thousand Two Hundred Seventy-Seven Dollars and Seventy-Eight Cents ($68,640,277.78) or such lesser principal amount as shall be equal to the aggregate principal amount of the Obligations (as defined in the Reimbursement Agreement - $67.7 million Series 2008), outstanding on the Termination Date (as defined in the Reimbursement Agreement - $67.7 million Series 2008) (the “ Maturity Date ”), but not in excess, however, of the principal amount of this bond, and to pay interest thereon at the Interest Rate (as defined below) until the principal hereof is paid or duly made available for payment on the Maturity Date, or, in the event of redemption of this bond, until the redemption date, or in the event of default in the payment of the principal hereof, until the Company’s obligations with respect to the payment of such principal shall be discharged as provided in the Indenture (as defined on the reverse hereof). For all purposes of this bond, any reference to the principal amount of the Obligations shall mean Obligations of any nature, other than interest thereon and fees due under the Reimbursement Agreement - $67.7 million Series 2008. Interest on this bond shall be payable on each Interest Payment Date (as defined below), commencing on the first Interest Payment Date next succeeding August 3, 2012. If the Maturity Date falls on a day which is not a Business Day, as defined below, principal and any interest payable with respect to the Maturity Date will be paid on the immediately preceding Business Day. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions, be paid to the person in whose name this bond (or one or more predecessor

bonds) is registered at the close of business on the Record Date (as defined below); provided, however, that interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. Should the Company default in the payment of interest (“ Defaulted Interest ”), the Defaulted Interest shall be paid to the person in whose name this bond (or one or more predecessor bonds) is registered on a subsequent record date fixed by the Company, which subsequent record date shall be fifteen (15) days prior to the payment of such Defaulted Interest. As used herein, (A) “ Business Day ” shall mean any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system; (B) “ Interest Payment Date ” shall mean each date on which Obligations constituting interest and/or fees are due and payable from time to time pursuant to the Reimbursement Agreement - $67.7 million Series 2008; (C) “ Interest Rate ” shall mean a rate of interest per annum, adjusted as necessary, to result in an interest payment equal to the aggregate amount of Obligations constituting interest and fees due under the Reimbursement Agreement - $67.7 million Series 2008 on the applicable Interest Payment Date; and (D) “ Record Date ” with respect to any Interest Payment Date shall mean the day (whether or not a Business Day) immediately next preceding such Interest Payment Date. Payment of the principal of and interest on this bond will be made in immediately available funds at the office or agency of the Company maintained for that purpose in the City of Jackson, Michigan, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

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

CONSUMERS ENERGY COMPANY

Dated:

By:
Printed:
Title:

Attest:

TRUSTEE’S AUTHENTICATION CERTIFICATE

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

THE BANK OF NEW YORK MELLON, Trustee

By:

Authorized Officer

[REVERSE]

CONSUMERS ENERGY COMPANY

FIRST MORTGAGE BOND
2012-3 COLLATERAL SERIES (INTEREST BEARING)

This bond is one of the bonds of a series designated as First Mortgage Bonds, 2012-3 Collateral Series (Interest Bearing) (sometimes herein referred to as the “ 2012-3 Collateral Bonds ”) issued under and in accordance with and secured by an Indenture dated as of September 1, 1945, given by the Company (or its predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers Trust Company (The Bank of New York Mellon, successor) (hereinafter sometimes referred to as the “ Trustee ”), together with indentures supplemental thereto, heretofore or hereafter executed, to which indenture and indentures supplemental thereto (hereinafter referred to collectively as the “ Indenture ”) reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights, duties and immunities thereunder of the Trustee and the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the limitations on such rights. By the terms of the Indenture, the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest and in other respects as provided in the Indenture.

The 2012-3 Collateral Bonds are to be issued and delivered to the Agent in order to evidence and secure the obligation of the Company under the Reimbursement Agreement - $67.7 million Series 2008 to make payments to the Banks under the Reimbursement Agreement - $67.7 million Series 2008 and to provide the Banks the benefit of the lien of the Indenture with respect to the 2012-3 Collateral Bonds.

Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Obligations means that if any payment is made on the principal of the Obligations, a corresponding payment obligation with respect to the principal of the 2012-3 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Obligations discharges the outstanding obligation with respect to such Obligations. No such payment of principal shall reduce the principal amount of the 2012-3 Collateral Bonds.

The obligation of the Company to make payments with respect to the interest on 2012-3 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008 shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008 means that if any payment is made on the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008, a corresponding payment obligation with respect to the interest on the 2012-3 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008 discharges the outstanding obligation under the Reimbursement Agreement - $67.7 million Series 2008 with respect to such interest and/or fees.

The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of, and interest on, this bond, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2012-3 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Agent in connection with the Obligations pursuant to the Reimbursement Agreement - $67.7 million Series 2008, and (iii) the amount of the arrearage.

If an Event of Default (as defined in the Reimbursement Agreement - $67.7 million Series 2008) with respect to the payment of the principal of and interest on and fees due under the Obligations shall have occurred, it shall be deemed to be a default for purposes of Section 11.01 of the Indenture in the payment of the principal of and interest on the 2012-3 Collateral Bonds equal to, with respect to principal, the amount of such unpaid principal of the Obligations (but in no event in excess of the principal amount of the 2012-3 Collateral Bonds) and, with respect to interest, the amount of such unpaid interest on and fees due under the Obligations.

This bond is not redeemable, except upon written demand of the Agent following the occurrence of an Event of Default under the Reimbursement Agreement - $67.7 million Series 2008 and a declaration of acceleration under Section 8.2 of the Reimbursement Agreement - $67.7 million Series 2008. This bond is not redeemable by the operation of the improvement fund or the maintenance and replacement provisions of the Indenture or with the proceeds of released property.

the time outstanding, including in certain cases specified percentages of bonds of particular series, may in certain cases, to the extent and as provided in the Indenture, waive certain defaults thereunder and the consequences of such defaults.

The Company reserves the right, without any consent, vote or other action by holders of the 2012-3 Collateral Bonds or any other series created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to reduce the percentage of the principal amount of bonds the holders of which are required to approve any supplemental indenture (other than any supplemental indenture which is subject to the proviso contained in the immediately preceding sentence) (a) from not less than seventy-five per centum (including sixty per centum of each series affected) to not less than a majority in principal amount of the bonds at the time outstanding or (b) in case fewer than all series are affected, not less than a majority in principal amount of the bonds of all affected series, voting together.

The Agent shall surrender this bond to the Trustee when all of the principal of, interest on and fees due under the Obligations arising under the Reimbursement Agreement - $67.7 million

Series 2008, shall have been duly paid, and the Reimbursement Agreement - $67.7 million Series 2008 and Letter of Credit (as defined in the Reimbursement Agreement - $67.7 million Series 2008) issued pursuant thereto shall have been terminated.

[END OF FORM OF REGISTERED BOND

OF THE 2012-3 COLLATERAL BONDS]

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AND WHEREAS all acts and things necessary to make the 2012-2 Collateral Bonds and the 2012-3 Collateral Bonds (collectively the “ Collateral Bonds ”), when duly executed by the Company and authenticated by the Trustee or its agent and issued as prescribed in the Indenture, as heretofore supplemented and amended, and this Supplemental Indenture provided, the valid, binding and legal obligations of the Company, and to constitute the Indenture, as supplemented and amended as aforesaid, as well as by this Supplemental Indenture, a valid, binding and legal instrument for the security thereof, have been done and performed, and the creation, execution and delivery of this Supplemental Indenture and the creation, execution and issuance of bonds subject to the terms hereof and of the Indenture, as so supplemented and amended, have in all respects been duly authorized;

NOW, THEREFORE, in consideration of the premises, of the acceptance and purchase by the holders thereof of the bonds issued and to be issued under the Indenture, as supplemented and amended as above set forth, and of the sum of One Dollar duly paid by the Trustee to the Company, and of other good and valuable considerations, the receipt whereof is hereby acknowledged, and for the purpose of securing the due and punctual payment of the principal of and interest on all bonds now outstanding under the Indenture and the $35,486,111.22 principal amount of the 2012-2 Collateral Bonds and the $68,640,277.78 principal amount of the 2012-3 Collateral Bonds, and all other bonds which shall be issued under the Indenture, as supplemented and amended from time to time, and for the purpose of securing the faithful performance and observance of all covenants and conditions therein, and in any indenture supplemental thereto, set forth, the Company has given, granted, bargained, sold, released, transferred, assigned, hypothecated, pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and by these presents does give, grant, bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto The Bank of New York Mellon, as Trustee, as provided in the Indenture, and its successor or successors in the trust thereby and hereby created and to its or their assigns forever, all the right, title and interest of the Company in and to all the property, described in Section 13 hereof, together (subject to the provisions of Article X of the Indenture) with the tolls, rents, revenues, issues, earnings, income, products and profits thereof, excepting, however, the property, interests and rights specifically excepted from the lien of the Indenture as set forth in the Indenture.

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

SUBJECT, HOWEVER, with respect to such premises, property, franchises and rights, to excepted encumbrances as said term is defined in Section 1.02 of the Indenture, and subject also to all defects and limitations of title and to all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all said premises, property, franchises and rights hereby conveyed, assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its successor or successors in trust and their assigns forever;

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

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

SECTION 1. There is hereby created a series of bonds (the “ 2012-2 Collateral Bonds ”) designated as hereinabove provided, which shall also bear the descriptive title “First Mortgage Bond”, and the forms thereof shall be substantially as hereinbefore set forth (collectively, the “ 2005 Sample Bond ”). The 2012-2 Collateral Bonds shall be issued in the aggregate principal amount of $35,486,111.22, shall mature on the Termination Date (as such term is defined in the Reimbursement Agreement - $35 million Series 2005) and shall be issued only as registered bonds without coupons in denominations of $1,000 and integral multiples of one cent in excess

thereof. The serial numbers of the 2012-2 Collateral Bonds shall be such as may be approved by any officer of the Company, the execution thereof by any such officer either manually or by facsimile signature to be conclusive evidence of such approval. The 2012-2 Collateral Bonds are to be issued to and registered in the name of JPMorgan Chase Bank, N.A., as administrative agent for the Banks under and as defined in the Reimbursement Agreement - $35 million Series 2005 to evidence and secure any and all Obligations (as such term is defined in the Reimbursement Agreement - $35 million Series 2005) of the Company under the Reimbursement Agreement - $35 million Series 2005.

The 2012-2 Collateral Bonds shall bear interest as set forth in the 2005 Sample Bond. The principal of and the interest on said bonds shall be payable as set forth in the 2005 Sample Bond.

The obligation of the Company to make payments with respect to the principal of 2012-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due principal of the Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Obligations means that if any payment is made on the principal of the Obligations, a corresponding payment obligation with respect to the principal of the 2012-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Obligations discharges the outstanding obligation with respect to such Obligations. No such payment of principal shall reduce the principal amount of the 2012-2 Collateral Bonds.

For all purposes of the 2012-2 Collateral Bonds, any reference to the principal amount of the Obligations shall mean Obligations of any nature, other than interest thereon and fees due under the Reimbursement Agreement - $35 million Series 2005.

The obligation of the Company to make payments with respect to interest on 2012-2 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 means that if any payment is made on the interest and/or fees under the Reimbursement Agreement - $35 million Series 2005, a corresponding payment obligation with respect to the interest on the 2012-2 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees under the Reimbursement Agreement - $35 million Series 2005 discharges the outstanding obligation under the Reimbursement Agreement- $35 million Series 2005 with respect to such interest and/or fees.

The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on the 2012-2 Collateral Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2012-2 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the

Agent pursuant to the Reimbursement Agreement $35 million Series 2005, and (iii) the amount of the arrearage.

The 2012-2 Collateral Bonds shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

SECTION 2. There is hereby created a series of bonds (the “ 2012-3 Collateral Bonds ”) designated as hereinabove provided, which shall also bear the descriptive title “First Mortgage Bond”, and the forms thereof shall be substantially as hereinbefore set forth (collectively, the “ 2008 Sample Bond ”). The 2012-3 Collateral Bonds shall be issued in the aggregate principal amount of $68,640,277.78, shall mature on the Termination Date (as such term is defined in the Reimbursement Agreement - $67.7 million Series 2008) and shall be issued only as registered bonds without coupons in denominations of $1,000 and integral multiples of one cent in excess thereof. The serial numbers of the 2012-3 Collateral Bonds shall be such as may be approved by any officer of the Company, the execution thereof by any such officer either manually or by facsimile signature to be conclusive evidence of such approval. The 2012-3 Collateral Bonds are to be issued to and registered in the name of JPMorgan Chase Bank, N.A., as administrative agent for the Banks under and as defined in the Reimbursement Agreement - $67.7 million Series 2008 to evidence and secure any and all Obligations (as such term is defined in the Reimbursement Agreement - $67.7 million Series 2008) of the Company under the Reimbursement Agreement - $67.7 million Series 2008.

The 2012-3 Collateral Bonds shall bear interest as set forth in the 2008 Sample Bond. The principal of and the interest on said bonds shall be payable as set forth in the 2008 Sample Bond.

The obligation of the Company to make payments with respect to the principal of 2012-3 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due principal of the Obligations shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the Obligations means that if any payment is made on the principal of the Obligations, a corresponding payment obligation with respect to the principal of the 2012-3 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the Obligations discharges the outstanding obligation with respect to such Obligations. No such payment of principal shall reduce the principal amount of the 2012-3 Collateral Bonds.

For all purposes of the 2012-3 Collateral Bonds, any reference to the principal amount of the Obligations shall mean Obligations of any nature, other than interest thereon and fees due under the Reimbursement Agreement - $67.7 million Series 2008.

The obligation of the Company to make payments with respect to interest on 2012-3 Collateral Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the time that any such payment shall be due, the then due interest and/or fees under

the Reimbursement Agreement - $67.7 million Series 2008 shall have been fully or partially paid. Satisfaction of any obligation to the extent that payment is made with respect to the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008 means that if any payment is made on the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008, a corresponding payment obligation with respect to the interest on the 2012-3 Collateral Bonds shall be deemed discharged in the same amount as the payment with respect to the interest and/or fees under the Reimbursement Agreement - $67.7 million Series 2008 discharges the outstanding obligation under the Reimbursement Agreement - $67.7 million Series 2008 with respect to such interest and/or fees.

The Trustee may at any time and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and interest on the 2012-3 Collateral Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged unless and until the Trustee shall have received a written notice from the Agent stating (i) that timely payment of principal and interest on the 2012-3 Collateral Bonds has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Agent pursuant to the Reimbursement Agreement $67.7 million Series 2008, and (iii) the amount of the arrearage.

The 2012-3 Collateral Bonds shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, upon the surrender of such bonds at the Investor Services Department of the Company, as transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no charge shall be made upon any registration of transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company.

SECTION 3. The Collateral Bonds are not redeemable by the operation of the maintenance and replacement provisions of this Indenture or with the proceeds of released property.

SECTION 4. Upon the occurrence of an Event of Default under the Reimbursement Agreement - $35 million Series 2005 and the acceleration of the Obligations, the 2012-2 Collateral Bonds shall be redeemable in whole upon receipt by the Trustee of a written demand from the Agent stating that there has occurred under the Reimbursement Agreement - $35 million Series 2005 both an Event of Default and a declaration of acceleration of the Obligations and demanding redemption of the 2012-2 Collateral Bonds (including a description of the amount of principal and interest which comprise such Obligations). The Company waives any right it may have to prior notice of such redemption under the Indenture. Upon surrender of the 2012-2 Collateral Bonds by the Agent to the Trustee, the 2012-2 Collateral Bonds shall be redeemed at a redemption price equal to the aggregate amount of the Obligations.

SECTION 5. Upon the occurrence of an Event of Default under the Reimbursement Agreement - $67.7 million Series 2008 and the acceleration of the Obligations, the 2012-3 Collateral Bonds shall be redeemable in whole upon receipt by the Trustee of a written demand from the Agent stating that there has occurred under the Reimbursement Agreement - $67.7 million Series 2008 both an Event of Default and a declaration of acceleration of the Obligations and demanding redemption of the 2012-3 Collateral Bonds (including a description of the

amount of principal and interest which comprise such Obligations). The Company waives any right it may have to prior notice of such redemption under the Indenture. Upon surrender of the 2012-3 Collateral Bonds by the Agent to the Trustee, the 2012-3 Collateral Bonds shall be redeemed at a redemption price equal to the aggregate amount of the Obligations.

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

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

Upon the written request of the Company, accompanied by a resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of bondholders as aforesaid (the instrument or instruments evidencing such consent to be dated within one year of such request), the Trustee shall join

with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture.

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

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

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

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

SECTION 8. Nothing contained in this Supplemental Indenture shall, or shall be construed to, confer upon any person other than a holder of bonds issued under the Indenture, as supplemented and amended as above set forth, the Company, the Trustee and the Agent, for the benefit of the Banks (as such term is defined in the Reimbursement Agreement - $35 million Series 2005 or the Reimbursement Agreement - $67.7 million Series 2008, as applicable), any

right or interest to avail himself of any benefit under any provision of the Indenture, as so supplemented and amended.

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

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

SECTION 11. In the event the date of any notice required or permitted hereunder shall not be a Business Day, then (notwithstanding any other provision of the Indenture or of any supplemental indenture thereto) such notice need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date fixed for such notice. “ Business Day ” means, with respect to this Section 11, any day, other than a Saturday or Sunday, on which banks generally are open in New York, New York for the conduct of substantially all of their commercial lending activities and on which interbank wire transfers can be made on the Fedwire system.

SECTION 12. This Supplemental Indenture, the 2012-2 Collateral Bonds and the 2012-3 Collateral Bonds shall be governed by and deemed to be a contract under, and construed in accordance with, the laws of the State of Michigan, and for all purposes shall be construed in accordance with the laws of such state, except as may otherwise be required by mandatory provisions of law.

SECTION 13. Detailed Description of Property Mortgaged:

ELECTRIC GENERATING PLANTS AND DAMS

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

II.

ELECTRIC TRANSMISSION LINES

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

III.

ELECTRIC DISTRIBUTION SYSTEMS

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

IV.

ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

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

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

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

VI.

GAS STORAGE FIELDS

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

VII.

GAS TRANSMISSION LINES

All the gas transmission lines of the Company, constructed or otherwise acquired by it and not heretofore described in the Indenture or any supplement thereto and not heretofore released from the lien of the Indenture, including gas mains, pipes, pipelines, gates, valves, meters and other appliances and equipment, and all other property, real or personal, forming a

part of or appertaining to or used, occupied or enjoyed in connection with such transmission lines or any of them or adjacent thereto; together with all real property, right of way, easements, permits, privileges, franchises and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation.

VIII.

GAS DISTRIBUTION SYSTEMS

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

IX.

OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

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

TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT

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

property, real or personal (except any in the Indenture expressly excepted), fixed stations, towers, auxiliary radio buildings and equipment, and all appurtenances used in connection therewith, wherever located, in the State of Michigan.

XI.

OTHER REAL PROPERTY

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

ALCONA COUNTY

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

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

ALLEGAN COUNTY

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

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

ALPENA COUNTY

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

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

ANTRIM COUNTY

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

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

ARENAC COUNTY

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

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

BARRY COUNTY

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

A strip of land 311 feet in width across the SW 1/4 of the NE 1/4 of Section 31, T1N, R8W, described as follows: To find the place of beginning of this description, commence at the E ¼ post of said section; run thence N 00 degrees 55’ 00” E along the East line of said section, 555.84 feet; thence N 59 degrees 36’ 20” W, 1375.64 feet; thence N 88 degrees 30’ 00” W, 130 feet to a point on the East 1/8 line of said section and the place of beginning of this description; thence continuing N 88 degrees 30’ 00” W, 1327.46 feet to the North and South 1/4 line of said section; thence S 00 degrees 39’35” W along said North and South 1/4 line of said section, 311.03 feet to a point, which said point is 952.72 feet distant N’ly from the East and West 1/4 line of said section as measured along said North and South 1/4 line of said section; thence S 88 degrees 30’ 00” E, 1326.76 feet to the East 1/8 line of said section; thence N 00 degrees 47’ 20” E along said East 1/8 line of said section, 311.02 feet to the place of beginning.

BAY COUNTY

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

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

BENZIE COUNTY

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

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

BRANCH COUNTY

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

A parcel of land in the NE 1/4 of Section 23 T5S, R6W, described as beginning at a point on the North and South quarter line of said section at a point 1278.27 feet distant South of the North quarter post of said section, said distance being measured along the North and South quarter line of said section, running thence S89 degrees21’E 250 feet, thence North along a line parallel with the said North and South quarter line of said section 200 feet, thence N89 degrees21’W 250 feet to the North and South quarter line of said section, thence South along said North and South quarter line of said section 200 feet to the place of beginning.

CALHOUN COUNTY

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

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

CASS COUNTY

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

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

CHARLEVOIX COUNTY

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

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

CHEBOYGAN COUNTY

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

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

CLARE COUNTY

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

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

CLINTON COUNTY

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

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

CRAWFORD COUNTY

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

A parcel of land in Section 1, T28N, R1W, described as: Commencing at NW corner said section; thence South 89 degrees53’30” East along North section line 105.78 feet to point of beginning; thence South 89 degrees53’30” East along North section line 649.64 feet; thence South 55 degrees 42’30” East 340.24 feet; thence South 55 degrees 44’ 37”“ East 5,061.81 feet to the East section line; thence South 00 degrees 00’ 08”“ West along East section line 441.59 feet; thence North 55 degrees 44’ 37” West 5,310.48 feet; thence North 55 degrees 42’30” West 877.76 feet to point of beginning.

EATON COUNTY

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

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

EMMET COUNTY

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

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

GENESEE COUNTY

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

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

Beginning at a point of the West line of Duffield Road, 100 feet wide, (as now established) distant 829.46 feet measured N01 degrees42’56”W and 50 feet measured S88 degrees14’04”W from the South quarter corner, Section 8, T5N, R5E; thence S88 degrees14’04”W a distance of 550 feet; thence N01 degrees42’56”W a distance of 500 feet to a point on the North line of the South half of the Southwest quarter of said Section 8; thence N88 degrees14’04”E along the North line of South half of

the Southwest quarter of said Section 8 a distance 550 feet to a point on the West line of Duffield Road, 100 feet wide (as now established); thence S01 degrees42’56”E along the West line of said Duffield Road a distance of 500 feet to the point of beginning.

GLADWIN COUNTY

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

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

GRAND TRAVERSE COUNTY

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

A parcel of land in the Northwest 1/4 of Section 3, T25N, R11W, described as follows: Commencing at the Northwest corner of said section, running thence S 89 degrees19’15” E along the North line of said section and the center line of Clouss Road 225 feet, thence South 400 feet, thence N 89 degrees19’15” W 225 feet to the West line of said section and the center line of Hannah Road, thence North along the West line of said section and the center line of Hannah Road 400 feet to the place of beginning for this description.

GRATIOT COUNTY

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

A parcel of land in the NE 1/4 of Section 7, Township 9 North, Range 3 West, described as beginning at a point on the North line of George Street in the Village of Middleton, which is 542 feet East of the North and South one-quarter (1/4) line of said Section 7; thence North 100 feet; thence East 100 feet; thence South 100 feet to the North line of George Street; thence West along the North line of George Street 100 feet to place of beginning.

HILLSDALE COUNTY

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

Lot 238 of Assessors Plat of the Village of Litchfield.

HURON COUNTY

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

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

INGHAM COUNTY

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

A parcel of land 660 feet wide in the Southwest 1/4 of Section 7 lying South of the centerline of Sitts Road as extended to the North-South 1/4 line of said Section 7, T2N, R1W, more particularly described as follows: Commence at the Southwest corner of said Section 7, thence North along the West line of said Section 2502.71 feet to the centerline of Sitts Road; thence South 89 degrees54’45” East along said centerline 2282.38 feet to the place of beginning of this description; thence continuing South 89 degrees54’45” East along said centerline and said centerline extended 660.00 feet to the North-South 1/4 line of said section; thence South 00 degrees07’20” West 1461.71 feet; thence North 89 degrees34’58” West 660.00 feet; thence North 00 degrees07’20” East 1457.91 feet to the centerline of Sitts Road and the place of beginning.

IONIA COUNTY

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

A strip of land 280 feet wide across that part of the SW 1/4 of the NE 1/4 of Section 15, T5N, R6W, described as follows:

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

IOSCO COUNTY

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

A parcel of land in the NW 1/4 of Section 34, T21N, R7E, described as follows: To find the place of beginning of this description commence at the N 1/4 post of said section; run thence South along the North and South 1/4 line of said section, 1354.40 feet to the place of beginning of this description; thence continuing South along the said North and South 1/4

line of said section, 165.00 feet to a point on the said North and South 1/4 line of said section which said point is 1089.00 feet distant North of the center of said section; thence West 440.00 feet; thence North 165.00 feet; thence East 440.00 feet to the said North and South 1/4 line of said section and the place of beginning.

ISABELLA COUNTY

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

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

JACKSON COUNTY

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

A parcel of land in the North fractional part of the N fractional 1/2 of Section 2, T1S, R2E, described as follows: To find the place of beginning of this description commence at the E 1/4 post of said section; run thence N 01 degrees 03’ 40” E along the East line of said section 1335.45 feet to the North 1/8 line of said section and the place of beginning of this description; thence N 89 degrees 32’ 00” W, 2677.7 feet to the North and South 1/4 line of said section; thence S 00 degrees 59’ 25” W along the North and South 1/4 line of said section 22.38 feet to the North 1/8 line of said section; thence S 89 degrees 59’ 10” W along the North 1/8 line of said section 2339.4 feet to the center line of State Trunkline Highway M-52; thence N 53 degrees 46’ 00” W along the center line of said State Trunkline Highway 414.22 feet to the West line of said section; thence N 00 degrees 55’ 10” E along the West line of said section 74.35 feet; thence S 89 degrees 32’ 00” E, 5356.02 feet to the East line of said section; thence S 01 degrees 03’ 40” W along the East line of said section 250 feet to the place of beginning.

KALAMAZOO COUNTY

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

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

KALKASKA COUNTY

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

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

KENT COUNTY

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

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

LAKE COUNTY

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

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

LAPEER COUNTY

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

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

LEELANAU COUNTY

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

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

LENAWEE COUNTY

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

A strip of land 165 feet wide off the West side of the following described premises: The E 1/2 of the SE 1/4 of Section 12. The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13, being all in T7S, R3E, excepting therefrom a parcel of land in the E 1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4 rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to the place of beginning.

LIVINGSTON COUNTY

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

Parcel 1

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

Parcel 2

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

MACOMB COUNTY

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

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

MANISTEE COUNTY

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

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

MASON COUNTY

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

Parcel 1

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

Parcel 2

A parcel of land containing 4 acres of the West side of highway, said parcel of land being described as commencing 16 rods South of the Northwest corner of the NW 1/4 of the SW ¼ of Section 22, T17N, R17W, running thence South 64 rods, thence NE’ly and N’ly and NW’ly along the W’ly line of said highway to the place of beginning, together with any and all right, title, and interest of Howard C. Wicklund and Katherine E. Wicklund in and to that portion of the hereinbefore mentioned highway lying adjacent to the E’ly line of said above described land.

MECOSTA COUNTY

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

A parcel of land in the SW 1/4 of the SW 1/4 of Section 16, T14N, R7W, described as beginning at the Southwest corner of said section; thence East along the South line of Section 133 feet; thence North parallel to the West section line 133 feet; thence West 133 feet to the West line of said Section; thence South 133 feet to the place of beginning.

MIDLAND COUNTY

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

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

MISSAUKEE COUNTY

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

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

MONROE COUNTY

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

A parcel of land in the SW1/4 of Section 20, T8S, R6E, described as follows: To find the place of beginning of this description commence at the S 1/4 post of said section; run thence West along the South line of said section 1269.89 feet to the place of beginning of this description; thence continuing West along said South line of said section 100 feet; thence N 00 degrees 50’ 35” E, 250 feet; thence East 100 feet; thence S 00 degrees 50’ 35” W parallel with and 16.5 feet distant W’ly of as measured perpendicular to the West 1/8 line of said section, as occupied, a distance of 250 feet to the place of beginning.

MONTCALM COUNTY

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

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

MONTMORENCY COUNTY

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

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

MUSKEGON COUNTY

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

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

NEWAYGO COUNTY

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

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

OAKLAND COUNTY

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

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

OCEANA COUNTY

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

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

OGEMAW COUNTY

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

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

OSCEOLA COUNTY

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

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

OSCODA COUNTY

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

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

OTSEGO COUNTY

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

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

OTTAWA COUNTY

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

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

PRESQUE ISLE COUNTY

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

Part of the South half of the Northeast quarter, Section 24, T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E, more fully described as: Commencing at the East ¼ corner of said Section 24; thence N 00 degrees15’47” E, 507.42 feet, along the East line of said Section 24 to the point of beginning; thence S 88 degrees15’36” W, 400.00 feet, parallel with the North 1/8 line of said Section 24; thence N 00 degrees15’47” E, 800.00 feet, parallel with said East line of Section 24; thence N 88 degrees15’36”E, 800.00 feet, along said North 1/8 line of Section 24 and said line extended; thence S 00 degrees15’47” W, 800.00 feet, parallel with said East line of Section 24; thence S 88 degrees15’36” W, 400.00 feet, parallel with said North 1/8 line of Section 24 to the point of beginning.

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

ROSCOMMON COUNTY

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

A parcel of land in the NW 1/4 of Section 19, T24N, R3W, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section, run thence East along the North line of said section 1,163.2 feet to the place of beginning of this description (said point also being the place of intersection of the West 1/8 line of said section with the North line of said section), thence S 01 degrees 01’ E along said West 1/8 line 132 feet, thence West parallel with the North line of said section 132 feet, thence N 01 degrees 01’ W parallel with said West 1/8 line of said section 132 feet to the North line of said section, thence East along the North line of said section 132 feet to the place of beginning.

SAGINAW COUNTY

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

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

of said creek 196.78 feet; thence South 163.13 feet; thence West 185 feet to the West line of said section and the place of beginning.

SANILAC COUNTY

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

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

SHIAWASSEE COUNTY

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

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

ST. CLAIR COUNTY

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

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

ST. JOSEPH COUNTY

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

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

TUSCOLA COUNTY

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

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

VAN BUREN COUNTY

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

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

WASHTENAW COUNTY

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

A parcel of land in the NE 1/4 of the NW 1/4 of Section 1, T4S, R3E, described as follows: To find the place of beginning of this description commence at the Northwest corner of said section; run thence East along the North line of said section 1355.07 feet to the West 1/8 line of said section; thence S 00 degrees 22’ 20” E along said West 1/8 line of said section 927.66 feet to the place of beginning of this description; thence continuing S 00 degrees 22’ 20” E along said West 1/8 line of said section 660 feet to the North 1/8 line of said section; thence N 86 degrees 36’ 57” E along said North 1/8 line of said section 660.91 feet; thence N 00 degrees22’ 20” W, 660 feet; thence S 86 degrees 36’ 57” W, 660.91 feet to the place of beginning.

WAYNE COUNTY

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

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

WEXFORD COUNTY

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

A parcel of land in the NW 1/4 of Section 7, T22N, R10W, described as beginning on the North line of said section at a point 200 feet East of the West line of said section, running thence East along said North section line 450 feet, thence South parallel with said West section line 350 feet, thence West parallel with said North section line 450 feet, thence North parallel with said West section line 350 feet to the place of beginning.

SECTION 14. The Company is a transmitting utility under Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in M.C.L. 440.9102(1)(aaaa).

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

	CONSUMERS ENERGY COMPANY


(SEAL)	By:	/s/ DV Rao
	Name:		Venkat D. Rao
Attest:	Title:		Vice President and Treasurer

/s/ Ashley L. Bancroft
Ashley L. Bancroft
Assistant Secretary

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

/s/ Kimberly C. Wilson
Kimberly C. Wilson

/s/ Denise J. Lehrke
Denise J. Lehrke

STATE OF MICHIGAN	)
	ss.
COUNTY OF JACKSON	)

The foregoing instrument was acknowledged before me this 3rd day of August, 2012, by Venkat D. Rao, Vice President and Treasurer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

	/s/ Margaret Hillman
	Margaret Hillman, Notary Public
[SEAL]	State of Michigan, County of Jackson
	My Commission Expires: June 14, 2016
	Acting in the County of Jackson

S-1

	THE BANK OF NEW YORK MELLON,
	AS TRUSTEE


(SEAL)	By:	/s/ Laurence O’Brien
		Laurence O’Brien
Attest:		Vice President

/s/ Timothy W. Casey
Timothy W. Casey

Signed, sealed and delivered
by THE BANK OF NEW YORK MELLON
in the presence of

/s/ Patricia Lin
Patricia Lin

/s/ Denise Piazza
Denise Piazza

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

The foregoing instrument was acknowledged before me this 31 day of August, 2012, by Laurence O’Brien , a Vice President of THE BANK OF NEW YORK MELLON, a New York banking corporation, on behalf of the bank, as trustee.

	/s/ Anna Yiu
	ANNA YIU
	Notary Public State of New York
	Qualified in Queens County
	Reg #01Y15080477
	Commission Expires 6/13/15

Prepared by:	When recorded, return to:
Kimberly C. Wilson	Consumers Energy Company
One Energy Plaza	Business Services Real Estate Dept.
Jackson, MI 49201	Attn: Sandy Geerling, EP7-428
	One Energy Plaza
	Jackson, MI 49201

S-2

Exhibit 12.1

CMS ENERGY CORPORATION

Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends


				In Millions, Except Ratios
	Nine Months Ended			Year Ended December 31
	September 30, 2012			2011	2010		2009	2008		2007 1
Earnings as defined 2
Pretax income from
continuing operations		$ 513		$ 606	$ 590		$ 335	$ 440		$ (317	)
Exclude equity basis subsidiaries		(6	)	(1)	(2	)	2	(1	)	(22	)
Fixed charges as defined 3		311		437	449		456	429		489
Earnings as defined 3		$ 818		$ 1,042	$ 1,037		$ 793	$ 868		$ 150
Fixed charges as defined 2
Interest on long-term debt		$ 280		$ 396	$ 394		$ 383	$ 371		$ 415
Estimated interest portion of lease rental		15		18	16		17	25		23
Other interest charges		17		25	42		58	35		53
Fixed charges as defined 3		312		439	452		458	431		491
Preferred dividends		-		-	13		17	17		12
Combined fixed charges and
preferred dividends		$ 312		$ 439	$ 465		$ 475	$ 448		$ 503
Ratio of earnings to fixed charges		2.62		2.37	2.29		1.73	2.01		-
Ratio of earnings to combined fixed
charges and preferred dividends		2.62		2.37	2.23		1.67	1.94		-

NOTES:

1 For the year ended December 31, 2007, fixed charges exceeded earnings by $341 million and combined fixed charges and preferred dividends exceeded earnings by $353 million. Earnings as defined include $204 million in asset impairment charges and a $279 million charge for an electric sales contract termination.

2 Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.

3 Preferred dividends of a consolidated subsidiary are included in fixed charges, but excluded from earnings as defined because the amount was not deducted in arriving at pretax income from continuing operations.

Exhibit 12.2

CONSUMERS ENERGY COMPANY

Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends


			In Millions, Except Ratios
	Nine Months Ended		Year Ended December 31
	September 30, 2012		2011	2010	2009	2008	2007
Earnings as defined 1
Pretax income from continuing
operations		$ 600	$ 734	$ 688	$ 456	$ 562	$ 437
Exclude equity basis subsidiaries		-	-	-	-	-	-
Fixed charges as defined		202	287	296	313	276	293
Earnings as defined		$ 802	$ 1,021	$ 984	$ 769	$ 838	$ 730
Fixed charges as defined 1
Interest on long-term debt		$ 175	$ 251	$ 246	$ 250	$ 229	$ 236
Estimated interest portion of
lease rental		15	18	16	17	25	23
Other interest charges		12	18	34	46	22	34
Fixed charges as defined		202	287	296	313	276	293
Preferred dividends		3	3	3	3	3	3
Combined fixed charges and
preferred dividends		$ 205	$ 290	$ 299	$ 316	$ 279	$ 296
Ratio of earnings to fixed charges		3.97	3.56	3.32	2.46	3.04	2.49
Ratio of earnings to combined fixed
charges and preferred dividends		3.91	3.52	3.29	2.43	3.00	2.47

NOTES:

1 Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.

Exhibit 31.1

CERTIFICATION OF JOHN G. RUSSELL

I, John G. Russell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CMS Energy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 25, 2012	By:	/s/ John G. Russell
		John G. Russell
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CMS Energy Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 25, 2012	By:	/s/ Thomas J. Webb
		Thomas J. Webb
		Executive Vice President and Chief Financial Officer

Exhibit 31.3

CERTIFICATION OF JOHN G. RUSSELL

I, John G. Russell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Consumers Energy Company;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 25, 2012	By:	/s/ John G. Russell
		John G. Russell
		President and Chief Executive Officer

Exhibit 31.4

CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Consumers Energy Company;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 25, 2012	By:	/s/ Thomas J. Webb
		Thomas J. Webb
		Executive Vice President and Chief Financial Officer

Exhibit 32.1

Certification of CEO and CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of CMS Energy Corporation (the “Company”) for the quarterly period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John G. Russell, as President and Chief Executive Officer of the Company, and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John G. Russell

Name:	John G. Russell
Title:	President and Chief Executive Officer
Date:	October 25, 2012




/s/ Thomas J. Webb

Name:	Thomas J. Webb
Title:	Executive Vice President and Chief Financial Officer
Date:	October 25, 2012

Exhibit 32.2

Certification of CEO and CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Consumers Energy Company (the “Company”) for the quarterly period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John G. Russell, as President and Chief Executive Officer of the Company, and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John G. Russell

Name:	John G. Russell
Title:	President and Chief Executive Officer
Date:	October 25, 2012




/s/ Thomas J. Webb

Name:	Thomas J. Webb
Title:	Executive Vice President and Chief Financial Officer
Date:	October 25, 2012